Himax Technologies Q2 2026 Earnings Call Transcript

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Provided by Quartr
August 6, 2026

Key Takeaways

  • Positive Sentiment: Himax exceeded its Q2 2026 guidance, with revenue rising 14.2% sequentially to $227.4 million, gross margin expanding to 33.1%, and diluted ADS profit reaching $0.114. Results were driven primarily by stronger automotive IC sales and a favorable product mix.
  • Positive Sentiment: Management expects Q3 revenue to increase 7%–11% sequentially, with gross margin around 34%; automotive driver IC sales are projected to grow by double digits and non-driver revenue by low teens. Himax also expects full-year 2026 automotive driver IC sales to grow double digits.
  • Negative Sentiment: AI-related demand is tightening mature-node foundry, packaging, and testing capacity, causing higher manufacturing and procurement costs, longer lead times, and limited shipment capacity for some products. Himax is pursuing customer price adjustments, but supply constraints are expected to persist in the near term.
  • Positive Sentiment: Management highlighted strong longer-term growth opportunities in automotive displays, including LTDI, HUD, OLED, and automotive TCONs, with non-driver revenue potentially approaching 30% of sales in 2027. CPO products have begun engineering production, while WiseEye smart-glasses projects and WiseGuard security modules could support meaningful future growth.
  • Positive Sentiment: The planned divestiture of an equity-method investment is expected to generate a pre-tax gain of approximately $23 million–$24 million when it closes, currently anticipated in Q4 2026, subject to regulatory and customary closing conditions.
AI Generated. May Contain Errors.
Earnings Conference Call
Himax Technologies Q2 2026
00:00 / 00:00

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Operator

Ladies and gentlemen, welcome to Himax Technologies Incorporation second quarter 2026 earnings conference call. At this time, all participants are in the listen-only mode, and later we will conduct a question-and-answer session, and instructions will follow at that time. As a reminder, this conference call is being recorded. I would now like to turn the conference over to Ms. Karen Tiao, Head of IR/PR at Himax. Ms. Tiao, please go ahead.

Karen Tiao
Karen Tiao
Head of IR/PR at Himax Technologies Incorporation

Welcome everyone. My name is Karen Tiao, Head of IR/PR at Himax. Joining me today are Jordan Wu, President and Chief Executive Officer, and Jessica Pan, Chief Financial Officer. After the company's prepared comments, we have allocated time for our questions in the Q&A section. If you have not yet received a copy of today's press release, please email hx_ir@himax.com.tw or HIMX@mzgroup.us or download a copy from Himax website. Before we begin the formal remarks, I would like to remind everyone that some of the statements in this conference call, including statements regarding expected future financial results and industry growth, are forward-looking statements that involve a number of risks and uncertainties that could cause the actual event or results to differ materially from those described in the conference call.

Karen Tiao
Karen Tiao
Head of IR/PR at Himax Technologies Incorporation

A list of risk factors can be found in the company's latest SEC filings or in 20-F in the section titled "Risk Factors," as may be amended. Except for the company's full year of 2025 financials, which were provided in the company's 20-F and filed with the SEC on March 27, 2026. The financial information included in this conference call is unaudited and consolidated and prepared in accordance with IFRS accounting. Such financial information is generated internally and has not been subjected to the same review and scrutiny and may vary materially from the audited consolidated financial information for the same period. On today's call, I will first review Himax consolidated financial performance for the second quarter 2026, followed by our third quarter outlook. Jordan will give an update on the status of our business, and after which we will take questions.

Karen Tiao
Karen Tiao
Head of IR/PR at Himax Technologies Incorporation

You can submit your questions online through the webcast or by phone. We will review our financials on an IFRS basis. The rapid rise in AI demand is placing unprecedented strain on memory chip supply and affecting many non-AI applications, creating a more challenging cost and capacity environment across the industry. Against this backdrop, we are pleased to report that our second quarter revenues, gross margin, and profits all exceeded the guidance we provided on May 7, 2026. Second quarter revenues registered $227.4 million, representing a sequential increase of 14.2% and up 5.9% compared to the same period last year. Q2 revenues exceeded our guidance range of a 10%-13% increase, primarily driven by better than expected automotive IC sales. Gross margin was 33.1%, substantially exceeding the guidance of around 32%, up from 30.4% in the previous quarter and 31.2% a year ago.

Karen Tiao
Karen Tiao
Head of IR/PR at Himax Technologies Incorporation

This is primarily due to a more favorable product mix, which increased the sales for higher margin automotive IC products. Q2 profits for diluted ADS was $0.114, significantly exceeding the guidance range of $0.086-$0.103. Up from $0.046 in the previous quarter and $0.095 a year ago. Revenue from large display driver came in at $19.2 million, representing a decline of 21.0% from the previous quarter, attributable to panel makers pulling forward their inventory purchases for high-end TV ICs in prior quarters. In contrast, sales for both the monitor and notebook IC products increased quarter-over-quarter due to higher legacy product shipment to key customers. Sales of large panel driver IC accounted for 8.4% of total revenues for the quarter, compared to 12.2% last quarter and 11.6% a year ago.

Karen Tiao
Karen Tiao
Head of IR/PR at Himax Technologies Incorporation

Revenue from small and medium-sized display driver IC segment totaled $162.3 million, reflecting an increase of 19.6% sequentially. Q2 automotive driver sales, including both traditional DDIC and TDDI, increased by double digits quarter-over-quarter, primarily driven by broad-based customer replenishment of TDDI and DDIC following seasonally lower shipments during the Lunar New Year in Q1. The ramp-up of new TDDI and DDIC projects for our leading panel customer also contributed to a sequential increase. Customers continue to operate under a make to order model while maintaining lean inventory levels. Our automotive business, comprising DDIC, TDDI, TCON and OLED IC sales, remained our largest revenue contributor in the second quarter, representing well over 50% of total revenues.

Karen Tiao
Karen Tiao
Head of IR/PR at Himax Technologies Incorporation

Second quarter tablet IC sales, covering both LCD and OLED products, also increased sequentially, attributable to customers' early pull-in demand against the backdrop of the rising memory price sentiment in the market, together with the continued shipment for a customer's premium OLED model. In contrast, smartphone IC sales decreased sequentially following the initial ramp-up of an OLED IC for a leading smartphone brand's mainstream model in Q1. The small and medium-sized driver IC segment accounted for 71.4% of total sales for the quarter, compared to 68.2% in the previous quarter and 67.3% a year ago. Q2 non-driver sales reached $45.9 million, a 17.7% increase from the previous quarter, attributable to robust automotive TCON shipment supported by replenishment across the board customer base. TCON business accounted for over 10% of the total sales, with more than half contributed by automotive TCON.

Karen Tiao
Karen Tiao
Head of IR/PR at Himax Technologies Incorporation

As the market leader in automotive TCON, particularly in solution featuring local dimming functionality, we expect strong growth momentum to continue into next year. Non-driver products accounted for 20.2% of total revenues as compared to 19.6% in the previous quarter and 21.1% a year ago. Second quarter operating expenses were $50.7 million, an increase of 0.8% from previous quarter and 3.6% compared to the same period last year. The year-over-year increase was mainly attributable to higher manpower expenses. We remain disciplined in managing costs while continuing to invest strategically in select non-driver IC business with compelling long-term growth potential. Second quarter operating income was $24.6 million, representing an operating margin of 10.8% compared to 5.1% in the previous quarter and 8.4% for the same period last year.

Karen Tiao
Karen Tiao
Head of IR/PR at Himax Technologies Incorporation

Both the quarter-over-quarter and year-over-year changes were primarily driven by higher revenues and gross margin. Second quarter after tax profit was $19.9 million or $0.114 per diluted ADS, compared to $8.0 million or $0.046 per diluted ADS last quarter and up from $16.5 million or $0.095 in the same period last year. Turning to the balance sheet. We had $298.7 million of cash, cash equivalents, and other financial assets as of June 30, 2026. This compared to $332.8 million at the same time last year and $287.6 million a quarter ago.

Karen Tiao
Karen Tiao
Head of IR/PR at Himax Technologies Incorporation

The sequential increase was mainly driven by operating cash flow of then $17.5 million in the second quarter. Before moving on, I would like to highlight one point regarding this quarter's cash flow. As is our usual practice, income tax payments are made in the second quarter. Under a new Taiwan government policy, we are entitled to defer approximately $11.0 million of this payment for one year without interest. Excluding this deferral, second quarter operating cash flow would have been approximately $6.5 million. Looking ahead to Q3, we anticipate a decline in cash, cash equivalents, and other financial assets, primarily due to the payment of the $44 million for the annual dividend to shareholders made on July 10.

Karen Tiao
Karen Tiao
Head of IR/PR at Himax Technologies Incorporation

In addition, subject to the final Board decision, we will distribute around $11.7 million, the immediately vested portion of this year's employee bonus award at the end of the Q3. On our quarter end inventory as of June 30, 2026 were $151.5 million, about the same as the $151.7 million last quarter, but higher than the $134.6 million in the same period last year. After maintaining lean inventory levels for several years, we proactively adjusted our inventory strategy about a year ago, selectively building inventory in anticipation of the tightening supply across the industry. Accounts receivable at the end of the June was $220.3 million, up from $190.9 million last quarter and $219.0 million a year ago.

Karen Tiao
Karen Tiao
Head of IR/PR at Himax Technologies Incorporation

DSO was 93 days at the quarter end as compared to 86 days last quarter and 92 days a year ago. Second quarter capital expenditure, primarily for R&D-related equipment for our IC design business, was $4.3 million versus $2.9 million last quarter and $4.6 million a year ago. As of June 30, 2026, Himax had 174.4 million ADS outstanding, unchanged from last quarter. On a fully diluted basis, the total number of ADS outstanding for the second quarter was 174.4 million. During the quarter, on July 1st, we announced the proposed divestiture of investment in one of our equity-method investees. Based on the information provided by the said investee company, we expect to recognize a pre-tax gain of approximately $23 million-$24 million upon closing. The transaction is expected to close in the fourth quarter of this year, subject to customary closing conditions and regulatory approval.

Karen Tiao
Karen Tiao
Head of IR/PR at Himax Technologies Incorporation

We will provide more updates as appropriate as the transaction progresses. Now turning to our third quarter 2026 guidance. We expect Q3 revenue to increase 7%-11% sequentially. Gross margin is expected to be around 34%, depending on the product mix. Q3 profit attributable to shareholder is estimated to be in the range of $0.08 to $0.10 per fully diluted ADS. As we have done historically, we will grant employees annual bonus, including RSUs and cash awards, on or around September 30 this year. The third quarter guidance for profit per diluted ADS has taken into account the expected 2026 annual bonus, which, subject to Board approval, is now estimated to be around $13 million, out of which $11.7 million will be vested and expensed immediately on a grant date.

Karen Tiao
Karen Tiao
Head of IR/PR at Himax Technologies Incorporation

As a reminder, the total annual bonus amount and immediately vested portion are our current best estimate only, and the actual amount could vary materially depend on, among other things, our cumulative profit expectation and the final Board decision for the total bonus amount and the vesting scheme. It is also worth noting that the $13 million expected annual bonus does not yet include the above-mentioned gain on investment from divestiture of an equity-method investee, as the transaction is pending regulatory approval and has not yet closed. As is the case for previous years, we expect the annual bonus grant in 2026 to lead to higher third quarter operating expenses compared to the other quarters of the year. In comparison, the annual bonus for 2025 and 2024 were $7.7 million and $12.5 million respectively, of which $7.5 million and $11.2 million vested immediately.

Karen Tiao
Karen Tiao
Head of IR/PR at Himax Technologies Incorporation

In providing our Q3 financial guidance, the Q3 expense related to the employee bonus is estimated to be $11.8 million, representing $0.068 per diluted ADS before tax, comprising of the $11.7 million of the immediately vested portion of this year's bonus, as stated above, and $0.1 million of the amortized portion of the unvested bonuses from previous years. By comparison, employee bonus expenses in each of the last three quarters was around $0.2 million. I will now turn the call over to Jordan to discuss our Q3 outlook. Jordan, the floor is yours.

Jordan Wu
Jordan Wu
President and CEO at Himax Technologies Incorporation

Thank you, Karen. The ongoing surge in AI demand continues to impact non-AI applications. This has rippled across the broader semiconductor supply chain, resulting in capacity constraints as foundry, packaging, and testing facilities on the mature process nodes where many of our products are manufactured. Consequently, we are experiencing higher manufacturing and procurement costs, extended lead times, and increased difficulty in securing sufficient capacity across a broad range of our product lines. We expect the supply environment to remain challenging in the near term. To enhance our production flexibility and secure the capacity needed to meet our customer needs and support our upcoming production ramps, we continue to leverage our established supply chain in Taiwan, while further strengthening our presence across China, Singapore, Korea, Japan, and Malaysia. In parallel, as we mentioned last quarter, we've been working closely with customers on pricing adjustments to share these increased costs.

Jordan Wu
Jordan Wu
President and CEO at Himax Technologies Incorporation

Some adjustments took effect in the second quarter, with additional pricing adjustment possibly implemented on time as the market conditions warrant. Notwithstanding these industry-wide supply constraints, we remain optimistic about the long-term growth prospects of our automotive display IC business. We continue to view automotive as one of the industry's most attractive, sustainable growth markets, driven by rapid advancements in smart vehicle interiors. This trend is characterized by, among other things, a growing number of displays per vehicle, now averaging more than three and continuing to rise, along with larger, higher-resolution displays and more diverse vehicle cabin configurations, including curved, integrated, multi-display, and pillar-to-pillar designs. Himax is well-positioned to capitalize on these industry trends through our comprehensive automotive display portfolio, spanning both LCD and OLED technologies, a broad and diversified global customer base, and a robust design-win pipeline.

Jordan Wu
Jordan Wu
President and CEO at Himax Technologies Incorporation

We further differentiate ourselves by continuously introducing next-generation automotive display technologies, including LTDI solutions for ultra-large displays, advanced TCON solutions for head-up displays, OLED driver and touch controller ICs, and Micro LED display technologies. Our portfolio also includes Knob-on-Display solutions and capacitive physical buttons, where customer interest continues to grow, driven in part by regulatory and vehicle safety initiatives in key automotive markets, including China and Europe, where greater emphasis is being placed on intuitive physical controls to enhance driving safety and reduce driver's distraction. The industry's ongoing pursuit of richer human-machine interfaces, immersive infotainment, and enhanced in-cabin user experiences is driving adoption of a broader range of our display technologies. This not only increases Himax's dollar content per vehicle, but also creates multiple long-term growth opportunities.

Jordan Wu
Jordan Wu
President and CEO at Himax Technologies Incorporation

In addition, our well-established global supply chain provides us with greater flexibility to navigate the current supply environment, while securing the capacity needed to support both existing projects and upcoming production ramps. We also see an important trend in the automotive industry, with automakers introducing new vehicle models at an accelerated pace amid intensifying competition. As a result, product lifecycles are becoming shorter, creating greater pressure to improve engineering efficiency, reduce development costs, and shorten time to market for new car models. These challenges are driving broader adoption of platform standardization across multiple vehicle models, favoring suppliers with comprehensive and validated technology portfolios and proven track records. Himax is one such supplier, boasting the industry's most compelling automotive display IC offerings, market-leading positions across automotive DDIC, LTDI, and TCON, and continued leadership in next-generation technologies such as LTDI and OLED technologies.

Jordan Wu
Jordan Wu
President and CEO at Himax Technologies Incorporation

By adopting Himax solutions as part of their standardized platforms, customers can quickly deploy validated display IC products across multiple new vehicle developments, reducing engineering efforts, lowering system costs, and shortening development cycle of each project. In addition to automotive, we are also making solid progress across several strategic growth areas, including smart glasses, ultralow-power AI, and CPO. These emerging businesses diversify our revenue base into markets with attractive long-term growth prospects and margin profiles, while strengthening our overall competitive position. Become increasingly meaningful contributors to our future growth. First, on smart glasses, an area we remain particularly optimistic about. Himax is one of the few companies offering both ultralow-power AI sensing and microdisplay technologies, both critical building blocks for next-generation smart glasses.

Jordan Wu
Jordan Wu
President and CEO at Himax Technologies Incorporation

On the AI sensing front, WiseEye enables ultralow-power, always-on outward and inward sensing, supporting an expanding range of AI use cases, including contextual awareness, real-time visual assistance, and personalized user experiences. Recently, a leading global brand just launched a smart glasses product powered by our WiseEye technology, and we continue to see strong design-in momentum across customers worldwide. In particular, we are seeing growing engagement with leading global brands, technology platform providers, ODMs, as well as hyperscalers who traditionally do not offer hardware products, but are now entering smart glasses market, with some projects poised to enter mass production as we move into 2027. On the display side, our Front-lit LCoS microdisplay delivers an optimal balance of size, weight, resolution, image quality, power consumption, and cost.

Jordan Wu
Jordan Wu
President and CEO at Himax Technologies Incorporation

It can also be configured to operate in a high brightness, ultralow-power green-only mode, and seamlessly switch to full-color operation as needed. This flexibility differentiates our solution from alternative display technologies, letting customers optimize power efficiency while maintaining visual performance and meeting their system design and cost targets. Together, these capabilities make our Front-lit LCoS a compelling display platform for next-generation AR glasses equipped with see-through displays. Currently, we are working closely with multiple waveguide partners across Asia, Europe, and North America to deliver integrated AR display solutions that simplify system integration and shorten customers' development cycles. This is driving broader customer engagement and positioning us to convert more opportunities into design wins. Backed by well over a decade of LCoS expertise and a proven track record of successful production shipments, we are well-positioned to support the next generation of AR glasses.

Jordan Wu
Jordan Wu
President and CEO at Himax Technologies Incorporation

Now, I would like to provide a brief update on progress in CPO. Customer development timelines remain aggressive with demand showing no sign of slowing. Together with our strategic partner, FOCI, we continue to deepen customer engagement by offering a flexible portfolio of solutions, including customized designs tailored specifically for our customers' needs, as well as a standardized technology platform developed in collaboration with a leading foundry partner. Our solutions support both co-packaged and pluggable packaging architectures to address diverse customer needs. Our primary focus for the second half of this year remains on achieving mass production readiness, including key customer qualification milestones, while continuing to improve manufacturing yields and establish stable mass production capabilities. We have already made encouraging progress towards these objectives.

Jordan Wu
Jordan Wu
President and CEO at Himax Technologies Incorporation

Both our Gen 1 product supporting 1.6T and 3.2T transmission bandwidths, and Gen 2 product designed for 6.4T bandwidths, have begun engineering production ramps as scheduled in the third quarter. These products are expected to drive sequential shipment growth quarter-over-quarter, laying the foundation for a more meaningful volume shipment beginning in 2027. The official mass production timing remains subject to customer deployment schedules. Nevertheless, we expect our shipments in 2027 to be significantly higher than in 2026, starting to make meaningful contributions to our financials. At the same time, we are also co-developing next-generation optical solutions with customers, featuring higher fiber-count architectures, enhanced optical precision, and increasingly sophisticated designs such as CWDM or Coarse Wavelength Division Multiplexing, to address the explosive bandwidth demands of HPC and AI data center applications. With that, I will now begin with an update on the large panel driver IC business.

Jordan Wu
Jordan Wu
President and CEO at Himax Technologies Incorporation

In Q3, large display driver IC sales are expected to decline by single digits from last quarter. Monitor IC sales are expected to decline quarter-over-quarter as customers already pull forward inventory purchases in prior quarters. In contrast, TV IC sales are poised for sequential increases, driven by higher legacy product shipments to key customers. Looking ahead in the notebook market, we are seeing encouraging design momentum, particularly in OLED notebooks, with several industry trends creating favorable tailwinds. Rising memory prices are accelerating the shift from entry-level to premium notebook models, while the scheduled ramp-up of new Gen 8.6 OLED fabs in China later this year and into 2027 is expected to further drive OLED penetration in the notebook market. Himax is well-positioned to capitalize on these favorable industry trends with our comprehensive notebook display OLED IC portfolio, spanning DDIC, TCON, power management IC, and touch controllers.

Jordan Wu
Jordan Wu
President and CEO at Himax Technologies Incorporation

This one-stop offering lets us serve customers with a complete solution while increasing our value content per device. Turning to the small and medium-sized display driver IC business. In Q3, small and medium-sized display driver IC business is expected to increase by high-single-digits from last quarter. Q3 automotive driver IC sales, including TDDI and traditional DDIC, are set to increase by a solid double-digit quarter-over-quarter. This increase reflects broader customer demand for DDIC and TDDI products, together with the mass production of multiple LTDI projects across car brands worldwide. Strong sequential growth underscores the accelerated adoption of larger and more sophisticated automotive displays, with Chinese automakers leading the charge. We continue to see healthy underlying customer demand, supported by multiple new projects entering mass production in the coming quarters.

Jordan Wu
Jordan Wu
President and CEO at Himax Technologies Incorporation

We expect our full-year 2026 automotive driver IC sales to grow by double digits from last year, with strong growth momentum extending into next year as adoption of smart car interiors continue to drive increases in the number, size, and sophistication of displays in both electric and conventional vehicles. As I noted earlier, the industry's shift towards platform standardization is creating meaningful opportunities for Himax. This is evidenced by the growing number of customers adopting our industry-pioneering LTDI and local dimming TCON solutions as the standard platform for their ultra-large automotive displays. Following years of customer engagement, several of these projects are now entering mass production across multiple car brands. These ultra-large display panels typically require four or more LTDI chips, and in some cases, more than 10, together with at least one local dimming TCON per panel.

Jordan Wu
Jordan Wu
President and CEO at Himax Technologies Incorporation

As customers increasingly adopt our solution across multiple ultra-large display platforms, this not only strengthens customer stickiness and makes it more difficult for competitors to compete with us, but also increases our content value on a per-panel and per-vehicle basis. Looking ahead, the accelerating adoption of OLED displays in automotive presents a compelling long-term growth opportunity and is poised to become a key pillar of our automotive business. For several years, we have been collaborating closely with leading OLED panel makers in Korea and China, and our comprehensive portfolio of DDICs, TCONs, touch controller ICs, and customized ASIC solutions gives customers the flexibility to select the solutions that best meet their specific requirements. This broad product coverage and our early customer engagements have already translated into numerous development programs, providing a solid foundation for future growth as premium automotive displays transition from LCD to OLED.

Jordan Wu
Jordan Wu
President and CEO at Himax Technologies Incorporation

With OLED adoption on the way, we continue to introduce innovative IC solutions to address evolving customer needs. For example, our latest TED or TCON Embedded Driver IC solution, which integrates DDIC and TCON into a single chip, offers a cost-effective, flexible, and highly integrated solution ideal for smaller, lower-resolution automotive displays. Our TED technology is now being adopted across a diverse range of applications, including automotive, robotics, and IT applications, with several projects involving customized ASIC solutions co-developed with leading global tech customers. Moving to smartphone IC sales, we expect Q3 smartphone revenue to increase quarter-over-quarter, driven by continued shipments for a leading smartphone brand's mainstream models and inventory build-up for its upcoming premium models. For tablet IC Q3 sales are expected to decrease sequentially, as capacity constraints limit our ability to support additional shipments.

Jordan Wu
Jordan Wu
President and CEO at Himax Technologies Incorporation

I would like to now turn to our non-driver IC business update, where we expect Q3 revenue to increase by low-teens sequentially. First, for an update on our TCON business. We anticipate Q3 TCON sales to increase by double teens quarter-over-quarter. Our automotive TCON business is expected to deliver decent double-digit growth in Q3, extending the strong momentum from Q2 and far outpacing our corporate average. This growth is driven by continued legacy product shipments across a broad, diversified customer base, along with several new projects entering mass production. Despite ongoing industry-wide capacity constraints, we are confident in the strong growth trajectory of our automotive TCON business. With hundreds of design wins already secured and new design-ins continuing to expand, we are well-positioned for another robust growth year in our automotive TCON as we move into 2027.

Jordan Wu
Jordan Wu
President and CEO at Himax Technologies Incorporation

During the quarter, we are pleased to announce that our T2000 Tcon has been adopted into E Ink's next-generation color ePaper platform. Himax's proprietary parallel-processing architecture is at the core of this ASIC product, enabling simultaneous display refresh and data transmission, significantly enhancing dynamic display performance, while preserving the ultralow power advantage of ePaper technology. This breakthrough enables smoother display of dynamic content on large format ePaper displays, helping accelerate the transition from traditional static signage to dynamic applications such as retail advertising, public information displays, and smart commercial environments. Switching gears to the WiseEye product line, a cutting-edge, ultralow power AI sensing solution targeting battery-powered endpoint devices. WiseEye differentiates itself with an industry-leading ultralow power architecture, consuming only a few milliwatts while delivering on-device AI inferencing, 24/7 always-on image and voice sensing, and an exceptionally compact form factor.

Jordan Wu
Jordan Wu
President and CEO at Himax Technologies Incorporation

This unique combination enables endpoint AI devices that were previously impractical due to power and size constraints, driving broad adoption across applications, including notebooks, surveillance systems, access control, palm vein authentication, smart office, and smart glasses. With design activities continuing to expand across leading customers worldwide. On the WiseEye modules' front, design-in activities continue to expand, driven by its plug-and-play architecture, ultralow power consumption, and on-device AI capabilities. During the quarter, we are pleased to announce that our WiseEye biometric palm vein modules achieved the verification of TÃœV Rheinland, one of the world's leading and most credible independent testing, inspection, and certification organizations.

Jordan Wu
Jordan Wu
President and CEO at Himax Technologies Incorporation

The assessment validated our recognition accuracy, response speed, and liveness detection. This verification, together with our early achievement of GDPR compliance, one of the world's strictest data privacy standards, reinforces the privacy, security, and performance of our biometric authentication solutions, giving customers greater confidence to accelerate development across security-sensitive applications.

Jordan Wu
Jordan Wu
President and CEO at Himax Technologies Incorporation

We are seeing expanding design-in activities from our PalmVein modules across smart access, workforce management, smart door locks, and more recently, computer monitors and smart office solutions. Built on the same core hardware platform as the WiseEye technology, our WiseGuard module is specifically designed for security applications, delivering ultralow-power operation, a wide field of view, long-range detection, and exceptional low-light performance. WiseGuard accurately detects and continuously tracks multiple individuals, including their presence, location, and movement, substantially reducing the false triggers commonly associated with traditional PIR-based solutions. Its proactive 24/7 sensing capability enables security systems to detect and continuously track activity from the outset, capturing the full sequence of events rather than only the moment motion is detected, providing a significant advantage over traditional reactive solutions.

Jordan Wu
Jordan Wu
President and CEO at Himax Technologies Incorporation

WiseGuard delivers up to five years of battery life while maintaining high-precision detection over long distances, even in environments with illumination as low as 1 lx. Since its debut just six months ago, WiseGuard has seen encouraging customer engagement across a wide range of applications, including surveillance cameras, access control, IoT, and wildlife monitoring. We are also pleased to share that WiseGuard has already been adopted by a U.S. customer for surveillance applications, with mass production scheduled to begin toward the end of this year. As mentioned earlier, WiseEye is gaining broad market recognition for smart glasses as a compact, ultralow-power, always-on AI perception front end. WiseEye supports outward-facing environmental sensing, first through scene understanding by analyzing the user's contextual surroundings and environment, followed by object classification to recognize and identify specific objects typically associated with the identified scene.

Jordan Wu
Jordan Wu
President and CEO at Himax Technologies Incorporation

It also support inward-facing capabilities, including eyeball tracking for intuitive gaze-based interaction and iris authentication for secure identity verification. Together, these capabilities enable AI glasses to continuously capture visual snapshots of the real world and enable intelligent, responsive, low-latency human machine interaction, while consuming only a few milliwatts of power. With a leading global brand launching WiseEye powered smart glasses this fall, we are seeing growing engagement from platform providers, ODMs, and consumer electronics companies worldwide. Some of these projects are expected to enter mass production in the coming quarters. That concludes my report for this quarter. Thank you for your interest in Himax. We appreciate you joining today's call and are now ready to take questions.

Operator

Yes. Thank you, Jordan. Ladies and gentlemen, we are now in the question-and-answer session. If you would like to ask the question, please press star key and number one on your telephone keypad, and you will enter the queue. After you are announced, please ask your question. If you find that your question has been answered before it's your turn to speak, you may press star key and number two to cancel the question. In addition to submitting questions via phone, you may also submit questions through the webcast where a checkbox is available on the right-hand side of the screen. Thank you. Now for dialing participants, if you would like to ask questions, please press star one on your telephone keypad. Thank you. Our first question will be coming from Donnie Teng, Nomura. Go ahead, please.

Donnie Teng
Donnie Teng
Analyst at Nomura

Thank you, Jordan, for taking my question. My first question is regarding to the CPO revenue outlook into 2027. As you mentioned about the revenue could be more meaningful for next year. Can you classify, how do you define meaningful for 2027? Maybe you can also provide us with the overall business outlook in 2027 as well. Thank you.

Jordan Wu
Jordan Wu
President and CEO at Himax Technologies Incorporation

All right. Thank you, Donnie. Perhaps let me start with your second question, the outlook for next year. As you know, we don't usually provide guidance beyond one quarter. We're positioned, I think, to see robust sales growth for next year with continuously improved gross margin. As you know, our gross margin this year has improved from last year. We believe the trend is likely to continue next year. Before I elaborate further, there is one important thing for clarification. As you mentioned in your question, Donnie, we are going to for the time being and before CPO starts mass production officially, it's a good idea that we kind of separate our CPO for our outlook discussion because, while CPO is arguably a once-in-a-lifetime opportunity for Himax at the pre-mass production stage, its outlook will be too uncertain to quantify, at least for the purpose of outlook comments.

Jordan Wu
Jordan Wu
President and CEO at Himax Technologies Incorporation

What I'm about to say below does not include contributions from CPO. I will leave the comments on CPO for the next question, which you already just raised. We start now back to our view on to 2027. I think a very important trend for next year, our financials, is that the non-driver areas will likely outgrow driver ICs, with revenue contribution approaching 30% from around 20% at present. This is driven mainly by automotive TCONs, which will enjoy another year of very strong growth thanks to our robust design pipeline. The WiseEye product line for new applications such as smart glasses, WiseGuard module, and palm vein authentication, which I mentioned in my prepared remarks, are all well-positioned to contribute to growth momentum. As to our kind of mainstream automotive business, now over half of our sales.

Jordan Wu
Jordan Wu
President and CEO at Himax Technologies Incorporation

It will continue to grow as well on top of a year of double-digit growth this year. In saying so, we are assuming a flattish year for global vehicle shipment, which I think is a fair assumption, implying our confidence to outperform the auto market again like we do this year and actually the last few years. Our positive outlook is driven by two factors. One, the continuous growth of number of displays per vehicle, which has already exceeded three this year from almost now 15 years back. Two, more importantly, the fast rising IC content per automotive display. In other words, both the number of display and content value per display will continue the favorable trend that we've experienced over the last few years. I'll take HUD as an example. We mentioned about HUD in our prepared remarks.

Jordan Wu
Jordan Wu
President and CEO at Himax Technologies Incorporation

HUD used to be a tiny niche market that did not use LCD for image projection. Starting just a few years ago, HUD has become one of the strongest growth segments within our design win pipeline. We have many such design wins for HUD waiting for lineup for mass production starting this year and over the next few years. Every new HUD in a car represents an increase in number of LCD displays per vehicle, as almost all new HUDs now use LCD for image projection and are requiring our solution. Himax has been leading the charge in supporting the industry's new HUD designs, which require not only traditional DDIC, but also very sophisticated TCONs for what we so-called dewarping and the elimination of so-called postcard effect.

Jordan Wu
Jordan Wu
President and CEO at Himax Technologies Incorporation

Perhaps for those who are not familiar with this, dewarping is a feature in our HUD TCON that kind of mathematically counteracts optical distortion caused by the curved surface of windshield. That's dewarping. Postcard effect is a visual artifact, so to speak, where the rectangular borders become kind of illuminated and visible by the driver [inaudible] TCON can get rid of that artifact. Such advanced features add significantly to our IC content value and have become a strong moat that helps fend off competitors. I would say LTDI, which again, we also mentioned in our prepared remarks, is also a good example where we pioneered the technology concept a few years back, targeting ultra-large size automotive displays requiring touch functionality.

Jordan Wu
Jordan Wu
President and CEO at Himax Technologies Incorporation

We are now the exclusive supplier of the solution in the market right now, which numbers at least five chips per panel, including one TCON. For higher-end designs, more than 10 chips. Our LTDI solution is ramping nicely this year across several leading auto brands with a solid and still expanding design-win pipeline. Perhaps the last but certainly not the least important example is, the higher value for display content for IC is the OLED display for automotives. There we offer DDIC, TCON, TED, and discrete touch controller, each of them having higher ASP compared to those using LCD panels because of the more complicated features required of OLED displays.

Jordan Wu
Jordan Wu
President and CEO at Himax Technologies Incorporation

Because OLED is now projected to replace LCD over time, over the next few years for high-end auto displays, we are working closely with several leading OLED panel makers in Korea and China, with major ramp expected starting from probably second half next year and certainly well into 2028. In short, while, again, we don't give our visual guidance for next year, I'm not going to be able to quantify the growth, but we are quite positive about the prospect of our automotive business for next year. Having said that, the industry supply will remain tight, which literally all major foundries indicated further price hikes next year. Certainly, all foundries in Taiwan and to a great extent, major foundries in China as well. It's just something we will need to continue to manage like we have done so far this year.

Jordan Wu
Jordan Wu
President and CEO at Himax Technologies Incorporation

I hope that addresses your second question for next year's outlook. Your first question about the CPO sales indication, sales outlook for next year. I will not be able to quantify that. Still qualitatively, what I can say is that for sure, CPO will see very significant growth next year, but we'll be comparing with the low base this year. The growth will be very significant. The extent of CPO's contribution to our overall financials next year will depend on when the end customers kick off mass production and obviously the ramp curve.

Jordan Wu
Jordan Wu
President and CEO at Himax Technologies Incorporation

For now, it is too early to say. As I said earlier, even in the most conservative scenario, CPO will make a meaningful contribution to our financials. Especially the bottom line, starting 2027, with volume growth quarter-over-quarter, starting from this quarter, next quarter, and throughout the whole of next year. While the volume indication from end customers is actually extremely high. With that, the main goal for us this year is still, for us and our partner FOCI, is still to complete the validation of our products by key customers/partners in terms of both quality and manufacturability. As I said earlier, revenue contribution even this year will still be limited. However, we are seeing quite significant growth this quarter and another very significant growth next quarter out of engineering runs.

Jordan Wu
Jordan Wu
President and CEO at Himax Technologies Incorporation

While we don't comment on the exact timing of mass production, because the ecosystem is far too complicated for us to even speculate the exact timing of mass production, we should be able to see meaningful top and bottom line contribution from the CPO product starting in 2027. Actually, even before we share mass production, early shipments for engineering runs will already have positive impact on our financials starting 2027. Now, you asked me to quantify what is meaningful. I guess meaningful means meaningful, right?

Jordan Wu
Jordan Wu
President and CEO at Himax Technologies Incorporation

Meaningful means it's not going to be low single-digit percentage. Certainly, not before [inaudible] line, right? Meaningful is something we can actally, when it happens, we can categorize it and elaborate further. It's not going to be like marginally negligible addition to our financials. Again, while some early indication for next year's volume has been provided by end customers, I think it's this year we should focus on validation.

Jordan Wu
Jordan Wu
President and CEO at Himax Technologies Incorporation

Once we have a solid footing on that with customers, firmer indication of mass production timetable and revenue curve, hopefully in not too distant future, we'll be able to better quantify the impact to our financials. I guess, it is fair to say that our confidence level towards success of mass production continues to rise. Our confidence level continues to rise. It has surely risen to another level compared to even just a quarter ago. I guess the last point I want to say is that, in close collaboration with a few top customers, FOCI, us, we are focusing on what we call Gen 2 product right now, which is a high-end product supporting 6.4T bandwidth or higher. It is a spec, for the time being, that is positioned for the market with the biggest volume potential.

Jordan Wu
Jordan Wu
President and CEO at Himax Technologies Incorporation

Actually, we will continue to make innovative designs for optics to meet the ever-rising needs of higher transmission bandwidth with next target, next goal being 12.8T. It's going to be a long road ahead. Again, I said earlier, I think it's a once in a lifetime opportunity for Himax. It's CPO opportunity. I hope that addresses your question, Donnie.

Donnie Teng
Donnie Teng
Analyst at Nomura

Okay, thank you, Jordan.

Operator

Thank you. Next one, Tiffany Yeh, Morgan Stanley. Go ahead, please.

Tiffany Yeh
Tiffany Yeh
Analyst at Morgan Stanley

Thanks, Jordan. Thanks, Karen, for taking my question. I would like to follow up on the CPO front. I think there are many peers or emerging players that would want to tap into this FAU or I would say WLO market. May I ask how you would address this competition and what are Himax key advantages over the peers? Yeah. Thank you.

Jordan Wu
Jordan Wu
President and CEO at Himax Technologies Incorporation

Thank you, Tiffany. It's a good question. I think, as far as we know, we are probably the only one providing optics using, [wafer-level] optics, or wafer-based solution, or the so-called competition actually use traditional molding glass type of technology. I think there's a key difference. We certainly believe our technology offers a lot of advantages. Again, nobody has proven itself by having a big volume mass production yet. I think we just have to prove it by actually doing it successfully. Now, having said that, I think our technologies together with FOCI, is much more mature compared to the peers as far as we can tell. Having said that, I think, again, the mindset for now, for us, is not to worry too much about competition, but we are the enemy. We are our own enemy.

Jordan Wu
Jordan Wu
President and CEO at Himax Technologies Incorporation

For the time being, we focus on getting our products validated this year solidly. With customers' requests for volume, try to ramp the volume successfully with good era and good outcome to meet their demands. I think, again, I guess also it's a policy for us not to comment about our competition. I think for the time being, the most important thing for us is to focus our sales efforts for successful mass production. Having said that, I think, again, I said this is a market, it's a once in a lifetime opportunity kind of market. The market is so big. I can't imagine a few years down the road, Himax and FOCI will be the only player, the only vendor in the market. It's just unthinkable because the market is so big, and I don't think anybody can take 100% of the market, right?

Jordan Wu
Jordan Wu
President and CEO at Himax Technologies Incorporation

For us, I think the mindset, again, is focus on our efforts, bring successful mass production, and hope it will be one of the earliest and will be serving among the best customers. We'll take it from there. On the pros and cons of our technology versus others, again, I'm not going to comment on that publicly. Last but not least, the market is too big for anybody to try to take it 100%, and it's a market big enough for actually quite a few players to prosper tremendously, I think. Now the important thing is to bring it up successfully and to prove it is a real technology, is a real deal.

Tiffany Yeh
Tiffany Yeh
Analyst at Morgan Stanley

All right, very clear. I have a question regarding the overall CPO industry. As you guys have been working with FOCI on all these mass production preparations for so many years, I think you also in talk with other guys in the supply chain. What do you think are the biggest bottlenecks for CPO mass production right now? You think how much time it would take for this to be conquered? Thank you.

Jordan Wu
Jordan Wu
President and CEO at Himax Technologies Incorporation

We are very, very upstream, right? You probably ask the wrong person to make a comment for the so-called bottleneck throughout the entire ecosystem. What I can say, what I want to emphasize is that the ecosystem that makes it is actually quite complicated. Our focus for now is to, again, make sure we are not going to be the bottleneck, right? We don't want to be the bottleneck ourselves, technology-wise. That's step one. Once the mass production gets started, we don't want to be the bottleneck for capacity as well. That's the goal. As to, the bottleneck of the whole ecosystem, to be honest, I really don't know. Well, what I can say is, the software engineer ops, which will have some meaningful volume, by us and FOCI by the end of this year, let's say, by the end of this year.

Jordan Wu
Jordan Wu
President and CEO at Himax Technologies Incorporation

It's not just to validate our solution, but also to validate the whole ecosystem. Our technology will be taken to validate our end customers, the major GPU and CPU makers of the world, they are their total solution. With that, they will also take their solution to their server customers, and certainly the back-end house, all OSAT houses do have to put the CoWoS or whatnot, right? The FAU together with the COUPE, TSMC's COUPE solution and all that, right? By the end of this year at least, I think there will be a lot of efforts in this regard. We've been the very upstream to provide our FAU, and for that, our optics within FAU first. Our FAU has to be validated in itself.

Jordan Wu
Jordan Wu
President and CEO at Himax Technologies Incorporation

With good FAU, the ecosystem can start to validate the packaging, the assembly of the whole module. All the way down to servers and eventually, probably change of algorithm, too, because transmission methodology will be different compared to traditional metal-based transmission. I think, to be honest, it's far too complicated for me to comment. All I can say is, we don't want to be the bottleneck ourselves. That's the goal.

Tiffany Yeh
Tiffany Yeh
Analyst at Morgan Stanley

Got it. Thank you, Jordan.

Jordan Wu
Jordan Wu
President and CEO at Himax Technologies Incorporation

Thank you, Tiffany.

Operator

Thank you.

Jordan Wu
Jordan Wu
President and CEO at Himax Technologies Incorporation

One question from online box. How do you expect your smart glasses revenue to trend in 2027? Do you expect smart glasses revenue to relaunch next year? We have been talking about WiseEye, which we are not going to repeat it. We have mentioned, elaborated in our prepared remarks. LCoS will be for the future. LCoS for now is to seek design wins, so that is not going to be a mass production story for next year. WiseEye, however, will very much a story for next year, for smart glasses. We mentioned, there's a major customer, which have launched its product a while back, with our WiseEye, serving the function of always-on visual understanding of the surroundings. We actually asked the major end customer about all their potential, and the response from them is, they're just getting it started promotion-wise.

Jordan Wu
Jordan Wu
President and CEO at Himax Technologies Incorporation

They have to wait a while for them to give us a more [very meaningful] feedback. We are not getting, whether or the other, conservative or pessimistic or positive feedbacks from them yet, for understandable reasons. I think what's equally exciting is that there are quite a number of major design-in or design-win projects in the pipeline that we certainly haven't announced because the customer is not fully ready yet. They involve, in some cases, major hyperscalers who have not been known to be offering hardware devices like smartphone as part of their business portfolio. They are very much into smart glasses because they all see smart glasses as a very good counter tool for their AI models to get the useful data, useful information of the actual users.

Jordan Wu
Jordan Wu
President and CEO at Himax Technologies Incorporation

I think we are seeing very strong design momentum and each major customer, how they use the WiseEye are not totally identical.

Jordan Wu
Jordan Wu
President and CEO at Himax Technologies Incorporation

Everybody's trying to be innovative. In our prepared remarks, what we mentioned is broadly speaking, a typical use case concept where we are always watching the surroundings on a continuous basis. First, we determine the scene that you are standing in, then we start to then do object classification. With that, you can have AI interaction. That is a common theme. All I can say is, probably give us two or more quarters, we should be able to quantify it better. For now, we can see the momentum. Even with the first customer, a major name with a very high-profile launch, we are not really getting feedback yet in terms of number of chips they need for next year or the year after.

Jordan Wu
Jordan Wu
President and CEO at Himax Technologies Incorporation

The momentum is very strong, but I'm afraid it's too early for me to give a quantitative comment yet. Hopefully, in a few quarters' time, we will be able to provide better answers.

Operator

Yes. Thank you, Jordan. There are no questions at the moment. We thank you for all your questions. I'll pass the call back to Mr. Jordan Wu. Please proceed. Thank you.

Jordan Wu
Jordan Wu
President and CEO at Himax Technologies Incorporation

Thank you. As a final note, Karen Tiao, our Head of IR/PR, will attend investor marketing activities and continue to attend investor conferences. We'll announce the details as they come about. Thank you. Have a nice day.

Operator

Thank you, Jordan. Ladies and gentlemen, this concludes second quarter 2026 earnings conference. You may now disconnect. Thank you again. Goodbye.

Executives
    • Karen Tiao
      Karen Tiao
      Head of IR/PR
    • Jordan Wu
      Jordan Wu
      President and CEO
Analysts
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