Himax (NASDAQ:HIMX) Q1: Beats On Revenue But Stock Drops

Jabin Bastian /
2023/05/11 6:42 am EDT

Semiconductor maker Himax Technologies (NASDAQ:HIMX) announced better-than-expected results in the Q1 FY2023 quarter, with revenue down 40.8% year on year to $244.2 million. Himax made a GAAP profit of $14.9 million, down on its profit of $115.3 million, in the same quarter last year.

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Himax (HIMX) Q1 FY2023 Highlights:

  • Revenue: $244.2 million vs analyst estimates of $228.9 million (6.7% beat)
  • EPS (non-GAAP): $0.12 vs analyst estimates of $0.11 (4.55% beat)
  • Free cash flow of $64.6 million, up from $3.15 million in previous quarter
  • Inventory Days Outstanding: 174, down from 185 previous quarter
  • Gross Margin (GAAP): 28.1%, down from 47% same quarter last year

“We are going through a challenging second quarter in terms of both sales and gross margin but believe this will be a short-term phenomenon with a rebound around the corner starting in the second half,” concluded Mr. Jordan Wu.

Taiwan-based Himax Technologies (NASDAQ:HIMX) is a leading manufacturer of display driver chips and timing controllers used in TVs, laptops and mobile phones.

Demand for analog chips is generally linked to the overall level of economic growth, as analog chips serve as the building blocks of most electronic goods and equipment. Unlike digital chip designers, analog chip makers tend to produce the majority of their own chips, as analog chip production does not require expensive leading edge nodes. Less dependent on major secular growth drivers, analog product cycles are much longer, often 5-7 years.

Sales Growth

Himax's revenue growth over the last three years has been strong, averaging 25.3% annually. But as you can see below, last year quarterly revenue declined from $412.8 million to $244.2 million. Semiconductors are a cyclical industry and long-term investors should be prepared for periods of high growth, followed by periods of revenue contractions (which can sometimes offer opportune times to buy).

Himax Total Revenue

Despite Himax revenues beating analyst estimates, this was still a slow quarter with a 40.8% revenue decline.

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Product Demand & Outstanding Inventory

Days Inventory Outstanding (DIO) are an important metric for chipmakers, as it reflects the capital intensity of the business and the cyclical nature of semiconductor supply and demand. In a tight supply environment, inventories tend to be stable, allowing chipmakers to exert pricing power. Steadily increasing DIO can be a warning sign that demand is weak, and if inventories continue to rise the company may have to downsize production.

Himax Inventory Days Outstanding

This quarter, Himax’s inventory days came in at 174, 61 days above the five year average, suggesting that despite the recent decrease the inventory levels are still higher than what we used to see in the past.

Key Takeaways from Himax's Q1 Results

With a market capitalization of $1.2 billion Himax is among smaller companies, but its more than $196.3 million in cash and positive free cash flow over the last twelve months give us confidence that Himax has the resources it needs to pursue a high growth business strategy.

We were impressed by how strongly Himax outperformed analysts’ revenue expectations this quarter. And we were also glad to see the inventory levels go down. On the other hand, it was less good to see the pretty significant deterioration in operating margin and gross margin deteriorated. Overall, it seems to us that this was a complicated quarter for Himax. The company is down 5.97% on the results and currently trades at $6.46 per share.

Should you invest in Himax right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.

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The author has no position in any of the stocks mentioned.