No Surprises In Himax's (NASDAQ:HIMX) Q4 Sales Numbers, Stock Soars

Anthony Lee 2023/02/09 6:08 am EST

Semiconductor maker Himax Technologies (NASDAQ:HIMX) reported results in line with analyst expectations in Q4 FY2022 quarter, with revenue down 42% year on year to $262.3 million. Himax made a GAAP profit of $42.2 million, down on its profit of $141.5 million, in the same quarter last year.

Is now the time to buy Himax? Access our full analysis of the earnings results here, it's free.

Himax (HIMX) Q4 FY2022 Highlights:

  • Revenue: $262.3 million vs analyst estimates of $262.3 million (in line)
  • EPS: $0.24 vs analyst expectations of $0.24 (in line)
  • Free cash flow of $3.15 million, up from negative free cash flow of $7.08 million in previous quarter
  • Inventory Days Outstanding: 185, down from 273 previous quarter
  • Gross Margin (GAAP): 30.5%, down from 51.8% same quarter last year

“Our objective first and foremost is to strictly manage our inventory level, and we have been aggressive in doing so by sacrificing short term gross margin to offload excess stock. We also continue to curtail our wafer starts while striving to win more projects from customers specifically for the purpose of digesting our excess inventory. Our inventory position has much improved since its peak during the third quarter last year and we anticipate it will continue to decrease to near our historical average no later than the third quarter of 2023,” said Mr. Jordan Wu, President and Chief Executive Officer of Himax.

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 29.8% annually. But as you can see below, last year quarterly revenue declined from $451.9 million to $262.3 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

This was a difficult quarter for Himax, with revenue declining 42%, in line with analyst estimates.

In volatile times like these we look for robust businesses with strong pricing power. Unknown to most investors, this company is one of the highest-quality software companies in the world, and their software products have been the default standard in critical industries for decades. The result is an impressive business that is up an incredible 18,152% since the IPO. You can find it on our platform for free.

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 185, 76 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 Q4 Results

With a market capitalization of $1.44 billion Himax is among smaller companies, but its more than $221.6 million in cash and positive free cash flow over the last twelve months put it in a very strong position to invest in growth.

We were very impressed by the strong improvements in Himax’s inventory levels. That feature of these results really stood out as a positive. On the other hand, it was less good to see that revenue has declined siginificantly and operating margin deteriorated. Overall, this quarter's results were not the best we've seen from Himax. The company is up 5.33% in the premarket and currently trades at $8.7 per share.

Himax may have had a tough quarter, but does that actually create an opportunity to invest 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.

One way to find opportunities in the market is to watch for generational shifts in the economy. Almost every company is slowly finding itself becoming a technology company and facing cybersecurity risks and as a result, the demand for cloud-native cybersecurity is skyrocketing. This company is leading a massive technological shift in the industry and with revenue growth of 70% year on year and best-in-class SaaS metrics it should definitely be on your radar.

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