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.
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
Taiwan-based Himax Technologies (NASDAQ:HIMX) is a leading manufacturer of display driver chips and timing controllers used in TVs, laptops and mobile phones.
Himax was founded in 2001 by B.S. Wu, who pioneered flat panel technologies at Chimei Electronics as CTO. In March of 2006, Himax went public with a listing on the NASDAQ exchange.
Himax products primarily address the flat panel display industry. These products are critical components of displays ranging from TVs to driver displays to mobile phones and tablets. Himax’s emerging technologies include products such as WiseEye AI Image Sensing, which brings computer vision AI to endpoint devices such as smart doors and locks with extremely low power requirements.
The company’s customers are primarily panel manufacturers and mobile device module manufacturers, who in turn design their products for consumer end-use products such as notebook computers, desktop monitors, and TVs. Because Himax operates primarily in a fabless model that utilizes third-party foundries, the company relies on semiconductor manufacturing service providers for wafer fabrication, assembly, testing, and packaging.
Competitors in fabless display imaging semiconductors include Fitipower Integrated Technology (TPE:4961), FocalTech Systems (TPE:3545), Novatek Microelectronics (TPE:3034), and Raydium Semiconductor Corporation (TPE:3592).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).
This was a difficult quarter for Himax, with revenue declining 42%, inline with analyst estimates.
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.
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.
Pricing Power
Himax's gross profit margin, how much the company gets to keep after paying the costs of manufacturing its products, came in at 30.5% in Q4, down 21.3 percentage points year on year.
Himax' gross margins have been trending down over the past year, averaging 39.3%. The weakness isn't great as Himax's margins are slightly below the group average as is, potentially pointing to weakening pricing.
Profitability
Himax reported an operating margin of 12.9% in Q4, down 23.1 percentage points year on year. Operating margins are one of the best measures of profitability, telling us how much the company gets to keep after paying the costs of manufacturing the product, selling and marketing it and most importantly, keeping products relevant through research and development spending.
Operating margins have been trending down over the last year, averaging 22.6%. However, Himax's margins remain one of the strongest in the industry, driven by its solid gross margins and economies of scale generated from its highly efficient operating model.
Earnings, Cash & Competitive Moat
Wall St analysts are expecting earnings per share to decline 30.3% over the next twelve months, although estimates are likely to change post earnings.
Earnings are important, but we believe cash is king as you cannot pay bills with accounting profits. Himax's free cash flow came in at $3.15 million in Q4, down 98.2% year on year.
Himax produced free cash flow of $71.1 million in the last year, which is 5.92% of revenue. It's good to see positive free cash flow, and that puts the company in a position to reinvest, but we wouldn't mind seeing cashflow yield improve a little.
Himax’s average return on invested capital (ROIC) over the last 5 years of 22.1% implies it has a strong competitive position and is able to invest in profitable growth over the long term.
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 give us confidence that Himax has the resources it needs to pursue a high growth business strategy.
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 the revenue growth was quite weak and operating margin deteriorated. Overall, this quarter's results could have been better. The company is up 5.33% on the results and currently trades at $8.7 per share.
Is Now The Time?
Himax may have had a bad quarter, but investors should also consider its valuation and business qualities, when assessing the investment opportunity. Although Himax is not a bad business, it probably wouldn't be one of our picks. Its revenue growth has been strong.
Himax's price to earnings ratio based on the next twelve months is 14.8x. We don't really see a big opportunity in the stock at the moment, but in the end beauty is in the eye of the beholder. And if you like the company, it seems that Himax doesn't trade at a completely unreasonable price point.
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