Himax (HIMX)

Semiconductor maker Himax Technologies (NASDAQ:HIMX) reported Q1 CY2025 results beating Wall Street’s revenue expectations, with sales up 3.7% year on year to $215.1 million. On top of that, next quarter’s revenue guidance ($237.2 million at the midpoint) was surprisingly good and 14.1% above what analysts were expecting. Its GAAP profit of $0.11 per share was 31.5% above analysts’ consensus estimates.

Company Overview

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

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).

A company’s long-term performance is an indicator of its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Over the last five years, Himax grew its sales at a tepid 5.7% compounded annual growth rate. This was below our standard for the semiconductor sector and is a rough starting point for our analysis. Semiconductors are a cyclical industry, and long-term investors should be prepared for periods of high growth followed by periods of revenue contractions.

Long-term growth is the most important, but short-term results matter for semiconductors because the rapid pace of technological innovation (Moore's Law) could make yesterday's hit product obsolete today. Himax’s performance shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 5.9% annually.

This quarter, Himax reported modest year-on-year revenue growth of 3.7% but beat Wall Street’s estimates by 2.4%. Company management is currently guiding for a 1% year-on-year decline in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to decline by 7.1% over the next 12 months, similar to its two-year rate. This projection is underwhelming and implies its products and services will face some demand challenges.

Days Inventory Outstanding (DIO) is an important metric for chipmakers, as it reflects a business’ capital intensity 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 DIO came in at 79, which is 38 days below its five-year average. At the moment, these numbers show no indication of an excessive inventory buildup.

In the semiconductor industry, a company’s gross profit margin is a critical metric to track because it sheds light on its pricing power, complexity of products, and ability to procure raw materials, equipment, and labor.

Himax’s gross margin is one of the worst in the semiconductor industry, signaling it operates in a competitive market and lacks pricing power. As you can see below, it averaged a 29.4% gross margin over the last two years. Said differently, Himax had to pay a chunky $70.56 to its suppliers for every $100 in revenue.

In Q1, Himax produced a 30.5% gross profit margin, up 1.2 percentage points year on year. Himax’s full-year margin has also been trending up over the past 12 months, increasing by 2.6 percentage points. If this move continues, it could suggest better unit economics due to more leverage from its growing sales on the fixed portion of its cost of goods sold (such as manufacturing expenses).

Himax was profitable over the last two years but held back by its large cost base. Its average operating margin of 6.2% was weak for a semiconductor business. This result isn’t too surprising given its low gross margin as a starting point.

Looking at the trend in its profitability, Himax’s operating margin decreased by 5.1 percentage points over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability. Himax’s performance was poor no matter how you look at it - it shows that costs were rising and it couldn’t pass them onto its customers.

This quarter, Himax generated an operating profit margin of 9.2%, up 4.4 percentage points year on year. The increase was encouraging, and because its operating margin rose more than its gross margin, we can infer it was more efficient with expenses such as marketing, R&D, and administrative overhead.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Himax’s full-year EPS flipped from negative to positive over the last five years. This is encouraging and shows it’s at a critical moment in its life.

In Q1, Himax reported EPS at $0.11, up from $0.07 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Himax to perform poorly. Analysts forecast its full-year EPS of $0.50 will hit $0.47.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Himax has shown mediocre cash profitability over the last two years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 12%, subpar for a semiconductor business.

Taking a step back, we can see that Himax’s margin dropped by 3.7 percentage points over the last five years. This along with its unexciting margin put the company in a tough spot, and shareholders are likely hoping it can reverse course. If the trend continues, it could signal it’s in the middle of an investment cycle.

Himax’s free cash flow clocked in at $50.83 million in Q1, equivalent to a 23.6% margin. The company’s cash profitability regressed as it was 2.4 percentage points lower than in the same quarter last year, but it’s still above its two-year average. We wouldn’t read too much into this quarter’s decline because investment needs can be seasonal, leading to short-term swings. Long-term trends carry greater meaning.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Although Himax hasn’t been the highest-quality company lately, it found a few growth initiatives in the past that worked out wonderfully. Its five-year average ROIC was 28.2%, splendid for a semiconductor business.

Himax reported $275.4 million of cash and $537.3 million of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $86.12 million of EBITDA over the last 12 months, we view Himax’s 3.0× net-debt-to-EBITDA ratio as safe. We also see its $6.70 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We were impressed by how significantly Himax blew past analysts’ revenue and EPS expectations this quarter. We were also glad its revenue guidance for next quarter trumped Wall Street’s estimates. Zooming out, we think this quarter featured some important positives. The stock traded up 1.7% to $7.59 immediately following the results.

Updated: May 10, 2025 at 10:25 PM EDT

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in Himax.

Himax’s business quality ultimately falls short of our standards. First off, its revenue growth was uninspiring over the last five years, and analysts expect its demand to deteriorate over the next 12 months. And while its astounding EPS growth over the last five years shows its profits are trickling down to shareholders, the downside is its operating margins reveal poor profitability compared to other semiconductor companies. On top of that, its low gross margins indicate some combination of pricing pressures or rising production costs.

Himax’s P/E ratio based on the next 12 months is 21.7x. Investors with a higher risk tolerance might like the company, but we think the potential downside is too great. We're pretty confident there are superior stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $10.74 on the company (compared to the current share price of $7.62).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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