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Trouble with HIMX producing LCOS for GG

Himax: Where Is Google Glass? Bank Of America Downgrades


By Shuli Ren

Bank of America Merrill Lynch downgraded Taiwan-based LCD driver IC vendor Himax Technologies (HIMX) from Buy to Underperform, with a new price target of $12.5. Shares of Himax closed at $13.38 yesterday and opened 7% lower this morning.

The bank is concerned that Himax is not progressing fast enough in their LCoS (Liquid crystal on silicon) business. Here are analysts Daniel Heyler and Kyna Wong:

During our TTB conference, mgmt was positive on LCoS but the listed challenges suggested to us that growth could be more in 2015/16 vs 2H14. Barriers appear to be (1) applications, (2) costs, (3) power (20nm preferred), and (4) technology (optical engine, contrast, brightness). Mgmt viewed this as a niche market in the early stages of development. We remain positive on LCoS opportunities in industrial and games but a broad-based consumer roll-out by Google will be highly calculated; It’s difficult to recover from a flopped consumer electronics new product roll-out.

Essentially, the analysts are saying we should not be expecting Google Glass (GOOG) till next year.

And without the LCoS business, it is hard for Himax to expand profits in a competitive display industry:

The company is competing in a number of highly competitive markets so sharp margin expansion will be difficult without a sharp ramp in LCoS.

Our numbers reflect 2ppt OPM expansion and 28% revenue growth in relatively competitive, high-volume standard products known for undergoing pricing pressure.



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