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Himax Technologies (NASDAQ: HIMX) had a mostly banner year in 2017, delivering delectable gains thanks to two big partnerships. First, Apple (NASDAQ: AAPL) decided to use Himax solutions for enabling Face ID in the iPhone X. Then, Qualcomm chose it as a partner for developing 3D sensing solutions for smartphones and automobiles.
But Himax's dream run came to a screeching halt in December after short-seller Citron Research accused the company's management of fraud. The unsubstantiated tweet sparked a sell-off even as the company denied allegations of fraud and said Citron's accusation had no credibility.
Himax stock hasn't recovered yet, but the company has an opportunity to boost investor confidence when it releases its fourth-quarter results on Feb. 13. Will it be able to deliver? Let's see:
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The headline numbers
Wall Street analysts on average expect $0.14 per share in earnings from Himax on revenue of $185 million. By comparison, the company reported $0.03 per share in earnings in the year-ago quarter on $203 million in revenue. The consensus estimates are in line with the company's guidance issued in November, so it shouldn't have much difficulty meeting them.
Moreover, investors shouldn't get hung up on the estimated 9% drop in Himax's revenue. The company is facing a tough year-over-year comparison because of the phaseout of one of its customer programs. And Himax is calling for a sharp rise in earnings thanks to an improving product mix that's leading to margin expansion.
An increase in sales of touch and display driver-integration products, as well as a bump in shipments of 3D sensing chips manufactured using Himax's wafer-level optics technology, is positively impacting its gross margin profile. The improvement in the company's product mix helped it boost its Q3 gross margin by 170 basis points sequentially to 25.6%, 70 basis points above the original guidance.
In Q4, Himax expects its gross margin to witness a sequential drop of 1% because of seasonality. But it will still be way better than the 19.1% gross margin reported by the company in the prior-year period, leading to a massive pop in earnings year over year. More important, the chipmaker's improved margin profile should give a nice boost to profitability as its top-line growth is expected to start picking up this year.
The outlook should be strong
Himax bears might worry that the company will issue tepid guidance because of Apple's mediocre outlook for the quarter including March. But one shouldn't forget that Himax wasn't an Apple supplier a year ago, so the chipmaker will gain even if Cupertino slashes its production during the current quarter because of seasonal patterns.