Himax Technologies, Inc. Q3 FY2026 earnings call

Financial Performance:

• Q3 revenue was $246.8 million, up 8.5% sequentially.
• Gross margin was 34.2%, in line with guidance and up from 33.1% in Q2.
• Q3 profit per diluted ADS was 10.7 cents, exceeding the guidance range of 8.0–10.0 cents due to lower-than-expected operating expenses relative to the bonus accrual.
• Operating income was $22.7 million (9.2% margin), down from 10.8% in Q2 primarily due to annual bonus expenses.

Operational Highlights:

• Automotive Driver ICs saw strong growth, marking the second consecutive quarter of double-digit sequential increases, driven by Chinese automakers expanding overseas and new LTPS project mass production.
• Himex maintains undisputed leadership in Automotive T-Con, particularly in solutions with local dimming functionality.
• Capacity Securing: Due to tightening supply-demand imbalances in legacy process nodes and packaging/testing providers raising prices for 2027, Himex has fully secured capacity commitments from key suppliers through 2037 for key product areas.
• Cost Management: The company is working closely with customers to share the impact of rising costs.

Divestiture Update:

• The proposed divestiture of the stake in an equity method investee is progressing as planned, expected to close in Q4 subject to customary conditions.
• Upon closing, Himex expects a pre-tax gain of approximately $23–24 million and an after-tax gain of approximately $19–20 million.

Large Display IC: Revenue was $19.0 million, a slight 1% sequential decline. This segment accounted for 7.7% of total revenue (down from 8.4% in Q2 and 9.5% YoY). Declines in Monitor and Notebook IC sales were offset by increased TV IC shipments due to higher legacy product volume.

Small and Medium Display Driver IC: Revenue totaled $176.8 million, reflecting an 8.9% sequential increase. This segment represented 71.6% of total sales (up from 71.4% in Q2 and 70.8% YoY). Automotive driver sales grew solid double-digit sequentially, driven by demand for DDI-Z and TDDI products and mass production of LTPS projects. Smartphone IC sales increased sequentially, supported by shipments for leading brands' mainstream and premium models, while tablet IC sales decreased as expected due to prior inventory build-up.

Non-Driver IC: Revenue reached $51.0 million, an 11.2% sequential increase. This segment accounted for 20.7% of total revenue (down from 28.2% in Q2 but up from 19.7% YoY). Growth was driven by robot and automotive T-Con shipments. The Non-Driver segment includes T-Con business, which accounts for over 10% of total sales, with more than half contributed by Automotive T-Con.

• Q4 2026 Revenue: Expected to decrease 22% to 26% sequentially.
• Q4 2026 Gross Margin: Expected to be flat to slightly up, depending on product mix.
• Q4 2026 Profit: Estimated at 4.5 to 6.5 cents per fully diluted ADS. This estimate excludes the potential gain from the proposed divestiture.
• Full-Year 2026 Automotive IC Revenue: Despite a sharp Q4 correction, full-year growth is expected to be approximately 10% year-over-year, outperforming the global automotive market which is projected to see a decline in vehicle production.

• Supply Chain Constraints: Intensifying supply-demand imbalance in legacy process nodes and packaging/testing is expected to tighten further in 2027, with foundries and providers in China announcing significant price increases.
• Automotive Demand Volatility: Sudden and sizable declines in automotive driver IC demand have been observed, particularly among panel makers with high exposure to the Chinese market following aggressive purchasing in Q2 and Q3.
• Customer Requirements: Automotive customers have stringent requirements for supply stability, long-term capacity assurance, and delivery reliability compared to consumer electronics customers.
• Forward-Looking Statement Risks: Actual results may differ materially from forward-looking statements regarding financial results and industry growth due to various risks and uncertainties detailed in the Form 20-S filing.

Q: How does the sudden correction in automotive IC demand in Q4 impact your full-year outlook and strategic capacity planning? / A: Jordan Wu noted that while Q4 saw a sharp decline following aggressive buying by panel makers serving Chinese automakers, full-year automotive IC revenue is still expected to grow ~10% YoY. He emphasized that securing capacity through 2037 remains a top priority given automotive customers' stringent reliability requirements, and that Himex has already locked in these commitments despite broader industry cost pressures.

Q: Can you elaborate on the drivers behind the gross margin improvement in Q3 and the expectations for Q4? / A: Jessica Pan explained that Q3 gross margin improved to 34.2% due to better product mix and operational efficiency, exceeding the previous quarter's 33.1%. For Q4, management expects margins to remain flat to slightly up, contingent on the specific product mix sold during the anticipated sequential revenue decline.

Q: What is the status of the divestiture transaction, and how will it affect Q4 earnings? / A: The CFO confirmed the divestiture of the equity method investee stake is on track for Q4 closure. It is expected to generate a pre-tax gain of $23–24 million ($19–20 million after-tax). However, this gain is excluded from the current Q4 EPS guidance of 4.5–6.5 cents, meaning reported earnings could exceed this range upon closing.

Q: How are you managing the rising costs in the supply chain, particularly regarding legacy nodes? / A: Jordan Wu stated that capacity constraints are intensifying, with foundries and OSATs in China raising prices for 2027. To mitigate this, Himex has secured long-term capacity through 2037. Additionally, the company is collaborating directly with customers to share the burden of these rising manufacturing costs, rather than absorbing them entirely internally.