Shares of display technology vendor Himax Technologies (HIMX) are down 4 cents, or 0.6%, at $6.04, after Craig Hallum Capital Group’s Anthony Stoss cut the stock to Hold from Buy, and slashes his price target to $7 from $10, writing that augmented reality is not proceeding as quickly as expected, and that there’s rising competition for its IC for touch-enabled displays, known as “TDDI.”
As far AR, Himax is a supplier to Microsoft (MSFT) for the latter’s “HoloLens” AR headset. "We believe the AR revenue ramp investors were expecting will likely not materialize in 2017 as AR devices such as MSFT’s HoloLens are still in the developmental stage as companies work to improve the Field of Vision in devices. Consumer AR devices will likely not be ready for another 2 years in our opinion given technological complexity and costs associated with AR."
Shipments of products called “WLO” or “LCOS” will be “minimal” this year because of the AR shortfall, he predicts. Stoss cuts his estimate for revenue in 2017 to $750 million from a prior $890 million, and cuts his EPS view to 15 cents from $49.
For TDDI, in things such as smartphone, the company faces rising competition from Synaptics (SYNA), which is one of the largest suppliers to Apple (AAPL) for the iPhone: "We believe the Company’s TDDI business will not ramp as quickly as expected given strong competition, in particular from SYNA. We think SYNA went to panel makers as well as smartphone makers for their TDDI solutions which gave them an advantage over HIMX who likely went just to smartphone makers. When it came time to choose a TDDI solution, panel makers likely told smartphone OEM’s they would only work with SYNA given they already have tested and know their solutions work. We think SYNA was able to obtain the majority market share for TDDI given they were working with panel makers first, coupled with their strong pricing pressure strategy."
Despite all that, he sees the December quarter meeting expectations, with perhaps $204 million in revenue and 10 cents EPS compared to consensus for $203 million and 10 cents.
Also yesterday, Northland Capital Markets’s Tom Sepenzis reiterated a Market Perform rating on the shares, and offered very similar concerns to those expressed by Stoss.
On AR, Sepenzis writes prices are just too high for the devices to power AR into the consumer realm: "Augmented reality remains the largest potential for HIMX with its LCOS and WLO products, but the market has hit another stumbling block as prices remain prohibitive for consumers. We believe that this will limit the number of new AR devices for the next 12-24 months, and put Himax at further risk of losing its customers to new technologies that may arise to deliver more cost-effective see through displays. We believe that all of the major AR offerings from Google, Microsoft, Apple and others will remain on the drawing board throughout CY17, with new attempts delayed until CY18/19."
And for TDDI, he has heard from unnamed sources that “SYNA and FocalTech will be the dominant winners in TDDI in CY17 and that Himax and Novatech will have a difficult time capturing share.”
“This is the result of targeting the handset vendors directly, rather than the panel makers as SYNA and FT have over the past year,” he writes.