Although you have probably never heard of this company, chances
are you use its technology every single day.
Do you watch television, or use a computer? Have you bought an iPad
or iPhone? Do you use a cell phone, digital camera or a GPS
navigation system in your car? If so, then you're most likely using
what this company makes.
Yet, despite the wide-ranging use of this company's products and
the continuing proliferation of new devices that use them, this
company's stock price has been stuck in the doldrums. But that
could change soon...
Taiwan-based semiconductor company
Himax Technologies, Inc. (Nasdaq:
is one of the world's primary makers of chips used in flat-panel
display monitors. These chips are critical components used for
large screens like TVs and computers as well as small screens such
as those used for
iPhone, digital cameras and GPS navigation systems.
Himax sells its chips to the biggest and best in the business.
Clients include Taiwan-based Chimei Innolux, the world's largest
manufacturer of LCD monitors. Also among major clients for large
and medium screens is
Samsung Electronics (OTC: SSNLF.PK)
, the world's largest flat-panel TV manufacturer, and TPV
Technology, the world's largest LCD TV maker. Clients that make
small screens include Wintek, Apple's touch-screen manufacturer for
the iPad and iPhone.
One would think that business should be booming as the recovery is
gaining steam, but that hasn't been the case. Revenue in the first
nine months of the year is actually lower than the year ago period
by 2%, totaling $501 million.Earnings per share (
) have fallen from $0.15 per share in the same period last year to
$0.12. In the third quarter, revenue has plunged 32% from the year
ago quarter. As a result, the stock is down 28% in the past year,
compared with a 15% gain for the S&P 500.
What's going on?
The reason is simple. Demand for flat screen TVs is decreasing.
It's decreasing because people in the United States and Europe have
passed the rapid growth stage of upgrading to HD flat-screen
digital TVs -- just about everyone has one already. The demand
explosion that took place earlier this decade has run its course.
People are still buying TVs, but at a slower rate. In the first
three quarters of 2010, global TV shipment growth slowed to 17%,
from 26% in the year ago period. In the third quarter, sales of
large panel display drivers at Himax fell 48% from the year ago
But here's the good news: the stock price already reflects the
recent disappointing sales and there are still several strong
for growth going forward...
The Chinese market
In addition to a growing middle class and increasing domestic
consumption in China, the country will move to a digital TV
standard by 2015. In the United States, the move to digital helped
created a boom in the HD TV market. Currently only about 17% of
Chinese homes with cable use digital, so there is potential growth
of hundreds of millions of consumers in this market.
Himax recently launched a 2-D to 3-D conversion solution used in
large screens that the company says has been widely praised as
offering the best 3-D effect in the marketplace. While 3-D TVs have
not taken off yet, they could see strong growth in the years ahead.
Global proliferation of handsets with display screens is increasing
demand for the chip used in small and medium-sized display screens.
This segment of the company's revenue grew 11.8% in the third
quarter and now contributes more than one quarter of revenue.
In addition, Himax is in stellar financial shape, with just $44
million in debt and $392 million in shareholder's equity and $80
million in cash as of its most recent filing (Sept. 30). The
company is well-prepared to service increasing demand going forward
through expansions and acquisitions.
And then there's thedividend . Despite the fact that Himax is an
emerging-market technology company, it steps out of character by
using its superior financial condition to pay a fatdividend .
Dividends are paid once a year, and the company's 2010 payment of
$0.25 per share gives the stock a whopping trailingyield of about
Action to Take -->
The strong growth trends in Himax's business may take several
quarters or more to come to fruition. However, given the current
low price and the fact that the stock pays a double digityield
while you wait, it is a good buy at the current price.
-- Tom Hutchinson
Tom has a 15-year history as a financial advisor with UBS
constructing investment portfolios. Tom's background includes a
NASD Series 7 and 63 certifications. Read more...
Disclosure: Neither Tom Hutchinson nor StreetAuthority, LLC hold
positions in any securities mentioned in this article.
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