As to automotive segment, Himax continues to have new projects going into mass production which were design-wins of the prior years. In the first quarter, sales into automotive sector have accounted for more than 15% of its total revenues and it achieved a very significant milestone to gain the world’s first TDDI design-wins for automotive application with mass production target of late 2019 to 2020. Q2 revenue in this segment is set to grow around 20% sequentially and around 50% year-over-year. Himax has engaged all of the major automotive panel manufacturers worldwide for long-term partnerships and secured many of their key projects pipelined for the next few years.

Going into the second quarter, due to customers’ new launches of smartphones, increasing TDDI shipment and the fast growing automotive display driver sales, Himax expects small and medium-sized driver IC revenue to be up around 20% both sequentially and year-over-year.

Non-Driver Product Categories
The non-driver IC business segment has been the Company’s most exciting growth area and a differentiator for the Company in the past few years.

New Technologies Needed for Edge-to-Edge Display
3D sensing total solution is primarily targeting the Android based smartphone at present. Nowadays new smartphone designs feature edge-to-edge displays, removing home button and minimizing border area to provide better viewing experience. Along with the new design, three new approaches of biometric authentication for phone unlock and online payments are emerging to replace the traditional home button with capacitive fingerprint technology. These three new solutions for the Android smartphones are: structured light 3D sensing and active stereoscopic camera (ASC) 3D sensing, both for facial recognition, as well as under-display optical sensor for fingerprint authentication.

Naturally, all of these three solutions have advantages and challenges. Himax thinks all three can fulfill different demands and can therefore co-exist in the market place. Structured light 3D sensing offers outstanding depth precision but the cost is the highest for its complex projector design and manufacturing. ASC is a lower cost alternative to structured light 3D for its relatively simple projector and the fact that it is built on the existing dual camera ecosystem. It is, however, constrained by more limited depth precision. Under-display fingerprint, with a similar cost to the ASC solution, is the closest alternative to the prevailing capacitive type fingerprint which is already familiar to the consumer. However, under-display fingerprint is limited to a single function of authentication without the possibility for other applications such as gesture sensing, photo enhancement or AR as can be achieved by the two 3D sensing approaches. Himax enjoys a unique position in that it offers critical technologies in all of the three solutions and are already a key player by forming different collaboration partnerships for each of the three alternatives. They represent immense revenue opportunities with much higher ASP and gross margin versus Himax’s mainstream display driver IC business.

Structured Light 3D Sensing
SLiM™, Himax’s structured light based 3D sensing total solution, which it announced jointly with Qualcomm last August, brings together Qualcomm’s industry leading 3D algorithm with Himax’s cutting-edge design and manufacturing capabilities in optics and NIR sensors as well as its unique know-how in 3D sensing system integration. The majority of the key technologies inside the SLiM^TM solution is developed and supplied by Himax itself. These critical technologies include, on the projector end, DOE and collimator utilizing its world leading WLO technology, a tailor-made laser driver IC, and high precision active alignment for the projector assembly; and on the receiver end, a high efficiency near-infrared CMOS image sensor. Last but not least, Himax also developed an ASIC by incorporating Qualcomm’s algorithm for 3D depth decoding. The fact that all of these critical elements are developed in-house puts Himax in a unique leading position. It represents a very high barrier of entry for any potential competition and a much higher ASP and better profit margin for Himax.

The Qualcomm/Himax solution is by far the highest quality 3D sensing total solution available for the Android market right now. It has the industry’s best performance in all of 3D depth accuracy, indoor/outdoor sensitivity, power consumption and dimensions. It has passed the toughest eye safety standards with a proprietary glass broken detection mechanism to safeguard the user from any potential harm. The Company is pleased to report that the Himax SLiM^TM solution is now ready for mass production. It has delivered production ready samples to select smartphone makers as well as their preferred facial recognition and secure online payment ecosystem partners for their development into end products, typically flagship or premium models. As each smartphone maker’s design and requirement are somewhat different, such developments are taking longer than we anticipated. Himax is now targeting the end of the year for shipment to customers for their smartphones’ sales in the first quarter of next year.

Right now, Himax SLiM^TM solution is only available on Qualcomm Snapdragon premium mobile platforms. Equipped with the ASIC for 3D depth decoding that Himax has developed, Himax can extend the solution to more mid- to high-end platforms. This initiative will make the SLiM^TM solution more affordable for smartphone makers as the price differential among different application processor platforms can be very significant. With 3D depth decoding handled by the ASIC, the smartphone’s AP can be freed up for other applications and lower end platforms with less computing power can be adopted for structured light 3D sensing.

Active Stereoscopic Camera 3D Sensing
Himax unveiled its plan for a lower cost 3D sensing solution with ASC technology in the last earnings call, targeting more mass market smartphone models for facial recognition. The Company is pleased to report that the joint development with an industry leading AP platform player is well under way. The collaboration leverages its WLO and DOE expertise, as well as active alignment manufacturing know-how and high sensitivity NIR sensors. The Company’s target is to have ASC 3D sensing solution ready for mass production by the end of this year. Given the cost benefit, it has attracted a lot of interest from potential smartphone customers. While lower cost compared to structure light 3D, ASC will still represent a much higher ASP and better gross margin potential for Himax.

Himax believes the 3D sensing adoption on Android smartphone in 2018 would be limited but foresee the market demands will increase substantially starting 2019. With its leading technologies, proven manufacturing expertise, new solution roadmap and alliance with leading AP providers, Himax believes it is well positioned to be the partner of choice for Android smartphone makers in their 3D sensing projects.

Optical Fingerprint 
Optical fingerprint is an emerging opportunity for Himax. Himax has been working with an industry leading fingerprint solution provider to develop an under-display optical fingerprint product in the last two years, targeting smartphones using OLED displays. A number of design-in projects are already ongoing and Himax expects more to come. Combining the leading fingerprint solution design of its partner and a low-power CMOS image sensor with superior sensitivity which Himax fully customized for this purpose, this optical fingerprint solution is able to deliver outstanding performance even under extreme conditions such as ultra-low light or direct bright sunlight, or when the finger is very cold or dry. Similar to 3D sensing, optical fingerprint is new and complex with a high barrier of entry. Again, the CMOS image sensor used in the solution will have a much higher ASP and better margin than the Company’s traditional display driver IC products.

WLO
In the last earnings call, Himax reported that the Company’s WLO anchor customer had lowered its volume for the first quarter. After the earnings call, the customer made a further order reduction. The much reduced shipment negatively impacted Himax’s Q1 gross margin as lower utilization of its WLO fab led to much higher equipment depreciation and factory overhead on a per unit basis. Judging by the customer’s forecast, Himax is optimistic that the shipment for the second quarter will rise from that of the first quarter and expect the volume to be significantly higher in the second half. Meanwhile, Himax is very encouraged by the progress of its new R&D projects with the said customer for their future generation products centering around its exceptional design know-how and mass production expertise in WLO technology.

CAPEX
Himax announced the increase of the Phase I capital expenditure budget from $80 million to $105 million in the last earnings call. The Phase I is being executed as scheduled. Since February, the Company has been moving in equipment and some manufacturing related staff to the new building and started tuning the manufacturing process and conducting production trial run for its 3D sensing solutions. Himax has already achieved pretty satisfactory production yields in the internal pilot production. Of the $105 million budget, $33 million has been paid out in 2017 and another $17.5 million in the first quarter 2018. The payment for the remaining $54.5 million is to be made throughout the rest of 2018.