Q3 operating income was $5.9 million or 2.6% of sales, compared to 12.2% last quarter and 4.6% of sales for the same period last year. The sequential decrease, aside from lower sales and a contraction in gross margin, primarily reflected the difference in annual employee bonus compensation, totaling $11.2 million or 5.1% of sales, the immediately vested and expensed portion of this year’s new grant. The year-over-year decrease in operating margin was mainly driven by a decline in sales and lower gross margins. Third-quarter after-tax profit was $13.0 million, or 7.4 cents per diluted ADS, compared to $29.6 million, or 16.9 cents per diluted ADS last quarter, and $11.2 million, or 6.4 cents in the same period last year. In calculating the Q3 after-tax profit, Himax made a favorable income tax adjustment to rectify overestimated tax expenses for preceding quarters this year, hence the sequential increase in after-tax profit.
Balance Sheet and Cash Flow
Himax had $206.5 million of cash, cash equivalents and other financial assets at the end of September 2024, compared to $253.8 million a quarter ago and $155.4 million at the same time last year. The sequential decrease in cash balance was mainly the result of a $50.7 million payment for annual dividends. Operating cash outflow for the third quarter was approximately $3.1 million, compared to an inflow of $26.9 million in Q2. The outflow was primarily due to $30.1 million paid to employees for their bonuses, which included $10.8 million for the immediately vested portion of this year’s award and $19.3 million for vested awards granted over the past three years. Operating cashflow excluding employee bonus was a $27.0 million inflow during the quarter. Himax had $36.0 million of long-term unsecured loans as of the end of the third quarter, of which $6.0 million was the current portion.
The Company’s inventories as of September 30, 2024 were $192.5 million, lower than the $203.7 million last quarter and $259.6 million in the same period last year, indicating a well-managed and balanced inventory level from quarter to quarter. Accounts receivable at the end of September 2024 was $224.6 million, down from $242.4 million last quarter and $248.5 million a year ago. DSO was 92 days at the quarter end, as compared to 99 days last quarter and 95 days a year ago. Third quarter capital expenditures were $2.6 million, versus $4.6 million last quarter and $2.6 million a year ago. The third quarter capex was mainly for R&D related equipment for Company’s IC design business.
Outstanding Share
As of September 30, 2024, Himax had 175.0 million ADS outstanding, little changed from last quarter. On a fully diluted basis, the total number of ADS outstanding for the third quarter was 175.0 million.
Q4 2024 Outlook
Looking ahead to Q4, the macro environment remains challenging. Panel customers are reducing production to stabilize panel prices in response to the current market conditions. At the same time, end brands are also taking a cautious approach to panel procurement and maintaining low inventory levels. Taken together, these factors have suppressed IC demand, leading to Himax’s conservative outlook for the fourth quarter.
Against this backdrop, Himax continues to strictly manage expenses and implement various cost optimization measures, including enhancing manufacturing and operational efficiency, as well as leveraging a diverse range of vendors in foundries and backend suppliers. Looking ahead, while the global economy still looks uncertain, Himax is confident in the business outlook of several key areas, namely automotive, AI, WLO, and OLED, and expect these product lines to drive significant growth of Himax’s business.
On the automotive sector, Himax’s primary revenue contributor. Himax remains optimistic in its long-term outlook as the automotive display market continues to expand through innovation and technological advancements. Himax’s confidence also stems from its comprehensive offering and leading position in the market, particularly in the areas of LCD TDDI, OLED, and Tcon, all of which are relatively new and cutting-edge technologies for automotive display. These technologies are expected to see continued adoption, providing Himax with sustainable long-term growth opportunities.
It's worth noting that there have been significant fluctuations in automotive market demands in recent quarters, particularly from the Chinese market, which accounts for over 30% of global vehicle sales. Government policies, subsidies, and aggressive discount campaigns by car manufacturers have made supply and demand less predictable, creating new challenges for automotive IC suppliers. Automotive ICs, unlike consumer electronics products, feature rigorous safety and reliability standards, resulting in longer production lead time, which poses greater challenges in handling customers’ rush orders. However, thanks to Himax’s dominant market share and substantial shipment volume in the automotive sector, Himax is well-equipped to navigate these market fluctuations. In fact, Himax’s ability to respond to these last-minute demands for automotive ICs was instrumental in Company’s better than expected third quarter financial results, with final revenues exceeding the midpoint of Himax’s guidance by as much as 7%. The higher revenues were driven primarily by rush orders that arose after Himax’s last earnings call held in the middle of the third quarter. Indeed, being able to quickly respond to changing customer needs has become a crucial competitive advantage in the automotive IC sector for Himax.
In terms of WLO business, Himax is confident in its collaboration with FOCI on the LPO/CPO business where I am pleased to share that Himax is making decent progress in the initial small-scale production of the first-generation solution. Demand for high-speed optical communication technology is surging, driven by advancements in high-performance computing and artificial intelligence. Moreover, Himax and FOCI, along with world-leading AI semiconductor companies and foundry partner, have begun new technology development for future generation products. Himax believes this will create new revenue streams for the Company and make a significant contribution to Himax’s total revenue and profit in the coming years.
Display Driver IC Businesses
LDDIC
In Q4 2024, Himax anticipates a double-digit sequential sales decrease for large display driver ICs due to soft holiday shopping demand expectations, ongoing customers destocking since Q2, and intensified China local competition. Panel manufacturers are strategically reducing production to safeguard panel prices while end brands are enforcing strict procurement control in response to soft demand and maintaining low inventory levels.
Looking ahead in the notebook sector, the emergence of AI PC is prompting display upgrades towards OLED displays and displays equipped with touch features. Through strategic collaborations with leading panel makers in Korea and China, Himax is well positioned to capitalize on this trend, offering a comprehensive range of notebook IC products including DDIC, Tcon, and touch controller for OLED displays and TDDI and Tcon for LCD display. First on TDDI for LCD, Himax is pioneering in-cell touch TDDI for notebook LCD display. Himax’s state-of-the-art in-cell touch TDDI solution features a proprietary architecture where the touch controller is embedded inside the TDDI chip with the display portion of the TDDI taking advantage of the conventional display driver configuration to convey Tcon data to drive the panel. This allows customers to maintain the existing Tcon adoption, substantially reducing their product development effort and enhancing production flexibility. Additionally, the TDDI features high integration, multi-chip cascade, and increased channel output, enabling higher resolution of up to 4K and larger screen of up to 16 inches, with compact PCB and narrower bezel designs, making it suitable for both mainstream and high-end LCD laptops. In the third quarter, Himax’s newly introduced in-cell touch TDDI successfully entered mass production for a prominent brand's first AI PC. Several projects are also in progress with other brands for their upcoming notebook models.
The second area of focus is OLED, which is seeing increasing adoption in premium laptops. In addition to Himax’s OLED DDIC and Tcon solutions, Himax is also pioneering on-cell touch control technology on notebook OLED display. Multiple projects with top panel and laptop leaders are underway. Finally, Himax is developing the next generation eDP 1.5 display interface for Tcon, applicable to both LCD and OLED panels, supporting high frame rates, low power panel replay, adaptive sync, and high-resolution. Himax aims to launch eDP 1.5 Tcon in the second half of 2025. Himax is confident that, with these initiatives, Himax will be the frontrunner for next-gen AI PCs and premium notebooks. With several projects slated for mass production starting in 2025, Himax believes its LCD and OLED notebook solutions will act as growth catalysts for Himax’s notebook IC business for the coming years.
SMDDIC
Q4 SMDDIC revenue is expected to be flat sequentially. Automotive IC revenue in Q4 is expected to resume growth and increase single digit sequentially, mainly supported by ongoing China market promotional events and the Chinese government’s renewed trade-in stimulus policies. Notably, Himax’s automotive driver IC sales for the full year 2024 are projected to grow high-teens year-over-year, significantly outperforming global automotive growth, primarily driven by continued expansion of TDDI adoption among all major end customers worldwide. In the automotive TDDI sector, Himax continues to strengthen Himax’s market dominance with cumulative shipments already exceeding 70 million units, far surpassing those of Company’s competitors. With nearly 500 design-in projects secured and only about 30% currently in mass production, Himax continues to see substantial growth potential ahead. Remarkably, Himax’s Q4 automotive TDDI sales are set to surpass DDIC sales for the first time, highlighting the widespread adoption of Himax’s solutions worldwide, along with growing demand for more intuitive, interactive, and cost competitive touch panel features enabled by TDDI solutions. While Himax’s full year 2024 traditional automotive DDIC sales are expected to decline as they are partially replaced by TDDI, the Company’s shipping quantity for DDIC is set to see a modest increase. This is indicative of the product’s long-life cycle as many of Himax's customers’ legacy models will not be retired for years, and many displays, such as cluster display, HUD, or rear- and side-view mirrors, do not require touch feature. Himax remains the leader of the automotive DDIC market, with approximately 40% global market share.
