After trying several times to break past the $11/share level, Himax Technologies (NASDAQ: HIMX) bottomed out at around $9.00. An analyst downgrade sent the stock lower but the story of the small company is the same: WLO production later this year and development for 3D image sensing will lead to a bigger market for Himax.
On October 12, rumors circulated that Apple (NASDAQ: AAPL) would use the WLO component in its iPhone X. If true, investors should not price in much profitability from the deal. Apple does not give suppliers much margin expansion room. The iPhone X production may start out on the slow side. But as production increases in the quarters ahead, Himax will start to benefit from the contract.
Face ID detection is somewhat new on the market. Samsung started 2D scans in earlier Galaxy devices. iPhone is pushing the security levels by offering 3D image scanning for Face ID. The feature could find its way in competing devices in the quarters ahead. If Android phone makers select Himax to supply the part, the WLO demand will grow even more. At a forward P/E of 24x, HIMX stock already prices in modest revenue for WLO.
The 3D sensor market is a bigger opportunity for Himax and its co-partner, Qualcomm (NASDAQ: QCOM). HIMX stock had rallied after the announcement but the fruits of the development will not show up until early next year or later. Still, the prospects of 3D imaging is immense. Himax’s price-multiples could expand as more smartphone customers adapt the technology.
