Himax:The Market Is Missing Three Technology Shifts in One Display Chip Maker

Himax Technologies (HIMX US) is a Taiwan-headquartered chip designer and the largest supplier of display driver chips for cars. A display driver is the chip that tells each pixel on a screen what to show. Automotive products are about half of revenue. Products other than display drivers were 21% of revenue in 3Q26. They include timing controllers, the chips that coordinate when each part of a screen updates, WiseEye sensing chips and an optics business. Revenue was US$832m in 2025 and we forecast US$861m in 2026.

Each generation of AI chip moves several times more data than the last, and copper wiring cannot carry it. At those speeds copper loses signal and burns power that data centers cannot spare. The answer is to convert the data to light inside the chip package, next to the processor. The industry calls this co-packaged optics. NVIDIA (NVDA US) says its co-packaged switches are 3.5x more power efficient than the plug-in optical modules used today.

Himax makes optical parts that sit inside that package. Where the optical fibers meet the chip, a connector called a fiber array unit aligns each fiber to within a fraction of a micron. Inside it sit lenses, prisms and V-shaped grooves that steer the light into each fiber. Himax makes those parts with a wafer-level optics process it has run for 15 years. FOCI (3363 TT), a Taiwan-listed maker of fiber connectors, builds the unit around them.

Himax names no end customers. Hunterbrook, an investigative outlet that discloses a long position in the shares, reported in March 2026 that Himax's optics feed the photonics platform of TSMC (2330 TT), and that this platform is the one behind NVIDIA's optical switches. Ming-Chi Kuo, an analyst at the brokerage TF International Securities, named Himax in December 2024 as a potential optics supplier for TSMC's co-packaged optics and NVIDIA's next AI chips. None of the three companies has confirmed either report.

FOCI's shares show what the stock market will pay for exposure to this product. FOCI has a market value of about US$1.4bn. Himax, with its automotive business, its sensing chips and the optics inside FOCI's unit, has a market value of US$1.56bn. Himax also owns shares in FOCI: a 5.3% stake was reported in December 2024, which would be worth about US$72m at FOCI's market value.

The timing has moved later during 2026. In March management described a meaningful contribution from 2027. In June it expected small shipments of its first product from the second half of 2026. With the November results it said it expects the business to start in 2027, and left it out of its 2027 outlook because end customers decide when volume production begins. Our forecasts include no revenue from it.

Car screens are getting larger, and a larger screen needs more chips. According to management, a car display over 20 inches typically requires four or more of Himax's combined touch and display driver chips, plus at least one local dimming timing controller. That controller dims parts of the backlight to raise contrast and cut power use, and a timing controller sells for more than double the price of a traditional driver chip. Timing controllers are fitted in only about 20% of vehicles today, mainly premium models.

Himax leads each of these products. It supplies about 40% of automotive display driver chips, more than half of the automotive chips that combine touch and display, and more than half of local dimming timing controllers. Automotive sales rose from below 20% of revenue in 2021 to about 50%. Management said with the 3Q26 results that sales of automotive timing controllers are on track to grow more than 40% in 2026.

The position is hard to dislodge because a car program takes years to qualify. Management points to hundreds of design wins, nearly two decades of work with the panel makers that build car displays, and engineering teams based at customer sites.

WiseEye keeps a camera watching while the rest of the device sleeps. It pairs a low-power processor with an image sensor so that a notebook can detect when a person is present without draining the battery. It is in mass production in premium notebooks from Dell (DELL US) and in the Swift Edge 14 from Acer (2353 TT). The processor alone sells for a mid-single-digit dollar price, and the full solution with sensor and software for more than US$10.

Smart glasses are the next use. Management says numerous WiseEye projects should enter mass production from 2027, and Himax also makes the microdisplays and optics that glasses need. It expects products other than display drivers to approach 30% of revenue, from about 20% now, at gross margins above the company average. That mix change is why we forecast gross margin rising from 33.1% in 2026 to 34.0% in 2028. It works against higher prices from chip foundries and packaging suppliers, which management expects from early 2027.

Himax guided 4Q26 revenue down 22% to 26% from 3Q26, to between US$183m and US$192m. It guided earnings of US$0.045 to US$0.065 per ADS, against US$0.107 in 3Q26. Management said that shortly after the early October holiday in China, customers that had bought heavily in earlier quarters cut orders for automotive driver chips. The cuts came from panel makers with high exposure to Chinese automakers' export programs. Management cited trade barriers in Europe and a cut in export tax rebates for new-energy vehicles.

Three things did not change. 1) Orders from panel makers that supply non-Chinese automakers held steady. 2) Full-year automotive revenue is still expected to grow about 10% in 2026. 3) Gross margin was 34.2% in 3Q26 and is guided flat to slightly higher in 4Q26. For 2027, management expects double-digit revenue growth before any contribution from optics for AI data centers.

Management has not said in which quarter orders recover, and that is the main uncertainty in our numbers. Our 2027 revenue forecast of US$955m needs quarterly revenue to average about US$239m, against the US$187.5m midpoint of 4Q26 guidance. If the first half of 2027 stayed near US$200m a quarter, 2027 revenue would be about US$880m and earnings per ADS about US$0.33, against our US$0.45. Management also said the customers that cut orders had bought heavily in earlier quarters, so part of 2Q26 and 3Q26 revenue may have been early buying. A second risk is that Chinese panel makers move orders to chip suppliers in China. The trade barriers behind the order cut would add to that risk if they last.

The shares fell 41% between 2 October and 12 November, from US$15.24 to US$8.96, and are 63% below the US$24.19 they reached on 3 June. About three quarters of the fall since 2 October came before the results: the shares closed at US$10.44 on 4 November. That leaves them close to the US$8.09 of late March, while we forecast 2026 earnings per ADS of US$0.32, 28% above 2025.

We value each business on the sales multiple of the listed companies most like it, then add net cash and investments. Himax's businesses have different growth rates and would attract different buyers, so a single multiple for the whole company would hide what each is worth. The parts add up to US$2,283m, or US$13.08 per ADS, and we set the target price at US$13.00. At the share price the market pays 1.3x expected 2027 sales for the operating businesses. Our parts value them at 1.8x.

We use sales multiples because Himax's operating margin of 8% to 10% understates what its market position is worth. A larger chip company that owned the automotive business would not need a second set of sales, administration and design-tool costs. We apply no holding-company discount, because Himax owns these businesses outright and they share one balance sheet.

The automotive business carries the most value. Six listed makers of automotive chips, NXP (NXPI US), onsemi (ON US), Renesas (6723 JP), Infineon (IFX GR), Melexis (MELE BB) and indie Semiconductor (INDI US), trade on 2.2x to 4.6x expected 2027 sales, with a median of 3.4x. We use 2.2x, the bottom of that range, because Himax's gross margin of about 33% is lower than theirs. This choice carries the target. Valued at the 0.8x of display driver makers, the automotive business would be worth US$2.19 per ADS, not US$6.02, and the parts would add up to US$9.25, close to the share price.

The other two operating parts use the same method. Display driver makers Novatek (3034 TT), Parade (4966 TT), Raydium (3592 TT) and FocalTech (3545 TT) trade on a median of 0.85x sales, and we apply 0.8x to Himax's other display drivers. Synaptics (SYNA US), Ambarella (AMBA US) and CEVA (CEVA US), which design chips that run AI inside a device, trade on 4.0x to 5.5x. We use 2.5x for Himax's sensing and other non-driver products because the group also includes ordinary timing controllers.

Optics for AI data centers is a scenario, not a forecast. We assume US$100m of annual revenue once volume production is running, value it at 5.0x sales, in line with listed optics makers FOCI, Coherent (COHR US) and LuxNet (4979 TT) at 4.3x to 6.0x, and give it a one-in-two probability. That adds US$250m, or US$1.43 per ADS. Both the revenue and the probability are our assumptions. Management has given no figure. For scale, consensus expects FOCI's own revenue to be about US$207m in 2027 and US$693m in 2028. Each US$50m of optics revenue is worth US$1.43 per ADS at full probability.

The target is high against near-term earnings. US$13.00 is 29x our 2027 earnings per ADS of US$0.45 and 23x our 2028 figure of US$0.57. Net of cash and investments it is about 20x our 2027 operating profit. Listed display driver makers trade on 12x to 14x earnings. At 12x to 14x our 2028 earnings, plus US$2.04 per ADS of net cash and investments, the shares would be worth US$8.87 to US$10.00. The difference from our target is the price we put on a leading automotive position and an optics line that near-term earnings do not yet show.

We would change our view if automotive revenue had not recovered by the middle of 2027, or if Himax lost share in automotive display drivers. Either would mean the order cut reflected lost business, not customers working down stock.

We forecast revenue growth of 11% in 2027 and 10% in 2028, with operating margin rising from 8.0% in 2026 to 11.6% in 2028. Revenue growth in 2027 is at the low end of management's double-digit outlook. The margin gain comes from operating costs that grow 4% to 5% a year, slower than revenue, and from the higher-margin non-driver products. Himax paid a dividend of US$44.6m in 2026, and we assume it pays out about 95% of the prior year's profit each year. The full income statement, balance sheet and cash flow statement follow.