‘Murky’ Visibility Thwarting Display ‘Demand Forecasts,’ Says Himax CEO

The war in Ukraine, plus rising inflation and rolling COVID-19 lockdowns throughout China, “have significantly impacted the supply chain and consumer electronics demand, leading to a particularly abnormal business environment,” said Himax Technologies CEO Jordan Wu on a Q1 earnings call Thursday. The company supplies display-driver chips to major panel makers, and its financial performance can be a bellwether of health in the display industry. Its stock closed 13.2%. higher Friday at $9.41

“Murky” order visibility is leading to “smaller and shorter demand forecasts” among the leading consumer tech global brands, said Wu. Panel makers began responding toward the end of Q1 by taking “aggressive measures in an attempt to quickly reduce their IC inventories,” he said. “Against the backdrop of challenging market conditions and short-term uncertainty, for the second quarter, we expect a sequential decline in gross margin, mainly because our cost of goods sold this quarter represents pricing from previous quarters when foundries were still raising their prices.”

Q1 revenue from large display drivers was down 11.5% sequentially from Q4 but up about 60% year over year, said Himax. TV revenue was flat sequentially, “anchored” by higher high-end and large-sized TV shipments to key accounts, despite the first quarter being a seasonally low period and despite the continued “soft TV demand,” said the company. First-quarter smartphone revenue declined by double digits sequentially, it said: “The smartphone market continued to be challenged by sluggish demand on expected lockdowns in China and geopolitical tension, resulting in significantly reduced demand visibility at panel houses and OEMs, which have started to reduce their IC inventory.”

Himax is projecting that second-quarter revenue in large display-driver chips will decline by double digits sequentially “due to production disruptions in the midst of China’s lockdowns, coupled with weakness in consumer demand,” said Wu. “The outlook for the large-sized driver IC business remains murky with moderating TV sell-through and muted Chromebook sales,” he said. TV and notebook IC sales are expected to decline double digits sequentially in the second quarter “due to customers’ inventory control in response to sluggish global demand and reduced business visibility,” he said.

The smartphone market “continues to be depressed by excess inventory” for panel makers, original design manufacturers and brands, said Wu. “Pandemic-induced logistics and supply chain disruptions are also weakening market sentiment, while rising inflation adversely affects household disposable income leading to a prolonged replacement cycle at the consumer end,” said the CEO. “Against this backdrop, we expect Q2 smartphone IC business to be down single digits sequentially.”

Himax continues to commit R&D resources to AMOLED driver ICs “through arrangements with top-tier customers,” said Wu. “In the light of serious constraints on AMOLED display driver capacity in the next few years, we have secured meaningful capacity in this area with our secured capacity fully booked up by leading panel makers.” In the OLED TV and notebook sectors, “we are encouraged by our progress in the last few quarters with designs made for leading customers and panel houses’ next-generation products,” he said.

In non-driver segments of the Himax business, including display timing controllers, “the consumer market continues to expand its appetite towards advanced displays for visual enjoyment and diverse video entertainment,” said Wu. “After years of commitment and R&D efforts, we have successfully positioned ourselves towards high-end areas,” including 4K and 8K TVs, high-frame-rate gaming monitors and low-power notebooks, he said. “These high-end areas not only warrant much higher content value on a per-panel basis, but also represent a higher barrier to entry for latecomers.”