No Surprises In Himax's (NASDAQ:HIMX) Q4 Sales Numbers, Inventory Levels Improve

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Semiconductor maker Himax Technologies (NASDAQ:HIMX) reported results in line with analysts' expectations in Q4 FY2023, with revenue down 13.2% year on year to $227.7 million. It made a GAAP profit of $0.14 per share, down from its profit of $0.24 per share in the same quarter last year.

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Himax (HIMX) Q4 FY2023 Highlights:

• Revenue: $227.7 million vs analyst estimates of $226.8 million (small beat)
• EPS: $0.14 vs analyst estimates of $0.11 (22.7% beat)
• Free Cash Flow of $53.69 million, up from $13.42 million in the previous quarter
• Inventory Days Outstanding: 125, down from 144 in the previous quarter
• Gross Margin (GAAP): 30.3%, in line with the same quarter last year
• Market Capitalization: $983.7 million

“Traditionally, business operations in the first quarter decelerate due to the Lunar New Year holidays. This year, exacerbated conditions due to sluggish demand are causing panel makers to strategically lower factory utilizations, in an attempt to support panel pricing and profitability. In tandem, OEMs and end customers are maintaining their cautious approach with heightened procurement scrutiny, even with inventories now at more manageable levels. To fortify the resilience of our operations, we are actively implementing strategies to optimize costs and diversify suppliers in both foundries and backend sources to enhance supply flexibility and cost-effectiveness,” said Mr. Jordan Wu, President and Chief Executive Officer of Himax.

Taiwan-based Himax Technologies (NASDAQ:HIMX) is a leading manufacturer of display driver chips and timing controllers used in TVs, laptops, and mobile phones.

Analog SemiconductorsDemand for analog chips is generally linked to the overall level of economic growth, as analog chips serve as the building blocks of most electronic goods and equipment. Unlike digital chip designers, analog chip makers tend to produce the majority of their own chips, as analog chip production does not require expensive leading edge nodes. Less dependent on major secular growth drivers, analog product cycles are much longer, often 5-7 years.

Sales GrowthHimax's revenue growth over the last three years has been mediocre, averaging 13.6% annually. This quarter, its revenue declined from $262.3 million in the same quarter last year to $227.7 million. Semiconductors are a cyclical industry, and long-term investors should be prepared for periods of high growth followed by periods of revenue contractions (which can sometimes offer opportune times to buy).

This was a slow quarter for the company as its revenue dropped 13.2% year on year, in line with analysts' estimates.

Product Demand & Outstanding InventoryDays Inventory Outstanding (DIO) is an important metric for chipmakers, as it reflects a business' capital intensity and the cyclical nature of semiconductor supply and demand. In a tight supply environment, inventories tend to be stable, allowing chipmakers to exert pricing power. Steadily increasing DIO can be a warning sign that demand is weak, and if inventories continue to rise, the company may have to downsize production.

This quarter, Himax's DIO came in at 125, which is 6 days above its five-year average. These numbers suggest that despite the recent decrease, the company's inventory levels are higher than what we've seen in the past.

Key Takeaways from Himax's Q4 Results We were impressed by Himax's strong improvement in inventory levels. We were also glad its operating margin improved. Overall, we think this was a good quarter that should please shareholders. The stock is flat after reporting and currently trades at $5.7 per share.