Himax Techs Q3 2026 Earnings Call Transcript

Himax Techs (NASDAQ:HIMX) reported third-quarter financial results on Thursday. The transcript from the company’s third-quarter earnings call has been provided below.

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Summary

Himax Techs reported Q3 2026 revenue of $246.8 million, an 8.5% sequential increase, with gross margin rising to 34.2%. Profits per diluted ADS exceeded guidance at 10.7 cents.

Revenue from large display driver ICs declined slightly, while small and medium-sized display driver ICs saw an 8.9% increase, primarily driven by automotive demand.

Operating expenses rose due to annual employee bonuses, impacting operating income, which was $22.7 million, down from the previous quarter.

The company anticipates a Q4 revenue decline of 22-26% sequentially due to a correction in automotive driver IC orders, although automotive TCON sales are expected to grow.

Himax Techs has secured capacity commitments for 2027 amidst supply chain pressures, focusing on automotive and AI-related applications.

Non-driver sales increased by 11.2%, with strong performance in the automotive TCON sector, expected to continue growing into next year.

Future growth prospects include expanding automotive display IC business, OLED notebook solutions, and new opportunities in CPO and WiseEye AI products.

The company expects a pre-tax gain of $23-24 million from a divestiture closing in Q4 2026 and projects double-digit revenue growth in 2027, excluding potential CPO contributions.

Full Transcript

OPERATOR

Ladies and gentlemen, welcome to Himax Techs third quarter 2026 earnings conference call. At this time all participants are in listen-only mode. Later we will conduct a question-and-answer session, and instructions will follow at that time. As a reminder, this conference call is being recorded. I would now like to turn the conference over to Ms. Karen Tao, Head of IR and PR at Himax Techs. Ms. Tao, please go ahead.

Karen Tao (Head of Investor Relations and Public Relations)

Welcome everyone. My name is Karen Tao, Head of IR at Himax Techs. Joining me today are Jordan Wu, President and Chief Executive Officer, and Ming-Feng Pan, Chief Financial Officer. After the Company’s prepared comments, we have allocated time for questions in a Q&A section. If you have not yet received a copy of today’s results release, please email hxirimexducanTW or download a copy from the Himax Techs website. Before we begin the formal remarks, I would like to remind everyone that some of the statements in this conference call, including statements regarding expected future financial results and industry growth, are forward-looking statements. They involve a number of risks and uncertainties that could cause actual events or results to differ materially from those described in the conference call. A list of risk factors can be found in the Company’s latest SEC filings, Form 20-F in the section entitled Risk Factors, as may be amended.

Except for the Company’s full year 2025 financials, which were provided in the Company’s 20-F and filed with the SEC on March 27, 2026, the financial information included in this conference call is unaudited, consolidated, and prepared in accordance with IFRS accounting. Such financial information is generated internally and has not been subjected to the same review and scrutiny and may vary materially from the audited consolidated financial information for the same period.

On today’s call, I will first review Himax Techs consolidated financial performance for the third quarter of 2026, followed by our fourth quarter outlook. Jordan will then give an update on the status of our business and after which we will take questions. You can submit your questions online through the webcast or by phone. We will review our financials on an IFRS basis. We are pleased to report that our Q3 profits exceeded the guidance range announced on August 6, while revenues and gross margin were both in line with the guidance. Third quarter revenue registered $246.8 million, representing a sequential increase of 8.5%. Gross margin was 34.2%, in line with our guidance of around 34%, and up from 33.1% in the previous quarter. Q3 profits per diluted ADS was 10.7 cents, exceeding the guidance range of 8.0 to 10.0 cents attributable to lower-than-expected operating expenses.

Revenue from large display driver IC came in at $19.0 million, a slight decline of 1% from the previous quarter. Both monitor and notebook IC sales declined quarter over quarter as customers had already pulled forward inventory purchases in the prior quarters. In contrast, sales for TV IC products increased sequentially due to higher legacy product shipments to key customers. Sales of large panel driver IC accounted for 7.7% of total revenue for the quarter compared to 8.4% last quarter and 9.5% a year ago.

Revenue from small and medium-sized display driver IC segment totaled $176.8 million, reflecting an increase of 8.9% sequentially. Q3 automotive driver sales, including both the traditional DDIC and TDDI, increased by solid double digits quarter over quarter, marking the second consecutive quarter of strong growth. This was primarily driven by the broad customer demand for DDIC and TDDI products. Some panel makers also accelerated IC purchases in response to a surge in orders from Chinese automakers which are expanding overseas amid slowing demand in their domestic markets.

The mass production of multiple TDDI projects across automotive brands worldwide also contributed to quarter-over-quarter growth. Q3 smartphone IC sales, covering LCD and OLED products, increased sequentially driven by continued shipment of a leading smartphone brand’s mainstream model and inventory build-out for its new premium models. In contrast, tablet IC sales decreased sequentially as expected, primarily reflecting customers’ accelerated purchases in the first half of the year against the backdrop of the rising memory price sentiment in the market. The small and medium-size driver IC segment accounted for 71.6% of total sales for the quarter compared to 71.4% in the previous quarter and 70.8% a year ago.

Q3 non-driver sales reached $51.0 million, an 11.2% increase from the previous, due to robust automotive and consumer that extended the strong momentum from Q2. This growth was supported by the continued legacy product shipment to a broad, diversified customer base, as well as delivering new projects entering mass production. TCON business accounted for over 10% of the total sales with more than half contributed by automotive TCON. Himax Techs continues to hold an undisputed leadership position with a dominant market share in automotive TCON, particularly in solutions featuring local dimming functionality.

We expect the strong growth momentum to continue into next year. Non-driver product accounted for 20.7% of total revenues as compared to 20.2% in the previous quarter and 19.7% a year ago. Third quarter operating expenses were $61.8 million, an increase of 21.9% from the previous quarter and 1.7% compared to the same period last year. The sequential increase was mainly attributed to the annual bonus compensation, which we award employees at the end of September each year, and results in a much higher employee compensation expense compared to other quarters of the year. Our annual bonus compensation grant for 2026 was $13.3 million, slightly higher than the guidance of $13 million.

As the bonus amount determined by the expected full-year profit was revised upward following an improved Q3 profit, of the $13.3 million, $11.8 million was immediately vested and expensed in Q3, including a portion of the award granted in prior years. The total bonus expenses for Q3 2026 amounted to $11.9 million, higher than the $8.1 million recorded in Q3 2025. For reference, the annual bonus granted for 2025 and 2024 were $7.7 million and $12.5 million respectively, of which $7.5 million and $11.2 million were vested and expensed immediately.

We continue to exercise prudent cost management while prioritizing strategic investment in driver IC businesses that offer growth opportunities. Third quarter operating income was $22.7 million, representing an operating margin of 9.2% compared to 10.8% in the previous quarter and negative 0.3% for the same period last year. The sequential decline was primarily attributable to the higher employee bonus expense, which as I mentioned earlier totaled $11.9 million compared to $0.2 million last quarter. Meanwhile, the year-over-year increase was primarily driven by higher revenue and improved gross margin.

Third quarter after-tax profit was $18.6 million, or 10.7 cents per diluted ADS, compared to $19.9 million, or 11.4 cents per diluted ADS last quarter, and up from $1.1 million, or 0.6 cents in the same period last year. Turning to the balance sheet, we had $285.3 million cash, cash equivalents, and other financial assets as of September 30, 2026. This compares to $278.2 million at the same time last year and $8.7 million a quarter ago. The sequential decline in cash balance mainly reflected the $44 million in dividend and $11.9 million employee bonus payout. Q3 operating cash inflow was $23.9 million compared to an inflow of $17.5 million in Q2. The employee bonus payout this year included $11.4 million for the immediately vested portion of this year’s award and $0.05 million for vested awards granted over the past three years.

Our quarter-end inventory as of September 30, 2026 was $159.8 million, up from $151 point million and higher than $137.4 million in the same period last year. Our inventory level remained healthy, particularly considering extended manufacturing lead time across the industry. Accounts receivable at the end of September was $238.4 million, up from $220.3 million last quarter and $200.7 million a year ago. DSO was 93 days at quarter end, the same as last quarter and 87 days a year ago.

Third quarter capital expenditures, primarily on R&D-related equipment for our IC design business, were $3.9 million versus $4.3 million last quarter and $6.3 million a year ago. As of September 30, 2026, Himax Techs had 174.5 million ADSs outstanding, little changed from last quarter. On a fully diluted basis, the total number of ADSs outstanding for the third quarter was 174.4 million. Regarding the proposed divestiture of our stake in an equity method investee announced in July, the transaction is progressing as planned and expected to close in Q4, subject to customary closing conditions and regulatory approvals. Upon closing, we expect to recognize a pre-tax gain of approximately $23 to $24 million and an after-tax gain of approximately $19 to $20 million. We will provide further updates as appropriate.

Now turning to our Q4 2026 guidance, we expect Q4 revenue to decrease 22% to 26% sequentially. Gross margin is expected to be flat to slightly up, depending on the product mix. Q4 profit attributable to shareholders is estimated to be in the range of 4.5 to 6.5 cents per fully diluted ADS. This estimate does not yet include the potential gain from the proposed divestiture just mentioned earlier. I will now turn the call over to Jordan to discuss our Q4 outlook.

Jordan, the floor is yours.

Jordan Wu (President and Chief Executive Officer)

Thank you, Karen. Demand for data center AI applications remains robust with no signs of slowing. Notably, AI-related demand expands beyond advanced process nodes to a wide range of supporting applications involving legacy process nodes such as photonic IC (PIC) interposers, power management IC, and MOSFETs. As the supply-demand imbalance continues to intensify, capacity on legacy process lines is expected to tighten further in 2027. Against this backdrop, foundries as well as packaging and testing providers, including those in China, have recently announced significant price increases for 2027.

In the face of these multi–supply chain pressures, securing sufficient capacity has become our top priority, particularly as automotive now accounts for most of our revenues. Automotive customers have far more stringent requirements for supply stability, long-term capacity assurance, and delivery reliability than consumer electronics customers do. Through a series of recent proactive measures, we have fully secured capacity commitments for 2027 from our key suppliers and for key product areas.

In terms of costs, we continue to work closely with customers to share the impact of rising costs. As just mentioned, our Q4 revenue is projected to decline sequentially. This is primarily due to an abrupt and significant correction in automotive driver IC orders covering both TDDI and DDIC. Automotive TCON sales, on the other hand, are expected to continue growing sequentially. It is worth highlighting that automotive IC sales recorded a decent 16% year-over-year increase in the first nine months of 2026. Despite the sharp correction in Q4, we still expect full-year automotive IC revenue to grow by approximately 10% year over year, outperforming the global automotive market with worldwide vehicle production expected to decline this year.

Now let me elaborate on what we are seeing in automotive demand lately. The year started on a soft note in Q1, followed by robust inventory replenishments in Q2 and Q3 as certain panel makers accelerated purchases to meet surging orders from Chinese automakers expanding overseas in Q4. However, shortly after China’s National Day holidays in early October, we saw a sudden and sizable decline in demand among the customers that had purchased aggressively in prior quarters.

In recent weeks, certain panel makers with high exposure to Chinese automakers and programs have significantly scaled back their Q4 forecast. For context, after years of solid growth, China’s domestic automotive market has experienced a substantial decrease in demand amid intensifying competition this year, prompting Chinese automakers to increasingly rely on exports. According to data released by the China Association of Automotive Manufacturers (CAAM), in October, China’s domestic sales for locally made vehicles declined by 22.4% year over year in the first nine months of 2026, while exports of locally manufactured vehicles surged by 65.8% in the same period. We believe the recent significant reduction in our Q4 forecasts reflects, in part, Chinese automakers’ earlier over-aggressive export expectations, along with their growing concerns over inventory levels across distribution channels, including shipments in transit, following three quarters of extraordinary export growth.

Adding to the uncertainty, there is mounting pressure from various countries, including the European Union, to tighten trade barriers on Chinese vehicle imports. Compounding these headwinds, in October the Chinese government announced reductions in export tax rebates for new energy vehicles. Together, these factors may have contributed to the recent reduction in our Q4 automotive sales outlook and are limiting our near-term order visibility. By contrast, panel makers primarily serving non-China customers have maintained steady forecasts, with some posting slight sequential increases in their fourth quarter orders.

We believe the sharp decline in the fourth quarter of the automotive focus reflects abrupt short-term order adjustments by certain customers, while our market leader position remains firmly intact. Himax Techs has long maintained a dominant position with strong, long-standing relationships with not just panel makers but also carmaker brands worldwide, as well as leading Tier 1 suppliers across the U.S., Europe, Japan, and Korea. More recently, fueled by the rapid expansion of Chinese automakers in both domestic and export markets, we have also witnessed the rise of Chinese Tier 1 players which are quickly emerging as a force to be reckoned with.

In the process, these suppliers have significantly expanded their manufacturing capabilities, gained extensive mass production experience, strengthened their cost competitiveness, and achieved rapid product development capabilities. These Chinese Tier 1 players are located across a broad geographic area in China, enabling them to serve automakers across multiple regions effectively. With our deep automotive experience, comprehensive automotive display IC portfolio spanning both LCD and OLED technologies, best-in-class customer service, and an extensive global network providing timely localized technical support, we have attracted a great number of Chinese automotive Tier 1s to our customer base in recent years. Moreover, their eagerness to embrace new technologies and ability to bring them rapidly into mass production create additional opportunities for us to expand adoption of our advanced automotive display IC solutions across a growing number of vehicle programs.

This has already translated into a substantial number of design wins and a rapidly growing pipeline of new projects. Looking ahead, we remain optimistic about the long-term growth prospects of our automotive display IC business, supported by rapid advancements in smart vehicle interiors, a trend characterized by more displays per vehicle, larger and higher-resolution screens, and increasingly complex display configurations. These trends are driving growing demand for advanced display technologies, as exemplified by our fast-growing LTDI solutions for large-format automotive displays, which continue to gain traction and demonstrate resilience amid broader automotive market fluctuations. Meanwhile, the accelerating adoption of automotive OLED displays represents another significant long-term growth opportunity supported by our comprehensive IC portfolio and numerous design wins secured through years of close preparation with these OLED panel makers in Korea and China.

In addition to conventional in-cabin displays, head-up displays for SUVs are also gaining traction, evolving into an increasingly important application for new-generation smart vehicles as automakers seek to bring advanced driver assistance information, AI-powered interactive features, and real-time driving data directly into the driver’s field of view. This creates additional opportunities for HUD IC solutions where we hold a commanding market position.

As this trend continues to unfold, we see significant opportunities to further increase our IC content value both per panel and per vehicle. EPD, or electronic paper display, is another area where we see meaningful growth opportunities heading into 2027. In e-readers, we expect growing sales through newly secured project wins and a larger share of leading global end brands’ products. In addition, we continue to expand our presence in the electronic shelf label, or ESL, market, a sizable and growing market with significant potential. We are expanding our sales coverage to address diverse customer requirements and broaden our market reach.

Meanwhile, our WiseEye technology continues to gain traction across a growing range of applications, particularly in the rapidly expanding smart wearable market. During the quarter we were pleased to announce that Alibaba adopted our WiseEye AI processor for its latest smart glasses, just one quarter after another leading global technology heavyweight announced their latest smart glasses incorporating our WiseEye. The retail sales of these glasses are already or soon to be in place.

These recent developments further validate WiseEye’s technological strengths in ultra-low power consumption, always-on visual sensing, and on-device AI processing. In addition to smart glasses, we are making progress in other emerging wearable applications including smart pendants and earbuds. Numerous smart wearable projects are underway, several involving global tech names. This growing design momentum underscores WiseEye’s strong fit for next-generation smart wearables which are evolving towards proactive, context-aware AI experiences that require continuous on-device AI without compromising battery life.

I will elaborate further on this in a few minutes. Lastly, turning to our CPO business, we continue to work closely with our strategic partner Foresee, focusing on further improving manufacturing yields and establishing stable mass production capabilities to support the next phase of production scaling. We are pleased that as part of these ongoing efforts, Foresee announced earlier today that its Board of Directors approved capital expenditures in the amount of 3.33 billion NT dollars, or approximately 100 million U.S. dollars, for the expansion of both facilities and manufacturing equipment in preparation for CPO mass production.

Engineering ramps are already underway with shipments expected to expand quarter by quarter from this point onward. While the timing of mass production is ultimately the call to be made by our end customers, we remain confident our CPO business will begin making a meaningful contribution to both our top and bottom lines starting in 2027. At the same time, we continue to engage with a growing number of customers and advance the joint development of next-generation optical solutions featuring higher fiber count, enhanced optical precision, and increasingly sophisticated designs including WDM, or wavelength division multiplexing, targeting the surging bandwidth demands of HPC and AI data centers. Himax Techs is uniquely positioned to drive further advancements in CPO technology and performance, leveraging the fundamental strengths of our proprietary WLO technology.

Unlike the optical technologies available in the market, our WLO technology offers distinct competitive advantages in nanometer-level optical precision, optical performance, manufacturing consistency, and scalability. Its capabilities make it particularly well suited for the evolving requirements of future-generation CPO applications, enabling reliable, highly repeatable, and scalable mass production of high-precision optical components. Beyond CPO, Himax Techs has been at the forefront of high-precision optics technology for nearly two decades, having worked on various designs across a wide range of applications with some of the world’s most prominent technology names. We are pleased to share that a leading global technology company has selected Himax Techs’ WLO technology to enable its advanced optical sensing solution to support autonomous driving. Our technology delivers high optical efficiency, precision, cost competitiveness, and a solid volume production track record.

These advantages, together with our proven manufacturing expertise, enable us to meet the stringent performance and reliability requirements of automotive applications. Shipments are expected to commence in upcoming quarters. This adoption by a leading global technology company not only validates our technical strengths but also demonstrates the versatility of our WLO technology, further expanding its applications beyond consumer electronics, wearable devices, and AI data centers to include automotive.

With that, I will now begin with an update on the large panel driver IC business. In Q4, large-size display driver sales are expected to increase by low teens from last quarter. Both TV and monitor sales are poised for sequential increases driven by higher shipments of legacy products to key customers. This growth, however, is expected to be partially offset by a decline in notebook IC sales as a leading customer has pushed back mass production of a new high-end notebook model to early 2027.

Looking ahead in the notebook market, we are seeing increasing adoption of OLED displays in premium notebooks, supported by notebook makers’ growing focus on higher-end models, firming memory prices, and the ramp-up of new Gen 8.6 OLED fabs in China starting later this year and in 2027. Himax Techs is well positioned to capitalize on these favorable industry trends with our comprehensive portfolio of notebook OLED solutions, spanning DDICs, TCON, power ICs, and touch controllers.

We have also completed development of our TCON solution supporting the eDP 1.5 interface applicable to both LCD and OLED panels. This interface supports high refresh rates, low-power Panel Replay, Adaptive Sync, and high-resolution displays, enabling enhanced visual performance and improved power efficiency. Our comprehensive product portfolio allows us to offer customers a one-stop solution while increasing our content value per device. Turning to the small and medium-sized display driver IC business, in Q4 small and medium-sized display driver IC business is expected to decrease by double digits sequentially following two consecutive quarters of robust growth. Automotive, tablet, and smartphone driver IC sales are set to decrease quarter over quarter in Q4. As noted earlier, the anticipated decline in automotive sales reflects order reductions from certain panel makers following two quarters of strong sales.

These panel maker customers have been aggressively scaling back their Q4 projections in recent weeks as the outlook for Chinese automakers’ export growth began to reverse significantly. Despite the recent slowdown, we expect our full-year 2026 automotive display IC revenue to grow by approximately 10% year over year, outperforming the projected decline in global vehicle shipments. This growth is driven by the continual expansion of our automotive TDDI, wider adoption of our TCON solutions, and growing contributions from GTDI.

Looking ahead, we remain confident in the long-term trajectory of our automotive business with multiple growth drivers in place. Starting with a rebound in automotive DDIC following several years of modest decline driven by gradual displacement by TDDI, DDIC is poised for recovery backed by the anticipated volume growth of relatively new non-touch display applications such as HUD and e-mirror, where we have built a strong pipeline of design win projects accumulated over the last few years, as well as mainstream displays such as dashboards and in-vehicle infotainment systems.

Our automotive TDDI business, meanwhile, should keep expanding on the back of additional customer vehicle model ramps and production across automotive display applications. To round out the picture, LTDI and OLED solutions are also set to contribute more meaningfully from 2027 onward as more projects ramp. Following years of design development with customers, Himax Techs continues to introduce innovative technologies that reinforce our market leadership and expand our opportunities across diverse automotive display applications. Our LTDI technology is a prime example, particularly suited for large-format displays exceeding 30 inches, which typically require four or more chips per panel and in some cases more than 10, as well as at least one local-dimming TCON.

This translates into significantly higher IC content value on a per-panel and per-vehicle basis. We threaten the widening adoption of this emerging display technology. Q4 LTDI revenue is expected to grow by single digits quarter over quarter and account for over 5% of total sales during the quarter. Integrating a high-speed eDP interface, touch controller, and display driver into a single chip, our recently introduced industry-leading automotive eDP TDDI solution is another example.

Supporting displays of up to 30 inches, this highly integrated solution delivers high resolution, superior display quality, and responsive touch performance. Customers can also opt for an IC configuration that further integrates our industry-leading local dimming technology, eliminating the need for a separate TCON, enhancing contrast and image detail in both bright and dark areas, as well as reducing overall system costs and display power consumption.

Together, these technologies broaden our automotive display portfolio, giving customers greater flexibility to select solutions that best meet their specific display needs, performance requirements, and cost targets. Building on our leadership in automotive LCD, we are also well positioned to capture the accelerating shift to OLED in premium automotive displays, which we expect to become another key growth driver. Working closely with digit OLED panel makers in Korea and China, we have developed a comprehensive portfolio of DDICs, TCONs, touch controller ICs, and customized ASIC solutions to address diverse customer needs and display requirements. Our extensive offerings and early customer engagements have led to a strong pipeline of design wins ramping rapidly.

We are also expanding our OLED portfolio with innovative, highly integrated solutions such as our TED, or TCON Embedded Driver IC, technology which combines DDIC and TCON into a single chip to deliver a cost-effective and flexible solution, particularly suited for smaller, lower-resolution automotive displays. Our TED technology continues to gain traction across a diverse range of applications including automotive and robotics. Shortly after its introduction, the TED solution achieved its first mass production milestone with a leading global brand in the robotics market, with production commencing in Q4.

Several additional design win projects are also underway with customers for their upcoming vehicle models. I would like to now turn to our non-driver IC business update, where we expect Q4 revenue to be flat to slightly down sequentially. First, for the update on our TCON business, we anticipate Q4 TCON sales to increase by high single digits quarter over quarter. Our automotive TCON business is expected to deliver low-teens growth in Q4, marking the third consecutive quarter of strong quarter-over-quarter growth despite subdued demand in the broader automotive market.

The sequential growth is supported by continued shipments of our legacy products to a broad and diversified customer base, along with the ramp-up of several new projects. Notably, one is for a big tech company for its robotaxi offering, underscoring the broadening application of our automotive TCON solutions beyond conventional passenger vehicles. Our full-year 2026 automotive TCON sales are on track to grow by over 40%, with another strong growth expected next year.

With automotive TCON adoption still largely concentrated in premium vehicles, we see significant room for broader market penetration. At the same time, we hold a leading market position in the growing adoption of advanced HUDs where our automotive TCON solutions are widely adopted to address complex issues of dual-image and post-car effect elimination which are unique to HUDs. Together these trends position us well to deliver another year of strong automotive growth in 2027 and beyond.

During the quarter we also introduced our groundbreaking multi-output TCON solutions designed to support next-generation freeform, ultra-wide, and high-resolution automotive displays. Featuring a high-speed DP input and up to 8A outputs, the solution supports resolutions of up to 12K and incorporates advanced image enhancement capabilities including global dimming and HDR, or high dynamic range. It also integrates built-in automotive safety features such as failure detection and on-screen display (OSD) for safety alerts and notifications.

The solution simplifies system architecture, enhances design flexibility, and reduces overall costs, making it a competitive choice for next generation automotive display applications ranging from HUDs to pillar-to-pillar displays. Its strong market appeal is already reflected in the design momentum with leading panel makers and Tier 1 players globally. This new solution demonstrates our continued execution of our technology roadmap and reinforces our leadership in advanced automotive display solutions.

Switching gears to the WiseEye product line, a cutting-edge ultra–low-power AI SoC solution targeting battery-powered endpoint devices, WiseEye has demonstrated its versatility through growing adoption across diverse applications including notebooks, smart door locks, surveillance systems, access control, power bank authentication, smart offices, and, more recently, smart glasses, with design activities continuing to expand. At the core of WiseEye’s competitive advantage is its industry-leading ultra–low-power architecture consuming only a few milliwatts, enabling on-device AI inference, 24/7 always-on visual and voice sensing, in an exceptionally compact form factor. These capabilities enable customers to incorporate AI sensing into their products while minimizing power consumption, extending battery life, and reducing reliance on host processors, creating further opportunities across emerging edge AI and endpoint AI markets.

As mentioned earlier, during the quarter we announced another significant milestone in the smart glasses market with Alibaba adopting our WiseEye AI processor for its smart glasses. The glasses feature a three-chip architecture with dedicated processors handling image processing, everyday tasks, and ultra–low-power vision sensing. Himax Techs’ WiseEye AI processor, featuring a compact form factor integrated into the temple of the glasses near the ear, serves as the always-on ultra–low-power AI engine.

It enables continuous outward-facing environmental sensing and real-time understanding of the surroundings while consuming only a few milliwatts of power. This division of processing tasks allows the glasses to handle functions such as photography and audio processing while maintaining continuous environmental awareness without keeping the main processor constantly active, helping reduce overall system power consumption and extend battery life. Beyond outward-facing environmental sensing for AI glasses, WiseEye also supports inoffensive eye tracking enabling intuitive gaze-based interaction.

In addition, it supports iris recognition for secure user authentication. Together these capabilities lay the foundation for new-generation physical AI agent applications, enabling devices to proactively understand their surroundings, anticipate user needs, and provide timely context-aware assistance rather than simply responding to user commands. In the smart glasses market, we continue to expand our WiseEye engagements with platform providers, ODMs, and consumer electronics names worldwide, with numerous projects poised to enter mass production starting in 2027.

On the WiseEye module front, design activities continue to expand, supported by its plug-and-play offering, ultra–low-power consumption, and on-device AI capabilities. A recent example is the adoption of our biometric recognition module by WaveroLock. It is a Taiwan-based smart door lock brand powered by WiseEye. The door lock features fast, secure, and contactless biometric authentication with biometric processing performed on device to safeguard sensitive biometric data and enhance user privacy.

Several additional module projects are underway with customers including certain global leaders in door locks, access control, and security, reflecting growing demand for biometric authentication across residential, commercial, and smart building applications. Finally, we continue to see growing design activities for the WiseEye AI solution with applications extending to capsule endoscopy spanning both human and veterinary health care. Leveraging WiseEye’s ultra–low-power AI capabilities, our solution enables compact swallowable capsule endoscopes to continuously capture and transmit images while consuming negligible power. This approach offers a less invasive and more convenient examination experience compared with conventional endoscopy which typically requires the insertion of an endoscopic tube.

We are pleased to share that one of our capsule endoscopy projects for human health examinations is slated to enter mass production this quarter following extensive emergency review and approval process by China’s National Medical Products Administration, at least Class III medical device classification. This marks an important milestone for WiseEye in healthcare and further demonstrates its versatility across industries. That concludes my report for this quarter. Thank you for your interest in Himax Techs. We appreciate your joining today’s call and are now ready to take questions.

OPERATOR

Yes, thank you. Ladies and gentlemen, we are now in the question-and-answer session. If you would like to ask a question, please press the star key and number one on your telephone keypad and you will enter the queue. After you are announced, please ask your question. If you find that your question has been answered before it’s your turn to speak, you may press the star key and number two to cancel the question. In addition to submitting questions via phone, you may also submit questions through the webcast, where the chat box is available on the right-hand side of the screen.

Thank you. Now please press star one to ask a question. Thank you. As a reminder, please press star one on your telephone keypad if you would like to ask a question. Thank you.

Jordan Wu (President and Chief Executive Officer)

We do receive online quite a few questions, mainly regarding overall market projection, particularly in relation to automotive market and also CPO. I think I will start with this combination of a few questions. Is the auto big down continuing into next year? Is there anything to do with China market share decline impacting GM next year? Okay, I think this is a combination of a few questions. Well, thank you, guys, for the question. As you know, we don’t usually provide guidance beyond one quarter, so I’m not going to give specific financial projections for next year.

However, based on our current internal assessment, we are actually quite confident about our growth prospect for next year, which is now looking to enjoy double-digit growth starting with revenue. We believe the sudden and substantial correction of revenues for Q4 this year is a temporary short-term setback reflecting our customers’ over-aggressive inventory buildup in the previous two quarters. I guess in light of the extraordinary growth of the export markets for Chinese carmakers, what we’ve seen over the last three or four weeks, also right after the Chinese National Day holidays, right after some of our major customers, perhaps sending early signals for the market conditions to take a turn for the worse, they decided to hit the brake hard, very hard, and actually that kind of surprised us as well. But as I pointed out earlier in the prepared remark, our full-year automotive sales forecast for this year still stands at around 10% growth.

This has accounted for the Q4 pretty drastic correction in sales numbers already. So this 10% sales growth is still achieved, notwithstanding the sharp decline of the fourth quarter, outperforming the overall automotive shipment which is projected for decline this year. So we believe again we are well positioned to achieve double-digit year-over-year growth. Revenue growth in 2027 driven primarily by automotive business with growth across DDIC, TDDI, IoT DDI and TCAR.

I’m not going to go through the details again because we covered a lot of those in our prepared remarks. What I want to say is that our positive outlook is not built on the growth of the global car shipment next year. It’s not built on the growth of global car shipment next year. Rather, we are building our projection based on a flattish global automotive shipment next year. So our positive sales projection is supported by the strong pipeline of design wins accumulated over the past few years with customers’ new project mass production timetable already set for the coming quarters.

So, contrary to total vehicle shipment which can swing one or the other based on various economic and political factors and it’s actually harder to predict, the gradual increase of number of displays per vehicle and the IC dollar content inside each display are however quite certain. Again, we have demonstrated this year we are still able to grow 10% year over year despite the global car shipments’ decline. So this is also evidenced by the aggressive adoption of our leading-edge display solutions for automotives by T1s and OEMs globally.

So that is the first area, the main area, global automotive display driver IC, which is now almost half our total sales, and the next area to cover is EPD or electronic paper display business, including DDIC and TCONs for e-readers and e-tag. And this is another area of display ICs where growth prospect for next year looks quite positive, supported by recent mass production of a major e-reader brand’s mainstream products, core ICs are adopted, and the broader coverage of customer base for the e-tag business.

So I guess that’s my short-term summary for a quick summary for DDIC sales outlook for next year. Now turning to non-driver businesses which are expected to outgrow driver ICs next year with revenue contribution approaching 30% next year, up from 20% today. So non-driver IC will outgrow driver IC next year, and the non-driver IC growth will be driven primarily by automotive TCANs, which are expected to deliver another year of very strong growth following this year’s projected growth of 40%, supported by our robust design pipeline. Our WSI product line is set to be another key growth driver with very strong momentum across emerging applications including smart glasses, Wi-Fi modules, and power adoption.

I’ve highlighted all those in my prepared remarks. In smart glasses, in addition to the Alibaba coin glasses and another global technology titan’s AI glasses, we are quite confident that more product launches from various customers incorporating our WSI are actually on the way and we will announce along the way in the next few quarters. All these developments together with growing opportunities in WSI modules and power authentication position us well for continued growth into 2027.

I want to highlight though the revenue outlook I just mentioned, meaning double-digit growth expected for next year. This does not include CPO, which is expected to start MP from 2027, and this will certainly add to our 2027 revenue as well. But because CPO is a new business, we still don’t have a good grasp of how the business ramp-up will look like in its first year of mass production. So I think it’s prudent that we don’t include it as part of our next year’s sales discussion for the time being.

And certainly, hopefully, we’ll be able to give you concrete updates as we move along in the next few quarters. So again, that’s a quick summary of next year’s top line projection. People ask about gross margin. We do see some challenges ahead on gross margin because, as I pointed out earlier, foundries and backend suppliers, including those in China, have announced significant price increases starting from the very beginning of next year. This is an industry-wide issue and we are working closely with our suppliers and customers to manage the impact. I mentioned earlier that sales contribution from non-driver IC product line will be higher next year, approaching 30% from the current 20%.

This will be accretive for gross margin because all major non-driver IC products, such as I highlighted earlier, TCAN and WSI, offer better gross margin than driver ICs. I said earlier our current outlook does not factor in potential contribution from CPO, which does offer much better gross margin than our corporate average and it will certainly help enhance our gross margin rather meaningfully once ramping gets started. But again, even excluding CPO, we still expect gross margin to remain relatively stable compared to this year, hopefully improve slightly next year despite the challenging condition on the supply side.

Okay, I hope that kind of covers all these questions. Let me see if I missed anything. Our market share decline? No. Well, again, I pointed out earlier we actually outgrow the global car shipment data. So I think that’s a strong evidence that we are not losing market share. Rather, it is a very soft initial turn, customer order correction. Anything to do with China? I’ve said it quite clearly both in my response to questions and prepared remarks that the Chinese export over the first three quarters of this year grew almost 70% year over year and this is very new and so strong.

So I think logistics for export is a lot more complicated than domestic sales. So I think some of our customers, you know, with a big exposure to Chinese car exports, are still getting used to this new market and in light of the very strong growth they probably overbuilt and they sent some early signals, decided to slam on the brake. So yes, it does have a lot to do with China, in particular Chinese car exports. Okay, there are quite a few questions. Again, I try to combine them together. They are all about CPO. Many new players entering CPO. Your market share got eroded, your position still solid. How you compare with them? Meaning the newcomers, exclusively with 4C for now. And are we facing pressure in light of the new competition? Okay, so that’s the question about CPO. So CPO, or more specifically FAU—right, FAU targeting the CPO application. Okay.

That’s our market. Specifically, FAU targeting CPO application is a greenfield market for everyone. And that is a market which is super exciting, technically very, very challenging and with enormous potential. So it is no surprise that more players are entering the race and different players approaching the market with different competing technology. So that is, I mean, kind of expected, right? And we did expect that all along. So first off, as far as we know, we are probably the only company offering optical solutions for FAU based on WLO technology, wafer-level optics technology, with products already in pretty advanced stage of engineering validation by some of the largest leading end customers. Okay. So that kind of sets us apart from this so-called new competition, that we are in very advanced stage, that we use WLO.

Before I continue, I’d like to point out that there are various optical and mechanical components inside an FAU, right. Since day one, Himax Techs has focused our efforts on only a select number of optical components which are of the highest technical challenge. And that is why we chose them because we feel we’ll be of the best value if we succeed. What I want to say is we don’t cover all optical components, every single piece of optical component inside FAU, and we certainly don’t intend to enter the field of mechanical components inside FAU, right.

We don’t do mechanical components. We notice certain press reports have mistakenly compared other companies’ solutions with a lot of ours while we are actually working on different things. So that is one clarification I wish to make, taking advantage of the Q&A session. Having said that, though, there are some other competitors who are in fact competing head off with us on the optical components that we chose to develop, right. While I won’t comment on competing players or their technologies, we are very confident, we are very, very confident in the competitive advantage of our unique WLO approach.

We have developed our solution from the ground up with extensive feedback from our customers and partners along the way over the last four or five years, during which time we have actually accumulated extensive know-how and experience and we have filed numerous, in some cases very critical, patents which is an advantage only unique to pioneers such as us. I can say the latest feedback we receive from customers has been both encouraging and very promising.

Although, again, we haven’t really officially entered mass production stage. We are in, hopefully, last stages of engineering validation. Our technology offers distinct advantages. Our WLO technology offers very unique advantages in nanometer-level optical precision—we offer outstanding optical performance and manufacturing consistency compared with conventional optical approaches. Our WLO technology is particularly well suited for highly repeatable and reliable high-volume production. Once the manufacturing process is established, we can repeatedly produce high-precision optical structures or components with consistent quality and stable yields.

I want to emphasize this because it’s one thing to be able to produce samples with good quality or good precision, but the real challenge is maintaining that same level of quality consistently while shipping at scale. So right now our worry is not really exactly on competition. Our focus is on execution, establishing reliable mass production capabilities, positioning ourselves among the early suppliers to serve the leading customers. So again, engineering examples, engineering runs are already underway and we expect shipments to gain strong momentum over the coming quarters with rising revenue contribution quarter by quarter in the next foreseeable quarters. And that is started with good companies about. And lastly, in my prepared remarks I mentioned that 4C coincidentally announced earlier today that its board of directors approved capital expenditure in the amount of about US$1 million for the expansion of fab space and manufacturing equipment.

So I believe that is an illustration of our strategic partner’s strong confidence in bringing the technology to volume production soon. So, in summary, we remain very confident our CPO business will begin making a meaningful contribution to both our revenue and profitability starting from some point next year. Whether our market share or market position will be eroded, I believe we are still clearly the market leader. I think it’s way too early to talk about anybody’s market share, and if anything, I think the market is so big that—well, first off, I don’t believe anybody going forward in the long term will enjoy monopoly in this huge market.

It’s impossible. So it’s reasonable that there will be competition. So I think we are still ahead in the race, and market share erosion, I think it’s really too early to tell because nobody has really the market share to speak of to begin with. But again, is our position still solid? It’s still very solid because, as I said, we are in the most advanced stage validation and we are getting very, very close. And 4C just announced major capital expansion.

So I think all these are strong evidence of our position. Are we still exclusively for 4C? For now, yes, we still are, although we’ve been approached by others. But for the time being I think it is to the best of our interest, our shareholders’ interest, that we focus on 4C and bring it up for hospitality, to get it really nailed down because having one partner is already quite exhausting engineering resource–wise. So I think it is a good idea that we focus on our strategic partner and nail it down, start mass production before we think of anything else.

I think that’s my summary of my response to all these different questions. Operator, is there any other question?

OPERATOR

Yes, we don’t have further questions at the moment. We thank you for all your questions and I’ll pass the call back to Mr. Jordan Wu for closing comment. Thank you.

Jordan Wu (President and Chief Executive Officer)

As a final note, Karen, our head of IR/PR will maintain investor marketing activities and continue to attend investor conferences and we’ll announce the details as they come about. Thank you and have a nice day.

OPERATOR

Yes, thank you. Ladies and Gentlemen, this concludes third quarter 2026 earnings conference. You may now disconnect. Thank you again. Goodbye.

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