Wednesday , 23 July 2014
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Himax is a Gold Mine: Who’s Next?

Himax is a Gold Mine: Who’s Next?

Himax (HIMX) has just announced that Google (GOOG) will invest in Himax Display, a subsidiary of HIMX. The deal is explicitly intended to fund LCOS microdisplay production capacity at HIMX. Under the terms of the deal, Google will hold a 6.3% of HDI and have the option to more than double it to 14.8%.

With this news, HIMX’s role in Glass appears to be locked and loaded. In addition, it signifies that Google intends to prepare for more than 2 million units of annual Glass production. In an earlier report, we discussed our belief that HIMX would raise its LCOS capacity from 2 million to 7 million. Google’s investment confirms our thesis and infers that HIMX’s 2 million units of LCOS capacity was not viewed as sufficient to Google.
Accordingly, we feel that our longer-term HIMX projections are now validated, justifying an upgrade of the shares to “Gold Mine”, our highest rating.
Implications for other PoisedToTriple portfolio selections

We believe that this deal can be instructive to investors in our two most recent stock selections, PixelWorks (PXLW) and TechPrecision (TPCS).

For PixelWorks – Recently, we have observed a trend whereby Google, Apple (AAPL), and others have pulled away from its dealings with Samsung (SSNLF.PK). Most recently, Samsung was rumored to replace HIMX in Glass. We refuted those claims and now feel vindicated in this regard. More importantly, it opens up significant opportunities for smaller Samsung competitors to win market share and take part in the mobile operating system revolution.

For PXLW, this deal should increase speculation that a strategic partner could surface to gain access to the company’s image processing technology and patents. These assets should be of interest to any company that wishes to compete in the Internet TV market, but has no in-house image processing R&D history. Basically, we are referring to non-TV manufacturers, like Google and Apple.

Anyone who has seen the picture on new UltraTVs (from companies like Sony and LG) knows how much of quantum leap these TVs are making versus HD. These companies have a long history of advancement. If Google and Apple wish to close the gap, they will need to partner or acquire. In our opinion, PXLW represents the best candidate among independent image processing technology vendors.

For TechPrecision – For TPCSE, the GOOG/HIMX deal illustrates how important it is for vendors to lock down their manufacturing supply chains. Google can’t afford to have any manufacturing disruptions on Glass. Its investment in HIMX ensures that it will have first priority in HIMX’s LCOS production. It also ensures that HIMX will expand its capacity to meet GOOG’s needs.

We can envision a similar arrangement unfolding between TPCSE and Mevion Medical Systems. Mevion was the second most-highly funded private Healthcare company during the second quarter. Its S250 Proton Therapy System provides a revolutionary cost advantage over current solutions. The system is in its final stage of testing and was given $55 million to move forward with production and marketing activities in anticipation of the coming demand. Indeed, over $100 million worth of units are already on order.

To deliver the S250, Mevion awarded a 5-year, $115 million contract to TPCSE to be its exclusive manufacturing partner. At present, TPCSE is in need of short-term financing. We believe that it would behoove Mevion to follow GOOG’s lead and provide that financing. In doing so, it could further benefit from the expansion of the S250 business via an equity investment in TPCSE.

By: Mark Gomes, CEO