Himax Technologies : First Quarter 2017 Results Press Release

• Net revenue for the first quarter decreased 23.7% sequentially to $155.2 million, in line with the Company's guidance.
• Compared to the previous quarter, large-sized panel driver sales decreased 12.4%, small and medium-sized panel driver sales decreased 33.2% and non-driver sales decreased 18.8%.
• Gross margin for the first quarter came in at 23.1%, up 400 bps sequentially and down 310 bps year-over-year due to unfavorable product mix and margin decline in large-sized driver ICs and non-driver product segments. Excluding the one-time, non-cash inventory write-down of $ 12.0 million in the previous quarter, gross margin for the first quarter would have been 190 bps lower than the 25.0% in the fourth quarter of 2016.
• Q1 2017 GAAP net income was $1.4 million, or 0.8 cents per diluted ADS, versus GAAP net income of $4.4 million, or 2.6 cents per diluted ADS, in the fourth quarter of 2016, in line with the Company's guidance of 0.5 to 2.0 cents.
• Company remains positive on its long term business outlook.
• Company is proceeding with the expansion plan for next generation LCOS and WLO product lines in 2017.

1. Non-GAAP Net income attributable to common shareholders and EPS excludes $0.2 million of share-based compensation expenses, net of tax and $0.1 million non-cash acquisition related charge, net of tax.

2. Non-GAAP Net income attributable to common shareholders and EPS excludes $0.2 million of share-based compensation expenses, net of tax and $0.2 million non-cash acquisition related charges, net of tax.

1. Non-GAAP Net income attributable to common shareholders and EPS excludes $0.2 million of share-based compensation expenses, net of tax and $0.1 million non-cash acquisition related charge, net of tax.

2. Non-GAAP Net income attributable to common shareholders and EPS excludes $0.2 million of share-based compensation expenses, net of tax and $0.2 million non-cash acquisition related charge, net of tax.

"Our first quarter revenue, gross margin and GAAP earnings per diluted ADS all met our guidance previously issued on February 16th," said Mr. Jordan Wu, President and Chief Executive Officer of Himax. "The decline in revenue was primarily a result of several factors that include fewer working days in China and Taiwan, decreased sales in large-sized driver IC business from the phase-out of certain customers' old models, lower smartphone driver IC sales due to weak China market demand, customers' continued inventory adjustment and increasing TDDI and AMOLED adoption causing the shrinking addressable market for pure TFT-LCD driver ICs for smartphone; and to a less extent, discontinuation of LCOS and WLO shipment to one of our leading AR device customers. Despite the temporary slowdown experienced in our driver IC business, we continue to work closely with our customers across China, Taiwan and Korea, of which the design-in activities all remain robust."

Mr. Wu continued: "As we move through 2017, we are seeing ongoing weakness in China smartphone market and the temporary slowdown of our large-size driver IC business. In spite of the short-term headwind, we are positive on DDIC business outlook because of expected shipments for certain customers' 4K TV models and TDDI products. Various areas of the non-driver IC businesses are also expected to contribute to the improvement of our overall financials from second

half of the year. With respect to the non-driver business, particularly in the WLO and CMOS Image Sensor products of 3D scanning solutions, we believe it is one of the most significant new applications for the next generation smartphone. Himax is well recognized to be the front runner and world leader in this important technology. Our SLiMTM product line is the state of the art total solutions for 3D sensing and scanning based on structured light technology, of which we can also provide individual technologies separately to selected customers to accommodate their specific needs. We are seeing strong demand for 3D scanning products from multiple top name customers who are either collaborating with us or engaging us for advanced stage discussions. In light of the promising new business opportunities around the corner, we will continue to invest heavily in R&D and customer engineering regardless of the prevailing unfavorable business conditions. We are aware that this will hit our short-term bottom line, but we believe such investment is extremely important and will bring in very handsome return in the next few years. Our confidence on our strong growth prospects is also evidenced by the unprecedented heavy CAPEX plan for 2017. As announced previously, this year's CAPEX will be significantly higher than usual. In the last earnings call, we reported the urgent addition of new WLO capacity to meet the near term demands of certain customers. We are pleased to report that the project is going smoothly as planned. Major ramp of the new WLO capacity is scheduled to start from the third quarter of 2017. With regards to AoSTM solutions, we believe our strategic investment in Emza announced in April will enable us to provide turn-key solution and transform AoS sensor to an information analytics device. On the LCOS product line, in addition to AR application, we are pleased to report that we are making great progress in developing high-end head-up-display for automotive applications. As excited as we are on the prospect of non-drive IC products and notwithstanding driver IC's short term pressure, driver IC has been a core part of our business and will remain so in any foreseeable future. Our technology strength, total solution capability and long term customer relationships in driver IC business remain intact. Overall, we are committed to diversify our product portfolio and customer base with innovative technologies. We believe these will significantly increase shareholder value ultimately."

The first quarter revenues of $155.2 million represented a decrease of 23.7% sequentially and 13.9% year-over-year. Revenue from large panel display drivers was $59.3 million, down 12.4% sequentially, and down 9.8% from a year ago. Large panel driver ICs accounted for 38.2% of its total revenues for the first quarter, compared to 33.3% in the fourth quarter of 2016 and 36.4% a year ago. The decline was due to fewer working days in China and Taiwan and phase-out of certain customers' old models. In addition, the scale 5.6 earthquake that struck Tainan in early February also somehow impacted some of the Company's customers' productions and therefore its driver IC shipment. In spite of the lukewarm sales, Himax's engineering collaboration and design-in activities with large panel customers across China, Taiwan and Korea all remain robust. Such activities will lead to future rebound in sales momentum.

Revenue for small and medium-sized drivers came in at $66.6 million, down 33.2% sequentially and down 16.1% from the same period last year. Driver ICs for small and medium-sized applications accounted for 42.9% of total sales for the first quarter, as compared to 49.0% in the fourth quarter of 2016 and 44.1% a year ago. Sales into smartphones declined 37.8% year-over-year and 49.6% sequentially. The substantial decline in the Company's smartphone driver IC sales was caused mainly by weak sentiment in the China market which is still loaded with excess inventory built up at the end of last year. Another negative factor for the Company's small panel driver IC sales is the shrinking addressable market for pure TFT-LCD driver ICs for smartphone caused by increasing in-cell and AMOLED display adoption. The revenue from automotive applications declined about 9.0% from the last quarter but was up around 12.0% year-over-year. Himax's driver ICs used in tablets also declined around 33.0% sequentially and 8.0% year-over-year for weak overall market demand in the product segment.

Revenues from the Company's non-driver businesses were $29.3 million, down 18.8% sequentially and down 16.7% from the same period last year. Non-driver products accounted for 18.9% of total revenues, as compared to 17.7% in the fourth quarter of 2016 and 19.5% a year ago. The sequential decline was primarily caused by lower LCOS and WLO shipments as one of the Company's major AR customers decided to discontinue its production, as the Company reported before. To a much lesser extent, lower sales of touch panel controllers and ASIC chips also contributed to the sequential decline. This decline was partially offset by the increased sales of CMOS image sensors and NRE income from ASIC projects.

In light of the promising new business opportunities around the corner, the Company will continue to invest heavily in R&D and customer engineering regardless of the prevailing unfavorable business conditions. The company is aware that this will hit its short-term bottom line, but Himax believes such investment is extremely important and will bring in very handsome return in the next few years. The second quarter operating expenses are budgeted to increase about 7% sequentially and 20% year-over-year. Of the operating expenses, R&D will see the most significant increase, to be up around 10% sequentially and 28% year-over-year. WLO is to account for some 50% of the increased R&D expenses. For the additional WLO capacity prepared for ramping in the second half which the Company announced last quarter, there are heavy pre-ramp expenses such as equipment bring up, sampling, and other related engineering efforts. About 30%