Himax Technologies : Fourth Quarter and Full Year 2016 Results Press Release

• Net revenue for the fourth quarter of 2016 decreased 6.7% sequentially to $203.4 million, in line with the Company's guidance.
• Compared to the previous quarter, large-sized panel driver sales decreased 6.0%, small and medium-sized panel driver sales increased by 0.4% and non-driver sales decreased 22.9%.
• In the fourth quarter of 2016, small and medium-sized panel driver revenue increased 21.8%, large-sized panel driver revenue increased 9.0%, and non-driver sales increased 6.0%, when compared to the fourth quarter of 2015.
• Gross margin for the fourth quarter of 2016 was 19.1%, down 650 bps sequentially and 380 bps year-over- year due to an additional inventory write-down.
• Q4 2016 GAAP net income was $4.4 million, or 2.6 cents per diluted ADS, versus GAAP net income of $13.6 million, or 7.9 cents per diluted ADS, in the third quarter of 2016. Excluding the additional inventory write- down, GAAP net income would have been $14.8 million, or 8.6 cents per diluted ADS.
• Q4 2016 Non-GAAP net income was $4.8 million, or 2.8 cents per diluted ADS, versus Non-GAAP net income of $21.3 million, or 12.4 cents per diluted ADS, in the third quarter of 2016. Excluding the additional inventory write-down, Non-GAAP net income would have been $15.1 million, or 8.8 cents per diluted ADS.
• FY 2016 revenues increased 16.1% year-over-year and gross margin came in at 24.2%. FY 2016 GAAP net income was 29.5 cents per diluted ADS.
• Company remains positive on its 2017 and long term business outlook.
• Company have proceeded 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 share-based compensation expenses, net of tax and

   $0.2 million non-cash acquisition related charge, net of tax.

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

$0.2 million non-cash acquisition related charge, net of tax.

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

   $0.2 million non-cash acquisition related charge, net of tax.

2. Non-GAAP Net income attributable to common shareholders and EPS excludes $7.6 million share-based compensation expenses, net of tax and

$0.1 million non-cash acquisition related charge, net of tax.

"Our 2016 fourth quarter revenue, gross margin, GAAP and non-GAAP earnings per diluted ADS were as pre-announced on January 26th. We reported net revenues of $203.4 million, representing a 6.7% sequential decrease and in-line with our original guidance of a 4.0% to 9.0% sequential decline issued on November 10, 2016 while gross margin and EPS were below the guidance due to an additional inventory write-down. Nevertheless, we still delivered solid results to

achieve both top and bottom line growth during 2016 as our driver and non-driver business segments both performed strongly," said Mr. Jordan Wu, President and Chief Executive Officer of Himax. "Notably, we increased market share in our core driver IC business in 2016 and continued to solidify our leading position through technology advancement and customer engagement. We continued to lead the market in major new driver IC technology trends, including higher display resolution, AMOLED and in-cell TDDI. We have collaborated closely with leading panel makers across China for AMOLED product development. On the TDDI front, we made volume shipments to a leading Chinese smartphone customer and were busy with design-in activities with Korean, Chinese and Taiwanese panel makers. Our non-driver businesses experienced tremendous growth during 2016, primarily driven by the LCOS and WLO businesses due to shipments to one of our leading AR device customers. We also made solid progress in new territories such as 3D depth scanning, IoT and machine vision with our latest CIS and WLO products, evidenced by more design-ins and engagements with certain heavyweight partners."

Mr. Wu continued: " In the first quarter of 2017, we are seeing weaker seasonality and market demand in associated with our core driver IC business and anticipating near-term headwinds in our non-driver business mainly due to lower LCOS and WLO revenues resulted from our major AR customer's shift in focus to the development of future generation devices. We also expect our gross margin to be under pressure in the short term due to continuous pricing pressure and less favorable product mix of driver IC products, lower revenues from high-margin AR/VR related businesses and lower NRE income. That being said, looking into 2017, we will leverage our total solution capabilities and focus on major new technology trends to maintain our leading position in our core driver IC business. We also remain positive on the long- term growth prospect of our non-driver business. We are particularly excited about recent developments especially in WLO and CIS product lines where we offer unique and market leading technologies and solutions for IoT and machine vision applications. We have proceeded with the expansion plan for our next generation LCOS and WLO production lines and will start to construct the new office/fab soon. In addition, to meet the strong demand of new customers for our WLO technology, we are accelerating our WLO capacity expansion. After many years of R&D and product development, we may see significant business progress in our non-driver business to contribute to both top and bottom lines out of WLO and CIS areas as early as the second half of 2017. Taken together, we remain committed to our long-term strategy to diversify our product and customer base with innovative technologies, which ultimately, should increase shareholder value."

The fourth quarter revenues of $203.4 million represented a 6.7% sequential decrease and a 14.3% increase year-over- year. Revenue from large panel display drivers was $67.7 million, down 6.0% sequentially, and up 9.0% from a year ago. Large panel driver ICs accounted for 33.3% of the Company's total revenues for the fourth quarter, compared to 33.0% in the third quarter and 34.9% a year ago. The sequential decline was the outcome of one single customer's inventory adjustment. Nevertheless, the Company's large panel products actually enjoyed 9.0% year-over-year growth thanks to strong demand from Chinese and Taiwanese panel customers during the quarter. In China, the Company's driver IC business for large panel grew more than 10.0% year-over-year during the quarter. In comparison, worldwide large-size TFT-LCD panel shipments declined around 1.5% in the same period. It is especially worth highlighting that the Company's engineering collaboration and design-in activities with large panel customers across China, Taiwan and Korea all remain robust and Himax expects these trends to continue into 2017.

Revenue for small and medium-sized drivers came in at $99.7 million, up 0.4% sequentially and up 21.8% from the same period last year. Driver ICs for small and medium-sized applications accounted for 49.0% of total sales for the fourth quarter, as compared to 45.5% in the third quarter and 46.0% a year ago. As opposed to original guidance of low single digit sequential growth, the Company's small and medium-sized panel driver business grew just 0.4% because of lower- than-expected smartphone driver IC sales. Sales into smartphones, while increased close to 25.0% year-over-year, declined high-single-digits sequentially due to the slowdown in China's smartphone market starting around December. The strong growth of smartphone driver IC business compared to the same year ago period came from the Company's long-standing leading market share in China where the Company's end brand customers were performing strongly. Revenues from automotive applications also contributed to the segment and continued solid momentum, growing close to 10.0% during the fourth quarter, both sequentially and year-over-year.

Revenues from non-driver businesses were $36.0 million, down 22.9% sequentially and up 6.0% from the same period last year. Non-driver products accounted for 17.7% of total revenues, as compared to 21.5% in the third quarter and 19.1% a year ago. The sequential decline was primarily due to lower LCOS and WLO shipments for AR applications. As the Company highlighted in the last earnings call, a major AR customer asked that Himax reduces shipment for their current generation device to a minimum. To a 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 timing controllers and CMOS image sensors. It is worth noting that despite the near term headwinds, Himax remains positive on the long-term