Good news/Bad news for HoloLens fans as analysts weigh in on the share price of Himax Technologies, Inc., supplier of augmented reality components, who’s share price fell 19.1% in September following reduced orders from a major Augmented Reality client believed to be Microsoft.
The drop came after Nomura analyst Donnie Teng reduced his rating on Himax to “neutral” from “buy,” after his channel checks indicated weak shipments for the HoloLens.
Today Northland Capital Markets’s Tom Sepenzis also weighed in, saying there was “little chance of a positive catalyst until the second half of CY17”, leading to a further fall of 3% in Himax’s share price.
We believe that the primary customer is rapidly reducing orders for LCOS and WLO components. This could result in approximately $60 million in LCOS/WLO revenue in CY16, down from an expected $90+ million, and have a significant impact in CY17. Originally pegged at $270 million in potential revenue in CY17, we now expect this customer to drop off almost completely in the first half of CY17 as it looks to refine its AR products. We were modeling $230 million in revenue for AR components in CY17, and we are reducing our estimate to approximately $35 million, back to R&D levels.
The good news in this good news/bad news combo is that Sepenzis expected Microsoft to develop a new version of HoloLens for sale in the second half of 2017.
While the change in estimates is rather profound in CY17, the primary reason involves the augmented reality business, an area where future sentiment swings wildly from quarter-to-quarter. We continue to believe that this market will eventually develop, and Himax is working with most of the major OEM’s to deliver viable products, so we do expect it to be one of the primary winners once the dust settles. We are therefore not changing our rating or target price at this time. However, we believe the stock will not see any major catalysts until the second half of CY17 when the second major AR device is expected to be delivered.
Sepenzis believes the new device would be a “refined” version. It is not clear if the two biggest issues with the device, the cost and the field of view, will be addressed with the new product.
Besides Microsoft a number of other OEMs are expected to deliver augmented and virtual reality devices in the second half of 2017, also based on Microsoft’s Windows Holographic platform, which should create a competitive environment which should help address both issues. According to PCMag Acer, Dell, HP, and Lenovo have all said they are committed to delivering augmented reality (AR) and virtual reality (VR) devices from 2017 onwards.