奇景光電 (HIMX) 2026年第3季法說會：第4季營收預估下滑22%-26%

重點摘要

• 奇景光電 (NASDAQ: HIMX) 公布 2026 年第三季營收為 2.468 億美元，季增 8.5%。毛利率自第二季的 33.1% 改善至 34.2%。
• 稅後淨利為 1,860 萬美元，稀釋每單位 ADS 盈餘為 0.107 美元，相較於上一季為 1,990 萬美元及每單位 ADS 0.114 美元。
• 中小尺寸顯示驅動 IC 營收季增 8.9% 至 1.768 億美元，主要受車用 DDIC 與 TDDI 營收雙位數成長所帶動。
• 管理層預期第四季營收將季減 22% 至 26%，主要是受到涉足中國汽車出口業務的客戶大幅下修車用驅動 IC 訂單所致。
• 車用時序控制器 (Tcon) 仍是一大相對亮點。管理層預期第四季車用 Tcon 營收將季增 10% 出頭，2026 全年營收成長將超過 40%。
• 管理層認為，在車用顯示 IC、電子紙 (EPD)、Tcon 與 WiseEye 的支撐下，即使不計入任何 CPO 貢獻，2027 年營收仍可望實現雙位數成長。該預期是建立在全球汽車出貨量大致持平的基礎上。

核心財務數據

第三季年度分紅費用總計為 1,190 萬美元，而第二季僅為 20 萬美元。這是儘管營收與毛利率上升，營業利益率仍較上季下滑的主因。

業務與營運表現

中小尺寸顯示驅動 IC 營收為 1.768 億美元，占總營收的 71.6%。車用 DDIC 與 TDDI 營收連續第二個季度實現雙位數季成長，反映出廣泛的客戶需求、部分面板廠加速拉貨，以及多項 LTDI 專案進入量產。

智慧型手機 IC 營收呈現季增，受惠於一線品牌主流機型持續出貨，以及新款高階旗艦機種的備貨需求。平板電腦 IC 營收則在客戶於 2026 上半年加速拉貨後下滑。

非驅動 IC 營收季增 11.2% 至 5,100 萬美元，占總營收的 20.7%。Tcon 產品貢獻超過 10% 的總營收，其中車用 Tcon 占 Tcon 營收的一半以上。管理層預期車用 Tcon 的成長動能將延續至 2027 年，受惠於新專案放量，以及在抬頭顯示器 (HUD) 與高階車用螢幕上的更廣泛採用。

大尺寸顯示驅動 IC 營收為 1,900 萬美元，季減 1%。監視器與筆記型電腦 IC 營收在先前的庫存拉貨後下滑，電視 IC 營收則因舊款成熟產品出貨增加而上升。

WiseEye 在智慧穿戴裝置領域獲得進一步採用。阿里巴巴選用 WiseEye 處理器搭載於其千問眼鏡 (Qwen Glasses)，同時其他專案在智慧眼鏡、掌靜脈認證、智慧門鎖、醫療照護設備與膠囊內視鏡等領域亦有所進展。其中一項人體膠囊內視鏡專案在取得中國國家藥監局 (NMPA) 第三類醫療器材認證後，預計於第四季進入量產。

在 CPO 領域，奇景光電與策略夥伴上詮 (FOCI) 持續提升製程良率，並為光纖陣列單元 (FAU) 產品的規模量產做準備。上詮已通過新台幣 33.3 億元（約合 1 億美元）的資本支出預算，用於廠房與設備擴充。管理層預期 CPO 將於 2027 年開始對營收與獲利產生實質貢獻，不過量產時程與步調仍取決於終端客戶。

管理層財務指引

針對 2026 年第四季，管理層提出以下展望：

• 營收預期季減 22% 至 26%。
• 毛利率預期持平至小幅上升，取決於產品組合。
• 歸屬於股東之淨利預期為每單位完全稀釋 ADS 0.045 至 0.065 美元。
• 此獲利指引未計入擬處分權益法投資所產生的任何收益。

在滿足慣常條件並取得監管機構核准的前提下，該處分案預計於第四季完成交割。奇景光電預期交易完成後將認列約 2,300 萬至 2,400 萬美元的稅前利益，以及約 1,900 萬至 2,000 萬美元的稅後利益。

依產品類別劃分，管理層預期第四季大尺寸顯示 IC 營收將季增 10% 出頭；中小尺寸顯示驅動 IC 營收預期呈現雙位數下滑，反映出車用、平板電腦與智慧型手機需求疲弱。

Tcon 營收預期季增高個位數百分比，其中車用 Tcon 將成長 10% 出頭。LTDI 營收預期呈現個位數成長，占第四季總營收比重將超過 5%。

儘管第四季車用業務面臨修正，管理層仍預期 2026 全年車用 IC 營收將年增約 10%。展望 2027 年，管理層認為在不計入任何 CPO 貢獻前，公司營收便具備雙位數成長的潛力。非驅動 IC 產品占營收比重預期將從目前的約 20% 提高至接近 30%，毛利率則預期保持相對穩定或微幅改善。

風險與關注焦點

近期主要風險在於，重度涉足中國車企出口業務的面板廠突然大砍車用驅動 IC 訂單。管理層將此次修正部分歸因於先前積極備貨、通路能見度下降、貿易壁壘提高，以及中國調降新能源汽車出口退稅。

供應鏈成本是另一項隱憂。管理層表示，隨著 AI 相關需求排擠成熟製程產能，晶圓代工廠與封測廠已宣布 2027 年將大幅調漲價格。奇景光電已確保關鍵產能承諾，但仍持續與客戶協商成本分攤。

CPO 仍處於工程驗證與早期量產爬坡階段。管理層對奇景光電基於晶圓級光學 (WLO) 技術的 FAU 產品表達信心，但同時坦言第一年的放量曲線仍難以估計，且最終量產時程仍取決於終端客戶。

法說會問答重點

管理層將第四季車用業務的下滑定調為客戶暫時性的庫存調整，而非市占率流失。管理層表示，2027 年車用業務展望是受到已確認專案放量與單車顯示半導體含量提升的支撐，而非建立在全球汽車產量成長的假設上。

車用 DDIC、TDDI、LTDI 與 Tcon 均可望迎來成長。管理層亦預期電子紙 (EPD)、車用 Tcon 與 WiseEye 將帶動 2027 年非驅動 IC 產品的成長力道超越驅動 IC。

針對 CPO 的競爭態勢，管理層表示奇景光電在用於 FAU 的特定高精度光學元件方面，仍處於工程驗證的後期階段。公司目前仍與上詮獨家合作，在考慮引進其他製造夥伴之前，將優先確保量產執行的穩定性。

法說會完整逐字稿

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完整財報電話會議逐字稿

管理層陳述

Operator

Ladies and gentlemen, welcome to Himax Technologies Incorporation Third Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to Ms. Karen Tiao, Head of IR, PR at Himax. Ms. Tiao, please go ahead.

Karen Tiao

Welcome, everyone. My name is Karen Tiao, Head of IR, PR at Himax. Joining me today are Jordan Wu, President and Chief Executive Officer; and Jessica 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 e-mail hx_ir@himax.com.tw or download a copy for Himax's 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 Companys' full year 2025 financials, which were provided in the company's 20-F and filed with SEC on March 27, 2026, the financial information included in this conference call is unaudited and consolidated and prepared in accordance with the 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's 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, 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 profit exceeded the guidance range announced on August 6, while revenue and gross margin were both in line with the guidance.

Third quarter revenue reduced $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. Our Q4 profit per diluted ADS was $0.107, exceeding the guidance range of $0.08 to $0.1 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 ICs accounted for 7.7% of total revenue for the quarter compared to 8.4% last quarter and 9.5% a year ago. Revenue from low 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-digit 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 expanded overseas amid slowing demand in their domestic market. The mass production of multiple LTDI projects across the automotive brands worldwide also contributed to quarter-over-quarter growth.

Q3 smartphone IC sales covering LCD and OLED products increased sequentially, driven by continued shipments for a leading smartphone brand's mainstream model and inventory build-up 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 background of the rising memory price sentiment in the market.

The small and medium-sized 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 quarter, attributable to robust automotive Tcon shipments that extended the strong momentum from Q2. This growth was supported by the continued legacy product shipments to a broad, diversified customer base as well as the several new projects entering mass production.

Tecon business accounted for over 10% of the total sales with more than half contributed by automotive Tcon. Himax continue to hold 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 and non-driver product accounted for 20.7% of the total -- 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 the September each year, and we saw a much higher employee compensation expense compared to our quarter of full year. Our annual bonus compensation grant for 2026 was $13.3 million, slightly higher than the guidance of the $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 the portion of the award granted in prior year, the total bonus expenses for Q3 2026 amounted to the $11.9 million, higher than $8.1 million recorded in the Q3 2025. For reference, the annual bonuses granted for the 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 strategically investment in our driver IC business that offer attractive long-term growth opportunity. 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 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 $0.107 per diluted ADS compared to $19.9 million or $0.114 per diluted ADS last quarter and up from $1.1 million or [ $0.006 ] in the same period last year. Turning to balance sheet. We had $285.3 million cash, cash equivalents and other financial assets as of September 13, 2026. This compared to $278.2 million at the same time last year and $298.7 million a quarter ago. The sequential decline in cash balance, mainly reflected $44 million in dividend and $11.9 million employee bonus payout.

Q3 operating cash inflow was $23.9 million, compared to an inflow of the $17.5 million in Q2. The employee bonus paid on this year included $11.4 million for immediately vested portion of this year's award and [ $0.5 ] million for vested award granted over the past 3 years. Our quarter end inventory as of September 30, 2026, were $159.8 million up from [ $151.5 million ] last quarter 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 $228.4 million, up from $220.3 million last quarter and $200.7 million a year ago. DSO was 93 days at the quarter end, the same as last quarter and 87 days a year ago. Third quarter capital expenditures are mainly on R&D-related equipment for our IC design business was $3.9 million versus $4.3 million last quarter and $6.3 million a year ago.

As of September 30, 2026, Himax had 174.5 million ADS outstanding, little changed from last quarter. On a fully diluted basis, the total number of ADS 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 condition and regulatory approvals. Upon closing, we expect to recognize a pretax gain of approximately $23 million to $24 million and an after-tax gain of approximately $19 million to $20 million. We will provide further updates as appropriate.

Now turning to our Q4 '26 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 $0.045 to $0.065 per fully diluted ADS. This estimate does not include a 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

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 range of supporting applications involving legacy process nodes, such as Photonic ICs or PICs, interposers, power management ICs and MOSFETs. As the supply-demand imbalance continues to intensify, capacity at legacy process nodes 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 mounting 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 our automotive IC sales recorded a decent 16% year-over-year increase in the first 9 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 a 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 followed by robust inventory replenishment in Q2 and Q3 as certain panel makers accelerated IT purchases to meet certain 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 export 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 intensified competition this year, prompting Chinese automakers to increasingly rely on exports.

According to data released by the China Association of Automotive Manufacturers, or CAAM, in October, china's domestic sales for locally made vehicles declined by 22.4% year-over-year in the first 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 forecast reflects in part Chinese automakers earlier overly aggressive export expectations along with their growing concerns over inventory levels across distribution channels, including shipments in transit, following 3 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 limited our near-term order visibility.

By contrast, panel makers primarily servicing non-China customers have maintained steady focus with some posting slight sequential increases in their fourth quarter orders. We believe the sharp decline in the fourth quarter automotive forecast reflects abrupt short-term order adjustments by certain customers while our market leader position remains firmly intact.

Himax has long maintained a dominant position with strong long-standing relationships with not just the panel makers, but also carmakers' 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 the 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, has achieved rapid product development capabilities.

The Chinese Tier 1 players are located across the broad geographic areas 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 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, the 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 great 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 categorized by more displays for vehicle, larger and higher-resolution screens and increasingly complex displays 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 accelerated adoption of automotive OLED display represents another significant long-term growth opportunity supported by our comprehensive IC portfolio and numerous design wins secured through years of close collaboration with leading OLED panel makers in Korea and China.

In addition to conventional in-cabin displays, head-up displays or HUDs 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 these trends continue to unfold, we see significant opportunities to further increase our IC content value per 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 brand's products. In addition, we continue to expand our presence in the electronics shelf-label or ESL market, a sizable and growing market with significant potential.

We are expanding our sales coverage to address diverse customer requirements that broaden our market reach. Meanwhile, our WiseEye technology continues to gain traction across a growing range of applications, particularly in the rapidly expanding smart wearables market. During the quarter, we were pleased to announce that Alibaba adopted our WiseEye processor for its latest Qwen glasses. Just one quarter after another leading global technology heavyweight announced their latest smart glasses incorporated in our WiseEye.

The retail sales of these classes are already or soon to be in place. These recent developments further validate WiseEye's technological strengths in ultralow 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 evolving global tech names. This growing design-in 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, FOCI, focusing on further improving manufacturing yields and establishing stable mass production capabilities to support the next phase to production scaling. We are pleased that as part of this ongoing effort, FOCI announced earlier today that its Board of Directors approved capital expenditures in the amount of TWD 3.33 billion or approximately USD 100 million for the expansion of both fab space and manufacturing equipment in preparation for FAU 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 a call to be made by our end customers, we remain confident that 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 counts, enhanced optical precision, and increasingly sophisticated designs, including WDM or Wavelength Division Multiplexing. targeting the surging bandwidth demand of HPC and AI data centers.

Himax is uniquely positioned to drive further advancements in FAU technology and performance, leveraging the fundamental strengths of our proprietary WLO technology. Unlike other optical technologies available in the market, our WLO technology offers distinct competitive advantages in nanometer-level optical precision, optical performance, manufacturing consistency and scalability. These 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 has been at the forefront of high precision optics technology for nearly 2 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's 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 our leading global technology company not only validates our technical strengths, but also demonstrates the versatility of our WLO technology.

Further expanding these 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 display IC 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 the decline in notebook IC sales, as a leading customer has pushed back mass production of a new high-end notebook market to early 2027.

Looking ahead in the loan book market, we are seeing increasing adoption of OLED displays in premium noteboks, supported by notebook makers growing focus on higher-end models amid rising memory prices and the ramp-up of new Gen 8.6 OLED fabs in China starting later this year and into 2027. Himax is well positioned to capitalize on these favorable industry trends with our comprehensive portfolio of notebook OLED display ICs, expanding DDIC, Tcon, power management 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 improve 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, our small and medium-sized display driver IC business is expected to decrease by double digits sequentially, following 2 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 2 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 continued expansion of our automotive TDDI for the adoption of our Tcon solutions and growing contributions from LTDI.

Looking ahead, we remain confident in the long-term trajectory of our automotive IC 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 a 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 expanded on the back of additional customer vehicle model ramps and broader adoption across automotive display applications. To round out the picture, the LTDI and OLED solutions are also set to contribute more meaningfully from 2027 onwards as small project ramps following years of design development with customers.

Himax 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 requires 4-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 or per panel and per vehicle basis. Reflecting 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 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 a IC configuration that further integrates our industry-leading local dimming technology eliminating the need for separate Tcon while 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 broadens our automotive display portfolio, giving customers greater flexibility to select solutions the best meet their specific display needs, performance requirements and cost targets. Building our leadership in automotive LCD, we also were positioned to capture the accelerating shift to OLED in premium automotive displays, which we expect to become another key growth driver.

Working closely with leading OLED panel makers in Korea andn 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. We are also expanding our OLED portfolio with innovative, highly integrated solutions such as our TED or Tcon embedded driver IC technology. which comprises DDIC and Tcon into a single chip deliver a cost-effective and flexible solution, particularly suited for smaller, lower resolution automotive displays.

Our TED technology continues to gain traction across an diverse range of applications, including automotive, robotics and IT. Shortly after this 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 an update on our Tcon business. We anticipate Q4 Tcon sales to increase by high single-digit quarter-over-quarter. For 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 U.S. Big Tech 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 growth for broader market penetration. At the same time, we hold a leading market position in the growth adoption of advanced HUDs where our automotive Tcon solutions are widely adopted to address complex issues of de-warping and post card effect elimination, which are unique to HUDs. Together, this trends position us well to deliver another year of strong automotive Tecon growth in 2027 and beyond.

During the quarter, we also introduced our groundbreaking multi-output Tcon solution designed to support next-generation free-form, ultra-wide and high resolution automotive displays featuring high-speed eDP input and up to 8 LVDS outputs, the solution supports resolutions of up to 12K and incorporates advanced image enhancement capabilities, including local dimming or and HDR, high dynamic range.

We also integrates built-in automotive safety features such as failure detection and on-screen display or, OSD, for safety alerts and fault notifications. The solution simplifies system architecture, enhances design flexibility, and reduces overall costs, making it a compelling 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-in momentum with leading panel makers and Tier 1 players globally. This new solution demonstrates, our ’ continued execution on its technology roadmap and reinforces our ’s leadership in advanced automotive display solution.

Switching gears to the WiseEye product line, a cutting-edge ultralow power AI sensing total 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, palm vein authentication, smart offices, and, more recently, smart glasses with design-in activities continuing to expand.

At the core of WiseEye's competitive advantage is its industry-leading ultralow power architecture, consuming only a few milliwatts while enabling on-device AI inference, 24/7 always-on visual and voice sensing, all 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 Qwen Glasses. The Qwen Glasses feature a three-chip architecture, with dedicated processors handling image processing everyday tasks, and ultralow power visual sensing. Himax’s WiseEye AI processor, featuring a compact form factor and integrated into the temple of the glasses near the ear, serves as the always-on ultralow power AI vision 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 inward-facing 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-in activities continue to expand, supported by its plug-and-play offering, ultralow power consumption, and on-device AI capabilities.

A recent example is the adoption Of our palm vein recognition module by WAFERLOCK, a Taiwan-based smart door lock brand. Powered by WiseEye, the door lock features fast, secure, and contactless palm vein authentication with biometric processing performed on device to safeguard sensitive biometric data and enhance user privacy.

Several additional Palm vein module projects are underway with customers, including certain global leaders in door lock, access control and security, reflecting growing demand for biometric authentication across residential, commercial, and smart building applications. Finally, we continue to see growing design-in activities for our WiseEye AI solution with applications extending to capsule endoscopy, spanning both human and veterinary healthcare.

Leveraging wiseEye’s ultralow 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 endoscope 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 an extensive and lengthy review and approval process by china's National Medical Products Administration, NMPA, under its 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. We appreciate you joining today’s call and are now ready to take questions.

Jordan Wu

We do receive online quite a few questions, mainly regarding our 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 ramp continue to next year? Is there anything to do with China market share decline impact 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 1 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, are reflecting our customers' overly aggressive inventory buildup in the previous 2 quarters. I guess, in light of the extraordinary growth of the export market for Chinese carmakers.

What we have seen over the last 3 or 4 weeks, also, right after the Chinese National Day Holidays right after, some of our major customers are, perhaps, sensing early signals for the market conditions to take a turn for the worst. 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 remarks, 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 revenue growth in 2027, driven primarily by automotive business with growth across DDIC, TDDI, LTDI and Tcon. I'm not going to go through the details again because we have 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 shipments 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 way 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 decline of global car shipments. So this is also evidenced by the aggressive adoption of our leading-edge display IC solutions for automotives by Tier 1s and OEMs globally. So that is th first area, the main area, global automotive display driver IC, which is now almost half of our total sales.

And the next area to cover is EPD, or Electronic Paper Display business, including DDIC and Tcon for e-readers and E-TECH. And this is another area of display ICs where growth prospects for next year looks quite positive, supported by recent mass production of a major e-Reader brands, mainstream products where our ICs are adopted and the broader coverage of customer base for the E-TEC 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 in next year with revenue contribution approaching 30% next year, up from 20% of today. So non-driver IC will outgrow driver IC next year. And the non-driver IC growth will be driven primarily by automotive Tconss, 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 WiseEye product line is set to be another key growth driver with very strong momentum across emerging applications, including smart glasses, WiseEye modules and palm vein authentication. I've highlighted all those in my prepared remarks. In smart glasses, in addition to the Alibaba Qwen glasses and another global technology titans, AI glasses, we are quite confident that more product launches from various customers incorporating our WiseEye are actually on the way, and they will be announced along the way in the next few quarters.

All these developments, together with growing opportunities in WiseEye modules and palm vein authentication position us well for continued growth in 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 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 it's -- I think it's prudent that we don't include it as part of our next year's 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 that's -- again, that's a quick summary of next year's top line projection.

People asked about gross margin. We do see some challenges ahead on gross margin because, as I pointed out earlier, foundries and back-end 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, Tcon and WiseEye 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 or 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, right? 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 sudden short-term 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 3 quarters of this year grew almost 70% year-over-year. And this is very new and so strong. So I think -- and logistics for export is a lot more complicated than domestic sales.

So I think some of our customers 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 send something early signals that it decided to step on the brake. So yes, it does have a lot to do with China, in particular, Chinese cars exports.

Okay. There's 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 is still solid. How you compare with them, meaning the newcomers exclusively with FOCI 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, right, FAU targeting CPO application. It's a greenfield market for everyone. And that is a market which is super exciting, technically, very, very challenging and with enormous potential, right? 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 and leading end customers, okay?

So that kind of sets us apart from the so-called new competition. We are in very advanced stage and we use WLO. But before I continue, I'd like to point out that there are various optical and mechanical components inside an FAU, right? And since day 1, Himax has focused our efforts on only a select number of optical components, which are of the highest technical challenge, right?

And that is why we chose them because we feel we are -- will be of the best value if we succeed. We don't -- 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. And we noticed certain press reports have mistakenly compared other companies' solutions with those of ours while we are actually working on different things.

So that is one clarification what I wish to make, taking the advantage of the Q&A session. Having said that though, there are some other competitors who are, in fact, competing head-on with us on the optical components that we chose to develop. 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 solutions from the ground up with extensive feedback from our customers and partners along the way over the last 4 or 5 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 and FOCI.

I can say -- what I can say is the latest feedback we've received from customers has been both encouraging and very promising. Although we are -- again, we are -- 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 down to nanometer level.

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 big 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 this is 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 leading customers.

So again, engineering sample engineering ramps are already underway, and we expect shipments to gain strong momentum over the coming quarters with driving revenue contribution quarter by quarter in the next foreseeable quarters. And that is something we have confidence about. And lastly, in my prepared remarks, I mentioned that -- coincidentally announced earlier today that its Board of Directors approved capital expenditure in the amount of about USD 100 million for the expansion of fab space and manufacturing equipment. So I believe that is an illustration of our strategic partners' strong confidence in bringing the technology to volume production soon.

So in summary, we are -- 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 a monopoly in this huge market, right? 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 a market share to speak of to begin with.

But again, is our position still solid? It Is still very solid because, as I said, we are in the most advanced stage of validation, and we are getting very, very close and FOCI just announced a major capital expansion, right? So I think all these are strong evidence of our position. Are we still exclusively for FOCI 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 FOCI and bring it up for mass production, get it really nailed down because having one partner is already quite exhausted engineering resource wise. So I think it is a good idea that we focus on our strategic partner and nail it down and start mass production before we think of anything else. I think that's my summary of my response to all these different questions. Operator, if there are any other questions?

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 comments. Thank you.

Jordan Wu

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 the third quarter 2026 earnings conference. You may now disconnect. Thank you again. Goodbye.