Dear Shareholders,
Today, we are pleased to review a year which includes numerous positive fundamental developments. At
Himax Technologies, we pride ourselves not only on defending our position as the market leader in our
sector, in terms of quality, reliability, and execution, but also on our ability to pair aggressive development
aspirations with creating long-term shareholder value. In this regard, we believe we have accomplished a
great deal in 2018, but we are not done by any means.
2018 was a year of new developments in our technology sector and our markets. At Himax Technologies,
we have successfully leveraged our strengths to navigate both market dynamics as well as company specific
opportunities to deliver a solid year of growth for shareholders. Further, we proactively initiated and executed
several strategic initiatives to strengthen our operation and streamline R&D investments. We believe these
proactive strategies reinforced our status in the marketplace and further strengthened our ability to defend our
position as a market leader. Additionally, our execution in 2018 positions us for future growth well beyond
2018. Despite a challenging global economic environment, we are more optimistic about the opportunities
ahead as several of our industry-leading technologies are at or nearing key inflection points. As a result, we
expect to enter a period of substantial growth in the near future.
Now, let me briefly go through each of our major business segments.
Being a global leader in the display driver IC (DDIC) segment, we have been benefiting from China’s
continued capacity expansion of its panel manufacturing as well as the Chinese smartphone makers’ rapid
overseas expansion. Despite industry-wide challenges, our DDIC business still generated double digit year-
over-year growth in 2018. This was due to an enriched product portfolio, diversification of our customer base
and, most importantly, the investment we had made to unlock new foundry capacity for TDDI. The impact of
this foundry capacity will still be felt strongly in 2019.
In 2018, our core large-sized display driver IC (LDDIC) business enjoyed strong growth. Thanks to the
improved supply enabled by our newly added foundry capacity, we were able to capitalize on the rising 4K
TV penetration as well as Chinese panel makers’ continued ramp of new, advanced generation LCD fabs.
Looking into 2019, we expect our LDDIC business to continue to grow. This view is based on strong design-
ins with certain LCD makers who are leading the market in capacity and customer engagement, the stable
COF supply we have secured, as well as our continued product upgrades. Our success in LDDIC in 2018 was
a perfect example of how Himax continues to execute on real-time opportunities while always looking to
capture future market share.
Our small and medium-sized display driver IC (SMDDIC) business experienced high single digit growth in
2018. With ramping of newly added capacity and a comprehensive TDDI solution portfolio in 4Q18, we have
penetrated more tier one end customers including a leading Korean smartphone player. We are also working
on multiple projects with customers with our new generation TDDIs which can enable narrow bezel panel
design without the usage of COF material, thereby alleviating smartphone makers’ pressure from the high
material cost and supply constraint of COF. Enabled by our TDDI foundry capacity, new design wins, more
diversified customer base and new products, we expect smartphone TDDI sales and market share to grow
multifold in 2019 and beyond. Our expected TDDI value creation is a result of both executing on the “here-
and-now” and opportunistically taking advantage of “future” market dynamics. We hope our shareholders
can appreciate that growing pains of quarters past are now paying dividends in the form of additional revenue
and market share from smartphone TDDI business.
Revenue from automotive applications delivered an impressive 40% growth in 2018 despite sluggish car
demand and a maturing automotive display market. While we may not be able to enjoy the same kind of
growth from automotive display segment in 2019, Himax is a leader in new technologies such as TDDI,
AMOLED, and local dimming timing controller which are expected to rejuvenate the industry and position
our automotive sales for continued long term growth. We expect our SMDDIC business to grow significantly
starting 2019.
1
In our non-driver IC business segment, our capability to ship multimillion units of WLO product to support
an anchor customer’s product launches in 2018 marked a significant cornerstone for Himax. We will continue
to supply our WLO product for the anchor customer’s 2019 new devices and expect the total shipments to
be higher than those of 2018. On 3D sensing for Android smartphones, we are working with several tier-
1 OEMs for their ongoing 3D sensing projects covering structured light and time-of-flight (ToF), where
Himax will provide WLO-based optics or projectors. Leveraging our existing structured light 3D sensing
total solution, we have been working with partners/customers on new applications covering security and
surveillance, home appliances and industrial manufacturing. These industries are typically less sensitive to
cost and always require a total solution. We are pleased with the status of engagement. In the area of ultra-
low power smart sensing, on top of our active participation in the rapidly growing AIoT eco-system, we have
launched a world leading smart sensing solution on laptop computers which we target to start mass shipping
in 2020.
As always, our growing success will be driven by our ability to anticipate the industry’s trends, invest in
them, and ultimately, develop and deliver superior technology across our entire product and technology
portfolio.
I am grateful for the support of our shareholders, customers, partners and employees, and look forward with
confidence to another great year in 2019.
Sincerely,
Jordan Wu
President and CEO
Himax Technologies, Inc.
2
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
(Mark One)
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE
SECURITIES EXCHANGE ACT OF 1934
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2018
OR
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of event requiring this shell company report ________________
OR
Commission file number: 000-51847
HIMAX TECHNOLOGIES, INC.
(Exact name of Registrant as specified in its charter)
Not Applicable
(Translation of Registrant’s name into English)
CAYMAN ISLANDS
(Jurisdiction of incorporation or organization)
NO. 26, ZIH LIAN ROAD
SINSHIH DISTRICT, TAINAN CITY 74148
TAIWAN, REPUBLIC OF CHINA
(Address of principal executive offices)
Jackie Chang
Chief Financial Officer
Telephone: +886-2-2370-3999
E-mail: jackie_chang@himax.com.tw
Facsimile: +886-2-2314-0877
10F, No. 1, Xiangyang Road
Taipei 10046
Taiwan, Republic of China
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Ordinary Shares, par value $0.3 per ordinary share
The NASDAQ Global Select Market Inc.*
*
Not for trading, but only in connection with the listing on the NASDAQ Global Select Market, Inc. of American Depositary Shares
representing such Ordinary Shares.
3
Securities registered or to be registered pursuant to Section 12(g) of the Act: None
Securities for which there is a reporting obligation pursuant to
Section 15(d) of the Act: None
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the
close of the period covered by the annual report. 344,290,306 Ordinary Shares.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the
Securities Act. Yes No
x
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes No
x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject to such filing requirements for the
x
past 90 days. Yes No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File
required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit such files).
x
Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-
accelerated filer, or an emerging growth company. See definition of “large accelerated filer,” “accelerated
filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer Accelerated filer Non-accelerated filer Emerging growth company
x
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate
by check mark if the registrant has elected not to use the extended transition period for complying with any
new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act.
† The term “new or revised financial accounting standard” refers to any update issued by the Financial
Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements
included in this filing:
U.S. GAAP International Financial Reporting Standards as issued Other
x
by the International Accounting Standards Board
If “Other” has been checked in response to the previous question, indicate by check mark which financial
statement item the registrant has elected to follow. Item 17 Item 18
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes No
x
4
TABLE OF CONTENTS
Page
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
CERTAIN CONVENTIONS
PART I
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
ITEM 3. KEY INFORMATION
3.A. Selected Financial Data
3.B. Capitalization and Indebtedness
3.C. Reason for the Offer and Use of Proceeds
3.D. Risk Factors
ITEM 4. INFORMATION ON THE COMPANY
4.A. History and Development of the Company
4.B. Business Overview
4.C. Organizational Structure
4.D. Property, Plants and Equipment
ITEM 4A. UNRESOLVED STAFF COMMENTS
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
5.A. Operating Results
5.B. Liquidity and Capital Resources
5.C. Research and Development
5.D. Trend Information
5.E. Off-Balance Sheet Arrangements
5.F. Tabular Disclosure of Contractual Obligations
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
6.A. Directors and Senior Management
6.B. Compensation
6.C. Board Practices
6.D. Employees
6.E. Share Ownership
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
7.A. Major Shareholders
7.B. Related Party Transactions
7.C. Interests of Experts and Counsel
ITEM 8. FINANCIAL INFORMATION
8.A. Consolidated Statements and Other Financial Information
8.B. Significant Changes
ITEM 9. THE OFFER AND LISTING
9.A. Offer and Listing Details
9.B. Plan of Distribution
9.C. Markets
9.D. Selling Shareholders
9.E. Dilution
9.F. Expenses of the Issue
ITEM 10. ADDITIONAL INFORMATION
10.A. Share Capital
10.B. Memorandum and Articles of Association
10.C. Material Contracts
10.D. Exchange Controls
10.E. Taxation
10.F. Dividends and Paying Agents
10.G. Statement by Experts
10.H. Documents on Display
10.I. Subsidiary Information
7
7
10
10
10
10
10
12
12
12
37
37
38
70
73
73
73
73
87
88
89
90
91
92
92
93
94
96
99
99
99
101
101
101
101
103
103
103
103
103
103
103
103
103
103
103
104
104
104
107
107
108
108
5
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
12.A. Debt Securities
12.B. Warrants and Rights
12.C. Other Securities
12.D. American Depositary Shares
PART II
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS
AND USE OF PROCEEDS
ITEM 15. CONTROLS AND PROCEDURES
ITEM 16. [RESERVED]
16.A. Audit Committee Financial Expert
16.B. Code of Ethics
16.C. Principal Accountant Fees and Services
16.D. Exemptions from the Listing Standards for Audit Committees
16.E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
16.F. Change in Registrant’s Certifying Accountant
16.G. Corporate Governance
16.H. Mine Safety Disclosure
PART III
ITEM 17. FINANCIAL STATEMENTS
ITEM 18. FINANCIAL STATEMENTS
ITEM 19. EXHIBITS
108
108
108
108
108
108
111
111
111
111
113
113
113
113
114
114
115
115
115
115
115
115
116
6
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This annual report on Form 20-F contains “forward-looking statements” within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended, or the Exchange Act. Although these forward-looking statements, which may include statements
regarding our future results of operations, financial condition, or business prospects, are based on our own
information and information from other sources we believe to be reliable, you should not place undue
reliance on these forward-looking statements, which apply only as of the date of this annual report. The
words “anticipate,” “believe,” “expect,” “intend,” “plan,” “estimate” and similar expressions, as they relate
to us, are intended to identify a number of these forward-looking statements. Our actual results of operations,
financial condition or business prospects may differ materially from those expressed or implied in these
forward-looking statements for a variety of reasons, including, among other things and not limited to, our
anticipated growth strategies, our and our customers’ future business developments, results of operations and
financial condition, our ability to develop new products, the future growth and pricing trend of the display
driver markets, the future growth of end-use applications that use flat panel displays, particularly TFT-LCD
panels, development of alternative flat panel display technologies, market acceptance and competitiveness
of the driver and non-driver products developed by us, our ability to protect intellectual property, changes
in customer relations and preference, shortage in supply of key components, our ability to collect accounts
receivable and manage inventory, changes in economic and financial market conditions, and other factors.
For a discussion of these risks and other factors, please see “Item 3.D. Key Information—Risk Factors.”
CERTAIN CONVENTIONS
Unless otherwise indicated, all translations from U.S. dollars to NT dollars in this annual report were
made at a rate of $1.00 to NT$30.61, the exchange rates set forth in the H.10 weekly statistical release of
the Federal Reserve System of the United States (the “Federal Reserve Board”) on December 31, 2018. No
representation is made that the NT dollar amounts referred to herein could have been or could be converted
into U.S. dollars at any particular rate or at all. On March 22, 2019, the noon buying rate was $1.00 to
NT$30.87. Unless otherwise indicated, in this annual report,
the terms “we,”“us,”“our company,”“our,” and “Himax” refer to Himax Technologies, Inc., its predecessor
entities and subsidiaries;
the term “Himax Taiwan” refers to Himax Technologies Limited, our wholly owned subsidiary in Taiwan
and our predecessor;
“shares” or “ordinary shares” refers to our ordinary shares, par value $0.3 per share;
“RSUs” refers to restricted share units;
“ADSs” refers to our American depositary shares, each of which represents two ordinary shares;
“ADRs” refers to the American depositary receipts that evidence our ADSs;
“AR” refers to the augmented reality;
“ROC” or “Taiwan” refers to the island of Taiwan and other areas under the effective control of the
Republic of China;
“PRC” or “China” for purposes of this annual report refers to the People’s Republic of China, excluding
Taiwan and the special administrative regions of Hong Kong and Macau;
7
“AMOLED” refers to active matrix organic light-emitting diode;
“ASIC” refers to application specific integrated circuit;
“ASC” refers to active stereo camera 3D sensing, which uses two cameras to replicate 3D vision in nature,
augmented by coded light for image depth enhancement;
“CMOS” refers to complementary metal oxide semiconductor;
“head-mounted-display” refers to a display device, worn on the head or as part of a helmet, that has a
small display optic in front of one or each;
“IC” refers to integrated circuit;
“IFRS” refers to The International Financial Reporting Standards as issued by the International
Accounting Standards Board;
“IGZO” refers to indium gallium zinc oxide;
“Innolux” refers to Innolux Corporation, its predecessor and consolidated subsidiaries, unless the context
otherwise requires;
“LCOS” refers to liquid crystal on silicon;
“LED” refers to light-emitting diode;
“LTPS” refers to low temperature poly silicon;
“MEMS” refers to micro-electro mechanical systems;
“OLED” refers to organic light-emitting diode;
“Structured Light” refers to a 3D infrared structure light projector, which is composed of a laser light
source, a collimated lens and a diffractive optics element (DOE);
“SLiMTM” refers to Structured Light Imaging Module, which is Himax homegrown structured light-
based 3D sensing total solution;
“TDDI” refers to touch display driver integrated circuit for advanced in cell touch display;
“TFT-LCD” refers to amorphous silicon thin film transistor liquid crystal display, or “a-Si TFT-LCD”;
“ToF” refers to a time-of-flight (ToF) 3D camera works by illuminating the scene with a modulated light
source, and observing the reflected light;
“VGA” refers to Video Graphics Array;
“VR” refers to the virtual reality;
“wafer level optics” or “WLO” are optical products manufactured using semiconductor process on
wafers;
“processed tape” refers to polyimide tape plated with copper foil that has a circuit formed within it,
which is used in tape-automated bonding packaging;
8
“semiconductor manufacturing service providers” refers to third-party wafer fabrication foundries, gold
bumping houses, and assembly and testing houses;
“large-sized panels” refers to panels that are typically above ten inches in diagonal measurement;
“small and medium-sized panels” refers to panels that are typically around ten inches or less in diagonal
measurement;
all references to “New Taiwan dollars,”“NT dollars” and “NT$” are to the legal currency of the ROC; and
all references to “dollars,”“U.S. dollars” and “$” are to the legal currency of the United States.
On August 10, 2009, we effected: (i) a stock split in the form of a stock dividend of 5,999 ordinary shares
for each ordinary share held by shareholders of record, followed by a consolidation of every 3,000 ordinary
shares into one ordinary share; (ii) a change of the par value of our ordinary shares from $0.0001 each to
$0.3 each; and (iii) a change in our ADS ratio from one ADS representing one ordinary share to one ADS
representing two ordinary shares. See “Item 7.A. Major Shareholders and Related Party Transactions—Major
Shareholders” for more information. Unless otherwise indicated, all shares, per share and share equity data in
this annual report have been retroactively adjusted to reflect the effect of the stock split and the change in par
value for all periods presented.
9
PART I
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
ITEM 3. KEY INFORMATION
3.A. Selected Financial Data
The selected consolidated statements of profit or loss data and selected consolidated cash flow data for
the years ended December 31, 2017 and 2018 and the selected consolidated statements of financial position
data as of December 31, 2017 and 2018 are derived from our audited consolidated financial statements
included herein, which are presented in accordance with International Financial Reporting Standards, or
“IFRS”, as issued by the International Accounting Standards Board, or “IASB”. Since these are our first
audited consolidated financial statements prepared in accordance with IFRS, pursuant to the transitional
relief granted by the U.S. Securities and Exchange Commission in respect of the first-time adoption of
IFRS, we have only provided financial statements and financial information for the financial years ended
December 31, 2017 and 2018. Additionally, financial data as of and for the years ended December 31, 2014,
2015 and 2016 derived from our consolidated financial statements prepared in accordance with U.S. GAAP
have not been included below, and no audited consolidated financial statements and no financial information
prepared in accordance with IFRS for the year ended December 31, 2016 have been included in this annual
report. Historical financial results as of and for the year ended December 31, 2017 have also been adjusted
based on IFRS, which differs from the results included in our annual reports on Form 20-F for the year
ended December 31, 2017. In addition, for an explanation of how the transition to IFRS has affected our
consolidated financial statements, see note 31 to our consolidated financial statements included elsewhere in
this annual report. Our historical results do not necessarily indicate results expected for any future periods.
The selected financial data set forth below should be read in conjunction with “Item 5. Operating and
Financial Review and Prospects” and the consolidated financial statements and the notes to those statements
included herein.
Consolidated Statements of Profit or Loss
Data:
Revenues
Costs and expenses(1):
Cost of revenues
Research and development
General and administrative
Expected credit loss
Sales and marketing
Operating income
10
Year Ended December 31,
2017
2018
(in thousands, except
per share data)
$ 685,167
$ 723,605
518,142
117,662
20,461
155
20,388
554,690
123,037
21,823
290
20,380
$ 8,359
$ 3,385
Profit for the year
Profit attributable to
Himax stockholders
Earnings per ordinary share attributable to
Himax stockholders:
Basic
Diluted
Earnings per ADS attributable to
Himax stockholders(2):
Basic
Diluted
Weighted-average number of ordinary shares
used in earnings per share computation:
Basic
Diluted
Weighted-average number of ADS
equivalent used in earnings per share
computation(2):
Basic
Diluted
Cash dividends declared per ordinary share(3)
Cash dividends declared per ADS
$ 25,538
$ 6,026
$ 27,680
$ 8,569
$ 0.08
$ 0.08
$ 0.02
$ 0.02
$ 0.16
$ 0.16
$ 0.05
$ 0.05
344,849
344,903
345,020
345,069
172,425
172,452
172,510
172,534
$ 0.12
$ 0.24
$ 0.05
$ 0.10
Note:
(1) The amount of share-based compensation included in applicable costs and expenses categories is
summarized as follows:
Cost of revenues
Research and development
General and administrative
Sales and marketing
Total
Year Ended December 31,
2017
2018
(in thousands)
$ 204
5,222
723
995
$ 7,144
$ 90
3,165
387
544
$ 4,186
Of the $7.1 million and $4.2 million in share-based compensation in 2017 and 2018, $6.1 million and $3.8
million were settled in cash, respectively.
(2) The number of ADS equivalent outstanding is determined by dividing the number of ordinary shares by
two. The earnings per ADS is presented solely for the convenience of the reader and does not represent a
measure under IFRS.
(3) The above cash dividends should not be considered representative of the dividends that would be paid in
any future periods or our dividend policy. See “Item 8.A.8. Financial Information—Dividends and Dividend
Policy” for more information on our dividends and our dividend policy.
Consolidated Statements of Financial Position
Data:
Cash and cash equivalents
Accounts receivable, net
Inventories
Total current assets
Total assets
Accounts payable
As of December 31,
2017
2018
(in thousands)
$ 138,023
188,774
135,200
662,621
803,193
139,933
$ 106,437
189,279
162,561
654,415
836,678
150,500
11
Total current liabilities
Total liabilities
Ordinary shares
Treasury shares
Total equity
Consolidated Cash Flow Data:
Net cash provided by operating activities
Net cash used in investing activities
Net cash provided by (used in) financing
activities
As of December 31,
2017
2018
(in thousands)
343,726
349, 605
107,010
(8,878)
453,588
391,155
394,391
107,010
(8,819)
442,287
Year Ended December 31,
2017
2018
(in thousands)
$ 29,393
(35,088)
$ 4,009
(38,266)
(41,214)
2,801
Note:
More detail explanation, please see “Item 5.B. Operating and Financial Review and Prospects—Liquidity and
Capital Resources.”
3.B. Capitalization and Indebtedness
Not applicable.
3.C. Reason for the Offer and Use of Proceeds
Not applicable.
3.D. Risk Factors
Risks Relating to Our Financial Condition and Business
Our suppliers may have increasing bargaining power as a result of industry consolidation, which could
result in an increase in our average unit cost and a decrease in our profit margin.
There has been an increased level of industry consolidation among our suppliers in recent years. Chipbond
Technology Corporation, or Chipbond, merged with Simpal Electronics Co., Ltd. in 2014 for more chip-
on-flex capacity and vertical integration. Such merger and acquisition activities will likely increase the size
and market power of the relevant suppliers and reduce the number of suppliers we could use under a simpler
supplier chain. Such industry change could further reduce the number of suppliers for gold bumping, COF
packages services and Tape that we could use. Therefore, suppliers could be in a better position to bargain
for higher prices for their services and products, which could result in an increase in our average unit cost.
Moreover, as gold is a crucial raw material in the gold bumping process, any increases in the price of gold
could result in an increase in our average unit cost and a decrease in our profit margin. If we are unable to
transfer any increase in average unit cost to our customers by selling at higher prices, our gross margin would
decrease, and our results of operations could be adversely affected.
We derive the majority of our net revenues from sales to the TFT-LCD panel industry, which is
highly cyclical and subject to price fluctuations. Such cyclicality and price fluctuations could
negatively impact our business or results of operations.
In 2017 and 2018, 77.3% and 81.0% of our revenues, respectively, were attributable to display drivers
that were incorporated into TFT-LCD panels. We expect to continue to substantially depend on sales to the
12
TFT-LCD panel industry for the foreseeable future. The TFT-LCD panel industry is intensely competitive
and is vulnerable to cyclical market conditions. The average selling prices of TFT-LCD panels generally
decline with time as a result of, among other factors, capacity ramp-up, technological advancements and cost
reduction with the exception of the new high end and high-resolution products. The average selling prices of
TFT-LCD panels could further decline for numerous reasons, including but not limited to the following:
•
•
lower-than-expected demand for end-use products that incorporate TFT-LCD panels;
a surge in industrial manufacturing capacity due to the ramping up of new fabrication facilities and/
or improvements in production yields; and
• manufacturers operating at high levels of capacity utilization in order to reduce fixed costs per panel.
The TFT-LCD panel industry is volatile and difficult to predict. In 2014, smartphone boom in developed
markets and in China generated great demand of small and medium sized panels, helping the TFT-LCD panel
business to gradually recover. However, 2015 was a more challenging year for the TFT-LCD industry due to
macro uncertainties and soft demand across the consumer electronics sectors. We cannot assure you that such
similar events will not occur in the future or there will not be any future shortages of materials or components
for our products or our customers’ products or a decrease in demand for our products.
In addition, the merger of certain of our major customers, including CMO, Innolux and TPO in 2010,
could result in an increase in their bargaining power and therefore subject us to additional downward pricing
pressure. We cannot assure you that in such periods in which we experience significant downward pricing
pressure, we could sufficiently reduce costs to completely offset the loss of revenues. In addition, a severe
and prolonged industry downturn could also result in higher risks in relation to the collectability of our
accounts receivable, the marketability and valuation of our inventories, the impairment of our tangible and
intangible assets, and the stability of our supply chain. As a result, the cyclicality of the TFT-LCD panel
industry could adversely affect our revenues, cost of revenues and results of operations.
Our strategy of expanding our product offerings to non-driver products may not be successful.
We have devoted, and intend to continue to devote, financial and management resources to the
development, manufacturing and marketing of non-driver products as we diversify our product portfolio
and because our non-driver products have higher gross margin than our driver products. Our non-driver
products include, among others, timing controllers, touch panel controllers, TFT-LCD television and monitor
semiconductor solutions, LCOS and MEMS microdisplays, power management ICs, CMOS image sensors,
3D sensing solution and wafer level optics (WLO) products.
We believe end products utilizing our LCOS technology could potentially be a large market and we have
made major progress toward commercialization of LCOS microdisplays for head-mounted-display. On top
of that, we have seen supply chain maturing throughout the years with a growing number of significant
players investing in microdisplay reference designs. Our LCOS microdisplay business hit inflection point in
September 2015 with pilot production shipment made to a major customer. Since then, we have increased
shipments of our LCOS products to some industry heavyweights and secured additional design engagements
with current and new customers. Some of our major customers already launched their products in 2016.
At present, our main focus areas for LCOS business are AR goggle devices and head-up-displays (HUD)
for automotive, while AR will take a few years to fully realize its market potential. We continue to see
heavyweight companies allocating major R&D resources and budgets to bring the new products into the
market. Currently, Tier 1 companies and start-up companies are investing heavily to develop the ecosystem --
applications, software, OS, firmware, system electronics, and optics. With all these investments, we will see
an ecosystem build up within the next few years; the AR market will then be in an acceleration mode. While
most customers don’t expect big volume for their early generation products, we have been working with
many of them for future generation devices. We are committed to providing the best technology to support
them in the effort. We are also seeing constant additions of new customers using our LCOS for a variety of
new applications. We believe that Himax stands to benefit from our customers’ successful commercialization
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of their new products due to our unique position as one of the providers of choice for microdisplay and
related optics. Nevertheless, these product categories are at a relatively early stage as compared to other
products and they have a relatively immature supply chain. Therefore, it is difficult to project the success of
the applications that use LCOS microdisplay products.
We also believe there are new market opportunities for our CMOS image sensors. Although it seems
relatively challenging for us to gain significant market share in conventional RGB camera, we do think there
are various interesting and different applications in imaging. On top of our legacy products in laptop and
multimedia, we’ve launched two computer vision sensor product lines, i.e., near infrared (“NIR”) sensor
and Always-on-Sensor (“AoS”). NIR sensor is the key building stone for passive as well as active computer
vision system. With the special design in pixel architecture and materials, our NIR sensor provides industry
leading Quantum Efficiency (“QE”) to absorb NIR signal. In the collaboration with our partners in structured
light, NIR plays an important role in the receiver. AoS, on the other hand, is an IoT sensor which consumes
only several micro watt to do people detection, eye ball tracking, and other cool features. New sensor
architectures, readout, pixel, and the corresponding slim algorithms are integrated together to contribute the
always-on feature. Given that the two new exciting product lines just hit the market, it’s still quite new to the
industry. To build up the competition barrier, we have also devoted ourselves and pour a lot of resources into
making the product lines more mature. As a result, these two new products take time to bear some fruits.
Moreover, we have participated in most of the smartphone OEMs’ ongoing 3D sensing projects for facial
recognition and phone unlock covering all three types of technologies, namely structured light, active stereo
camera (ASC) and time-of-flight. Depending on the customers’ needs, we provide 3D sensing total solution
or just the projector module or optics inside the module. By offering either the projector module or critical
optics, we have been collaborating with a small handful of smartphone names that have in-house capability
to come up with their own customized 3D sensing solutions. For most Android smartphone makers who
don’t have such in-house capability, however, we have to provide total solution to enable their 3D sensing.
Himax’s 3D sensing total solution structured light-based, which we announced jointly with Qualcomm in
August 2017, brings together Qualcomm’s industry leading 3D algorithm with Himax’s cutting-edge design
and manufacturing capabilities in optics and NIR sensors as well as our unique know-how in 3D sensing
system integration. At present, the 3D sensing adoption for this market remains low. The adoption is hindered
primarily by the prevailing high hardware cost of 3D sensing, the long development lead time required to
integrate it into the smartphone and the lack of killer applications which is limited to phone unlock and
online payment. Instead of 3D sensing, most of the Android phone makers have chosen the lower cost finger
print technology which can achieve similar phone unlock and online payment functions with somewhat
compromised user experience. Reacting to their lukewarm response, we are working on the next generation
3D sensing with an aim to leapfrog the market by providing high performance, easy to adopt and yet cost
friendly total solutions, targeting the majority of Android smartphone players. We believe that 3D sensing
will be widely adopted by more Android smartphone makers when the ecosystem is able to substantially
lower the cost of adoption and develop more killer applications while offering easy-to-use, fully-integrated
total solutions, for which Himax is playing a key part.
Developing and commercializing each of our non-driver products requires a significant amount of
management, engineering and monetary resources. For example, we have established certain in-house
facilities for key manufacturing processes of our non-driver products including LCOS microdisplay
solutions, wafer-level optics and active alignment for 3D sensing. If we are unable to efficiently ramp up
our production facilities or lack of customers’ demand, the lower capacity utilization rate will negatively
affect our gross margin and our results of operations. Moreover, we will be subject to ramp-up expenses in
the early stage of mass production of our non-driver products. Numerous uncertainties exist in developing
new products and we cannot assure you that we will be able to develop our non-driver products successfully.
We may underestimate the amount of capital, personnel and other resources required to develop and
commercialize our non-driver products, which may affect the success of our growth strategy. We may
also overestimate the market potential of the end products that are utilizing or will utilize our non-driver
products, which may negatively impact our strategy for the development of non-driver products. In addition,
if we are unsuccessful in expanding our product offerings to non-driver products, it may negatively affect
our reputation and the status of our brand in our other markets. The failure or delay in the development,
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production or commercialization of any of our non-driver products, the occurrence of any product defects or
design flaws, or the low market acceptance of or demand for either of our products or the end devices using
our products may adversely affect our results of operations and growth prospects.
The concentration of our accounts receivable and the extension of payment terms for certain of our
customers exposes us to increased credit risk and could harm our operating results and cash flows.
As of December 31, 2018, our accounts receivable from Customer A and its affiliates were $63.5 million,
which represented approximately 33.5% of our accounts receivable, net. The concentration of our accounts
receivable exposes us to increased credit risk. Moreover, we have at times agreed to extend the payment
terms for certain of our customers. Other customers have also requested extensions of payment terms. We
may also agree to grant such requests for the extension of payment terms in the future. As a result, a default
by any such customer, a prolonged delay in the payment of accounts receivable or the extension of payment
terms for our customers could adversely affect our cash flow, liquidity and our operating results.
Our customers may experience a decline in profitability or may not be profitable at all, which could
adversely affect our results of operations and financial condition.
The TFT-LCD panel industry is highly competitive. TFT-LCD panel manufacturers, including our
customers, experience significant pressure on prices and profit margins, due largely to growing industry
capacity and fluctuations in demand for TFT-LCD panels. Some TFT-LCD panel manufacturers have
greater access to capital or greater production, research and development, intellectual property, marketing or
other resources than our customers, who may not be able to compete successfully and sustain their market
positions. In addition, our customers’ business performance may fluctuate significantly due to a number of
factors, many of which are beyond their control, including:
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consumer demand and the general economic conditions;
the cyclical nature of both the TFT-LCD industry, including fluctuations in average selling prices,
and its downstream industries;
the speed at which TFT-LCD panel manufacturers expand production capacity;
brand companies’ continued needs for original equipment manufacturing services provided by TFT-
LCD panel manufacturers;
access to raw materials, components, equipment and utilities on a timely and economical basis;
technological changes;
the rescheduling and cancellation of large orders;
access to funding on satisfactory terms; and
fluctuations in the currencies of TFT-LCD panels exporting countries against the U.S. dollar.
Our customers continued to operate in a challenging business environment and may experience a decline
in profitability or may not be profitable at all. In addition, the aggressive expansion plans for next generation
fabs in China proposed by several TFT-LCD panel manufacturers might significantly increase the output of
TFT-LCD panels if all of the plans are implemented in the next few years, which could result in a decline in
the average selling prices of TFT-LCD panels. In addition, the antitrust lawsuits in the U.S. and the European
Union against several TFT-LCD panel manufacturers have materially and adversely affected the profitability
of certain of our customers, which could, in turn, adversely affect our profit margin, significantly reduce our
profits and materially affect our results of operations and financial condition.
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We depend on sales of display drivers used in TFT-LCD panels, and the limited potential for further
growth in both the market size of display drivers and the market share of our display drivers or the
absence of continued market acceptance of our display drivers could limit our growth in revenues or
harm our business.
In 2017 and 2018, we derived 77.3% and 81.0% of our revenues, respectively, from the sale of display
drivers used for large-sized applications, mobile handset applications and consumer electronics applications,
and we expect to continue to derive a substantial portion of our revenues from these or related products. As the
display drivers industry and our display drivers business are relatively mature, there may be limited potential
for the overall display drivers market to grow and for us to further grow our market share, which could limit
our future growth in revenues. Failure to grow our unit shipments for display drivers, coupled with a general
decline in the average selling prices, could adversely and materially affect our results of operations. See also
“—Risks Relating to Our Industry—The average selling prices of our products could decrease rapidly, which
may negatively impact our revenues and operating results.” We expect to continue to derive a substantial
portion of our revenues from the sale of display drivers. Therefore, the continued market acceptance of our
display drivers is critical to our future success. Failure to grow or maintain our revenues generated from the
sales of display drivers could adversely and materially affect our results of operations and financial condition..
Technological innovation may reduce the number of display drivers typically required for each panel,
thereby reducing the number of display drivers we are able to sell per panel. If such a reduction in
demand is not offset by the general growth of the industry, growth in our market share or an increase
in our average selling prices, our revenues may decline.
With the high penetration rate of smartphones, growth of the market has been slowing down in the past
two years. LCD display and its driver IC in smartphone application is getting more commoditized with lower
ASP. Meanwhile, addressable market size of conventional smartphone DDIC is eroded quickly by AMOLED
and in-cell display, which used to be emerging technologies but have ramped up with significant adoption
rate. Being one of the leading DDIC suppliers, Himax also has been devoted to development activities
for AMOLED DDIC and in-cell TDDIs. Nevertheless, AMOLED display has been dominated by Korean
companies, and Himax TDDI went through the learning curve in 2016 and just started to ramp-up in 2017.
Except for certain small-sized panels, multiple display drivers are typically required for each panel to
function. In order to reduce costs, TFT-LCD panel manufacturers generally seek to have display drivers
with higher channel counts and new panel designs to reduce the number of display drivers required for
each panel. We have been developing such innovative and cost-effective display driver solutions in order
to grow our market share, attract additional customers, increase our average selling prices and capture new
design wins. However, we cannot assure you that we will successfully achieve these goals. If we fail to
do so and the number of display drivers typically required per panel decreases thereby reducing our unit
shipments, our revenues may decline. Recently, TFT-LCD panel manufacturers have developed several
panel designs to reduce the usage of display drivers, including gate in panel, or GIP, amorphous silicon gate,
or ASG, or simply gateless designs, which integrate the gate driver function onto the glass and eliminate
the need for gate drivers, as well as dual gate and triple gate panel designs, which would largely reduce the
usage of source drivers. If such designs or technologies become widely adopted, demand for our display
drivers may decrease significantly, which would adversely and materially affect our results of operations.
We face numerous challenges relating to our growth. If we are no longer able to keep our
competitiveness to maintain current market share or to gain market share in new product segments,
our revenues and profit may decline.
The scope and complexity of our business has grown significantly since our inception. Our growth has
placed, and will continue to place, a strain on our management, personnel, systems and resources. If we are
unable to manage our growth effectively, we may not be able to take advantage of market opportunities,
execute our business plan or respond to competitive pressures. To successfully manage our growth, we
believe we must effectively:
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hire, train, integrate, retain and manage additional qualified engineers, senior managers, sales and
marketing personnel, and information technology personnel;
implement additional, and improve existing, administrative and operations systems, procedures and
controls;
expand our accounting and internal audit team, including hiring additional personnel with IFRS and
internal control expertise;
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continue to expand and upgrade our design and product development capabilities;
• manage multiple relationships with semiconductor manufacturing service providers, customers,
suppliers and certain other third parties; and
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continue to develop and commercialize non-driver products, including, among others, timing
controllers, touch controller ICs, TFT-LCD television and monitor semiconductor solutions, LCOS
and MEMS microdisplays, power management ICs, CMOS image sensors, 3D sensing solution and
wafer level optics products.
Moreover, if our allocation of resources does not correspond with future demand for particular products,
we could miss market opportunities, and our business and financial results could be materially and adversely
affected. Therefore, we cannot assure you that we will be able to manage our growth effectively in the future.
Our quarterly revenues and operating results are difficult to predict, and if we do not meet quarterly
financial expectations, our ADS price will likely decline.
Our quarterly revenues and operating results are difficult to predict. They have fluctuated in the past from
quarter to quarter and may continue to do so in the future. Our operating results may in some quarters fall
below market expectations, likely causing our ADS price to decline. Our quarterly revenues and operating
results may fluctuate because of many factors, including:
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our ability to accurately forecast shipments, average selling prices, cost of revenues, operating
expenses, non-operating income/loss, foreign currency exchange rates, and effective income tax
rates;
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our ability to transfer any increase in unit costs to our customers;
our ability to accurately perform various tests, estimations and projections, including with respect
to the write-down on slow or obsolete inventories, the impairment of non-financial assets, the
collectability of accounts receivable, and the realization of deferred tax assets;
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our ability to successfully design, develop and introduce new or enhanced products acceptable to our
customers in a timely manner;
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changes in the relative mix in the unit shipments of our products, which may have significantly
different average selling prices and cost of revenues as a percentage of revenues;
changes in share-based compensation;
the loss of one or more of our key customers;
decreases in the average selling prices of our products;
our accumulation and write-down of inventory;
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the relative unpredictability in the volume and timing of customer orders;
shortages of other components used in the manufacture of TFT-LCD panels;
the risk of cancellation or deferral of customer orders in anticipation of our new products or product
enhancements, or due to a reduction in demand of our customers’ end product;
changes in our payment terms with our customers and our suppliers;
our ability to negotiate favorable prices with customers and suppliers;
changes in the available capacity of semiconductor manufacturing service providers;
the rate at which new markets emerge for new products under development;
the evolution of industry standards and technologies;
product obsolescence and our ability to manage product transitions;
increase in cost of revenues due to inflation;
our involvement in litigation or other types of disputes;
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changes in general economic conditions, especially the impact of the global financial crisis on
economic growth and consumer spending, and the unease in the Middle East;
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changes in our transfer pricing policy and applicable income tax regulations; and
natural disasters, particularly earthquakes and typhoons, or outbreaks of disease affecting countries
where we conduct our business or where our products are manufactured, assembled or tested.
The factors listed above are difficult to foresee, and along with other factors, could seriously harm our
business. We anticipate the rate of new orders may vary significantly from quarter to quarter. Our operating
expenses and inventory levels are based on our expectations of future revenues, and our operating expenses
are relatively fixed in the short term. Consequently, if anticipated sales and shipments in any quarter do
not occur as expected, operating expenses and inventory levels could be disproportionately high, and our
operating results for that quarter and, potentially, future quarters may be negatively impacted. Any shortfall
in our revenues would directly impact our business. Our operating results are volatile and difficult to
predict; therefore, you should not rely on the operating results of any one quarter as indicative of our future
performance. Our operating results in future quarters may fall below the expectations of securities analysts
and investors. In this event, our ADS price may decline significantly.
The strategic relationships between certain of our competitors and their customers and the
development of in-house capabilities by TFT-LCD panel manufacturers may limit our ability to expand
our customer base and our growth prospects.
Certain of our competitors have established or may establish strategic or strong relationships with TFT-
LCD panel manufacturers that are also our existing or potential customers. Marketing our display drivers to
such TFT-LCD panel manufacturers that have established relationships with our competitors may be difficult.
Moreover, several TFT-LCD panel manufacturers have in-house design capabilities and therefore may not
need to source semiconductor products from us. If our customers successfully develop in-house capabilities
to design and develop semiconductors that can substitute for our products, they would likely reduce or
stop purchasing our products. In addition, we also face challenges in attracting new customers for our new
products. To sell new products, we will likely need to target new market segments and new customers
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with whom we do not have current relationships, which may require different strategies and may present
difficulties that we have not encountered before. Therefore, failure to broaden our customer base and attract
new customers may limit our growth prospects.
We depend primarily on nine foundries to manufacture our wafers, and any failure to obtain sufficient
foundry capacity or loss of any of the foundries we use could significantly delay our ability to ship our
products, causing us to lose revenues and damage our customer relationships.
Access to foundry capacity is crucial to our business because we do not manufacture our own wafers,
instead relying primarily on nine third-party foundries. The ability of a foundry to manufacture our
semiconductor products is limited by its available capacity. Access to capacity is especially important due to
the limited availability of the high-voltage CMOS process technology required for the manufacture of wafers
used in display drivers. Moreover, Japanese integrated device manufacturer companies may outsource their
semiconductor manufacturing to foundries outside Japan. This could result in tightness in the foundry supply
available to us and affect our ability to acquire sufficient capacity. As we currently do not have any long-
term supply arrangements with any third-party foundries to guarantee us access to a certain level of foundry
capacity, if the primary third-party foundries that we rely upon are not able to meet our required capacity, or
if our business relationships with these foundries are adversely affected, we would not be able to obtain the
required capacity from these foundries to meet any increasing demand for our products and would have to
seek alternative foundries, which may not be available on commercially reasonable terms, or at all, or which
may expose us to risks associated with qualifying new foundries, as further discussed below. Our results of
operations and business prospects could be adversely affected as a result of the foregoing.
We place wafer orders on the basis of our customers’ purchase orders and sales forecasts; however, any
of the foundries we use can allocate capacity to other foundry customers and reduce deliveries to us on short
notice. It could be that other foundry customers are larger and better financed than we are or have supply
agreements or better relationships with the foundries we use and could induce these foundries to reallocate
our capacity to them. The loss of any of the foundries we use or any shortfall in available foundry capacity
could impair our ability to secure processed wafers, which could significantly delay our ability to ship our
products, causing a loss of revenues and damages to our customer relationships.
Although we use several foundries for different semiconductor products, certain of our products are
manufactured at only one of these foundries. If any one of the foundries that we use for a specific product
is unable to provide us with our required capacity, does not deliver in a timely manner, or the quality or
pricing terms are not acceptable to us, we could experience significant delays in receiving the product
being manufactured for us by that foundry or incur additional costs to obtain substitutes. Also, if any of the
foundries that we use experience financial difficulties or insolvency risks due to the impact of the global
economic turmoil or any company-specific reasons or otherwise, if their operations are damaged or if there
is any other disruption of their foundry operations, we may not be able to qualify an alternative foundry in
a timely manner. If we choose to use a new foundry or process technology for a particular semiconductor
product, we believe that it will take us several quarters to qualify the new foundry or process before we can
begin shipping such products. If we cannot qualify a new foundry in a timely manner, we may experience a
significant interruption in our supply of the affected products, which could reduce our revenues, increase our
costs and expenses, and damage our customer relationships.
The recent fluctuations in the prices of certain metals, chemicals and gasoline and the recent volatility of
foreign exchange rates may have increased costs for foundries and semiconductor service providers. This
increase in costs could limit their ability to continue to make the research and development investments
needed to keep up with technological advances. Any increase in costs for foundries and semiconductor
service providers we use could lead to an increase in our unit costs or could limit our ability to lower our
unit costs. We cannot assure you that we will be able to continue to reduce our costs and maintain our profit
margins.
Taiwan Semiconductor Manufacturing Company Limited, or TSMC, and Vanguard International
Semiconductor Corporation, or Vanguard, historically manufactured substantially all of our wafers in the
early years since our inception. In order to diversify our foundry sources, we have also used Macronix
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International Co., Ltd., or Macronix, Powerchip Technology Corporation, or PSC, Globalfoundries Singapore
Pte., Ltd. (formerly Chartered Semiconductor Manufacturing Ltd.), or Globalfoundries Singapore, United
Microelectronics Corporation, or UMC, Powerchip Semiconductor Manufacturing Company, or PSMC,
Semiconductor Manufacturing International Corporation, or SMIC, and SK hynix system ic or SKHYSI to
manufacture a portion of our products. As a result of outsourcing the manufacturing of our wafers, we face
several significant risks, including:
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failure to secure necessary manufacturing capacity, or being able to obtain required capacity only at
higher costs;
risks of our proprietary information leaking to our competitors through the foundries we use;
limited control over delivery schedules, quality assurance and control, manufacturing yields and
production costs;
the unavailability of, or potential delays in obtaining access to, key process technologies; and
financial risks of certain of our foundry suppliers, including those that are owned by ailing dynamic
random access memory, or DRAM, companies.
In addition, in order to manufacture our display drivers used in TFT-LCD panels, we require foundries
with high-voltage manufacturing process capacity. Of the limited number of foundries that offer this
capability, some are owned by integrated device manufacturers which are also our competitors. As a result,
our dependence on high-voltage foundries presents the following additional risks:
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potential capacity constraints faced by the limited number of high-voltage foundries and the lack of
investment in new and existing high-voltage foundries;
difficulty in attaining consistently high manufacturing yields from high-voltage foundries;
delay and time required (approximately one year) to qualify and ramp up production at new high-
voltage foundries; and
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price increases.
As a result of these risks, we may be required to use foundries with which we have no established
relationships, which could expose us to potentially unfavorable pricing, unsatisfactory quality or insufficient
capacity allocation. Moreover, the scarcity and importance of high-voltage foundry capacity may necessitate
us making investments in foundries in order to secure capacity, which would require us to substantially
increase our capital outlays and possibly raise additional capital, which may not be available to us on
satisfactory terms, if at all.
Shortages of processed tape used in the manufacturing of our products, increased costs of
manufacturing such tape, or the loss of one of our suppliers of such tape may increase our costs or
limit our revenues and impair our ability to ship our products on time.
There are a limited number of companies which supply the processed tape used to manufacture our
semiconductor products, and we do not have binding long-term supply arrangements with processed tape
suppliers that would guarantee us access to processed tape. Therefore, from time to time, shortages of
such processed tape may occur. If any of the processed tape suppliers we rely upon experience difficulties
in delivering processed tape or are unable to meet the prices, quality or services that we require, or if our
business relationships with these suppliers weaken or deteriorate, we may not be able to locate alternative
sources in a timely manner. Therefore, if shortages of processed tape were to occur, or if the costs of
manufacturing such tape increases, we would incur additional costs or be unable to ship our products to
our customers in a timely fashion, all of which could harm our business and our customer relationships and
negatively impact our earnings. As a result of these risks, we may also be required to use processed tape
suppliers with which we have no established relationships, which could expose us to potentially unfavorable
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pricing, unsatisfactory quality or insufficient capacity allocation. Moreover, the scarcity and importance of
processed tape may necessitate us making investments in processed tape suppliers in order to secure adequate
supply, which would require us to substantially increase our capital outlays and possibly raise additional
capital, which may not be available to us on satisfactory terms, if at all.
The loss of, or our inability to secure sufficient capacity from, any of our third-party assembly and
testing houses at reasonable and competitive prices could disrupt our shipments, harm our customer
relationships and reduce our sales.
Access to third-party assembly and testing capacity is critical to our business because we do not have in-
house assembly and testing capabilities for commercial production and instead rely on third-party service
providers. Access to these services is especially important to our business because display drivers require
specialized assembly and testing services. A limited number of third-party assembly and testing houses
assemble and test substantially all of our current products. There has been an increased level of industry
consolidation among our suppliers in recent years. Therefore, suppliers could be in a better position to
bargain for higher prices for their services and products, which could result in an increase in our average unit
cost. See also “—Our suppliers may have increasing bargaining power as a result of industry consolidation,
which could result in an increase in our average unit cost and a decrease in our profit margin.” We do not
have binding long-term supply arrangements with assembly and testing service providers that guarantee
us access to our required capacity. If the primary assembly and testing service providers that we rely upon
are not able to meet our requirements in price, quality, and service, or if our business relationships with
these service providers were adversely affected, we would not be able to obtain the required capacity from
such providers and would have to seek alternative providers, which may not be available on commercially
reasonable terms, or at all. As a result, we do not directly control our product delivery schedules, assembly
and testing costs, and quality assurance and control. If any of these third-party assembly and testing houses
experiences capacity constraints, financial difficulties, suffers any damage to its facilities or if there is any
disruption of its assembly and testing capacity, we may not be able to obtain alternative assembly and testing
services in a timely manner. Because of the amount of time we usually take to qualify assembly and testing
houses, we may experience significant delays in product shipments if we are required to find alternative
sources. Any problems that we may encounter with the delivery, quality or cost of our products could damage
our reputation and result in a loss of customers and orders.
As a result of these risks, we may be required to use assembly and testing service providers with which we
have no established relationships, which could expose us to potentially unfavorable pricing, unsatisfactory
quality or insufficient capacity allocation. Moreover, the scarcity and importance of assembly and testing
services may necessitate us making investments in assembly and testing service providers in order to secure
capacity, which would require us to substantially increase our capital outlays and possibly raise additional
capital, which may not be available to us on satisfactory terms, if at all.
Shortages of key components for our customers’ products could decrease demand for our products.
Shortages of components and other materials that are critical to the design and manufacture of our
customers’ products may limit our sales. These components and other materials include, but are not limited
to, color filters, backlight modules, polarizers, printed circuit boards and glass substrates. In the past,
companies that use our products in their production have experienced delays in the availability of key
components from other suppliers. In addition, component manufacturers may not be able to increase or
maintain their component supply because of labor shortage in China or otherwise, and may shut down certain
of their capacity from time to time because of weak demand, which may increase the instability of timely
delivery and the risk of shortage of components. Such shortages of components and other materials critical to
the design and manufacture of our customers’ products may cause a slowdown in demand for our products,
resulting in a decrease in our sales and adversely affecting our results of operations. In addition, as a result
of uncertain demand conditions, our customers may hesitate to build inventory on hand and tend to release
orders on short notice.
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We rely on the services of our key personnel, and if we are unable to retain our current key personnel
and hire additional personnel, our ability to design, develop and successfully market our products
could be harmed.
We rely upon the continued service and performance of a relatively small number of key personnel,
including certain engineering, technical and senior management personnel. In particular, our engineers and
other key technical personnel are critical to our future technological and product innovations. Competition
for highly skilled engineers and other key technical personnel is intense in the semiconductor industry in
general and in Taiwan’s flat panel semiconductor industry in particular. Moreover, our future success depends
on the expansion of our senior management team and the retention of key employees such as Jordan Wu, our
president and chief executive officer, and Dr. Biing-Seng Wu, our chairman. We rely on these individuals to
manage our company, develop and execute our business strategies, and manage our relationships with key
suppliers and customers. Any of our key employees could leave our company with little or no prior notice.
They could also leave our company to work with a competitor. In addition, we do not have “key person” life
insurance policies covering any of our employees. The loss of any key personnel or our inability to attract
or retain qualified personnel, whether engineers or others, could delay the development and introduction of
new products and would have an adverse effect on our ability to sell our products as well as on our overall
business and growth prospects. We may also incur increased operating expenses and be required to divert
the attention of other senior executives away from their original duties to recruiting replacements for key
personnel.
If we fail to forecast customer demand accurately, we may have excess or insufficient inventory, which
may increase our operating costs and harm our business.
The lead time required by the semiconductor manufacturing service providers that we use to manufacture
our products is typically longer than the lead time that our customers provide for delivery of our products
to them. Therefore, to ensure availability of our products for our customers, we will typically ask our
semiconductor manufacturing service providers to start manufacturing our products based on forecasts
provided by our customers in advance of receiving their purchase orders. However, these forecasts are
not binding purchase commitments, and we do not recognize revenues from these products until they are
delivered to customers. Moreover, for the convenience of our customers, we may agree to ship our inventory
to warehouses located near our customers, so that our products can be delivered to these customers more
quickly. We may from time to time agree that control over a product do not to our customer until the
customer requests delivery of our products from such warehouses. In such cases, we will not recognize
revenues from these products until the control over a product to our customers based on the shipping terms,
which is generally when they are delivered to our customers from these warehouses. As a result, we incur
inventory and manufacturing costs in advance of anticipated revenues.
The anticipated demand for our products may not materialize; therefore, manufacturing based on customer
forecasts exposes us to risks of high inventory carrying costs, increased product obsolescence, and erosion of
the products’ market value. For example, some of our customers might overstate their forecasts because of
concerns that their semiconductor suppliers cannot deliver on their rush orders. If we overestimate demand
for our products or if purchase orders are cancelled or shipments delayed, we may incur excess inventory that
we cannot sell, or may have to sell at low profit margins or even at a loss, which would harm our financial
results. Conversely, if we underestimate demand, we may not have sufficient inventory and may lose market
share and damage customer relationships, which also could harm our business. Obtaining additional supply
in the face of product shortages may be costly or impossible, particularly in the short term, which could
prevent us from fulfilling orders. These inventory risks are exacerbated by the high level of customization of
our products, which limits our ability to sell excess inventory to other customers, which could eventually lead
to write-down of these excess inventory.
If we do not achieve additional design wins in the future, our ability to grow will be limited.
Our future success depends on our current and prospective customers designing our products into their
products. To achieve design wins, we must design and deliver cost-effective, innovative, reliable and
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integrated products that are customized for our customers’ needs. Once a supplier’s products have been
designed into a system, the panel manufacturer may be reluctant to change its source of components due to
the significant costs and time associated with qualifying a new supplier. Accordingly, our failure to obtain
additional design wins with panel manufacturers and to successfully design, develop and introduce new
products and product enhancements could harm our business, financial condition and results of operations.
A design win is not a binding commitment by a customer to purchase our products and may not result in
large volume orders of our products. Rather, it is a decision by a customer to use our products in the design
process of that customer’s products. Customers can choose at any time to stop using our products in their
designs or product development efforts. Moreover, even if our products were chosen to be incorporated into
a customer’s products, our ability to generate significant revenues from that customer would depend on the
commercial success of those products. Thus, a design win may not necessarily generate significant revenues
if our customers’ products are not commercially successful.
Our products are complex and may require modifications to resolve undetected errors or failures in
order for them to function with panels at the desired specifications, which could lead to higher costs, a
loss of customers or a delay in market acceptance of our products.
Our products are highly complex and may contain undetected errors or failures when first introduced or
as new versions are released. If our products are delivered with errors or defects, we could incur additional
development, repair or replacement costs, and our credibility and the market acceptance of our products
could be harmed. Defects could also lead to liability for defective products and lawsuits against us or our
customers. We have agreed to indemnify some of our customers under some circumstances against liability
from defects in our products. A successful product liability claim could require us to make significant damage
payments.
Our display drivers comprise part of a complex panel manufactured by our customers. Our display
drivers must operate according to specifications with the other components used by our customers in the
panel manufacturing process. For example, during the panel manufacturing process, our display drivers are
attached to the panel glass and must interoperate with the glass efficiently. If other components fail to operate
efficiently with our display drivers, we may be required to incur additional development time and costs to
improve the interoperability of our display drivers with the other components.
Our highly integrated products are difficult to manufacture without defects. The existence of defects in
our products could increase our costs, decrease our sales and damage our customer relationships and
our reputation.
The manufacture of our products is a complex process, and it is often difficult for semiconductor
foundries to manufacture our products completely without defects. Minor deviations in the manufacturing
process can cause substantial decreases in yield and quality. In particular, some of our products are highly
integrated and incorporate mixed analog and digital signal processing and embedded memory technology,
and this complexity makes it even more difficult to manufacture without defects.
The ability to manufacture products of acceptable quality depends on both product design and
manufacturing process technology. Defective products can be caused by design, defective materials or
component parts, or manufacturing difficulties. Thus, quality problems can be identified only by analyzing
and testing our display drivers in a system after they have been manufactured. The difficulty in identifying
defects is compounded by the uniqueness of the process technology used in each of the semiconductor
foundries with which we have subcontracted to manufacture our products. Difficulties in achieving defect-
free products due to the increasing complexity of display drivers and the panel system surrounding them may
result in an increase in our costs and expenses, and delays in the availability of our products. In addition,
if the foundries that we use fail to deliver products of satisfactory quality in the volume and at the price
required, we will be unable to meet our customers’ demand for our products or to sell those products at an
acceptable profit margin, which could adversely affect our sales and margins, and damage our customer
relationships and our reputation.
23
We do not have long-term purchase commitments from our customers, which may result in significant
uncertainty and volatility with respect to our revenues and could materially and adversely affect our
results of operations and financial condition.
We do not have long-term purchase commitments from our customers; our sales are made on the basis
of individual purchase orders. Our customers may also cancel or defer purchase orders. Our customers’
purchase orders may vary significantly from period to period, and it is difficult to forecast future order
quantities. In the event of a cancellation, postponement, or reduction of an order, we would likely not be able
to reduce operating expenses sufficiently so as to minimize the impact of the lost revenues. Alternatively, we
may have excess inventory that we cannot sell, which would harm our operating results. In addition, changes
in our customers’ business may adversely affect the quantity of purchase orders that we receive. In the past,
some of our customers have also significantly lowered their capacity utilization rates, reduced or canceled
their orders of our products, and requested higher-than-usual price concessions from us. We expect WLO
shipment volume in 2019 will decline significantly year-over-year starting from the third quarter of 2019
due to a product replacement decision informed by an anchor customer a few days following the Company’s
last earnings call on February 19, 2019. This update will negatively affect our 2019 profitability because
gross margin will be impacted by lower WLO capacity utilization rate, thereby leading to higher equipment
depreciation and factory overhead on a per unit basis. For reference, WLO sales represented 4.4% of our
2018 total sales and will account for less than 5% of our total sales in the first quarter of 2019. Despite
this setback, we continue to work on new development projects with the anchor customer, in addition to
our multiple ongoing projects with other customers. We cannot assure you that any of our customers will
continue to place orders with us in the future at the same level as in prior periods. We also cannot assure
you that the volume of our customers’ orders will be consistent with our expectations when we plan our
expenditures. Our results of operations and financial condition may thus be materially and adversely affected.
Our corporate actions are substantially controlled by officers, directors and affiliated entities who may
take actions that are not in, or may conflict with, our or our public shareholders’ interests.
As of February 28, 2019, Jordan Wu and Dr. Biing-Seng Wu (who are brothers) beneficially owned
approximately 2.1% and 20.9% of our ordinary shares, respectively. For information relating to the beneficial
ownership of our ordinary shares, see “Item 7.A. Major Shareholders and Related Party Transactions—
Major Shareholders.” These shareholders, acting together, could exert substantial influence over matters
requiring approval by our shareholders, including electing directors and approving mergers or other business
combination transactions. This concentration of ownership may also discourage, delay or prevent a change
in control of our company, which could deprive our shareholders of an opportunity to receive a premium for
their shares as part of a sale of our company and might reduce the price of our ADSs. Actions may be taken
even if they were opposed by our other shareholders.
Assertions against us by third parties for infringement of their intellectual property rights could result
in significant costs and cause our operating results to suffer.
The semiconductor industry is characterized by vigorous protection and pursuit of intellectual property
rights and positions, which results in protracted and expensive litigation for many companies. We have
received, and expect to continue to receive, notices of infringement of third-party intellectual property rights.
We may receive claims from various industry participants alleging infringement of their patents, trade secrets
or other intellectual property rights in the future. Any lawsuit resulting from such allegations could subject
us to significant liability for damages and invalidate our proprietary rights. These lawsuits, regardless of their
success, would likely be time-consuming and expensive to resolve and would divert management time and
attention. Any potential intellectual property litigation also could force us to do one or more of the following:
•
stop selling products or using technology or manufacturing processes that contain the allegedly
infringing intellectual property;
•
pay damages to the party claiming infringement;
24
•
•
attempt to obtain a license for the relevant intellectual property, which may not be available on
commercially reasonable terms or at all; and
attempt to redesign those products that contain the allegedly infringing intellectual property with
non-infringing intellectual property, which may not be possible.
The outcome of a dispute may result in our need to develop non-infringing technology or enter into
royalty or licensing agreements. We have agreed to indemnify certain customers for certain claims of
infringement arising out of the sale of our products. Any intellectual property litigation could have a material
adverse effect on our business, operating results or financial condition.
Our ability to compete will be harmed if we are unable to protect our intellectual property rights
adequately.
We believe that the protection of our intellectual property rights is, and will continue to be, important
to the success of our business. We rely primarily on a combination of patent, trademark, trade secret and
copyright laws and contractual restrictions to protect our intellectual property. These afford only limited
protection. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to obtain,
copy or use information that we regard as proprietary, such as product design and manufacturing process
expertise. As of February 28, 2019, we and our subsidiaries had 130 U.S. patent applications pending, 108
Taiwan patent applications pending and 270 patent applications pending in other jurisdictions, including the
PRC, Japan, Korea and Europe. Our pending patent applications and any future applications may not result
in issued patents or may not be sufficiently broad to protect our proprietary technologies. Moreover, policing
any unauthorized use of our products is difficult and costly, and we cannot be certain that the measures which
we have implemented will prevent misappropriation or unauthorized use of our technologies, particularly in
foreign jurisdictions where the laws may not protect our proprietary rights as fully as the laws of the United
States. Others may independently develop substantially equivalent intellectual property or otherwise gain
access to our trade secrets or intellectual property. Our failure to protect our intellectual property effectively
could harm our business.
We may undertake acquisitions or investments to expand our business that may pose risks to our
business and dilute the ownership of our existing shareholders, and we may not realize the anticipated
benefits of these acquisitions or investments.
As part of our growth and product diversification strategy, we will continue to evaluate opportunities to
acquire or invest in other businesses, intellectual property or technologies that would complement our current
offerings, expand the breadth of markets we can address or enhance our technical capabilities. For example,
in February 2018, our subsidiary, Himax IGI Precision Ltd., or Himax IGI, acquired certain advanced nano
3D masters manufacturing assets and related intellectual property and business from a US-based technology
company. The advanced nano 3D manufacturing masters are primarily used in imprinting or stamping
replication process to fabricate devices such as diffractive optical element (DOE), diffuser, collimator
lens and micro lens array. The acquisition brings Himax the very upstream master tooling capability to
supplement the company’s world leading WLO technology, which is critical in its efforts to offer 3D sensing
total solutions. In addition, Himax fully acquired Emza Visual Sense Ltd. (“Emza”) in June 2018. Emza is
an Israel company dedicated to the development of extremely efficient visual sensors that include proprietary
machine-vision algorithms and specific architectures that enable always-on visual sensing capabilities,
achieving orders of magnitude improvement in power consumption, price and form factor. With the full
acquisition of Emza, Himax will be uniquely positioned for IoT solutions, which require tight integration
of the critical skills and knowledge of Himax’s CMOS technology and ASIC design with Emza’s computer
vision algorithms. Himax will be able to enter new markets beyond consumer electronics, such as connected
homes, smart buildings and security, and extend our reach into new IoT markets with interest in other Himax
products such as our 3D sensing solutions. We cannot assure you that we will be able to realize the benefits
we anticipate from acquiring nano 3D master business or Emza. Acquisitions or investments that we have
completed or potentially may make in the future entail a number of risks that could materially and adversely
25
affect our business, operating and financial results, including:
•
problems integrating the acquired operations, technologies or products into our existing business and
products;
•
diversion of management’s time and attention from our core business;
•
adverse effects of losses of the acquired target upon our financial condition and results of operations;
•
adverse effects on existing business relationships with customers;
•
the need for financial resources above our planned investment levels;
•
dilution of share ownership of current shareholders under share swap transactions;
•
failures in realizing anticipated synergies;
•
difficulties in retaining business relationships with suppliers and customers of the acquired company;
•
risks associated with entering markets in which we lack experience;
•
potential loss of key employees of the acquired company;
• potential write-offs of acquired assets;
• potential expenses related to the depreciation of tangible assets and amortization of intangible assets;
and
• potential impairment charges related to the goodwill acquired.
Our failure to address these risks successfully may have a material adverse effect on our financial
condition and results of operations. Any such acquisition or investment may require a significant amount
of capital investment, which would decrease the amount of cash available for working capital or capital
expenditures. In addition, if we use our equity securities to pay for acquisitions, the value of our ADSs
and the underlying ordinary shares may be diluted. If we borrow funds to finance acquisitions, such debt
instruments may contain restrictive covenants that can, among other things, restrict us from distributing
dividends.
New regulations related to conflict minerals could increase our costs and limit the supply of certain
metals used in our products.
As required under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, as amended,
or the Dodd-Frank Act, in August 2012 the SEC promulgated final rules regarding annual disclosures by
public companies of their use of certain minerals and metals, known as “conflict minerals,” which are defined
as cassiterite, columbite-tantalite, gold, wolframite or their derivatives and other minerals determined by
the U.S. government to be financing conflict in the Democratic Republic of Congo and adjoining countries.
These new rules will require us to ascertain and disclose the origin of some of the raw materials that we use.
Initial disclosures were required no later than May 31, 2014, with subsequent disclosures required no later
than May 31 of each following year. There will be costs associated with complying with these disclosure
requirements, including costs for diligence to determine the sources of conflict minerals used in our products
and other potential changes to products, processes or sources of supply as a consequence of such verification
activities. The implementation of these rules and our compliance procedures could adversely affect the
sourcing, supply, and pricing of materials used in our products. As there may be only a limited number of
suppliers offering “conflict free” minerals, we cannot be sure that we will be able to obtain necessary “conflict
free” minerals from such suppliers in sufficient quantities or at competitive prices.
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System security risks, data protection breaches or unexpected system outage or failures could impact
our business.
Our computer systems and networks are vulnerable to damage or interruption from earthquakes, fires,
power loss, telecommunications failures, cyber-attacks, computer viruses or other attempts to harm our
computer system and networks. The reliability and security of our information technology infrastructure and
software, and our ability to expand and continually update technologies in response to our changing needs
and cybersecurity threats, is critical to our business. In recent years, there are increasing and evolving risks
to cybersecurity and privacy, including criminal hackers, state-sponsored intrusions, industrial espionage,
employee malfeasance and human or technological error. Cyber attacks could result in a loss of our
intellectual property, the release of commercially sensitive information, the misappropriation of confidential
information of our employees, customers or suppliers and the interruption of our business. Failures to protect
the privacy of employees, customers or suppliers’ confidential data against breaches of network security
could result in the loss of existing or potential customers, other financial loss, and damage to our reputation.
In addition, the cost and operational consequences of responding to breaches and implementing remediation
measures could be significant. While we seek to annually review and assess our cybersecurity policies and
procedures to ensure their adequacy and effectiveness, we cannot guarantee that we will not be susceptible
to new and emerging risks and attacks in the evolving landscape of cybersecurity threats. As of February 28,
2019, we had not been aware of any material cyber attacks or incidents that had or would expected to have a
material adverse effect on our business and operations, nor had we been involved in any legal proceedings or
regulatory investigations related thereof.
Some of our data centers are located in areas with a risk of major earthquakes. Our data centers are
also subject to break-ins and sabotage. Our disaster recovery planning cannot account for all eventualities.
Consequently, the occurrence of a natural disaster or other unanticipated problems at our data centers could
result in loss of production capabilities and lengthy interruptions in our service, which could harm our
relationship with our customers and suppliers.
Some of our system services are based on public cloud. The cloud services are also subject to interruption
due to cloud service provider unexpected downtimes, cyberattacks or any type of failure, telecommunication
failure or other unidentified problems while connecting to cloud. Consequently, cloud services interruption
could result in loss of production capabilities and lengthy interruptions in our service. Cloud cybersecurity
breach could result in adverse effect on our customers, our employees, our suppliers, our reputation, and our
business.
Risks Relating to Our Industry
The average selling prices of our products could decrease rapidly, which may negatively impact our
revenues and operating results.
The price of each semiconductor product typically declines over its product life cycle, reflecting product
obsolescence, decreased demand as customers shift to more advanced products, decreased unit costs due
to advanced designs or improved manufacturing yields, and increased competition as more semiconductor
suppliers are able to offer similar products. We may experience substantial period-to-period fluctuations in
future operating results if our average selling prices decline. We may reduce the average unit price of our
products in response to competitive pricing pressures, new product introductions by us or our competitors,
and other factors. The TFT-LCD panel market is highly cost sensitive, which may result in declining average
selling prices of the components comprising TFT-LCD panels. We expect that these factors will create
downward pressure on our average selling prices and operating results. To maintain acceptable operating
results, we will need to develop and introduce new products and product enhancements on a timely basis
and continue to reduce our costs. If we are unable to offset any reductions in our average selling prices by
increasing our sales volumes and corresponding production cost reductions, or if we fail to develop and
introduce new products and enhancements on a timely basis, our revenues and operating results will suffer.
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The semiconductor industry, in particular semiconductors used in flat panel displays, is highly
competitive, and we cannot assure that we will be able to compete successfully against our competitors.
The semiconductor industry, in particular semiconductors used in flat panel displays, is highly
competitive. Increased competition may result in pricing pressure, reduced profitability and loss of market
share, any of which could seriously harm our revenues and results of operations. Competition principally
occurs at the design stage, where a customer evaluates alternative design solutions that require display
drivers. We continually face intense competition from fabless display driver companies as well as from
integrated device manufacturers. Some of our competitors have substantially greater financial and other
resources than we do with which to pursue engineering, manufacturing, marketing and distribution of
their products. As a result, they may be able to respond more quickly to changing customer demands or
devote greater resources to the development, promotion and sales of their products than we can. Some of
our competitors have manufacturing capabilities as well as in-house design operations that may give them
significant advantages such as more research and development resources and the ability to attract highly
skilled engineers. Furthermore, some of our competitors are affiliated with, or are subsidiaries of, our panel
manufacturer customers. These relationships may also give our competitors significant advantages such as
early access to product roadmaps and design-in priorities, which would allow them to respond more quickly
to changing customer demands and achieve more design-wins than we can. In addition, even competitors
with no such strategic associations with panel manufacturers may resort to price competition to maintain
their market share, which may impose pricing pressures on us, reduce our profitability or decrease our market
share. We cannot assure you that we will be able to increase or maintain our revenues and market share or
compete successfully against our current or future competitors in the semiconductor industry.
We may be adversely affected by the cyclicality of the semiconductor industry.
The semiconductor industry is highly cyclical and is characterized by constant and rapid technological
change, product obsolescence and price erosion, evolving standards, short product life cycles and wide
fluctuations in product supply and demand. The semiconductor industry has, from time to time, experienced
significant downturns, often connected with, or in anticipation of, maturing product cycles of both
semiconductor companies’ and their customers’ products and declines in general economic conditions. These
downturns have been characterized by diminished product demand, production overcapacity, high inventory
levels and accelerated erosion of average selling prices. Any future downturn may reduce our revenues and
result in our having excess inventory. Furthermore, any upturn in the semiconductor industry could result in
increased competition for access to limited third-party foundry, assembly and testing capacity. Failure to gain
access to foundry, assembly and testing capacity could impair our ability to secure the supply of products
that we need, which could significantly delay our ability to ship our products, cause a loss of revenues and
damage our customer relationships.
We have a lengthy and expensive design-to-mass production cycle.
The cycle time from the design stage to mass production for display drivers is long and requires the
investment of significant resources with each potential customer without any guarantee of sales. Our design-
to-mass production cycle typically begins with a three to twelve-month semiconductor development stage
and test period followed by a three to twelve-month end product development period by customers. This
fairly lengthy cycle creates the risk that we may incur significant expenses but will be unable to realize
meaningful sales. Moreover, prior to mass production, customers may decide to cancel the projects or change
production specifications, resulting in sudden changes in our product specifications, further causing increased
production time and costs. Failure to meet such specifications may delay the launch of our products.
Our business could be materially and adversely affected if we fail to anticipate changes in evolving
industry standards, fail to achieve and maintain technological leadership in our industry or fail to
develop and introduce new and enhanced products.
Our products are generally based on industry standards, which are continually evolving. The emergence
28
of new industry standards could render our products or those of our customers unmarketable or obsolete and
may require us to incur substantial unanticipated costs to comply with any such new standards. Likewise,
the components used in the TFT-LCD panel industry are constantly changing with increased demand for
improved features. Moreover, our past sales and profitability have resulted, to a significant extent, from our
ability to anticipate changes in technology and industry standards, and to develop and introduce new and
enhanced products in a timely fashion. If we do not anticipate these changes in technologies and rapidly
develop and introduce new and innovative technologies, we may not be able to provide advanced display
semiconductors on competitive terms, and some of our customers may buy products from our competitors
instead of from us. Our continued ability to adapt to such changes and anticipate future standards will be a
significant factor in maintaining or improving our competitive position and our growth prospects. We cannot
assure you that we will be able to anticipate evolving industry standards, successfully complete the design of
our new products, have these products manufactured at acceptable manufacturing yields, or obtain significant
purchase orders for these products to meet new standards or technologies. If we fail to anticipate changes
in technology and to introduce new products that achieve market acceptance, our business and results of
operations could be materially and adversely affected.
Risks Relating to Our Holding Company Structure
Our ability to receive dividends and other payments or funds from our subsidiaries may be restricted by
commercial, statutory and legal restrictions, and thereby materially and adversely affect our ability to
grow, fund investments, make acquisitions, pay dividends and otherwise fund and conduct our business.
We are a holding company and our assets consist mainly of our 100% ownership interest in Himax
Taiwan. We receive cash from Himax Taiwan through intercompany borrowings. Himax Taiwan has not
paid us cash dividends in the past. Nonetheless, dividends and interest on shareholder loans that we receive
from our subsidiaries in Taiwan, if any, will be subject to withholding tax under ROC law. The ability of
our subsidiaries to provide us with loans, pay dividends, repay any shareholder loans from us or make other
distributions to us is restricted by, among other things, the availability of funds, the terms of various credit
arrangements entered into by our subsidiaries, as well as statutory and other legal restrictions. A Taiwan
company is generally not permitted to distribute dividends or to make any other distributions to shareholders
for any year in which it did not have either earnings or retained earnings (excluding reserves). In addition,
before distributing a dividend to shareholders following the end of a fiscal year, the Taiwan company must
recover any past losses, pay all outstanding taxes and set aside 10% of its annual profits (less prior years’
losses and outstanding taxes) as a legal reserve until the accumulated legal reserve equals its paid-in capital,
and may set aside a special reserve. Any limitation on dividend payments by our subsidiaries could materially
and adversely affect our ability to grow, finance capital expenditures, make acquisitions, pay dividends, and
otherwise fund and conduct our business. In addition, since Himax Taiwan is not a listed company, it will
depend on us to meet its equity financing requirements in the future. Any capital contribution by us to Himax
Taiwan may require the approval of the relevant ROC authorities. We may not be able to obtain any such
approval in the future in a timely manner, or at all. If Himax Taiwan is unable to receive the equity financing
it requires, its ability to grow and fund its operations may be materially and adversely affected.
Political, Geographical and Economic Risks
Due to the location of our operations in Taiwan, we and many of our semiconductor manufacturing
service providers, suppliers and customers are vulnerable to natural disasters and other events outside
of our control, which may seriously disrupt our operations.
Most of our operations, and the operations of many of our semiconductor manufacturing service providers,
suppliers and customers are located in Taiwan, which is vulnerable to natural disasters, in particular,
earthquakes and typhoons. Our principal foundries and assembly and testing houses upon which we have
relied to manufacture substantially all of our display drivers are located in Taiwan. In 2018, 23.2% of our
revenues were derived from customers headquartered in Taiwan. As a result of this geographic concentration,
disruption of operations at our facilities or the facilities of our semiconductor manufacturing service
providers, suppliers and customers for any reason, including work stoppages, power outages, water supply
29
shortages, fire, typhoons, earthquakes, contagious diseases or other natural disasters, could cause delays in
production and shipments of our products. Any delays or disruptions could result in our customers seeking to
source products from our competitors. Shortages or suspension of power supplies have occasionally occurred
and have disrupted our operations. The occurrence of a power outage in the future could seriously hurt our
business.
On February 6, 2016, the 6.4 magnitude earthquake hit the Tainan area. Fortunately, the Company’s
headquarters and the in-house manufacturing facilities for LCOS and WLO products, both located in Tainan,
were little affected. Since most of our operations and our customers and suppliers are based mainly in
Taiwan, the natural disasters could adversely affect our business, financial condition or results of operations.
The manufacturing processes of TFT-LCD panels require a substantial amount of water and, as a result,
the production operations of TFT-LCD panels may be seriously disrupted by water shortages. Our customers
may encounter droughts in areas where most of their current or future manufacturing sites are located. If
a drought were to occur and our customers or the authorities were unable to source water from alternative
sources in sufficient quantities, our customers may be required to shut down temporarily or to substantially
reduce the operations of their fabs, which would seriously affect demand for our products. The occurrence of
any of these events in the future could adversely affect our business.
Disruptions in Taiwan’s political environment could negatively affect our business and the market
price of our ADSs.
Our principal executive offices and a substantial amount of our assets are located in Taiwan, and a
substantial portion of our revenues is derived from our operations in Taiwan. Accordingly, our business,
financial condition and results of operations and the market price of our ADSs may be affected by changes in
ROC governmental policies, taxation, inflation or interest rates, and by social instability and diplomatic and
social developments in or affecting Taiwan that are outside of our control.
Taiwan has a unique international political status. Since 1949, Taiwan and the PRC have been separately
governed. The government of the PRC claims that it is the sole government in China and that Taiwan is
part of China. Although significant economic and cultural relations have been established during recent
years between Taiwan and the PRC, the PRC government has refused to renounce the possibility that it may
at some point use force to gain control over Taiwan. Furthermore, the PRC government adopted an anti-
secession law relating to Taiwan. Relations between the ROC and the PRC governments have been strained
in recent years for a variety of reasons, including the PRC government’s position on the “One China” policy
and tensions concerning arms sales to Taiwan by the United States government. Any tension between the
ROC and the PRC, or between the United States and the PRC, could materially and adversely affect the
market prices of our ADSs.
Our business is sensitive to global economic conditions. A severe or prolonged downturn in the global
or Taiwan economy could materially and adversely affect our business and our financial condition.
The global financial markets experienced significant disruptions in 2008 and the United States, Europe
and other economies went into recession. Since then, the recovery has been uneven and the global economy
is facing new challenges, such as the escalation of the European sovereign debt crisis since 2011, the
slowdown of the Chinese economy since 2011, China stock market crash in 2015, volatility in oil prices
and currency, and the US-China trade tension since 2018. It is unclear whether the European sovereign debt
crisis will be contained. There is considerable uncertainty over the long-term effects of the expansionary
monetary and fiscal policies that have been adopted by the central banks and financial authorities of some
of the world’s leading economies. There have also been concerns over unrest in the Middle East and Africa,
which have resulted in volatility in oil and other markets, and over the possibility of a conflict involving Iran.
There have also been concerns about the tensions in the relationship between China and Japan and about
North Korea’s nuclear program. Economic conditions in Taiwan are sensitive to global economic conditions.
Any prolonged slowdown in the global or Taiwanese economy may have a negative impact on our business,
results of operations and financial condition, and continued turbulence in the international markets may
30
adversely affect our ability to access the capital markets to meet liquidity needs.
A substantial portion of our sales are made to customers in the PRC, which may expose us to additional
political, regulatory, and economic risks.
We have been increasingly selling our products to customers in the PRC. In 2017 and 2018, approximately
61.5% and 66.4% of our revenues, respectively, were from customers headquartered in the PRC. We expect
to continue to increase our sales to customers in the PRC in the near future. As a result of this regional
customer concentration, we expect to be particularly subject to economic and political events and other
developments that affect our customers in the PRC.
The PRC economy differs from the economies of most developed countries in many respects, including
the structure, level of government involvement, level of development, foreign exchange control and
allocation of resources. The PRC economy has been transitioning from a planned economy to a more market-
oriented economy and is growing rapidly. For the past two decades, the PRC government has implemented
economic reform measures emphasizing utilization of market forces in the development of the PRC economy
and also adjusted its macroeconomic control policies from time to time. These policies have led and may
continue to lead to changes in market conditions. Although we believe these reforms have had a positive
effect on the business of our customers in the PRC and consequently have benefited us, we cannot predict
whether changes in the PRC’s political, economic and social conditions, laws, regulations and policies will
have any adverse effect on our current or future customers in the PRC. In addition, the interpretation of PRC
laws and regulations involves uncertainties. We cannot assure you that changes in such laws and regulations,
or in their interpretation and enforcement, will not have a material adverse effect on the businesses and
operations of our customers in the PRC and consequently have a material adverse effect on our own business
and operations.
Fluctuations in exchange rates could result in foreign exchange losses and affect our results of
operations.
Our functional and reporting currency is U.S. dollars. In 2018, more than 99% of our revenues and
cost of revenues were denominated in U.S. dollars. However, we have foreign currency exposure and are
primarily affected by fluctuations in exchange rates between the U.S. dollar and the NT dollar. This is
because a majority portion of our operating expenses (including for research and development, general
and administrative, and sales and marketing expenses) are denominated in NT dollars and we maintain
a portion of our cash in NT dollars for local working capital purposes. For example, in December 2018,
approximately 60% of our operating expenses were denominated in NT dollars, with a small percentage
denominated in Japanese Yen, Korean Won and Chinese Renminbi, and the majority of the remainder in U.S.
dollars. However, the subsidiaries located in the R.O.C. adopted Taiwan-IFRS and hereafter changed their
functional currency of the tax basis of assets and liabilities from NT dollar to U.S. dollar since year 2016.
Accordingly, these subsidiaries are now having a U.S. dollar dominated tax basis and functional currency,
which significantly decreases the income tax effect from the fluctuations in exchange rates between the U.S.
dollar and the NT dollar.
Changes in ROC tax laws would likely increase our tax expenditures and decrease our net income.
The Statute for Industrial Innovation entitles companies to tax credits for qualifying research and
development expenses related to innovation activities but limits the amount of tax credit to only up to 15%
of the total qualifying research and development expenditure for the current year, subject to a cap of 30%
of the income tax payable for the current year. Moreover, any unused tax credits provided under the Statute
for Industrial Innovation may not be carried forward. Based on the amendments to the above, effective from
January 1, 2016 to December 31, 2019, if companies choose to extend the tax credits to three years, the tax
credit rate will be 10% of the total qualifying research and development expenditure for the current year and
subject to a cap of 30% of the income tax payable for each year. However, the amendment is not expected
to have a significant impact on our results of operations and financial condition. The ROC Executive Yuan
has proposed to extend the Statute for Industrial Innovation to December 31, 2029 and keep the tax credits
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for qualifying research and development expenses related to innovation activities. The final extension and
amendment is still waiting for the ROC Legislative Yuan passing the third reading.
On July 12, 2016, the ROC Legislative Yuan passed the third reading of anti-avoidance to establish Article
43-3 Controlled Foreign Company (“CFC”) rules and Article 43-4 Place of Effective Management (“PEM”)
rules of the Income Tax Act (“ITA”). Detailed introduction of the CFC and PEM rules are described as follows:
(i) A profit-seeking enterprise (“PSE”) that directly or indirectly owns affiliated enterprises in low-
tax jurisdictions outside the territory of the ROC shall recognize and include its pro rata share of
affiliated enterprises’ annual profits as investment income in its income tax return for the year.
Subsequent actual dividends and distributions from such affiliated enterprises that were previously
recognized as investment income will then not be subject to income taxation; any surplus to
previously recognized investment income shall be included as taxable income in the allocated year.
Low-tax jurisdictions are defined as countries where the PSE income tax rate is lower than 70% of
the income tax rate of the PSE in the ROC (the statutory income tax rate is 20% from January 1,
2018). (Article 43-3 CFC rules); and
(ii) A PSE is incorporated based on foreign legislation but its place of effective management (PEM) is
maintained within the territory of the ROC, the head office of such PSE will be determined to be
within the territory of the ROC and profit-seeking enterprise income tax shall be levied in accordance
with the ITA and relevant tax regulations. The aforementioned PEM refers to a place where
substantive key management and commercial decisions of an entity’s business and its operations are
made. (Article 43-4 PEM rule).
According to the legislative intent, the CFC and PEM rules, in principle, will not be put into force
immediately, but will wait until the China-Taiwan Cross-Strait Tax Agreement is effectuated, the OECD’s
Common Reporting and Due Diligence Standard (“CRS”) for the automatic exchange of information of
financial accounts is widely implemented internationally, and the relevant bylaws of the CFC and PEM rules
have been adequately enacted and properly advocated. The date of implementation will be determined by
the Executive Yuan. Additionally, dividend payments made by us are not subject to withholding tax in the
Cayman Islands. However, if the relevant bylaws of the PEM rules have been adequately enacted and properly
advocated, we may be determined to be within the territory of the ROC and our income tax shall be levied in
accordance with the Income Tax Act and relevant tax regulations. Therefore, dividend payments made by us
would be subject to withholding tax in the ROC.
We may be affected by the Cayman Economic Substance Law 2018
We are incorporated in Cayman Islands. During 2017, the European Union (“EU”) Economic and Financial
Affairs Council (“ECOFIN”) released a list of non-cooperative jurisdictions for tax purposes. The stated aim
of this list, and accompanying report, was to promote good governance worldwide in order to maximize efforts
to prevent tax fraud and tax evasion. Cayman Islands was not on the list of non-cooperative jurisdictions;
however, Cayman Islands did feature in the report as having committed to address concerns relating to
economic substance by December 31, 2018.
In accordance with that commitment, Cayman Islands enacted the The International Tax Co-operation
(Economic Substance) Law, 2018 (the “ES Law”) in December 2018. Under the ES Law, if a Cayman Islands
company is carrying on as a business one or more “relevant activity” (including: banking, distribution and
service center, financing and leasing, fund management, headquarters, holding company, insurance, intellectual
property or shipping) it will be required to maintain a substantial economic presence in Cayman Islands and to
comply with the economic substance requirements set forth in the ES Law. Companies subject to the economic
substance requirements will be required to file a declaration with the Cayman Islands Tax Information
Authority stating whether or not they are carrying out relevant activities on an annual basis.
At present, the impact of the ES Law is unclear and it is impossible to predict the nature and effect of these
requirements on us. We are currently evaluating the potential effect that the ES Law will have on us.
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Risks Relating to Our ADSs and Our Trading Market
The market price for our ADSs is volatile.
The market price for our ADSs is volatile and has ranged from a low of $3.03 to a high of $10.98 on the
NASDAQ Global Select Market in 2018.
The market price is subject to wide fluctuations in response to various factors, including the following:
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actual or anticipated fluctuations in our quarterly operating results;
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changes in financial estimates by securities research analysts;
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changes in the expectation of our non-driver product launch timing, forecast and estimates;
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conditions in the TFT-LCD panel market;
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changes in the economic performance or market valuations of other display semiconductor companies;
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announcements by us or our competitors of new products, acquisitions, strategic partnerships, joint
ventures or capital commitments;
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•
•
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the addition or departure of key personnel;
fluctuations in exchange rates between the U.S. dollar and the NT dollar;
litigation related to our intellectual property; and
the release of lock-up or other transfer restrictions on our outstanding ADSs or sales of additional
ADSs.
In addition, as a result of the worldwide financial crisis, global stock markets have experienced extreme
price and volume fluctuations. This volatility has had a significant effect on the market prices of securities
issued by many companies for reasons which may not be directly related to their operating performance,
including but not limited to events such as tax-loss selling, mutual fund redemptions, hedge fund redemptions
and margin calls. These market fluctuations may also materially and adversely affect the market price of our
ADSs.
Future sales or perceived sales of securities by us, our executive officers, directors or major
shareholders may hurt the price of our ADSs.
The market price of our ADSs could decline as a result of sales of ADSs or shares or the perception that
these sales could occur. As of February 28, 2019, we had 344,290,306 outstanding shares and a significant
number of our shares were beneficially owned by certain major shareholders such as our directors and
executive officers. See “Item 7.A. Major Shareholders and Related Party Transactions—Major Shareholders.”
If we, our executive officers, or directors or our shareholders sell ADSs or shares, the market price for our
shares or ADSs could decline. Future sales, or the perception of future sales, of ADSs or shares by us, our
executive officers, directors or existing shareholders could cause the market price of our ADSs to decline.
You may not have the same voting rights as the holders of our ordinary shares and may not receive
voting materials sufficiently in advance to be able to exercise your right to vote.
Except as described in the deposit agreement, holders of our ADSs will not be able to exercise voting
rights attaching to the shares evidenced by our ADSs on an individual basis. Holders of our ADSs will
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appoint the depositary or its nominee as their representative to exercise the voting rights attaching to
the shares represented by the ADSs. In certain circumstances, however, the depositary shall refrain from
voting and any voting instructions received from ADS holders shall lapse. Furthermore, in certain other
circumstances, the depositary will give us a discretionary proxy to vote shares evidenced by ADSs. You
may not receive voting materials sufficiently in advance to instruct the depositary to vote, and it is possible
that you, or persons who hold their ADSs through brokers, dealers or other third parties, will not have the
opportunity to exercise a right to vote.
You may not be able to participate in rights offerings and may experience dilution of your holdings as a
result.
We may from time to time distribute rights to our shareholders, including rights to acquire our securities.
Under the deposit agreement for the ADSs, the depositary will not offer those rights to ADS holders unless
both the rights and the underlying securities to be distributed to ADS holders are either registered under the
Securities Act, or exempt from registration under the Securities Act with respect to all holders of ADSs. We are
under no obligation to file a registration statement with respect to any such rights or underlying securities or to
endeavor to cause such a registration statement to be declared effective. In addition, we may not be able to take
advantage of any exemptions from registration under the Securities Act. Accordingly, holders of our ADSs may
be unable to participate in our rights offerings and may experience dilution in their holdings as a result.
You may be subject to limitations on transfer of your ADSs.
Your ADSs represented by the ADRs are transferable on the books of the depositary. However, the
depositary may close its transfer books at any time or from time to time whenever it deems expedient in
connection with the performance of its duties. In addition, the depositary may refuse to deliver, transfer or
register transfers of ADSs generally when our books or the books of the depositary are closed, or at any
time if we or the depositary deem it necessary or advisable to do so because of any requirement of law,
any government, governmental body, commission, or any securities exchange on which our ADSs or our
ordinary shares are listed, or under any provision of the deposit agreement or provisions of, or governing, the
deposited securities or any meeting of our shareholders, or for any other reason.
Your ability to protect your rights through the United States federal courts may be limited, because
we are incorporated under Cayman Islands law, conduct a substantial portion of our operations in
Taiwan, and all of our directors and officers reside outside the United States.
We are incorporated in the Cayman Islands. A substantial portion of our operations is conducted in
Taiwan through Himax Taiwan, our wholly owned subsidiary, and substantially all of our assets are located
in Taiwan. All of our directors and officers reside outside the United States, and a substantial portion of the
assets of those persons is located outside the United States. As a result, it may be difficult or impossible
for you to bring an action against us or against these individuals in the United States in the event that you
believe that your rights have been infringed under the securities laws or otherwise. Even if you are successful
in bringing an action of this kind, the laws of the Cayman Islands and of Taiwan may render you unable to
enforce a United States judgment against our assets or the assets of our directors and officers. There is no
statutory recognition in the Cayman Islands of judgments obtained in the United States, although a final
and conclusive judgment in the federal or state courts of the United States under which a sum of money is
payable, other than a sum payable in respect of multiple damages, taxes, or other charges of a like nature or
in respect of a fine or other penalty, may be subject to enforcement proceedings as debt in the courts of the
Cayman Islands under the common law doctrine of obligation, provided that (a) such federal or state courts
of the United States had proper jurisdiction over the parties subject to such judgment; (b) such federal or
state courts of the United States did not contravene the rules of natural justice of the Cayman Islands; (c)
such judgment was not obtained by fraud; (d) the enforcement of the judgment would not be contrary to the
public policy of the Cayman Islands; (e) no new admissible evidence relevant to the action is submitted prior
to the rendering of the judgment by the courts of the Cayman Islands; and (f) there is due compliance with
the correct procedures under the laws of the Cayman Islands.
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As a result of all of the above, our public shareholders may have more difficulty in protecting their
interests through actions against our management, directors or major shareholders than shareholders of a
corporation incorporated in a jurisdiction in the United States.
You may face difficulties in protecting your interests as a shareholder because judicial precedents
regarding shareholders’ rights are more limited under Cayman Islands law than under U.S. law, and
because Cayman Islands law generally provides less protection to shareholders than U.S. law.
Our corporate affairs are governed by our memorandum and articles of association, the Companies
Law, Cap. 22 (Law 3 of 1961, as consolidated and revised) of the Cayman Islands, or the Cayman Islands
Companies Law, and the common law of the Cayman Islands. The rights of shareholders to take action
against directors, actions by minority shareholders and the fiduciary responsibilities of our directors to us
under Cayman Islands law are to a large extent governed by the common law of the Cayman Islands. The
common law of the Cayman Islands is derived in part from comparatively limited judicial precedent in the
Cayman Islands as well as from English common law, which has persuasive, but not binding, authority on a
court in the Cayman Islands. The rights of our shareholders and the fiduciary responsibilities of our directors
under Cayman Islands law are not as clearly established as they would be under statutes or judicial precedent
in some jurisdictions in the United States. In particular, the Cayman Islands have a less developed body
of securities law than the United States. In addition, some U.S. states, such as Delaware, have more fully
developed and judicially interpreted bodies of corporate law than the Cayman Islands.
For example, the Cayman Islands Companies Law differs from laws applicable to United States
corporations and their shareholders in certain material respects which may affect shareholders’ rights and
shareholders’ access to information. These differences under the Cayman Islands Companies Law (as
compared to Delaware law) include, though are not limited to, the following:
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•
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directors who are interested in a transaction do not have a statutory duty to disclose such interest and
there are no provisions under the Cayman Islands Companies Law which render such director liable
to the company for any profit realized pursuant to such transaction. Our articles of association,
however, contain provisions that require our directors to disclose their interest in a transaction;
dissenting shareholders do not have comparable appraisal rights if a scheme of arrangement is
approved by the Grand Court of the Cayman Islands;
shareholders may not be able to bring class action or derivative action suits before a Cayman Islands
court except in certain exceptional circumstances; and
unless otherwise provided under the memorandum and articles of association of the company,
shareholders do not have the right to bring business before a meeting or call a meeting.
Moreover, certain of these differences in corporate law, including, for example, the fact that shareholders
do not have the right to call a meeting or bring business to a meeting, may have anti-takeover effects, which
could discourage, delay, or prevent the merger or acquisition of our company by means of a tender offer, a
proxy contest or otherwise, which a shareholder may have considered in its best interest, and prevent the
removal of incumbent officers and directors.
As a result of all of the above, public shareholders may have more difficulty in protecting their interests
in the face of actions taken by management, members of the board of directors or controlling shareholders
than they would have as public shareholders of a U.S. company.
Investor confidence and the market price of our ADSs may be adversely impacted if we or our
independent registered public accountants conclude that our internal controls over financial reporting
are not effective.
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The Securities and Exchange Commission, or the SEC, as directed by Section 404 of the Sarbanes-Oxley
Act of 2002, adopted rules requiring public companies to include in their Annual Report on Form 10-K or
Form 20-F, as the case may be, a report of management on the company’s internal controls over financial
reporting that contains an assessment by management of the effectiveness of the company’s internal controls
over financial reporting. In addition, the company’s independent registered public accounting firm must report
on the company’s internal control over financial reporting. Our management may conclude that our internal
controls over financial reporting are not effective. Moreover, even if our management does conclude that our
internal controls over financial reporting are effective, if our independent registered public accounting firm
is not satisfied with our internal controls, the level at which our controls are documented, designed, operated
or reviewed, or if our independent registered public accounting firm interprets the requirements, rules or
regulations differently from us, then it may conclude that our internal controls over financial reporting are not
effective. Furthermore, during the course of the evaluation, documentation and attestation, we may identify
deficiencies that we may not be able to remedy in a timely manner. If we fail to achieve and maintain the
adequacy of our internal controls, we may not be able to conclude that we have effective internal controls, on
an ongoing basis, over financial reporting in accordance with the Sarbanes-Oxley Act. Furthermore, effective
internal controls over financial reporting are necessary for us to produce reliable financial reports and are
important to help prevent fraud. As a result, our failure to achieve and maintain effective internal controls
over financial reporting could result in the loss of investor confidence in the reliability of our financial
statements, which in turn could harm our business and negatively impact the trading price of our ADSs. In
addition, we have incurred considerable costs and used significant management time and other resources in
our effort to comply with Section 404 and other requirements of the Sarbanes-Oxley Act.
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ITEM4. INFORMATION ON THE COMPANY
4.A. History and Development of the Company
Himax Taiwan, our predecessor, was incorporated on June 12, 2001 as a limited liability company
under the laws of the ROC. On April 26, 2005, we established Himax Technologies Limited, an exempted
company with limited liability under the Cayman Islands Companies Law, as a holding company to hold the
shares of Himax Taiwan in connection with our reorganization and share exchange. On October 14, 2005,
Himax Taiwan became our wholly owned subsidiary through a share exchange consummated pursuant to the
ROC Business Mergers and Acquisitions Law through which we acquired all of the issued and outstanding
shares of Himax Taiwan, and we issued ordinary shares to the shareholders of Himax Taiwan. Shareholders
of Himax Taiwan received one of our ordinary shares in exchange for one Himax Taiwan common share.
The share exchange was unanimously approved by shareholders of Himax Taiwan on June 10, 2005 with
no dissenting shareholders and by the ROC Investment Commission on August 30, 2005 for our inbound
investment in Taiwan, and on September 7, 2005 for our outbound investment outside of Taiwan. We effected
this reorganization and share exchange to comply with ROC laws, which prohibit a Taiwan incorporated
company not otherwise publicly listed in Taiwan from listing its shares on an overseas stock exchange. Our
reorganization enables us to maintain our operations through our Taiwan subsidiary, Himax Taiwan, while
allowing us to list our shares overseas through our holding company structure.
On September 26, 2005, we changed our name to “Himax Technologies, Inc.,” and on October 17, 2005,
Himax Taiwan changed its name to “Himax Technologies Limited” upon the approval of shareholders of
both companies and amendments to the respective constitutive documents. We effected the name exchange in
order to maintain continuity of operations and marketing under the trade name “Himax Technologies, Inc.,”
which had been previously used by Himax Taiwan.
Our ADSs have been listed on the NASDAQ Global Select Market since March 31, 2006. Our ordinary
shares are not listed or publicly traded on any trading markets.
In February 2007, we completed the acquisition of Wisepal, currently known as Himax Semiconductor,
Inc., a fabless semiconductor company focusing on the development of LTPS TFT-LCD drivers for small and
medium-sized applications. This transaction strengthened our competitive position in the small and medium-
sized product areas and further diversified our technology and product offerings. From time to time, we
have also made minority investments in various companies for strategic purposes in the ordinary course of
business.
In March 2007, we established Himax Imaging, Inc., or Himax Imaging, which develops and markets
CMOS image sensors with an initial focus on camera applications used in cell phones and notebook
computers.
In July 2012, our subsidiary, Himax Display, completed the acquisition of Spatial Photonics, currently
known as Himax Display (USA) Inc., a Delaware corporation engaged in the business of manufacturing and
production of MEMS products.
Our principal executive offices are located at No. 26, Zih Lian Road, Sinshih District, Tainan City 74148,
Taiwan, Republic of China. Our telephone number at this address is +886-6-505-0880. Our registered office
in the Cayman Islands is located at Cricket Square, Hutchins Drive, P.O. Box 2681, Grand Cayman KY1-
1111, Cayman Islands. Our telephone number at this address is +1-345-945-3901. In addition, we have
offices in Hsinchu and Taipei, Taiwan; Foshan, Fuqing, Ningbo, Beijing, Shanghai, Shenzhen, Suzhou,
Wuhan, Hefei, Qingdao, Chongqing, Xi’an and Xiamen, China; Tokyo, Japan; Asan-si and Bundang-gu,
South Korea; Givatayim, Israel; and Irvine and Campbell, California and Minneapolis, Minnesota, USA.
Investor inquiries should be directed to our Investor Relations department, at +886-2-2370-3999 ext.
22202 or by email to ophelia_lin@himax.com.tw and at +1-949-585-9838 ext.223 or by email to sky_
wang@himax.com.tw. The SEC maintains an Internet site that contains reports, proxy and information
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statements, and other information regarding issuers that file electronically with the SEC. The address of the
SEC's Internet site is http://www.sec.gov. Our website is www.himax.com.tw. The information contained on
our website is not part of this annual report. Our agent for service of process in the United States is Puglisi &
Associates located at 850 Library Avenue, Suite 204, Newark, Delaware 19711.
4.B. Business Overview
We are a fabless semiconductor solution provider dedicated to display imaging processing technologies.
We are a worldwide market leader in display driver ICs and timing controllers used in TVs, laptops,
monitors, mobile phones, tablets, digital cameras, car navigation, virtual reality (VR) devices and many other
consumer electronics devices. Additionally, we design and provide controllers for touch sensor displays, in-
cell Touch and Display Driver Integration (TDDI) single-chip solutions, LED driver ICs, power management
ICs, scaler products for monitors and projectors, tailor-made video processing IC solutions, silicon IPs and
LCOS micro-displays for augmented reality (AR) devices and head-up displays (HUD) for automotive. We
also offer digital camera solutions, including CMOS image sensors and wafer level optics for AR devices, 3D
sensing and machine vision, which are used in a wide variety of applications such as mobile phone, tablet,
laptop, TV, PC camera, automobile, security, medical devices, home appliance and Internet of Things. For
display drivers and display-related products, our customers are panel manufacturers, agents or distributors,
module manufacturers and assembly houses. We also work with camera module manufacturers, optical
engine manufacturers, and television system manufacturers for various non-driver products. We believe that
our recognized leading design and engineering expertise, combined with our focus on customer service and
close relationships with semiconductor manufacturing service providers, has contributed to our success.
Industry Background
We mainly operate in the flat panel display semiconductor industry. As the majority of our revenues
derive from products that are critical components of flat panel displays, such as display drivers, timing
controllers, scalers, power ICs and other semiconductor products, our industry is closely linked to the trends
and developments of the flat panel display industry.
Flat Panel Display Semiconductors
Flat panel displays require different semiconductors depending upon the display technologies and the
applications. Some of the most important ones include the following:
• Display Driver. The display driver receives image data from the timing controller and delivers
precise analog voltages or currents to create images on the display. The two main types of display
drivers for a TFT-LCD panel are gate drivers and source drivers. Gate drivers turn on the transistor
within each pixel cell on the horizontal line on the panel for data input at each row. Source drivers
receive image data from the timing controller and generate voltage that is applied to the liquid
crystal within each pixel cell on the vertical line on the panel for data input at each column. The
combination determines the colors generated by each pixel. Typically, multiple gate drivers
and source drivers are installed separately on the panel. However, for certain small and medium-
sized applications, gate drivers and source drivers are integrated into a single chip due to space and
cost considerations. Large-sized panels typically have higher resolution and require more display
drivers than small and medium-sized panels.
Timing Controller. The timing controller receives image data and converts the format for the source
•
drivers’ input. The timing controller also generates controlling signals for gate and source drivers.
Typically, the timing controller is a discrete semiconductor in large-sized TFT-LCD panels. For
certain small and medium-sized applications, however, the timing controller may be integrated with
display drivers.
•
Scaler. For certain displays, a scaler is installed to magnify or shrink image data in order for the
image to fill the panel.
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• Operational Amplifier. An operational amplifier supplies the reference voltage to source drivers in
order to make their output voltage uniform.
Television Chipset. Television flat panel displays require chipsets that typically contain all or some
•
of the following components: an audio processor, analog interfaces, digital interfaces, a video
processor, a channel receiver and a digital television decoder. See “—Products—TFT-LCD
Television and Monitor Semiconductor Solutions—TFT-LCD Monitor Chipsets” for a description of
these components.
Power IC. Power ICs include certain drivers, amplifiers, DC to DC converters and other
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semiconductors designed to enhance power management, such as voltage regulation, voltage
boosting and battery management.
Touch controller IC. For touch screen applications, touch controller ICs enable touch interfaces, such
•
as capacitive touch panels, to identify, qualify and track user’s contacts with precision and sensibility.
• Others. Flat panel displays also require multiple general purpose semiconductors such as memory,
power converters and inverters.
Characteristics of the Display Driver Market
Although we operate in several distinct segments of the flat panel display semiconductor industry, our
principal products are display drivers. Display drivers are critical components of flat panel displays. The
display driver market has specific characteristics, including those discussed below.
Concentration of Panel Manufacturers
The global TFT-LCD panel industry consists of a small number of manufacturers, substantially all of
which are based in Asia. In recent years, TFT-LCD panel manufacturers, in particular Taiwan- , Korea-
and China-based manufacturers, have invested or are planning to invest heavily to establish, construct and
ramp up additional fab capacity. The capital intensive nature of the industry often results in TFT-LCD panel
manufacturers operating at a high level of capacity utilization in order to reduce unit costs. This tends to
create a temporary oversupply of panels, which reduces the average selling price of panels and puts pricing
pressure on component companies including display driver companies. Moreover, the concentration of panel
manufacturers permits major panel manufacturers to exert pricing pressure on display driver companies such
as us. The small number of panel manufacturers exacerbates this situation as display driver companies, in
addition to seeking to expand their customer base, must also focus on winning a larger percentage of such
customers’ display driver requirements.
Customization Requirements
Each panel display has a unique pixel design to meet its particular requirements. To optimize the panel’s
performance, display drivers have to be customized for each panel design. The most common customization
requirement is for the display driver company to optimize the gamma curve of each display driver for each
panel design. Display driver companies must work closely with their customers to develop semiconductors
that meet their customers’ specific needs in order to optimize the performance of their products.
Mixed-Signal Design and High-Voltage CMOS Process Technology
Display drivers have specific design and manufacturing requirements that are not standard in the
semiconductor industry. Some display drivers require mixed-signal design since they combine both
analog and digital devices on a single semiconductor to process both analog signals and digital data.
Manufacturing display drivers require high-voltage CMOS process technology operating typically at 4.5
to 24 volts for source drivers and 10 to 50 volts for gate drivers, levels of voltage which are not standard in
the semiconductor industry. For display drivers, the driving voltage must be maintained under a very high
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degree of uniformity, which can be difficult to achieve using standard CMOS process technology. However,
manufacturing display drivers does not require very small-geometry semiconductor processes. Typically,
the manufacturing process for large panel display drivers require geometries between 0.11 micron and 1
micron because the physical dimensions of a high-voltage device do not allow for the economical reduction
in geometries below this range. We believe that there are a limited number of fabs with high-voltage CMOS
process technology that are capable of high-volume manufacturing of display drivers.
Special Assembly and Testing Requirements
Manufacturing display drivers requires certain assembly and testing technologies and equipment that
are not standard for other semiconductors and are offered by a limited number of providers. The assembly
of display drivers typically uses either tape-automated bonding, also known as TAB, or chip-on-glass, also
known as COG, technologies. Display drivers also require gold bumping, which is a process in which gold
bumps are plated onto each wafer to connect the die and the processed tape, in the case of TAB packages, and
the glass, in the case of COG packages. TAB may utilize tape carrier packages, also known as TCP, or chip
on film, also known as COF. The type of assembly used depends on the panel manufacturer’s design, which
is influenced by panel size and application and is typically determined by the panel manufacturers. Display
drivers for large-sized applications typically require TAB package types and, to a lesser extent, COG package
types, whereas display drivers for mobile handsets and consumer electronics products typically require COG
packages. The testing of display drivers also requires special testers that can support high-channel and high-
voltage output semiconductors. Such testers are not standard in the semiconductor industry.
Supply Chain Management
The manufacturing of display drivers is a complex process and requires several manufacturing stages such
as wafer fabrication, gold bumping, and assembly and testing, and the availability of materials such as the
processed tape used in TAB packaging. We refer to these manufacturing stages and material requirements
collectively as the “supply chain.” Panel manufacturers typically operate at high levels of capacity utilization
and require a reliable supply of display drivers. A shortage of display drivers, or a disruption to this supply,
may disrupt panel manufacturers’ operations since replacement supplies may not be available on a timely
basis or at all, given the customization of display drivers. As a result, a display driver company’s ability to
deliver its products on a timely basis at the quality and quantity required is critical to satisfying its existing
customers and winning new ones. Such supply chain management is particularly crucial to fabless display
driver companies that do not have their own in-house manufacturing capacity. In the case of display drivers,
supply chain management is further complicated by the high-voltage CMOS process technology and the
special assembly and testing requirements that are not standard in the semiconductor industry. Access to this
capacity also depends in part on display driver companies having received assurances of demand for their
products since semiconductor manufacturing service providers require credible demand forecasts before
allocating capacity among customers and investing to expand their capacity to support growth.
Need for Higher Level of Integration
The small form factor of mobile handsets and certain consumer electronics products restricts the space
for components. Small and medium-sized panel applications typically require one or more source drivers,
one or more gate drivers and one timing controller, which can be installed as separate semiconductors or as
an integrated single-chip driver. Customers are increasingly demanding higher levels of integration in order
to manufacture more compact panels, simplify the module assembly process and reduce unit costs. Display
driver companies must be able to offer highly integrated chips that combine the source driver, gate driver
and timing controller, as well as semiconductors such as memory, power circuit and image processors, into a
single chip. Due to the size restrictions and stringent power consumption constraints of such display drivers,
single-chip drivers are complex to design. For large-sized panel applications, integration is both more
difficult to achieve and less important since size and weight are less of a priority. Lastly, as our TFT-LCD
panel customers had turned to pure in-cell TDDI panel development for thinner display designs, we have
developed a series of single chip touch display driver integrated circuit (TDDI) for advanced in-cell touch
display panel.
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Products and Solutions
We have several principal product lines:
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display drivers and timing controllers;
touch controller ICs;
TFT-LCD television and monitor semiconductor solutions;
IP and ASIC;
LCOS and MEMS products;
power ICs;
CMOS image sensor products;
• wafer level optics products; and
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3D sensing total solutions.
Display Drivers and Timing Controllers
Display Driver Characteristics
Display drivers deliver precise analog voltages and currents that activate the pixels on panels. The
following is a summary of certain display driver characteristics and their relationship to panel performance.
Resolution and Number of Channels. Resolution refers to the number of pixels per line multiplied
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by the number of lines, which determines the level of fine detail within an image displayed on a
panel. For example, a color display screen with 1,024 x 768 pixels has 1,024 red columns, 1,024
green columns and 1,024 blue columns for a total of 3,072 columns and 768 rows. The red, green
and blue columns are commonly referred to as “RGB.” Therefore, the display drivers need to drive
3,072 column outputs and 768 row outputs. The number of display drivers required for each
panel depends on the resolution of the panel and the number of channels per display driver. For
example, an XGA (1,024 x 768 pixels) panel requires eight 384-channel source drivers (1,024 x 3
= 384 x 8) and three 256-channel gate drivers (768 = 256 x 3), while a full HD (1,920 x 1,080 pixels)
panel requires eight 720-channel source drivers and four 270-channel gate drivers. The number of
display drivers required can be reduced by using drivers with a higher number of channels. For
example, a full HD panel can have six 960-channel source drivers instead of eight 720-channel
source drivers. Thus, using display drivers with a higher number of channels can reduce the number
of display drivers required for each panel, although display drivers with a higher number of channels
typically have higher unit costs.
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Color Depth. Color depth is the number of colors that can be displayed on a screen, which is
determined by the number of shades of a color, also known as gray scale, that can be shown by the
panel. For example, a 6-bit source driver is capable of generating 26 x 26 x 26 = 218, or 262K colors,
and similarly, an 8-bit source driver is capable of generating 16 million colors. Typically, for TFT-
LCD panels currently in commercial production, 262K, 16 million and 1 billion colors are supported
by 6-bit, 8-bit and 10-bit source drivers, respectively.
• Operational Voltage. A display driver operates with two voltages: the input voltage (which enables
it to receive signals from the timing controller) and the output voltage (which, in the case of source
drivers, is applied to liquid crystals and, in the case of gate drivers, is used to switch on the TFT device).
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Source drivers typically operate at input voltages from 3.3 to 1.8 volts and output voltages ranging from
7 up to 18 volts. Gate drivers typically operate at input voltages from 3.3 to 1.8 volts and output voltages
ranging from 10 to 50 volts. Lower input voltage saves power and lowers electromagnetic interference,
or EMI. Output voltage may be higher or lower depending on the characteristics of the liquid crystal (or
diode), in the case of source drivers, or TFT device, in the case of gate drivers.
• Gamma Curve. The relationship between the light passing through a pixel and the voltage applied
to it by the source driver is nonlinear and is referred to as the “gamma curve” of the source driver.
Different panel designs and manufacturing processes require source drivers with different gamma
curves. Display drivers need to adjust the gamma curve to fit the pixel design. Due to the materials
and processes used in manufacturing, panels may contain certain imperfections which can be
corrected by the gamma curve of the source driver, a process which is generally known as “gamma
correction.” For certain types of liquid crystal, the gamma curves for RGB cells are significantly
different and thus need to be independently corrected. Some advanced display drivers feature three
independent gamma curves for RGB cells.
• Driver Interface. Driver interface refers to the connection between the timing controller and display
drivers. Display drivers increasingly require higher bandwidth interface technology to address the
larger data volume necessary for video images. Panels used for higher data transmission applications,
such as televisions, require more advanced interface technology. The principal types of interface
technologies are transistor-to-transistor logic, or TTL, reduced swing differential signaling, or
RSDS, mini-low voltage differential signaling, or mini-LVDS, and point-to-point high-speed
interface. Among these, RSDS, mini-LVDS and point-to-point interface were developed as low
power, low noise and low amplitude methods for high-speed data transmission using fewer copper
wires and resulting in lower EMI. Moreover, there are some panel manufacturers developing their
proprietary point-to-point interfaces, such as embedded panel interface, or EPI, USI-T, iSP, CEDS,
CHPL and CMPI.
Package Type. The assembly of display drivers typically uses TAB and COG package types. COF
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and TCP are two types of TAB packages, of which COF packages have become predominantly
used in recent years. Customers typically determine the package type required according to their
specific mechanical and electrical considerations. In general, display drivers for small-sized panels
mainly use COG package types, whereas display drivers for large-sized panels primarily use TAB
package types and, to a lesser extent, COG package types.
Large-Sized Applications
We provide source drivers, gate drivers, PMIC, P-gamma OP level shifter and timing controllers
(TCON) for large-sized panels principally used in desktop monitors, notebook computers and televisions.
Display drivers used in large-sized applications feature different key characteristics, depending on the end-
use application. For example, the industry trend for large-sized applications is generally toward super
high channel, low power consumption, low cost, thin and light form factor, touch function, higher data
transmission rate and higher driving capabilities. Higher speed interface technologies are also key for 4Kx2K
and 8Kx4K high-resolution TVs. Greater color depth, thermal solution, high data rate and high driving, are
particularly important for advanced televisions and certain monitors. To enhance our Gaming solution, we
provide new gaming TCON with UHD 144Hz for next generation gaming Monitor and NB.
Our large display driver IC business achieved several milestones in 2018. For example, we successfully
added a 12-inch fab into the pool of our foundry capacity for our large display driver ICs to ease the
capacity shortage of 8” foundry where the vast majority of large panel driver ICs are fabricated. On high-
end TV, Himax outpaced peers to lead the mass production of customized high-speed point-to-point (P2P)
transmission using embedded panel intra interface such as iSP, CHPI, and CSPI for 4K TVs and developed
a 2-in-1 COF driver to meet the requirements of high channel count and heat dissipation for 8K TV. On
gaming monitor, we have high frame rate and high-resolution TCON to meet the needs of various resolutions
and frame rates such as UHD 120Hz, QHD 165Hz, FHD 240Hz, etc. As for eDP (Embedded DisplayPort)
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notebook TCONs, Himax continues to develop more power-efficient drivers including mLVDS and P2P
interfaces. Our mLVDS is able to integrate P-gamma OP to reduce PCB size and make notebooks slimmer,
allowing more space for touch solution integration. Lastly, our P2P driver and TCON ICs with 13.3" FHD
can meet Intel 1W project requirement.
We also made tremendous progress in TCON product lines in 2018. Jointly with our Tier 1 customers, we
developed 8K TV TCON for their 8K 60 Hz and 120Hz TV, leveraging Himax's unique two phase demura
and SHR technologies, which can greatly improve mura to improve yield rate of 8K TV panel and solve
the problem of insufficient 8K content. As for Notebook applications, we added HDR (high dynamic range)
in TCON ICs to enhance the resolution for high-end 4K notebook models. We also provide gaming TCON
for the new UHD 144Hz gaming monitor and notebook. Last but not the least, we successfully embedded
local dimming in TCON ICs for TFT-LCD automotive applications to support the accelerating trend toward
large-scale screen, higher contrast instrument panels needed for drivers to read meter content quickly. This
industry-leading next generation automotive display technology has been greatly appreciated by auto OEMs,
Tier 1 and panel makers and is expected to begin mass production in an electronic vehicle during 2019.
The table below sets forth the features of our products for large-sized applications:
Product
TFT-LCD Source Drivers
TFT-LCD Gate Drivers
Timing Controllers
Features
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384 to 1920 output channels
6-bit (262K colors), 8-bit (16 million colors) or 10-bit (1 billion colors)
one gamma-type driver
two gamma-type driver to improve display quality
three gamma-type drivers (RGB independent gamma curve to enhance
color image)
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output driving voltage ranging from 7 up to 18V
input logic voltage ranging from standard 3.3V to low power 1.8V and
support half VDDA
low power consumption and low EMI
support COF and COG package types
support TTL, RSDS, mini-LVDS (up to 400MHz), cascade modulated
driver interface, or CMDI, point-to-point high speed interface (up to
4Gbps for 8K 120Hz) and customized interface technologies
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support dual gate and triple gate panel designs
192 to 1600 output channels
output driving voltage ranging from 10 up to 50v
input logic voltage ranging from standard 3.3V to low power 1.8V
low power consumption
support COF and COG package types
support dual gate and triple gate panel designs
product portfolio supports a wide range of resolutions, from VGA (640
x 480 pixels) to full HD, UHD and 8K4K (1,920 x 1,080 pixels, 1,920
x 1,200 pixels, 3840 x 2160 and 7680 x 4320)
support TTL, RSDS, mini-LVDS, DETTL, turbo RSDS, CMDI, point-
to-point high speed interface and customized output interface
technologies
embedded overdrive function to improve response time
support CABC to save power and color engine to enhance color and
sharpness
support TTL, LVDS, eDP, G-sync, MIPI and V-by-one input interface
technologies
support dual-gate, triple-gate, GOA (gate on array) and RGBW panel
designs
support amorphous silicon, IGZO and LTPS panel
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Product
Programmable Gamma OP
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Features
8 to 16 channel gamma buffer outputs
channel VCOM buffer output
Internal non-volatile memory
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2 gamma bank selection, setting time < 3uS
• Analog power supply voltage: 9.0V to 20.0V
• Digital power supply voltage: 2.7V to 3.6V
Peak current on gamma channels: 200mA
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Peak current on VCOM channel: 400mA
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Programmable VCOM limit
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12C speed up to 1MHz
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Electronic Paper Display Applications
We offer display driver for the Electronic Paper Display (EPD) applications, such as reading & writing
device, Electronic Shelf Label (ESL) and Signage Display. The Electronic Paper Display (EPD) drivers can
support various display resolutions to meet the customized needs of applications.
The following table summarizes the features of our Electronic Paper Display (EPD) solutions:
Product
Electronic Paper Display
(EPD)
Source Drivers
Electronic Paper Display
(EPD)Gate Drivers
Features
Features 320 to 1920 output channels
output driving voltage ranging from 15 up to 50v
input logic voltage ranging from standard 3.3V to low power 1.8V
low power consumption and low EMI
support TTL, mini-LVDS cascade modulated driver interface, or
point-to-point high speed interface and customized interface
technologies
support COF and COG package types
100 to 840 output channels
output driving voltage ranging from 10 up to 50v
input logic voltage ranging from standard 3.3V to low power 1.8V low
power consumption
support COF and COG package types
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Electronic Paper Display
(EPD)Integrated Drivers
• Highly integrated chip embedded with source driver, timing controller
and power circuit
source driver output driving voltage ranging up to 30V
Support COG package types
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Mobile Handset, Tablet and Consumer Electronics Applications
We offer display drivers for mobile handset, tablet PC and consumer electronics (“CE”) displays that
combine source driver, gate driver, timing controller, DC to DC circuits, and optional frame buffer into a
single chip or cascades chips in various display technologies, such as TFT-LCD, LTPS and AMOLED.
Smartphones and tablet PCs have gained greater popularity among consumers and enjoyed higher growth
in recent years. This has also contributed to higher demand for mobile handset displays that have a larger
size and higher resolution. In the past few years, we offered innovative handset display driver products by
providing FWVGA (480 x 864), qHD (540 x 960), WSVGA (1024 x 600), HD720 (720 x 1280)/ WXGA (800
x 1280), FHD (1080 x 1920) / WUXGA (1200 x 1920) and up to QHD (1440 x 2560) / WQXGA (1600x2560)
display driver ICs. We have recently continued to update new products for this mainstream smartphone and
tablet PC segment with lower cost and new features, such as color enhancement and sun-light readability
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enhancement functions. A few years ago, we believe we developed the first HD720/WXGA display driver
with compressed RAM technology, which we believe has led the industry migration to smartphones
with higher resolution displays and lower power consumption. In 2013, we further applied the memory
compression concept and developed frame buffer compression together with industrial leading AP (application
processor) partners to reduce data transmission bandwidth between the AP and display driver IC of Himax.
In 2015, we developed new technologies and led the display industry with next generation display driver ICs,
such as a-si FHD (1080 x 1920), AMOLED ASICs for HD and FHD and LTPS QHD (1440 x 2560) with sub-
pixel rendering technologies. In 2016, Himax developed a series of single chip touch display driver integrated
circuit (TDDI) for advanced in-cell touch display panel. Himax started the shipments of in-cell TDDI for
some smartphones in 2016 and extended TDDI applications to tablet PCs in 2017. Smartphone display had
a dramatic change in terms of aspect ratio, instead of resolution, in 2017. Though display resolution of entry
smartphones kept moving up from WVGA or qHD to HD, high-end smartphone display may be stuck at
FHD or QHD since it’s pixel per inch is good enough for normal consumers’ daily use. OEMs start to seek
for differentiation with 18:9 or even wider aspect ratio, full front displays. Himax has designed conventional
16:9 HD and FHD DDICs capable of supporting 18:9 or wider HD+/FHD+ displays and achieved a number
of design-wins with leading Chinese smartphone brands. As in-cell TDDI, featuring thinner display, slimmer
border, and better visual quality, has been getting popular, we re-invented a new generation of TDDIs
supporting COG and COF for 18:9 or wider aspect ratio with interlaced output pins, which makes the bottom
border of the in-cell touch display even smaller to gain higher display to body ratio. Our new generation
FHD+ TDDI with COG and COF are in design-in stage with a number of leading Chinese smartphone brands
and panel makers. While COG TDDI offers cost effective slim bezel design, TDDI with COF package can
enable super-slim bezel design for premium smartphone models. We started small volume shipment in the
first half of 2018 with accelerating volume in the second half of 2018.
The following table summarizes the features of our products for mobile handsets:
Product
Mobile Handset Display Drivers
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Features
highly integrated single chip embedded with the source driver,
gate driver, power circuit, timing controller and memory
suitable for a wide range of resolutions from QQVGA (128 x
160 pixels) to QHD (1440 x 2560 pixels)
support up to 16 million colors
support RGB separated gamma adjustment
support CABC
support color enhancement features including saturation,
brightness, and sharpness enhancement
support MIPI interface for smartphone application and LVDS
for CE applications
support RAM-less or 1/3 RAM compression technologies
low power consumption and low EMI
fewer external components to reduce costs
slimmer die for compact module to fit smaller mobile handset
designs
application specific integrated circuits, or ASIC, can be designed
to meet customized requirements for LCD or AMOLED
touch display driver integrated circuit (TDDI) for advanced in-
cell touch display
extending from 16:9 to 18:9 or wider aspect ratio
COG and COF solutions for super slim bottom border
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• AMOLED driver IC with sub-pixel rendering, Demura-IPs for
FHD+
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Automotive Display Applications
We offer source drivers, gate drivers, timing controllers and integrated drivers for the fast ramping
automotive display applications, such as instrument cluster display (ICD), center information display (CID),
head-up display (HUD), rear seat entertainment display (RSE) and rearview mirror display.
The automotive display drivers can support various display resolutions to meet the customized needs
of automotive display, including GIP panel and non-GIP panel, a-TFT panel and LTPS panel. Meanwhile,
the automotive display drivers can support higher output driving voltage for higher contrast ratio and faster
liquid crystal response in automotive display applications. The automotive Timing Controller can support
Local Dimming function for the goal of higher contrast ration and reduction thermal in automotive display
applications.
The following table summarizes the features of our products used in automotive display applications:
Product
TFT-LCD Source Drivers
TFT-LCD Gate Drivers
TFT-LCD Integrated Drivers
Timing Controllers
Features
642 to 1,920 output channels
6-bit (262K colors), 8-bit (16.7 million colors)
support RSDS, mini-LVDS, Point-to-Point interfaces
output driving voltage ranging up to 15V
support COG package type
100 to 1,600 output channels
output driving voltage ranging up to 40V
support COG package type
highly integrated chip embedded with source driver, timing
controller and power circuit
support RGB, LVDS input interfaces
support Single Gate, Dual Gate, Triple Gate panel structure
support GIP panel (a-TFT GIP or LTPS GIP) and non-GIP panel
support resolution up to 2880RBx1080 with cascaded chips
source driver output driving voltage ranging up to ±6.6V or 16V
support Fail Detect Function, including CRC Function
support Local Dimming Function
support Teletext OSD function
support COG and COF package type
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support LVDS, eDP 1.2 input interface
support RSDS, mini-LVDS, Point-to-Point output interfaces
support Single Gate, Dual Gate, Triple Gate panel structure
support GIP panel (a-TFT GIP or LTPS GIP) and non-GIP panel
support various resolutions up to 4K1K(ICD) or 3K2K(CID)
support Local Dimming Function
support Fail Detect Function, including CRC Function
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Touch Controller ICs
We offer touch controller solutions for capacitive touch panels. Our touch controller solutions are suitable
for electronic devices employing touch panel screens of up to 13”, such as smartphones, mobile internet
devices and tablet PCs. In the third quarter of 2011, we commenced shipping capacitive touch controller
ICs to a worldwide brand smartphone customer. In 2013, we expanded our customers list to a lot more well-
known smartphone and tablet PC brand customers.
Our capacitive touch controller possesses certain innovations and merits. It could support sensing and
tracking of up to ten points. Its embedded micro-controller single chip solution contributes to reducing
cost for flexible product design. Its auto calibration mechanism can meet strict validation requirements of
leading smart phone brands. With sophisticated designed hardware and firmware supporting hybrid sensing
combining merits of self capacitance and mutual capacitance, Himax’s touch controller could support out-cell
and on-cell with various sensor patterns and stack-ups.
In 2015, we grew shipments of our touch controller product line with successful design-wins from several
smartphone and tablet end brands. We continue to gain market share in out-cell and on-cell touch panel
controller markets. Meanwhile, our technological capabilities endorsed by highly recognized end brands
also caught the attention of leading in-cell panel makers. They have engaged us in the development of touch-
display driver integrated circuit (TDDI) as a key strategic partner rather than just a display driver IC supplier.
We have developed a series of TDDI in 2015 and 2016 for these tier one in-cell touch panel makers and
started mass production in smartphone brands. We also expect to start the mass production of our TDDI in
tablet PC soon. In-cell TDDI, featuring thinner display, slimmer border, and better visual quality, has become
the mainstream technology. Over time we will expand our TDDI solutions to replace discrete DDIC and
touch controller IC.
The following table summarizes the features of our touch controller products:
Product
Capacitive Touch Controller
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Features
complete single chip touch controller solutions for handheld devices,
supporting smartphones, tablet PCs, and laptop PCs
real multi-point capability support of up to 10 points
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• mass production with GG, GFF and one glass solution (“OGS”) without
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shielding layer
support ultra low cost one layer multi-touch (OLM) solution on GF,
GG, OGS, or On-cell touch sensors
support advanced functions such as passive stylus, glove, proximity
sensor replacement, etc
• minimum components: simple, neat, and flexible mechanical design
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TFT-LCD Television and Monitor Semiconductor Solutions
Himax Media Solutions, our subsidiary, provides TFT-LCD television and monitor semiconductor
solutions.
TFT-LCD Monitor Chipsets
The following table summarizes the features of our monitor scaler solutions:
Product
Monitor Scaler Integrated Solutions
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Features
ideal for monitor applications
integrated with high performance ADC and scaler
built-in HDMI 1.4a and DVI receiver
built-in audio digital-to-analog converter
built-in high performance color engine
integrated high speed MCU
integrated with timing control for additional cost-down
input /output resolutions range from 640 x 480 pixels up to 1,920
x 1,080 pixel.
integrated 2D to 3D conversion
integrated 3D format conversion
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• G5 1A and 1A1D can use the same PCB and reduce PCBA cost
• G5 1A1D can resolve YCbCr color problem of DVI
In addition to scaler solutions, we expanded the product offering of monitor chipset solutions in 2013 to
unveil the innovative 2D to 3D conversion solutions including RV2H and RV5 Pro. RV2H targets 2D-to-3D
video conversion for projector application, and RV5 Pro targets at new 3D applications which can convert
2D/3D images into the 3D glasses-free in real time. This compact solution can be implemented in a number
of hardware platforms, such as 3D Glasses-free TV, Monitor, Digital signage, DPF, Amusement machine and
Portable DVD. This compact solution has already been designed into products of a number of leading players
in the industry. Our algorithm utilizes human visual perception characteristics, which not only reveals more
3D details but also offers a more comfortable and enjoyable viewing experiences.
The following table summarizes the features of our current RV2H conversion:
Product
RV2H 2D to 3D Conversion Solutions
Features
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support HDMI 1.4 3D format input including 3D format
support 2D mode, 2D to 3D mode, 3D to 2D mode and 3D
bypass/converter mode
support resolution up to full HD with 10 bits deep color
built-in de-interlace and scaler
built-in 2D to 3D engine
built-in Frame rate conversion reaching 120Hz frame rate
output
built-in 64 mega bits SDR chip
TTL interface supports up to 1920 x 1080 RGB 888
resolution
TTL interface supports up to 12 bits RGB/YUV
built-in 3D glass sync and L/R sync signal
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Except for scalers and 2D to 3D solutions, we also extended the HDMI2.0 chipset product offerings in
2015 to meet the trend of high speed interface adoption. Below are two major and the most recent HDMI2.0
to Vx1 bridge products.
Product
4Kx2K HDMI2.0 to Vx1 Simple
Bridge HX6308 Solutions
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Features
support 1 HDMI 2.0 ports and is combo with MHL 2.0
receiver
support HDMI 2.0 YCbCr 420/422/444 UHD 60Hz input
support MHL 2.0 up to FHD 60Hz input
support HDCP 2.2
support HDMI 1.4 YCbCr 422/444 input
support HDMI CEC 1.4
support 1.4b 3D bypass
support output 8-lane V-by-One HS Standard Version 1.4
support up to 3.75Gbps/lane data rate, up to 8-lane, color
depth 6-/8-/10-bit
support Himax Advanced Color Engine – professional AC
Edition
• embedded test pattern generator
• embedded hue/saturation, brightness/contrast,
sharpness adjustment function
audio processor
• embedded CABC (Content Adaptive Backlight Control)
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• built-in 7.1 channel audio PCM sample rate converter
(SRC) to 48KHz
• I2S interface support up to 192K Fs 7.1ch PCM and HD
audio non-PCM output
support OSD Generator and Display
high performance 32-bit RISC CPU, with SPI flash interface
support dithering function
support Slave I2C programming interface
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Product
4Kx2K HDMI2.0 to Vx1 Bridge
HX6310 Solutions
Features
support 2 HDMI 2.0 ports and one of them is combo with
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MHL 2.0 receiver
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support HDMI 2.0 YCbCr 420/422/444 UHD 60Hz input
support MHL 2.0 up to FHD 60Hz input
support HDCP 2.2
support HDMI 1.4 YCbCr 422/444 input
support HDMI CEC 1.4
support 1.4b 3D format
support output 8-lane V-by-One HS Standard Version 1.4
support up to 3.75Gbps/lane data rate, up to 8-lane, color
depth 6-/8-/10-bit
support Himax Advanced Color Engine – professional AC
Edition
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• embedded test pattern generator
• embedded hue/saturation, brightness/contrast,
sharpness adjustment function
• embedded CABC (Content Adaptive Backlight
Control)
• embedded 1D gamma correction LUT (Look-Up Table)
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• built-in 7.1 channel audio PCM sample rate converter
audio processor
(SRC) to 48KHz
• built-in audio delay up to 100ms for Lip Sync (Not for
SPDIF)
• I2S interface support up to 192K Fs 7.1ch PCM and HD
audio non-PCM output
• built-in sound effect: EQ, Triple Bass, L/R Balance and
Volume control
• built-in 2-ch audio DAC
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support UHD display for identification of 3D L/R frame and
SG 3D out
support major frame rate conversion
support OSD Generator and Display
high performance 32-bit RISC CPU, with SPI flash interface
support dithering function
support Slave I2C programming interface
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IP and ASIC
From the fourth quarter of 2011, Himax Media Solutions, our subsidiary, developed a new business
segment on IP and ASIC service. It is a brand new model based on our core technology of video display and
High Speed Transmission. For video display related, we offer RGBW IP Technology Licensing. For High
Speed Transmission related, we offer HDMI, V-by-One HS Silicon IP (SIP) Licensing. For ASIC service, it
is based on an integrated and verified design platform of depth sensing and High Speed Transmission IPs to
enable a time-to-market Specification-to-Chip ASIC service.
Video IP
As an expert player in image and display core technologies solutions, we develop and own unique IPs of
image and video applications. The high quality IP, used in various products, can provide our licensees with
differentiated products and advantage in time-to-market. The features of IPs are summarized in the following
table:
Product
RGBW IP
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Features
Supporting, RGBW gray-level transform from RGB input,
RGBW color enhancement and sub-pixel rendering.
Support color temperature adjustment
Support consistent color temperature
Support consistency of Gamma
Support 16 bytes of sub-pixel permutation
Support resolution: 3840x2160 & 7680x4320
Support bit depths
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• Input RGB30 per pixel
• Output 30bit per pixel (3-channel data, whose
representation depends on sub-pixel permutation
configuration)
• No SRAM for line buffer
Silicon IP
We also develop and own unique IPs of high speed transmission. These silicon IPs are not only silicon
proven but also “product proven” and are used in various popular media commercial products. We provide
our licensees with unique, high quality and cost competitive silicon IPs to reduce risk and accelerate time-to-
market. The features of silicon IPs are summarized in the below table:
Product
HDMI Receiver IP
VBO Transmitter and Receiver IP
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Features
provide configurable HDMI digital controllers and high-speed
mixed signal Physical Layer IP (“PHY”)
fully compliant with HDMI 1.4a/HDMI 2.0 specifications and
received the ATC certification
fully compliant with the V-by-One® HS Standard Version 1.4
provide configurable VBO digital controllers and high-speed
mixed signal PHY
designed for supporting high-speed video data transmission
between the host device and display device, especially
UltraHD TV application
ASIC Service
From 2012, we had successfully completed several ASIC service projects for Japan top TV, Project and
HMD makers with advanced and high performance customized video processing chips. All of these chips
are implemented with Himax Media Solutions’ proprietary video process platform that includes our video
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process display IP and high-speed transmission IPs. The process nodes adopted for these ASIC are usually
40nm, 55nm and even 28nm processes. From 2016, Himax Media Solutions also developed the depth sensing
technology that aims 3D sensing and AR/VR markets. On the other hand, the low power Convolution Neural
Network (CNN) accelerator platform is also developed for the emerging ultra-low-power Computer Vision
market.
The following table summarizes the features of our ASIC service:
Product
ASIC Service
Features
• Well established ASIC development platform, based on our
unique video processor and image processing technologies.
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offer a wide variety of video interface IPs, like LVDS, HDMI,
DVI, V-by-one, Display port, MIPI, MHL, etc.
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built-in 8/32- bit microprocessor built-in video processing
algorithm like super-high resolution, sun-light readable,
MEMC, FRC, etc
•
built-in 3D feature technologies like 2D-to-3D, Glasses-free
3D, 3D multi-view, 3D visual protection, etc.
support 4K x 2K/ 5K x 2K/ 8K x 4K display
•
• Depth sensing algorithm and hardware accelerator for 3D
•
sensing and AR/VR applications
Low power Convolution Neural Network (CNN) algorithm
and hardware accelerator for Computer Vision market
• Ultra low power controller design for Always-on image
sensing applications
ASIC Product
From 2018, we had started to develop ASIC product for IoT application with ultra-low power consumption
and high-performance image/video processing chip. The chip is implemented with high performance ARC
EM9D 32-bits DSP, pixel processing hardware accelerator, security engine, and rich peripherals. The process
node is 28nm process. Also integrated with EMZA’s high efficient algorithm for advance computer vision,
like intruder detection, human classification, occupancy identification, people counting, face detection.
The following table summarizes the features of our ASIC product:
Product
ASIC Product
Features
• Ultra-low power consumption: 40 uW/MHz @ Active mode,
30 uW @ Sleep mode, 15 uW @ Standby mode
•
Boot up (secure boot) time < 40ms, Wake up time < 1ms,
TFVT (time of first video target) < 150ms
• ARC-EM9D 32-bit DSP: Frequency up to 400MHz, XCCM/
YCCM 32Kbyte, 1.81 DMIPIS/MHz
• Memory: Up to 2MByte SRAM with 1.7MByte Retention,
1kByte OTP, SIP 1MByte flash
• High performance pixel processing accelerator: JPEG codec,
2x2 Block, 5x5 demosaic + FIR, Change Detection Module,
HOG-YUV, Re-sampler
•
Security Engine: Support secure boot, secure FW update,
secure debug mode, Support AES 128bits, RSA 2048bits,
Hash-256, TRNG, Secure key management
Peripheral: 1/4/8-bit camera interface, I2C/SPI master/
slave, UART, PWM, GPIO with 5 wake-up pins, 12-bit ADC
with 4 channels, up to 1Msps, RTC Timer
•
•
Package: FBGA121 (5mm*5mm), QFN76 (8mm*8mm),
LQFP64 (10mm*10mm)
52
LCOS and MEMS Products
Himax Display, our subsidiary, has contributed to our microdisplay products lines: Color-filter LCOS,
Color-sequential LCOS, Front-Lit™ LCOS and MEMS.
The latest development of Front-Lit™ LCOS enables an ultra-compact and extremely power-efficient
optical engine by consolidating LED illumination system and the polarization beam splitter (PBS) and
integrating them into the micro display module itself. Front-Lit™ LCOS enables a much simplified optical
engine design and assembly process and successfully lowered customers’ manufacturing time and costs.
Himax Display is the market leader of the LCOS industry based on market share since 2012 with the
whole product line patented by the Company. We believe Himax Display is the only non-captive LCOS
company that owned a mass production ready liquid crystal assembly line. We have produced and shipped
over 2.0 million units from this ISO certified line. Our customers use our products in various applications
such as pico-projector, communication, toy projector, AR glasses, HUD for automotive and HUD for
motorcycle.
Both technologies have their own merits for different applications in resolution, power consumption, size,
cost, optical engine design, and image quality. We provide a rich products family for customers to choose for
different applications, since each product has its own most important parameters to select. Himax Display
provides choices to customers. The following table shows certain details of our products:
Product
Color-Filter LCOS Microdisplays
Color-Sequential
LCOS Microdisplays
Front-Lit™ Color Filter LCOS
MEMS
Power ICs
Size and Resolution
0.28” (320x240 pixels) QVGA
0.38” (640x360 pixels) nHD
0.44” (640x480 pixels) VGA
0.59” (800x600 pixels) SVGA
Customized design
0.22” (640 x 360 pixels) nHD
0.28” (852 x 480 pixels) WVGA
0.38” (640 x 480 pixels) VGA
0.37” (800 x 600 pixels) SVGA
0.37” (1366 x 768 pixels) WXGA
0.45” (1024 x 768 pixels) XGA
Customized design
0.22” (640 x 360 pixels) nHD
Customized design
0.55” (1280 x 800 pixels) WXGA
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Himax provides TFT-LCD television, monitor and notebooks power management solutions. The main
products are Power Managements ICs (PMIC), Programmable Gamma OP ICs (PGOP) and Level Shifter ICs
(LS). In recent years, PMIC/PGOP/LS 3-in-1 PMIC has gradually become the mainstream solution.
Power Management ICs
A power management IC integrates several power components to fulfill system power requirements. It
may include step-up or step-down pulse width modulation, or PWM, DC-to-DC converters, low-dropout
regulators, or LDO regulators, voltage detectors, operational amplifiers, p-gamma OP, level shifters, or other
components. For panel module applications, a power management IC provides a reliable and precise voltage
for source drivers, gate drivers, timing controllers, and panel cells. Moreover, its built-in over-temperature
and over-current protections help prevent components from being damaged under certain abnormal
53
conditions. As integrating an increasing number of components into a power management IC is likely to be a
continuing trend, we believe power management ICs will continue to be critical components of a TFT-LCD
panel module. The following table summarizes certain features of our power management IC products:
Product
Integrated Multi-Channel Power
Solutions for Notebooks
Integrated Multi-Channel Power
Solutions for Monitors
Integrated Multi-Channel Power
Solutions for TVs
Features
built-in power MOSFET
•
step-up PWM converter
•
charge pump regulator
•
LDO regulator
•
voltage detector
•
gate pulse modulator
•
• Vcom operational amplifier
•
•
•
2ch programmable gamma voltage with operational amplifier
I2C programmable
low frame rate control for power saving solution
PMIC/PGOP/Level Shifter 3-in-1
built-in power MOSFET
step-up PWM converter
•
•
•
• HV LDO regulator
voltage detector
•
gate pulse modulator
•
programmable Vcom voltage / Vcom operational amplifier
•
programmable gamma voltage with operational amplifier
•
level shifter
•
PMIC/PGOP/Level Shifter 3-in-1
built-in power MOSFET
step-up PWM converter
step-down PWM converter
charge pump regulator
•
•
•
•
•
• HV LDO regulator
voltage detector
•
•
gate pulse modulator
• Vcom operational amplifier
•
•
•
I2C programmable
level shifter
programmable gamma voltage with operational amplifier
Programmable Gamma OP ICs
It is a Programmable Gamma, DVR and VCOM IC. Each controlled by a 10-bit digital analog converter
(DAC). The user can easily select one of the two gamma curves to compensate for the display. The PGOP
also includes a channel DVR, VCOM buffer and built-in 7-bit DAC. Support 128-step to adjust the VCOM
output voltage by I2C control setting automatically.
Product
14 channel PGOP for dual gate GOA
TFT-LCD
Features
Programmable gamma buffer DVR and VCOM buffer
14 channel analog output gamma reference voltage
10-bit Gamma DAC resolution
2 Gamma bank register
2 Gamma bank NVM
Built in output channel resister
I2C interface
•
•
•
•
•
•
•
54
Level shifter
TFT-LCD panel manufacturers have developed panel designs to reduce the usage of display drivers, like
gateless designs, which integrate the gate driver function onto the glass but needed level shifter. All level
shifter channels feature the same input circuitry and are compatible with the standard logic-level signals
generated by timing controllers in typical applications. The level shifter converts the timing-controller (TCON)
logic-level signals to the high-level signals needed by the GOA (gate on array) display. The output circuitry
has been designed to achieve high rise and fall times when driving the capacitive loads typically encountered
in TFT-LCD display applications.
Product
16- channel level shifter for dual gate
GOA TFT-LCD
Features
support two kinds of T-con input signals
6/8/10 clock channel output
2 channel STV
2 channel LC
2 discharge channel
support charge sharing function
reset function
•
•
•
•
•
•
•
• OTP / OCP (detect level, time and count) with I2C adjustment
•
Support 2 input and 6/8/10 output
CMOS Image Sensor Products
The CMOS image sensor products are developed by our subsidiary, Himax Imaging. The products were
designed firstly for camera-equipped mobile devices, such as mobile phones, tablets and notebook computers,
with a focus on low light image and video quality. Based on the technologies and IP we developed, our
product lines have been expanded to various applications. In early 2016, we decided to re-shape our strategies
and put more focuses on the following three domains: ultra low power computer vision- Always-On Sensor
(“AoS”), Near Infrared (“NIR”) sensor, and big pixel BSI sensors in automotive and surveillance.
Given that IoT applications bring a lot of demand and applications of ultra-low power computer vision,
we're developing the eyes for IoT. With our super low power AoS, we’ve been collaborating with Emza, an
Israeli company dedicated to the development of extremely efficient visual sensors acquired by Himax, to
build up a people detection camera system named WiseEye running in approximately 2.5mW. Leveraging
Himax Imaging’s AoS and Emza’s specialized low power algorithms, the WiseEye can be used in different
kinds of applications, including smart office, smart building, surveillance, robotics, etc. Our AoS is also
highly appreciated in under display finger print market. Several fingerprint sensor vendors have adopted our
AoS as their key foundation block in their solutions.
In addition to developing the AoS product to drive the power as low as possible, we’re also devoted
ourselves to designing the industrial leading pixel with higher near infrared Quantum Efficiency (“QE”) to
support the new generate 3D depth camera. Several NIR sensors such as HD(720p), Full HD(1080p), and
5MP sensor have been developed in our NIR product line with QE over 50% in 850nm and around 35%
in 940nm. Their superior performance hugely helps to lower the system power and enhances the system
performance. With the high QE in NIR band, we open the doors to building more sensor and camera systems
for machine vision. Regarding the conventional color sensors, we put the resource in more specialized and
customized big pixel sensors for automotive and surveillance with higher value to the customers by providing
unique features like better sensitivity in low light, high dynamic range, slim embedded ISP, etc.
We are committed to being a key player in the CMOS image sensor business with investments in
experienced human resources, an efficient supply chain, and strategic technology developments and
partnerships to further increase the performance and features of small and specially designed pixel sensors.
The following table sets forth the features of our CMOS image sensor products:
55
Product
5MP UltraSense2TM NIR Sensor
tailored for 3D Sensing
Features
1/2.6” format color type with high sensitivity BSI pixel
5MP resolution at 45 frames per second, support QHD video
•
•
at 60 frames per second
•
•
•
Compact die size design to support small modules
4x NIR sensitivity at 940nm
4-lane MIPI CSI2 outputs RAW8/10
2.0MP ClearViewTM Color Image
Sensor
1/5” format color type
•
• UXGA YUV output at 30 frames per second, 720p HD
resolution at 60 frames per second
•
1-lane MIPI CSI2 outputs RAW8/10
•
•
•
1/6” format with high sensitivity BSI pixel
1080p FHD resolution at 60 frames per second
Low power consumption
• Alternating frame support for HDR
Provide 2x2 RGB-IR option
2-lane MIPI CSI2 outputs
Frame-Sync control for multiple camera system
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
1/3” format with high sensitivity BSI pixel
1080p HD resolution at 60 frames per second
Low power consumption
Support for Staggered HDR
Provide high NIR sensitivity option
2-lane MIPI CSI2 and 12bit parallel DVP outputs
Frame-Sync control for multiple camera system
1/4” format with high sensitivity BSI pixel
1080p FHD resolution at 30 frames per second
Low power consumption
Provide high NIR sensitivity and 4x4 RGB-IR option
2-lane MIPI CSI2 and 10bit parallel DVP outputs
Frame-Sync control for multiple camera system
1/6.5” format with high sensitivity BSI pixel
720p HD resolution at 60 frames per second
Low power consumption
Support Intel SSC function on MIPI I/F
4x NIR sensitivity at 940nm
1-lane MIPI CSI2 outputs RAW8/10
1/9” format with high sensitivity BSI pixel
720p HD resolution at 30 frames per second
Low power consumption
Support LED-sync for Microsoft Windows Hello
1-lane MIPI CSI2 outputs RAW8/10
FHD 1/6” 1080p UltraSenseTM Color
Image Sensor
FHD 1/3” 1080p UltraSenseTM Color
Image Sensor
FHD 1/4” 1080p UltraSenseTM Color
Image Sensor
HD 720p UltraSenseTM NIR Sensor
tailored for 3D Sensing
HD 720p UltraSense2TM Color Image
Sensor
56
Product
1.3MP ClearSenseTM EDR Color
Image Sensor embedded with image
processor for Surveillance
1.2MP UltraSense 2TM Color Image
Sensor embedded with image
processor for Automotive
Features
•
•
1/4” format with ultra-high sensitivity
ClearSenseTM achieves higher dynamic range in color up to
84dB with on-chip tone mapping
•
•
800p and 720p resolution at 30 frames per second
FlexiTM engine automatically controls dynamic range,
exposure, gain, and white balance to balance color fidelity and
contrast
•
Color processing pipeline including lens shading correction,
defect correction, edge enhancement, color interpolation and
correction, gamma control, and saturation/hue adjustment.
• Anti-blooming and dark sun cancellation
•
•
Built-in low dropout regulator and power on reset
10-bit parallel video data port supports RAW, YUV422, and
RGB565/555/444
1/4” format with ultra-high sensitivity
•
• Ultrasense 2TM BSI pixel offers higher sensitivity for low light
condition
• Operation up to 105ºC
•
•
960p and 720p resolution at 30 frames per second
Color processing pipeline including lens shading correction,
defect correction, edge enhancement, color interpolation and
correction, gamma control, and saturation/hue adjustment
• Dynamic Range Optimizer offers best dynamic range of video
• Anti-blooming and dark sun cancellation
•
•
Built-in low dropout regulator and power on reset
10-bit parallel video data port supports RAW, YUV422, and
NTSC/PAL WVGA Color Image
System on embedded with image
processor for Automotive and
Surveillance
RGB565/555/444
• High sensitivity, low noise VGA sensor operating up to 60FPS
• Visible and near infrared sensitivity
• Operation up to 105ºC
• Ultra-compact automotive package
• Advanced defect correction with built-in temperature sensor
Embedded ISP with programmable automatic exposure and
•
white balance
• Optical alignment pixel with crop and zoom to native
resolution
•
setting
4Kb OTP for sensor initialization, module storage, and overlay
• Multi-color static overlay engine
Ultra-Low Power CMOS Color Image
System for Machine Vision and
Detection
• High sensitivity, low noise 1/11” 320x320 image area
• Under 2.5mW at QVGA 30fps and 1mW at QQVGA 15fps
•
• NeoPac and CSP package
•
Embedded auto-exposure and motion detection
Parallel 8bits, 4bits and 1bit data output
57
Product
5MP UltraSense 2TM NIR Sensor
tailored for 3D Sensing
Features
1/2.6” format color type with high sensitivity BSI pixel
5MP resolution at 45 frames per second, support QHD video
•
•
at 60 frames per second
•
•
•
Compact die size design to support small modules
4x NIR sensitivity at 940nm
4-lane MIPI CSI2 outputs RAW8/10
2.0MP ClearViewTM Color Image
Sensor
1/5” format color type
•
• UXGA YUV output at 30 frames per second, 720p HD
resolution at 60 frames per second
1-lane MIPI CSI2 outputs RAW8/10
•
Wafer Level Optics Products
Wafer level optics are optical products manufactured using semiconductor process on wafers. This
innovative approach enables wafer level optics to manufacture micro/nano optics structure and high
temperature resistance, making the compatible Surface-Mount Technology or SMT reflow process possible.
We offer entire optical solutions for customers who need compact and easy-to-handle optical products on
their electronic devices.
Combining traditional optical lens design, precise mold control and semiconductor manufacturing
expertise, our WLO lens with integrated waveguide, refractive optics and diffractive optical element (DOE)
is the best solution for next generation computational imaging module for 2D/3D illumination and 3D dot
projector, which can be applied to 3D face recognition, 3D sensing, 3D reconstruction, and gesture control.
With the innovative process and specific structure, our wafer level optics products provide small form factor
and compact module size to be easily integrated into consumer products such as smartphones, AR/VR
devices, and other mobile devices.
Our WLO technology is also adapted to form microstructure such as lens array, DOE and lenticular lens
for advanced applications in digital and computational imaging fields. These technologies stand in a unique
position to integral optical design, semiconductor manufacturing process, and compact packaging service,
which are rarely covered by one single company. Deeply rooted in core wafer level optics technologies, we
provide highly customized optical solutions and high-volume manufacturing to many tier 1 customers in the
AR/VR, mobile device and wearable front.
Our WLO business hit inflection in the middle of 2017 when we began mass shipment to an anchor
customer. The overall 2018 shipment increased considerably year-over-year because of the customer’s
large-scale adoption in more models. Himax’s WLO business in terms of shipment volume has been largely
dependent on one anchor customer for the past 18 months.
As a semiconductor company, we are not immune to a customer’s supplier decision which can work in or
against our favor. We believe this is a normal occurrence in the semiconductor industry and would not affect
our long-term valuation. We expect WLO shipment volume in 2019 will decline significantly year-over-year
starting from the third quarter of 2019 due to a product replacement decision informed by an anchor customer
a few days following the Company’s last earnings call on February 19, 2019. This update will negatively
affect our 2019 profitability because gross margin will be impacted by lower WLO capacity utilization rate,
thereby leading to higher equipment depreciation and factory overhead on a per unit basis. For reference,
WLO sales represented 4.4% of our 2018 total sales and will account for less than 5% of our total sales in the
first quarter of 2019. Despite this setback, we continue to work on new development projects with the anchor
customer, in addition to our multiple ongoing projects with other customers.The following table sets forth the
features of our wafer level optics products:
58
Product
Refractive Optical Lens
Diffractive Optical Element (DOE)
Diffuser element for flood illumination
and TOF
Features
for Micro Lens Array(MLA) illumination diffuser, lighting
control, flux illumination lens, collimation lens, and compact
size camera lens
provide multi-layer solution including optical AR coating, IR-
cutting filter coating, aspheric surface
double-side manufacture process
already in mass production
computational imaging, flux illumination , dot projector for
3D sensing, 3D reconstruction, gesture and illumination
control
using WLO process to integral multi-layers DOE and
refractive lens
provide customized solution for specific application
the smallest form factor and reflowable component
eye safety detect circuit embedded
using WLO process to integral multi-layers DOE technology
the smallest form factor and reflowable component
eye safety detect circuit embedded
•
•
•
•
•
•
•
•
•
•
•
•
Near Infrared(NIR) Projector Module
•
dot projector module solution for computer vision, 3D
sensing, 3D reconstruction, gesture and illumination control
•
integral NIR Laser (830/850/940nm), optical
system(refractive+ diffractive lens) and high precise active
alignment assembly solution to provide the smallest form
factor
• module design for smartphone and other mobile devices
•
•
•
provide customized module solution for different application
the smallest form factor and reflowable device
including active eye safety solution (Class-1)
Flood illumination Module
•
provide customized solution for specific application integral
NIR Laser (830/850/940nm), and high precise active alignment
assembly solution
• module design for smartphone and other mobile devices
•
•
the smallest form factor and reflowable device
including active eye safety solution (Class-1)
59
3D Sensing Business
We have participated in most of the smartphone OEMs’ ongoing 3D sensing projects for facial recognition
and phone unlock covering all three types of technologies, namely structured light, active stereo camera (ASC)
and time-of-flight. Depending on the customers’ needs, we provide 3D sensing total solution or just the
projector module or optics inside the module. By offering either the projector module or critical optics, we have
been collaborating with a small handful of smartphone names that have in-house capability to come up with
their own customized 3D sensing solutions. For most Android smartphone makers who don’t have such in-
house capability, however, we have to provide total solution to enable their 3D sensing. Himax’s 3D sensing
total solution structured light-based, which we announced jointly with Qualcomm in August 2017, brings
together Qualcomm’s industry leading 3D algorithm with Himax’s cutting-edge design and manufacturing
capabilities in optics and NIR sensors as well as our unique know-how in 3D sensing system integration.
At present, the 3D sensing adoption for this market remains low. The adoption is hindered primarily by the
prevailing high hardware cost of 3D sensing, the long development lead time required to integrate it into
the smartphone and the lack of killer applications which is limited to phone unlock and online payment.
Instead of 3D sensing, most of the Android phone makers have chosen the lower cost finger print technology
which can achieve similar phone unlock and online payment functions with somewhat compromised user
experience. Reacting to their lukewarm response, we are working on the next generation 3D sensing with an
aim to leapfrog the market by providing high performance, easy to adopt and yet cost friendly total solutions,
targeting the majority of Android smartphone players. We believe that 3D sensing will be widely adopted by
more Android smartphone makers when the ecosystem is able to substantially lower the cost of adoption and
develop more killer applications while offering easy-to-use, fully-integrated total solutions, for which Himax
is playing a key part. Our critical 3D sensing Technologies include the followings.
Wafer Level Optics Products
WLO is one of the key technologies enabling 3D sensing, AR goggle devices, and many other
applications. At present, 3D sensing is the top priority of our WLO business. Levering on our exceptional
design know-how and mass production experience in WLO technology, we are able to produce the world’s
most compact optics required of 3D sensing while achieving superior performance. Our WLO business hit
inflection in the middle of 2017 when we began mass shipment to an anchor customer. The overall 2018
shipment increased considerably year-over-year because of the customer’s large-scale adoption in more
models. We expect WLO shipment volume in 2019 will decline significantly year-over-year starting from
the third quarter of 2019 due to a product replacement decision informed by an anchor customer a few days
following the Company’s last earnings call on February 19, 2019. Despite this setback, we continue to work
on new development projects with the anchor customer, in addition to our multiple ongoing projects with
other customers.
CMOS Image Sensor
Our NIR sensor is a critical part in the structured light 3D sensing total solution. Our NIR sensors’ overall
performance is far ahead of those of our peers in 3D sensing applications. We currently offer low noise HD,
or 1 megapixel, and 5.5 megapixel NIR sensors and are planning to add more to further enrich our product
portfolio. Our NIR sensors deliver superior quantum efficiency in the NIR range, especially over 940nm band
which is critical for outdoor applications.
ASIC
One of the critical elements of our 3D sensing total solution is an ASIC for 3D depth map generation.
We are able to develop the ASIC thanks to our unique in-house capability in developing video ASICs for
customers. Equipped with the ASIC, our 3D sensing total solution can substantially reduce the power
consumed while processing 3D sensing, enhance personal data security, accelerate the 3D depth map
generation, and free up a smartphone’s processor for other applications. We view this unique capability as a
significant competitive advantage. It has been and will continue to be one of our key drivers in the success of
our 3D sensing total solution.
60
Active Alignment
With much experience in optical assembly for AR and VR devices, our factory has developed a system to
do active alignment for tiny components. From the incoming quality check, assembly process, and testing,
all steps are monitored and checked. The precision assembly capability gives us a very good foundation to do
the optical assembly for DOE, WLO, and laser.
Laser Driver
Based on our expertise in projector, optics, and driver, we have designed a special Glass Broken Detection
(“GBD”) mechanism on our projector. With the support from laser driver, it can cease the laser to prevent
users from being exposed to higher power laser energy.
The following table sets forth the features of our SLiMTM 3D sensing total solutions:
Product
SLiMTM 3D sensing total solution
Features
• Dot projector: More than 33,000 invisible dots, the highest in
the industry, projected onto object to build the most
sophisticated 3D depth map among all structured light
solutions
• Depth map accuracy: Error rate of < 1% within the entire
•
•
operation range of 20cm-100cm
Face recognition: Enabled by the most sophisticated 3D depth
data to build unique facial map that can be used for instant
unlock and secure online payment
Indoor/outdoor sensitivity: Superior sensing capability even
under total darkness or bright sunlight
Eye safety: Certified for IEC 60825 Class 1, the international
laser product standard which governs laser product safety
under all conditions of normal use with naked eyes
• Glass broken detection: Patented glass broken detection
•
•
mechanism in the dot projector whereby laser is shut down
instantaneously in the event of broken glass in the projector
Power consumption: Less than 400mW for projector, sensor
and depth decoding combined, making it the lowest power
consuming 3D sensing device by far among all structured light
solutions
• Module size: the smallest structured light solution in the
market, ideal for embedded and mobile device integration
61
In an attempt to accelerate the adoption of 3D sensing for Android phones, in addition to SLiM™, Himax
teamed up with MediaTek and Megvii to offer the industry’s first active stereo camera 3D sensing reference
design for Android smartphone in September 2018. Unlike SLiM™ which utilizes structure light to generate
3D, active stereo camera 3D sensing uses two cameras to replicate 3D vision in nature, augmented by coded
light for image depth enhancement. Both types of solutions offered by Himax operate on active NIR light
source with high sensitivity NIR sensors, thus working well even under extreme brightness or total darkness.
For 3D sensing purposes, structure light approach offers better depth precision than active stereo camera but
the cost is also higher. The ASC 3D sensing solution combines MediaTek’s stereo matching depth engine,
Megvii’s Face++ AI-based computer vision algorithm with Himax’s cutting-edge projector, sensor and laser
driver. The critical technologies provided by Himax include DOE and collimator utilizing its world leading
WLO technology in the projector, a high efficiency laser driver IC, high precision active alignment for the
projector assembly, and two high sensitivity near-infrared CMOS image sensors in the receiver. Despite of
its cost benefit versus structured light 3D sensing solution, the ASC 3D sensing solution gained lukewarm
responses from smartphone OEMs, again due to the lower cost finger print technology can already achieve
similar phone unlock and online payment functions.
The following table sets forth the features of our ASC 3D sensing solutions:
Features
Product
ASC 3D sensing solution
•
Customized infrared projector with patterned DOE
and collimator: Between 7,000 - 10,000 invisible dots to build
sophisticated 3D depth map
• High quantum efficiency sensor at 940nm band: Superior
sensing capability in both indoor/outdoor environments
• Glass broken detection: Patented glass broken detection
mechanism enabled by tailor made laser driver in the projector
whereby laser is shut down instantaneously in the event of
broken glass in the projector
•
standard governing laser product safety under all conditions of
normal use with naked eyes
Eye safety: Certified for IEC 60825 Class 1, the international
•
Compact form factor and power-efficient: Ideal for embedded
and mobile device integration
3D sensing can have a wide range of applications beyond smartphone. We have started to explore business
opportunities in various industries by leveraging our SLiMTM 3D sensing total solution. Such industries are
typically less sensitive to cost and always require a total solution. We are collaborating with Kneron, an
industry leader in edge-based artificial intelligence in which we have made an equity investment, to develop
an AI-enabled 3D sensing solution targeting security and surveillance markets. We are also working with
partners/customers on new applications covering home appliances and industrial manufacturing.
62
Core Technologies and Know-How
Driving System Technology. Through our collaboration with panel manufacturers, we have developed
extensive knowledge of circuit design, TFT-LCD driving systems, high-voltage processes and display
systems, all of which are important to the design of high-performance TFT-LCD display drivers. Our
engineers have in-depth knowledge of the driving system technology, which is the architecture for the
interaction between the source driver, gate driver, timing controller and power systems as well as other
passive components. We believe that our understanding of the entire driving system has strengthened our
design capabilities. Our engineers are highly skilled in designing power efficient and compact display drivers
that enhance the performance of TFT-LCD. We are leveraging our know-how of display drivers and driving
system technology to develop display drivers for panels utilizing other technologies such as OLED.
High-Voltage CMOS Circuit Design. Unlike most other semiconductors, TFT-LCD display drivers
require a high output voltage of 3.3 to 50 volts. We have developed circuit design technologies using a high-
voltage CMOS process that enables us to produce high-yield, reliable and compact drivers for high-volume
applications. Moreover, our technologies enable us to keep the driving voltage at very high uniformity, which
can be difficult to achieve when using standard CMOS process technology.
3D Technologies. Several technologies in Himax are integrated together to form our 3D solution. First,
wafer level imprinted technology is used to design and manufacture DOE and WLO. Then, the totally new
design CMOS sensor architecture and process gives the industry leading NIR Quantum Efficiency (QE)
sensors which are specially designed for 3D applications. Our expertise in precision assembly in optics as
well as ASIC and driver design additionally help us to provide a more complete solution to our customers.
High-Bandwidth Interfaces. In addition to high-voltage circuit design, TFT-LCD display drivers require
high bandwidth transmission for video signals. We have applied several high-speed interfaces, including
transistor-transistor logic (“TTL”), Reduced Swing Differential Signaling (“RSDS”), mini low-voltage
differential signaling (“LVDS”), dual-edge TTL (“DETTL”), turbo Reduced Swing Differential Signaling
(“RSDS”), Mobile Industry Processor Interface (“MIPI”) and other customized interfaces in our display
drivers. Moreover, we are developing additional driver interfaces for special applications with optimized
speed, lower EMI and higher system stability.
Die Shrink and LowPower Technologies. Our engineers are highly skilled in employing their knowledge
of driving technology and high-voltage CMOS circuit design to shrink the die size of our display drivers
while leveraging their understanding of driving technology and panel characteristics to design display drivers
with low power consumption. Die size is an important consideration for applications with size constraints.
Smaller die size also reduces the cost of the chip. Lower power consumption is important for many portable
devices such as notebook computers, mobile handsets and consumer electronics products.
Customers
Our customers for display drivers are primarily panel manufacturers and mobile device module
manufacturers, who in turn design and market their products to manufacturers of end-use products such as
notebook computers, desktop monitors, televisions, mobile handsets and consumer electronics products.
We may sell our products through agents or distributors for certain products or in certain regions. As of
December 31, 2018, we sold our products to more than 200 customers. Our ten largest customers together
accounted for approximately 75.3% and 74.6% of our revenues in 2017 and 2018, respectively. In 2017 and
2018, our two largest customers accounted for 10% or more of our net revenue: customer A and its affiliates
accounted for 25.8% and 28.1% of our revenues, respectively; customer B and its affiliates accounted for
15.5% and 12.6% of our revenues, respectively.
Certain of our customers provide us with a long-term (twelve-month) forecast plus three-month rolling
non-binding forecasts and confirm orders about one month ahead of scheduled delivery. In general, purchase
orders are not cancellable by either party, although from time to time we and our customers have agreed to
amend the terms of such orders.
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As a semiconductor company, we are not immune to a customer’s supplier decision which can work in
or against our favor. We believe this is a normal occurrence in the semiconductor industry and would not
affect our long-term valuation. As an example, our WLO business hit inflection in the middle of 2017 when
we began mass shipment to an anchor customer. The overall 2018 shipment increased considerably year-
over-year because of the customer’s large-scale adoption in more models. Himax’s WLO business in terms
of shipment volume has been largely dependent on one anchor customer for the past 18 months. We expect
WLO shipment volume in 2019 will decline significantly year-over-year starting from the third quarter
of 2019 due to a product replacement decision informed by an anchor customer a few days following the
Company’s last earnings call on February 19, 2019. This update will negatively affect our 2019 profitability
because gross margin will be impacted by lower WLO capacity utilization rate, thereby leading to higher
equipment depreciation and factory overhead on a per unit basis. For reference, WLO sales represented 4.4%
of our 2018 total sales and will account for less than 5% of our total sales in the first quarter of 2019. Despite
this setback, we continue to work on new development projects with the anchor customer, in addition to our
multiple ongoing projects with other customers.
Sales and Marketing
We focus our sales and marketing strategy on establishing business and technology relationships
principally with TFT-LCD panel manufacturers, panel manufacturers using LTPS or OLED, or Oxide
technologies, mobile display module and mobile device manufacturers and camera module houses in order
to work closely with them on future semiconductor solutions that align with their product road maps. Our
engineers collaborate with our customers’ engineers to create products that comply with their specifications
and provide a high level of performance at competitive prices and also create customized features for
end brand customers. Our end market for large-sized panels is concentrated among a limited number of
major panel manufacturers. We also market our products directly to monitor, notebook and mobile device
manufacturers so that our products can be qualified for their specifications and designed into their products.
Furthermore, we extend our business development with system and ODM companies by using strategic ASIC
business model to not only develop ASIC product based on customer specification but also jointly research
and develop new technologies to meet customers' future product demand. Additionally, we will form a
strategic partnership with tier-1 customers for our LCOS microdisplays to penetrate into an emerging market.
We believe we need this close relationship with our customers to create a new application eco system.
We primarily sell our products through our direct sales teams located in Taiwan, China, South Korea
and Japan. We also have dedicated sales teams for certain of our most important current or prospective
customers. We have offices in Tainan, Hsinchu, Taipei, Taiwan; and Shenzen and Suzhou, China. We have
other sales and technical support offices in Hefei, Beijing, Shanghai, Fuzhou, Foshan, Fuqing, Ningbo,
Wuhan, Chongqing, Chengdu, Xi’an and Xiamen, China; Tokyo, Japan; Asan-si and Bundang-gu, South
Korea; Givatayim, Israel; and Irvine and Campbell, California and Minneapolis, Minnesota, USA, all in
close proximity to our customers. For certain products or regions, we may sell our products through agents or
distributors.
Our sales and marketing team possesses a high level of technical expertise and industry knowledge used
to support a lengthy and complex sales process. This includes a highly trained team of product managers
and field applications engineers. Our team is equipped with extensive strategic marketing experience and a
strong capability to identify market trends. We also provide technical support and assistance to potential and
existing customers in system/SoC architecture, designing, testing and qualifying display modules, camera
modules and end application systems that incorporate our products and ASICs. We believe that the depth and
quality of this design support are key to improving customers’ time-to-market and maintaining a high level of
customer satisfaction.
Manufacturing
We operate primarily in a fabless business model that utilizes substantially third-party foundry and
assembly and testing capabilities. We leverage our experience and engineering expertise to design high-
performance semiconductors and rely on semiconductor manufacturing service providers for wafer
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fabrication, gold bumping, assembly and testing. We also rely largely on third-party suppliers of processed
tape used in TAB packaging. We engage foundries with high-voltage CMOS process technology for our
display drivers and engage assembly and testing houses that specialize in TAB and COG packages, thereby
taking advantage of the economies of scale and the specialization of such semiconductor manufacturing
service providers. Our primarily fabless model enables us to capture certain financial and operational benefits,
including reduced manufacturing personnel, capital expenditures, fixed assets and fixed costs. It also gives us
the flexibility to use the technology and service providers that are the most suitable for any given product.
We operate a fab under Himax Display primarily for performing manufacturing processes for our LCOS
microdisplays. Moreover, for better integration, we also established an in-house color filter facility under
Himax Taiwan, which commenced shipments from 2010. This in-house facility provides color filter for
CMOS image sensor products with over 50 million optics shipment record to tier-1 customers and LCOS
products. The color filter line is a critical and unique process for our proprietary single-panel color LCOS
microdisplays. An in-house color filter facility enhances the competitiveness of our LCOS products and
creates value for our customers. In addition, we have established an in-house WLO facility under Himax
Taiwan for the key process of our wafer level optics products, which commenced small-scale shipments
in December 2009. We began construction of our new building in March 2017, located nearby the current
headquarters to house additional WLO capacity, the new active alignment equipment needed for our SLiM™
3D sensing business and to provide extra office space. The construction of the new building has been
completed on schedule.
Manufacturing Stages
The diagram below sets forth the various stages in manufacturing display drivers according to the two
different types of assembly utilized: TAB or COG. The assembly type depends primarily on the application
and design of the panel and is determined by our customers.
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Wafer Fabrication: Based on our design, the foundry provides us with fabricated wafers. Each fabricated
wafer contains many chips, each known as a die.
Gold Bumping: After the wafers are fabricated, they are delivered to gold bumping houses where gold
bumps are plated on each wafer. The gold bumping process uses thin film metal deposition, photolithography
and electrical plating technologies. The gold bumps are plated onto each wafer to connect the die to the
processed tape, in the case of TAB package, or the glass, in the case of COG package.
Chip Probe Testing: Each die is electrically tested, or probed, for defects. Dies that fail this test are
discarded.
Assembly and Testing: Our display drivers use two types of assembly technology: TAB or COG. Display
drivers for large-sized applications typically require TAB package types and to a lesser extent COG package
types, whereas display drivers for mobile handsets and consumer electronics products typically require COG
package types.
TAB Assembly
We use two types of TAB technologies: TCP and COF. TCP and COF packages are both made of
processed tape that is typically 35mm or 48mm wide, plated with copper foil and has a circuit formed within
it. TCP and COF packages differ, however, in terms of their chip connections. With TCP packages, a hole
is punched through the processed tape in the area of the chip, which is connected to a flying lead made of
copper. By contrast, with COF packages, the lead is mounted directly on the processed tape and there is no
flying lead. In recent years, COF packages have become predominantly used in TAB technology.
•
•
Inner-Lead Bonding: The TCP and COF assembly process involves grinding the bumped wafers
into their required thickness and cutting the wafers into individual dies, or chips. An inner lead
bonder machine connects the chip to the printed circuit processed tape and the package is sealed with
resin at high temperatures.
Final Testing: The assembled display drivers are tested to ensure that they meet performance
specifications. Testing takes place on specialized equipment using software customized for each
product.
COG Assembly
COG assembly connects display drivers directly to LCD panels without the need for processed tape.
COG assembly involves grinding the tested wafers into their required thickness and cutting the wafers into
individual dies, or chips. Each individual die is picked and placed into a chip tray and is then visually or
auto-inspected for defects. The dies are packed within a tray in an aluminum bag after completion of the
inspection process.
Quality Assurance
We maintain a comprehensive quality assurance system. Using a variety of methods, from conducting
rigorous simulations during the circuit design process to evaluating supplier performance at various stages
of our products’ manufacturing process, we seek to bring about improvements and achieve customer
satisfaction. In addition to monitoring customer satisfaction through regular reviews, we implement extensive
supplier quality controls so that the products we outsource achieve our high standards. Prior to engaging a
third party as our supplier, we perform a series of audits on their operations, and upon engagement, we hold
frequent quality assurance meetings with our suppliers to evaluate such factors as product quality, production
costs, technological sophistication and timely delivery.
In November 2002, we received ISO 9001 certification, which was renewed in February 2018 and will
expire in February 2021. In February 2006, we received ISO 14001 certification, which was renewed in
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December 2017 and will expire in December 2020. In addition, in March 2007, we received IECQ QC
080000 certification, which was renewed in March 2016 and will expire in March 2019.
Environmental Management System and Safety and Health Management System
Himax follows closely the global environmental trends, including energy saving and waste reduction, in
its daily operations. The Company is certified in accordance with ISO14001, OHSAS18001 and ISO14064.
Himax is a leader in its sector when it comes to the environment and safety, operating under measures
much stringent than domestic regulations. The Company aims to grow sustainably, delivering economic,
social and environmental benefits with its healthy employees.
Himax has also been tirelessly reducing impacts to the environment and improving safety in its operations,
specifically targeting product design and waste handling.
Semiconductor Manufacturing Service Providers and Suppliers
Through our relationships with leading foundries, assembly, gold bumping and testing houses and
processed tape suppliers, we believe we have established a supply chain that enables us to deliver high-
quality products to our customers in a timely manner.
Access to semiconductor manufacturing service providers is critical as display drivers require high-
voltage CMOS process technology and specialized assembly and testing services, all of which are different
from industry standards. We have obtained our foundry services from TSMC, Vanguard, Macronix,
Globalfoundries Singapore, SMIC and PSMC in the past few years and have also established relationships
with UMC, PSC and SKHYSI. These are among a select number of semiconductor manufacturers that
provide high-voltage CMOS process technology required for manufacturing display drivers. We engage
assembly and testing houses that specialize in TAB and COG packages such as Chipbond, Chipmore
International trading company Ltd., ChipMOS Technologies Inc., Nepes Corporation and King Yuan
Electronics Co., Ltd.
We plan to strengthen our relationships with our existing semiconductor manufacturing service providers
and diversify our network of such service providers in order to ensure access to sufficient cost-competitive
and high-quality manufacturing capacity. We are selective in our choice of semiconductor manufacturing
service providers. It takes a substantial amount of time to qualify alternative foundries, gold bumping,
assembly and testing houses for production. As a result, we expect that we will continue to rely on a limited
number of semiconductor manufacturing service providers for a substantial portion of our manufacturing
requirements in the near future.
The table below sets forth (in alphabetical order) our principal semiconductor manufacturing service
providers and suppliers:
Wafer Fabrication
Globalfoundries Singapore Pte., Ltd.
Macronix International Co., Ltd.
Powerchip Semiconductor Manufacturing Corp.
Powerchip Technology Corporation
Semiconductor Manufacturing International
Corporation
SK hynix system ic
Taiwan Semiconductor Manufacturing Company
Limited
United Microelectronics Corporation
Vanguard International Semiconductor Corporation
Gold Bumping
Chipbond Technology Corporation
Chipmore International Trading Company Ltd.
ChipMOS Technologies Inc.
LB Semicon, Inc.
Nepes Corporation
Union Semi Conductor Co., Ltd.
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Processed Tape for TAB Packaging
Assembly and Testing
Ardentec Corporation
Advanced Semiconductor Engineering Inc.
Chipbond Technology Corporation
Chipmore International Trading Company Ltd.
ChipMOS Technologies Inc.
Global Testing Corporation
Greatek Electronics Inc.
Jiangsu Changjiang Electronics Technology Co., Ltd.
King Yuan Electronics Co., Ltd.
Micro Silicon Electronics Corp.
Nepes Corporation
Orient Semiconductor Electronics Ltd.
Taiwan IC Packaging Corporation
LB Lusem Co., Ltd.
Union Semiconductor Co., Ltd.
JMC Electronics Co., Ltd.
LG Innotek Co., Ltd.
Stemco., Ltd.
Chip Probe Testing
Ardentec Corporation
Chipbond Technology Corporation
Chipmore International Trading Company Ltd.
ChipMOS Technologies Inc.
Global Testing Corporation
Greatek Electronics Inc.
King Yuan Electronics Co., Ltd.
Micro Silicon Electronics Corp.
Nepes Corporation
LB Semicon, Inc.
Union Semiconductor Co., Ltd.
Intellectual Property
As of February 28, 2019, we held a total of 2,992 patents, including 1,376 in Taiwan, 922 in the United
States, 612 in China, and 82 in other countries. The expiration dates of our patents range from 2019 to 2039.
We also have a total of 108 pending patent applications in Taiwan, 130 in the United States and 270 in other
jurisdictions, including the PRC, Japan, Korea and Europe. In addition, we have registered “Himax and logo”
as trademarks in Taiwan, China, Europe, Singapore, Korea and Japan and the United States, as well as “EMZA
VISUAL SENSE and logo” and “WISEEYE” as trademarks in Israel and the United States.
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Competition
The markets for our products are, in general, intensely competitive, characterized by continuous
technological change, evolving industry standards, and declining average selling prices. We believe key
factors that differentiate the competition in our industry include:
•
•
•
•
•
•
customer relations;
product performance;
design customization;
development time;
product integration;
technical services;
• manufacturing costs;
•
•
•
•
supply chain managemen;
timely delivery;
economies of scale; and
broad product portfolio.
We continually face intense competition from fabless display driver companies, including Fitipower
Integrated Technology, Inc., FocalTech Systems Co., Ltd., Novatek Microelectronics Corp., Raydium
Semiconductor Corporation, Sitronix Technology Co., Ltd., Silicon Works Co. Ltd., and Synaptics
Incorporated. We also face competition from integrated device manufacturers, such as Rohm Co., Ltd.
Many of our competitors, some of whom are affiliated or have established relationships with other panel
manufacturers, have longer operating histories, greater brand recognition and significantly greater financial,
manufacturing, technological, sales and marketing, human and other resources than we do. Additionally, we
expect that as the flat panel semiconductor industry expands, more companies may enter and compete in our
markets.
For touch controller ICs, we compete with worldwide suppliers, such as Cypress Semiconductor Corp.,
Synaptics Inc, FocalTech Systems Limited and Shenzhen Huiding Technology Co., Ltd.
Our monitor semiconductor solutions compete against solutions offered by a significant number of
semiconductor companies including Mstar Semiconductor, Inc., Novatek Microelectronics Corp., and
Realtek Semiconductor Corp. For 2D to 3D conversion solutions, we face competition from Mediatek Corp.
and Mstar Semiconductor, Inc.
For LCOS microdisplay products, we face competition from OmniVision, Jasper, Citizen, Syndiant,
Kopin, Compound Photonics and RAONTECH. We also compete with alternative microdsiplay technology
providers such as Texas Instruments with DLP, Sony with Micro OLED and Bosch with scanning mirror.
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For power ICs, we face competition from Taiwan companies including Global Mixed-mode Technology
Inc., Advanced Analog Technology, Inc and On-Bright Electronics Co. We also compete with worldwide
suppliers such as Maxim Integrated Products, Inc., Texas Instruments Incorporated and Rohm Co., Ltd.
For CMOS image sensor products, our focus is on machine vision. Competition in this space is primarily
from OmniVision Technologies Inc. and Sony Corporation.
For wafer level optics products, we face competition primarily from Heptagon that was acquired by ams
AG.
For 3D sensing, the Qualcomm/Himax solution is by far the best performing 3D sensing and face
recognition total solution available for the Android smartphone market right now. Himax is the only one to
provide the one-stop solution though there are more companies jumping into the game. ams AG will be the
main competitor we face in the worldwide while Orbbec and Mantis Vision will be the competitors in China.
Insurance
We maintain insurance policies on our buildings, equipment and inventories covering property damage
and damage due to, among other events, fires, typhoons, earthquakes and floods. We maintain these insurance
policies on our facilities and on transit of inventories. Additionally, we maintain director and officer liability
insurance. We do not have insurance for business interruptions, nor do we have key person insurance.
Environmental Matters
The business of semiconductor design does not cause any significant pollution. Himax Taiwan maintains
a color filter facility and a wafer level optics facility and Himax Display maintains a facility for our LCOS
products as well as Himax IGI operates under the designated facility related for 3D mask production, where
we have taken the necessary steps to obtain the appropriate permits and believe that we are in compliance
with the existing environmental laws and regulations in the ROC and US jurisdiction applicable. In addition,
we have entered into various agreements with certain customers whereby we have agreed to indemnify them,
and in certain cases, their customers, for any claims made against them for hazardous material violations that
are found in our products.
4.C. Organizational Structure
The following chart sets forth our corporate structure and ownership interest in each of our principal
operating subsidiaries and affiliates as of February 28, 2019.
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The following table sets forth summary information for our subsidiaries as of February 28, 2019.
Subsidiary
Main Activities
Jurisdiction of
Incorporation
Percentage of
Our Ownership
Interest
Himax Technologies Limited
Himax Technologies Korea Ltd.
Himax Technologies (Samoa), Inc.
Himax Technologies (Suzhou) Co., Ltd.
Himax Technologies (Shenzhen) Co., Ltd.
Himax Display, Inc.
IC design and sales
IC design and sales
Investments
Sales and technical Support
Sales and technical Support
LCOS and MEMS design,
manufacturing and sales
ROC
South Korea
Samoa
PRC
PRC
ROC
100.0%
100.0%
100.0%(1)
100.0%(2)
100.0%(2)
82.7%(1)
Integrated Microdisplays Limited
Himax Display (USA) Inc.
Himax Analogic, Inc.
Himax Imaging, Inc.
Himax Imaging, Ltd.
Himax Imaging Corp.
Himax Media Solutions, Inc.
Harvest Investment Limited
Himax Technologies Japan Ltd.
Himax Semiconductor (Hong Kong)
Limited
Liqxtal Technology Inc.
Himax IGI Precision Ltd.
Emza Visual Sense Ltd.
Hong Kong
Delaware, USA
82.7%(3)
82.7%(3)
ROC
Cayman Islands
ROC
California, USA
ROC
98.6%(1)
100.0%
93.7%(1)
93.7%(4)
99.2%(1)
LCOS design
LCOS and MEMS design,
sales and technical support
IC design and sales
Investments
IC design and sales
IC design
TFT-LCD television
and monitor chipset
operations, ASIC service
and IP Licensing
Investments
Sales
Investments
ROC
Japan
Hong Kong
LC Lens design and sales
ROC
3D micro and nano
structure mastering and
prototype replication
Delaware, USA
Visual sensors and
efficient machine vision
algorithm
Israel
100.0%(1)
100.0%
100.0%
64.0%(1)
100.0%(1)
100.0%(1)
(1) Indirectly, through our 100.0% ownership of Himax Technologies Limited.
(2) Indirectly, through our 100.0% ownership of Himax Technologies (Samoa), Inc.
(3) Indirectly, through our 82.7% ownership of Himax Display, Inc.
(4) Indirectly, through our 93.7% ownership of Himax Imaging, Ltd.
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4.D. Property, Plants and Equipment
Our corporate headquarters are located at a 22,172 square meter facility within the Tree Valley Industrial
Park in Tainan, Taiwan. The facility houses our research and development, engineering, sales and marketing,
operations and general administrative staff.
We also lease office space in Taipei, Hsinchu and Tainan, Taiwan; Suzhou, Shenzhen, Foshan, Beijing,
Shanghai, Ningbo, Wuhan, Hefei, Xiamen, Chongqing, China; Tokyo, Japan; Asan-si and Bundang-gu, South
Korea; Givatayim, Israel; and Irvine and Campbell, California and Minneapolis, Minnesota, USA. The lease
contracts may be renewed upon expiration.
We have established under Himax Taiwan an in-house WLO facility for the key process of our products,
with 1,171 square meters of floor space in a building leased from Innolux, which already produced and
shipped over 50 million optics to tier-1 customer from 2010. We have also expanded certain facilities for
LCOS and WLO products to accommodate new customers and new applications located at our headquarters
in Tainan, Taiwan. In addition, Himax Taiwan owns and operates a fab with 1,431 square meters of floor
space in a building leased from Innolux in Tainan, where it established an in-house color filter facility that
commenced shipments from 2010. This in-house facility provides color filter for CMOS image sensor and
LCOS products. The color filter line is a critical and unique process for our proprietary single-panel color
LCOS microdisplays. An in-house color filter facility enhances the competitiveness of our color-filter LCOS
microdisplays products and creates value for our customers.
We began construction of our new building in March 2017, located nearby the current headquarters. The
new building houses additional WLO capacity, the new active alignment equipment needed for our SLiM™
3D sensing business and provide extra office space. The construction of the new building has been completed
on schedule. The capital expenditure for 2018 and 2017 was $49.7 million and $39.3 million, respectively,
of which $7.6 million and $6.3 million was for the investment of design tools and R&D related equipment
related to our traditional IC design business. Other capital expenditures include mainly investment in a new
office building, capacity expansion for 3D sensing business and land lease, which we paid $42 million in
2018 versus $33 million in 2017. In 2019, we anticipate continued payments for the above capex items to
be totaling around $39 million including a payment of $27.7 million for the land, which will conclude the
current phase of capital expenditure.
ITEM 4A. UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
The following discussion should be read in conjunction with our audited consolidated financial statements
and their accompanying notes included elsewhere herein. Such consolidated annual financial statements are
our first financial statements prepared in accordance with IFRS. Pursuant to the transitional relief granted by
the SEC in respect of the first-time application of IFRS, no comparative information in respect to the audited
consolidated financial statements and no financial information prepared under IFRS for the year ended
December 31, 2016 have been included in this annual report. Consequently, no discussion is included for the
year 2016.
5.A. Operating Results
Overview
We are a fabless semiconductor solution provider dedicated to display imaging processing technologies.
We are a worldwide market leader in display driver ICs and timing controllers used in TVs, laptops,
monitors, mobile phones, tablets, digital cameras, car navigation, virtual reality (VR) devices and many other
consumer electronics devices. Additionally, we design and provide controllers for touch sensor displays, in-
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cell Touch and Display Driver Integration (TDDI) single-chip solutions, LED driver ICs, power management
ICs, scaler products for monitors and projectors, tailor-made video processing IC solutions, silicon IPs and
LCOS micro-displays for augmented reality (AR) devices and head-up displays (HUD) for automotive. We
also offer digital camera solutions, including CMOS image sensors and wafer level optics for AR devices, 3D
sensing and machine vision, which are used in a wide variety of applications such as mobile phone, tablet,
laptop, TV, PC camera, automobile, security, medical devices, home appliance and Internet of Things. For
display drivers and display-related products, our customers are panel manufacturers, agents or distributors,
module manufacturers and assembly houses. We also work with camera module manufacturers, optical
engine manufacturers, and television system manufacturers for various non-driver products.
We commenced operations through our predecessor, Himax Taiwan, in June 2001. We must, among
other things, continue to expand and diversify our customer base, broaden our product portfolio, maintain
our leading technology position, achieve additional design wins and manage our costs to partially mitigate
declining average selling prices and any other market risks in order to maintain our profitability. Moreover,
we must continue to address the challenges of being a growing technology company, including hiring and
retaining managerial, engineering, operational and financial personnel and implementing and improving our
existing administrative, financial and operations systems.
We operate primarily in a fabless business model that utilizes substantially third-party foundry and
assembly and testing capabilities. We leverage our experience and engineering expertise to design high-
performance semiconductors and rely largely on third-party semiconductor manufacturing service providers
for wafer fabrication, gold bumping, assembly and testing with the exception of manufacturing of LCOS
microdisplay and wafer level optics products, which we manufacture through our own factories. We are
able to take advantage of the economies of scale and the specialization of our third-party semiconductor
manufacturing service providers. Our primarily fabless model enables us to capture certain financial and
operational benefits, including reduced manufacturing personnel, capital expenditures, fixed assets and fixed
costs. It also gives us the flexibility to use the technology and service providers that are the most suitable for
any given product. For LCOS microdisplay and wafer level optics products, our in-house factories enable
us to protect our proprietary technologies and manufacturing expertise in the effort to further expand these
businesses.
As our semiconductors are critical components of flat panel displays, our industry is closely linked to the
trends and developments of the flat panel display industry, in particular, the TFT-LCD panel segment. The
majority of our revenues in 2018 were derived from sales of display drivers that were eventually incorporated
into TFT-LCD panels. We expect display drivers for TFT-LCD panels to continue to be our primary products.
The TFT-LCD panel industry is intensely competitive and is vulnerable to cyclical market conditions. The
average selling prices of TFT-LCD panels could decline for numerous reasons, which could in turn result in
downward pricing pressure on our products. See “Item 3.D. Key Information—Risk Factors—Risks Relating
to Our Financial Condition and Business—We derive the majority of our net revenues from sales to the TFT-
LCD panel industry, which is highly cyclical and subject to price fluctuations. Such cyclicality and price
fluctuations could negatively impact our business or results of operations.” The revenue expansion of our
non-driver products as well as TFT-LCD product trending toward high resolution and any other new product
introduction help to mitigate these risks.
Factors Affecting Our Performance
Our business, financial position and results of operations, as well as the period-to-period comparability of
our financial results, are significantly affected by a number of factors, some of which are beyond our control,
including:
average selling prices;
unit shipments;
product mix;
•
•
•
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•
•
•
•
•
design wins;
cost of revenues and cost reductions;
supply chain management;
share-based compensation expenses; and
tax credits.
Average Selling Prices
Our performance is affected by the selling prices of each of our products. We price our products based
on several factors, including manufacturing costs, life cycle stage of the product, competition, technical
complexity of the product, size of the purchase order and our relationship with the customer. We typically are
able to charge the highest price for a product when it is first introduced. Although from time to time we are
able to raise our selling prices during times of supply constraints, our average selling prices typically decline
over a product’s life cycle, which may be offset by changes in conditions in the semiconductor industry such
as constraints in foundry capacity. The general trend in the semiconductor industry is for the average selling
prices of semiconductors to decline over a product’s life cycle due to competition, production efficiencies,
emergence of substitutes and technological obsolescence. Our cost reduction efforts also contribute to this
decline in average selling prices. See “—Cost of Revenues and Cost Reductions.”
From 2011 to 2014, smartphone and tablet boom across the world created impressive demand of TFT-
LCD panels. The phenomenal smartphone market growth naturally invited intense competition in the driver
IC space, especially in the lower-end segments, resulting in severe ASP pressure. In the second half of 2015,
over-supply issues happened to the large-sized TFT-LCD panel industry again. As high inventory level
was built up in the first half of 2015 along with new capacity ramp from China panel makers, ASP pressure
became intense as a result. In the first half of 2016, our large-sized display drivers suffered from another
ASP erosion due to the oversupply in large-sized TFT-LCD panel industry. Large-sized display drivers
and small and medium-sized panel driver business also experienced ASP erosion in 2017. In addition, our
average selling prices are affected by the size and bargaining power of our customers. The merger of CMO,
the predecessor of Innolux and TPO could negatively affect our ability to maintain, if not raise, our selling
prices. In addition, as new China panel makers emerge in the marketplace and continue to expand their
capacity, China panel makers’ bargaining power will increase accordingly, negatively impacting our average
selling price. Our average selling prices are also affected by the packaging type our customers choose as well
as the level of product integration. See “—Product Mix” below. Lastly, competition level affects our average
selling prices as well. For example, as competitors have started to enter into the smartphone driver IC space
and compete aggressively to get market share since the second quarter of 2012, average selling prices of
smartphone driver IC for mid to low-end resolution have been under pressure since then. However, the
impact of declining average selling prices on our profitability might be offset or mitigated to a certain extent
by increased volume as lower prices may stimulate demand and thereby drive sales and TFT-LCD panel
products trending toward higher resolution and Touch and Display Driver Integration (TDDI) single-chip
solutions which creates a higher barrier of entry, less competition and higher profit margins.
Unit Shipments
Our erformance is also affected by the number of semiconductors we ship, or unit shipments. As our
display drivers are critical components of flat panel displays, our unit shipments depend primarily on
our customers’ panel shipments among other factors. Our unit shipments have grown since our inception
primarily as a result of our increased market share with certain major customers and their increased
shipments of panels. Our growth in unit shipments also reflected the demand for higher resolution panels
which typically require more display drivers. However, the development of higher channel display drivers
or new technologies, if successful, could potentially reduce the number of display drivers required for each
75
panel while achieving the same resolution. If such technologies become commercially available, the market
for our display drivers will be reduced and we could experience a decline in revenue and profit.
Product Mix
The proportion of our revenues that is generated from the sale of different product types, also referred
to as product mix, also affects our average selling prices, revenues and profitability. Our display driver
products vary depending on, among other things, the number of output channels, the level of integration
and the package type. Variations in each of these specifications could affect the average selling prices of
such products. For example, the trend for display drivers for use in large-sized panels is toward products
with a higher number of channels, which typically command higher average selling prices than traditional
products with a lower number of channels. However, panels that use higher-channel display drivers typically
require fewer display drivers per panel. As a result, our profitability will be adversely affected to the extent
that the decrease in the number of display drivers required for each panel is not offset by increased total
unit shipments and/or higher average selling prices for display drivers with a higher number of channels.
The level of integration of our display drivers also affects average selling prices, as more highly integrated
chips typically have higher selling prices. Additionally, average selling prices are affected by changes in
the package types used by our customers. For example, the chip-on-glass package type typically has lower
material costs because no processed tape is required. Moreover, our different non-driver products vary in
average selling prices and costs.
The proportion of non-driver business would also affect our financial position and results of operations.
For the past three years, we have experienced operating losses from our non-driver business. This was partly
due to low sales volume during these periods that led to insufficient revenue to fully cover expenses such as
research and development and operating expenses. We expect, however, to ramp up the volume production
and sales of our non-driver products in the future and generate positive operation income from such non-
driver products. In addition, given that our non-driver products have higher gross margins and higher
growth potential than our driver products, we expect the overall profit margin across our product platform to
improve.
Design Wins
Achieving design wins is important to our business, and it affects our unit shipments. Design wins occur
when a customer incorporates our products into their product designs. There are numerous opportunities for
design wins, including, but not limited to, when panel manufacturers:
•
introduce new models to improve the cost and/or performance of their existing products or to expand
their product portfolio;
•
•
establish new fabs and seek to qualify existing or new component suppliers; and
replace existing display driver companies due to cost or performance reasons.
Design wins are not binding commitments by customers to purchase our products. However, we believe
that achieving design wins is an important performance indicator. Our customers typically devote substantial
time and resources to designing their products as well as qualifying their component suppliers and their
products. Once our products have been designed into a system, the customer may be reluctant to change
its component suppliers due to the significant costs and time associated with qualifying a new supplier or
a replacement component. Therefore, we strive to work closely with current and prospective customers in
order to anticipate their requirements and product roadmaps and achieve additional design wins.
Cost of Revenues and Cost Reductions
We strive to control our cost of revenues. Our cost of revenues as a percentage of total revenues in
2017 and 2018 was 75.6% and 76.7%, respectively. In 2018, as a percentage of Himax Taiwan’s total
76
manufacturing costs, the cost of wafer fabrication was 51.7%, the cost of processed tape was 11.2%, the cost
of assembly and testing was 36.2%, and overhead was 0.9%. Our cost of revenues may increase as a result of
an increase in raw material prices, any failure to obtain sufficient foundry, assembly or testing capacity or any
shortage of processed tape or failure to improve our manufacturing utilization rate or production yield. As a
result, our ability to manage our wafer fabrication costs, costs for processed tape, and assembly and testing
costs is critical to our performance. In addition, to mitigate declining average selling prices, we aim to reduce
unit costs by, among other things:
•
•
•
improving product design (e.g., having smaller die size allows for a larger number of dies on each
wafer, thereby reducing the cost of each die);
improving manufacturing yields through our close collaboration with our semiconductor
manufacturing service providers and in our in-house manufacturing facilities; and
achieving better pricing from a diversified pool of semiconductor manufacturing service providers
and suppliers, reflecting our ability to leverage our scale, volume requirements and close
relationships as well as our strategy of sourcing from multiple service providers and suppliers
Supply Chain Management
Due to the competitive nature of the flat panel display industry and our customers’ need to maintain
high capacity utilization in order to reduce unit costs per panel, any delays in the delivery of our products
could significantly disrupt our customers’ operations. To deliver our products on a timely basis and meet the
quality standards and technical specifications our customers require, we must have assurances of high-quality
capacity from our semiconductor manufacturing service providers. We therefore strive to manage our supply
chain by maintaining close relationships with our key semiconductor manufacturing service providers and
strive to provide credible forecasts of capacity demand and seek for new manufacturing service providers in
case of any manufacturer’s capacity shortage. Any disruption to our supply chain could adversely affect our
performance and could result in a loss of customers as well as potentially damage our reputation.
Share-Based Compensation Expenses
Our results of operations have been affected by, and we expect our results of operations to continue to
be affected by, our share-based compensation expenses, which consist of charges taken relating to grants of
mainly RSUs as well as non-vested shares to employees.
Restricted Share Units (RSUs). We adopted two long-term incentive plans in October 2005 and September
2011, respectively, which permit the grant of options or RSUs to our employees and non-employees where
each unit represents two ordinary shares. The actual awards will be determined by our compensation
committee. The 2005 plan was terminated in October 2010. We recognized share-based compensation
expenses under the long-term incentive plan totaling $6.9 million and $4.1 million in 2017 and 2018,
respectively. See “—Critical Accounting Policies and Estimates—Share-Based Compensation Expenses.”
Of the total share-based compensation expenses recognized, $6.1 million and $3.8 million in 2017 and 2018,
respectively, were settled in cash. We measure and recognize compensation expense for all share-based
payments at fair value.
Set forth below is a summary of our historical share-based compensation plans for the years ended
December 31, 2017 and 2018 as reflected in our consolidated financial statements.
We made grants of 1,219,791 RSUs to our employees on September 26, 2014. The vesting schedule for
such RSU grants is as follows: 82.57% of the RSU grants vested immediately and were settled by cash in the
amount of $9.3 million on the grant date, with the remainder vesting equally on each of September 30, 2015,
2016 and 2017, which will be settled by our ordinary shares, subject to certain forfeiture events.
We made grants of 597,596 RSUs to our employees on September 25, 2015. The vesting schedule for
77
such RSU grants is as follows: 94.15% of the RSU grants vested immediately and were settled by cash in the
amount of $4.5 million on the grant date, with the remainder vesting equally on each of September 30, 2016,
2017 and 2018, which will be settled by our ordinary shares, subject to certain forfeiture events.
We made grants of 1,208,785 RSUs to our employees on September 28, 2016. The vesting schedule for
such RSU grants is as follows: 91.93% of the RSU grants vested immediately and were settled by cash in the
amount of $9.2 million on the grant date, with the remainder vesting equally on each of September 30, 2017,
2018 and 2019, which will be settled by our ordinary shares, subject to certain forfeiture events.
We made grants of 580,235 RSUs to our employees on September 29, 2017. The vesting schedule for
such RSU grants is as follows: 96.91% of the RSU grants vested immediately and were settled by cash in the
amount of $6.1 million on the grant date, with the remainder vesting equally on each of September 30, 2018,
2019 and 2020, which will be settled by our ordinary shares, subject to certain forfeiture events.
We made grants of 676,273 RSUs to our employees on September 26, 2018. The vesting schedule for
such RSU grants is as follows: 97.15% of the RSU grants vested immediately and were settled by cash in the
amount of $3.8 million on the grant date, with the remainder vesting equally on each of September 30, 2019,
2020 and 2021, which will be settled by our ordinary shares, subject to certain forfeiture events.
The amount of share-based compensation expense with regard to the RSUs granted to our employees on
September 26, 2014, September 25, 2015, September 28, 2016, September 29, 2017 and September 26, 2018
was $9.27 per ADS, $7.92 per ADS, $8.30 per ADS, $10.93 per ADS and $5.76 per ADS, respectively, which
was based on the trading price of our ADSs on that day.
Tax Credits
Our results of operations have been affected by, and we expect our results of operations to continue to be
affected by, tax credits available to us.
The Statute for Industrial Innovation entitles companies to tax credits for qualifying research and
development expenses related to innovation activities but limits the amount of tax credit to only up to 15%
of the total qualifying research and development expenditure for the current year, subject to a cap of 30% of
the income tax payable for the current year. Moreover, any unused tax credits provided under the Statute for
Industrial Innovation may not be carried forward.
Based on the amendments to the above, effective from January 1, 2016 to December 31, 2019, if
companies choose to extend the tax credits to three years, the tax credit rate will be 10% of the total
qualifying research and development expenditure for the current year and subject to a cap of 30% of the
income tax payable for each year. The ROC Executive Yuan has proposed to extend the Statute for Industrial
Innovation to December 31, 2029 and keep the tax credits for qualifying research and development expenses
related to innovation activities. The final extension and amendment is still waiting for the ROC Legislative
Yuan passing the third reading.
Description of Certain Statements of Profit or Loss Line Items
Revenues
Historically, we have generated revenues from sales of display drivers for large-sized applications, display
drivers for mobile handsets and display drivers for consumer electronics products. In addition, our product
portfolio includes operational amplifiers, timing controllers, touch controller ICs, TFT-LCD television and
monitor semiconductor solutions, LCOS microdisplay solutions, power management ICs, CMOS image
sensors, 3D sensing solution, wafer level optics products, ASIC service and IP licensing.
Revenues from large-sized application totaled $260.5 million in 2018, an increase of 15.9% year-over-
year, representing 36.0% of our total revenues, as compared to 32.8% in 2017. The strong year-over-year
78
growth was primarily driven by the market’s 4K TV demands and our Chinese panel customers’ continued
ramping of new LCD fabs. Revenues from small and medium-sized applications totaled $325.7 million in
2018, an increase of 6.8% year-over-year, representing 45.0% of our total revenues, as compared to 44.5%
in 2017. Combing TDDI and traditional discrete smartphone driver, sales into mobile handsets application
in this segment declined 1.2% in 2018 attributed to the notably decreased shipment of the traditional driver
IC as the market is being quickly replaced by TDDI and AMOLED, yet Himax only made a small amount
of shipment for TDDI in 2018 when we suffered from foundry capacity shortage. In 2018, display drivers
for consumer electronics applications increased 11.5% mainly due to the significant year-over-year growth
of automotive business but offset by the decline of our tablet and other consumer electronics businesses.
Revenues from non-driver products totaled $137.4 million in 2018, a decrease of 11.6% year-over-year,
representing 19.0% of our total revenues, as compared to 22.7% a year ago. The year-over-year decrease
was due mainly to receive a reimbursement from a certain customer totaling $13.3 million booked in 2017 in
relation to the AR goggle business. Excluding $13.3 million, the year-over-year decrease was 3.3%.
The following table sets forth, for the periods indicated, our revenues by amount and our revenues as a
percentage of revenues by each product line:
Year Ended December 31,
2017
Percentage
of
Revenues
2018
Percentage
of
Revenues
Amount
Amount
(in thousands, except percentages)
$ 224,798
32.8
$ 260,540
36.0
113,591
16.6
112,221
15.5
191,458
27.9
213,497
29.5
155,320
$ 685,167
22.7
100.0
137,347
$ 723,605
19.0
100.0
Display drivers for large-sized
applications
Display drivers for mobile handsets
applications
Display drivers for consumer electronics
applications
Non-driver products(1)
Total
Note:
(1) Includes, among other things, timing controllers, touch controller ICs, TFT-LCD television and monitor
chipsets, LCOS projector solutions, power management IC, CMOS image sensors, programmable gamma
OP, wafer level optics (WLO) products, scaler, NRE incomes, ASIC service and IP licensing.
A limited number of customers account for substantially all our revenues. For example, Customer A and
its affiliates accounted for 25.8% and 28.1% of our revenues in 2017 and 2018, respectively. Customer B and
its affiliates accounted for 15.5% and 12.6% of our revenues in 2017 and 2018, respectively.
Customer A and its affiliates
Customer B and its affiliates
Others
Total
Year Ended December 31,
2017
2018
Percentage
of
Revenues
Amount
Percentage
of
Revenues
Amount
(in thousands, except percentages)
$ 176,728
106,380
402,059
$ 685,167
25.8
15.5
58.7
100.0
$ 202,995
90,844
429,766
$ 723,605
28.1
12.6
59.3
100.0
79
The global TFT-LCD panel market is highly concentrated, with only a limited number of TFT-LCD panel
manufacturers producing large-sized TFT-LCD panels in high volumes. We sell large-sized panel display
drivers to many of these TFT-LCD panel manufacturers. Our revenues, therefore, will depend on our ability
to capture an increasingly larger percentage of each panel manufacturer’s display driver requirements. Our
sales to panel makers in China grew significantly in 2017 and 2018 due to the Chinese panel maker business
expansion which started in 2011. These sales have become a significant portion of our revenue.
We derive substantially all of our revenues from sales to Asia-based customers whose end products are
sold worldwide. In 2017 and 2018, approximately 25.8% and 23.2% of our revenues, respectively, were from
customers headquartered in Taiwan and approximately 61.5% and 66.4% of our revenues, respectively, were
from customers headquartered in China. We believe that substantially all of our revenues will continue to be
from customers located in Asia, where almost all of the TFT-LCD panel manufacturers and mobile device
module manufacturers are located. As a result of the regional customer concentration, we expect to continue
to be subject to economic and political events and other developments that affect our customers in Asia. A
substantial majority of our sales invoices are denominated in U.S. dollars.
Costs and Expenses
Our costs and expenses consist of cost of revenues, research and development expenses, general and
administrative expenses, sales and marketing expenses and share-based compensation expenses. Costs would
be greatly affected by product mix.
Cost of Revenues
The principal items of our cost of revenues are:
•
•
•
•
cost of wafer fabrication;
cost of processed tape used in TAB packaging;
cost of gold bumping, assembly and testing; and
other costs and expenses.
We outsource the manufacturing of our semiconductors and semiconductor solutions to semiconductor
manufacturing service providers. The costs of wafer fabrication, gold bumping, assembly and testing depend
on the availability of capacity and demand for such services. The wafer fabrication industry, in particular, is
highly cyclical, resulting in fluctuations in the price of processed wafers depending on the available foundry
capacity and the demand for foundry services.
Research and Development Expenses
Research and development expenses consist primarily of research and development employee salaries,
including related employee welfare costs, costs associated with prototype wafers, processed tape, masks,
molding and tooling sets and depreciation on research and development equipment. We believe that we will
need to continue to spend a significant amount on research and development in order to remain competitive.
We expect to continue increasing our spending on research and development in absolute dollar amounts in
the future as we continue to increase our research and development headcount and associated costs to pursue
additional product development opportunities. As a percentage of revenues, our research and development
expenses in 2017 and 2018 were 17.2% and 17.0%, respectively.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries of general and administrative employees,
including related employee welfare costs, depreciation on buildings, office furniture and equipment, rent and
80
professional fees. We anticipate that our general and administrative expenses will increase in absolute dollar
amounts as we expand our operations, hire additional administrative personnel, incur depreciation expenses
in connection with the increase in office equipment and new building, and incur additional compliance costs
required of a publicly listed company in the United States.
Sales and Marketing Expenses
Our sales and marketing expenses consist primarily of salaries of sales and marketing employees,
including related employee welfare costs, travel expenses and product sample costs. We expect that our sales
and marketing expenses will increase in absolute dollar amounts over the next several years. However, we
believe that as we continue to achieve greater economies of scale and operating efficiencies, our sales and
marketing expenses may decline over time as a percentage of our revenues.
Share-Based Compensation Expenses
Our share-based compensation expenses consist of various forms of share-based compensation that we
have historically issued to our employees and consultants, as well as share-based compensation issued to
employees, directors and service providers under our 2005 and 2011 long-term incentive plans. The 2005
plan was terminated in October 2010. We allocate such share-based compensation expenses to the applicable
cost of revenues and expense categories as related services are performed. See note 19 to our consolidated
financial statements. Under the long-term incentive plan, we granted RSUs on December 30, 2005 to our
employees and directors and again on September 29, 2006, September 26, 2007, September 29, 2008,
September 28, 2009, September 28, 2010, September 28, 2011, September 26, 2012, September 26, 2013,
September 26, 2014, September 25, 2015, September 28, 2016, September 29, 2017 and September 26,
2018 to our employees. Share-based compensation expenses recorded under the long-term incentive plan
totaled $6.9 million and $4.1 million in 2017 and 2018, respectively. See“—Critical Accounting Policies and
Estimates—Share-Based Compensation” for further discussion of the accounting of such expenses.
Income Taxes
Since we and our direct and indirect subsidiaries are incorporated in different jurisdictions, we file
separate income tax returns. Under the current laws of the Cayman Islands, we are not subject to income
or capital gains tax. Additionally, dividend payments made by us are not subject to withholding tax in
the Cayman Islands. However, if the relevant bylaws of the PEM rules have been adequately enacted and
properly advocated, we may be determined to be within the territory of the ROC and our income tax shall
be levied in accordance with the Income Tax Act and relevant tax regulations. Therefore, dividend payments
made by us would be subject to withholding tax in the ROC. We recognize income taxes at the applicable
statutory rates in accordance with the jurisdictions where our subsidiaries are located and as adjusted
for certain items including accumulated losses carried forward, non-deductible expenses, research and
development tax credits, certain tax holidays, as well as changes in our deferred tax assets and liabilities.
Our effective income tax rate was 15.1% in 2017 and 14.2% in 2018.
ROC law offers preferential tax treatments to industries that are encouraged by the ROC government. The
Statute for Industrial Innovation entitles companies to tax credits for qualifying research and development
expenses related to innovation activities but limits the amount of tax credit to only up to 15% of the total
qualifying research and development expenditure for the current year, subject to a cap of 30% of the income
tax payable for the current year. Moreover, any unused tax credits provided under the Statute for Industrial
Innovation may not be carried forward.
Based on the amendments to the above, effective from January 1, 2016 to December 31, 2019, if
companies choose to extend the tax credits to three years, the tax credit rate will be 10% of the total
qualifying research and development expenditure for the current year and subject to a cap of 30% of the
income tax payable for each year.
81
The ROC Executive Yuan has proposed to extend the Statute for Industrial Innovation to December 31, 2029
and keep the tax credit for qualifying research and development expenses related to innovation activities. The
final extension and amendment is still waiting for the ROC Legislative Yuan passing the third reading.
According to the amendments to the “Income Tax Act” enacted by the office of the President of the ROC
on February 7, 2018, an increase in the statutory income tax rate from 17% to 20% and decrease in the
undistributed earning tax from 10% to 5% are effective from January 1, 2018. This increase does not affect
the amounts of the current or deferred taxes recognized for the year ended December 31, 2017. However, it
would affect the Company’s current tax expense from 2018, and deferred taxes were remeasured in 2018, the
period of enactment.
On December 22, 2017, the U.S. President Trump signed into law H.R. 1, known as the “Tax Cuts and
Jobs Act” that significantly changes the United States federal income tax system. Among a number of
significant changes to the current United States federal income tax rules, the Tax Cuts and Jobs Act reduces
the marginal United States corporate income tax rate from 35% to 21%, limits the deduction for net interest
expense, shifts the United States toward a more territorial tax system, and imposes new taxes to combat
erosion of the United States federal income tax base. The Company does not expect the Tax Cuts and Jobs
Act to have a material effect on the Company’s results of operations.
Critical Accounting Policies and Estimates
We believe the following critical accounting policies affect our more significant judgments and estimates
used in the preparation of our consolidated financial statements in accordance with IFRS.
Share-Based Compensation
Share-based compensation primarily consists of grants of non-vested or restricted shares of common
stock, stock options and RSUs issued to employees. The cost of employee services received in exchange
for share-based compensation is measured based on the grant-date fair value of the share-based instruments
issued. The cost of employee services is equal to the grant-date fair value of shares issued to employees
and is recognized in earnings over the service period by graded vesting. Share-based compensation expense
estimates also take into account the number of shares awarded that management believes will eventually
vest. We adjust our estimate for each period to reflect the current estimate of forfeitures. As of December
31, 2018, we based our share-based compensation cost on an assumed forfeiture rate of 4.2% per annum
for RSUs issued in 2016, 0% per annum for RSUs issued in 2017 and 0% per annum for RSUs issued in
2018, respectively, under our long-term incentive plan. If actual forfeitures occur at a lower rate, share-based
compensation costs will increase in future periods.
For our issuance of RSUs in 2017 and 2018, the fair value of the ordinary shares underlying the RSUs
granted to our employees was $10.93 and $5.76 per unit, respectively, which was the closing price of our
ADSs on September 29, 2017 and September 26, 2018, respectively.
Loss Allowance for Accounts Receivable
We evaluate our outstanding accounts receivable on a monthly basis for collectability purposes. The loss
allowance for accounts receivable is measured at an amount using the simplified approach under IFRS 9 with
the lifetime expected credit losses. To measure the expected credit losses, accounts receivable have been
grouped based on the days past due, as well as incorporated forward looking information, including relevant
industry information. The activity in the loss allowance for accounts receivable for the years ended December
31, 2017 and 2018 are as follows:
82
Loss Allowance
Year
2017
2018
Inventory
Balance at
Beginning
of Year
Charges
to
earnings
Amounts
Utilized /
write-offs
Balance at
End of Year
(in thousands)
$ 1,395
$ -
$ 155
$ 290
$ (1,550)
$ -
$ -
$ 290
Inventories are stated at the lower of cost and net realizable value, and we use judgment and estimate
to determine the net realizable value of inventory at the end of each reporting period. Due to the rapid
technological changes, we estimate the net realizable value of inventory for obsolescence and unmarketable
items at the end of reporting period and then writes down the cost of inventories to net realizable value. The
net realizable value of the inventory is mainly determined based on assumptions of future demand within a
specific time horizon. The inventory write-downs in 2017 and 2018 were approximately $12.3 million and
$17.7 million, respectively, and were included in cost of revenues in our consolidated statements of profit or
loss.
Impairment of Non-financial Assets other than Goodwill
We routinely review our non-financial assets at the reporting date to determine whether there is any
indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. The
recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less
costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value
using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks
specific to the asset. However, due to the cyclical nature of our industry and changes in our business strategy,
market requirements, or the needs of our customers, we may not always be in a position to accurately
anticipate declines in the utility of our equipment or acquired technology until they occur. Although we have
the recurring losses in non-Driver product segment, we remain positive on the long-term prospect of our non-
Driver product segment, judging by the expanding customer list that covers some of the world’s biggest tech
names, and the busy engineering activities going on with such customers. For the years ended December 31,
2017 and 2018, we did not recognize any impairment loss on non-financial assets.
Goodwill
We evaluate goodwill for impairment at least annually, or more frequently when there is an indication
that the cash-generating unit (CGU) may be impaired. For the purpose of impairment testing, goodwill is
allocated to each of the Company’s CGU or groups of CGU that are expected to benefit from the synergies
of the combination. If the recoverable amount of a CGU is less than its carrying amount, the difference is
allocated first to reduce the carrying amount of any goodwill allocated to such CGU and then to the other
assets of the CGU pro rata based on the carrying amount of each asset in the CGU. Any impairment loss for
goodwill is recognized directly in profit or loss. An impairment loss recognized for goodwill is not reversed
in subsequent periods.
The recoverable amount is the higher of fair value less costs of disposal and value in use. The assessment
of impairment of goodwill requires management to make subjective judgment to determine the identified
CGU, allocate the goodwill to relevant CGU and estimate the recoverable amount of relevant CGU. In the
process of estimating the recoverable amount of relevant CGU, management is required to make subjective
judgments in determining the discounted rate, the terminal growth rate, the independent cash flows, useful
lives, expected future revenue and expenses related to the CGU.
83
As of December 31, 2017 and 2018, goodwill in Driver IC CGU and WLO CGU was $26,846 thousand
and $1,292 thousand, respectively. For the years ended December 31, 2017 and 2018, we did not recognize
any impairment loss on goodwill.
Income Taxes
According to the amendments to the Income Tax Act enacted by the office of the President of the ROC
on February 7, 2018, effective starting from January 1, 2018, dividends distributed by a Taiwan company to
its foreign shareholders are subject to ROC withholding tax, the rate of which increased from 20% to 21%
on the amount of the distribution in the case of cash dividends or on the par value of the ordinary shares
in the case of stock dividends. The surtax rate for undistributed earnings will be reduced from 10% to 5%.
However, surtax paid on undistributed earnings can no longer be used to offset against the withholding tax
imposed on the dividend distributed to foreign shareholders.
As of December 31, 2018, we have not provided for retained earnings tax on the undistributed earnings
of approximately $605.7 million of our subsidiaries since we have specific plans to reinvest these earnings
indefinitely. The undistributed earnings in our foreign subsidiaries are mainly from Himax Taiwan totaling
approximately $604.8 million as of December 31, 2018. We intend to use accumulated and future earnings of
Himax Taiwan to expand operations in Taiwan.
However, a deferred tax liability will be recognized when the Taiwanese company can no longer
demonstrate that it plans to reinvest indefinitely these undistributed earnings. This amount becomes
taxable when we execute other investments, share buybacks or shareholder dividends to be funded by cash
distribution by our foreign subsidiaries. It is not practicable to estimate the amount of additional taxes that
might be payable on such undistributed earnings.
We are a holding company located in the Cayman Islands and have paid dividends and repurchased
outstanding shares. To fund such dividends and repurchases, in the past years, we have received cash from
bank loans and from Himax Taiwan through intercompany borrowings instead of dividends distributed by
Himax Taiwan. At December 31, 2017 and 2018, the amount of cash and cash equivalents held by Himax
Taiwan were $80.1 million and $86.3 million, respectively, which are not available to fund our ultimate
parent company’s activities unless the cash is distributed.
As part of the process of preparing our consolidated financial statements, our management is required to
estimate income taxes and tax bases of assets and liabilities for us and our subsidiaries. This process involves
estimating current tax exposure together with assessing temporary differences resulting from differing
treatments of items for tax and accounting purposes and the amount of tax credits and tax loss carry-
forward. These differences result in deferred tax assets and liabilities, which are included in the consolidated
statements of financial position. Management must then assess deferred tax assets at each reporting date and
reduce to the extent that it is no longer probable that the related tax benefit will be realized; such reductions
are reversed when the probability of future taxable profits improves.
84
Consolidated Results of Operations
The following table sets forth a summary of our consolidated statements of profit or loss as a percentage
of revenues:
Revenues
Costs and expenses:
Cost of revenues
Research and development
General and administrative
Sales and marketing
Total costs and expenses
Operating income
Non-operating income, net
Income tax expense
Profit for the year
Loss attributable to noncontrolling interests
Profit attributable to Himax stockholders
Year Ended December 31,
2017
2018
100.0 %
100.0 %
75.6
17.2
3.0
3.0
98.8
1.2
3.2
0.7
3.7
0.3
4.0
76.7
17.0
2.9
2.9
99.5
0.5
0.5
0.2
0.8
0.4
1.2
Year Ended December 31, 2018 Compared to Year Ended December 31, 2017
Revenues.Our revenues increased by 5.6% to $723.6 million in 2018 from $685.2 million in 2017.
The increase was attributable mainly to a 15.9% increase in revenues from display drivers for large-size
application to $260.5 million in 2018 from $224.8 million in 2017. The strong year-over-year growth was
primarily driven by the market’s 4K TV demands and our Chinese panel customers’ continued ramping of
new LCD fabs. Revenues from small and medium-sized applications totaled $325.7 million in 2018, an
increase of 6.8% year-over-year. Combing TDDI and traditional discrete smartphone driver, sales into mobile
handsets application in this segment declined 1.2% in 2018 attributed to the notably decreased shipment of
the traditional driver IC as the market is being quickly replaced by TDDI and AMOLED, yet Himax only
made a small amount of shipment for TDDI in 2018 when we suffered from foundry capacity shortage. The
display drivers for consumer electronics applications also recorded a 11.5% increase to $213.5 million in
2018 from $191.5 million in 2017 mainly due to the significant year-over-year growth of automotive business
but offset by the decline of our tablet and other consumer electronics businesses. However, a 11.6% decrease
in revenues occurred from non-driver products to $137.4 million in 2018 from $155.3 million in 2017. The
year-over-year decrease was due mainly to receive a reimbursement from a certain customer totaling $13.3
million booked in 2017 in relation to the AR goggle business. Excluding $13.3 million, the year-over-year
decrease was 3.3%. Our average selling prices increased by 4.6%, primarily due to the increase from our
core driver IC business, and our unit shipments increased by 0.9% as a result of the increase in large-size
application during 2018.
Costs and Expenses. Costs and expenses increased by 6.4% to $720.2 million in 2018 from $676.8 million
in 2017. As a percentage of revenues, costs and expenses increased to 99.5% in 2018 compared to 98.8% in
2017.
•
Cost of Revenues. Cost of revenues increased to $554.7 million in 2018 from $518.1 million in 2017.
The increase in cost of revenues was due primarily to a 0.9% increase in unit shipments in 2018, as
compared to 2017. Inventory write-downs, which are included in cost of revenues, increased to $17.7
million in 2018 from $12.3 million in 2017. As a percentage of revenues, cost of revenues increased
to 76.7% in 2018 from 75.6% in 2017.
•
Research and Development. Research and development expenses increased by 4.6% to $123.0
million in 2018 from $117.7 million in 2017. This increase was primarily attributable to increases in
tape-out expense $4.8 million to capture the increasing business opportunities. The salary expense
85
was little increased in 2018, primarily as a result of higher average salaries and acquiring new
subsidiary but offset by lower RSU compensation.
• General and Administrative. General and administrative expenses increased by 6.7% to $21.8
million in 2018 from $20.5 million in 2017, primarily as a result of increases in salary expenses from
acquiring new subsidiary.
•
Sales and Marketing. Sales and marketing expenses little changed amounting to $20.4 million in
both 2018 and 2017. The sales and marketing expenses little changed primarily as a result of increase
in salary expense but offset by decrease in travel expenses and product sample costs.
Non-Operating Income, net. We had net non-operating income of $3.6 million in 2018 compared to $21.7
million in 2017. We recognized changes in fair value of financial assets at fair value through profit or loss
of $2.0 million in 2018 and $23.2 million in 2017, among which, $23.0 million was from disposal of equity
security in 2017. The decrease in changes in fair value of financial assets at fair value through profit or
loss was partially offset by re-measurement gain on previously held equity interest in Emza of $1.7 million
included in other income in 2018.
Income Tax Expense. Our income tax expense decreased to $1.0 million in 2018 from $4.6 million in
2017. Our effective income tax rate decreased to 14.2% from 15.1% in 2017. The decrease in our effective
income tax rate was primarily attributable to recognized $1.2 million income tax benefit for effect of tax
rate changes in 2018 and the lower withholding tax rate on gain on disposal of equity security $23.0 million
included in changes in fair value of financial assets at fair value through profit or loss in 2017.
Profit for the year. As a result of the foregoing, our profit for the year decreased to $6.0 million in 2018
from $25.5 million in 2017 and profit attributable to Himax stockholders decreased to $8.6 million in 2018
from $27.7 million in 2017.
Segment Results
The following table sets forth the revenues and operating results for our reportable segments for the
periods indicated:
Year Ended December 31,
2017
2018
(in thousands)
$ 529,847
155,320
$ 685,167
$ 586,258
137,347
$ 723,605
Year Ended December 31,
2017
2018
(in thousands)
$ 43,021
(34,662)
$ 8,359
$ 56,023
(52,638)
$ 3,385
Segment Revenues
Driver IC
Non-Driver Products
Total
Segment Operating Income (loss)
Driver IC
Non-Driver Products
Total
86
Driver IC Segment
Year Ended December 31, 2018 Compared to Year Ended December 31, 2017
Segment revenues. Our revenues from the Driver IC segment increased by 10.6% to $586.2 million in
2018 from $529.9 million in 2017. The increase was mainly from the increase in display drivers for large-
size application and consumer electronics applications. This increase was attributable to a 13.3% increase in
our average selling price but partially offset by a 2.3% decrease in unit shipments of our driver IC products.
Segment operating income. Operating income from the Driver IC segment increased to $56.0 million in
2018 from $43.0 million in 2017. This increase was primarily attributable to an increase in revenues in 2018
as compared to 2017. As a percentage of segment revenues, segment operating income increased to 9.6%
in 2018 from 8.1% in 2017. The increase was mainly from improved gross margin due to a more favorable
product mix.
Non-Driver Products Segment
Year Ended December 31, 2018 Compared to Year Ended December 31, 2017
Segment revenues. Our revenues from the Non-Driver Products segment decreased by 11.6% to $137.4
million in 2018 from $155.3 million in 2017. The year-over-year decrease was due mainly to receive a
reimbursement from a certain customer totaling $13.3 million booked in 2017 in relation to the AR goggle
business. Excluding $13.3 million, the year-over-year decrease was 3.3%. This decrease was attributable
mainly to a 22.4% decrease in average selling price of our non-driver products but partially offset by an
13.9% increase in unit shipments of the non-driver products.
Segment operating loss. Operating loss from the Non-Driver Products segment increased to $52.6 million
in 2018 from $34.6 million in 2017. The operating loss increases was attributable mainly to the decrease in
revenues and increase in operating expense.
5.B. Liquidity and Capital Resources
We need cash primarily for technology advancement, capacity expansion, paying dividend and working
capital. We have historically been able to meet our cash requirements through cash flow from operations and
borrowings to pay dividend.
As of December 31, 2018, we had total current assets of $654.4 million, total current liabilities of $391.2
million and cash and cash equivalents of $106.4 million. As of December 31, 2018, we had total short-
term borrowings of $184.0 million with cash and time deposits of $164.0 million as collateral and did not
have any outstanding long-term borrowings. As of December 31, 2018, we had total unused short-term
credit lines of $247.3 million, of which $30.2 million will expire before the end of March 2019, and $136.0
million belonging to the parent company needs to be secured with equal amount of cash and time deposits
when borrowing money from banks. We believe that our existing short-term credit lines, together with cash
generated from our operations, are sufficient to liquidity needs. We expect to meet our present working
capital requirements through cash flow from operations and bank borrowings from time to time.
The following table sets forth a summary of our cash flows for the periods indicated:
Net cash provided by operating activities
Net cash used in investing activities
Net cash provided by (used in) financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Year Ended December 31,
2017
2018
(in thousands)
$ 29,393
(35,088)
(41,214)
(46,429)
184,452
138,023
$ 4,009
(38,266)
2,801
(31,586)
138,023
106,437
87
Operating Activities. Net cash provided by operating activities in 2018 was $4.0 million compared to $29.4
million in 2017. This decrease in net cash provided by operating activities in 2018 was lower mainly because,
in response to capacity shortage of foundry and certain packaging material, we had to keep the inventory
level higher than usual. The trend may continue into 2019.
Investing Activities. Net cash used in investing activities in 2018 was $38.3 million compared to $35.1
million in 2017. This increase in net cash used in investing activities was due primarily to an increase in cash
used for purchasing of property, plant and equipment in 2018 compared to 2017, but offset by an increase in
cash provided by disposal of financial assets at fair value through profit or loss in 2018 compared to 2017.
Financing Activities. Net cash provided by financing activities in 2018 was $2.8 million compared to net
cash used in financing activities of $41.2 million in 2017. This increase was due primarily to a decrease in
distribution of cash dividends and an increase in short-term borrowings of $20 million in 2018.
Our liquidity could be negatively impacted by a decrease in demand for our products that are subject
to rapid technological change, among other factors, which could result in revenue variability in future
periods. In addition, we have at times agreed to extend the payment terms for certain of our customers. Other
customers have also requested extension of payment terms and we may grant such requests for extensions in
the future. The extension of payment terms for our customers could adversely affect our cash flow, liquidity
and our operating results. Our subsidiaries’ ability to distribute dividends and other payments to us may be
limited by ROC regulations. See “Risk Factors — Risks Related to Our Holding Company Structure —
Our ability to receive dividends and other payments or funds from our subsidiaries may be restricted by
commercial, statutory and legal restrictions, and thereby materially and adversely affect our ability to grow,
fund investments, make acquisitions, pay dividends and otherwise fund and conduct our business.”
Our capital expenditures were incurred primarily in connection with the purchase of property and
equipment. Our capital expenditures totaled $39.3 million and $49.7 million in 2017 and 2018, respectively,
higher than usual capital expenditure due to a new building construction and WLO capacity expansion. In
2018, our significantly higher than usual capital expenditures of $49.7 million, of which $7.6 million was
for the investment of design tools and R&D related equipment related to our traditional IC design business.
Other capital expenditures, mainly investment in a new office building, capacity expansion for 3D sensing
business and land lease, which we paid $42 million in 2018. In 2019, we anticipate continued payments for
the above capex items to be totaling around $39 million including a payment of $27.7 million for the land,
which will conclude the current phase of capital expenditure.
The capex budget will be funded through our internal resources and banking facilities, if so needed. We
will continue to make capital expenditures to meet the expected growth of our operations. We believe that our
working capital and borrowings under our existing and future credit lines should be sufficient for our present
requirements.
5.C. Research and Development
Our research and development efforts focus on improving and enhancing our core technologies and know-
how relating to the semiconductor solutions we offer to the flat panel display industry. In particular, we have
committed a significant portion of our resources to the research and development of non-driver products
because we believe in the long-term business prospects of such products and are committed to continuing
to diversify our product portfolio. Although a significant portion of the resources at our integrated circuit
design center are invested in advanced research for future products, we continue to invest in improving
the performance and reducing the costs of our existing products. Our application engineers, who provide
on-system verification of semiconductors and product specifications, and field application engineers,
who provide on-site engineering support at our customers’ offices or factories, work closely with panel
manufacturers to co-develop display solutions for their electronic devices. In 2017 and 2018, we incurred
research and development expenses of $117.7 million and $123.0 million, respectively, representing 17.2%
and 17.0% of our revenues, respectively.
88
5.D. Trend Information
Looking into 2019, on the backdrop of an uncertain global economy, the TV panel market is
overshadowed by concerns of over-supply and the global smartphone sales are projected to suffer some
decline. We are, however, still targeting some top line growth with upside momentum coming from TV
and automotive markets as well as significantly more TDDI shipments for smartphone application, where
we only made a small amount of shipment in 2018 when we suffered from foundry capacity shortage. We
will continue to advance our technologies across key strategic areas. These include, among others, next
generation display driver technology for 8K TV and AMOLED, 3D sensing for both mobile phone and non-
mobile phone applications and ultra-low power smart sensing where we are seeing rising momentum in new
applications such as smart home. Fully aware that we are operating in an uncertain macro environment, we
are also putting cost control at the top of our agenda list, targeting to continuing R&D activities across all our
strategic areas without raising R&D expenses from 2018. Total operating expense is budgeted to be at around
the same level as that of 2018 excluding the anticipated increase in depreciation arising primarily from the
construction of the new fab described above.
Large display driver IC business enjoyed strong growth in the second half of 2018 as 4K TV penetration
continued to rise globally and China continued to ramp brand new advanced generation LCD fabs. Looking
into 2019, while the market is facing the challenge of potential oversupply, we are seeing continued strength
in our business, backed by strong design-ins with certain LCD makers who are leading the market in capacity
and brand customer engagements. After a lot of engineering efforts, we are now better prepared than 2018
in terms getting the necessary capacity support from our strategic vendors. Notably, most of our panel
customers have completed qualifications of our new foundry with their key customers and we have also
successfully secured additional COF packaging capacity to meet our customers’ TV and monitor demands.
8K TV is a strategic area for Himax because of its much higher display driver and timing controller contents
and high technical barrier of entry. With its cost still high and true 8K content still scarce, 8K TV is unlikely
to generate much sales in 2019. We are encouraged by the recent establishment of the 8K Association to help
develop 8K TV ecosystem and accelerate its adoption.
Small and medium-sized driver sales recorded an increase of 6.8% year-over-year in 2018, driven by the
increase of TDDI shipment due to the ramping of the new capacity. While we are positive on the trend of
higher TDDI penetration in smartphone in 2019 and our much improved TDDI supply, our TDDI business
will nevertheless be challenged by the anticipated lackluster sales of global smartphone market and the
expected decline of TDDI’s average sales price as competition intensifies. To gain market share in 2019,
we are working to secure more design wins by offering new generation TDDI solutions. The new solutions
can enable narrow bezel panel design without the usage of COF packaging, which not only is costly but
also suffers from serious supply constraint. Several leading panel makers are now sampling panels with our
new TDDI solution. As expected, our traditional discrete driver IC sales into smartphone declined by over
25% sequentially in the fourth quarter as the market is being quickly replaced by TDDI and AMOLED. This
segment accounted for less than 6% of our total sales in the fourth quarter and will further shrink in 2019.
On AMOLED product line, we have been collaborating closely with leading panel makers across China for
product development. We believe AMOLED driver ICs will be one of the long-term growth engines for our
small panel driver IC business. As to our automotive business, the demands for more sophisticated and higher
performing displays are still rising with automakers. We are pleased to see our state-of-the-art technology
for super large, end-to-end automotive displays showcased at the CES. In addition, we launched the world’s
first TDDI design for automotive displays and the technology is scheduled to start shipping within 2019.
Our technological prowess will continue to separate us from the rest as, for the next generation display for
automotive, we are the leader in all key technologies including TDDI, AMOLED and local dimming timing
controller.
The non-driver category has been our most exciting growth area and a differentiator for the Company.
We are devoted to the development, manufacturing and marketing of non-driver products to diversify our
customer base and product portfolio to offer total solutions of image processing and human interface related
technologies in addition to our driver IC products. Our non-driver products delivered the strongest growth
in 2014 owing to many new product launches and project wins. During 2016, our non-driver businesses
experienced tremendous growth, primarily driven by the LCOS and WLO businesses due to shipments to
89
one of our leading AR device customers. Additionally, our WLO business hit inflection in the middle of 2017
when we began mass shipment to an anchor customer. The overall 2018 shipment increased considerably
year-over-year because of the customer’s large-scale adoption in more models. We expect WLO shipment
volume in 2019 will decline significantly year-over-year starting from the third quarter of 2019 due to a
product replacement decision informed by an anchor customer a few days following the Company’s last
earnings call on February 19, 2019. Despite this setback, we continue to work on new development projects
with the anchor customer, in addition to our multiple ongoing projects with other customers.
On 3D sensing, we have participated in most of the smartphone OEMs’ ongoing 3D sensing projects
covering all three types of technologies, namely structured light, active stereo camera (ASC) and time-
of-flight. Depending on the customers’ needs, we provide 3D sensing total solution or just the projector
module or optics inside the module. At present, 3D sensing adoption for the Android smartphone market
remains low. The adoption is hindered primarily by the prevailing high hardware cost of 3D sensing and
the long development lead time required to integrate it into the smartphone. Instead of 3D sensing, most
of the Android phone makers have chosen the lower cost fingerprint technology which can achieve similar
phone unlock and online payment functions with somewhat compromised user experience. Reacting to their
lukewarm response, we are working on the next generation 3D sensing with our platform partners aiming
to leapfrog the market by providing high performance, easy to adopt and yet cost friendly total solutions,
targeting the majority of Android smartphone players. We have a solid product roadmap and plan including
new architecture and new algorithm to make it happen. The development progress is on track and the new
solution is aiming for smartphone customers’ 2020 models. We believe that 3D sensing will be widely used
by more Android smartphone makers when more killer applications become available and the ecosystem is
able to substantially lower the cost of adoption while offering easy-to-use, fully-integrated total solutions,
for which Himax is playing a key part. In the meantime, we are working closely with a number of leading
smartphone makers on multiple projects by providing projector module or critical optical components
targeting their 2019 or 2020 models. For 3D sensing beyond smartphone, we have started to explore business
opportunities in various industries by leveraging our SLiMTM 3D sensing total solution. Such industries are
typically less sensitive to cost and always require a total solution. We are collaborating with Kneron, an
industry leader in edge-based artificial intelligence in which we have made an equity investment, to develop
an AI-enabled 3D sensing solution targeting security and surveillance markets. We are also working with
partners/customers on new applications covering home appliances and industrial manufacturing.
We continue to make great progress with our machine-vision sensor product lines. Combining Himax’s
industry leading super low power CIS and ASIC designs with Emza’s unique AI-based, ultra-low power
computer vision algorithm, we are uniquely positioned to provide ultra-low power, smart imaging sensing
total solutions. We are pleased with the status of engagement with leading players in areas such as connected
home, smart building and security, all of which new frontiers for Himax.
In 2018, many AR goggle devices were launched, targeting primarily niche industrial or business
applications, while top name multinationals continued to invest heavily to develop the ecosystem --
applications, software, operating system, system electronics, and optics. While AR goggles will take a few
more years to fully realize its market potential, we believe LCOS remains the mainstream technology in
this space. Our technology leadership and proven manufacturing expertise are evidenced by the growing
list of AR goggle device customers and ongoing engineering projects. In addition, we continue to make
great progress in developing high-end holographic head-up displays for high-end automotive. One of our
customers has demonstrated its state-of-the-art HUD product with Himax LCOS inside at the 2019 CES with
extremely positive market reception. LCOS for both goggle device and HUD represents much higher ASP
and gross margin for us and represents a long-term growth driver for us.
For more trend information, see “Item 5.A. Operating and Financial Review and Prospects—Operating Results.”
5.E. Off-Balance Sheet Arrangements
As of December 31, 2018, we did not have any off-balance-sheet guarantees, interest rate swap
transactions or foreign currency forwards. We do not engage in trading activities involving non-exchange
traded contracts. Furthermore, as of December 31, 2018, we did not have any interests in variable interest
entities.
90
5.F. Tabular Disclosure of Contractual Obligations
Total
The following table sets forth our contractual obligations as of December 31, 2018:
Payment Due by Period
1-3
years
(in thousands)
-
1,987
-
-
1,987
Short-term borrowings
Operating lease obligations(1)
Purchase obligations(2)
Other obligations(3)
Total
Notes:
lease liability will be increased by $5,899 thousand.
184,000
2,361
325,277
163
511,801
184,000
4,874
325,277
163
514,314
Less than
1 year
3-5
years
-
480
-
-
480
(1) We expect to recognize the lease contract of lessees in line with IFRS 16 from January 1, 2019 and the
More than
5 years
-
46
-
-
46
(2) Includes obligations for construction of new building, purchase of land, equipment, computer software
and machinery and wafer fabrication, raw material, supplies, assembly and testing services.
(3) Includes obligations to donations for laboratory commitments.
As of December 31, 2018, the short-term borrowings consisted of bank loans with interest rates per
annum that ranged from 0.35% to 2.96%, and cash and time deposit totaling $164,000 thousand are pledged
as collateral.
We lease office and building space pursuant to operating lease arrangements with unrelated third
parties. In 2017 and 2018, rental expenses for operating leases amounted to $2.2 million and $2.5 million,
respectively. The lease arrangements will expire gradually from 2019 to 2024. As of December 31, 2018, we
agreed to make future minimum lease payments of $2.4 million, $1.6 million, $0.4 million, $0.3 million and
$0.2 million in 2019, 2020, 2021, 2022 and 2023, respectively, under non-cancelable operating leases.
We have, from time to time, entered into contracts for the acquisition of land, equipment and computer
software and construction of new building. As of December 31, 2018, the remaining commitments under
such contracts were $38.6 million. These outstanding contracts had a total contract value of $75.8 million.
Pursuant to several wafer fabrication or assembly and testing service arrangements we entered into
with service providers, we may be obligated to make payments for purchase orders made under such
arrangements. As of December 31, 2018, our contractual obligations pursuant to such arrangements amounted
to approximately $173.0 million.
Under the ROC Labor Standard Law, we established a defined benefit plan and were required to make
monthly contributions to a pension fund in an amount equal to 2% of wages and salaries of our employees.
Under the ROC Labor Pension Act, beginning on July 1, 2005, we are required to make a monthly
contribution for employees that elect to participate in the new defined contribution plan of no less than
6% of the employee’s monthly wages, to the employee’s individual pension fund account. Substantially
all participants in the defined benefit plan have elected to participate in the new defined contribution plan.
Participants’ accumulated benefits under the defined benefit plan are not impacted by their election to
change plans. We are required to make contributions to the defined benefit plan until it is fully funded. Total
contributions to the new defined contribution plan in 2018 were $3.5 million compared to $3.4 million in
2017. Total contributions to the defined benefit plan and the new defined contribution plan in 2018 were $3.7
million compared to $3.4 million in 2017. Such changes in contributions have not, and are not expected to
have, a material effect on our cash flows or results of operations.
Inflation
Inflation in Taiwan has not had a material impact on our results of operations in recent years. However,
an increase in inflation can lead to increases in our costs and lower our profit margins. According to the
Directorate General of Budget, Accounting and Statistics, Executive Yuan, ROC, the changes of the
consumer price index in Taiwan were 0.62% and 1.35% in 2017 and 2018, respectively.
91
Recent Accounting Pronouncements
Please refer to note 3 to the consolidated financial statements.
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
6.A. Directors and Senior Management
Members of our board of directors may be elected by our directors or our shareholders. Our board of
directors consists of five directors, three of whom are independent directors within the meaning of Rule
5605(a)(2) of the Nasdaq Rules. Other than Jordan Wu and Dr. Biing-Seng Wu, who are brothers, there
are no family relationships between any of our directors and executive officers. The following table sets
forth information regarding our directors and executive officers as of February 28, 2019. Unless otherwise
indicated, the positions or titles indicated in the table below refer to Himax Technologies, Inc.
Directors and Executive Officers
Dr. Biing-Seng Wu
Jordan Wu
Dr. Yan-Kuin Su
Yuan-Chuan Horng
Hsiung-Ku Chen
Jackie Chang
Norman Hung
Directors
Age
61
58
70
67
67
59
61
Position/Title
Chairman of the Board
President, Chief Executive Officer and Director
Director
Director
Director
Chief Financial Officer
Executive Vice President, Sales and Marketing
Dr. Biing-Seng Wu is the chairman of our board of directors. Prior to our reorganization in October 2005,
Dr. Wu served as president, chief executive officer and a director of Himax Taiwan. Dr. Wu also served as
the vice chairman of the board of directors of CMO prior to its merger with the predecessor of Innolux and
TPO. Dr. Wu has been active in the TFT-LCD panel industry for over 20 years and is a member of the boards
of the Taiwan TFT-LCD Association and the Society for Information Display. Prior to joining CMO in
1998, Dr. Wu was senior director and plant director of Prime View International Co., Ltd., a TFT-LCD panel
manufacturer, from 1993 to 1997, and a manager of Thin Film Technology Development at the Electronics
Research & Service Organization/Industry Technology Research Institute, or ERSO/ITRI, of Taiwan. Dr. Wu
holds a B.S. degree, an M.S. degree and a Ph.D. degree in electrical engineering from National Cheng Kung
University. Dr. Wu is the brother of Mr. Jordan Wu, our president and chief executive officer.
Jordan Wu is our president, chief executive officer and director. Prior to our reorganization in October
2005, Mr. Wu served as the chairman of the board of directors of Himax Taiwan, a position which he held
since April 2003. Prior to joining Himax Taiwan, Mr. Wu served as chief executive officer of TV Plus
Technologies, Inc. and chief financial officer and executive director of DVN Holdings Ltd. in Hong Kong.
Prior to that, he was an investment banker at Merrill Lynch (Asia Pacific) Limited, Barclays de Zoete
Wedd (Asia) Limited and Baring Securities, based in Hong Kong and Taipei. Mr. Wu holds a B.S. degree
in mechanical engineering from National Taiwan University and an M.B.A. degree from the University of
Rochester. Mr. Wu is the brother of Dr. Biing-Seng Wu, our chairman.
Dr. Yan-Kuin Su is our director. He has retired from the president of Kun Shan University effective July
31, 2018 and also a professor in the Department of Electrical Engineering, National Cheng Kung University
since 1983 and retired in 2011. Dr. Su is devoted to the field of research in semiconductor engineering and
devices, optoelectronic devices, and microwave device and integrated circuits. He is a fellow of the Institute
of Electrical and Electronics Engineers, or IEEE. Dr. Su holds a B.S. degree and an M.S. degree and a Ph.D.
degree in Electrical Engineering from National Cheng Kung University.
Yuan-Chuan Horng is our director. Prior to our reorganization in October 2005, Mr. Horng served as a
director of Himax Taiwan from August 2004 to October 2005. Mr. Horng has retired from the position of the
92
vice president of the Finance Division of China Steel Corporation effective November 30, 2016. Mr. Horng
held various positions including general manager, assistant vice president and vice president in the Finance
Division of China Steel Corporation Group over 30 years. Mr. Horng holds a B.A. degree in economics from
Soochow University.
Hsiung-Ku Chen is our director. He has a B.S. degree in Physics from Fu-Jen University, an M.A. degree
in Physics from Temple University and a Ph.D. degree in Applied Physics from Oregon Graduate Center. Dr.
Chen specializes in areas including Thin Film Transistor Technology, Liquid Crystal Display Technology,
IC Process Technology and Patent Laws and Regulations, etc. He has dedicated himself to the researching
and performing practice of the TFT-LCD industry. From 1980 to 2002, Dr. Chen held various positions
including manager, director and special assistant of the director’s office in the Electronics Research &
Service Organization of the Industrial Technology Research Institute for over 20 years and was the leader
of many research projects during his tenure. Additionally, Dr. Chen was elected as Society of Information
Display, Taipei Chapter Director and Treasurer from 1992 to 1997 and as Taiwan TFT LCD Association
Secretary General from 2000 to 2002. Furthermore, Dr. Chen contributed his professional knowledge to
serve as a supervisor of Himax Technologies Limited from April 2003 to December 2003 and as a director
from December 2003 to October 2005. Dr. Chen was also the Special Assistant of the CEO Office at Etron
Technology, Inc. from 2005 to 2007. Dr. Chen had served as consultants in various organizations, including
Color Imaging Industry Promotion Office and the Intellectual Property Innovation Corporation. Currently,
Dr. Chen serves as consultant of Color Display Industry Promotion Office.
Other Executive Officers
Jackie Chang is our chief financial officer. Before joining Himax, Ms. Chang served as the CFO of
Castlink Corporation and Tongxing International, as well as the VP of Finance and Operations for PlayHut,
Inc. Prior to joining PlayHut, Ms. Chang was General Manager –Treasury Control for Nissan North America.
She held several positions in Nissan North America from 1994 to 2006 including finance, treasury planning,
operations and accounting. She worked at Nissan JV in China from 2003 to 2006, where she implemented
IFRS and SAP successfully. She holds a BBA in accounting from the National Chung-Hsing University in
Taiwan and an MBA in Finance from Memphis State University.
Norman Hung is our executive vice president in charge of Sales and Marketing and also serves as
a supervisor of Himax Analogic and Himax Media Solutions. From 2000 to 2006, Mr. Hung served as
president of ZyDAS Technology Corp., a fabless integrated circuit design house. From 1999 to 2000, he
served as vice president of Sales and Marketing for HiMARK Technology Inc., another fabless integrated
circuit design house. Prior to that, from 1996 to 1998, Mr. Hung served as Director of Sales and Marketing
for Integrated Silicon Solution, Inc. He has also served in various Marketing positions for Hewlett-Packard
and Logitech. Mr. Hung holds a B.S. degree in electrical engineering from National Cheng Kung University
and an executive M.B.A. degree from National Chiao Tung University.
6.B. Compensation
For the year ended December 31, 2018, the aggregate cash compensation that we paid to our executive
officers was approximately $0.9 million. The aggregate share-based compensation that we paid to our
executive officers was approximately $0.04 million. In 2018 our executive officers voluntarily reduced the
number of RSUs to be granted proposed by the compensation committee to $1 and then compensate other
employees. The goal is to provide competitive compensation to our employees. No executive officer is
entitled to any severance benefits upon termination of his or her employment with us.
For the year ended December 31, 2018, the aggregate cash compensation that we paid to our independent
directors was approximately $135,000. The aggregate share-based compensation that we paid to our
independent directors was nil.
The following table summarizes the RSUs and cash award that we granted in 2018 to our directors and
executive officers under our 2011 long-term incentive plan. Each unit of RSU represents two ordinary shares.
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See “Item 6.D. Directors, Senior Management and Employees—Employees––Share-Based Compensation
Plans” for more details regarding our RSU grants.
Name
Dr. Biing-Seng Wu
Jordan Wu
Dr. Yan-Kuin Su
Yuan-Chuan Horng
Hsiung-Ku Chen
Jackie Chang
Norman Hung
Total RSUs
Granted
-
-
-
-
-
3,591
4,561
Total Cash
Award
Granted
(in thousands)
-
-
-
-
-
-
-
Ordinary Shares
Underlying Vested
Portion of RSUs
-
-
-
-
-
4,174
4,174
Ordinary Shares
Underlying
Unvested
Portion of RSUs
-
-
-
-
-
3,008
4,948
Unvested Portion
of cash award
(in thousands)
-
-
-
-
-
-
-
6.C. Board Practices
General
Our board of directors consists of five directors, three of whom are independent directors within the
meaning of Rule 5605(a)(2) of the Nasdaq Rules. We intend to comply with Rule 5605(b)(1) of the Nasdaq
Rules that require boards of U.S. companies to have a board of directors which is comprised of a majority of
independent directors. We intend to follow home country practice that permits our independent directors not
to hold regularly scheduled meetings at which only independent directors are present in lieu of complying
with Rule 5605(b)(2).
Committees of the Board of Directors
To enhance our corporate governance, we have established three committees under the board of directors:
the audit committee, the compensation committee and the nominating and corporate governance committee.
We have adopted a charter for each of the three committees. Each committee’s members and functions are
described below.
Audit Committee. Our audit committee currently consists of Yuan-Chuan Horng, Hsiung-Ku Chen and Dr.
Yan-Kuin Su. Our board of directors has determined that all of our audit committee members are “independent
directors” within the meaning of Rule 5605(a)(2) of the Nasdaq Rules and meet the criteria for independence
set forth in Section 10A(m)(3)(B)(i) of the Exchange Act. Our audit committee will oversee our accounting
and financial reporting processes and the audits of our financial statements. The audit committee will be
responsible for, among other things:
•
selecting the independent auditors and pre-approving all auditing and non-auditing services permitted
to be performed by the independent auditors;
•
•
•
•
reviewing with the independent auditors any audit problems or difficulties and management’s
response;
reviewing and approving all proposed related party transactions, as defined in Item 404 of Regulation
SK under the Securities Act;
discussing the annual audited financial statements with management and the independent auditors;
reviewing major issues as to the adequacy of our internal controls and any special audit steps adopted
in light of material internal control deficiencies;
•
annually reviewing and reassessing the adequacy of our audit committee charter;
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• meeting separately and periodically with management and the independent auditors;
•
•
reporting regularly to the board of directors; and
such other matters that are specifically delegated to our audit committee by our board of directors
from time to time.
Compensation Committee. Our current compensation committee consists of Yuan-Chuan Horng, Hsiung-
Ku Chen and Dr. Yan-Kuin Su. Our compensation committee assists our board of directors in reviewing and
approving the compensation structure, including all forms of compensation, relating to our directors and
executive officers. Our chief executive officer may not be present at any committee meeting where his or her
compensation is deliberated. We intend to follow Rule 5605(d)(1)(B) and (2)(B) of the Nasdaq Rules which
requires the compensation committees of U.S. companies to be comprised solely of independent directors.
The compensation committee will be responsible for, among other things:
•
•
•
•
•
reviewing and making recommendations to our board of directors regarding our compensation
policies and forms of compensation provided to our directors and officers;
reviewing and determining bonuses for our officers and other employees;
reviewing and determining share-based compensation for our directors, officers, employees and
consultants;
administering our equity incentive plans in accordance with the terms thereof; and
such other matters that are specifically delegated to the compensation committee by our board of
directors from time to time.
Nominating and Corporate Governance Committee. Our nominating and corporate governance
committee assists the board of directors in identifying individuals qualified to be members of our board of
directors and in determining the composition of the board and its committees. Our current nominating and
corporate governance committee consists of Yuan-Chuan Horng, Hsiung-Ku Chen, and Dr. Yan-Kuin Su.
We intend to follow Rule 5605(e)(1)(B) of the Nasdaq Rules which requires that nominations committees
of U.S. companies be comprised solely of independent directors. Our nominating and corporate governance
committee will be responsible for, among other things:
•
•
•
•
•
identifying and recommending to our board of directors nominees for election or re-election, or for
appointment to fill any vacancy;
reviewing annually with our board of directors the current composition of our board of directors in
light of the characteristics of independence, age, skills, experience and availability of service to us;
reviewing the continued board membership of a director upon a significant change in such director’s
principal occupation;
identifying and recommending to our board of directors the names of directors to serve as members
of the audit committee and the compensation committee, as well as the nominating and corporate
governance committee itself;
advising the board periodically with respect to significant developments in the law and practice
of corporate governance as well as our compliance with applicable laws and regulations, and making
recommendations to our board of directors on all matters of corporate governance and on any
corrective action to be taken; and
• monitoring compliance with our code of business conduct and ethics, including reviewing the
adequacy and effectiveness of our procedures to ensure proper compliance.
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Terms of Directors and Officers
Under Cayman Islands law and our articles of association, each of our directors holds office until a
successor has been duly elected or appointed, except where any director was appointed by the board of
directors to fill a vacancy on the board of directors or as an addition to the existing board, such director shall
hold office until the next annual general meeting of shareholders at which time such director is eligible for
re-election. Our directors are subject to periodic retirement and re-election by shareholders in accordance
with our articles of association, resulting in their retirement and re-election at staggered intervals. At each
annual general meeting, one-third of our directors are subject to retirement by rotation, or if their number is
not a multiple of three, the number nearest to one-third but not exceeding one-third shall retire from office.
Any retiring director is eligible for re-election. The chairman of our board of directors and/or the managing
director will not be subject to retirement by rotation or be taken into account in determining the number of
directors to retire in each year. Under our articles of association, which director will retire at each annual
general meeting will be determined as follows: (i) any director who wishes to retire and not offer himself
for re-election, (ii) if no director wishes to retire, the director who has been longest in office since his last
re-election or appointment, and (iii) if two or more directors have served on the board the longest, then as
agreed among the directors themselves or as determined by lot.
6.D. Employees
As of December 31, 2017 and 2018, we had 2,190 and 2,160 employees, respectively. The following is a
breakdown of our employees by function as of December 31, 2018:
Function
Research and development(1)
Engineering and manufacturing(2)
Sales and marketing(3)
General and administrative
Total
Number
1,351
372
294
143
2,160
Note:
(1) Includes semiconductor design engineers, application engineers, assembly and testing engineers
and quality control engineers.
(2) Includes manufacturing personnel of Himax Taiwan and Himax Display, our subsidiaries focused on
design and manufacturing of WLO and LCOS products.
(3) Includes field application engineers.
Share-Based Compensation Plans
Himax Technologies, Inc. 2005 and 2011 Long-Term Incentive Plan
We adopted two long-term incentive plans in October 2005 and September 2011, however, the 2005 plan
was terminated in October 2010. The following description of the plan is intended to be a summary and does
not describe all provisions of the plan.
Purpose of the Plan. The purpose of the plan is to advance our interests and those of our shareholders by:
•
•
providing the opportunity for our employees, directors and service providers to develop a sense of
proprietorship and personal involvement in our development and financial success and to devote their
best efforts to our business; and
providing us with a means through which we may attract able individuals to become our employees
or to serve as our directors or service providers and providing us a means whereby those individuals,
upon whom the responsibilities of our successful administration and management are of importance,
can acquire and maintain share ownership, thereby strengthening their concern for our welfare.
Type of Awards. The plan provides for the grant of stock options and restricted share units.
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Duration. Generally, the plan will terminate five years from the effective date of the plan. But, the 2011
Plan was amended and restated by extending its duration for three (3) years to September 6, 2019, which
was approved by our shareholders at the annual general meeting held on August 31, 2016. After the plan
is terminated, no awards may be granted, but any award previously granted will remain outstanding in
accordance with the plan.
Administration. The plan is administered by the compensation committee of our board of directors or any
other committee designated by our board to administer the plan. Committee members will be appointed from
time to time by, and will serve at the discretion of, our board. The committee has full power and authority
to interpret the terms and intent of the plan or any agreement or document in connection with the plan,
determine eligibility for awards and adopt such rules, regulations, forms, instruments and guidelines for
administering the plan. The committee may delegate its duties or powers.
Number of Authorized Shares. We have authorized a maximum issuance of 36,153,854 shares in the 2005
plan and 20,000,000 shares in the 2011 plan, and the 2005 plan was terminated in October 2010. As of the
date of this annual report, there were no stock options or restricted share units outstanding under the plan
except as described under “—Restricted Share Units.”
Eligibility and Participation. All of our employees, directors and service providers are eligible to
participate in the plan. The committee may select from all eligible individuals those individuals to whom
awards will be granted and will determine the nature of any and all terms permissible by law and the amount
of each award.
Stock Options. The committee may grant options to participants in such number, upon such terms and
at any time as it determines. Each option grant will be evidenced by an award document that will specify
the exercise price, the maximum duration of the option, the number of shares to which the option pertains,
conditions upon which the option will become vested and exercisable and such other provisions which are
not inconsistent with the plan.
The exercise price for each option will be:
•
•
•
based on 100% of the fair market value of the shares on the date of grant;
set at a premium to the fair market value of the shares on the date of grant; or
indexed to the fair market value of the shares on the date of grant, with the committee determining
the index.
The exercise price on the date of grant must be at least equal to 100% of the fair market value of the
shares on the date of grant.
Each option will expire at such time as the committee determines at the time of its grant; however, no
option will be exercisable later than the 10th anniversary of its grant date. Notwithstanding the foregoing,
for options granted to participants outside the United States, the committee can set options that have terms
greater than ten years.
Options will be exercisable at such times and be subject to such terms and conditions as the committee
approves. A condition of the delivery of shares as to which an option will be exercised will be the payment
of the exercise price. Subject to any governing rules or regulations, as soon as practicable after receipt of
written notification of exercise and full payment, we will deliver to the participant evidence of book-entry
shares or, upon his or her request, share certificates in an appropriate amount based on the number of shares
purchased under the option(s). The committee may impose such restrictions on any shares acquired pursuant
to the exercise of an option as it may deem advisable.
97
Each participant’s award document will set forth the extent to which he or she will have the right to
exercise the options following termination of his or her employment or services.
We have not yet granted any stock options under the plan.
Restricted Share Units. The committee may grant restricted share units to participants. Each grant will be
evidenced by an award document that will specify the period(s) of restriction, the number of restricted share
units granted and such other provisions as the committee determines.
Generally, restricted share units will become freely transferable after all conditions and restrictions
applicable to such shares have been satisfied or lapse and restricted share units will be paid in cash, shares or
a combination of the two, as determined by the committee.
The committee may impose such other conditions or restrictions on any restricted share units as it may
deem advisable, including a requirement that participants pay a stipulated purchase price for each restricted
share unit, restrictions based upon the achievement of specific performance goals and time-based restrictions
on vesting.
A participant will have no voting rights with respect to any restricted share units.
Each award document will set forth the extent to which the participant will have the right to retain
restricted share units following termination of his or her employment or services.
We made grants of 1,219,791 RSUs to our employees on September 26, 2014. The vesting schedule for
such RSU grants is as follows: 82.57% of the RSU grants vested immediately and was settled by cash in the
amount of $9.3 million on the grant date, with the remainder vesting equally on each of September 30, 2015,
2016 and 2017, which will be settled by our ordinary shares, subject to certain forfeiture events.
We made grants of 597,596 RSUs to our employees on September 25, 2015. The vesting schedule for
such RSU grants is as follows: 94.15% of the RSU grants vested immediately and were settled by cash in the
amount of $4.5 million on the grant date, with the remainder vesting equally on each of September 30, 2016,
2017 and 2018, which will be settled by our ordinary shares, subject to certain forfeiture events.
We made grants of 1,208,785 RSUs to our employees on September 28, 2016. The vesting schedule for
such RSU grants is as follows: 91.93% of the RSU grants vested immediately and were settled by cash in the
amount of $9.2 million on the grant date, with the remainder vesting equally on each of September 30, 2017,
2018 and 2019, which will be settled by our ordinary shares, subject to certain forfeiture events.
We made grants of 580,235 RSUs to our employees on September 29, 2017. The vesting schedule for
such RSU grants is as follows: 96.91% of the RSU grants vested immediately and were settled by cash in the
amount of $6.1 million on the grant date, with the remainder vesting equally on each of September 30, 2018,
2019 and 2020, which will be settled by our ordinary shares, subject to certain forfeiture events.
We made grants of 676,273 RSUs to our employees on September 26, 2018. The vesting schedule for
such RSU grants is as follows: 97.15% of the RSU grants vested immediately and were settled by cash in the
amount of $3.8 million on the grant date, with the remainder vesting equally on each of September 30, 2019,
2020 and 2021, which will be settled by our ordinary shares, subject to certain forfeiture events.
Dividend Equivalents. Any participant selected by the committee may be granted dividend equivalents
based on the dividends declared on shares that are subject to any award, to be credited as of dividend
payment dates, during the period between the date the award is granted and the date the award is exercised,
vests or expires, as determined by the committee, provided that unvested RSUs are currently not entitled to
dividend equivalents. Dividend equivalents will be converted to cash or additional shares by such formula
and at such time and subject to such limitations as determined by the committee.
98
Transferability of Awards. Generally, awards cannot be sold, transferred, pledged, assigned, or otherwise
alienated or hypothecated, other than by will or by the laws of descent and distribution.
Adjustments in Authorized Shares. In the event of any of the corporate events or transactions described in
the plan, to avoid any unintended enlargement or dilution of benefits, the committee has the sole discretion to
substitute or adjust the number and kind of shares that can be issued or otherwise delivered.
Forfeiture Events. The committee may specify in an award document that the participant’s rights,
payments and benefits with respect to an award will be subject to reduction, cancellation, forfeiture or
recoupment upon the occurrence of certain specified events, in addition to any otherwise applicable vesting
or performance conditions of an award.
If we are required to prepare an accounting restatement owing to our material noncompliance, as a result
of misconduct, with any financial reporting requirement under the securities laws, then if the participant is
one of the individuals subject to automatic forfeiture under Section 304 of the Sarbanes-Oxley Act of 2002,
the participant will reimburse us the amount of any payment in settlement of an award earned or accrued
during the twelve-month period following the first public issuance or filing with the SEC (whichever first
occurred) of the financial document embodying such financial reporting requirement.
Amendment and Termination. Subject to, and except as, provided in the plan, the committee has the sole
discretion to alter, amend, modify, suspend, or terminate the plan and any award document in whole or in
part. Amendments to the plan are subject to shareholder approval, to the extent required by law, or by stock
exchange rules or regulations.
6.E. Share Ownership
The following table sets forth the beneficial ownership of our ordinary shares, as of February 28, 2019, by
each of our directors and executive officers.
Name
Dr. Biing-Seng Wu
Jordan Wu
Dr. Yan-Kuin Su
Yuan-Chuan Horng
Hsiung-Ku Chen
Jackie Chang
Norman Hung
Number of Shares
Owned
71,789,206
7,306,065
-
916,104
-
27,136
528,930
Percentage of Shares
Owned
20.9%
2.1%
-
0.3%
-
-
0.2%
None of our directors or executive officers has voting rights different from those of other shareholders.
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
7.A. Major Shareholders
On August 10, 2009, we effected certain changes in our capital stock structure in order to meet the Taiwan
Stock Exchange’s primary listing requirement that the par value of shares be NT$10 or $0.3 per share and in
order to increase the number of outstanding ordinary shares to be listed on the Taiwan Stock Exchange. In
particular, we increased our authorized share capital from $50,000 (divided into 500,000,000 shares of par
value $0.0001 each) to $300,000,000 (divided into 3,000,000,000,000 shares of par value $0.0001 each) and
distributed 5,999 bonus shares for each share of par value $0.0001 held by shareholders of record as of August
7, 2009. These were followed by a consolidation of every 3,000 shares of par value $0.0001 each into one
ordinary share of par value $0.3 each. As a result, the number of ordinary shares outstanding was doubled and
each of our ordinary shares had a par value of $0.3.
99
In connection with the above changes, we also changed our ADS ratio effective August 10, 2009 from
one ADS representing one ordinary share to one ADS representing two ordinary shares. Such change in
ADS ratio was intended to adjust for the net dilutive effect due to the bonus shares distribution and the
shares consolidation so that each ADS would represent the same percentage ownership in our share capital
immediately before and after the above changes. The number of ADSs also remained the same immediately
before and after the above changes.
As of February 28, 2019, 344,290,306 of our shares were outstanding. We believe that, of such shares,
216,312,656 shares in the form of ADSs were held by approximately 44,847 holders as of February 28, 2019.
The following table sets forth information known to us with respect to the beneficial ownership of our
shares as of February 28, 2019, the most recent practicable date, by (i) each shareholder known by us to
beneficially own more than 5% of our shares and (ii) all directors and executive officers as a group.
Name of Beneficial Owner
Dr. Biing-Seng Wu(1)
Whei-Lan Teng(2)
All directors and executive officers as a group(3)
Number of Shares
Beneficially Owned
71,789,206
21,135,720
80,567,441
Percentage of Shares
Beneficially Owned
20.9%
6.14%
23.4%
Note:
(1)
(2)
(3)
(4)
Dr. Biing-Seng Wu directly owns 315,322 ordinary shares. Dr. Biing-Seng Wu beneficially
owns 51,009,690 ordinary shares and 20,039,838 ordinary shares through Sanfair Asia
Investments Ltd. and Chi-Duan Investment Co., Ltd., respectively, both of which are
investment companies controlled by Dr. Biing-Seng Wu. Additionally, Dr. Biing-Seng Wu
directly owns 212,178 ADSs purchased in the open market according to his share purchase
plan announced on November 30, 2018. Accordingly, Dr. Biing-Seng Wu may be deemed
to beneficially own an aggregate of 71,789,206 ordinary shares, representing approximately
20.9% of the outstanding ordinary shares.
Whei-Lan Teng directly owns 1,335,548 ordinary shares. Whei-Lan Teng beneficially
owns 2,643,782 ordinary shares through Renmar Finance Limited, which is an investment
company controlled by Whei-Lan Teng. In addition, Whei-Lan Teng, may be attributed
beneficial ownership of 17,156,390 ordinary shares held in trust by Corenmar Investment
Limited for the benefit of her children. Whei-Lan Teng therefore may be deemed to have
shared power to vote or dispose of 21,135,720 ordinary shares. Accordingly, Whei-Lan Teng
may be deemed to beneficially own an aggregate of 21,135,720 ordinary shares, representing
approximately 6.14% of the outstanding ordinary shares.
Numbers of shares beneficially owned by all directors and executive officers as a group
already include an aggregate of 71,789,206 ordinary shares beneficially owned by Dr. Biing-
Seng Wu.
According to the Schedule 13G/A filed with the SEC on February 13, 2019, FMR LLC,
together with its affiliates, beneficially owned 9,005,721 of our shares, representing 2.616%
of our shares as of December 31, 2018, some or all of which may include shares represented
by our ADS. The beneficially ownership was 9.99% of our shares as of December 31,
2017 from Schedule 13G filed with the SEC on February 13, 2018. We do not have further
information with respect to any changes in FMR LLC’s beneficial ownership of our shares
subsequent to December 31, 2018.
None of our major shareholders has voting rights different from those of other shareholders. We are not
aware of any arrangement that may, at a subsequent date, result in a change of control of our company.
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7.B. Related Party Transactions
Viewsil Technology Limited (VST)
VST is a subsidiary of our equity method investee, Viewsil Microelectronics (Kunshan) Limited. In 2017,
we purchased raw materials and components from VST amounting to $0.5 million. As of December 31, 2017,
the related payable resulting from the aforementioned transaction had been full paid. In 2018, we purchased
mask from VST for our research activities for a fee of $1.6 million. As of December 31, 2018, the related
payable resulting from the aforementioned transactions were $1.6 million. Additionally, as of December
31, 2017 and 2018, we made an interest free loan of $2.8 million and $2.8 million, respectively, to VST for
short-term funding needs. The loan is repayable on demand and the Company expects it will be repaid in full
during 2019. We may consider providing further future loans to VST.
Viewsil Microelectronics (Kunshan)Limited (Viewsil)
Viewsil is an equity method investee of the Company. In 2017 and 2018, Viewsil provided technical
service on a new source driver chip and integrated circuit module for the Company’s research activities for a
fee of $2.2 million and $2.2 million, respectively, which was charged to research and development expense.
As of December 31, 2017 and 2018, the related payables were $2.2 million and $2.2 million, respectively.
Emza Visual Sense Ltd. (Emza)
Emza is an equity method investee of the Company, and becoming as a subsidiary of the Company from
June 28, 2018. We made an interest free loan of $0.5 million to Emza for short-term funding needs in 2017.
The loan is repayable on demand.
7.C. Interests of Experts and Counsel
Not applicable.
ITEM 8. FINANCIAL INFORMATION
8.A. Consolidated Statements and Other Financial Information
8.A.1. See “Item 18. Financial Statements” for our audited consolidated financial statements.
8.A.2. See “Item 18. Financial Statements” for our audited consolidated financial statements, which cover
the last two financial years.
8.A.3. See page F-2 for the report of our independent registered public accounting firm.
8.A.4. Not applicable.
8.A.5. Not applicable.
8.A.6. See Note 28 to our audited consolidated financial statements included in “Item 18. Financial
Statements.”
8.A.7. Litigation
We may be subject to legal proceedings, investigations and claims relating to the conduct of our business
from time to time. We may also initiate legal proceedings in order to protect our contractual and property
rights. However, as of the date of this annual report, we are not currently a party to, nor are we aware of, any
legal proceeding, investigation or claim which, in the opinion of our management, is likely to have a material
adverse effect on our business, financial condition or results of operations.
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8.A.8. Dividends and Dividend Policy
Subject to the Cayman Islands Companies Law, we may declare dividends in any currency, but no
dividend may be declared in excess of the amount recommended by our board of directors. Whether our
board of directors recommends any dividends and the form, frequency and amount of dividends, if any,
will depend upon our future operations and earnings, capital requirements and surplus, general financial
condition, contractual restrictions and other factors as the board of directors may deem relevant.
On June 27, 2008, we paid a cash dividend in the amount of $66.8 million, or the equivalent of $0.350 per
ADS. In 2009, we paid a cash dividend on June 29, 2009 in the amount of $55.5 million, or the equivalent of
$0.300 per ADS, and distributed a stock dividend on August 10, 2009 of 5,999 ordinary shares of par value
$0.0001 for each ordinary share of par value $0.0001 held by shareholders of record as of August 7, 2009.
On August 13, 2010, we paid a cash dividend in the amount of $44.1 million, or the equivalent of $0.250 per
ADS. On July 20, 2011, we paid a cash dividend in the amount of $21.2 million, or the equivalent of $0.120
per ADS. On July 25, 2012, we paid a cash dividend in the amount of $10.7 million, or the equivalent of $0.063
per ADS. On July 31, 2013, we paid a cash dividend in the amount of $42.4 million, or the equivalent of $0.250
per ADS. On July 23, 2014, we paid a cash dividend in the amount of $46.0 million, or the equivalent of $0.270
per ADS. On July 8, 2015, we paid a cash dividend in the amount of $51.4 million, or the equivalent of $0.300
per ADS. On August 3, 2016, we paid a cash dividend in the amount of $22.3 million, or the equivalent
of $0.130 per ADS. On August 14, 2017, we paid a cash dividend in the amount of $41.3 million, or the
equivalent of $0.240 per ADS. On July 31, 2018, we paid a cash dividend in the amount of $17.2 million,
or the equivalent of $0.10 per ADS. For more information on the stock dividend distribution, see “Item 7.A.
Major Shareholders and Related Party Transactions—Major Shareholders.” The dividends for any of these
years should not be considered representative of the dividends that would be paid in any future periods or of
our dividend policy.
Our ability to pay cash or stock dividends will depend, at least partially, upon the amount of funds
received by us from our direct and indirect subsidiaries, which must comply with the laws and regulations of
their respective countries and respective articles of association. We receive cash from Himax Taiwan through
intercompany borrowings. Himax Taiwan has not paid us cash dividends in the past. In accordance with
amended ROC Company Act and regulations and Himax Taiwan’s amended articles of incorporation, Himax
Taiwan is permitted to distribute dividends after allowances have been made for:
•
•
•
payment of taxes;
recovery of prior years’ deficits, if any;
legal reserve (in an amount equal to 10% of annual profits after having deducted the above items
until such time as its legal reserve equals the amount of its total paid-in capital);
•
•
special reserve based on relevant laws or regulations, or retained earnings, if necessary; and
dividends for preferred shares, if any.
Furthermore, if Himax Taiwan does not generate any profits for any year as determined in accordance with
generally accepted accounting principles in Taiwan, it generally may not distribute dividends for that year.
Any dividend we declare will be paid to the holders of ADSs, subject to the terms of the deposit
agreement, to the same extent as holders of our ordinary shares, to the extent permitted by applicable laws
and regulations, less the fees and expenses payable under the deposit agreement. Any dividend we declare
will be distributed by the depositary bank to the holders of our ADSs. Cash dividends on our ordinary shares,
if any, will be paid in U.S. dollars.
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8.B. Significant Changes
Except as disclosed elsewhere in this annual report, we have not experienced any significant changes
since the date of the annual financial statements.
ITEM 9. THE OFFER AND LISTING
9.A. Offer and Listing Details
Our ADSs have been quoted on the NASDAQ Global Select Market under the symbol “HIMX” since
March 31, 2006.
9.B. Plan of Distribution
Not applicable.
9.C. Markets
The principal trading market for our shares is the NASDAQ Global Select Market, on which our shares
are traded in the form of ADSs.
9.D. Selling Shareholders
Not applicable.
9.E. Dilution
Not applicable.
9.F. Expenses of the Issue
Not applicable.
ITEM 10. ADDITIONAL INFORMATION
10.A. Share Capital
Not applicable.
10.B. Memorandum and Articles of Association
Our shareholders previously adopted the Amended and Restated Memorandum of Association on
September 26, 2005 by a special resolution passed by the sole shareholder of our company and the Amended
and Restated Articles of Association at an extraordinary shareholder meeting held on October 25, 2005, both
of which were filed as an exhibit to our registration statement on Form F-1 (file no. 333-132372) with the
SEC on March 13, 2006.
At our annual general meeting on August 6, 2009, our shareholders adopted the Second Amended and
Restated Memorandum and Articles of Association, which became effective on August 10, 2009 and were
filed as exhibits to our current report on Form 6-K with the SEC on July 13, 2009. These were adopted
primarily in connection with our proposed Taiwan listing to meet the Taiwan Stock Exchange’s primary
listing requirement concerning protection of material shareholders’ rights under the ROC’s Company Act and
Securities Exchange Act. At the same time, our shareholders also adopted the Third Amended and Restated
Memorandum and Articles of Association, which were filed as an exhibit to our annual report on Form 20-F
for the fiscal year ended December 31, 2009 with the SEC on June 3, 2010 and are substantially the same
103
as the Amended and Restated Memorandum and Articles of Association of our company except that our
authorized share capital is stated to be $300,000,000 divided into 1,000,000,000 shares of nominal or par
value of $0.3 each, on the condition that it shall become effective if the application made by our company
to list its ordinary shares on the Taiwan Stock Exchange is rejected or aborted. On May 20, 2010, the
Third Amended and Restated Memorandum and Articles of Association became effective as a result of the
termination of our primary listing application to the Taiwan Stock Exchange.
We incorporate by reference into this annual report the description of our Amended and Restated
Memorandum and Articles of Association (except for provisions relating to our authorized share capital)
contained in our F-1 registration statement (File No. 333-132372) filed with the SEC on March 13, 2006.
Such description sets forth a summary of certain provisions of our memorandum and articles of association
as currently in effect, which is qualified in its entirety by reference to the full text of the Third Amended and
Restated Memorandum and Articles of Association. As of the date of this annual report, our authorized share
capital is $300,000,000 divided into 1,000,000,000 shares of nominal or par value of $0.3 each.
10.C. Material Contracts
We are not currently, and have not been in the last two years, party to any material contract, other than
contracts entered into the ordinary course of business.
10.D. Exchange Controls
We have extracted from publicly available documents the information presented in this section. The
information below may be applicable because our wholly owned operating subsidiary, Himax Taiwan, is
incorporated in the ROC. Please note that citizens of the PRC and entities organized in the PRC are subject
to special ROC laws, rules and regulations, which are not discussed in this section.
The ROC’s Foreign Exchange Control Statute and regulations provide that all foreign exchange
transactions must be executed by banks designated to handle foreign exchange transactions by the Central
Bank of the ROC. There is an annual limit on the amount of currency a Taiwanese entity may convert into,
or out of, NT dollars other than for trade purposes. Current regulations favor trade-related foreign exchange
transactions.
With regard to inward and outward remittances, approval by the Central Bank of the ROC is generally
required for any conversion exceeding, in aggregate in each calendar year, $50 million (or its equivalent) for
companies and $5 million (or its equivalent) for Taiwanese and resident foreign individuals. A requirement
is also imposed on all private enterprises to report all medium- and long-term foreign debt with the Central
Bank of the ROC.
In addition, a foreign person without an alien resident card or an unrecognized foreign entity may remit to
and from Taiwan foreign currencies of up to $100,000 per remittance if required documentation is provided
to the ROC authorities. This limit applies only to remittances involving a conversion between NT dollars and
U.S. dollars or other foreign currencies.
10.E. Taxation
Cayman Islands Taxation
The Cayman Islands currently levies no taxes on individuals or corporations based upon profits, income,
gains or appreciation, and there is no taxation in the nature of inheritance tax or estate duty. There are no
other taxes likely to be material to us levied by the Government of the Cayman Islands except for stamp
duties which may be applicable on instruments executed in, or brought within the jurisdiction of, the Cayman
Islands. The Cayman Islands is not party to any double tax treaties. There are no exchange control regulations
or currency restrictions in the Cayman Islands.
104
We have, pursuant to Section 6 of the Tax Concessions Law (1999 Revision) of the Cayman Islands,
obtained an undertaking from the Governor-in-Council that:
(a) no law which is enacted in the Cayman Islands imposing any tax to be levied on profits, income or
gains or appreciations shall apply to us or our operations;
(b) he aforesaid tax or any tax in the nature of estate duty or inheritance tax shall not be payable on our
ordinary shares, debentures or other obligations.
The undertaking that we have obtained is for a period of 20 years from May 3, 2005.
United States Federal Income Taxation
The following is a description of material U.S. federal income tax consequences to the U.S. Holders
described below of owning and disposing of ordinary shares or ADSs, but it does not purport to be a
comprehensive description of all tax considerations that may be relevant to a particular person’s decision to
hold the securities. This discussion applies only to a U.S. Holder that holds ordinary shares or ADSs as capital
assets for U.S. federal income tax purposes. This discussion does not address any aspect of the “Medicare
contributions tax” on “net investment income.” In addition, it does not describe all of the tax consequences
that may be relevant in light of the U.S. Holder’s particular circumstances, including alternative minimum
tax consequences and tax consequences applicable to U.S. Holders subject to special rules, such as:
•
•
certain financial institutions;
dealers or traders in securities who use a mark-to-market method of tax accounting;
persons holding ordinary shares or ADSs as part of a hedging transaction, straddle, wash sale,
•
conversion transaction or integrated transaction or persons entering into a constructive sale with
respect to the ordinary shares or ADSs;
•
•
•
•
persons whose functional currency for U.S. federal income tax purposes is not the U.S. dollar;
entities classified as partnerships for U.S. federal income tax purposes;
tax-exempt entities, including “individual retirement accounts” or “Roth IRAs”;
persons that own or are deemed to own ten percent or more of our voting stock; or
persons holding ordinary shares or ADSs in connection with a trade or business conducted outside of
•
the United States.
If an entity that is classified as a partnership for U.S. federal income tax purposes owns ordinary shares
or ADSs, the U.S. federal income tax treatment of a partner will generally depend on the status of the partner
and the activities of the partnership. Partnerships holding ordinary shares or ADSs and partners in such
partnerships should consult their tax advisers as to the particular U.S. federal income tax consequences of
owning and disposing of the ordinary shares or ADSs.
This discussion is based on the Internal Revenue Code of 1986, as amended, administrative
pronouncements, judicial decisions and final, temporary and proposed Treasury regulations, all as of the
date hereof. These laws are subject to change, possibly on a retroactive basis. It is also based in part on
representations by the depositary and assumes that each obligation under the deposit agreement and any
related agreement will be performed in accordance with its terms. You should consult your tax adviser
concerning the U.S. federal, state, local and non-U.S. tax consequences of owning and disposing of ordinary
shares or ADSs in your particular circumstances.
105
As used herein, a “U.S. Holder” is a person that is, for U.S. federal tax purposes, a beneficial owner
of ordinary shares or ADSs and is: (i) a citizen or resident of the United States; (ii) a corporation, or other
entity taxable as a corporation, created or organized in or under the laws of the United States or any political
subdivision thereof; or (iii) an estate or trust the income of which is subject to U.S. federal income taxation
regardless of its source.
In general, a U.S. Holder of ADSs will be treated for U.S. federal income tax purposes as the owner of the
underlying ordinary shares represented by those ADSs. Accordingly, no gain or loss will be recognized if a
U.S. Holder exchanges ADSs for the underlying ordinary shares represented by those ADSs.
The U.S. Treasury has expressed concerns that parties to whom American depositary shares are released
before delivery of shares to the depositary (“pre-release”) may be taking actions that are inconsistent with the
claiming of foreign tax credits for U.S. holders of American depositary shares. Such actions would also be
inconsistent with the claiming of the preferred rates of tax, described below, applicable to dividends received
by certain non-corporate U.S. holders. Accordingly, the availability of the preferential tax rates for dividends
received by certain non-corporate U.S. Holders, described below, could be affected by actions taken by
parties to whom ADSs are pre-released.
This discussion assumes that we are not, and will not become, a passive foreign investment company (as
discussed below).
Taxation of Distributions
Distributions received by U.S. Holders with respect to the ordinary shares or ADSs, other than certain
pro rata distributions of ordinary shares, will constitute foreign-source dividend income for U.S. federal
income tax purposes to the extent paid out of our current or accumulated earnings and profits, as determined
in accordance with U.S. federal income tax principles. We do not to maintain records of earnings and profits
in accordance with U.S. federal income tax principles, and therefore it is expected that distributions will
generally be reported to U.S. Holders as dividends. Dividends will be included in a U.S. Holder’s income
on the date of the U.S. Holder’s (or in the case of ADSs, the depository’s) receipt of the dividends. Subject
to applicable limitations and the discussion above regarding concerns expressed by the U.S. Treasury,
certain dividends paid by qualified foreign corporations to certain non-corporate holders may be taxable at
preferential tax rates applicable to long-term capital gains. A foreign corporation is treated as a qualified
foreign corporation with respect to dividends paid on stock that is readily tradable on a securities market in
the United States, such as the NASDAQ Global Select Market, where our ADSs are traded. Our ordinary
shares are not traded on a securities market in the United States. Non-corporate U.S. Holders of our ordinary
shares or ADSs should consult their tax advisers regarding their eligibility for taxation at such preferential
rates and whether they are subject to any special rules that limit their ability to be taxed at such preferential
rates. Corporate U.S. Holders will not be entitled to claim the dividends-received deduction with respect to
dividends paid by us.
Sale and Other Disposition of Ordinary Shares or ADSs
A U.S. Holder will generally recognize U.S.-source capital gain or loss for U.S. federal income tax
purposes on the sale or other disposition of ordinary shares or ADSs, which will be long-term capital gain or
loss if the ordinary shares or ADSs were held for more than one year. Long-term capital gains of certain non-
corporate U.S. Holders may be taxable at preferential rates. The amount of gain or loss will be equal to the
difference between the amount realized on the sale or other disposition and the U.S. Holder’s tax basis in the
ordinary shares or ADSs. The deductibility of capital losses is subject to limitations.
Passive Foreign Investment Company Rules
We believe that we were not a passive foreign investment company (a “PFIC”) for U.S. federal income
tax purposes for our taxable year ended December 31, 2018.
106
In general, a non-U.S. company will be a PFIC for U.S. federal income tax purposes for any taxable year
in which (i) 75% or more of its gross income consists of passive income (such as dividends, interest, rents
and royalties) or (ii) 50% or more of the average quarterly value of its assets consists of assets that produce,
or are held for the production of, passive income (including cash). If a corporation owns at least 25% (by
value) of the stock of another corporation, the corporation will be treated, for purposes of the PFIC tests, as
owning its proportionate share of the 25%-owned subsidiary’s assets and receiving its proportionate share of
the 25%-owned subsidiary’s income. As PFIC status depends upon the composition of our income and assets
and the value of our assets from time to time (and the value of our assets may be determined, in part, based
on the market price of our shares and ADSs, which may fluctuate considerably from time to time given that
market prices of certain technology companies historically have been volatile), there can be no assurance that
we will not be a PFIC for any taxable year.
If we were a PFIC for any taxable year during which a U.S. Holder held ordinary shares or ADSs, certain
adverse U.S. federal income tax rules would apply on a sale or other disposition (including a pledge) of
ordinary shares or ADSs by the U.S. Holder. In general, under those rules, gain recognized by the U.S.
Holder on a sale or other disposition of ordinary shares or ADSs would be allocated ratably over the U.S.
Holder’s holding period for the ordinary shares or ADSs. The amounts allocated to the taxable year of the
sale or other disposition and to any year before we became a PFIC would be taxed as ordinary income. The
amount allocated to each other taxable year would be subject to tax at the highest rate in effect for individuals
or corporations, as appropriate, for that taxable year, and an interest charge would be imposed on the tax
attributable to such allocated amounts. Similar rules would apply to any distribution in respect of ordinary
shares or ADSs to the extent in excess of 125% of the average of the annual distributions on ordinary shares
or ADSs received by the U.S. Holder during the preceding three years or the U.S. Holder’s holding period,
whichever is shorter. Certain elections may be available that would result in alternative treatments (such as a
mark-to-market treatment of the ADSs). U.S. Holders should consult their tax advisers to determine whether
any of these elections would be available and, if so, what the consequences of the alternative treatments
would be in their particular circumstances.
If we were a PFIC in a taxable year in which we pay a dividend or in the prior taxable year, the
preferential tax rates discussed above with respect to dividends received by certain non-corporate U.S.
Holders would not apply.
In addition,if U.S. Holder owns ordinary shares or ADSs during any year in which we are a PFIC, the U.S.
Holder may be required to file certain information reports, containing such information as the U.S. Treasury
may require.
Information Reporting and Backup Withholding
Payments of dividends and sales proceeds that are made within the United States or through certain
U.S.-related financial intermediaries generally are subject to information reporting, and may be subject to
backup withholding, unless the U.S. Holder is an exempt recipient or, in the case of backup withholding, the
U.S. Holder provides a correct taxpayer identification number and certifies that it is not subject to backup
withholding. The amount of any backup withholding from a payment to a U.S. Holder will be allowed as a
credit against the U.S. Holder’s U.S. federal income tax liability and may entitle the U.S. Holder to a refund,
provided that the required information is timely furnished to the Internal Revenue Service.
10.F. Dividends and Paying Agents
Not applicable.
10.G. Statement by Experts
Not applicable.
107
10.H. Documents on Display
It is possible to read and copy documents referred to in this annual report that have been filed with the
SEC at the SEC’s public reference rooms in Washington, D.C., New York and Chicago, Illinois. Please call
the SEC at 1-800-SEC-0330 for further information on the reference rooms.
10.I. Subsidiary Information
Not applicable.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk. Our exposure to interest rate risk for changes in interest rates is primarily the interest
income generated by our cash deposited with banks. In addition, we are exposed to interest rate risks related
to bank borrowings.
Foreign Exchange Risk. The U.S. dollar is our reporting currency. The U.S. dollar is also the functional
currency for the majority of our operations. In 2018, more than 99% of our sales and cost of revenues were
denominated in U.S. dollars. However, in December 2018, approximately 60% of our operating expenses
were denominated in NT dollars, with a small percentage denominated in Japanese Yen, Korean Won and
Chinese Renminbi, and the majority of the remainder denominated in U.S. dollars. We anticipate that we will
continue to conduct substantially all of our sales in U.S. dollars. We do not believe that we have a material
currency risk with regard to the NT dollar. We believe the majority of any potential adverse foreign currency
exchange impacts on our operating assets may be offset by a potential favorable foreign currency exchange
impact on our operating liabilities. From time to time we have engaged in, and may continue to engage in,
forward contracts to hedge against our foreign currency exposure.
As of December 31, 2018, no foreign currency exchange contracts are outstanding.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
12.A. Debt Securities
Not applicable.
12.B. Warrants and Rights
Not applicable.
12.C. Other Securities
Not applicable.
12.D. American Depositary Shares
Fees and Charges Payable by ADS Holders
108
Persons depositing or withdrawing
shares or ADS holders must pay:
$5.00 (or less) per 100 ADSs (or portion of 100
ADSs)
For:
Issuance of ADSs, including issuances resulting
from a distribution of shares or rights or other
property
Cancellation of ADSs for the purpose of withdrawal,
including if the deposit agreement terminates
$.05 (or less) per ADS
Any cash distribution to ADS holders
A fee equivalent to the fee that would be payable if
securities distributed to you had been shares and
the shares had been deposited for the issuance of
Distribution of securities distributed to holders of
deposited securities which are distributed by the
depositary to ADS holders
ADSs
$.05 (or less) per ADS per calendar year
Depositary services
Registration or transfer fees
Expenses of the depositary
Transfer and registration of shares on our share
register to or from the name of the depositary or
its agent when you deposit or withdraw shares
Cable, telex and facsimile transmissions (when
expressly provided in the deposit agreement)
converting foreign currency to U.S. dollars
Taxes and other governmental charges that the
As necessary
depositary or custodian have to pay on any ADS
or share underlying an ADS, e.g., stock transfer
taxes, stamp duty or withholding taxes
Any charges incurred by the depositary or its agents
As necessary
for servicing the deposited securities
The depositary collects its fees for delivery and surrender of ADSs directly from investors depositing
shares or surrendering ADSs for the purpose of withdrawal or from intermediaries acting for them. The
depositary collects fees for making distributions to investors by deducting those fees from the amounts
distributed or by selling a portion of distributable property to pay the fees. The depositary may collect its
annual fee for depositary services by deduction from cash distributions or by directly billing investors or
charging the book-entry system accounts of participants acting for them. The depositary may collect any of
its fees by deduction from any cash distribution payable to ADS holders that are obligated to pay those fees.
The depositary may generally refuse to provide fee-attracting services until its fees for those services are
paid.
From time to time, the depositary may make payments to us to reimburse and/or share revenue from
the fees collected from ADS holders, or waive fees and expenses for services provided, generally relating
to costs and expenses arising out of establishment and maintenance of the ADS program. In performing its
duties under the deposit agreement, the depositary may use brokers, dealers or other service providers that
are affiliates of the depositary and that may earn or share fees or commissions.
109
Fees and Other Payments from the Depositary to Us
In 2018, we received payments of $0.6 million netting of 30% withholding tax from the depositary
relating to the ADR program, which was intended to cover certain of our expenses incurred in relation to the
ADR program for the year, including:
•
•
•
•
•
•
•
legal, audit and other fees incurred in connection with preparation of Form 20-F and annual reports
and ongoing SEC compliance and listing requirements;
director and officer insurance;
stock exchange listing fees;
non-deal roadshow expenses;
costs incurred by financial printer and share certificate printer;
postage for communications to ADR holders;
costs of retaining third-party public relations, investor relations and/or corporate communications
advisory firms in the U.S.; and
•
costs incurred in connection with participation in retail investor shows and capital markets days.
Appointment of New Depositary Bank
On July 14, 2017, we appointed JPMorgan Chase Bank, N.A. as our new American depositary receipt
bank. Effective the same day, our ADR program was officially transferred to JPMorgan Chase Bank, N.A.
and the contract is to last for ten years.
110
PART II
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
Not applicable.
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE
OF PROCEEDS
Not applicable.
ITEM 15. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our chief executive officer and chief financial officer, after evaluating the effectiveness of our disclosure
controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period
covered by this report, have concluded that based on the evaluation of these controls and procedures required
by Rule 13a-15(b) of the Exchange Act, our disclosure controls and procedures are effective.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial
reporting. Our internal control over financial reporting is designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with IFRS as issued by the IASB.
Our internal control over financial reporting includes those policies and procedures that:
•
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect our
transactions and dispositions of our assets;
•
provide reasonable assurance that our transactions are recorded as necessary to permit preparation
of our financial statements in accordance with IFRS as issued by the IASB, and that our receipts and
expenditures are being made only in accordance with authorizations of our management and our
directors; and
•
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition,
use or disposition of our assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Projections of any evaluation of internal control effectiveness to future periods are subject
to the risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
Management, with the participation of our chief executive and chief financial officers, assessed the
effectiveness of our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange
Act) as of December 31, 2018 based on the criteria set forth in Internal Control – Integrated Framework
(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on the
assessment, our management believes that our internal control over financial reporting was effective as of
December 31, 2018.
111
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
Himax Technologies, Inc.:
Opinion on Internal Control Over Financial Reporting
We have audited Himax Technologies, Inc.’s and subsidiaries (the “Company”) internal control over
financial reporting as of December 31, 2018, based on criteria established in Internal Control – Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO). In our opinion, the Company maintained, in all material respects, effective internal control over
financial reporting as of December 31, 2018, based on criteria established in Internal Control – Integrated
Framework (2013) issued by the COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States) (“PCAOB”), the consolidated statements of financial position of the Company as of
January 1, 2017, December 31, 2017 and 2018, the related consolidated statements of profit or loss, other
comprehensive income, changes in equity and cash flows for the years ended December 31, 2017 and 2018,
and the related notes (collectively, the “consolidated financial statements”) and our report dated March 28,
2019 expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial
reporting and for its assessment of the effectiveness of internal control over financial reporting, included in
the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is
to express an opinion on the Company’s internal control over financial reporting based on our audit. We are
a public accounting firm registered with the PCAOB and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether effective internal control over
financial reporting was maintained in all material respects. Our audit of internal control over financial
reporting included obtaining an understanding of internal control over financial reporting, assessing the
risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk. Our audit also included performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our
opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A ompany’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain to the maintenance of records
that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation
of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and
directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the
financial statements.
112
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions, or that the degree of compliance with
the policies or procedures may deteriorate.
/s/ KPMG
Hsinchu, Taiwan
March 28, 2019
Changes in Internal Control over Financial Reporting
We adopted IFRS issued by IASB. The adoption of IFRS required the implementation of new accounting
policies and processes. Based on our evaluation, there is no material change to the Company’s internal
control over financial reporting and related disclosures during the period covered by this annual report
that has materially affected, or is reasonably likely to materially affect our internal control over financial
reporting.
ITEM 16. [RESERVED]
16.A. Audit Committee Financial Expert
Our board of directors has determined that Yuan-Chuan Horng is an audit committee financial expert, as
that term is defined in Item 16A(b) of Form 20-F, and is independent for the purposes of Rule 5605(a)(2) of
the Nasdaq Rules and Rule 10A-3 of the Exchange Act.
16.B. Code of Ethics
Our board of directors has adopted a code of business conduct and ethics that applies to our directors,
officers and employees, including our principal executive officer, principal financial officer, principal
accounting officer or controller and any other persons who perform similar functions for us. We will provide
a copy of our code of business conduct and ethics without charge upon written request to:
Himax Technologies, Inc.
Human Resources Department
No. 26, Zih Lian Road, Tree Valley Park
Sinshih District, Tainan City 74148
Taiwan, Republic of China
16.C. Principal Accountant Fees and Services
KPMG, our independent registered public accounting firm, began serving as our independent auditor upon
the formation of our company in 2001.
Our audit committee is responsible for the oversight of KPMG’s work. The policy of our audit committee
is to pre-approve all audit and non-audit services provided by KPMG, including audit services, audit-related
services, tax services and other services.
We paid the following fees for professional services to KPMG for the years ended December 31, 2017
and 2018.
113
Services
Audit Fees(1)
All Other Fees(2)
Total
Year ended December 31,
2017
$ 839,000
32,000
$ 871,000
2018
$ 811,000
25,000
$ 836,000
(1) Audit Fees. This category includes the audit of our annual financial statements and internal
Note:
control over financial reporting, quarterly review procedures, services that are normally provided by the
independent auditors in connection with statutory and regulatory filings or engagements for those fiscal
years. This category also includes statutory audits required by the Tax Bureau of the ROC.
(2) All Other Fees. This category consists of fees in relation to transfer pricing reports and audit of conflict
mineral report.
16.D. Exemptions from the Listing Standards for Audit Committees
Not applicable.
16.E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
On November 1, 2007, our board of directors authorized a share buyback program allowing us to repurchase up to
$40.0 million of our ADSs in the open market or through privately negotiated transactions. We concluded this share
buyback program in the first quarter of 2008 and repurchased a total of approximately $33.1 million of our ADSs
(equivalent to approximately 7.7 million ADSs) from the open market.
On November 14, 2008, our board of directors authorized another share buyback program allowing us to repurchase
up to $50.0 million of our ADSs in the open market or through privately negotiated transactions. We concluded this
share buyback program in the third quarter of 2010 and repurchased a total of approximately $50.0 million of our ADSs
(approximately 19.3 million ADSs) under this program from the open market.
In April 2011, the Companies Law of the Cayman Islands was amended to permit treasury shares if so approved by
the board of directors and to the extent that the articles do not prohibit treasury shares. Therefore, we would hold the
treasury shares for future employees awards.
On June 20, 2011, our board of directors authorized another share buyback program allowing us to repurchase up
to $25.0 million of our ADSs in the open market or through privately negotiated transactions. As of February 28, 2019,
we had repurchased a total of approximately $13.4 million of our ADSs (approximately 9.5 million ADSs) under this
program from the open market.
The following table sets forth information regarding transactions completed under the 2011 share buyback programs
for each of the specified periods.
(a) Total
Number
of ADSs
Purchased
(b) Average
Price Paid
per ADS
(c) Total
Number of ADSs
Purchased as
Part of Publicly
Announced Plans
or Programs
(d) Approximate
Dollar Value of
ADSs That May
Yet Be Purchased
Under the Plans or
Programs
Period
2011 Share Buyback Program:
January 3, 2012 to January 31, 2012
February 1, 2012 to February 27, 2012
March 6, 2012 to March 30, 2012
April 3, 2012 to April 25, 2012
May 7, 2012 to May 31, 2012
June 1, 2012 to June 28, 2012
July 12, 2012 to July 31, 2012
August 1, 2012 to August 29, 2012
September 4, 2012 to September 26, 2012
October 1, 2012 to October 25, 2012
November 1, 2012 to November 13, 2012
2,451,652
1,873,787
186,345
120,968
83,839
399,340
169,188
45,416
48,276
228,759
113,876
$ 1.31
$ 1.61
$ 1.75
$ 1.96
$ 1.99
$ 1.86
$ 1.55
$ 1.72
$ 1.92
$ 1.94
$ 1.94
6,218,862
8,092,649
8,278,994
8,399,962
8,483,801
8,883,141
9,052,329
9,097,745
9,146,021
9,374,780
9,488,656
$ 17,185,592
$ 14,172,391
$ 13,847,214
$ 13,610,673
$ 13,444,651
$ 12,703,233
$ 12,442,204
$ 12,364,315
$ 12,272,014
$ 11,830,123
$ 11,609,979
114
16.F. Change in Registrant’s Certifying Accountant
Not applicable.
16.G. Corporate Governance
The Nasdaq Rules provide that foreign private issuers may follow home country practice in lieu of the
corporate governance requirements of the NASDAQ Stock Market LLC, subject to certain exceptions and
requirements and except to the extent that such exemptions would be contrary to U.S. federal securities laws
and regulations. The significant differences between our corporate governance practices and those followed
by U.S. companies under the Nasdaq Rules are summarized as follows:
• We follow home country practice that permits our independent directors not to hold regularly
scheduled meetings at which only independent directors are present in lieu of complying with Rule
5605(b)(2).
16.H. Mine Safety Disclosure
Not applicable.
ITEM 17. FINANCIAL STATEMENTS
Not applicable.
ITEM 18. FINANCIAL STATEMENTS
PART III
Our consolidated financial statements and the report thereon by our independent registered public
accounting firm listed below are attached hereto as follows:
(a) Report of Independent Registered Public Accounting Firm.
(b) Consolidated Statements of Financial Position as of January 1, 2017, December 31, 2017 and 2018.
(c) Consolidated Statements of Profit or Loss for the years ended December 31, 2017 and 2018.
(d) Consolidated Statements of Other Comprehensive Income for the years ended December 31, 2017 and
2018.
(e) Consolidated Statements of Changes in Equity for the years ended December 31, 2017 and 2018.
(f) Consolidated Statements of Cash Flows for the years ended December 31, 2017 and 2018.
(g) Notes to the Consolidated Financial Statements.
115
ITEM 19. EXHIBITS
Exhibit Number
1.1
Description of Document
Third Amended and Restated Memorandum and Articles of Association of the Registrant,
as currently in effect. (Incorporated by reference to Exhibit 1.1 from our Annual Report
on Form 20-F (file no. 000-51847) filed with the Securities and Exchange Commission
on June 3, 2010.)
2.1
Registrant’s Specimen American Depositary Receipt (included in Exhibit 2.3).
2.2
2.3
4.1
4.2*
Registrant’s Specimen Certificate for Ordinary Shares. (Incorporated by reference to
Exhibit 4.2 from our Registration Statement on Form F-1 (file no. 333-132372) filed with
the Securities and Exchange Commission on March 13, 2006.)
Form of Deposit Agreement among the Registrant, JPMorgan Chase Bank, N.A., as
depositary, and holders of the American depositary receipts. (Incorporated by reference to
Exhibit (a) to the Registrant’s Registration Statement on Form F-6 (file no. 333-219169)
filed with the Securities and Exchange Commission on July 6, 2017.)
Himax Technologies, Inc. 2011 Long-Term Incentive Plan Amended and Restated
as of August 31st day, 2016. (Incorporated herein by reference to Exhibit 99.4 to the
Registrant’s report of foreign private issuer on Form 6-k filed on July 12, 2016.)
Agreement and Plan of Merger dated November 8, 2010 among Himax Display, Inc.,
Spatial Photonics, Inc. and Wen Hsieh. (Incorporated herein by reference to Exhibit 4.3
from our Annual Report on Form 20-F (file no. 000-51847) filed with the Securities and
Exchange Commission on May 20, 2011.)
8.1
List of Subsidiaries.
12.1
12.2
13.1
Certification of Jordan Wu, President and Chief Executive Officer of Himax Technologies,
Inc., pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Jackie Chang, Chief Financial Officer of Himax Technologies, Inc.,
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification pursuant to 18 USC. Section 1350, as adopted pursuant to Section 906 of the
Sar-banes-Oxley Act of 2002.
15.1
Consent of KPMG, Independent Registered Public Accounting Firm.
101.INS
XBRL Instance Document
101.SCH
XBRL Taxonomy Extension Schema
101.CAL
XBRL Taxonomy Extension Calculation Linkbase
101.DEF
XBRL Taxonomy Extension Definition Linkbase
101.LAB
XBRL Taxonomy Extension Label Linkbase
101.PRE
XBRL Taxonomy Extension Presentation Linkbase
*Confidential treatment has been requested for portions of this exhibit.
116
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant certifies
that it meets all of the requirements for filing on Form 20-F and has duly caused this annual report to be
signed on its behalf by the undersigned, thereunto duly authorized.
HIMAX TECHNOLOGIES, INC.
By: /s/ Jordan Wu
Name: Jordan Wu
Title: President and Chief Executive Officer
Date: March 28, 2019
117
HIMAX TECHNOLOGIES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Financial Position as of January 1, 2017, December 31, 2017 and
2018
Consolidated Statements of Profit or Loss for the Years Ended December 31, 2017 and
2018
Consolidated Statements of Other Comprehensive Income for the Years Ended December 31,
2017 and 2018
Consolidated Statements of Changes in Equity for the Years Ended December 31, 2017 and 2018
Consolidated Statements of Cash Flows for the Years Ended December 31, 2017 and 2018
Notes to the Consolidated Financial Statements
page
F-1
F-2
F-4
F-5
F-6
F-8
F-10
118
Himax Technologies, Inc.
List of Subsidiaries
Himax Technologies Limited
Subsidiary
Himax Technologies Korea Ltd.
Himax Technologies (Samoa), Inc.
Himax Technologies (Suzhou) Co., Ltd.
Himax Technologies (Shenzhen) Co., Ltd.
Himax Display, Inc.
Integrated Microdisplays Limited
Himax Display (USA) Inc.
Himax Analogic, Inc.
Himax Imaging, Inc.
Himax Imaging, Ltd.
Himax Imaging Corp.
Himax Media Solutions, Inc.
Harvest Investment Limited
Himax Technologies Japan Ltd.
Jurisdiction of
Incorporation
ROC
South Korea
Samoa
PRC
PRC
ROC
Hong Kong
Delaware, USA
ROC
Cayman Islands
ROC
California, USA
ROC
ROC
Japan
Himax Semiconductor (Hong Kong) Limited
Hong Kong
Liqxtal Technology Inc.
Himax IGI Precision Ltd.
Emza Visual Sense Ltd.
ROC
Delaware, USA
Israel
(1) Indirectly, through our 100.0% ownership of Himax Technologies Limited.
(2) Indirectly, through our 100.0% ownership of Himax Technologies (Samoa), Inc.
(3) Indirectly, through our 82.7% ownership of Himax Display, Inc.
(4) Indirectly, through our 93.7% ownership of Himax Imaging, Ltd.
Exhibit 8.1
Percentage of
Our Ownership
Interest
100.0%
100.0%
100.0%(1)
100.0%(2)
100.0%(2)
82.7%(1)
82.7%(3)
82.7%(3)
98.6%(1)
100.0%
93.7%(1)
93.7%(4)
99.2%(1)
100.0%(1)
100.0%
100.0%
64.0%(1)
100.0%(1)
100.0%(1)
119
Certification
Exhibit 12.1
I, Jordan Wu, certify that:
1. I have reviewed this annual report on Form 20-F of Himax Technologies, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results of operations and cash flows of the
company as of, and for, the periods presented in this report;
4. The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and
have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures
to be designed under our supervision, to ensure that material information relating to the
company, including its consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the company’s internal control over financial reporting that
occurred during the period covered by the annual report that has materially affected, or is reasonably
likely to materially affect, the company’s internal control over financial reporting; and
5. The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the company’s auditors and the audit committee of the
company’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the company’s ability to record,
process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a
significant role in the company’s internal control over financial reporting.
Date: March 28, 2019
By: /s/ Jordan Wu
Name: Jordan Wu
Title: President and Chief Executive Officer
120
Certification
Exhibit 12.2
I, Jackie Chang, certify that:
1. I have reviewed this annual report on Form 20-F of Himax Technologies, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results of operations and cash flows of the
company as of, and for, the periods presented in this report;
4. The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and
have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures
to be designed under our supervision, to ensure that material information relating to the
company, including its consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the company’s internal control over financial reporting that
occurred during the period covered by the annual report that has materially affected, or is reasonably
likely to materially affect, the company’s internal control over financial reporting; and
5. The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the company’s auditors and the audit committee of the
company’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the company’s ability to record,
process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a
significant role in the company’s internal control over financial reporting.
Date: March 28, 2019
By: /s/ Jackie Chang
Name: Jackie Chang
Title: Chief Financial Officer
121
Certification
Exhibit 13.1
March 28, 2019
The certification set forth below is being submitted to the Securities and Exchange Commission in
connection with the Annual Report on Form 20-F for the year ended December 31, 2018 (the “Report”) for
the purpose of complying with Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 (the
“Exchange Act”) and Section 1350 of Chapter 63 of Title 18 of the United States Code.
Jordan Wu, the President and Chief Executive Officer of Himax Technologies, Inc., and Jackie Chang, the
Chief Financial Officer of Himax Technologies, Inc., each certifies that, to the best of his or her knowledge:
1. the Report fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act; and
2. the information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of Himax Technologies, Inc.
By: /s/ Jordan Wu
Name: Jordan Wu
Title: President and Chief Executive Officer
By: /s/ Jackie Chang
Name: Jackie Chang
Title: Chief Financial Officer
122
Consent of Independent Registered Public Accounting Firm
Exhibit 15.1
The Board of Directors
Himax Technologies, Inc.:
We consent to the incorporation by reference in the registration statements (No. 333-137585 and No. 333-
176863) on Form S-8 and the registration statement (No. 333-189052) on Form F-3 of Himax Technologies,
Inc. and subsidiaries of our reports dated March 28, 2019, with respect to the consolidated statements of
financial position of Himax Technologies, Inc. as of January 1, 2017, December 31, 2017 and 2018, and
the related consolidated statements of profit or loss, other comprehensive income, changes in equity and
cash flows for the years ended December 31, 2017 and 2018, and the effectiveness of internal control over
financial reporting as of December 31, 2018, which reports appear in the December 31, 2018 annual report
on Form 20-F of Himax Technologies, Inc.
/s/ KPMG
Hsinchu, Taiwan
March 28, 2019
123
124
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Financial Statements
January 1, 2017, December 31, 2017 and 2018
(With Report of Independent Registered
Public Accounting Firm Thereon)
125
F-1
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
Himax Technologies, Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated statements of financial position of Himax Technologies,
Inc. and subsidiaries (the “Company”) as of January 1, 2017, December 31, 2017 and 2018, the related
consolidated statements of profit or loss, other comprehensive income, changes in equity, and cash flows for
the years ended December 31, 2017 and 2018, and the related notes (collectively, the “consolidated financial
statements”). In our opinion, the consolidated financial statements present fairly, in all material respects,
the financial position of the Company as of January 1, 2017, December 31, 2017 and 2018, and the results
of its operations and its cash flows for the years ended December 31, 2017 and 2018, in conformity with
International Financial Reporting Standards as issued by the International Accounting Standards Board.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December
31, 2018, based on criteria established in Internal Control – Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March
28, 2019 expressed an unqualified opinion on the effectiveness of the Company’s internal control over
financial reporting.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these consolidated financial statements based on our audits. We are
a public accounting firm registered with the PCAOB and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements
are free of material misstatement, whether due to error or fraud. Our audits included performing procedures
to assess the risks of material misstatement of the consolidated financial statements, whether due to error or
fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test
basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits
also included evaluating the accounting principles used and significant estimates made by management, as
well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits
provide a reasonable basis for our opinion.
We have served as the Company’s auditor since 2001.
/s/ KPMG
Hsinchu, Taiwan
March 28, 2019
F-2
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Financial Position
January 1, 2017, December 31, 2017 and 2018
(in thousands of US dollars)
Assets
Current assets:
Cash and cash equivalents
Financial assets at amortized cost
Financial assets at fair value through profit
or loss
Accounts receivable, net
Inventories
Income taxes receivable
Restricted deposit
Other receivable from related parties
Other current assets
Total current assets
Financial assets at fair value through profit
or loss
Financial assets at fair value through other
comprehensive income
Equity method investments
Property, plant and equipment, net
Deferred tax assets
Goodwill
Other intangible assets, net
Restricted deposit
Other non-current assets
January 1,
December 31,
December 31,
Note
2017
2017
2018
6, 22
7, 22
$
8, 22
11, 22
12
22
17, 22, 26
22, 25
22
184,452
5,140
5,017
192,534
149,748
43
138,200
7,150
17,152
699,436
138,023
10,358
521
188,774
135,200
53
147,000
3,250
39,442
662,621
106,437
11,229
-
189,279
162,561
72
164,326
2,780
17,731
654,415
8, 22
10,562
1,600
9,768
9, 22
13
15, 28, 29
5, 21
5, 14, 29
22, 26
18, 22
1,680
2,362
47,309
7,256
28,138
3,781
124
1,573
102,785
802,221
1,522
10,739
84,575
7,713
28,138
2,899
470
2,916
140,572
803,193
791
4,064
111,067
13,904
28,138
10,778
130
3,623
182,263
836,678
Total assets
$
The accompanying notes are an integral part of these consolidated financial statements.
F-3
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Financial Position (Continued)
January 1, 2017, December 31, 2017 and 2018
(in thousands of US dollars)
January 1,
December 31,
December 31,
Note
2017
2017
2018
Liabilities and Equity
Current liabilities:
Short-term borrowings
Financial liability at amortized cost
Accounts payable
Accounts payable to related party
Income taxes payable
Other payable to related party
Other current liabilities
Total current liabilities
Financial liability at amortized cost
Net defined benefit liabilities
Deferred tax liabilities
Other non-current liabilities
Total liabilities
$
17, 22, 26
10, 22
22
22, 25
21
22, 25
5, 16, 22
10, 22
18
5, 21
22
Equity
Ordinary shares
Additional paid-in capital
Treasury shares
Accumulated other comprehensive income
Retained earnings
Equity attributable to owners of
Himax Technologies, Inc.
Noncontrolling interests
Total equity
20
20
20
20
Total liabilities and equity
$
138,000
-
142,269
576
14,674
-
31,257
326,776
4,524
1,064
1,281
1,438
335,083
107,010
103,473
(9,020)
(1,554)
266,811
466,720
418
467,138
802,221
147,000
4,837
139,933
-
7,285
2,200
42,471
343,726
-
1,152
111
4,616
349,605
107,010
104,427
(8,878)
(446)
253,210
455,323
(1,735)
453,588
803,193
184,000
5,071
150,500
-
6,007
3,797
41,780
391,155
-
151
1,759
1,326
394,391
107,010
104,749
(8,819)
(549)
244,157
446,548
(4,261)
442,287
836,678
The accompanying notes are an integral part of these consolidated financial statements.
F-4
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Profit or Loss
For the years ended December 31, 2017 and 2018
(in thousands of US dollars, except per share data)
Revenues
Costs and expenses:
Cost of revenues
Research and development
General and administrative
Expected credit loss
Sales and marketing
Total costs and expenses
Operating income
Non operating income (loss):
Interest income
Changes in fair value of financial assets at fair value through
profit or loss
Foreign currency exchange losses, net
Finance costs
Share of losses of associates
Other income
Profit before income taxes
Income tax expense
Profit for the year
Loss attributable to noncontrolling interests
Profit attributable to Himax Technologies, Inc. stockholders
13
5
21
Basic earnings per ordinary share attributable to Himax
Technologies, Inc. stockholders
Diluted earnings per ordinary share attributable to Himax
Technologies, Inc. stockholders
Basic earnings per ADS attributable to Himax Technologies,
Inc. stockholders
Diluted earnings per ADS attributable to Himax Technologies,
Inc. stockholders
4(q)
4(q)
4(q)
4(q)
Note
2017
2018
28
$
685,167
723,605
12,18,19,29
18,19,25,29
5,18,19,29
11
18, 19, 29
518,142
117,662
20,461
155
20,388
676,808
554,690
123,037
21,823
290
20,380
720,220
8,359
3,385
2,225
2,429
23,226
(1,659)
(878)
(1,200)
19
21,733
30,092
4,554
25,538
2,142
27,680
2,036
(369)
(1,232)
(1,095)
1,866
3,635
7,020
994
6,026
2,543
8,569
0.08
0.08
0.16
0.16
0.02
0.02
0.05
0.05
$
$
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
F-5
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Other Comprehensive Income
For the years ended December 31, 2017 and 2018
(in thousands of US dollars)
Profit for the year
Other comprehensive income:
Items that will not be reclassified to
profit or loss:
Remeasurements of defined benefit
pension plans
Unrealized loss on financial assets at
fair value through other
comprehensive income
Income tax related to items that will
not be reclassified subsequently
Items that may be reclassified
subsequently to profit or loss:
Unrealized gains on financial assets
at fair value through profit or loss
Foreign operations - foreign
currency translation differences
Income tax related to items that may
be reclassified subsequently
Other comprehensive income for the
year, net of tax
Total comprehensive income for the
year
Total comprehensive income
attributable to noncontrolling
interests
Total comprehensive income
attributable to Himax Technologies,
Inc. stockholders
Note
$
2017
25,538
18,20,21
(81)
2018
6,026
431
(96)
-
15
322
862
-
1,302
(702)
(169)
1,184
(336)
-
(336)
-
95
6,121
2,538
1,103
26,641
2,147
$
28,788
8,659
The accompanying notes are an integral part of these consolidated financial statements.
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F-8
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the years ended December 31, 2017 and 2018
(in thousands of US dollars)
Cash flows from operating activities:
Profit for the year
Adjustments for:
Depreciation and amortization
Expected credit loss recognized on accounts receivable
Share-based compensation expenses
Gain on disposals of property, plant and equipment, net
Gain on re-measurement of the pre-existing relationships in a
business combination
Changes in fair value of financial assets at fair value through profit or
loss
Interest income
Finance costs
Income tax expense
Share of losses of associates
Inventories write downs
Foreign currency exchange losses of financial assets
Changes in:
Accounts receivable
Inventories
Other current assets
Accounts payable
Accounts payable to related party
Other payable to related party
Net defined benefit liabilities
Other current liabilities
Other non-current liabilities
Cash generated from operating activities
Interest received
Interest paid
Income tax paid
Net cash provided by operating activities
2017
$
25,538
16,680
155
997
(26)
2018
6,026
20,327
290
408
-
-
(1,662)
(23,226)
(2,225)
878
4,554
1,200
12,298
-
36,823
(1,665)
2,250
969
(2,336)
(576)
2,200
(9)
5,424
(604)
42,476
2,165
(565)
(14,683)
29,393
(2,036)
(2,429)
1,232
994
1,095
17,724
294
42,263
(794)
(45,085)
(1,511)
10,567
-
1,597
(128)
753
(458)
7,204
2,361
(877)
(4,679)
4,009
The accompanying notes are an integral part of these consolidated financial statements.
F-9
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Continued)
For the years ended December 31, 2017 and 2018
(in thousands of US dollars)
2017
2018
$
Cash flows from investing activities:
Acquisitions of property, plant and equipment
Proceeds from disposal of property, plant and equipment
Acquisitions of intangible assets
Acquisitions of financial assets at amortized cost
Proceeds from disposal of financial assets at amortized cost
Acquisitions of financial assets at fair value through profit or loss
Proceeds from disposals of financial assets at fair value through profit
or loss
Acquisition of business
Acquisition of a subsidiary, net of cash acquired
Proceeds from capital reduction of investment
Acquisitions of equity method investments
Decrease (increase) in refundable deposits
Releases (pledges) of restricted deposit
Cash paid for loan made to related parties
Cash received from loan made to related party
Income tax paid for disposal of financial assets at fair value through
profit or loss
Net cash used in investing activities
Cash flows from financing activities:
Payments of cash dividends
Proceeds from issuance of new shares by subsidiaries
Proceeds from disposal of subsidiary shares to noncontrolling interests
by Himax Imaging, Inc.
Acquisitions of noncontrolling interests
Pledge of restricted deposit
Proceeds from short-term borrowings
Repayments of short-term borrowings
Net cash provided by (used in) financing activities
Effect of foreign currency exchange rate changes on cash and cash
equivalents
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
$
(39,292)
115
(526)
(5,572)
744
(41,523)
56,375
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(120)
(146)
(3,250)
7,150
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(41,281)
105
4
(42)
(9,000)
151,161
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(41,214)
480
(46,429)
184,452
138,023
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1
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(4,766)
3,514
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48,764
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(3,301)
55
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87
14
(780)
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(38,266)
(17,210)
11
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131,000
(94,000)
2,801
(130)
(31,586)
138,023
106,437
The accompanying notes are an integral part of these consolidated financial statements.
F-10
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
For the years ended December 31, 2017 and 2018
Note 1. Reporting entity
Himax Technologies Limited, an exempted company with limited liability under the Cayman
Islands Companies Law, was incorporated on April 26, 2005 and changed the name to “Himax
Technologies, Inc.” on September 26, 2005. Since March 2006, Himax Technologies, Inc.’s
ordinary shares have been quoted on the NASDAQ Global Select Market under the symbol
“HIMX” in the form of ADSs and two ordinary shares represent one ADS with effect from
August 10, 2009.
The registered office in the Cayman Islands is located at Cricket Square, Hutchins Drive, P.O.
Box 2681, Grand Cayman KY1-1111, Cayman Islands. The principal executive office is located
at No. 26, Zih Lian Road, Sinshih District, Tainan City 74148, Taiwan, Republic of China.
The principal operating activities of Himax Technologies, Inc. and subsidiaries (collectively, the
Company) are described in Note 4(b).
Note 2. Basis of preparation
(a) Statement of compliance
The consolidated financial statements have been prepared in accordance with International
Financial Reporting Standards (“IFRS”) as issued by the International Accounting
Standards Board (“IASB”). These are the Company’s first consolidated financial statements
prepared in accordance with IFRS and IFRS 1 First-time Adoption of International
Financial Reporting Standards has been applied.
Since these are the Company’s first audited consolidated financial statements prepared in
accordance with IFRS, pursuant to the transitional relief granted by the U.S. Securities and
Exchange Commission in respect of the first-time adoption of IFRS, the Company has only
provided financial statements and financial information for the financial years ended
December 31, 2017 and 2018.
The Company’s consolidated financial statements were previously prepared in accordance
with U.S. generally accepted accounting principles (“US GAAP”) which differs in some
areas from IFRS. An explanation of how the transition to IFRS has affected the reported
financial position, financial performance and cash flows of the Company is provided in
Note 31.
The consolidated financial statements were authorized for issuance by the Board of
Directors on March 28, 2019.
F-11
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
For the years ended December 31, 2017 and 2018
(b)
Basis of measurement
The consolidated financial statements have been prepared on the historical cost basis except
for the following material items in the statement of financial position:
1. Financial assets at fair value through profit or loss;
2. Financial assets at fair value through other comprehensive income;
3. The defined benefit liability (asset) is recognized as the fair value of the plan assets less
the present value of the defined benefit obligation.
Note 3. Application of new and revised IFRS as issued by the IASB
The accompanying consolidated financial statements are the first IFRS annual consolidated
financial statements prepared for the year ended December 31, 2018. Prior to 2018, the Company
prepared and reported its consolidated financial statements in accordance with US GAAP. The
Company’s date of transition to IFRS is January 1, 2017, and the effect of the transition to IFRS
is disclosed in Note 31.
New and revised standards, amendments and interpretations in issue but not yet effective
New, Amended or Revised Standards and Interpretations
Annual Improvements to IFRS 2015-2017 Cycle
Amendments to IFRS 3 “Definition of a Business”
Amendments to IFRS 9 “Prepayment Features with Negative
Compensation”
Amendments to IFRS 10 and IAS 28 “Sale or Contribution of
Assets between An Investor and Its Associate or Joint
Venture”
IFRS 16 “Leases”
Amendments to IAS 19 “Plan Amendment, Curtailment or
Settlement”
Amendments to IAS 28 “Long-term Interests in Associates and
Joint Ventures
IFRIC 23 “Uncertainty over Income Tax Treatments”
IFRS 17 “Insurance Contracts”
Amendments to IAS 1 and IAS 8 “Definition of Material”
Effective Date
Announced by IASB
January 1, 2019
January 1, 2020
January 1, 2019
To be determined by
IASB
January 1, 2019
January 1, 2019
January 1, 2019
January 1, 2019
January 1, 2021
January 1, 2020
Except for the impacts discussed below, as of the date of the consolidated financial statements
were authorized for issue, the Company continues assessing other possible impacts that application
of the abovementioned amendments will have on the Company’s financial position and financial
performance and will disclose these other impacts when the assessment is completed.
F-12
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
For the years ended December 31, 2017 and 2018
1)
IFRS 16 “Leases”
IFRS 16 sets out the accounting standards for leases that will supersede IAS 17 “Leases” and a
number of related interpretations.
Upon initial application of IFRS 16, the Company will elect to apply the guidance of IFRS 16,
in determining whether contracts are, or contain, a lease, only to contracts entered into (or
changed) on or after January 1, 2019. Contracts identified as containing a lease under IAS 17
and IFRIC 4 will not be reassessed and will be accounted for in accordance with the
transitional provisions under IFRS 16.
Upon initial application of IFRS 16, if the Company is a lessee, it will recognize right-of-use
assets and lease liabilities for all leases on the consolidated statement of financial position
except for leases of low-value assets and short-term leases, which the Company may elect to
apply the accounting method like the accounting for operating lease under IAS 17. On the
consolidated statement of profit or loss, the Company will present the depreciation expense
charged on the right-of-use asset and interest expense accrued on the lease liability under cost
of revenue/operating expenses and finance costs, respectively; interest is computed using the
effective interest method. On the consolidated statements of cash flows, cash payments for the
principal portion of lease liabilities will be classified within financing activities; cash payments
for the interest portion will be classified within operating activities. Currently, payments under
operating lease contracts are recognized as expenses on a straight-line basis. Cash flows for
operating leases are classified within operating activities on the consolidated statements of
cash flows.
The Company expects to recognize the lease contract of lessees in line with IFRS 16.
However, the Company intends not to restate the financial statements of prior period (referred
herein as the “modified retrospective approach”). On January 1, 2019, it is expected that right-
of-use asset and lease liability will be both increased by $5,899 thousand.
2)
IFRIC 23 “Uncertainty over Income Tax Treatments”
IFRIC 23 clarifies that when there is uncertainty over income tax treatments, the Company
should assume that the taxation authority will have full knowledge of all related information
when making related examinations. If the Company concludes that it is probable that the
taxation authority will accept an uncertain tax treatment, the Company should determine the
taxable profit, tax bases, unused tax losses, unused tax credits or tax rates consistently with the
tax treatments used or planned to be used in its income tax filings. If it is not probable that the
taxation authority will accept an uncertain tax treatment, the Company should make estimates
using either the most likely amount or the expected value of the tax treatment, depending on
which method the Company expects to better predict the resolution of the uncertainty. The
Company has to reassess its judgments and estimates if facts and circumstances change. The
Company has assessed there will be no significant impact on the consolidated financial statements.
F-13
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
For the years ended December 31, 2017 and 2018
Note 4. Significant accounting policies
The accounting policies set out below have been applied consistently to all periods presented in
these consolidated financial statements and in preparing the opening IFRS statement of financial
position at January 1, 2017 for the purposes of the transition to IFRS, unless otherwise indicated.
The accounting policies have been applied consistently by consolidated entities.
(a) Basis of Consolidation
The accompanying consolidated financial statements include the accounts and operations of
Himax Technologies, Inc. and its majority owned subsidiaries and entities that it has a
controlling financial interest. All significant intercompany balances and transactions have
been eliminated in consolidation.
(b) List of Subsidiaries in the Consolidated Financial Statements
Following is general information about Himax Technologies, Inc.’s subsidiaries:
Percentage of Ownership
Investor
Subsidiary
Main
activities
Jurisdiction of
Incorporation
January1,
2017
December 31,
2017
December 31,
2018
Himax
Technologies, Inc.
Himax
Technologies, Inc.
Himax
Technologies, Inc.
Himax
Technologies, Inc.
Himax
Technologies, Inc.
Himax
Technologies
Limited
Himax
Technologies
(Samoa), Inc.
Himax
Technologies
(Samoa), Inc.
Himax Technologies
Limited (“Himax
Taiwan”)
Himax Technologies
Korea Ltd.
Himax Technologies
Japan Ltd.
Himax
Semiconductor, Inc.(1)
Himax Semiconductor
(Hong Kong) Limited
Himax Technologies
(Samoa), Inc.
Himax Technologies
(Suzhou) Co., Ltd.
Himax Technologies
(Shenzhen) Co., Ltd.
IC design and
sales
ROC
100.00%
100.00%
100.00%
IC design and
sales
Sales
IC design and
sales
Investments
South Korea
100.00%
100.00%
100.00%
Japan
ROC
100.00%
100.00%
100.00%
100.00%
100.00%
-
Hong Kong
100.00%
100.00%
100.00%
Investments
Samoa
100.00%
100.00%
100.00%
PRC
PRC
Sales and
technical
support
Sales and
technical
support
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
F-14
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
For the years ended December 31, 2017 and 2018
Investor
Subsidiary
Main
activities
Jurisdiction of
Incorporation
January1,
2017
December 31,
2017
December 31,
2018
Percentage of Ownership
Himax
Technologies
Limited
Himax Display, Inc.
Himax Display,
Inc.
Himax Display,
Inc.
Integrated
Microdisplays Limited
Himax Display (USA)
Inc.
Himax Analogic, Inc.
LCOS and
MEMS design,
manufacturing
and sales
LCOS design
LCOS and
MEMS
design, sales
and technical
support
IC design and
sales
ROC
82.55%
82.72%
82.70%
Hong Kong
82.55%
82.72%
82.70%
Delaware, USA
82.55%
82.72%
82.70%
ROC
98.62%
98.62%
98.62%
Himax Imaging, Inc.
Investments
Cayman Islands
100.00%
100.00%
100.00%
Himax Imaging, Ltd.
(“Imaging Taiwan”)
IC design and
sales
ROC
93.84%
93.72%
93.70%
Himax Imaging Corp.
IC design
California, USA
93.84%
93.72%
93.70%
Himax
Technologies
Limited
Himax
Technologies, Inc.
Himax
Technologies
Limited
Himax Imaging,
Ltd.
Himax
Technologies
Limited
Himax Media
Solutions, Inc.
ROC
99.21%
99.22%
99.22%
ROC
ROC
100.00%
100.00%
100.00%
64.00%
64.00%
64.00%
Delaware, USA
-
100.00%
100.00%
TFT-LCD
television,
monitor
chipset
operations,
ASIC service
and IP
licensing
Investments
LC Lens
design and
sales
3D micro and
nano structure
mastering
and prototype
replication
Himax
Technologies
Limited
Himax
Technologies
Limited
Himax
Technologies
Limited
Harvest Investment
Limited
Liqxtal Technology
Inc.
Himax IGI Precision
Ltd.(2)
F-15
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
For the years ended December 31, 2017 and 2018
Investor
Subsidiary
Main
activities
Jurisdiction of
Incorporation
January1,
2017
December 31,
2017
December 31,
2018
Percentage of Ownership
Himax
Technologies
Limited
Emza Visual Sense
Ltd. (3)
Israel
Visual sensors
and efficient
machine vision
algorithm
-
45.10%
100.00%
Note 1: For management purpose, Himax Semiconductor Inc. was merged into Himax
Technologies Limited on July 2, 2018.
Note 2: Himax IGI Precision Ltd. was newly incorporated on December 14, 2017, which is
wholly owned by Himax Technologies Limited.
Note 3: Emza Visual Sense Ltd. was wholly acquired by Himax Technologies Limited and
becomes a subsidiary of the Company from June 28, 2018.
Principal Activities
The Company is a fabless semiconductor solution provider dedicated to display imaging
processing technologies. The Company is a worldwide market leader in display driver
ICs and timing controllers used in TVs, laptops, monitors, mobile phones, tablets, digital
cameras, car navigation, virtual reality (VR) devices and many other consumer electronics
devices. Additionally, the Company designs and provides controllers for touch sensor
displays, in-cell Touch and Display Driver Integration (TDDI) single-chip solutions, LED
driver ICs, power management ICs, scaler products for monitors and projectors, tailor-made
video processing IC solutions, silicon IPs and LCOS micro-displays for augmented reality
(AR) devices and heads-up displays (HUD) for automotive. The Company also offers
digital camera solutions, including CMOS image sensors and Wafer Level Optics (WLO)
for AR devices, 3D sensing and machine vision, which are used in a wide variety of
applications such as mobile phone, tablet, laptop, TV, PC camera, automobile, security,
medical devices and Internet of Things.
(c) Foreign Currency
The reporting currency of the Company is the United States dollar (USD). The functional
currency for the Company and its major operating subsidiaries is the USD. Accordingly, the
assets and liabilities of subsidiaries whose functional currency is other than the USD are
included in the consolidation by translating the assets and liabilities into the reporting
currency (the USD) at the exchange rates applicable at the end of the reporting period.
Equity accounts are translated at historical rates. The statements of income and cash flows
are translated at the average exchange rates at the date of transaction. Translation gains or
losses are accumulated as a separate component of equity in accumulated other
comprehensive income.
F-16
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
For the years ended December 31, 2017 and 2018
(d) Classification of Current and Noncurrent Assets and Liabilities
Current assets are assets held for trading purposes and assets expected to be converted to
cash, sold or consumed within one year from the end of the reporting period. Current
liabilities are obligations incurred for trading purposes and obligations expected to be
settled within one year from the end of the reporting period. Assets and liabilities that are
not classified as current are noncurrent assets and liabilities, respectively.
(e) Cash and Cash Equivalents
Cash comprise cash balances and demand deposits. Cash equivalents comprise short-term
highly liquid investments that are readily convertible into known amounts of cash and are
subject to an insignificant risk of changes in their fair value. Deposits with an original
maturity of three months or less at the time of purchase but not for investments and other
purposes and are qualified with the aforementioned criteria are classified as cash equivalent.
(f) Financial Instruments
The Company elected to relieve from the retrospective application of the requirements in
respect of the recognition of such “Day 1” gains or losses on IFRS 9 “Financial
Instruments”. Therefore, in the opening statement of financial position, the amount of
financial instrument was the same as the carrying amount under US GAAP and just
reclassified to appropriate classification under IFRS 9.
The Company shall recognize a financial asset or a financial liability in its statement of
financial position when, and only when, the Company becomes party to the contractual
provisions of the instrument. A regular way purchase or sale of financial assets shall be
recognized and derecognized, as applicable, using trade date accounting.
1. Financial Assets
(i) Classification of financial assets
The classification of financial assets depends on the nature and purpose of the
financial assets and is determined at the time of initial recognition. Financial
assets are classified into the following categories: measured at amortized cost,
measured at fair value through other comprehensive income (FVTOCI) and
measured at fair value through profit or loss (FVTPL). The classification of
financial assets is generally based on the business model in which a financial asset
is managed and its contractual cash flow characteristics. When, and only when,
the Company changes its business model for managing financial assets it shall
reclassify all affected financial assets.
F-17
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
For the years ended December 31, 2017 and 2018
i. Financial assets measured at amortized cost
A financial asset is measured at amortized cost if it meets both of the
following conditions and is not designated as measured at fair value through
profit or loss:
(i) the asset held within a business model whose objective is to hold assets
to collect contractual cash flows; and
(ii) the contractual terms give rise on specified dates to cash flows that are
solely payments of principal and interest on the principal amount
outstanding.
Financial assets measured at amortized cost are subsequently measured at
amortized cost using the effective interest method. The amortized cost is
reduced by impairment losses. Interest income, foreign exchange gains and
losses and impairment are recognized in profit or loss. Any gain or loss on
derecognition is recognized in profit or loss.
ii. Financial assets measured at fair value through other comprehensive income
(FVTOCI)
On initial recognition of an equity investment that is not held for trading,
the Company may irrevocably elect to present subsequent changes in the
investment’s fair value in OCI. This election is made on an investment-by-
investment basis.
Equity investments at FVTOCI are subsequently measured at fair value.
Dividends are recognized as income in profit or loss unless the dividend
clearly represents a recovery of part of the cost of the investment. Other net
gains and losses are recognized in OCI. When an investment is
derecognized, the cumulative gain or loss in equity will not be reclassified to
profit or loss, instead, is reclassified to retained earnings.
iii. Financial assets measured at fair value through profit or loss (FVTPL)
All financial assets not classified as measured at amortized cost or at fair
value through other comprehensive income as described above are measured
at fair value through profit or loss.
Such financial assets are initially recognized at fair value, and attributable
transaction costs are recognized in profit or loss as incurred. Subsequent to
initial recognition, they are measured at fair value and changes therein are
recognized in profit or loss.
F-18
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
For the years ended December 31, 2017 and 2018
(ii)
Impairment of financial assets
The Company recognizes loss allowances for expected credit loss on financial
assets measured at amortized cost (including accounts receivable) and contract
assets.
The loss allowance for accounts receivable and contract assets are measured at an
amount equal to lifetime expected credit losses. For financial assets at amortized
cost and contract assets, when the credit risk on the financial instrument has not
increased significantly since initial recognition, a loss allowance is recognized at
an amount equal to expected credit loss resulting from possible default events of a
inancial instrument within 12 months after the reporting date. If, on the other
hand, there has been a significant increase in credit risk since initial recognition, a
loss allowance is recognized at an amount equal to expected credit loss resulting
from all possible default events over the expected life of a financial instrument.
When determining whether the credit risk of a financial instrument has increased
significantly since initial recognition, the Company considers reasonable and
supportable information that is relevant. This includes both qualitative and
quantitative information and analysis, based on the Company’s historical
experience and credit assessment as well as forward-looking information.
The Company recognizes an impairment gain or loss in profit or loss for all
financial instruments with a corresponding adjustment to their carrying amount
through a loss allowance account.
(iii)
Derecognition of financial assets
The Company derecognizes a financial asset only when the contractual rights to
the cash flows from the financial asset expire, or when it transfers the financial
asset and substantially all the risks and rewards of ownership of the financial asset
to another entity.
On derecognition of a financial asset at amortized cost in its entirety, the
difference between the asset’s carrying amount and the sum of the consideration
received and receivable is recognized in profit or loss. However, on derecognition
of an investment in an equity instrument at FVTOCI, the cumulative gain or loss
that had been recognized in other comprehensive income is transferred directly to
retained earnings, without recycling through profit or loss.
F-19
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
For the years ended December 31, 2017 and 2018
2. Financial Liabilities
(i) Classification of financial liability
The Company classify all financial liabilities as measured at amortized cost,
except for financial liabilities measured at fair value through profit or loss. Such
liabilities, including derivatives that are liabilities, shall be subsequently measured
at fair value.
(ii) Derecognition of financial liability
The Company removes a financial liability from its statement of financial position
when, and only when, it is extinguished-when the obligation specified in the
contract is discharged or cancelled or expires.
On derecognition of a financial liability at amortized cost in its entirety, the
difference between the carrying amount of a financial liability extinguished or
transferred to another party and the consideration paid, including any non-cash
assets transferred or liabilities assumed, shall be recognized in profit or loss.
(g) Inventories
Inventories primarily consist of raw materials, work-in-process and finished goods awaiting
final assembly and test and are stated at the lower of cost and net realizable value. Cost is
determined using the weighted-average method. For work-in-process and manufactured
inventories, cost consists of the cost of raw materials (primarily fabricated wafer and
processed tape), direct labor and an appropriate proportion of production overheads. Net
realizable value for raw materials is based on replacement cost. Net realizable value for
finished goods and work in process is calculated based on the estimated selling price less all
estimated costs of completion and necessary selling costs.
(h)
Equity Method Investments
Equity investments in entities where the Company has the ability to exercise significant
influence over the operating and financial policy decisions of the investee but does not have
a controlling financial interest in the investee, are accounted for using the equity method.
The Company’s share of the net income or net loss of an investee is recognized in earnings
from the date the significant influence commences until the date that significant influence
ceases. The difference between the cost of an investment and the amount of underlying
equity in net assets of an investee at investment date is allocated to related assets which are
amortized over their useful lives. Any unallocated difference is treated as investor-level
goodwill and is not amortized.
F-20
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
For the years ended December 31, 2017 and 2018
The Company discontinues the use of the equity method from the date when the Company
ceases to have significant influence over an associate, and then measures the retained
interests at fair value at that date. The difference between the carrying amount of the
investment at the date the equity method was discontinued and the fair value of the retained
interests along with any proceeds from disposing of a part of the interest in the associate is
recognized in profit or loss. When the Company discontinues the use of the equity method,
the Company shall account for all amounts previously recognized in other comprehensive
income in relation to that investment on the same basis as would have been required if the
investee had directly disposed of the related assets or liabilities.
At the end of each reporting period, if there is any indication of impairment, the entire
carrying amount of the investment including goodwill is tested for impairment as a single
asset, by comparing its recoverable amount with its carrying amount. An impairment loss
recognized forms part of the carrying amount of the investment in associates. Accordingly,
any reversal of that impairment loss is recognized to the extent that the recoverable amount
of the investment subsequently increases.
(i) Property, Plant and Equipment
Property, plant and equipment consists primarily of land purchased as the site of the
Company’s headquarters, building and machinery and equipment used in the design and
development of products, and is stated at cost less accumulated depreciation and any
accumulated impairment loss. Depreciation on building and machinery and equipment
commences when the asset is ready for its intended use. Except for the following
paragraph, depreciation is primarily calculated on the straight-line method over the
estimated useful lives of related assets which range as follows: building 25 years, building
improvements 4 to 16 years, machinery 4 to 6 years, research and development equipment 2
to 6 years, office furniture and equipment 3 to 8 years, others 2 to 10 years. Leasehold
improvements are amortized on a straight-line basis over the shorter of the lease term or the
estimated useful life of the asset. Software is amortized on a straight-line basis over the
estimated useful lives ranging from 2 to 10 years. Land is not depreciated.
If significant parts of an item of property, plant and equipment have different useful lives,
then they are accounted for as separate items (major components) of property, plant and
equipment.
During the year 2017, certain new machinery and equipment have been acquired for
specific project. The depreciation on these new assets is calculated on Fixed-Percentage-
on-Declining-Base Method basis over the estimated useful lives of 3 years. The Company
thinks that method would most closely reflect the expected pattern of consumption of the
future economic benefits embodied in those assets.
F-21
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
For the years ended December 31, 2017 and 2018
Depreciation methods, useful lives and residual values are reviewed at each reporting date
and adjusted if appropriate.
(j) Goodwill
Goodwill is recognized when the purchase price exceeds the fair value of identifiable net
assets acquired in a business combination. Goodwill is measured at cost less accumulated
impairment losses, if any.
Goodwill from acquisition of Himax Semiconductor, Inc. (formerly Wisepal Technologies,
Inc.) in 2007 amounting $26,846 thousand has been assigned to Driver IC cash generating
unit (“CGU”) and goodwill from acquisition of Himax Display (USA) Inc. in 2012
amounting $1,292 thousand has been assigned to WLO CGU because these CGUs are
expected to benefit from the synergies of the business combinations.
Goodwill is not amortized and instead is reviewed for impairment at least annually, or more
frequently when there is an indication that the CGU may be impaired. For the purpose
of impairment testing, goodwill is allocated to each of the Company’s CGU or groups of
CGU that are expected to benefit from the synergies of the combination. If the recoverable
amount of a cash-generating unit is less than its carrying amount, the difference is allocated
first to reduce the carrying amount of any goodwill allocated to such CGU and then to the
other assets of the CGU pro rata based on the carrying amount of each asset in the CGU.
Any impairment loss for goodwill is recognized directly in profit or loss. An impairment
loss recognized for goodwill is not reversed in subsequent periods.
The recoverable amount is the higher of fair value less costs of disposal and value in use. In
assessing value in use which was calculated based on the cash flow forecast from the
financial budgets covering the future five-year period with the terminal growth rate. The
annual discount rate was 11.87%, 10.76% and 10.71% in its test of Goodwill impairment for
Driver IC CGU as of January 1, 2017, December 31, 2017 and December 31, 2018,
respectively, based on industry weighted average cost of capital. The annual discount rate
for WLO CGU was 13.68%, 12.17% and 12.70% as of January 1, 2017, December 31, 2017
and December 31, 2018, respectively. The terminal growth rate, based on following 5 years
average Taiwan economic growth rate published by International Monetary Fund, was
2.44%, 2.24% and 2.08% also used in the test for both CGUs as of January 1, 2017,
December 31, 2017 and December 31, 2018, respectively. The key assumptions
abovementioned represents the management’s forecast of the future for the related industry
by considering the history information from internal and external sources.
On January 1, 2017, the Company’s date of transition to IFRS, there is no impairment loss
recognized on Goodwill after the impairment test. For the years ended December 31, 2017
and 2018, the Company did not recognize any impairment loss on goodwill.
F-22
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
For the years ended December 31, 2017 and 2018
(k) Other Intangible Assets
Acquired intangible assets include patents, intellectual property and developed technology
acquired in a business combination. These intangible assets are amortized on a straight-
line basis over the following estimated useful lives: patents 15 years, intellectual property 10
years and technology 7 years.
Amortization methods, useful lives and residual values are reviewed at each reporting date
and adjusted if appropriate.
(l) Impairment of Non-Financial Assets
The Company’s long-term non-financial assets, which consist of property, plant and
equipment and intangible assets, are reviewed at the reporting date to determine whether
there is any indication of impairment. If any such indication exists, then the asset’s
recoverable amount is estimated.
The recoverable amount of an asset or cash-generating unit is the greater of its value in use
and its fair value less costs to sell. In assessing value in use, the estimated future cash flows
are discounted to their present value using a pre-tax discount rate that reflects current
market assessments of the time value of money and the risks specific to the asset.
For the purpose of impairment testing, assets that cannot be tested individually are grouped
together into the smallest group of assets that generates cash inflows from continuing use
that are largely independent of the cash inflows of other assets or groups of assets (the
“cash-generating unit, or CGU”).
An impairment loss is recognized if the carrying amount of an asset or its CGU exceeds its
estimated recoverable amount. Impairment losses are recognized in profit or loss. When an
impairment loss subsequently reverses, the carrying amount of the asset or a CGU is
increased to the revised estimate of its recoverable amount, but the increased carrying
amount does not exceed the carrying amount that would have been determined had no
impairment loss been recognized for the asset or CGU in prior years. A reversal of an
impairment loss is recognized immediately in profit or loss.
(m) Revenue Recognition
Effective January 1, 2018, the Company adopted IFRS 15, Revenue with contract customers
retrospectively with practical expedient and transitional exemption. The date of initial
application of IFRS 15 is the beginning of the first IFRS reporting period. The Company is
not required to restate contracts that were begin and end within the same annual reporting
period. There is no significant impact on the Company’s financial results in applying the
practical expedient.
F-23
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
For the years ended December 31, 2017 and 2018
IFRS 15 establishes principles for recognizing revenue that apply to all contracts with
customers, using a five-step model framework to determine the method, timing and amount
of revenue recognized. The Company generates revenue primarily from sale of goods or
services. Revenue from contracts with customers is disaggregated by primarily
geographical market and major products.
Under IFRS 15, the Company identifies the contract with the customers and recognizes
revenue when performance obligations are satisfied.
Revenue is measured based on the consideration that the Company expects to be entitled in
the transfer of goods or services to a customer. The Company recognizes revenue when it
satisfies a performance obligation by transferring control over a product or service to a
customer. Customers obtain control of the product when the goods are delivered and
accepted by customers. Invoices are generated at that point in time.
The Company recognizes revenue from product sales is measured at the amount that is
highly probable that a significant reversal in the amount of cumulative revenue recognized
will not occur. Revenue is reduced for estimated rebates and other similar allowances.
Trade receivable is recognized when the Company is entitled for unconditional right to
receive payment upon delivery of goods to customers. The consideration received in
advance from the customer but without delivery of goods is recognized as a contract
liability, for which revenue is recognized when the control over the goods is transferred to
the customer.
The Company expects that the length of time when the Company transfers the goods or
services to the customer and when the customer pays for those goods or services will be less
than one year. Therefore, the amount of consideration is not adjusted for the time value of
money.
(n) Employee Benefits
1. Short-term employee benefits
Short-term employee benefits are expensed unless another policy allows or requires it
to be capitalized. Liabilities recognized in respect of short-term employee benefits are
measured at the undiscounted amount of the benefits expected to be paid in exchange
for service rendered by employees.
2. Share-based payment arrangements
The cost of employee services received in exchange for share-based compensation is
measured based on the grant-date fair value of the share-based instruments issued. The
cost of employee services is equal to the grant-date fair value of shares issued to
employees and is recognized in earnings with a corresponding increase in equity over
the service period by graded vesting. Compensation cost also considers the number of
awards management believes will eventually vest. As a result, compensation cost is
F-24
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
For the years ended December 31, 2017 and 2018
reduced by the estimated forfeitures. The estimate is adjusted each period to reflect the
current estimate of forfeitures, and finally, the actual number of awards that vest.
3. Defined contribution plans
Obligations for contributions to defined contribution pension plans are recognized as an
employee benefit expense in profit or loss in the periods during which services are
rendered by employees.
4. Defined benefit plans
The Company’s net obligation in respect of defined benefit pension plans is calculated
separately for each benefit plan by estimating the amount of future benefit that
employees have earned in the current and prior periods, discounting that amount and
deducting the fair value of any plan assets. For defined benefit retirement benefit plans, the
cost of providing benefit is recognized based on actuarial calculations. Defined
benefit costs (including service cost, net interest and remeasurement) under the defined
benefit retirement benefit plans are determined using the Projected Unit Credit Method.
Service cost (including current service cost), and net interest on the net defined benefit
liability (asset) are recognized as employee benefits expense in profit or loss in the
period they occur. Remeasurement, comprising actuarial gains and losses and the
return on plan assets (excluding interest), is recognized in other comprehensive income
in the period in which they occur. Remeasurement recognized in other comprehensive
income is reflected immediately in retained earnings and will not be reclassified to
profit or loss.
All actuarial gains and losses at January 1, 2017, the date of transition to IFRS, were
recognized in retained earnings. The Company recognizes all actuarial gains and losses
arising subsequently from defined benefit plans in other comprehensive income.
(o) Income Taxes
Income tax expense comprises current and deferred taxes. It is recognized in profit or loss
except to the extent that it relates to a business combination, or items recognized directly in
equity or in other comprehensive income.
1. Current tax
Current taxes comprise the expected tax payable or receivable on the taxable income or
losses for the year and any adjustments to tax payable or receivable in respect
of previous years. It is measured using tax rates enacted or substantively enacted tax rate
at the reporting date.
F-25
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
For the years ended December 31, 2017 and 2018
2. Deferred tax
Deferred tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the carrying amounts of existing assets and liabilities
in the financial statements and their respective tax bases, and operating loss and tax
credit carry-forwards. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date. Deferred tax assets are reviewed at each reporting date
and are reduced to the extent that it is no longer probable that the related tax benefit will
be realized; such reductions are reversed when the probability of future taxable profits
improves.
(p) Business Combinations
The Company elected to take the optional exemption under IFRS 1 for business
combinations before the date of transition to IFRS. Therefore, in the opening statement of
financial position, the amount of goodwill generated from past business combinations was
the same as the carrying amount of goodwill under US GAAP as of January 1, 2017.
Acquisitions of businesses are accounted for using the acquisition method. Acquisition-
related costs are generally recognized in profit or loss as incurred. Goodwill is measured as
the excess of the sum of the consideration transferred, the amount of any non-controlling
interests in the acquiree, and the fair value of the acquirer’s previously held equity interest
in the acquiree over the net of the acquisition-date amounts of the identifiable assets
acquired and the liabilities assumed. Non-controlling interests are initially measured at the
non-controlling interests’ proportionate share of the fair value of the acquiree’s identifiable
net assets.
Any contingent consideration payable is measured at fair value at the acquisition date. If
the contingent consideration is classified as equity, then it is not remeasured and settlement is
accounted for within equity. Otherwise, subsequent changes in the fair value of
contingent consideration are recognized in profit or loss.
When a business combination is achieved in stages, the Company’s previously held equity
interest in the acquiree is remeasured to fair value at the acquisition date, and the resulting
gain or loss is recognized in profit or loss.
(q) Earnings Per Ordinary Share
Basic earnings per ordinary share is computed using profit or loss attributable to the
shareholders and weighted average number of ordinary shares outstanding during the
period. Diluted earnings per ordinary share is computed using the weighted average
number of ordinary and diluted ordinary equivalent shares outstanding during the period.
Ordinary equivalent shares are ordinary shares that are contingently issuable upon the
vesting of unvested restricted share units (RSUs) granted to employees.
F-26
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
For the years ended December 31, 2017 and 2018
Basic and diluted earnings per ordinary share have been calculated as follows:
Profits attributable to Himax Technologies, Inc. stockholders
(in thousands)
Denominator for basic earnings per ordinary share:
Weighted average number of ordinary shares outstanding
(in thousands)
Basic earnings per ordinary share attributable to Himax
Technologies, Inc. stockholders
Basic earnings per ADS attributable to Himax Technologies,
Inc. stockholders(1)
Year Ended December 31,
2017
2018
$
$
$
27,680
8,569
344,849
345,020
0.08
0.16
0.02
0.05
Contingently issuable ordinary shares underlying the unvested RSUs granted to employees
are included in the calculation of diluted earnings per ordinary share based on treasury stock
method.
Profits attributable to Himax Technologies, Inc. stockholders
(in thousands)
Denominator for diluted earnings per ordinary share:
Weighted average number of ordinary shares outstanding
(in thousands)
Unvested RSUs (in thousands)
Diluted earnings per ordinary share attributable to Himax
Technologies, Inc. stockholders
Diluted earnings per ADS attributable to HimaxInc.
Technologies, Inc. stockholders(1)
Year Ended December 31,
2017
2018
$
27,680
8,569
344,849
54
344,903
345,020
49
345,069
$
$
0.08
0.16
0.02
0.05
Note 1: As the Company’s ordinary shares have been quoted on the NASDAQ Global Select Market
under the symbol “HIMX” in the form of ADSs and two ordinary shares represent one ADS with
effect from August 10, 2009. The number of ADS equivalent outstanding is determined by dividing
the number of ordinary shares by two. Therefore, the weighted average number of ADS equivalent
outstanding used in basic earnings per ADS for 2017 and 2018 is 172,425 thousand and 172,510
thousand, respectively. Additionally, the weighted average number of ADS equivalent outstanding
used in diluted earnings per ADS for 2017 and 2018 is 172,452 thousand and 172,534 thousand,
respectively. The earnings per ADS is presented solely for the convenience of the reader and does
not represent a measure under IFRS.
F-27
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
For the years ended December 31, 2017 and 2018
(r) Segment Reporting
An operating segment is a component of the Company that engages in business activities
from which it may earn revenues and incur expenses. All operating segments’ operating
results are reviewed regularly by the Company’s chief operating decision maker (“CODM”)
to make decisions about resources to be allocated to the segment and assess its performance,
and for which discrete financial information is available.
The Company’s CODM has been identified as the Chief Executive Officer, who regularly
reviews operating results to make decisions about allocating resources and assessing
performance for the Company. Management has determined that the Company has two
operating segments: Driver IC and Non-driver products.
The CODM assesses the performance of the operating segments based on segment sales and
segment profit and loss. There are no intersegment sales in the segment revenues reported
to the CODM. Segment profit and loss is determined on a basis that is consistent with how
the Company reports operating income (loss) in its consolidated statements of operations.
Segment profit (loss) excludes income taxes and items in non-operating income (loss).
The Company does not report segment asset information to the Company’s CODM.
Consequently, no asset information by segment is presented.
(s) Noncontrolling Interests
Noncontrolling interests are classified in the consolidated statements of profit or loss as part
of profit (loss) for the period and the accumulated amount of noncontrolling interests as part
of equity in the consolidated statements of financial position. If a change in ownership of a
consolidated subsidiary results in loss of control and deconsolidation, any retained
ownership interests are re-measured with the gain or loss reported in net earnings.
(t) Use of Judgments and Estimates
The preparation of the consolidated financial statements in conformity with IFRS requires
management to make judgments, estimates and assumptions that affect the application of
accounting policies and the reported amounts of assets, liabilities, income and expenses.
Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to
accounting estimates are recognized in the period in which the estimates are revised and in
any future periods affected.
F-28
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
For the years ended December 31, 2017 and 2018
Information about critical judgments, estimates and assumptions in applying accounting
policies that have the most significant effect on the amounts recognized in the consolidated
financial statements is included in the following notes:
1. Valuation of inventory
Inventories are stated at the lower of cost or net realizable value, and the Company uses
judgment and estimate to determine the net realizable value of inventory at the end of
each reporting period.
Due to the rapid technological changes, the Company estimates the net realizable value of
inventory for obsolescence and unmarketable items at the end of reporting period and
hen writes down the cost of inventories to net realizable value. The net realizable
value of the inventory is mainly determined based on assumptions of future demand
within a specific time horizon.
2. Impairment of non-financial assets other than goodwill
In the process of evaluating the potential impairment of non-financial assets other than
goodwill, the Company is required to make subjective judgments in determining the
independent cash flows, useful lives, expected future revenue and expenses related to
the specific asset groups. Any changes in these estimates based on changed economic
conditions or business strategies could result in significant impairment charges or
reversal in future years.
3. Recognition of deferred tax assets
Deferred tax assets are recognized to the extent that it is probable that future taxable
profits will be available against which those deferred tax assets can be utilized.
Assessment of the realization of the deferred tax assets requires the Company’s
subjective judgment and estimate, including the future revenue growth and profitability,
the sources of taxable income, the amount of tax credits that can be utilized and feasible
tax planning strategies. Changes in the economic environment, the industry trends and
relevant laws and regulations may result in adjustments to the deferred tax assets.
4. Impairment of goodwill
The assessment of impairment of goodwill requires the Company to make subjective
judgment to determine the identified CGU, allocate the goodwill to relevant CGU and
estimate the recoverable amount of relevant CGU. In the process of estimating the
recoverable amount of relevant CGU, the Company is required to make subjective
judgments in determining the discounted rate, the terminal growth rate, the independent
cash flows, useful lives, expected future revenue and expenses related to the CGU.
F-29
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
For the years ended December 31, 2017 and 2018
Note 5. Acquisition
(a)
Acquisition of nano 3D mastering related business
On February 21, 2018, the Company, through Himax IGI Precision Ltd., completed the
acquisition of nano 3D mastering related business with total cash consideration
approximating $1,400 thousand, and half of which, $700 thousand, will be paid after one
year.
The advanced nano 3D manufacturing masters are primarily used in imprinting or stamping
replication process to fabricate devices such as diffractive optical element (DOE), diffuser,
collimator lens and micro lens array. The acquisition brings the Company the very
upstream master tooling capability to supplement its world leading wafer level optics
(WLO) technology, which is critical in its efforts to offer 3D sensing total solutions.
Acquired assets were valued at estimates of their current fair values. Property, plant and
equipment, other intangible asset and prepaid maintenance acquired were $700 thousand,
$400 thousand and $300 thousand, respectively.
(b)
Acquisition of Emza Visual Sense Ltd.
Emza Visual Sense Ltd.(“Emza”) was purchased in April 2017 with an original investment
amount of $2,230 thousand together with an additional investment amount of $270 thousand
through conversion of equal amount of debts which occurred in 2016. On June 28, 2018,
the Company completed the acquisition of all the outstanding common shares of Emza with
total cash consideration approximating $6,371 thousand, including $400 thousand holdback
that will be paid after one year. The Company’s previously held equity interests in Emza
was re-measured at fair value, which was determined with the assistance of an independent
appraiser using the equity value allocation method at acquisition date. The re-measurement
gain on the previously held equity interests in Emza was $1,662 thousand which is included
in “other income, net” in the consolidated statements of profit or loss.
Emza is an Israeli company dedicated to the development of visual sensors that include
proprietary machine-vision algorithms and specific architectures that enable always-on
visual sensing capabilities, achieving improvement in power consumption, price and form
factor. This acquisition would allow the Company to fully leverage the synergy into
producing visual sensors that integrate camera, hardware and algorithms and operate at
unprecedented power, cost and size.
The results of Emza’s operations have been included in the Company’s consolidated
financial statements since that date. The amounts of Emza’s revenues and losses included in
the consolidated statements of profit or loss from the acquisition date to the period ended
December 31, 2018 were $72 thousand and $2,858 thousand, respectively. If the acquisition
had occurred on January 1, 2018, management estimates that consolidated revenue would
have been $723,605 thousand (unaudited), and consolidated profit for the year would have
been $7,291 thousand (unaudited). In determining these amounts, management has
assumed that the fair value adjustments that arose on the date of acquisition would have
been the same if the acquisition had occurred on January 1, 2018.
F-30
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
For the years ended December 31, 2017 and 2018
The Company incurred acquisition-related costs of $195 thousand on legal fees and due diligence
costs. These costs have been included in “general and administrative expenses” in the consolidated
statements of profit or loss.
The following table summarizes the amounts of estimated fair value of the assets acquired and
liabilities assumed at the date of acquisition.
Recognized amounts of identifiable assets acquired and liabilities
assumed:
Cash
Current assets, other than cash
Property, plant and equipment
Deferred tax assets
Other intangible assets
Other current liabilities
Deferred tax liabilities
Total identifiable net assets acquired
Fair value
(in thousands)
$
$
170
335
27
1,445
8,545
(2,706)
(1,445)
6,371
Acquired tangible assets were valued at estimates of their current fair values. The valuation of
acquired intangible assets consisting of the core and developed technology $6,282 thousand and
trademark $1,800 thousand were determined based on management’s estimates and consultation with
an independent appraiser. The multi-period excess earnings method was used in applying the income
approach to determine the fair value of acquired intangible assets. Significant assumptions inherent
in the valuation method for acquired intangible assets are employed and included, but are not limited
to, prospective financial information, terminal value, and discount rates. When performing the multi-
period excess earnings method for acquired intangible assets, the Company incorporates the use of
projected financial information and a discount rate that are developed using market participant based
assumptions. The cash-flow projections are based on seven-year financial forecasts developed by
management that include revenue projections, capital spending trends, and investment in working
capital to support anticipated revenue growth, which are regularly reviewed by management. The
selected discount rate considers the risk and nature of the comparative companies and the rates of
return market participants would require to investing their capital in reporting units.
The acquired intangible assets, the core and developed technology, will be amortized based on a
weighted-average useful life of approximately 7 years. However, the acquired trademark is intangible
asset with an indefinite useful life.
F-31
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
For the years ended December 31, 2017 and 2018
Note 6. Cash and Cash Equivalents
Cash, demand deposits and checking accounts
Time deposits with less than three months
maturity date
January 1,
2017
December 31,
2017
(in thousands)
December 31,
2018
$
$
171,397
115,464
98,400
13,055
184,452
22,559
138,023
8,037
106,437
Refer to Note 22 and Note 23 for the disclosure of credit risk, currency risk and sensitivity
analysis of the financial assets and liabilities of the Company.
As of January 1, 2017, December 31, 2017 and 2018, no cash and cash equivalents were pledged
with banks as collaterals.
Note 7. Financial Assets at Amortized Cost
January 1,
2017
December 31,
2017
(in thousands)
December 31,
2018
Time deposit with original maturities more than
three months
$
5,140
10,358
11,229
The financial assets at amortized cost are in China Yuan (CNY) and US dollar denominated time
deposits with original maturities of more than three months and the expected holding period as of
January 1, 2017, December 31, 2017 and 2018 is due in one year or less.
As of January 1, 2017, December 31, 2017 and 2018, no financial assets at amortized cost were
pledged with banks as collaterals.
Note 8. Financial Assets at Fair Value Through Profit or Loss
Following is a summary of financial assets at fair value through profit or loss as of January 1,
2017, December 31, 2017 and 2018:
Money market fund
Equity securities-unlisted company
Current
Non-current
January 1,
2017
December 31,
2017
(in thousands)
December 31,
2018
$
$
$
$
5,017
10,562
15,579
5,017
10,562
15,579
521
1,600
2,121
521
1,600
2,121
-
9,768
9,768
-
9,768
9,768
F-32
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
For the years ended December 31, 2017 and 2018
The Company sold one equity security in December 2017 for proceeds of $32,000 thousand, of
which $10,000 thousand received in December 2017 and the balance of $22,000 thousand is
booked as “Other current assets” as of December 31, 2017 and was received in January 2018.
The Company recognized a gain on sale of securities of $23,038 thousand and withholding tax of
$2,304 thousand for the year ended December 31, 2017, which is included in “Changes in fair
value of financial assets at fair value through profit or loss” and “Income taxes payable”,
respectively. The withholding tax payable was paid in 2018.
As of January 1, 2017, December 31, 2017 and 2018, no financial assets at fair value through
profit or loss were pledged with banks as collaterals.
Note 9. Financial Assets at Fair Value Through Other Comprehensive Income
The equity securities are held for long-term strategies and therefore are accounted for as
FVTOCI. Capital reduction from equity security investments designated as at FVTOCI
recognized for the years ended December 31, 2017 and 2018, were $132 thousand and $55
thousand, respectively, all related to investments held at the end of the reporting period.
As of January 1, 2017, December 31, 2017 and 2018, no financial assets at fair value through
other comprehensive income were pledged with banks as collaterals.
Note10. Financial Liability at Amortized Cost
During 2013, Himax Display, Inc., a consolidated subsidiary of the Company, issued redeemable
convertible preferred shares to a non-controlling shareholder. The noncontrolling shareholder
may, solely at its option, convert the preferred shares at any time into ordinary shares of Himax
Display, Inc. on a one to one basis. Additionally, Himax Display, Inc. provided the noncontrolling
shareholder with a liquidation preference, redemption feature and a warrant to purchase additional
preferred shares of Himax Display, Inc., within one year from the original investment closing date.
The warrant expired in October 2014.
The redeemable convertible preferred shares of Himax Display, Inc. are presented as financial
liability at amortized cost on the Company’s consolidated statements of financial position and
subsequently measured using effective interest method. The interest related to financial liability
at amortized cost were $313 thousand and $234 thousand for the years ended December 31, 2017
and 2018, respectively.
Note 11. Accounts Receivable, net
Accounts receivable
Less: Allowance for doubtful accounts
Less: Loss allowance
January 1,
2017
$
$
193,929
(1,395)
-
192,534
December 31,
2017
(in thousands)
188,774
-
-
188,774
December 31,
2018
189,569
-
(290)
189,279
F-33
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
For the years ended December 31, 2017 and 2018
As of December 31, 2018, the Company measures the loss allowance for accounts receivable
using the simplified approach under IFRS 9 with the lifetime expected credit losses. To measure
the expected credit losses, accounts receivable have been grouped based on the days past due, as
well as incorporated forward looking information, including relevant industry information.
Analysis of expected credit losses as of December 31, 2018, which was measured based on the
aforementioned method, was as follows:
Not past due
Past due within 30 days
Past due 31-60 days
Past due 61-90 days
Past due 91-120 days
Past due over 121 days
Carrying
amount of
accounts
receivable
186,654
2,622
3
-
-
-
189,279
Weighted
average loss
rate
(in thousands)
0.00%
0.00%
0%-0.01%
0%-6.29%
0%-18.21%
100.00%
$
$
Loss
allowance
for lifetime
expected
credit
-
-
-
-
-
-
-
In addition, the Company recognized a loss allowance amounting to $290 thousand as of
December 31, 2018 for accounts receivable with gross carrying amount of $290 thousand, due to
there was objective evidence indicating that it could not reasonably be expected those receivables
would be able to be recovered.
As of January 1, 2017 and December 31, 2017, the Company measured the allowance for
doubtful accounts for accounts receivable based on a review of collectability of accounts
receivable. Aging analysis of accounts receivable, which were past due but not impaired, as of
January 1, 2017 and December 31, 2017, was as follows:
Not past due
Past due within 30 days
Past due 31-60 days
Past due 61-90 days
Past due 91-120 days
Past due over 121 days
January 1,
2017
December 31,
2017
(in thousands)
$
$
188,414
3,875
347
-
-
1,293
193,929
186,681
1,506
396
-
1
190
188,774
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
For the years ended December 31, 2017 and 2018
The activity in the loss allowance is as follows:
Loss Allowance
Period
Balance at
beginning
of year
Charges to
earnings
Amounts
utilized /
write-offs
(in thousands)
F-34
Balance at
end of year
Year 2017
Year 2018
$
$
1,395
-
155
290
(1,550)
-
-
290
Note12. Inventories
Finished goods
Work in process
Raw materials
Supplies
January 1,
2017
December 31,
2017
(in thousands)
December 31,
2018
$
$
54,357
57,076
38,273
42
149,748
46,365
54,084
34,220
531
135,200
41,557
77,159
43,028
817
162,561
The amounts of inventories that were charged to cost of revenues were $505,844 thousand and
$536,966 thousand, respectively, and the charges for inventories written down to net realizable
value amounted to $12,298 thousand and $17,724 thousand for the years ended December 31,
2017 and 2018, respectively, which were also included in cost of revenues.
As of January 1, 2017, December 31, 2017 and 2018, none of the Company’s inventories was
pledged as collateral.
F-35
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
For the years ended December 31, 2017 and 2018
Note 13. Equity Method Investments
Associates consisted of the following:
Name of
Associate
Principal
Activities
Emza Visual Sense
Ltd.
Development of
visual sensors and
efficient machine
vision algorithm
Eye tracking chip
and module
Place of
Incorporation
and operation
Israel
Taipei, Taiwan
$
Ganzin
Technology
Corp.
Iris Optronics
Co., Ltd.
Kneron Inc.
Viewsil
Microelectronics
(Kunshan)
Limited
E-paper
manufacturing
and sales
Artificial
intelligence chip
design
IC design and
sales
Tainan, Taiwan
California, USA
Kunshan, China
January1, 2017
December 31,2017
December 31,2018
Carrying
amount
Holding
%
Carrying
amount
Holding
%
Carrying
amount
Holding
%
-
-
-
-
1,802
45.10
-
-
95
28.93
1.473
49.32
44
2.06
30
2.06
44
1.55
-
-
6,598
27.65
-
-
2,318
2,362
$
49.00
2,214
10,739
49.00
2,547
4,064
49.00
In April 2018, the Company assessed its relationships with Kneron Inc. and determined that it is
no longer able to exercise significant influence over Kneron Inc. Therefore, the Company
reclassified its investment in Kneron Inc. as financial assets at fair value through profit or loss.
The difference between the fair value of the investment and carrying amount accounted for
under the equity method as at the date of the reclassification was recognized in profit or loss. In
total, a gain of $2,094 thousand was recognized under changes in fair value of financial assets at
fair value through profit or loss in the consolidated statement of profit or loss for the year ended
December 31, 2018.
There is no individually significant associate for the Company. The following table summarized
the amount recognized by the Company at its share of those associates:
For the year ended
December 31,
2017
2018
(in thousands)
The Company’s share of losses of associates
The Company’s share of other comprehensive income
(loss) of associates
The Company’s share of total comprehensive income (loss)
of associates
$
$
$
(1,200)
(1,095)
106
(68)
(1,094)
(1,163)
As of January 1, 2017, December 31, 2017 and 2018, none of the Company’s equity method
investments was pledged as collateral.
F-36
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
For the years ended December 31, 2017 and 2018
Note 14. Other Intangible Assets
Cost
Balance at January 1, 2017
Additions
Disposals
Effect of exchange rate changes
Balance at December 31, 2017
Acquisitions through business
combinations
Additions
Transfer from property, plant and
equipment
Disposals
Effect of exchange rate changes
Balance at December 31, 2018
Accumulated Amortization
Balance at January 1, 2017
Amortization for the year
Disposals
Effect of exchange rate changes
Balance at December 31, 2017
Amortization for the year
Transfer from property, plant and
equipment
Disposals
Effect of exchange rate changes
Balance at December 31, 2018
Carrying amounts
At January 1, 2017
At December 31, 2017
At December 31, 2018
$
$
$
$
$
$
$
Technology
Software
Others
Total
(in thousands)
6,889
-
-
-
6,889
6,282
-
-
-
-
13,171
3,771
985
-
-
4,756
1,433
-
-
-
6,189
3,118
2,133
6,982
6,373
526
(2,640)
9
4,268
-
925
9
-
(8)
5,194
5,762
417
(2,640)
9
3,548
469
7
-
(7)
4,017
100
-
-
-
100
2,663
-
-
-
(13)
2,750
48
6
-
-
54
78
-
-
(1)
131
13,362
526
(2,640)
9
11,257
8,945
925
9
-
(21)
21,115
9,581
1,408
(2,640)
9
8,358
1,980
7
-
(8)
10,337
611
720
1,177
52
46
2,619
3,781
2,899
10,778
Others in other intangible assets includes the acquired trademark $1,800 thousand with an
indefinite useful life.
F-37
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
For the years ended December 31, 2017 and 2018
Other intangible assets were amortized on a straight-line basis over their estimated useful lives as
follows:
Technology 7 years
Software 2-10 years
Others (except for trademark) 7-15 years
Note 15. Property, Plant and Equipment
Building
and
improvements
Land
Machinery
Research
and
development
equipment
Office
furniture
and
equipment
Others
Prepayments
for purchase
of equipment
and
construction
in progress
Total
14,328
-
-
-
-
22,821
898
1,225
-
42,907
12,484
887
(1,208)
(in thousands)
11,402
663
-
(271)
32,590
9,236
(569)
(1,065)
27,268
2,137
-
(459)
1,924
27,013
(1,543)
-
153,240
52,431
-
(3,003)
-
-
-
93
211
-
304
14,328
24,944
55,070
40,192
11,887
29,157
27,394
202,972
-
-
-
-
-
-
4,268
2,759
-
-
700
14,520
684
(506)
-
-
6,084
96
(415)
-
27
1,352
-
(232)
(70)
-
3,879
-
(570)
(86)
-
14,045
(3,548)
-
727
44,148
(9)
(1,723)
-
(156)
14,328
31,971
70,468
45,957
12,964
32,380
37,891
245,959
-
-
-
-
-
-
-
-
-
-
-
13,313
1,411
-
-
35,323
5,656
392
(1,208)
27,466
3,438
(392)
(1,065)
-
-
-
14,724
1,326
-
-
40,163
7,891
-
(506)
29,447
5,087
(7)
(415)
9,700
813
-
(271)
75
10,317
710
-
(232)
20,129
3,954
-
(459)
122
23,746
3,333
-
(569)
-
-
-
(58)
(65)
16,050
47,548
34,112
10,737
26,445
-
-
-
-
-
-
-
-
-
-
-
105,931
15,272
-
(3,003)
197
118,397
18,347
(7)
(1,722)
(123)
134,892
14,328
14,328
14,328
9,508
10,220
15,921
7,584
14,907
22,920
5,124
10,745
11,845
1,702
1,570
2,227
7,139
5,411
5,935
1,924
27,394
37,891
47,309
84,575
111,067
Cost
Balance at January 1, 2017
Additions
Transfers
Disposals
Effect of exchange rate
$
changes
Balance at December 31,
2017
Acquisitions through
business combinations
Additions
Transfers
Disposals
Effect of exchange rate
changes
Balance at December 31,
2018
Accumulated Depreciation
Balance at January 1, 2017
Depreciation for the year
Transfers
Disposals
Effect of exchange rate
changes
Balance at December 31,
2017
Depreciation for the year
Transfers
Disposals
Effect of exchange rate
changes
Balance at December 31,
2018
Carrying amounts
At January 1, 2017
At December 31, 2017
At December 31, 2018
$
$
$
$
$
$
F-38
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
For the years ended December 31, 2017 and 2018
Others in property, plant and equipment includes mold equipment, leasehold improvements and other
equipment.
During the years ended December 31, 2017 and 2018, the Company acquired certain property,
plant and equipment with amounts of $14,381 thousand and $5,115 thousand, respectively, of
which were acquired through non-cash transactions and reflected under payable for purchase of
building and equipment.
The above items of property, plant and equipment, except certain machinery and equipment for
specific project depreciated on Fixed-Percentage-on-Declining-Base Method basis mentioned in
Note 4(i), are depreciated on a straight-line basis over their estimated useful lives as follows:
Buildings
Building improvements
Machinery
Research and development equipment
Office furniture and equipment
Others
25 years
4-16 years
4-6 years
2-6 years
3-8 years
2-15 years
For the years ended December 31, 2017 and 2018, the Company did not recognize any impairment
loss on property, plant and equipment.
Note 16. Other Current Liabilities
January 1,
2017
December 31,
2017
(in thousands)
December 31,
2018
Accrued payroll and related expenses
Accrued mask, mold fees and other expenses for
RD
Payable for purchases of building and equipment
Accrued software maintenance
Allowance for sales discounts
Accrued insurance, welfare expenses, professional
fee
$
6,958
9,461
10,009
7,503
1,615
891
1,536
8,816
10,726
1,004
1,203
12,754
31,257
$
11,261
42,471
9,935
5,611
1,921
494
13,810
41,780
F-39
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
For the years ended December 31, 2017 and 2018
The activity in the sales discounts is as follows:
Allowance for sales discounts
Period
Balance at
beginning
of year
Charges to
earnings
Amounts
utilized
(in thousands)
Balance at
end of
year
Year 2017
Year 2018
$
$
1,536
1,203
8,720
1,855
(9,053)
(2,564)
1,203
494
Note 17. Short-Term Borrowings
Unsecured borrowings
Secured borrowings
Unused credit lines
Interest rate
January 1,
2017
-
138,000
285,511
0.32%~
0.55%
$
$
$
December 31,
2017
(in thousands)
December 31,
2018
-
147,000
238,695
0.35%~
0.58%
20,000
164,000
247,295
0.35%~
2.96%
As of January 1, 2017, December 31, 2017 and 2018, cash and time deposits totaling $138,000
thousand, $147,000 thousand and $164,000 thousand are pledged as collateral, respectively.
As of December 31, 2018, unused credit lines will expire between January 2019 and November
2019. Among the unused credit lines, $30,163 thousand will expire before the end of March
2019, and $136,000 thousand belonging to the parent company needs to be secured with equal
amount of cash and time deposits when borrowing money from banks.
The reconciliation of liabilities to cash flows arising from financing activities was as follows:
January
1, 2017
Cash flows
December
31, 2017
(in thousands)
Cash flows
December
31, 2018
Short-term borrowings
$
138,000
9,000
147,000
37,000
184,000
F-40
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
For the years ended December 31, 2017 and 2018
Note 18. Employee benefits
1. Defined benefit plans
Pursuant to the ROC Labor Standards Law, the Company has established a defined benefit
pension plan covering full-time employees in the ROC that provides retirement benefits to
retiring employees based on years of service and the average salary for the six-month period
before the employee’s retirement.
Reconciliations of defined benefit obligation at present value and plan asset at fair value are
as follows:
January 1,
2017
December 31,
2017
(in thousands)
December 31,
2018
$
$
$
3,954
4,460
3,184
(2,992)
962
1,064
(102)
962
(3,410)
1,050
1,152
(102)
1,050
(3,565)
(381)
151
(532)
(381)
Present value of the defined benefit
obligations
Fair value of plan assets
Net defined benefit liabilities
Prepaid pension costs
(i) Plan assets
The Company contributes an amount equal to 2% of wages and salaries paid every
month to the Fund (required by law). The Fund is administered by a pension fund
monitoring committee (the “Committee”) and is deposited in the Committee’s name in
the Bank of Taiwan. Under the ROC Labor Standards Law, the minimum return on the
plan assets should not be lower than the average interest rate on two-year time deposits
published by the local banks. As of December 31, 2018, the Funds deposited in the
Committee’s name in the Bank of Taiwan amounted to $3,565 thousand.
F-41
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
For the years ended December 31, 2017 and 2018
(ii) Movements in present value of the defined benefit obligations
Balance at beginning of year
Service costs
Interest expense
Remeasurements loss (gain):
Actuarial loss (gain) arising from:
-Changes in demographic assumptions
-Experience adjustment
-Change in financial assumptions
Effect of changes in exchange rates
Balance at end of year
(iii) Movements in the fair value of plan assets
Balance at beginning of year
Interest income
Remeasurements gain (loss):
-Return on plan assets excluding interest income
Contributions paid by the employer
Effect of changes in exchange rate
Balance at end of year
(iv) Expenses recognized in profit or loss
Current service costs
Interest expense
Cost of revenues
Research and development
General and administrative
Sales and marketing
Year ended December 31,
2017
2018
(in thousands)
3,954
15
67
4,460
20
76
46
(144)
175
347
4,460
47
10
(1,217)
(212)
3,184
Year ended December 31,
2017
2018
(in thousands)
2,992
48
3,410
57
(21)
132
259
3,410
81
132
(115)
3,565
Year ended December 31,
2017
2018
(in thousands)
15
19
34
9
17
5
3
34
20
19
39
14
18
4
3
39
$
$
$
$
$
$
$
$
F-42
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
For the years ended December 31, 2017 and 2018
(v) Remeasurement of net defined benefit liability recognized in other comprehensive
income
Balance at beginning of year
Recognized during the period
Balance at end of year
(vi) Actuarial assumptions
Year ended December 31,
2017
2018
(in thousands)
$
$
1,181
81
1,262
1,262
(1,133)
129
The principal actuarial assumptions were as follows:
Discount rate
Rate of increase in compensation levels
January 1,
2017
1.80%
5.00%
December 31,
2017
1.60%
5.00%
December 31,
2018
1.22%-1.24%
3.00%
The Company expects to make contribution of $123 thousand to the defined benefit
plans in the next year starting from January 1, 2019.
As at December 31, 2018, the weighted average duration of the defined benefits
obligation was between 20 years to 21 years.
(vii) Sensitivity analysis
Reasonably possible changes at January 1, 2017, December 31, 2017 and 2018 to one
of the relevant actuarial assumptions, holding other assumptions constant, would have
affected the defined benefit obligation by the amounts shown below.
January 1, 2017
+0.5% -0.5%
(in thousands)
(305) 438
422 (380)
December 31, 2017
+0.5% -0.5%
(in thousands)
(427) 479
460 (416)
December 31, 2018
+0.5% -0.5%
(in thousands)
(284) 317
310 (281)
Discount rate
Rate of increase in
compensation levels
2. Defined contribution plans
Beginning July 1, 2005, pursuant to the newly effective ROC Labor Pension Act, the
Company is required to make a monthly contribution for full-time employees in the ROC that
elected to participate in the Defined Contribution Plan at a rate no less than 6% of the
employee’s monthly wages to the employees’ individual pension fund accounts at the ROC
Bureau of Labor Insurance. Expenses recognized in 2017 and 2018, based on the
contribution called for were $3,367 thousand and $3,527 thousand, respectively.
F-43
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
For the years ended December 31, 2017 and 2018
The Company established a defined contribution plan in the United States that qualifies
under Section 401(k) of the Internal Revenue Code. This plan covers substantially all
employees who meet the service requirement. The Company’s contribution to the plan may
be made at the discretion of the board of directors. As now, no contributions have been made
by the Company to the plan.
All PRC employees participate in employee social security plans, including pension and
other welfare benefits, which are organized and administered by governmental authorities.
The Company has no other substantial commitments to employees. The premiums and
welfare benefit contributions that should be borne by the Company are calculated in
accordance with relevant PRC regulations, and are paid to the labor and social welfare
authorities. Expenses recognized based on this plan were $1,523 thousand and $1,655
thousand for the years ended December 31, 2017 and 2018, respectively.
Other foreign subsidiaries recognized pension expenses of $178 thousand and $253 thousand
for the years ended December 31, 2017 and 2018, respectively, for the defined contribution
plans based on their respective local government regulations.
Note 19. Share-Based Compensation
The amounts of share-based compensation expenses included in applicable costs of sales and
expense categories and related tax effects are summarized as follows:
Cost of revenues
Research and development
General and administrative
Sales and marketing
Total compensation recognized in income
Income tax benefit
(a) Long-term Incentive Plan
Year ended December 31,
2017
2018
(in thousands)
$
$
$
204
5,222
723
995
7,144
1,525
90
3,165
387
544
4,186
894
On September 7, 2011, the Company’s shareholders approved a long-term incentive plan.
The plan was amended and restated by extending its duration to September 6, 2019, which
was approved by the Company’s shareholders at the annual general meeting held on August
31, 2016. The plan permits the grants of options or RSUs to the Company’s employees,
directors and service providers where each unit of RSU represents two ordinary shares of
the Company.
F-44
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
For the years ended December 31, 2017 and 2018
On September 26, 2014, the Company’s compensation committee made grants of 1,219,791
RSUs to the Company’s employees. The vesting schedule for the RSUs is as follows:
82.57% of the RSUs grant vested immediately on the grant date which was settled by cash
amounting to $9,337 thousand, a subsequent 5.81% will vest on each of September 30,
2015, 2016 and 2017 which will be settled by the Company’s ordinary shares, subject to
certain forfeiture events.
On September 25, 2015, the Company’s compensation committee made grants of 597,596
RSUs to the Company’s employees. The vesting schedule for the RSUs is as follows:
94.15% of the RSUs grant vested immediately on the grant date which was settled by cash
amounting to $4,456 thousand, a subsequent 1.95% will vest on each of September 30,
2016, 2017 and 2018 which will be settled by the Company’s ordinary shares, subject to
certain forfeiture events.
On September 28, 2016, the Company’s compensation committee made grants of 1,208,785
RSUs to the Company’s employees. The vesting schedule for the RSUs is as follows:
91.93% of the RSUs grant vested immediately on the grant date which was settled by cash
amounting to $9,223 thousand, a subsequent 2.69% will vest on each of September 30, 2017,
2018 and 2019 which will be settled by the Company’s ordinary shares, subject to certain
forfeiture events.
On September 29, 2017, the Company’s compensation committee made grants of 580,235
RSUs to the Company’s employees. The vesting schedule for the RSUs is as follows:
96.91% of the RSUs grant vested immediately on the grant date which was settled by cash
amounting to $6,147 thousand, a subsequent 1.03% will vest on each of September 30,
2018, 2019 and 2020 which will be settled by the Company’s ordinary shares, subject to
certain forfeiture events.
On September 26, 2018, the Company’s compensation committee made grants of 676,273
RSUs to the Company’s employees. The vesting schedule for the RSUs is as follows:
97.15% of the RSUs grant vested immediately on the grant date which was settled by cash
amounting to $3,778 thousand, a subsequent 0.95% will vest on each of September 30,
2019, 2020 and 2021 which will be settled by the Company’s ordinary shares, subject to
certain forfeiture events.
The amount of compensation expense from the long-term incentive plan was determined
based on the estimated fair value and the market price of ADS (one ADS represents two
ordinary shares) underlying the RSUs granted on the date of grant, which were $9.27 per
ADS, $7.92 per ADS, $8.30 per ADS, $10.93 per ADS and $5.76 per ADS on September
26, 2014, September 25, 2015, September 28, 2016, September 29, 2017 and September 26,
2018, respectively.
F-45
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
For the years ended December 31, 2017 and 2018
RSUs activity under the long-term incentive plan during the periods indicated is as follows:
Balance at January 1, 2017
Granted
Vested
Forfeited
Balance at December 31, 2017
Granted
Vested
Forfeited
Balance at December 31, 2018
Number of
Underlying
Shares for RSUs
182,488
580,235
(662,368)
(7,755)
92,600
676,273
(698,427)
(10,108)
60,338
$
Weighted
Average Grant
Date Fair Value
8.60
10.93
10.62
8.77
8.77
5.76
5.92
8.55
7.98
As of December 31, 2018, the total compensation cost related to the unvested RSUs not yet
recognized was $294 thousand. The weighted-average period over which it is expected to
be recognized is 1.58 years.
In 2017 and 2018, the Company settled RSUs release with shares buyback of 200,074 shares and
82,814 shares, respectively.
The allocation of compensation expenses and related tax effects from the RSUs granted to
employees under the long-term incentive plan are summarized as follows:
Cost of revenues
Research and development
General and administrative
Sales and marketing
Total compensation from RSUs
Income tax benefit
(b) Employee stock options
Year ended December 31,
2017
2018
(in thousands)
$
$
$
112
5,097
686
980
6,875
1,525
56
3,104
373
538
4,071
894
(i) On January 1, 2016, board of directors of Himax Imaging, Inc. approved a plan to
grant stock options, the 2016 plan, to certain employees. The 2016 plan authorizes
grants to purchase up to 1,760,000 shares of Imaging Taiwan’ issued ordinary shares
held by Himax Imaging, Inc. The exercise price was NT$30 (US$0.9139). Himax
Taiwan obtained all Imaging Taiwan’ issued ordinary shares previously held by Himax
Imaging, Inc. in March, 2017, in a re-organization of entities under common control,
whereby Himax Taiwan assumed the obligation to sell Imaging Taiwan’ ordinary
shares once employees exercised the options for the 2016 plan.
The 2016 plan has four years contractual life and three years vesting period. Based on
F-46
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
For the years ended December 31, 2017 and 2018
the vesting schedule, 50% of the options vest one and half years after the date of grant
and 50% of the options vest three years after the date of grant. Because the exercise
price of the options are higher than the estimated fair value of Imaging Taiwan shares
at the date of grant, the calculated value of each option award estimated using the
Black-Scholes option-pricing model was nil.
The calculated value of option award is estimated on the date of grant using the Black-
Scholes option-pricing model that used the weighted average assumptions in the
following table. Himax Imaging, Inc. uses the simplified method to estimate the
expected term of the options as it does not have sufficient historical share option
exercise experience and the exercise data relating to employees of other companies is
not easily obtainable. Since Imaging Taiwan’ shares are not publicly traded and its
shares are rarely traded privately, expected volatility is computed based on the average
historical volatility of similar entities with publicly traded shares. The risk-free rates
for the expected term of the option are based on the interest rates of 2 years and 5
years ROC central government bond at the time of grant.
Valuation assumptions:
Expected dividend yield
Expected volatility
Expected term (years)
Risk-free interest rate
Stock option activity during the periods indicated is as follows:
2016 plan
0%
38.04%
3.125
0.50%
Weighted
average
exercise
price
Weighted
average
remaining
contractual
term
$
0.9139
-
-
0.9139
0.9139
-
-
0.9139
0.9139
0.9139
3.0
2.0
1.0
Number
of shares
616,000
-
-
(35,000)
581,000
-
-
(35,000)
546,000
285,500
Balance at January 1, 2017
Granted
Exercised
Forfeited
Balance at December 31, 2017
Granted
Exercised
Forfeited
Balance at December 31, 2018
Exercisable at December 31, 2018
F-47
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
For the years ended December 31, 2017 and 2018
(ii) On January 1, 2016, board of directors of Imaging Taiwan approved a plan to grant
stock options, the 2016 plan, to certain employees. This plan authorizes grants to
purchase up to 2,040,000 shares of Imaging Taiwan’ authorized but unissued ordinary
shares. The exercise price was NT$30 (US$0.9139).
The 2016 plan has four years contractual life and three years vesting period. Based on
the vesting schedule, 50% of the options vest one and half years after the date of grant
and 50% of the options vest three years after the date of grant. Because the exercise
price of the options are higher than the estimated fair value of Imaging Taiwan shares
at the date of grant, the calculated value of each option award estimated using the
Black-Scholes option-pricing model was nil.
The calculated value of each option award is estimated on the date of grant using the
Black-Scholes option-pricing model that used the weighted average assumptions in the
following table. Imaging Taiwan uses the simplified method to estimate the expected
term of the options as it does not have sufficient historical share option exercise
experience and the exercise data relating to employees of other companies is not easily
obtainable. Since Imaging Taiwan’ shares are not publicly traded and its shares are
rarely traded privately, expected volatility is computed based on the average historical
volatility of similar entities with publicly traded shares. The risk-free rates for the
expected term of the options are based on the interest rates of 2 years and 5 years ROC
central government bond at the time of grant.
Valuation assumptions:
Expected dividend yield
Expected volatility
Expected term (years)
Risk-free interest rate
Stock option activity during the periods indicated is as follows:
2016 plan
0%
38.04%
3.125
0.50%
Weighted
average
exercise
price
Weighted
average
remaining
contractual
term
$
0.9139
-
0.9139
0.9139
0.9139
-
-
0.9139
0.9139
0.9139
3.0
2.0
1.0
Number
of shares
1,797,000
-
(115,000)
173,000
1,509,000
-
-
(150,000)
1,359,000
645,000
Balance at January 1, 2017
Granted
Exercised
Forfeited
Balance at December 31, 2017
Granted
Exercised
Forfeited
Balance at December 31, 2018
Exercisable at December 31, 2018
F-48
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
For the years ended December 31, 2017 and 2018
(iii) On October 6, 2015, board of directors of Himax Display, Inc. approved a plan to
grant stock options, the 2015 plan, to certain employees. This plan authorizes grants
to purchase up to 2,528,000 shares of Himax Display, Inc.’ authorized but unissued
ordinary shares. The exercise price was NT$65 (US$1.986).
The 2015 plan has four years contractual life and three years vesting period. Based on
the vesting schedule, 50% of the options vest one and half years after the date of grant
and 50% of the options vest three years after the date of grant. The Company
recognized compensation expenses of $269 thousand and $115 thousand in 2017 and
2018, respectively. Such compensation expense was recorded as cost of revenues,
sales and marketing expenses, general and administrative expenses and research and
development expenses in the consolidated statements of profit or loss. There was no
income tax benefit realized in the consolidated statements of profit or loss for
employee stock options for the years ended December 31, 2017 and 2018.
The calculated value of each option award is estimated on the date of grant using the
Black-Scholes option-pricing model that used the weighted average assumptions in the
following table. Himax Display, Inc. uses the simplified method to estimate the
expected term of the options as it does not have sufficient historical share option
exercise experience and the exercise data relating to employees of other companies is
not easily obtainable. Since Himax Display, Inc.’ shares are not publicly traded and its
shares are rarely traded privately, expected volatility is computed based on the average
historical volatility of similar entities with publicly traded shares. The risk-free rate
for the expected term of the options is based on the interest rates of 2 years and 5 years
ROC central government bond at the time of grant.
Valuation assumptions:
Expected dividend yield
Expected volatility
Expected term (years)
Risk-free interest rate
2015 plan
0%
33.52%
3.125
0.65%
F-49
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
For the years ended December 31, 2017 and 2018
Stock option activity during the periods indicated is as follows:
Weighted
average
exercise
price
Weighted
average
remaining
contractual
term
$
1.986
-
-
1.986
1.986
-
-
1.986
1.986
1.986
2.75
1.75
0.75
Number
of shares
1,993,000
-
-
(50,000)
1,943,000
-
-
(32,000)
1,911,000
1,911,000
Balance at January 1, 2017
Granted
Exercised
Forfeited
Balance at December 31, 2017
Granted
Exercised
Forfeited
Balance at December 31, 2018
Exercisable at December 31, 2018
Note 20. Equity
(a) Ordinary Shares
The Company’s authorized ordinary shares, with par value of $0.3 per share, were
1,000,000,000 shares at January 1, 2017, December 31, 2017 and 2018.
The Company’s issued and fully paid ordinary shares, with par value of $0.3 per share, were
356,699,482 shares at January 1, 2017, December 31, 2017 and 2018. The outstanding
ordinary shares were 344,007,418 shares, 344,207,492 shares and 344,290,306 shares at
January 1, 2017, December 31, 2017 and 2018, respectively. 12,692,064 treasury shares,
12,491,990 treasury shares and 12,409,176 treasury shares were held by the Company as of
January 1, 2017, December 31, 2017 and 2018, respectively.
The Company’s ordinary shares have been quoted on the NASDAQ Global Select Market
under the symbol “HIMX” in the form of ADSs and two ordinary shares represent one ADS
with effect from August 10, 2009.
F-50
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
For the years ended December 31, 2017 and 2018
(b) Additional Paid-in Capital
Balance of additional paid-in capital as of January 1, 2017, December 31, 2017 and 2018
were as follows:
January 1,
2017
December 31,
2017
(in thousands)
December 31,
2018
$
$
93,341
4,041
6,091
-
103,473
93,341
4,784
6,151
151
104,427
93,341
5,080
6,182
146
104,749
From ordinary shares
From treasury shares
From share-based compensation
From share of changes in equities of
associates
(c) Earnings distribution
As a holding company, the major asset of the Company is the 100% ownership interest in
Himax Taiwan. Dividends received from the Company’s subsidiaries in Taiwan, if any, will
be subjected to withholding tax under ROC law. The ability of the Company’s subsidiaries
to pay dividends, repay intercompany loans from the Company or make other distributions
to the Company may be restricted by the availability of funds, the terms of various credit
arrangements entered into by the Company’s subsidiaries, as well as statutory and other
legal restrictions. The Company’s subsidiaries in Taiwan are generally not permitted to
distribute dividends or to make any other distributions to shareholders for any year in which
it did not have either earnings or retained earnings (excluding reserve). In addition, before
distributing a dividend to shareholders following the end of a fiscal year, a Taiwan company
must recover any past losses, pay all outstanding taxes and set aside 10% of its annual net
income (less prior years’ losses and outstanding taxes) as a legal reserve until the
accumulated legal reserve equals its paid-in capital, and may set aside a special reserve.
The accumulated legal and special reserve provided by Himax Taiwan as of December 31,
2017 and 2018 amounted to $78,386 thousand and $78,901 thousand, respectively.
F-51
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
For the years ended December 31, 2017 and 2018
(d) Accumulated other comprehensive income
Changes in accumulated other comprehensive income, net of tax, are as follows:
Foreign
currency
translation
Unrealized
gains
(losses) on
securities
Defined
benefit
pension
plans
Accumulated
other
comprehensive
income
$
(279)
(350)
(925)
(1,554)
(in thousands)
Beginning balance, January 1, 2017
Exchange differences arising on
translation of foreign operations
Changes in fair value of financial
assets
Remeasurement of defined benefit
pension plans
Ending balance, December 31, 2017
Exchange differences arising on
862
-
-
583
translation of foreign operations
(334)
Changes in fair value of financial
assets
Remeasurement of defined benefit
pension plans
Ending balance, December 31, 2018
$
-
-
249
(e) Noncontrolling interest
Balance at the beginning of year
Equity attributable to non-controlling interests
Loss for the year
Changes in fair value of financial assets
Remeasurement of defined benefit pension plans
Share-based compensation expenses
New shares issued by subsidiary
Exchange differences arising on translation of foreign
operations
Purchase of subsidiary shares from noncontrolling
interests
Balance at the end of year
-
313
-
(37)
-
(869)
-
(906)
-
-
(67)
(992)
-
-
1,100
108
862
313
(67)
(446)
(334)
(869)
1,100
(549)
Year ended December 31,
2017
2018
(in thousands)
$
418
(1,735)
(2,142)
9
(14)
52
(25)
(2,543)
(26)
33
22
(10)
-
(2)
(33)
(1,735)
$
-
(4,261)
F-52
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
For the years ended December 31, 2017 and 2018
Note 21. Income Taxes
The Company is incorporated in the Cayman Islands, a tax-free country; accordingly, pretax
income generated by the group parent company is not subject to local income tax. Substantially
all of the Company’s taxable income is derived from the operations in the ROC and, therefore,
substantially all of the Company’s income tax expense attributable to income from continuing
operations is incurred in the ROC. Other foreign subsidiary companies calculate income tax in
accordance with local tax law and regulations.
According to the amendments to the “Income Tax Act” enacted by the office of the President of
the Republic of China (Taiwan) on February 7, 2018, an increase in the statutory income tax rate
from 17% to 20% and a decrease in the undistributed earning tax from 10% to 5% are effective
from January 1, 2018. The 5% surtax is only to the extent such income is not distributed or set
aside as legal reserve before the end of the following year. The surtax is recorded in the period
the income is earned, and the reduction in the surtax liability is recognized in the period the
distribution to shareholders or the setting aside of legal reserve is finalized in the following year.
In accordance with the ROC Statute for Upgrading Industries, Himax Taiwan’s capital increase in
June 2009 as well as Himax Semiconductor’s capital increase in October 2009 related to the
manufacturing of a newly designed TFT-LCD driver were approved by the government
authorities for income tax exemptions as a result of investing in a newly emerging, important and
strategic industry. Himax Taiwan’s capital increase in November 2009 related to the electronic
parts and components manufacturing was also approved by the government authorities for
income tax exemptions. The incremental income derived from selling the above new product is
tax-exempt for a period of five years.
The Company is entitled to the following income tax exemptions:
Date of investment
Tax exemption period
Himax Taiwan:
June 5, 2009
November 12, 2009
Himax Semiconductor(1):
October 9, 2009
January 1, 2014-December 31, 2018
January 1, 2014-December 31, 2018
January 1, 2014-December 31, 2018
Note 1: For management purpose, Himax Semiconductor Inc. was merged into Himax
Technologies Limited on July 2, 2018. As a result, the tax exemption was expired upon
merge.
F-53
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
For the years ended December 31, 2017 and 2018
(a) Income tax expense (benefit) recognized in profit or loss for the years ended December 31,
2017 and 2018 consists of the following:
Current tax expense
Current period
Adjustment for prior periods
Deferred tax expense
Origination and reversal of temporary differences
Investment tax credits and operating loss carryforward
Effect of tax rate changes
Total income tax expense
Year ended December 31,
2017
2018
(in thousands)
6,852
(686)
6,166
5,878
(172)
5,706
(955)
(657)
-
(1,612)
4,554
1,012
(4,525)
(1,199)
(4,712)
994
$
$
(b) Income taxes expense (benefit) recognized directly in other comprehensive income for the
years ended December 31, 2017 and 2018 consist of the following:
Items that will not be reclassified to profit or loss:
Remeasurements of defined benefit pension plans
Year ended December 31,
2017
2018
(in thousands)
$
(15)
169
F-54
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
For the years ended December 31, 2017 and 2018
(c) Reconciliation of the expected income tax expense computed based on the ROC statutory
income tax rate of 17% in 2017 and 20% in 2018, compared with the actual income tax
expense as reported in the consolidated statements of profit or loss for the years ended
December 31, 2017 and 2018 are summarized as follows:
Profit before income taxes
Income tax expense calculated at the
statutory rate
Tax on undistributed earnings
Tax-exempt income
Tax benefit resulting from setting
aside legal reserve from prior
year’s income
Increase in tax credits
Effect of change of unrecognized
deductible temporary differences,
tax losses carryforwards, and
investment tax credits
Net of non-taxable income and
non-deductible expense
Capital gain Tax
Changes in unrecognized tax benefits
related to prior year tax positions,
net of its impact to tax-exempted
income
Foreign tax rate differential
Variance from audits, amendments
and examinations of prior years’
income tax filings
Effect of tax rate changes
Others
Income tax expense
Effective tax rate
Year ended December 31,
2017
Rate Amount
2018
Rate Amount
(in thousands)
$
30,092
17.0% 5,116
(in thousands)
$
7,020
20.0% 1,404
(3.9%) (1,181)
(1.8%) (548)
(2.3%) (686)
(10.8%) (755)
(16.2%) (1,135)
(0.8%) (56)
(13.1%) (3,926)
19.3% 5,815
(75.6%) (5,306)
100.2% 7,034
0.4% 115
(2.1%) (151)
7.7% 2,304
(1.0%) (298)
(1.6%) (116)
6.3% 440
(9.9%) (2,988)
1.5% 456
12.1% 850
(0.8%) (58)
- -
1.2% 375
4,554
$
(17.1%) (1,199)
0.6% 42
994
$
15.1%
14.2%
F-55
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
For the years ended December 31, 2017 and 2018
(d) As of January 1, 2017, December 31, 2017 and 2018, the components of deferred tax assets
and deferred tax liabilities were as follows:
January 1,
2017
December 31,
2017
(in thousands)
December 31,
2018
Deferred tax assets:
Inventory
Tax credit carryforwards
Allowance for sales discounts
Operating loss carryforward-statutory tax
Accrued compensated absences
Depreciation
Unrealized foreign exchange loss
Remeasurement of defined benefit plans
Others
Deferred tax liabilities:
Unrealized foreign exchange gain
Acquired intangible assets
Remeasurement of defined benefit plans
Others
$
$
$
$
5,190
-
434
551
221
348
-
138
374
7,256
(1,132)
(104)
-
(45)
(1,281)
4,581
618
575
590
446
367
-
138
398
7,713
(25)
(86)
-
-
(111)
5,996
3,567
685
2,166
553
481
8
-
448
13,904
-
(1,645)
(114)
-
(1,759)
As of December 31, 2018, the Company has not provided for income taxes on undistributed
earnings of approximately $605,687 thousand of its foreign subsidiaries since the Company
has specific plans to reinvest these earnings indefinitely. A deferred tax liability will be
recognized when the Company can no longer demonstrate that it plans to indefinitely
reinvest these undistributed earnings. This amount becomes taxable when the ultimate
parent company, Himax Technologies, Inc., executes other investments, share buybacks or
shareholder dividends to be funded by cash distribution by its foreign subsidiaries. It is not
practicable to estimate the amount of additional taxes that might be payable on such
undistributed earnings because of the complexities of the hypothetical calculation.
F-56
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
For the years ended December 31, 2017 and 2018
(e) Changes in deferred tax assets and liabilities were as follows:
Recognized
in profit or
loss
Recognized
in other
comprehensive
income
January 1,
2017
Recognized
in profit or
loss
Recognized
in other
comprehensive
income
December
31, 2018
Inventory
Tax credit carryforwards
Allowance for sales
$
discounts
Operating loss
carryforward
Accrued compensated
absences
Depreciation
Unrealized foreign
exchange loss (gain)
Remeasurement of
defined benefit plans
Acquired intangible
assets
Others
Total
5,190
-
434
551
221
348
(1,132)
(609)
618
141
39
225
19
1,107
138
(15)
(104)
329
5,975
$
18
69
1,612
-
-
-
-
-
-
-
15
-
-
15
December
31, 2017
(in thousands)
4,581
618
575
590
446
367
(25)
138
1,451
2,949
110
1,576
107
114
(33)
(83)
(86)
(1,559)
398
7,602
50
4,712
-
-
-
-
-
-
-
(169)
-
-
(169)
5,996
3,567
685
2,166
553
481
8
(114)
(1,645)
448
12,145
(f) Unrecognized Deferred Tax Assets
Gross amount of deferred tax assets have not been recognized in respect of the following
items.
Unused tax credits
Unused operating loss carryforwards-
statutory tax
Unused operating loss carryforwards-
undistributed earnings tax
Others
$
$
January 1,
2017
December 31,
2017
(in thousands)
December 31,
2018
1,934
186,741
1,934
216,108
1,934
222,240
146,947
15,464
351,086
179,301
13,988
411,331
198,639
21,665
444,478
As of December 31, 2018, the unused investment tax credits with its expiration year from
2020 to 2034 from US operations were $1,560 thousand.
F-57
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
For the years ended December 31, 2017 and 2018
Tax loss carryforwards is utilized in accordance with the relevant jurisdictional tax laws and
regulations. Net losses from foreign subsidiaries are approved by tax authorities in
respective jurisdiction to offset future taxable profits. Under ROC Income Tax Acts, the tax
loss carryforward in the preceding ten years is available to be deducted from tax income for
Taiwan operations. The statutory losses would be deducted for undistributed earnings tax
and were not subject to expiration for Taiwan operations.
As of December 31, 2018, the expiration period for abovementioned unrecognized deferred
tax assets of unused operating loss carryforwards for statutory tax were as follows:
Deductible amount
Unrecognized
deferred tax assets
Expiration year
(in thousands)
Taiwan operations
$
Hong Kong operations
US operations
Israel operations
95,334
106,216
1,810
10,666
8,214
$
$
19,067
21,243
149
2,832
1,889
45,180
2019~2023
2024~2028
Indefinitely
2025~2038
Indefinitely
(g) Assessments by the tax authorities
The Company’s major taxing jurisdiction is Taiwan. Except for Himax Taiwan and Imaging
Taiwan, which have been examined and assessed by the ROC tax authorities through 2015,
all other Taiwan subsidiaries’ income tax returns have been examined and assessed by the
ROC tax authorities through 2016. The income tax returns of 2017 for all Taiwan
subsidiaries are open to examination by the ROC tax authorities. Taiwanese entities are
customarily examined by the tax authorities and it is possible that a future examination will
result in a positive or negative adjustment to the Company's unrecognized tax benefits
within the next 12 months; however, management is unable to estimate a range of the tax
benefits or detriment as of December 31, 2018.
Note 22. Financial Instruments
(a) Categories of financial instruments
(i) Financial assets
January 1,
2017
December 31,
2017
(in thousands)
December 31,
2018
Financial assets measured at fair value
$
15,579
2,121
9,768
through profit or loss
Financial assets measured at fair value
through other comprehensive income
1,680
1,522
791
F-58
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
For the years ended December 31, 2017 and 2018
Measured at amortized cost:
Cash and cash equivalents
Financial assets at amortized cost
Accounts receivable and other
receivables (including related parties)
Restricted deposit (including current and
noncurrent)
Refundable deposits
Subtotal
Total
(ii) Financial liabilities
Measured at amortized cost:
Short-term borrowings
Financial liability at amortized cost
Accounts payables and other payables
(including related party)
Guarantee deposits
Total
(b) Liquidity risk
January 1,
2017
December 31,
2017
(in thousands)
December 31,
2018
184,452
5,140
204,543
138,023
10,358
215,070
106,437
11,229
194,021
138,324
147,470
164,456
1,219
533,678
550,937
1,437
512,358
516,001
1,311
477,454
488,013
January 1,
2017
December 31,
2017
(in thousands)
December 31,
2018
138,000
4,524
171,325
1,203
315,052
147,000
4,837
186,526
604
338,967
184,000
5,071
196,429
154
385,654
$
$
$
$
The following, except for payables (including related parties) that are repayable within a
year, are the contractual maturities of financial liabilities, including estimated interest
payments of short-term borrowings.
(in thousands)
January 1, 2017
Non-derivative financial
liabilities
Short- term borrowings
Financial liability at
amortized cost
Guarantee deposits
Contractual
cash flows
Within 6
months
6-12
months
1-2
years
2-5
years
Over 5
years
$
$
138,210
88,208
50,002
4,524
1,203
143,937
-
1,203
89,411
-
-
50,002
-
-
-
-
-
4,524
-
4,524
-
-
-
-
F-59
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
For the years ended December 31, 2017 and 2018
(in thousands)
December 31, 2017
Non-derivative financial
liabilities
Short-term borrowings
Financial liability at
amortized cost
Guarantee deposits
December 31, 2018
Non-derivative financial
liabilities
Short-term borrowings
Financial liability at
amortized cost
Guarantee deposits
Contractual
cash flows
Within 6
months
6-12
months
1-2
years
2-5
years
Over 5
years
$
$
$
$
147,306
97,302
50,004
4,837
604
152,747
-
604
97,906
-
-
50,004
184,337
134,332
50,005
5,071
154
189,562
5,071
154
139,557
-
-
50,005
-
4,837
-
4,837
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
The Company does not expect the cash flows included in the maturity analysis to occur
significantly earlier or at significantly different amounts.
(c) Currency risk
i. Exposure to foreign currency risk
The Company’s significant exposure to foreign currency risk was as follows:
(in thousands)
Foreign
currency
Exchange
rate
Functional
currency
Foreign
currency
Exchange
rate
Functional
currency
Foreign
currency
Exchange
rate
Functional
currency
January 1, 2017
December 31, 2017
December 31, 2018
Financial assets
Monetary items
NTD
CNY
Financial liabilities
Monetary items
NTD
ii. Sensitivity analysis
159,824
31,240
32.25
6.99
4,956
4,470
159,194
32,330
29.76
6.52
5,349
4.959
205,394
33,590
30.715
6.8681
6,687
4,891
943,995
32.25
29,271
780,899
29.76
26,240
922,148
30.715
30,023
The Company’s exposure to foreign currency risk arises from the translation of the
foreign currency exchange gains and losses on cash and cash equivalents, accounts
receivable, other receivable, accounts payable and other payable that are denominated
in foreign currency.
Depreciation or appreciation of the USD by 10% against the New Taiwan Dollars
(NTD) and CNY at December 31, 2017 and 2018, while all other variables were
remained constant, would have increased or (decreased) the net profit before tax of
$1,593 thousand and $1,845 thousand, respectively.
F-60
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
For the years ended December 31, 2017 and 2018
iii. Interest rate risk
The Company’s short-term borrowings carried floating interest rates and fixed interest
rates. The Company’s exposure to changes in interest rates is mainly from floating-rate
short-term borrowings. Any change in interest rates will cause the effective interest
rates of short-term borrowings to change and thus cause the future cash flows to
fluctuate over time.
The following sensitivity analysis is determined based on the exposure to interest rate
risk. For floating-rate debts, the analysis assumes that the balances of outstanding
debts at the end of the reporting period had been outstanding for the entire year.
For the Company’s floating-rate debts, assuming all other variables were remained
constant, an increase or a decrease in the interest rate by 0.25% would have resulted in
a decrease or an increase in the net profit before tax for the years ended December 31,
2017 and 2018 by $193 thousand and $243 thousand, respectively.
(d) Fair value information
i. Financial instruments not measured at fair value
The Company considers that the carrying amounts of financial assets and financial
liabilities measured at amortized cost approximate their fair values.
ii. Financial instruments measured at fair value
(1) Fair value hierarchy
(in thousands)
Financial assets measured at
fair value through profit or
loss
Money market fund
Equity securities-unlisted
company
Subtotal
Financial assets measured at
fair value through other
comprehensive income
Equity securities-unlisted
company
Total
January 1, 2017
Fair Value
Level 1
Level 2
Level 3
Total
Carrying
Amount
$
5,017
10,562
15,579
5,017
-
5,017
1,680
17,259
$
-
5,017
-
-
-
-
-
-
10,562
10,562
5,017
10,562
15,579
1,680
12,242
1,680
17,259
F-61
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
For the years ended December 31, 2017 and 2018
(in thousands)
Financial assets measured at
fair value through profit or
loss
Money market fund
Equity securities-unlisted
company
Subtotal
Financial assets measured at
fair value through other
comprehensive income
Equity securities-unlisted
company
Total
(in thousands)
Financial assets measured at
fair value through profit or
loss
Equity securities-unlisted
company
Subtotal
Financial assets measured at
fair value through other
comprehensive income
Equity securities-unlisted
company
Total
December 31, 2017
Fair Value
Level 1
Level 2
Level 3
Total
Carrying
Amount
$
521
1,600
2,121
521
-
521
1,522
3,643
$
-
521
-
-
-
-
-
-
1,600
1,600
521
1,600
2,121
1,522
3,122
1,522
3,643
Carrying
Amount
$
$
9,768
9,768
791
10,559
December 31, 2018
Fair Value
Level 1
Level 2
Level 3
Total
-
-
-
-
-
-
-
-
9,768
9,768
9,768
9,768
791
10,559
791
10,559
(2) Valuation techniques and assumptions used in fair value measurement
The fair value of financial instruments traded in active markets is determined with
reference to quoted market prices.
Money market funds with standard terms and conditions and traded in active
markets. The fair value is based on quoted market prices.
Except for the abovementioned financial instruments traded in active markets, the
fair value of other financial instruments are based on the valuation techniques.
The fair value using valuation techniques refers to the current fair value of other
financial instruments with similar conditions and characteristics, or using a
discounted cash flow method, or other valuation techniques which include model
calculating with observable market data at the reporting date.
The fair value of equity securities-unlisted company is determined by reference to
market valuations for similar operating entities quoted in an active market based
on the net assets value of investees. The significant unobservable input is
primarily the liquidity discounts, 28% for 2018. The estimated fair value would
increase (decrease) if the liquidity discount rate were lower (higher).
F-62
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
For the years ended December 31, 2017 and 2018
(3) Transfer between levels of the fair value hierarchy
There were no transfers between levels for the years ended December 31, 2017
and 2018.
(4) Movement in financial assets included in Level 3 of fair value hierarchy
Financial assets
at fair value
through profit
or loss
10,562
Financial assets
at fair value
through other
comprehensive
income
1,680
(8,962)
1,600
(158)
1,522
Financial assets
at fair value
through profit
or loss
1,600
Financial assets
at fair value
through other
comprehensive
income
1,522
Total
12,242
(9,120)
3,122
Total
3,122
-
6,136
-
2,032
9,768
(29)
(29)
-
(702)
-
791
6,136
(702)
2,032
10,559
(in thousands)
January 1, 2017
Disposal-including capital
reduction of investment
December 31, 2017
$
$
(in thousands)
January 1, 2018
Disposal-capital reduction of
$
investment
Reclassified from equity
method investments
Recognized in other
comprehensive income
Recognized in profit or loss
December 31, 2018
$
Note 23. Financial Risk Management
(a)
Overview
The Company is exposed to the following risks due to usage of financial instruments:
(1) Credit risk
(2) Liquidity risk
(3) Market risk
Hereinafter discloses information about the Company’s exposure to variable risks, and the
goals, policies and procedures of the Company’s risk measurement and risk management.
F-63
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
For the years ended December 31, 2017 and 2018
(b)
Risk management framework
Management of related divisions are appointed to review, control, trace and monitor the
strategic risks, financial risks and operational risks faced by the Company. Management
reports to executive officers the progress of risk controls from time to time and, if necessary,
report to the board of directors, depending on the extent of impact of risks.
(c)
Credit risk
Credit risk is the risk of financial loss to the Company if a customer or counterparty to a
financial instrument fails to meet its contractual obligations. The Company’s exposures to
credit risk are primarily from cash and cash equivalents, financial assets at amortized cost
and accounts receivable.
The Company deposits its cash and cash equivalents with various reputable financial
institutions. Financial assets at amortized cost are time deposits with original maturities
of greater than three months. The Company has not experienced any material losses on
deposits of the Company’s cash and cash equivalents and financial assets at amortized cost.
Management performs periodic evaluations of the relative credit standing of these financial
institutions and limits the amount of credit exposure with any one institution. Management
believes that there is a limited concentration of credit risk in cash and cash equivalent and
financial assets at amortized cost.
The Company derived substantially all of its revenues from sales of display drivers that are
incorporated into TFT-LCD panels. The TFT-LCD panel industry is intensely competitive
and is vulnerable to cyclical market conditions and subject to price fluctuations. Management
continuously evaluates and controls the credit quality, credit limit and financial strength of its
customers to ensure any overdue receivables are taken necessary procedures.
The Company depends on two customers for majority of its revenues. The Company’s sales
to these two customers as a percentage of revenues are as follows:
Customer A and its affiliates
Customer B and its affiliates
Year Ended December 31,
2017
2018
28.1%
25.8%
12.6%
15.5%
The percentage of the Company’s accounts receivable accounted by customers, those
representing more than 10% of total accounts receivable balance, is summarized as follows:
Customer A and its affiliates
Customer B and its affiliates
January 1,
2017
28.9%
19.1%
December 31,
2017
32.4%
15.4%
December 31,
2018
33.5%
12.9%
F-64
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
For the years ended December 31, 2017 and 2018
Refer to Note 11 for aging analysis of accounts receivable and the movement in the
allowance of doubtful accounts receivable.
In addition, the Company has at times agreed to extend the payment terms for certain of
its customers. Other customers have also requested extension of payment terms, and the
Company may grant such requests for extension in the future. As a result, a default by any
such customer, a prolonged delay in the payment of accounts receivable, or the extension
of payment terms for the Company’s customers could adversely affect the Company’s cash
flow, liquidity and operating results. Management performs ongoing credit evaluations of
each customer and adjusts credit policy based upon payment history and the customer’s
credit worthiness, as determined by the review of their current credit information.
(d)
Liquidity risk
The objective of liquidity risk management is to ensure the Company has sufficient liquidity
to fund its business requirements associated with existing operations over the next 12
months. The Company manages its liquidity risk by maintaining adequate working capital
and unused credit facilities.
At December 31, 2018, the Company’s working capital together with existing unused credit
facilities under its existing loan agreements will be sufficient to fulfill all of its contractual
obligations. Therefore, management believes that there is no liquidity risk resulting from
incapable of financing to fulfill the contractual obligations.
(e)
Market risk
Market risk is the risk that changes in market prices, such as foreign exchange rates and
interest rates, will affect the Company’s income or the value of its holdings of financial
instruments. The objective of market risk management is to manage and control market risk
exposures within acceptable parameters, while optimizing the return.
(1)
Currency risk
The Company is exposed to currency risk on operating activities that are denominated in
a currency other than the respective functional currency of the Company, the USD. The
currencies used in these transactions are the NTD and CNY.
(2)
Interest rate risk
The Company is exposed to interest rate risk primarily related to its outstanding
borrowings. The Company’s short-term borrowings carried floating interest rates. To
manage the interest rate risk, the Company periodically assesses the interest rates of
bank loans and maintains good relationships with financial institutions to obtain lower
financing costs. The Company also strengthens the management of working capital
to reduce the dependence on bank loans as well as the risk arising from fluctuation of
interest rates.
F-65
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
For the years ended December 31, 2017 and 2018
Note 24. Capital management
Through clear understanding and managing of significant changes in external environment, related
industry characteristics, and corporate growth plan, the Company manages its capital structure
in a manner to ensure it has sufficient financial resources to fund its working capital needs,
capital expenditures, research and development activities, dividend payments and other business
requirements associated with its existing operations over the next 12 months.
There were no changes in the Company’s approach to capital management during the year ended
December 31, 2018. Neither the Company nor its subsidiaries are subject to externally imposed
capital managements.
January 1,
2017
December 31,
2017
(in thousands)
December 31,
2018
Total liabilities
Less: cash and cash equivalents
Equity attributable to owners of Himax
Technologies, Inc.
$
$
$
335,083
184,452
150,631
349,605
138,023
211,582
394,391
106,437
287,954
466,720
455,323
446,548
Note 25. Related-party Transactions
(a) Name and relationship
Name of related parties
Relationship
Viewsil Microelectronics (Kunshan)
Limited (Viewsil)
Viewsil Technology Limited (VST)
Emza Visual Sense Ltd. (Emza)
Equity method investee of the Company
The subsidiary of Viewsil
Equity method investee of the Company,
becoming as a subsidiary of the
Company from June 28, 2018
(b)
Significant transactions with related parties
(i)
Purchases and accounts payable
Purchases of raw materials and components from VST were $522 thousand for the year
ended December 31, 2017. As of December 31, 2017, the related payable resulting from
the aforementioned transaction was nil.
The purchase prices and payment terms to related party were incomparable to that from
third parties due to no similar transaction.
F-66
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
For the years ended December 31, 2017 and 2018
(ii)
The Company made an interest-free loan to VST and Emza for their short-term funding
needs. The information is summarized as follows:
VST
Emza
January 1,
2017
December 31,
2017
(in thousands)
December 31,
2018
$
$
7,150
-
7,150
2,750
500
3,250
2,780
-
2,780
The loan is repayable on demand and the Company expects it will be repaid in full during
2019. The Company may consider providing further future loans to VST.
(iii)
In 2017 and 2018, Viewsil provided technical service on new source driver chip and
integrated circuit module for the Company’s research activities for a fee of $2,200
thousand and $2,200 thousand, respectively, which was charged to research and
development expense. As of December 31, 2017 and 2018, the related payables resulting
from the aforementioned transactions were $2,200 thousand and $2,200 thousand,
respectively.
(iv)
In 2018, the Company purchased mask from VST for the Company’s research activities
for a fee of $1,597 thousand. As of December 31, 2018, the related payables resulting
from the aforementioned transactions were $1,597 thousand.
(c)
Compensation of key management personnel
For the years ended December 31, 2017 and 2018, the aggregate cash compensation that the
Company paid to the independent directors was both $135 thousand. The aggregate share-
based compensation that the Company paid to the independent directors was nil.
The compensation to key management personnel for the years ended December 31, 2017 and
2018 were as follows:
Short-term employee benefits
Post-employment benefits
Share-based compensation
Year ended December 31,
2017
2018
(in thousands)
$
$
829
7
226
1,062
855
7
41
903
F-67
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
For the years ended December 31, 2017 and 2018
Note 26. Pledged assets
Pledged assets
Pledged to secure
January 1,
2017
December 31,
2017
(in thousands)
147,000
December 31,
2018
164,000
Restricted cash and time
deposit (1)
Restricted time deposits (1)
Restricted time deposits (1)
Short-term borrowings
$
138,000
For government grants
For customs duties and
government grants
200
-
326
124
138,324
$
470
147,470
130
164,456
(1): The pledged assets are booked as restricted deposits and classified as current or noncurrent by
its liquidity.
Note 27. Commitments and Contingencies
(a)
(b)
(c)
As of January 1, 2017, December 31, 2017 and 2018, the Company had entered into several
contracts for the acquisition of land, equipment and computer software. Total contract prices
amounted to $5,153 thousand, $60,573 thousand and $75,824 thousand, respectively. As of
January 1, 2017, December 31, 2017 and 2018, the remaining commitments were $3,760
thousand, $40,814 thousand and $38,579 thousand, respectively.
As of December 31, 2018, amount of outstanding letters of credit for the purchase of
machinery and equipment was $960 thousand.
The Company leases certain offices and buildings pursuant to operating lease arrangements
with third parties. The lease arrangement will expire gradually from 2019 to 2024. As
of December 31, 2017 and 2018, deposits paid amounted to $1,230 thousand and $1,212
thousand, respectively, and were recorded as refundable deposit in the consolidated financial
position.
As of December 31, 2018, future minimum lease payments under noncancelable operating
leases are as follows:
Duration
January 1, 2019~December 31, 2019
January 1, 2020~December 31, 2020
January 1, 2021~December 31, 2021
January 1, 2022~December 31, 2022
January 1, 2023~December 31, 2023
January 1, 2024~December 31, 2024
Amount
(in thousands)
2,361
1,601
386
298
182
46
4,874
$
$
Rental expense for operating leases with third parties amounted to $2,189 thousand and $2,508
thousand in 2017 and 2018, respectively.
F-68
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
For the years ended December 31, 2017 and 2018
(d)
(e)
(f)
(g)
The Company from time to time is subject to claims regarding the proprietary use of certain
technologies. Currently, management is not aware of any such claims that it believes could
have a material adverse effect on the Company’s financial position or results of operations.
Since Himax Taiwan is not a listed company, it will depend on Himax Technologies,
Inc. to meet its equity financing requirements in the future. Any capital contribution by
Himax Technologies, Inc. to Himax Taiwan may require the approval of the relevant ROC
authorities. The Company may not be able to obtain any such approval in the future in
a timely manner, or at all. If Himax Taiwan is unable to receive the equity financing it
requires, its ability to grow and fund its operations may be materially and adversely affected.
The Company has entered into several wafer fabrication or assembly and testing service
arrangements with service providers. The Company may be obligated to make payments
for purchase orders entered into pursuant to these arrangements. Contractual obligations
resulting from above arrangements approximate $89,179 thousand, $193,446 thousand and
$172,986 thousand as of January 1, 2017, December 31, 2017 and 2018, respectively.
The Company is involved in various claims arising in the ordinary course of business. In
the opinion of management, the ultimate disposition of these matters will not have a material
adverse effect on the Company’s consolidated financial position, results of operations, or
liquidity. As of December 31, 2018, management is not aware of any pending litigation
against the Company.
Note 28. Segment, Product and Geographic Information
The Company has two operating segments: Driver IC and Non-driver Products. The Driver IC
segment generally is engaged in the design, research, development and sale of displays driver for
large-sized TFT-LCD panels, which are used in televisions and desktop monitors, and displays
driver for small- and medium-sized TFT-LCD panels, which are used in mobile handsets and
consumer electronics products. The Non-driver segment primarily is engaged in the design,
research, manufacturing and sale of non-driver products, such as timing controllers, 3D Sensing
Solution, LCOS, CMOS Image Sensors and WLO.
Year Ended December 31, 2017
Non-driver
products
(in thousands)
Consolidated
Total
Driver IC
Segment revenues
Segment operating income (loss)
Non operating income, net
Consolidated profits before income taxes
Significant noncash items:
Share Based Compensation
Depreciation and amortization
$
$
$
$
529,847
43,021
155,320
(34,662)
365
4,940
632
11,740
$
685,167
8,359
21,733
30,092
997
16,680
F-69
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
For the years ended December 31, 2017 and 2018
Year Ended December 31, 2018
Non-driver
products
(in thousands)
Consolidated
Total
Driver IC
Segment revenues
Segment operating income (loss)
Non operating income, net
Consolidated profits before income taxes
Significant noncash items:
Share Based Compensation
Depreciation and amortization
$
$
$
$
586,258
56,023
137,347
(52,638)
189
3,248
219
17,079
$
723,605
3,385
3,635
7,020
408
20,327
The following tables summarize information pertaining to the segment revenues from customers in
different geographic region (based on customer’s headquarter location):
China
Taiwan
Other Asia Pacific (Philippines, Korea and Japan)
Europe and America
China
Taiwan
Other Asia Pacific (Philippines, Korea and Japan)
Europe and America
$
$
$
$
For the year ended December 31, 2017
Non-driver
products
(in thousands)
Consolidated
Total
Driver IC
353,505
146,302
30,040
-
529,847
67,703
30,649
37,739
19,229
155,320
421,208
176,951
67,779
19,229
685,167
For the year ended December 31, 2018
Non-driver
products
(in thousands)
Consolidated
Total
Driver IC
419,249
136,526
30,483
-
586,258
61,143
31,596
41,811
2,797
137,347
480,392
168,122
72,294
2,797
723,605
The following tables summarize information pertaining to the segment revenues from major product
lines:
F-70
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
For the years ended December 31, 2017 and 2018
Display drivers for large-size applications
Display drivers for mobile handsets
applications
Display drivers for consumer electronics
applications
Non-driver products
Display drivers for large-size applications
Display drivers for mobile handsets
applications
Display drivers for consumer electronics
applications
Non-driver products
$
$
$
$
For the year ended December 31, 2017
Non-driver
products
(in thousands)
Consolidated
Total
Driver IC
224,798
113,591
191,458
-
529,847
-
-
-
155,320
155,320
224,798
113,591
191,458
155,320
685,167
For the year ended December 31, 2018
Non-driver
products
(in thousands)
Consolidated
Total
Driver IC
260,540
112,221
213,497
-
586,258
-
-
-
137,347
137,347
260,540
112,221
213,497
137,347
723,605
The carrying values of the Company’s tangible long-lived assets are located in the following
countries:
Taiwan
U.S.
China
Korea
Israel
Japan
January 1,
2017
December 31,
2017
(in thousands)
December 31,
2018
$
$
46,445
45
751
47
-
21
47,309
83,730
25
651
150
-
19
84,575
109,732
668
540
83
28
16
111,067
Revenues from significant customers, those representing 10% or more of total revenue for the
respective periods, are summarized as follows:
F-71
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
For the years ended December 31, 2017 and 2018
Driver IC segment:
Customer A and its affiliates
Customer B and its affiliates
Non-driver products segment:
Customer A and its affiliates
Customer B and its affiliates
Year Ended December 31,
2017
2018
(in thousands)
$
$
$
$
147,961
102,493
250,454
28,767
3,887
32,654
178,907
87,927
266,834
24,088
2,917
27,005
Accounts receivable from significant customers, those representing 10% or more of total accounts
receivable for the respective dates, is summarized as follows:
Customer A and its affiliates
Customer B and its affiliates
January 1,
2017
December 31,
2017
(in thousands)
December 31,
2018
$
$
55,681
36,849
92,530
61,100
29,008
90,108
63,501
24,462
87,963
Note 29. The Nature of Expenses
(a)
Depreciation of property, plant and equipment
Recognized in cost of revenues
Recognized in operating expenses
(b)
Amortization of intangible assets
Recognized in cost of revenues
Recognized in operating expenses
Year Ended December 31,
2017
2018
(in thousands)
5,965
9,307
15,272
8,600
9,747
18,347
Year Ended December 31,
2017
2018
(in thousands)
2
1,406
1,408
3
1,977
1,980
$
$
$
$
F-72
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
For the years ended December 31, 2017 and 2018
(c)
Employee benefits expense
Salary
Labor and health insurance
Pension
Others
Employee benefits expense summarized by function
Recognized in cost of revenues
Recognized in operating expenses
Year Ended December 31,
2017
2018
(in thousands)
89,911
5,841
5,102
3,486
104,340
91,822
6,054
5,474
3,576
106,926
5,223
99,117
104,340
6,512
100,414
106,926
$
$
$
$
Note 30. Himax Technologies, Inc. (the Parent Company only)
As a holding company, dividends received from Himax Technologies, Inc.’s subsidiaries in Taiwan,
if any, will be subjected to withholding tax under ROC law as well as statutory and other legal
restrictions.
The condensed separate financial information of Himax Technologies, Inc. is presented as follows:
Condensed Statements of Financial Position
Cash
Financial asset at amortized cost
Other receivable from related party
Other current assets
Financial asset at fair value through profit or loss
Investments in subsidiaries and affiliates
Total assets
Current liabilities
Short-term borrowings
Debt borrowing from a subsidiary
Total equity
Total liabilities and equity
January 1,
2017
$
$
$
$
759
4,399
7,150
976
-
726,890
740,174
284
119,000
154,170
466,720
740,174
December 31,
2017
(in thousands)
1,362
4,881
2,751
498
-
751,990
761,482
235
147,000
158,924
455,323
761,482
December 31,
2018
813
4,819
2,780
502
8,230
755,680
772,824
227
164,000
162,049
446,548
772,824
Himax Technologies, Inc. had no guarantees as of January 1, 2017, December 31, 2017 and 2018.
F-73
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
For the years ended December 31, 2017 and 2018
Condensed Statements of Profit or Loss
Year Ended December 31,
2017
2018
(in thousands)
Revenues
Costs and expenses
Operating loss
Interest income
Changes in fair value of financial assets at fair value through
profit or loss
Foreign currency exchange losses, net
Finance costs
Share of profits of subsidiaries and affiliates
Profit before income taxes
Income tax expense
Profit for the year
$
$
-
236
(236)
170
-
-
(2,322)
30,068
27,680
-
27,680
-
273
(273)
200
2,094
(257)
(3,491)
10,296
8,569
-
8,569
Condensed Statements of Other Comprehensive Income
Profit for the year
Other comprehensive income:
Items that will not be reclassified to profit or loss:
Remeasurements of defined benefit pension plans
Unrealized loss on financial assets at fair value
through other comprehensive income
Income tax related to items that will not be
reclassified subsequently
Items that may be reclassified subsequently to
profit or loss:
Unrealized gains on financial assets at fair value
through profit or loss
Foreign operations - foreign currency translation
differences
Income tax related to items that may be
reclassified subsequently
Other comprehensive income for the year, net of tax
Total comprehensive income for the year
$
$
Year Ended December 31,
2017
2018
27,680
(67)
8,569
424
(82)
-
1,269
(676)
15
(169)
1,175
(334)
313
862
-
-
(334)
-
1,108
28,788
90
8,659
F-74
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
For the years ended December 31, 2017 and 2018
Condensed Statements of Cash Flows
Cash flows from operating activities:
Profit for the year
Adjustments for:
Changes in fair value of financial assets at fair value
through profit or loss
Interest income
Finance costs
Share of profits of subsidiaries and affiliates
Foreign currency exchange losses of financial assets
Changes in:
Other current assets
Other current liabilities
Cash generated from operating activities
Interest received
Interest paid
Net cash used in operating activities
Cash flows from investing activities:
Acquisitions of financial asset at amortized cost
Acquisitions of equity method investment
Proceeds from disposals of equity method investment
Proceeds from capital reduction of investment
Cash received from (paid for) loan made to related party
Net cash provided by (used in) investing activities
Cash flows from financing activities:
Payments of cash dividends
Proceeds from short-term borrowings
Repayment of short-term borrowings
Proceeds from issue of RSUs from subsidiaries
Proceeds from debt from a subsidiary
Repayment of debt from a subsidiary
Net cash provided by (used in) financing activities
Net increase (decrease) in cash
Cash at beginning of year
Cash at end of year
$
Year Ended December 31,
2017
2018
(in thousands)
$
27,680
8,569
-
(170)
2,322
(30,068)
-
(236)
439
(1,746)
(1,543)
131
(547)
(1,959)
(158)
(6,850)
4,825
8,000
4,400
10,217
(41,281)
151,000
(123,000)
872
166,025
(161,271)
(7,655)
603
759
1,362
(2,094)
(200)
3,491
(10,296)
257
(273)
(2)
(2,734)
(3,009)
199
(766)
(3,576)
(195)
-
-
-
(29)
(224)
(17,210)
91,000
(74,000)
336
154,281
(151,156)
3,251
(549)
1,362
813
Note 31. Explanation of transition to IFRS
As stated in Note 2(a), these are the Company’s first consolidated financial statements prepared
in accordance with IFRS. As the basis of the preparation, the Company not only follows the
significant accounting policies stated in Note 4 but also applies IFRS 1.
F-75
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
For the years ended December 31, 2017 and 2018
IFRS 1 establishes the procedures for the Company’s first consolidated financial statements
prepared in accordance with IFRS. According to IFRS 1, the Company is required to determine the
accounting policies under IFRS and retrospectively apply those accounting policies in its opening
statement of financial position at the date of transition to IFRS; except for optional exemptions and
mandatory exceptions to such retrospective application provided under IFRS 1.
The main optional exemptions the Company adopted are summarized as follows:
1)
Business combinations. The Company elected not to apply IFRS 3, “Business Combinations,”
retrospectively to business combinations that occurred before January 1, 2017. Therefore, in the
opening statement of financial position, the amount of goodwill generated from past business
combinations was the same as the carrying amount of goodwill under US GAAP as of January 1,
2017.
2)
Employee benefits. The Company elected to recognize all cumulative actuarial gains and losses
in retained earnings as of January 1, 2017.
3)
Financial instrument. The Company elected to relieve from the retrospective application of the
requirements in respect of the recognition of such “Day 1” gains or losses on IFRS 9 “Financial
Instruments”. Under the optional exemption, the criteria for the recognition of gains and
losses subsequent to the initial recognition of a financial asset or liability need only be applied
prospectively to transactions entered into. Therefore, in the opening statement of financial
position, the amount of financial instrument was the same as the carrying amount under US
GAAP and just reclassified to appropriate classifications under IFRS 9.
The accounting policies set out in Note 4 have been applied in the preparing of an opening IFRS
statement of financial position at January 1, 2017, the transition date, the comparative information
presented in these financial statements for the year ended December 31, 2017 and in preparation the
financial statements for the year ended December 31, 2018.
In preparing its opening IFRS statement of financial position, the Company has adjusted amounts
reported previously in financial statements prepared in accordance with US GAAP (previous
GAAP). An explanation of how the transition from previous GAAP to IFRS has affected the
Company’s consolidated financial statements is set out in the following tables and the notes that
accompany the tables.
S
E
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R
A
I
D
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S
B
U
S
D
N
A
.
C
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,
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F-82
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
For the years ended December 31, 2017 and 2018
(4)
Significant reconciliation differences in consolidated statement of cash flows for the year
ended December 31, 2017
The Company prepared the statement of cash flows using the indirect method under US
GAAP, in which the interest received, the interest paid and the income tax paid are not
required to be disclosed separately; instead, the interest received, the interest paid and the
income tax paid are included within the operating activities in the statement of cash flows.
However, according to IAS No. 7, “Statement of Cash Flows” for the year ended December
31, 2017, the interest received of $2,165 thousand, the interest paid of $565 thousand and the
income tax paid $14,683 thousand should be disclosed separately based on their nature in the
operating activities, respectively.
Except for the above differences, there are no other significant differences between US
GAAP and IFRS in the consolidated statement of cash flows.
(5)
Notes to the reconciliation of the main differences:
A)
Financial instruments
Under US GAAP, investment securities consist of investments in marketable
securities and investments in non-marketable equity securities. All of the Company’s
investments in marketable securities are classified as available-for-sale securities and
are reported at fair value. Investments in non-marketable equity securities in which
the Company does not have the ability to exercise significant influence over the
operating and financial policies of the investee are stated at cost.
Under IFRS, IFRS 9 “Financial Instruments” includes guidance on the classification
and measurement of financial instruments, a new expected credit loss model for
calculating impairment on financial assets, and the new general hedge accounting
requirements. It is effective for annual reporting periods beginning on January 1,
2018. The Company elects to relieve the retrospective application of measurement of
financial instrument under IFRS 9 and just to reclassify the classification of financial
instruments under IFRS 9 as follows:
A-1)
As of January 1, 2017, the Company had $10,157 thousand reported as investments
in marketable securities available-for-sale, which were time deposit with original
maturities more than three months of $5,140 thousand and money market fund
of $5,017 thousand under US GAAP, that were reclassified to financial assets at
amortized cost and financial assets at fair value through profit or loss-current, at
amounts of $5,140 thousand and $5,017 thousand, respectively, under IFRS.
As of December 31, 2017, the Company had $10,879 thousand reported as
investment in marketable securities available-for-sale, which were time deposit with
original maturities more than three months of $10,358 thousand and money market
fund of $521 thousand under US GAAP, that were reclassified to financial assets
at amortized cost and financial assets at fair value through profit or loss-current, at
amounts of $10,358 thousand and $521 thousand, respectively, under IFRS.
F-83
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
For the years ended December 31, 2017 and 2018
A-2)
As of January 1, 2017, the Company had $12,242 thousand reported as investment
in non-marketable equity securities under US GAAP, which were unlisted equity
securities held for long-term strategies, that were reclassified to financial assets at
fair value through profit or loss-noncurrent and financial assets at fair value through
other comprehensive income at amounts of $10,562 thousand and $1,680 thousand,
respectively, under IFRS.
As of December 31, 2017, the Company had $3,122 thousand reported as investment
in non-marketable equity securities under US GAAP, which were unlisted equity
securities held for long-term strategies, that were reclassified to financial assets at
fair value through profit or loss-noncurrent and financial assets at fair value through
other comprehensive income at amounts of $1,600 thousand and $1,522 thousand,
respectively, under IFRS.
A-3)
Under US GAAP, the Company recognized redeemable convertible preferred
shares which were issued to a non-controlling shareholder by Himax Display Inc., a
consolidated subsidiary, as temporary equity. The redeemable convertible preferred
shares were presented as redeemable noncontrolling interest and recognized at fair
value.
Under IFRS, the Company recognized the above-mentioned redeemable convertible
preferred shares as financial liability at amortized cost using effective interest
method.
As of January 1, 2017, the Company had $3,656 thousand reported as redeemable
noncontrolling interest under US GAAP, that were reclassified to financial liability
at amortized cost-noncurrent and recognized interest expense (finance costs) using
effective interest method which decreased retained earnings by $868 thousand. After
the above adjustments, the Company had $4,524 thousand reported as financial
liability at amortized cost-noncurrent under IFRS.
As of December 31, 2017, the Company had $3,656 thousand reported as redeemable
noncontrolling interest under US GAAP, that were reclassified to financial liability at
amortized cost-current and recognized interest expense (finance costs) using effective
interest method which decreased retained earnings by $1,181 thousand. After the
above adjustments, the Company had $4,837 thousand reported as financial liability
at amortized cost-current under IFRS.
For the year ended December 31, 2017, interest expense (finance costs) was adjusted
for an increase of $313 thousand.
F-84
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
For the years ended December 31, 2017 and 2018
B)
Allowance of sales returns and discounts
Under US GAAP, allowance for sales returns and discounts were recognized as a
reduction in revenue in the year the related revenue is recognized based on historical
experience. The corresponding allowance for sales returns and discounts was
presented as a reduction in accounts receivable.
Under IFRS, the allowance for sales returns and discounts is a present obligation
with uncertain timing and an amount that arises from past events and is therefore
reclassified as provisions.
As of January 1, 2017 and December 31, 2017, the amounts reclassified from
allowance for sales returns and discounts to provisions were $1,536 thousand and
$1,203 thousand, respectively.
C)
Property, plant and equipment, net
Under US GAAP, property, plant and equipment typically consist of long-lived
tangible assets used to create and distribute an entity's products and including
software.
Under IFRS, property, plant and equipment are tangible items that are held for
use in the production or supply of goods or services, for rental to others, or for
administrative purposes and are expected to be used during more than one period.
Certain software that is not an integral part of the related hardware and prepayment
for equipment not shipped to the factory are reclassified out from property, plant and
equipment under US GAAP and reclassified to other intangible assets, net and other
non-current assets as they do not meet the definition of property, plant and equipment
under IFRS.
As of January 1, 2017, property, plant and equipment, net of $863 thousand were
reclassified to other intangible assets, net and other non-current assets at amounts of
$611 thousand and $252 thousand, respectively.
As of December 31, 2017, property, plant and equipment, net of $2,098 thousand
were reclassified to other intangible assets, net and other non-current assets at
amounts of $720 thousand and $1,378 thousand, respectively.
D)
Deferred tax assets and liabilities
Under US GAAP, for a particular tax-paying component of an entity and within a
particular tax jurisdiction, all current / non-current deferred tax liabilities and assets
are offset and presented as a single amount.
Under IFRS, deferred tax liabilities and assets are offset only if the entity has a
legally enforceable right to offset current tax liabilities and assets.
F-85
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
For the years ended December 31, 2017 and 2018
As of January 1, 2017, the amounts reclassified from current deferred tax assets to
noncurrent deferred tax assets was $5,065 thousand.
As of January 1, 2017 and December 31, 2017, the amounts reclassified from
deferred tax assets to deferred tax liabilities were $1,196 thousand and $79 thousand,
respectively.
E)
Income taxes payable
Under US GAAP, income taxes payable is classified as current if cash payment is
expected within 12 months; if not, the amount is classified as noncurrent.
Under IFRS, income tax payables are classified as current unless an unconditional
right to defer payment for a period greater than twelve months exists.
As of January 1, 2017 and December 31, 2017, the amounts reclassified from income
taxes payable-noncurrent to income taxes payable-current were $519 thousand and
$487 thousand, respectively.
F)
Employee benefits
Under US GAAP, actuarial gains and losses arising in the period are recognized
immediately in OCI and amortized from accumulated OCI into the profit or loss
over the employees’ remaining service period. The recognition of an asset in respect
of a defined benefit plan is not restricted. Interest cost on the net defined liability
is determined by applying the discount rate used to measure the defined benefit
obligation and return on plan assets is determined by applying the expected long-term
rate of return on plan assets to the market related value of the plan assets.
Under IFRS, remeasurements of the net defined benefit liability (asset) are recognized
in OCI and are not reclassified to profit or loss in a subsequent period. If the defined
benefit plan is in surplus, then the amount of any net asset recognized is limited to
the present value of any economic benefits available in the form of refunds from the
plan or reductions in future contributions to the plan (the asset’s ceiling). Net interest
on the net defined benefit liability / asset is determined by applying the discount rate
used to measure the defined benefit obligation.
As of January 1, 2017, net defined benefit assets included in other assets, deferred
tax assets and remeasurements of the net defined benefit liability or asset related
to components of accumulated other comprehensive income were adjusted for
a decrease of $90 thousand, $55 thousand and an increase of $913 thousand,
respectively. Retained earnings was adjusted for a decrease of $1,058 thousand as a
result of the aforementioned adjustments.
F-86
HIMAX TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
For the years ended December 31, 2017 and 2018
As of December 31, 2017, net defined benefit assets included in other assets,
deferred tax assets and remeasurements of the net defined benefit liability or asset
related to components of accumulated other comprehensive income were adjusted
for a decrease of $90 thousand, $54 thousand and an increase of $984 thousand,
respectively. Retained earnings was adjusted for a decrease of $1,128 thousand as a
result of the aforementioned adjustments.
For the year ended December 31, 2017, research and development expense, general
and administrative expense and sales and marketing expense for employee benefits
were adjusted for a decrease of $83 thousand, $11 thousand and $14 thousand,
respectively, and in total operating expense decreased $108 thousand. Besides,
foreign currency exchanges loss, income tax expense and net loss attributable to
noncontrolling interest for employee benefits were adjusted for an increase of $142
thousand, $34 thousand and a decrease of $7 thousand, respectively.
G)
Share-based compensation
For equity instruments vesting in tranches, US GAAP allows for the compensation
expense to be recognized in a straight-line method. Under US GAAP, the Company
recognized compensation expense by straight-line method and recognized excess tax
benefits from share-based payments.
For these equity investments vesting in tranches, IFRS requires each tranche to be
accounted for as its own award. Under IFRS, the Company recognized compensation
expense separately for each tranche, and there is no requirement of recognizing
excess tax benefits.
As of January 1, 2017, the Company reversed excess tax benefits from share-
based payments and adjusted the difference for amortization method, which totally
decreased additional paid-in capital of $2,877 thousand and increased retained
earnings by $2,877 thousand.
As of December 31, 2017, the Company reversed excess tax benefits from share-
based payments and adjusted the difference for amortization method, which in
total decreased additional paid-in capital of $2,973 thousand and increased retained
earnings by $2,973 thousand.
For the year ended December 31, 2017, research and development expense, general
and administrative expense and sales and marketing expense for compensation
expenses were adjusted for a decrease of $12 thousand, $142 thousand and an
increase of $53 thousand, respectively, and in total operating expense decreased $101
thousand.