Switching gear to WLO, as in the case of LCOS that the Company mentioned above, Himax expects the near term business prospect to be affected by the reduced shipment of a major AR customer. However, Himax continues to partner with numerous industry leading companies using its cutting edge and industry-dominant WLO technology. In addition to AR application, Himax’s WLO technology is adopted by the Company’s customers to enable new things such as 3D depth scanning and machine vision, which can in turn be used in a wide variety of industries such as consumer, industrial, IoT, AI, medical, automotive, military and surveillance. The Company’s customer base for this business is extremely diversified, covering numerous major tech names throughout the world, many of which leading end brand players or semiconductor platform solution providers. Himax is one of the very few players in the market with WLO technology and the one possessing the best mass production proven track record with expertise ranging from design and high yield production to cost and quality controls. The Company is very happy with its current development and business progress in this area. Given the aforementioned exciting growth opportunities, the Company is accelerating its WLO capacity expansion to meet strong customer demand in the near term.

Earlier in 2016, the Company decided to switch its strategy of the CIS business to focus on smart sensor and machine vision segments, as opposed to the traditional human vision sensors. Himax has launched two smart sensor product lines, i.e., near infrared (“NIR”) sensor and Always-on-Sensor (“AoS”). The Company continues to make great business progress with these two smart sensor products. In addition to close collaboration and intensive development activities with certain heavyweight partners and customers, Himax’s smart sensors have garnered lots of customers’ interests during the recent demonstrations at CES and the Japan Auto Expo.

By combining a NIR sensor and a structured light projector consisting of a laser diode and DOE with collimator fabricated using its WLO technology, the Company is offering the most effective 3D depth scanning total solution with the industry’s smallest form factor to enable easy integration into next generation smartphones and other consumer electronics devices such as AR/VR. The Company is targeting to work with its partners to have the structured light 3D depth scanning total solution embedded in next-generation smartphones in 2017. Himax also attracted additional heavyweight potential customers’ interest following the recent press release of its NIR sensor for its outstanding technical performance. With regards to Himax’s AoS product, the sensor can be bundled with the Company’s WLO lens to support super low power computer vision to enable new applications across a very wide variety of industries. After recent demonstrations at CES and the Japan Auto Expo, Himax’s AoS has gained significant customer interests especially in smart home, industrial IoT and surveillance applications. In a recent joint-press release with CEVA Inc. and Emza Visual Sense Ltd., the Company announced the industry’s first intelligent always-on visual sensor specifically designed to overcome the power and cost constraints of vision processing for IoT applications. The ultra-low power, always-on vision sensor is a powerful solution capable of detecting, tracking and recognizing its environment in an extremely efficient manner using a few milliwatts of power. As the Company’s long-term goal is to provide complete solutions for always-on computer vision applications, Himax decided to form a strategic alliance with Emza, an Israeli company dedicated to developing extremely efficient machine vision algorithms that enable smart IoT visual sensors. The Company will report business developments in these new territories in due course. Lastly, for the traditional human vision segments, the Company maintains a leading position in laptop applications and expects mass production of several design wins for notebooks and increased shipments for multimedia applications such as surveillance, drones, home appliances, and consumer electronics, among others, during the first quarter.

In summary, Himax is seeing weak seasonality and market demand in the driver IC business, which will lead to sequential revenue decline in the first quarter. The Company also expects its gross margin to be under pressure in the short term due to continuous pricing pressure and less favorable product mix of driver IC products, lower revenues from high-margin AR/VR related businesses and lower NRE income. Nevertheless, after many years of R&D and product development, the Company may see significant business progress in its non-driver business to contribute to both top and bottom lines out of WLO and CIS areas as early as the second half of 2017.

First Quarter 2017 Guidance

The Company is providing the following financial guidance for the first quarter of 2017:

The first quarter is traditionally the bottom of the year in terms of sales because it has fewer working days due to the Chinese New Year. The scale 5.6 earthquake that struck Tainan in early February also somehow impacted some of the Company’s customers’ productions and therefore its driver IC shipment.

In providing the above earnings guidance, Himax has assumed a 16.5% income tax rate for 2017, calculated based on exchange rate of NTD 31.0 against the USD, which is also the exchange rate as of beginning of February 2017.

HIMAX TECHNOLOGIES FOURTH QUARTER AND FULL YEAR 2016 EARNINGS CONFERENCE CALL

A replay of the call will be available beginning two hours after the call through 11:59 p.m. US EST on February 23, 2017 (12:59 p.m. Taiwan time, February 24, 2017) on www.himax.com.tw and by telephone at +1 (855) 859-2056 (US Domestic) or +1 (404) 537-3406 (International). The conference ID number is 52514789. This call is being webcast by Nasdaq and can be accessed by clicking on this link or Himax’s website, where the webcast can be accessed through February 16, 2018.