Share Buyback Update

As of December 31, 2016, Himax had 172.0 million ADS outstanding, unchanged from last quarter. On a fully diluted basis, the total ADS outstanding are 172.4 million.

2017 Investor Outreach and Conferences

Ms. Jackie Chang, CFO and Ms. Penny Lin, internal IR Manager, and Mr. Greg Falesnik, Himax’s U.S.-based IR, will maintain corporate access for shareholders and attend future investor conferences. If you are interested in speaking with the management, please contact Himax’s US or Taiwan-based investor relations contact at the numbers below.

Business Updates

The Company is mindful that 2017 will likely be a year of macro uncertainty, marked by currency fluctuations and the risk of China’s slowdown. However, looking into the new year, the Company believes its overall financial performance will be resilient to the potential macro headwinds. Particularly, following many years of R&D and investment, various areas of Himax’s non-driver IC businesses may start to contribute significantly to its overall financials.

Before detailing the prospect for the Company’s driver and non-driver businesses in 2017, it is important to update this year’s CAPEX plan as its scale will be unprecedented in the Company’s history. Being a fabless company for its IC business, Himax has typically had a low annual CAPEX, as in the case of the last two years - $10.0 million in 2015 and $7.9 million in 2016. The regular CAPEX is primarily for the investment of design tools and testing equipment for its IC design business. This year’s CAPEX plan will include the construction of a new building, which the Company has announced before, and an increase of its WLO capacity, on top of the regular CAPEX. The new building, located nearby the Company’s current headquarters, will house the next generation LCOS and WLO production lines and provide the extra office space that is desperately needed as the Company already has to take up sizable leases outside to cope with the current office space shortage. The progress of the new building construction is in line with the Company’s plan as the Company has completed the design stage and is moving on to construction stage. More specifically, the Company has budgeted $50.0 to $55.0 million CAPEX for the new office/fab construction in 2017, covering land, building, facilities and clean rooms. The new building will be completed and ready for personnel and equipment move-in by early 2018. The CAPEX budget for 2018 for the new building is around $10.0 million. Additionally, to meet the strong demand of new customers for its WLO technology, the Company is accelerating its WLO capacity expansion. Rather than waiting for the new building to complete, the Company is now investing around $25.0 million in new WLO capacity during the first half of 2017, to be located in the existing headquarter building by retrofitting certain areas for the new equipment. If everything goes as planned, Himax will see revenue and bottom-line contributions from the new WLO investment starting the second half of 2017.

The CAPEX budget for 2017 and the dividend for the year of 2016 will be funded through the Company’s internal resources and banking facilities.

During 2017, the Company expects its large panel driver IC business will continue to benefit from continued increase of 4K TV penetration and, starting the second half of 2017, Chinese panel customers’ ramping of a brand new Gen 8.5 and another Gen 8.6 fab. However, first quarter will see mid teen’s sequential decline in its large panel driver IC revenue due to fewer working days in China and Taiwan and phase-out of certain customers’ old models. Despite the temporary slowdown, the Company’s leadership position in this segment stays strong. The Company’s large panel customers are increasingly demanding a total solution from IC vendors in addition to their constant request for better IC solutions to support their high-end and high-resolution products. Himax believes its technology strength and total solution capability are significant differentiators against most of its competitors and will further solidify its leading position as Chinese customers continue to expand their capacity and the industry further upgrades to 8K TVs. Himax is one of the pioneers in product development of 8K TVs with its Chinese and Korean panel customers and has already shipped small volume to a leading Korean panel maker.

The other segment within the Company’s driver business is ICs used in small and medium-sized panels for applications including smartphones, tablets and automotives. First quarter sales for smartphones are likely to decline by close to 45.0% sequentially on weak market, seasonality, customers’ inventory adjustment for HD720 driver IC and less addressable market for smartphones using pure TFT-LCD driver ICs due to higher TDDI adoption rate. Compared to overall market, HD720 accounted for a relatively high percentage of the Company’s total smartphone driver IC shipment in 2016. Due to the panel supply shortage, most notably in the HD720 segment, in the second half of 2016, some of the Company’s China customers pulled in excess inventory of HD720 driver ICs and panels. Many of them have therefore substantially slowed down their new panel purchases in the first quarter. After customers’ seasonal inventory adjustment, the Company expects the smartphone driver IC momentum to recover sequentially in the second quarter. The Company is mindful of the trend that higher in-cell panel and TDDI adoption rate will reduce the addressable market for smartphones using traditional TFT-LCD driver ICs. Himax is confident that its TDDI solutions and business will pick up soon. On the AMOLED front, Himax has been collaborating closely with leading panel makers across China for AMOLED product development. With fewer competitors and higher barrier of entry, the Company believes AMOLED driver ICs will be one of the long-term growth engines for its small panel driver IC business.

Among driver ICs used in small and medium-sized panels, the best-performing category in recent years has been automotives. The Company expects the category’s Q1 revenue to be down high-single-digits sequentially and grow around 15.0% year-over-year. With leading market share and numerous tier 1 automobile brands as its indirect end customers, Himax has successfully engaged all key panel manufacturers and module houses worldwide for long-term partnerships and secured many of their key projects pipelined for the next few years. To address the growing demand of larger automotive displays with higher resolution and built-in on-cell or in-cell touch screen features, the Company continues to develop advanced solutions to enable new automotive display applications and provide its customers with the most comprehensive and state-of-the-art solutions in the industry. As such, the Company is well positioned to take advantage of the growing automotive display market and anticipates the strong growth will likely continue into the next few years. However, the Company’s driver ICs used in tablets will decline close to 40.0% sequentially for slow season effect. Overall, Himax expects the small and medium-sized driver IC segment to decrease sequentially by around 30.0% in the first quarter.

For the non-driver IC business segments, Himax anticipates near-term headwinds as the Company mentioned in the previous earnings call and expects about high teen’s sequential decline in its non-driver revenues for the first quarter. Sales of CMOS image sensors will deliver strong growth in the first quarter, but those of WLO, LCOS micro displays and touch panel controllers will decline sequentially.

For touch panel controller product line, on top of several projects entering volume shipment featuring Himax’s on-cell solution, the Company continues to secure new design-wins from Chinese smartphone brand customers for their 2017 models. The Company has also seen significant traction in customer adoption and design-wins of its discrete touch solutions to break into several leading Chinese and international end brand customers with new models to enter mass production from the first quarter of 2017. On TDDI, the Company is seeing rapid adoption of in-cell displays among smartphone brand customers for their new generation mid-to-high end models recently and expects TDDI to continue to expand in the smartphone and tablet market in next few years. Himax has comprehensive design-in activities with Korean, Chinese and Taiwanese panel and end product customers. The Company is also aggressively developing new products and strengthening its team to expand its product portfolio and roadmap. With very comprehensive joint development engagements covering many leading panel makers, the Company is confident that it can leverage its long-standing and widespread relationships with panel makers to increase its market share in TDDI. TDDI is a major long-term growth engine for the Company’s small panel business and will contribute to its business starting the second half of 2017.

As the Company warned in the last earnings call, Himax expects its LCOS sales to decline in the first quarter, as well as over the next few quarters in 2017, because one of its leading AR device customers decided to reduce shipment of their current generation device to a minimum, and instead, to focus on the development of future generation devices which the Company is still a critical part of. While the revenues for LCOS may subside over the next few quarters, they will come from a much more diversified customer base in 2017. Quite a few of Himax’s other customers are expected to launch their AR products starting 2017, although the Company is still uncertain of their volume potential given that they are still early generation products. Having invested in related technologies for over 15 years, Himax is uniquely positioned as the provider of choice for micro display and related optics, both of which critical enablers to AR devices. With little competition, the Company is currently working with over 30 customers on various current and future generation AR devices using LCOS micro display. The Company’s increasing design engagements cover not only leading tech companies, but also niche AR players which bring in innovative product ideas.