Himax Technologies, Inc. Sponsored ADR Aktie

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

Welcome, everyone. My name is Karen Tiao, Head of IR, PR at Himax. Joining me today are Jordan Wu, President and Chief Executive Officer; and Jessica Pan, Chief Financial Officer. After the company's prepared comments, we have allocated time for questions in a Q&A section.

If you have not yet received a copy of today's results release, please e-mail [email protected] or download a copy for Himax's website.

Before we begin the formal remarks, I would like to remind everyone that some of the statements in this conference call, including statements regarding expected future financial results and industry growth are forward-looking statements. They involve a number of risks and uncertainties that could cause actual events or results to differ materially from those described in the conference call.

A list of risk factors can be found in the company's latest SEC filings, Form 20-F in the section entitled Risk Factors, as may be amended. Except for the Companys' full year 2025 financials, which were provided in the company's 20-F and filed with SEC on March 27, 2026, the financial information included in this conference call is unaudited and consolidated and prepared in accordance with the IFRS accounting. Such financial information is generated internally and has not been subjected to the same review and scrutiny and may vary materially from the audited consolidated financial information for the same period.

On today's call, I will first review Himax's consolidated financial performance for the third quarter of 2026, followed by our fourth quarter outlook. Jordan will then give an update on the status of our business, after which we will take questions. You can submit your questions online through the webcast or by phone. We will review our financials on an IFRS basis. We are pleased to report that our Q3 profit exceeded the guidance range announced on August 6, while revenue and gross margin were both in line with the guidance.

Third quarter revenue reduced $246.8 million, representing a sequential increase of 8.5%. Gross margin was 34.2% in line with our guidance of around 34% and up from 33.1% in the previous quarter. Our Q4 profit per diluted ADS was $0.107, exceeding the guidance range of $0.08 to $0.1 attributable to lower-than-expected operating expenses. Revenue from large display driver IC came in at $19.0 million, a slight decline of 1% from the previous quarter, both monitor and notebook IC sales declined quarter-over-quarter as customers had already pulled forward inventory purchases in the prior quarters.

In contrast, sales for TV IC products increased sequentially due to higher legacy product shipments to key customers. Sales of large panel driver ICs accounted for 7.7% of total revenue for the quarter compared to 8.4% last quarter and 9.5% a year ago. Revenue from low and medium sized display driver IC segment totaled $176.8 million, reflecting an increase of 8.9% sequentially. Q3 automotive driver sales, including both the traditional DDIC and TDDI increased by solid double-digit quarter-over-quarter, marking the second consecutive quarter of strong growth.

This was primarily driven by the broad customer demand for DDIC and TDDI products. Some panel makers also accelerated IC purchases in response to a surge in orders from Chinese automakers, which are expanded overseas amid slowing demand in their domestic market. The mass production of multiple LTDI projects across the automotive brands worldwide also contributed to quarter-over-quarter growth.

Q3 smartphone IC sales covering LCD and OLED products increased sequentially, driven by continued shipments for a leading smartphone brand's mainstream model and inventory build-up for its new premium models. In contrast, tablet IC sales decreased sequentially as expected, primarily reflecting customers' accelerated purchases in the first half of the year against the background of the rising memory price sentiment in the market.

The small and medium-sized driver IC segment accounted for 71.6% of total sales for the quarter compared to 71.4% in the previous quarter and 70.8% a year ago. Q3 non-driver sales reached $51.0 million, an 11.2% increase from the previous quarter, attributable to robust automotive Tcon shipments that extended the strong momentum from Q2. This growth was supported by the continued legacy product shipments to a broad, diversified customer base as well as the several new projects entering mass production.

Tecon business accounted for over 10% of the total sales with more than half contributed by automotive Tcon. Himax continue to hold undisputed leadership position with a dominant market share in automotive Tcon, particularly in solutions featuring local dimming functionality. We expect the strong growth momentum to continue into next year and non-driver product accounted for 20.7% of the total -- of total revenues as compared to 20.2% in the previous quarter and 19.7% a year ago. Third quarter

operating expenses were $61.8 million, an increase of 21.9% from the previous quarter and 1.7% compared to the same period last year. The sequential increase was mainly attributed to the annual bonus compensation which we award employees at the end of the September each year, and we saw a much higher employee compensation expense compared to our quarter of full year. Our annual bonus compensation grant for 2026 was $13.3 million, slightly higher than the guidance of the $13 million as the bonus amount determined by the expected full year profit was revised upward following an improved Q3 profit.

Of the $13.3 million, $11.8 million was immediately vested and expensed in Q3. Including the portion of the award granted in prior year, the total bonus expenses for Q3 2026 amounted to the $11.9 million, higher than $8.1 million recorded in the Q3 2025. For reference, the annual bonuses granted for the 2025 and 2024 were $7.7 million and $12.5 million, respectively, of which $7.5 million and $11.2 million were vested and expensed immediately.

We continue to exercise prudent cost management while prioritizing strategically investment in our driver IC business that offer attractive long-term growth opportunity. Third quarter operating income was $22.7 million representing an operating margin of 9.2% compared to 10.8% in the previous quarter and negative 0.3% for the same period last year. The sequential decline was primarily attributable to higher employee bonus expense, which, as I mentioned earlier, totaled $11.9 million. compared to $0.2 million last quarter. Meanwhile, the year-over-year increase was primarily driven by higher revenue and improved gross margin.

Third quarter after-tax profit was $18.6 million or $0.107 per diluted ADS compared to $19.9 million or $0.114 per diluted ADS last quarter and up from $1.1 million or [ $0.006 ] in the same period last year. Turning to balance sheet. We had $285.3 million cash, cash equivalents and other financial assets as of September 13, 2026. This compared to $278.2 million at the same time last year and $298.7 million a quarter ago. The sequential decline in cash balance, mainly reflected $44 million in dividend and $11.9 million employee bonus payout.

Q3 operating cash inflow was $23.9 million, compared to an inflow of the $17.5 million in Q2. The employee bonus paid on this year included $11.4 million for immediately vested portion of this year's award and [ $0.5 ] million for vested award granted over the past 3 years. Our quarter end inventory as of September 30, 2026, were $159.8 million up from [ $151.5 million ] last quarter and higher than $137.4 million in the same period last year.

Our inventory level remained healthy, particularly considering extended manufacturing lead time across the industry. Accounts receivable at the end of September was $228.4 million, up from $220.3 million last quarter and $200.7 million a year ago. DSO was 93 days at the quarter end, the same as last quarter and 87 days a year ago. Third quarter capital expenditures are mainly on R&D-related equipment for our IC design business was $3.9 million versus $4.3 million last quarter and $6.3 million a year ago.

As of September 30, 2026, Himax had 174.5 million ADS outstanding, little changed from last quarter. On a fully diluted basis, the total number of ADS outstanding for the third quarter was $174.4 million.

Regarding the proposed divestiture of our stake in an equity method investee announced in July the transaction is progressing as planned and expected to close in Q4, subject to customary closing condition and regulatory approvals. Upon closing, we expect to recognize a pretax gain of approximately $23 million to $24 million and an after-tax gain of approximately $19 million to $20 million. We will provide further updates as appropriate.

Now turning to our Q4 '26 guidance. We expect Q4 revenue to decrease 22% to 26% sequentially. Gross margin is expected to be flat to slightly up depending on the product mix. Q4 profit attributable to shareholders is estimated to be in the range of $0.045 to $0.065 per fully diluted ADS. This estimate does not include a potential gain from the proposed divestiture just mentioned earlier. I will now turn the call over to Jordan to discuss our Q4 outlook. Jordan, the floor is yours.

Thank you, Karen. Demand for data center AI applications remains robust, with no signs of slowing. Notably, AI related demand expands beyond advanced process nodes to a range of supporting applications involving legacy process nodes, such as Photonic ICs or PICs, interposers, power management ICs and MOSFETs. As the supply-demand imbalance continues to intensify, capacity at legacy process nodes is expected to tighten further in 2027. Against this backdrop, foundries as well as packaging and testing providers, including those in China have recently announced significant price increases for 2027.

In the face of these mounting supply chain pressures, securing sufficient capacity has become our top priority, particularly as automotive now accounts for most of our revenues. Automotive customers have far more stringent requirements for supply stability, long-term capacity assurance and delivery reliability than consumer electronics customers do. Through a series of recent proactive measures, we have fully secured capacity commitments for 2027 from our key suppliers and for key product areas.

In terms of costs, we continue to work closely with customers to share the impact of rising costs. As just mentioned, our Q4 revenue is projected to decline sequentially. This is primarily due to an abrupt and significant correction in automotive driver IC orders, covering both TDDI and DDIC. Automotive Tcon sales, on the other hand, are expected to continue growing sequentially. It is worth highlighting that our automotive IC sales recorded a decent 16% year-over-year increase in the first 9 months of 2026.

Despite the sharp correction in Q4, we still expect full year automotive IC revenue to grow by approximately 10% year-over-year, outperforming the global automotive market with a worldwide vehicle production expected to decline this year. Now let me elaborate on what we are seeing in automotive demand lately. The year started on a soft note followed by robust inventory replenishment in Q2 and Q3 as certain panel makers accelerated IT purchases to meet certain orders from Chinese automakers expanding overseas.

In Q4, however, shortly after China's National Day holidays in early October, we saw a sudden and sizable decline in demand among the customers that had purchased aggressively in prior quarters. In recent weeks, certain panel makers with high exposure to Chinese automakers export programs have significantly scaled back their Q4 forecast. For context, after years of solid growth, China's domestic automotive market has experienced a substantial decrease in demand amid intensified competition this year, prompting Chinese automakers to increasingly rely on exports.

According to data released by the China Association of Automotive Manufacturers, or CAAM, in October, china's domestic sales for locally made vehicles declined by 22.4% year-over-year in the first months of 2026, while exports of locally manufactured vehicles surged by 65.8% in the same period. We believe the recent significant reduction in our Q4 forecast reflects in part Chinese automakers earlier overly aggressive export expectations along with their growing concerns over inventory levels across distribution channels, including shipments in transit, following 3 quarters of extraordinary export growth.

Adding to the uncertainty, there is mounting pressure from various countries, including the European Union, to tighten trade barriers on Chinese vehicle imports. Compounding these headwinds in October, the Chinese government announced reductions in export tax rebates for new energy vehicles. Together, these factors may have contributed to the recent reduction in our Q4 automotive sales outlook and are limited our near-term order visibility.

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

Himax has long maintained a dominant position with strong long-standing relationships with not just the panel makers, but also carmakers' brands worldwide as well as leading Tier 1 suppliers across the U.S., Europe, Japan and Korea. More recently, fueled by the rapid expansion of Chinese automakers in both domestic and export markets, we have also witnessed the rise of Chinese tier 1 players, which are quickly emerging as the force to be reckoned with. In the process, these suppliers have significantly expanded their manufacturing capabilities, gained extensive mass production experience, strengthened their cost competitiveness, has achieved rapid product development capabilities.

The Chinese Tier 1 players are located across the broad geographic areas in China, enabling them to serve automakers across multiple regions effectively. With our deep automotive experience, comprehensive automotive display IC portfolio, spanning both LCD and OLED technologies, best-in-class customer service and extensive global network providing timely, localized technical support, we have attracted a great number of Chinese automotive Tier 1s to our customer base in recent years.

Moreover, the eagerness to embrace new technologies and ability to bring them rapidly into mass production create additional opportunities for us to expand adoption of our advanced automotive display IC solutions across a great number of vehicle programs. This has already translated into a substantial number of design wins and a rapidly growing pipeline of new projects.

Looking ahead, we remain optimistic about the long-term growth prospects of our automotive Display IC business, supported by rapid advancements in smart vehicle interiors a trend categorized by more displays for vehicle, larger and higher-resolution screens and increasingly complex displays configurations. These trends are driving growing demand for advanced display technologies as exemplified by our fast-growing LTDI solutions for large format automotive displays, which continue to gain traction and demonstrate resilience amid broader automotive market fluctuations.

Meanwhile, the accelerated adoption of automotive OLED display represents another significant long-term growth opportunity supported by our comprehensive IC portfolio and numerous design wins secured through years of close collaboration with leading OLED panel makers in Korea and China.

In addition to conventional in-cabin displays, head-up displays or HUDs are also gaining traction, evolving into an increasingly important application for new generation smart vehicles as automakers seek to bring advanced driver assistance information, AI-powered interactive features and real-time driving data directly into the driver's field of view. This creates additional opportunities for HUD IC solutions where we hold a commanding market position.

As these trends continue to unfold, we see significant opportunities to further increase our IC content value per both per panel and per vehicle. EPD or electronic paper display is another area where we see meaningful growth opportunities heading into 2027. In e-Readers, we expect growing sales through newly secured project wins and a larger share of leading global end brand's products. In addition, we continue to expand our presence in the electronics shelf-label or ESL market, a sizable and growing market with significant potential.

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

The retail sales of these classes are already or soon to be in place. These recent developments further validate WiseEye's technological strengths in ultralow power consumption, always-on visual sensing and on-device AI processing. In addition to smart glasses, we are making progress in other emerging wearable applications, including smart pendants and earbuds.

Numerous smart wearable projects are underway, several evolving global tech names. This growing design-in momentum underscores WiseEye's strong fit for next-generation smart wearables, which are evolving towards proactive context aware AI experiences that require continuous on device AI without compromising battery life. I will elaborate further on this in a few minutes.

Lastly, turning to our CPO business. We continue to work closely with our strategic partner, FOCI, focusing on further improving manufacturing yields and establishing stable mass production capabilities to support the next phase to production scaling. We are pleased that as part of this ongoing effort, FOCI announced earlier today that its Board of Directors approved capital expenditures in the amount of TWD 3.33 billion or approximately USD 100 million for the expansion of both fab space and manufacturing equipment in preparation for FAU mass production.

Engineering ramps are already underway, with shipments expected to expand quarter-by-quarter from this point onward. While the timing of mass production is ultimately a call to be made by our end customers, we remain confident that our CPO business will begin making a meaningful contribution to both our top and bottom lines, starting in 2027.

At the same time, we continue to engage with a growing number of customers and advance the joint development of next-generation optical solutions, featuring higher fiber counts, enhanced optical precision, and increasingly sophisticated designs, including WDM or Wavelength Division Multiplexing. targeting the surging bandwidth demand of HPC and AI data centers.

Himax is uniquely positioned to drive further advancements in FAU technology and performance, leveraging the fundamental strengths of our proprietary WLO technology. Unlike other optical technologies available in the market, our WLO technology offers distinct competitive advantages in nanometer-level optical precision, optical performance, manufacturing consistency and scalability. These capabilities make it particularly well suited for the evolving requirements of future generation CPO applications, enabling reliable, highly repeatable and scalable mass production of high-precision optical components.

Beyond CPO, Himax has been at the forefront of high precision optics technology for nearly 2 decades. Having worked on various designs across a wide range of applications with some of the world's most prominent technology names. We are pleased to share that a leading global technology company has selected Himax's WLO technology to enable its advanced optical sensing solution to support autonomous driving.

Our technology delivers high optical efficiency, precision, cost competitiveness and a solid volume production track record. These advantages, together with our proven manufacturing expertise enable us to meet the stringent performance and reliability requirements of automotive applications. Shipments are expected to commence in upcoming quarters. This adoption by our leading global technology company not only validates our technical strengths, but also demonstrates the versatility of our WLO technology.

Further expanding these applications beyond consumer electronics, wearable devices and AI data centers to include automotive. With that, I will now begin with an update on the large panel driver IC business.

In Q4, large display IC sales are expected to increase by low teens from last quarter. Both TV and monitor sales are poised for sequential increases driven by higher shipments of legacy products to key customers. This growth, however, is expected to be partially offset by the decline in notebook IC sales, as a leading customer has pushed back mass production of a new high-end notebook market to early 2027.

Looking ahead in the loan book market, we are seeing increasing adoption of OLED displays in premium noteboks, supported by notebook makers growing focus on higher-end models amid rising memory prices and the ramp-up of new Gen 8.6 OLED fabs in China starting later this year and into 2027. Himax is well positioned to capitalize on these favorable industry trends with our comprehensive portfolio of notebook OLED display ICs, expanding DDIC, Tcon, power management ICs and touch controllers.

We have also completed development of our Tcon solution supporting the eDP-1.5 interface applicable to both LCD and OLED panels. This interface supports high refresh rates, low power panel replay, adaptive-sync and high-resolution displays, enabling enhanced visual performance and improve power efficiency. Our comprehensive product portfolio allows us to offer customers a one-stop solution while increasing our content value per device.

Turning to the small and medium-sized display driver IC business. In Q4, our small and medium-sized display driver IC business is expected to decrease by double digits sequentially, following 2 consecutive quarters of robust growth. Automotive, tablet and smartphone driver IC sales are set to decrease quarter-over-quarter in Q4. As noted earlier, the anticipated decline in automotive sales reflects order reductions from certain panel makers following 2 quarters of strong sales.

These panel maker customers have been aggressively scaling back their Q4 projections in recent weeks as the outlook for Chinese automakers export growth began to reverse significantly. Despite the recent slowdown, we expect our full year 2026 automotive display IC revenue to grow by approximately 10% year-over-year, outperforming the projected decline in global vehicle shipments. This growth is driven by the continued expansion of our automotive TDDI for the adoption of our Tcon solutions and growing contributions from LTDI.

Looking ahead, we remain confident in the long-term trajectory of our automotive IC business, with multiple growth drivers in place, starting with a rebound in automotive DDIC. Following several years of modest decline, driven by gradual displacement by TDDI, DDIC is poised for a recovery backed by the anticipated volume growth of relatively new non-touch display applications, such as HUD and e-mirror, where, we have built a strong pipeline of design win projects accumulated over the last few years as well as mainstream displays such as dashboards and in-vehicle infotainment systems.

Our automotive TDDI business, meanwhile, should keep expanded on the back of additional customer vehicle model ramps and broader adoption across automotive display applications. To round out the picture, the LTDI and OLED solutions are also set to contribute more meaningfully from 2027 onwards as small project ramps following years of design development with customers.

Himax continues to introduce innovative technologies that reinforce our market leadership and expand our opportunities across diverse automotive display applications. our LTDI technology is a prime example, particularly suited for large-format displays exceeding 30 inches, which typically requires 4-or-more chips per panel and in some cases, more than 10 as well as at least one local dimming Tcon. This translates into significantly higher IC content value or per panel and per vehicle basis. Reflecting the widening adoption of this emerging display technology, Q4 LTDI revenue is expected to grow by single digits quarter-over-quarter and account for over 5% of total sales during the quarter.

Integrating high-speed eDP interface, touch controller and display driver into a single chip, our recently introduced industry-leading automotive eDP TDDI solution is another example. Supporting displays of up to 30 inches, this highly integrated solution delivers high resolution, superior display quality and responsive touch performance. Customers can also opt for a IC configuration that further integrates our industry-leading local dimming technology eliminating the need for separate Tcon while enhancing contrast and image detail in both bright and dark areas as well as reducing overall system costs and display power consumption.

Together, these technologies broadens our automotive display portfolio, giving customers greater flexibility to select solutions the best meet their specific display needs, performance requirements and cost targets. Building our leadership in automotive LCD, we also were positioned to capture the accelerating shift to OLED in premium automotive displays, which we expect to become another key growth driver.

Working closely with leading OLED panel makers in Korea andn China, we have developed a comprehensive portfolio of DDICs, Tcons, touch controller ICs and customized ASIC solutions to address diverse customer needs and display requirements. Our extensive offerings and early customer engagements have led to a strong pipeline of design wins. We are also expanding our OLED portfolio with innovative, highly integrated solutions such as our TED or Tcon embedded driver IC technology. which comprises DDIC and Tcon into a single chip deliver a cost-effective and flexible solution, particularly suited for smaller, lower resolution automotive displays.

Our TED technology continues to gain traction across an diverse range of applications, including automotive, robotics and IT. Shortly after this introduction, the TED solution achieved its first mass production milestone with a leading global brand in the robotics market, with production commencing in Q4.

Several additional design win projects are also underway with customers for their upcoming vehicle models. I would like to now turn to our non-driver IC business update where we expect Q4 revenue to be flat to slightly down sequentially. First, for an update on our Tcon business. We anticipate Q4 Tcon sales to increase by high single-digit quarter-over-quarter. For automotive Tcon business is expected to deliver low-teens growth in Q4, marking the third consecutive quarter of strong quarter-over-quarter growth despite subdued demand in the broader automotive market.

The sequential growth is supported by continued shipments of our legacy products to a broad and diversified customer base, along with the ramp-up of several new projects. Notably, one is for U.S. Big Tech for its robotaxi offering, underscoring the broadening application of our automotive Tcon solutions beyond conventional passenger vehicles.

Our full year 2026 automotive Tcon sales are on track to grow by over 40% with another strong growth expected next year. With automotive Tcon adoption still largely concentrated in premium vehicles, we see significant growth for broader market penetration. At the same time, we hold a leading market position in the growth adoption of advanced HUDs where our automotive Tcon solutions are widely adopted to address complex issues of de-warping and post card effect elimination, which are unique to HUDs. Together, this trends position us well to deliver another year of strong automotive Tecon growth in 2027 and beyond.

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

We also integrates built-in automotive safety features such as failure detection and on-screen display or, OSD, for safety alerts and fault notifications. The solution simplifies system architecture, enhances design flexibility, and reduces overall costs, making it a compelling choice for next-generation automotive display applications ranging from HUDs to pillar-to-pillar displays.

Its strong market appeal is already reflected in the design-in momentum with leading panel makers and Tier 1 players globally. This new solution demonstrates, our ’ continued execution on its technology roadmap and reinforces our ’s leadership in advanced automotive display solution.

Switching gears to the WiseEye product line, a cutting-edge ultralow power AI sensing total solution, Targeting battery-powered endpoint devices. WiseEye has demonstrated its versatility through growing adoption across diverse applications, including notebooks, smart door locks, surveillance Systems, access control, palm vein authentication, smart offices, and, more recently, smart glasses with design-in activities continuing to expand.

At the core of WiseEye's competitive advantage is its industry-leading ultralow power architecture, consuming only a few milliwatts while enabling on-device AI inference, 24/7 always-on visual and voice sensing, all in an exceptionally compact form factor. These capabilities enable customers to incorporate AI sensing into their products while minimizing power consumption, extending battery life, and reducing reliance on host processors, creating further Opportunities across emerging edge AI and endpoint AI markets.

As mentioned earlier, during the quarter we announced another significant milestone in the smart Glasses market, with Alibaba adopting our WiseEye AI processor for its Qwen Glasses. The Qwen Glasses feature a three-chip architecture, with dedicated processors handling image processing everyday tasks, and ultralow power visual sensing. Himax’s WiseEye AI processor, featuring a compact form factor and integrated into the temple of the glasses near the ear, serves as the always-on ultralow power AI vision engine.

It enables continuous outward-facing environmental sensing and real-time understanding of the surroundings while consuming only a few milliwatts of power. This division of processing tasks allows the glasses to handle functions such as photography and audio processing while maintaining continuous environmental awareness without keeping the main processor constantly active, helping reduce overall system power consumption and extend battery life.

Beyond outward-facing environmental sensing for AI glasses, WiseEye also supports inward-facing eye tracking, enabling intuitive gaze-based interaction. In addition, it supports iris recognition for secure user authentication. Together, these capabilities lay the foundation for new-generation physical AI agent applications, enabling devices to proactively understand their surroundings, anticipate user needs, and provide timely, context-aware assistance rather than simply responding to User commands.

In the smart glasses market, we continue to expand our WiseEye engagements with platform providers, ODMs, and consumer electronics names worldwide, with numerous projects poised to enter mass production starting in 2027. On the WiseEye module front, design-in activities continue to expand, supported by its plug-and-play offering, ultralow power consumption, and on-device AI capabilities.

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

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

Leveraging wiseEye’s ultralow power AI capabilities, our solution enables compact, swallowable capsule endoscopes to continuously capture and transmit images while consuming negligible power. This approach offers a less invasive and more convenient examination experience compared with conventional endoscopy, which typically requires the insertion of an endoscope tube.

We are pleased to share that one of our capsule endoscopy projects for human health examinations is slated to enter mass production this quarter, following an extensive and lengthy review and approval process by china's National Medical Products Administration, NMPA, under its Class III medical device classification. This marks an important milestone for WiseEye in healthcare and further demonstrates Its versatility across industries.

That concludes my report for this quarter. Thank you for your interest in Himax. We appreciate you joining today’s call and are now ready to take questions.

We do receive online quite a few questions, mainly regarding our overall market projection, particularly in relation to automotive market and also CPO. I think I will start with this combination of a few questions. Is the auto big ramp continue to next year? Is there anything to do with China market share decline impact next year? Okay. I think this is a combination of a few questions.

Well, thank you, guys, for the question. As you know, we don't usually provide guidance beyond 1 quarter. So I'm not going to give specific financial projections for next year. However, based on our current internal assessment, we are actually quite confident about our growth prospect for next year, which is now looking to enjoy double-digit growth.

Starting with revenue, we believe the sudden and substantial correction of revenues for Q4 this year is a temporary short-term setback, are reflecting our customers' overly aggressive inventory buildup in the previous 2 quarters. I guess, in light of the extraordinary growth of the export market for Chinese carmakers.

What we have seen over the last 3 or 4 weeks, also, right after the Chinese National Day Holidays right after, some of our major customers are, perhaps, sensing early signals for the market conditions to take a turn for the worst. They decided to hit the brake hard, very hard. And actually, that kind of surprised us as well. But as I pointed out earlier in the prepared remarks, our full year automotive sales forecast for this year still stands at around 10% growth.

This has accounted for the Q4 pretty drastic correction in sales numbers already. So this 10% sales growth is still achieved notwithstanding the sharp decline of the fourth quarter, outperforming the overall automotive shipment, which is projected for decline this year.

So we believe, again, we are well positioned to achieve double-digit year-over-year revenue growth in 2027, driven primarily by automotive business with growth across DDIC, TDDI, LTDI and Tcon. I'm not going to go through the details again because we have covered a lot of those in our prepared remarks. What I want to say is that our positive outlook is not built on the growth of the global car shipment next year.

It's not built on the growth of global car shipments next year. Rather, we are building our projection based on a flattish global automotive shipment next year. So our positive sales projection is supported by the strong pipeline of design wins accumulated over the past few years with customers' new project mass production timetable already set for the coming quarters.

So contrary to total vehicle shipment, which can swing one way or the other, based on various economic and political factors, and it's actually harder to predict, the gradual increase of number of displays per vehicle and the IC dollar content inside each display are, however, quite certain.

Again, we have demonstrated this year, we are still able to grow 10% year-over-year despite decline of global car shipments. So this is also evidenced by the aggressive adoption of our leading-edge display IC solutions for automotives by Tier 1s and OEMs globally. So that is th first area, the main area, global automotive display driver IC, which is now almost half of our total sales.

And the next area to cover is EPD, or Electronic Paper Display business, including DDIC and Tcon for e-readers and E-TECH. And this is another area of display ICs where growth prospects for next year looks quite positive, supported by recent mass production of a major e-Reader brands, mainstream products where our ICs are adopted and the broader coverage of customer base for the E-TEC business.

So I guess that's my short-term summary for -- a quick summary for DDIC sales outlook for next year. Now turning to non-driver businesses, which are expected to outgrow driver ICs in next year with revenue contribution approaching 30% next year, up from 20% of today. So non-driver IC will outgrow driver IC next year. And the non-driver IC growth will be driven primarily by automotive Tconss, which are expected to deliver another year of very strong growth following this year's projected growth of 40%, supported by our robust design pipeline.

Our WiseEye product line is set to be another key growth driver with very strong momentum across emerging applications, including smart glasses, WiseEye modules and palm vein authentication. I've highlighted all those in my prepared remarks. In smart glasses, in addition to the Alibaba Qwen glasses and another global technology titans, AI glasses, we are quite confident that more product launches from various customers incorporating our WiseEye are actually on the way, and they will be announced along the way in the next few quarters.

All these developments, together with growing opportunities in WiseEye modules and palm vein authentication position us well for continued growth in 2027. I want to highlight though the revenue outlook I just mentioned, meaning double-digit growth expected for next year. This does not include CPO, which is expected to start from 2027. And this will certainly add to our 2027 revenue as well.

But because CPO is a new business, we still don't have a good grasp of how the business ramp-up will look like in its first year of mass production. So it's -- I think it's prudent that we don't include it as part of our next year's discussion for the time being. And certainly, hopefully, we'll be able to give you concrete updates as we move along in the next few quarters. So that's -- again, that's a quick summary of next year's top line projection.

People asked about gross margin. We do see some challenges ahead on gross margin because, as I pointed out earlier, foundries and back-end suppliers, including those in China, have announced significant price increases starting from the very beginning of next year. This is an industry-wide issue, and we are working closely with our suppliers and customers to manage the impact.

I mentioned earlier that sales contribution from non-driver IC product line will be higher next year, approaching 30% from the current 20%. This will be accretive for gross margin because all major non-driver IC products such as I highlighted earlier, Tcon and WiseEye offer better gross margin than driver ICs. I said earlier, our current outlook does not factor in potential contribution from CPO, which does offer much better gross margin than our corporate average, and it will certainly help enhance our gross margin rather meaningfully once ramping gets started.

But again, even excluding CPO, we still expect gross margin to remain relatively stable compared to this year or hopefully improve slightly next year despite the challenging condition on the supply side. Okay. I hope that kind of covers all these questions. Let me see if I missed anything. Our market share decline, no, well, again, I pointed out earlier, right? We actually outgrow the global car shipment data.

So I think that's a strong evidence that we are not losing market share. Rather, it is a very sudden short-term customer order correction. Anything to do with China, I've said it quite clearly, both in my response to questions and prepared remarks that the Chinese export over the first 3 quarters of this year grew almost 70% year-over-year. And this is very new and so strong. So I think -- and logistics for export is a lot more complicated than domestic sales.

So I think some of our customers with a big exposure to Chinese car exports are still getting used to this new market. And in light of the very strong growth, they probably overbuilt and they send something early signals that it decided to step on the brake. So yes, it does have a lot to do with China, in particular, Chinese cars exports.

Okay. There's quite a few questions. Again, I try to combine them together. They are all about CPO. Many new players entering CPO, your market share got eroded? Your position is still solid. How you compare with them, meaning the newcomers exclusively with FOCI for now? And are we facing pressure in light of the new competition?

Okay. So that's the question about CPO. So CPO or more specifically FAU, right, FAU, targeting the CPO application, okay? That's our market specifically, right, FAU targeting CPO application. It's a greenfield market for everyone. And that is a market which is super exciting, technically, very, very challenging and with enormous potential, right? So it is no surprise that more players are entering the race and different players approaching the market with different competing technology. So that is, I mean, kind of expected, right, and we did expect that all along.

So first off, as far as we know, we are probably the only company offering optical solutions for FAU based on WLO technology, wafer-level optics technology, with products already in pretty advanced stage of engineering validation by some of the largest and leading end customers, okay?

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

And that is why we chose them because we feel we are -- will be of the best value if we succeed. We don't -- what I want to say is we don't cover all optical components, every single piece of optical component inside FAU. And we certainly don't intend to enter the field of mechanical components inside FAU, right? We don't do mechanical components. And we noticed certain press reports have mistakenly compared other companies' solutions with those of ours while we are actually working on different things.

So that is one clarification what I wish to make, taking the advantage of the Q&A session. Having said that though, there are some other competitors who are, in fact, competing head-on with us on the optical components that we chose to develop. While I won't comment on competing players or their technologies, we are very confident, we are very, very confident in the competitive advantage of our unique WLO approach.

We have developed our solutions from the ground up with extensive feedback from our customers and partners along the way over the last 4 or 5 years, during which time we have actually accumulated extensive know-how and experience, and we have filed numerous, in some cases, very critical patents, which is an advantage only unique to pioneers such as us and FOCI.

I can say -- what I can say is the latest feedback we've received from customers has been both encouraging and very promising. Although we are -- again, we are -- we haven't really officially entered mass production stage, we are in hopefully last stages of engineering validation. Our technology offers distinct advantages, our WLO technology offers very unique advantages in nanometer level optical precision down to nanometer level.

We offer outstanding optical performance and manufacturing consistency. Compared with conventional optical approaches, our WLO technology is particularly well suited for highly repeatable and reliable big volume production. Once the manufacturing process is established, we can repeatedly produce high-precision optical structures or components with consistent quality and stable yields.

I want to emphasize this because this is one thing to be able to produce samples with good quality or good precision. But the real challenge is maintaining that same level of quality consistently while shipping at scale. So right now, our worry is not really exactly on competition. Our focus is on execution, establishing reliable mass production capabilities, positioning ourselves among the early suppliers to serve leading customers.

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

So in summary, we are -- we remain very confident our CPO business will begin making a meaningful contribution to both our revenue and profitability starting from some point next year. Whether our market share or market position will be eroded, I believe we are still clearly the market leader. I think it's way too early to talk about anybody's market share.

And if anything, I think the market is so big that -- well, first off, I don't believe anybody going forward in the long term will enjoy a monopoly in this huge market, right? It's impossible. So it's reasonable that there will be competition. So I think we are still ahead in the race and market share erosion, I think it's really too early to tell because nobody has really a market share to speak of to begin with.

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

Yes. We don't have further questions at the moment. We thank you for all your questions. And I'll pass the call back to Mr. Jordan Wu for closing comments. Thank you.

As a final note, Karen, our Head of IR/PR, will maintain investor marketing activities and continue to attend investor conferences. And we'll announce the details as they come about. Thank you, and have a nice day.

Yes. Thank you. Ladies and gentlemen, this concludes the third quarter 2026 earnings conference. You may now disconnect. Thank you again. Goodbye.

Hello, ladies and gentlemen. Welcome to Himax Technologies, Inc. Second Quarter 2026 Earnings Conference Call. [Operator Instructions] And as a reminder, this conference call is being recorded.

I would now like to turn the conference over to Ms. Karen Tiao, Head of IR PR at Himax. Ms. Tiao, please go ahead.

Welcome, everyone. My name is Karen Tiao, Head of IR PR at Himax. Joining me today are Jordan Wu, President and Chief Executive Officer; and Jessica Pan, Chief Financial Officer. After the company's prepared comments, we have allocated time for questions in the Q&A section. If you have not yet received a copy of today's results release, please e-mail [email protected] or [email protected] or download a copy from Himax's website.

Before we begin the formal remarks, I would like to remind everyone that some of the statements in this conference call, including statements regarding expected future financial results and industry growth are forward-looking statements that involve a number of risks and uncertainties that could cause the actual events or results to differ materially from those described in the conference call. A list of risk factors can be found in the company's latest SEC filings, Form 20-F in the section titled Risk Factors as maybe amended.

Except for the company's full year of 2025 financials, which were provided in the company's 20-F and filed with the SEC on March 27, 2026. The financial information included in this conference call is unaudited and consolidated and prepared in accordance with IFRS accounting. Such financial information is generally -- is generated internally and has not been subjected to the same review and scrutiny and may vary materially from the audited consolidated financial information for the same period.

On today's call, I will first review Himax's consolidated financial performance for the second quarter 2026, followed by our third quarter outlook. Jordan will then give an update on the status of our business and after which, we will take questions. You can submit your questions online through the webcast or by phone. We will review our financials on an IFRS basis.

The rapid rise in AI demand is placing unprecedented strength on memory chip supply and affecting many non-AI applications, creating a more challenging cost and capacity environment across the industry. Against this backdrop, we are pleased to report that our second quarter revenues, gross margin and profit all exceeded the guidance we provided on May 7, 2026.

Second quarter revenues registered $227.4 million, representing a sequential increase of 14.2% and up 5.9% compared to the same period last year. Q2 revenues exceeded our guidance range of a 10% to 13% increase, primarily driven by better-than-expected automotive IC sales. Gross margin was 33.1%, substantially exceeding the guidance of around 32%, up from 30.4% in the previous quarter and 31.2% a year ago. This is primarily due to a more favorable product mix with increased sales from higher-margin automotive IC products.

Q2 profit per diluted ADS was $0.114, significantly exceeding the guidance range of $0.086 to $0.103, up from $0.046 in the previous quarter and $0.095 a year ago. Revenue from large display driver came in at $19.2 million, representing a decline of 21.0% from the previous quarter, attributable to panel makers pulling forward their inventory purchases for high-end TV ICs in prior quarters.

In contrast, sales for both the monitor and notebook IC products increases quarter-over-quarter due to higher legacy product shipments to key customers. Sales of large panel driver IC accounted for 8.4% of total revenues for the quarter compared to 12.2% last quarter and 11.6% a year ago.

Revenue from small- and medium-sized display driver IC segment totaled $162.3 million, reflecting an increase of 19.6% sequentially. Q2 automotive driver sales, including both traditional DDIC and TDDI, increased by double-digit quarter-over-quarter, primarily driven by broad-based customer replenishment of TDDI and DDIC following seasonally lower shipment during the Lunar New Year in Q1.

The ramp-up of new TDDI and DDIC projects for a leading panel customer also contributed to the sequential increase. Customers continue to operate under a make-to-order model while maintaining lean inventory levels. Our automotive business comprising DDIC, TDDI, Tcon and OLED IC sales remained the largest revenue contributor in the second quarter, representing well over 50% of total revenues.

Second quarter tablet IC sales covering both LCD and OLED products also increased sequentially, attributable to customers' early pull in demand against the backdrop of the rising memory price sentiment in the market, together with the continued shipment for our customers' premium OLED model. In contrast, smartphone IC sales decreased sequentially following the initial ramp-up of an OLED IC for leading smartphone brands midstream model in Q1.

The small and medium-sized driver IC segment accounted for 71.4% of total sales for the quarter compared to 68.2% in the previous quarter and 67.3% a year ago. Q2 non-driver sales reached $45.9 million, a 17.7% increase from the previous quarter, attributable to robust automotive Tcon shipment supported by replenishment across the board customer base. Tcon business accounted for over 10% of the total sales with more than half contributed by automotive Tcon.

As the market leader in automotive Tcon, particularly in solution featuring local dimming functionality, we expect strong growth momentum to continue into next year. Non-driver products accounted for 20.2% of total revenues as compared to 19.6% in the previous quarter and 21.1% a year ago. Second quarter operating expenses were $15.7 million, an increase of 0.8% from previous quarter and 3.6% compared to the same period last year.

The year-over-year increase was mainly attributable to higher tape-out expenses. We remain disciplined in managing costs while continuing to invest strategically in select non-driver IC business with compelling long-term growth potential.

Second quarter operating income was $24.6 million, representing an operating margin of 10.8% compared to 5.1% in the previous quarter and 8.4% for the same period last year. Both the quarter-over-quarter and year-over-year changes were primarily driven by higher revenues and gross margin.

Second quarter after-tax profit was $19.9 million or $0.114 per diluted ADS compared to $8.0 million or $0.046 per diluted ADS last quarter and up from $15.5 million or $0.095 in the same period last year.

Turning to the balance sheet. We had $298.7 million of cash, cash equivalents and other financial assets as of June 30, 2026. This compared to $332.8 million at the same time last year and $287.6 million a quarter ago. The sequential increase was mainly driven by operating cash flow of $17.5 million in the second quarter.

Before moving on, I would like to highlight one point regarding this quarter's cash flow. As is our usual practice, income tax payments are made in the second quarter. Under a new Taiwan government policy, we are entitled to defer approximately $11.0 million of this payment for 1 year without interest. Excluding this deferral, second quarter operating cash flow would have been approximately $6.5 million.

Looking ahead to Q3, we anticipate a decline in cash, cash equivalent and other financial assets, primarily due to the payment of the $44 million for the annual dividend to shareholders made on July 10. In addition, subject to the final Board decision, we will distribute around $11.7 million, the immediately vested portion of this year's employee bonus awards at the end of the Q3.

Our quarter end inventory as of the June 30, 2026, were $151.5 million, about the same as the $151.7 million last quarter, but higher than the $134.6 million in the same period last year. After maintaining lean inventory levels for several years, we proactively adjusted our inventory strategy about a year ago, selectively building inventory in anticipation of the tightening supply across the industry.

Accounts receivable at the end of the June was $220.3 million, up from $190.9 million last quarter and $290.0 million a year ago. DSO was 93 days at the quarter end as compared to 86 days last quarter and 92 days a year ago.

Second quarter capital expenditure, primarily for R&D-related equipment for our IC design business was $4.3 million versus $2.9 million last quarter and $4.6 million a year ago. As of the June 30, 2026, Himax had 174.4 million ADS outstanding, unchanged from last quarter. On a fully diluted basis, the total number of ADS outstanding for the second quarter was $174.4 million.

During the quarter, on July 1, we announced the proposed divestiture of investment in one of our equity method investees. Based on the information provided by the state investee company, we expect to recognize a pretax gain of approximately $23 million to $24 million upon closing. The transaction is expected to close in the fourth quarter of this year, subject to customary closing conditions and regulatory approval. We will provide more updates as appropriate as the transaction progresses.

Now turning to our third quarter 2026 guidance. We expect Q3 revenue to increase 7% to 11% sequentially. Gross margin is expected to be around 34%, depending on the product mix. Q3 profit attributable to shareholders is estimated to be in the range of $0.08 to $0.10 per fully diluted ADS.

As we have done historically, we will grant employees annual bonus, including RSUs and cash awards on or around September 13 this year. The third quarter guidance for profit per diluted ADS has taken into account the expected 2026 annual bonus, which subject to Board approval, is now estimated to be around $13 million, out of which $11.7 million will be vested and expensed immediately on the grant date.

As a reminder, the total annual bonus amount and the immediately vested portion are our current best estimates only and the actual amount could vary materially depending on, among other things, our Q4 profit expectation and the final board decision for the total bonus amount and its vesting scheme. It is also worth noting that the $30 million expected annual bonus does not yet include the above-mentioned gain on investment from divestiture of the equity method investee as the transaction is pending regulatory approval and has not yet closed.

As is the case for previous years, we expect the annual bonus grant in 2026 to lead to higher third quarter operating expenses compared to the other quarters of the year. In comparison, the annual bonus for 2025 and 2024 were $7.7 million and $12.5 million, respectively, of which $7.5 million and $11.2 million vested immediately.

In providing our Q3 financial guidance, the Q3 expense related to the employee bonus is estimated to be $11.8 million, representing $0.068 per diluted ADS before tax, comprising of the $11.7 million of the immediately vested portion of this year's bonus stated above and $0.1 million of the amortized portion of the unvested bonuses from previous years. By comparison, employee bonus expenses in each of the last 3 quarters was around $0.2 million.

I will now turn the call over to Jordan to discuss our Q3 outlook. Jordan, the floor is yours.

Thank you, Karen. The ongoing surge in AI demand continues to impact non-AI applications. It has rippled across the broader semiconductor supply chain, resulting in capacity constraints at foundry, packaging and testing facilities on the mature process nodes where many of our products are manufactured.

Consequently, we are experiencing higher manufacturing and procurement costs, extended lead times and increased difficulty in securing sufficient capacity across a broad range of our product lines. We expect the supply environment to remain challenging in the near term. To enhance our production flexibility and secure the capacity needed to meet our customer needs and support upcoming production ramps. We continue to leverage our established supply chain in Taiwan, while further strengthening our presence across China, Singapore, Korea, Japan and Malaysia.

In parallel, as we mentioned last quarter, we have been working closely with customers on pricing adjustments to share this increased costs. Some adjustments took effect in the second quarter with additional pricing adjustment possibly implemented over time as the market conditions warrant. Notwithstanding this industry-wide supply constraints, we remain optimistic about the long-term growth prospects of our automotive display IC business. We continue to view automotive as one of the industry's most attractive secular growth markets, driven by rapid advancements in smart vehicle materials. This trend is characterized by, among other things, a growing number of displays per vehicle now averaging more than 3 and continuing to rise, along with larger, higher resolution displays and more diverse vehicle cabin configurations, including curved integrated multi-display and pillar-to-pillar designs.

Himax is well positioned to capitalize on these industry trends through our comprehensive automotive display portfolio, spanning both LCD and OLED technologies, a broad and diversified global customer base and a robust design win pipeline. We further differentiate ourselves by continuously introducing next-generation automotive display technologies, including LTDI solutions for ultra large displays, advanced Tcon solutions for head-up displays, OLED driver and touch controller ICs and microLED display technologies.

Our portfolio also includes Knob-on-Display solutions and capacitive physical buttons where customer interest continues to grow, driven in part by regulatory and vehicle safety initiatives in key automotive markets, including China and Europe, where greater emphasis is being placed on intuitive physical controls to enhance driving safety and reduce driver distraction.

The industry's ongoing pursuit of richer human machine interfaces, immersive infotainment and enhanced in-cabin user experiences is driving adoption of a broader range of our display technologies. This not only increases Himax's dollar content per vehicle, but also creates multiple long-term growth opportunities.

In addition, our well-established global supply chain provides us with greater flexibility to navigate the current supply environment while securing the capacity needed to support both existing projects and upcoming production ramps. We are also seeing an important trend in the automotive industry with automakers introducing new vehicle models at an accelerated pace and intensifying competition. As a result, product life cycles are becoming shorter, creating greater pressure to improve engineering efficiency, reduce development costs and shorten time to market for new car models. These challenges are driving broader adoption of platform standardization across multiple vehicle models, favoring suppliers with comprehensive and validated technology portfolios and proven track records.

Himax is one such supplier posting the industry's most compelling automotive display IC offerings, market-leading positions across automotive DDIC, TDDI and Tcon and continued leadership in next-generation technologies such as LTDI and OLED technologies. By adopting Himax solutions as part of their standardized platforms, customers can quickly deploy validated display IC products across multiple new vehicle developments, reducing engineering efforts, lowering system costs and shortening development cycle of each project.

In addition to automotive, we are also making solid progress across several strategic growth areas, including smart glasses, ultralow power AI and CPO. These emerging businesses diversify our revenue base into markets with attractive long-term growth prospects and margin profiles while strengthening our overall competitive position. We believe they are poised to become increasingly meaningful contributors to our future growth.

First, on smart glasses, an area we remain particularly optimistic about. Himax is one of the few companies offering both ultra-low power AI sensing and microdisplay technologies, both critical building blocks for next-generation smart glasses. On the AI sensing front, WiseEye enables ultra-low power always-on outward and inward sensing, supporting an expanding range of AI use cases, including contextual awareness, real-time visual assistance and personalized user experiences.

Recently, a leading global brand just launched a smart glasses product powered by our WiseEye technology, and we continue to see strong design-in momentum across customers worldwide. In particular, we are seeing growth -- we are seeing growing engagement with leading global brands, technology platform providers, ODMs as well as hyperscalers who traditionally do not offer hardware products, but are now entering smart glasses market with some projects poised to enter mass production as we move into 2027.

On the display side, our Front-lit LCoS microdisplay delivers an optimal balance of size, weight, resolution, image quality, power consumption and cost. It can also be configured to operate in the high brightness ultra-low power grid-on mode and seamlessly switch to full color operation as needed. This flexibility differentiates our solution from alternative display technologies, helping customers optimize power efficiency while maintaining visual performance and meeting their system design and cost targets.

Together, these capabilities make our Front-lit LCoS a compelling display platform for next-generation AI glasses equipped with see-through displays. Currently, we are working closely with multiple waveguide partners across Asia, Europe and North America to deliver integrated AR display solutions that simplify system integration and shorten customers' development cycles. This is driving broader customer engagement and positioning us to convert more opportunities into design wins, backed by well over a decade of LCoS expertise and a proven track record of successful production shipments. We are well positioned to support the next generation of AR glasses.

Now I would like to provide a brief update on our progress in CPO. Customer development time lines remain aggressive with demand showing no signs of slowing. Together with our strategic partner, FOCI, we continue to deepen customer engagement by offering a flexible portfolio of solutions, including customized designs tailored specifically for our customers' needs as well as a standardized technology platform developed in collaboration with a leading foundry partner.

Our solutions support both co-packaged and pluggable packaging architectures to address diverse customer needs. Our primary focus for the second half of this year remains on achieving mass production readiness, including key customer qualification milestones while continuing to improve manufacturing yields and establish stable mass production capabilities. We have already made encouraging progress towards these objectives.

Both our Gen 1 product supporting 1.6T and 3.2T transmission bandwidths and Gen 2 product designed for 6.4T bandwidth have begun engineering production ramps as scheduled in the third quarter. These products are expected to drive sequential shipment growth quarter-over-quarter, laying the foundation for a more meaningful volume shipment beginning in 2027.

The official mass production timing remains subject to customer deployment schedules. Nevertheless, we expect our shipments in 2027 to be significantly higher than in 2026, starting to make meaningful contributions to our financials. At the same time, we are also codeveloping next-generation optical solutions with customers, featuring higher fiber count architectures, enhanced optical precision and increasingly sophisticated designs such as CWDM or Coarse Wavelength Division Multiplexing to address the explosive bandwidth demands of HPC and AI data center applications.

With that, I will now begin with an update on the large panel driver IC business. In Q3, large display driver IC sales are expected to decline by single digit from last quarter. Monitor IC sales are expected to decline quarter-over-quarter as customers already pull forward inventory purchases in prior quarters. In contrast, TV IC sales are poised for sequential increases driven by higher legacy product shipments to key customers.

Looking ahead in the notebook market, we are seeing encouraging design momentum, particularly in OLED notebooks with several industry trends creating favorable tailwinds. Rising memory prices are accelerating the shift from entry-level to premium notebook models, while the scheduled ramp-up of new Gen 8.6 OLED fabs in China later this year and into 2027 is expected to further drive OLED penetration in the notebook market.

Himax is well positioned to capitalize on these favorable industry trends with our comprehensive notebook supply notebook display OLED IC portfolio, spanning DDIC, Tcon, power management IC and touch controllers. This one-stop offering lets us serve customers with a complete solution while increasing our value content per device.

Turning to the small and medium-sized display driver IC business. In Q3, small- and medium-sized display IC business is expected to increase by high single digits from last quarter. Q3 automotive driver IC sales, including TDDI and traditional DDIC are set to increase by a solid double-digit quarter-over-quarter. This increase reflects broader customer demand for DDIC and TDDI products, together with the mass production of multiple LTDI projects across car brands worldwide.

Strong sequential growth underscores the accelerated adoption of larger and more sophisticated automotive displays with Chinese automakers leading the charge. We continue to see healthy underlying customer demand, supported by multiple new projects entering mass production in the coming quarters. We expect our full year 2026 automotive IC sales -- automotive driver IC sales to grow by double digits from last year with strong growth momentum extending into next year as adoption of smart car interiors continue to drive increases in the number, size and sophistication of displays in both electric and conventional vehicles.

As I noted earlier, the industry shift towards platform standardization is creating meaningful opportunities for Himax. This is evidenced by the growing number of customers adopting our industry pioneering LTDI and local dimming Tcon solutions as the standard platform for their ultra large automotive displays. Following years of customer engagement, several of these projects are now entering mass production across multiple car brands. These ultra-large display panels typically require 4 or more LTDI chips and in some cases, more than 10, together with at least 1 local dimming Tcon per panel.

As customers increasingly adopt our solution across multiple ultra-large display platforms, this not only strengthens customer stickiness and makes it more difficult for competitors to compete with us, but also increases our content value on a per panel and per vehicle basis.

Looking ahead, the accelerating adoption of OLED displays in automotive presents a compelling long-term growth opportunity and is poised to become a key pillar of our automotive business. For several years, we have been collaborating closely with leading OLED panel makers in Korea and China and our comprehensive portfolio of DDICs, Tcons, touch controller ICs and customized ASIC solutions gives customers the flexibility to select the solutions that best meet their specific requirements.

This broad product coverage and our early customer engagements have already translated into numerous development programs, providing a solid foundation for future growth as premium automotive displays transition from LCD to OLED. With OLED adoption underway, we continue to introduce innovative IC solutions to address evolving customer needs. For example, our latest TED or Tcon Embedded Driver IC solution which integrates DDIC and Tcon into a single chip, offers a cost-effective, flexible and highly integrated solution ideal for smaller, lower dilution automotive displays.

Our TED technology is now being adopted across a diverse range of applications, including automotive, robotics and IT applications with several projects involving customized ASIC solutions codeveloped with leading global end customers. Moving to smartphone IC sales. We expect Q3 smartphone revenue to increase quarter-over-quarter, driven by continued shipments for leading smartphone brands mainstream models and inventory buildup for its upcoming premium models. For tablet ICs, Q3 sales are expected to decrease sequentially as capacity constraints limit our ability to support additional shipments.

I would like to now turn to our non-driver IC business update, where we expect Q3 revenue to increase by low teens sequentially. First, for an update on our Tcon business. We anticipate Q3 Tcon sales to increase by double teens quarter-over-quarter. Our automotive Tcon business is expected to deliver decent double-digit growth in Q3, extending the strong momentum from Q2 and far outpacing our corporate average. This growth is driven by continued legacy product shipments across a broad diversified customer base, along with several new projects entering mass production.

Despite ongoing industry-wide capacity constraints, we are confident in the strong growth trajectory of our automotive Tcon business. With hundreds of design wins already secured and new design wins continuing to expand, we are well positioned for another robust growth year in automotive Tcon as we move into 2027.

During the quarter, we are pleased to announce that our T2000 Tcon has been adopted into E Ink's next-generation color ePaper platform. Himax's proprietary parallel processing architecture is at the core of this ASIC product, enabling simultaneous display refresh and data transmission, significantly enhancing dynamic display performance while preserving the ultra-low power advantage of ePaper technology. This breakthrough enables smoother display of dynamic content on large-format e-paper displays, helping accelerate the transition from traditional static signage to dynamic applications such as retail advertising, public information displays and smart commercial environments.

Switching gears to the WiseEye product line, a cutting-edge ultra-low power AI sensing total solution, targeting battery-powered endpoint devices. WiseEye differentiates itself with an industry-leading ultra-low power architecture, consuming only a few milliwatts while delivering on device AI inferencing, 24/7 always-on image and voice sensing and an exceptionally compact form factor. This unique combination enables endpoint AI devices that were previously impractical due to power and size constraints, driving broad adoption across applications, including notebooks, surveillance systems, access control, PalmVein authentication, smart office and smart glasses, with design activities continuing to expand across leading customers worldwide.

On the WiseEye module front, design activities continue to expand, driven by its plug-and-play architecture, ultra-low power consumption and on-device AI capabilities. During the quarter, we are pleased to announce that our WiseEye biometric power man modules achieved the verification of TUV Rheinland, one of the world's leading and most credible independent testing inspection and certification organizations. The assessment validated our recognition accuracy, response speed and liveness detection.

This verification, together with our early achievement of GDPR compliance, one of the world's strictest data privacy standards reinforces the privacy, security and performance of our biometric authentication solutions, giving customers greater confidence to accelerate development across security sensitive applications. We are seeing expanding design-in activities for our PalmVein modules across smart access, workforce management, smart door locks and more -- and more recently, computer monitors and smart office solutions.

Built on the same core hardware platform as the WiseEye technology, our WiseGuard module is specifically designed for security applications, delivering ultra-low power operation, a wide field of view, long-range detection and exceptional low light performance. WiseGuard accurately detects and continuously tracks multiple individuals, including their presence, location and movement, substantially reducing the false triggers commonly associated with traditional PR-based solutions. Its proactive 24/7 sensing capability enables security systems to detect and continuously track activity from the outset, capturing the full sequence of events rather than only the moment motion is detected, providing a significant advantage over traditional reactive solutions.

WiseGuard delivers up to 5 years of battery life while maintaining high-precision detection over long distances even in environments with illumination as low as 1 lux. Since its debut just 6 months ago, WiseGuard has seen encouraging customer engagement across a wide range of applications, including surveillance cameras, access control, IoT and wildlife monitoring. We are also pleased to share that WiseGuard has already been adopted by a U.S. customer for surveillance applications with mass production scheduled to begin towards the end of this year.

As mentioned earlier, WiseGuard is gaining broad market recognition for smart glasses as a compact ultra-low power always on AI perception front end. WiseGuard -- WiseEye supports our facing environmental sensing first through scene understanding by analyzing the users' contextual surroundings and environment, followed by object classification to recognize and identify specific objects typically associated with the identified scene.

We also support interfacing capabilities, including eyeball tracking for intuitive gaze-based interaction and iris authentication security -- for secure identity verification. Together, these capabilities enable AI glasses to continuously capture visual snapshots of the real world and enable intelligent, responsive, low-latency human machine interaction while consuming only a few milliwatts of power.

With the leading global brand launching WiseEye-powered smart glasses this fall, we are seeing growing engagement from platform providers, OEMs and consumer electronics companies worldwide. Some of these projects are expected to enter mass production in the coming quarters.

That concludes my report for this quarter. Thank you for your interest in Himax. We appreciate you joining today's call and are now ready to take questions.

[Operator Instructions] And our first question will be coming from Donnie Teng, Nomura.

My first question is regarding to the CPO revenue outlook into 2027. As you mentioned about the revenue could be more meaningful for next year. Can you classify how do you define meaningful for 2027? And maybe you can also provide us with the overall business outlook in 2027 as well.

Thank you, Donnie. Perhaps let me start with your second question, the outlook for next year. As you know, we don't usually provide guidance beyond 1 quarter, but we are well positioned, I think, to see robust sales growth for next year with continuously improved gross margin. As you know, our gross margin this year has improved from last year, and we believe the trend is likely to continue next year.

Before I elaborate further, there is one important thing for clarification. And as you mentioned in your question, Donnie, we are going to do for the time being and before CPO starts mass production officially, it's a good idea that we kind of separate our CPO for our outlook discussion because while CPO is arguably a once-in-a-lifetime opportunity for Himax at the pre mass production stage, its outlook will be too uncertain, to quantify at least for the purpose of all the comments.

So what I'm about to say below does not include contributions from CPO. And I will leave the comments on CPO for the next question, which you already just raised. So we start now back to our view on 2027. I think a very important trend for next year, our financials is that the nondriver areas will likely outgrow driver ICs with revenue contribution approaching 30% from around 20% at present. This is driven mainly by automotive Tcon, which will enjoy another year of very strong growth, thanks to our robust design pipeline.

And the Wi-Fi product line where new applications such as smart glasses, WiseEye module and PalmVein authentication, which I mentioned in my prepared remarks, are all well positioned to contribute to growth momentum. As to our kind of mainstream automotive business, now over half of our sales, it will continue to grow as well on top of a year of double-digit growth this year. In saying so, we are assuming a flattish year for global vehicle shipment, which I think is a fair assumption, implying our confidence to outperform the overall market again like we do this year and actually the last few years.

Our positive outlook is driven by 2 factors: One, the continuous growth of number of displays per vehicle, which has already exceeded 3 this year from almost now 15 years back. And two, more importantly, the fast rise in IC content per display per automotive display. In other words, both the number of display and content value per display will continue to -- will continue the favorable trend that we have experienced over the last few years.

So I'll take HUD as an example. We mentioned about HUD in our prepared remarks. HUD used to be a tiny niche market that did not use LCD for image protection. Starting just a few years ago, HUD has become one of the the strongest segments, growth segments within our design win pipeline. Now we have many, many such design wins for HUD waiting for lineup for mass production starting this year and over the next few years. Every new HUD in the car represent an increase in the number of LCD displays per vehicle as almost all new HUDs now use LCD for image protection and i.e. requiring our solution.

Himax has been leading the charge in supporting the industry's new SUV designs, which require not only traditional DDIC, but also very sophisticated Tcons for so-called dealing and the elimination of so-called postcard effect. Perhaps for those who are not familiar with this, dewarping is a feature in our HUD Tcon that kind of mathematically cut of distortion caused by the curve service of windshield, okay? That's dewarping.

And postcard effect is a visual artifact, so to speak, visual artifact where the rectangular borders of the projection become kind of illuminated and visible by the driver which is bad, right? So our Tcon can get rid of that artifact. Such advanced features add significantly to our IC content value and have become a strong moat that helps spend of competitors. And I would say LTDI, which, again, we also mentioned in our prepared remarks, is also a good example where we pioneered the technology concept a few years back, targeting ultra large size automotive displays requiring touch functionality. We are now the exclusive supplier of the solution in the market right now, which numbers at least 5 chips per panel, including one Tcon and for higher-end designs, more than 10.

Our LTDI solution is ramping nicely this year across several leading auto brands with a solid and still expanding design win pipeline. Perhaps the last but certainly not the least important example is the higher value for display content for IC is OLED display for automotive. There we offer DDIC, Tcon, TED and discrete touch controller, each of them having higher ASP compared with those using LCD panels because of the more complicated features required of OLED displays.

And because OLED is not projected to replace LCD over time over the next few years with -- for high-end auto displays, we are working closely with several leading OLED panel makers in Korea and China with major ramping expected starting from probably second half next year and certainly well into 2028. So in short, while -- again, we don't give official guidance for next year. So I'm not going to be able to quantify the growth, but we are quite positive about the prospect of our automotive business for next year.

Having said that, the industry supply will remain tight with literally all major foundries, including indicating further price hikes next year, certainly all foundries in Taiwan and to a great extent, major foundries in China as well. So it's just something we will need to continue to manage like we have done so far this year. So I hope that -- that addresses your second question for next year's outlook.

And your first question is about the CPO, sales indication, right, sales outlook for next year. Again, I will not be able to quantify that. But so qualitatively, what I can say is that for sure, CPO will see very significant growth next year, but we'll be comparing with the low base this year, right? But the growth will be very significant. The extent of CPO's contribution to our overall financial next year will depend on when the end customer kick off mass production and obviously, the ramping curve.

For now, it is too early to say. But as I said earlier, even in the most conservative scenario, CPO will make a meaningful contribution to our financials, especially the bottom line starting 2027 with volume growth quarter-over-quarter starting from this quarter, next quarter and throughout the whole of next year. While the volume indication from end customers is actually extremely, extremely high. So we start the main goal for us this year is still for us and our partner, FOCI is still to complete the validation of our products by key customer/partner in terms of both quality and manufacturability.

But as I said earlier, revenue contribution during this year will still be limited. However, we are seeing quite significant growth this quarter and another very significant growth next quarter out of engineering runs. Again, while we don't comment on the exact timing of mass production because the ecosystem is far too complicated for us to even speculate the exact timing of mass production, we should be able to see minimal top and bottom line contribution from the CPO product starting in 2027. And actually, even before we share mass production, early shipments for engineering runs will already have positive impact on our financials starting 2027.

Now you asked me to quantify what is meaningful. I guess meaningful means meaningful, right? Meaningful means it's not going to be like low single-digit percentage certainly not for the bottom line, right? So meaningful is something we can actually -- when it happens, we can categorize it and elaborate further. It's not going to be like marginally negligible addition to our financials. But again, where some early indication for next year's volume has been kind of provided by end customers, I think it's -- again, this year, we should focus on validation.

And once we are -- we have a solid footing on that with customers firmer indication of mass production timetable and ramping curve, hopefully, in not-too-distant future, we'll be able to better quantify the impact to our financials.

But I guess it is fair to say that our confidence level towards success of mass production continues to rise -- our confidence level continues to rise. It has surely risen to another level compared to even just a quarter ago. And I guess the last point I want to say is that in close collaboration with a few top customers for us, we are focusing on what we call Gen 2 products right now, which is a high-end product supporting 6.4T bandwidth or higher. And it is a spec for the time being, that is positioned for the market with the biggest volume potential. And actually, we will continue to make innovative designs for optics to meet the ever rising needs of higher transmission bandwidth with the next target, next goal being 12.8T. So it's going to be a long road ahead. And again, I said earlier, I think it's once a lifetime opportunity for Himax, the CPO opportunity. I hope that addresses your question, Donnie.

Next one, Tiffany Yeh, Morgan Stanley.

So I would like to follow up on the CPO front. I think there are many peers or emerging players that we want to tap into this FAU or I would say, WLO market. May I ask how you will address this competition and what are Himax's key advantages over the peers? Yes.

Okay. Thank you, Tiffany. It's a good question. I think as far as we know, we are probably the only one providing optics using wafer-level optics or wafer-based solution, where the so-called competition actually use traditional molding glass type of technology. So I think that's a key difference. And we certainly believe our technology offers a lot of advantages. But again, nobody has proven itself by having a big volume mass production yet. So I think it's -- we just have to prove it by actually doing it successfully.

Now having said that, I think we are -- our technologies together with FOCI is much more mature compared to the peers as far as we can tell. So we -- but having said that, I think, again, our focus for now is we -- the mindset for now for us is not to worry too much about competition. But we are the enemy. We are our own enemy for the time being, we focus on getting our products validated this year solidly and with customers' request for volume, try to ramp the volume successfully with good rate and good outcome to meet their demands.

And I think -- so again, we -- I guess, also it's a policy for us not to comment about our competition. But I think for the time being, the most important thing for us is to focus our sales efforts for successful mass production. Having said that, I think, again, I said this is a market, a once-in-a-lifetime opportunity kind of market. The market is so big. I can imagine a few years down the road, Himax and FOCI will be the only player, the only vendor in the market. It's just unthinkable because the market is so big, and I don't think anybody can take 100% of the market, right? So for us, I think it's the mindset, again, is focused on our own efforts, bring successful mass production and hope it will be one of the earliest and we'll be serving among the best customers, and we'll take it from there.

And I think -- and lastly, certainly, we have a lot of analysis on the pros and cons of our technology versus others. But again, I'm not going to comment on that publicly. And last but not least, the market is too big for anybody to try to take it 100%. And it's a market big enough for actually quite a few players to prosper tremendously, I think. And now the important thing is to bring it up successfully and to prove it. It's a real technology, it's a real team.

All right. Very clear. I have a question regarding the overall CPO industry. Yes, as you guys have been working with FOCI on all these mass production preparations for so many years, I think you're also in talk with other guys in the supply chain. What do you think are the biggest bottlenecks for CPO mass production right now? And do you think -- how much time it would take for this to be concur?

We are very, very upstream, right? So I mean, you probably asked the wrong person to make a comment for the so-called bottleneck throughout the entire ecosystem. I mean what I can say, I want to emphasize is that the ecosystem admittedly is actually quite complicated. And our focus for now is to, again, make sure we are not going to be the bottleneck, right? So we don't want to be the bottleneck ourselves technology-wise, that's step one.

And once the mass production gets started, we don't want to be the bottleneck for capacity as well, and that's the goal. As to the bottleneck of the whole ecosystem, to be honest, I really don't know because what I can say is the engineering -- the so engineering, which will have some meaningful volume, right, by us at over the next -- by the end of this year, let's say, by the end of this year. It's not just to validate our solution, but also to validate the whole ecosystem.

So our technology will be used -- will be taken to validate our end customers, the major GPU and CPU makers of the world, they are total solution. And with that, they will also take their solution to their server customers. And certainly, the back-end house or OSAT houses do have to put the CoWoS or whatnot, right, the FAU together with the TSMC COUPE solution and all that, right?

So over the next -- by the end of this year, at least, I think there will be a lot of efforts in this regard. But we've been the very upstream to provide our FAU and for that, our optics within FAU first. And our FAU has to be validated in itself. Then with good FAU, the ecosystem can start to validate the packaging, the assembly of the whole module and then the all the way down to servers and eventually probably change your algorithm to -- because transmission methodology will be different, right, compared to traditional metal-based transmission.

So I think to be honest, it's far too complicated for me to comment. And all I can say is we don't want to be debottleneck ourselves. That's the goal.

One question from online box. How do you expect your smart glasses revenue to trend in '27? Do you expect smart glasses revenue to be launched next year?

We are talking about WiseEye, right, which we -- I'm not going to repeat it. We have mentioned, elaborated in our prepared remarks. LCoS will be for the future, right? LCoS for now is to seek design win. So that is not going to be a mass production story for next year. WiseEye, however, will very much a story for next year for smart glasses. We mentioned there's a major customer which just launched its product a while back with our WiseEye serving the function of always on visual understanding of the surroundings.

We actually asked the major end customer about model potential. And the response from them is it's -- they're just getting started, right, promotion-wise. So they have to wait a while for them to give us a more meaningful feedback. So we are not getting one or the other conservative or pessimistic or positive feedback from them yet for understandable reasons.

I think what's equally exciting is that there are quite a number of major design-in or design win projects in the pipeline that we certainly -- we haven't announced because the customer is not fully ready yet. They involve, in some cases, major hyperscalers who have not known to be offering like hardware devices like smartphone, as part of their business portfolio, but they are very much into smart glasses because they are all seeing smart glasses as a very good contour for their AI models, right, to get is for data is for information of the actual users.

So I think we are seeing very strong design momentum and each major customer, they are how they use WiseEye are not totally identical. Everybody is trying to be innovative. And in our prepared remarks, what we mentioned is, broadly speaking, a typical like use this concept where we are always watching the surroundings on a continuous basis. And then first, we determine the scene that you are standing in. And then with that, we then do object classification. And with that, you can have AI interaction, right? So that is a common thing.

So all I can say is probably give us 2 or more quarters, we should be able to quantify it better. But for now, we can see the momentum. But even with the first customer, a major with a very high-profile launch, we are not really getting feedback yet in terms of number of chips they need for next year or the year after. So the momentum is very strong, but I'm afraid it's too early for me to give a quantitative comment yet. Hopefully, in a few quarters' time, we will be able to provide better answers.

Thank you, Jordan. And there are no questions at the moment. We thank you for all your questions. And I'll pass the call back to Mr. Jordan Wu. Please proceed. Thank you.

Thank you. As a final note, Karen Tiao, our Head of IR/PR, will maintain investor marketing activities and continue to attend investor conferences. We'll announce the details as they come about. Thank you, and have a nice day.

Thank you, Jordan. And ladies and gentlemen, this concludes Second quarter 2026 Earnings Conference. You may now disconnect. Thank you again. Goodbye.

Hello, ladies and gentlemen. Welcome to Himax Technologies, Incorporation First Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded.

I would now like to turn the conference over to Ms. Karen Tiao, Head of IR and PR at Himax. Ms. Tiao, please go ahead.

Welcome, everyone. My name is Karen Tiao, Head of IR/PR at Himax. Joining me today are Jordan Wu, President and Chief Executive Officer; and Jessica Pan, Chief Financial Officer.

After the company's prepared comments, we have allocated time for questions in a Q&A section. If you have not yet received a copy of today's results release, please e-mail [email protected] or [email protected] or download a copy from Himax's website.

Before we begin the formal remarks, I would like to remind everyone that some of the statements in this conference call, including statements regarding expected future financial results and industry growth, are forward-looking statements that involve a number of risk and uncertainties that could cause actual events or results to differ materially from those described in this conference call. A list of risk factors can be found in the company's latest SEC filings, Form 20-F, in the section entitled Risk Factors as may be amended. Except for the company's full year 2025 financials, which were provided in the company's 20-F and filed with SEC on March 27, 2026, the financial information included in this conference call is unaudited and consolidated and prepared in accordance with IFRS accounting. Such financial information is generated internally and has not been subjected to the same review and scrutiny, and may vary materially from the audited consolidated financial information for the same period.

On today's call, I will first review Himax's consolidated financial performance for the first quarter 2026, followed by our second quarter outlook. Jordan will then give an update on the status of our business and after which we will take questions. You can submit your questions online through the webcast or by phone. We will review our financials on an IFRS basis.

Despite the typical seasonal slowdown during the Lunar New Year holidays, we are pleased to report that our Q1 profit exceeded the guidance range announced on February 12, 2026, while both revenue and gross margin were at the high end of the projected range.

First quarter revenues registered $199.0 million, representing a slight sequential decline of 2.0%, reaching the high end of our guidance range of a decline of 2.0% to 6.0%. Gross margin was 30.4%, also at the high end of our guidance of flat to slightly down from 30.4% in the previous quarter.

Q1 profits per diluted ADS was $0.046, exceeding the guidance range of $0.02 to $0.04. Revenues from large display driver came in at $24.2 million, representing an increase of 11.7% from the previous quarter, outperforming our guidance range of a single-digit increase sequentially. This was primarily driven by better-than-expected restocking of high-end TV ICs by a leading panel maker.

Sales of large panel driver ICs accounted for 12.2% of total revenues for the quarter, compared to 10.7% last quarter and 11.6% a year ago. Revenue from the small and medium-sized display driver segment totaled $135.8 million, reflecting a slight decline of 2.4% sequentially amid a typical low season.

In line with guidance, Q1 automotive driver sales, including both traditional DDIC and TDDI, declined double digits sequentially, reflecting Lunar New Year seasonality, customers' inventory control following 2 consecutive quarters of restocking, and the tapering of automotive subsidy programs in major markets including China and the U.S.

In contrast, revenues for smartphone, covering both LCD and OLED products, increased sequentially primarily due to the new OLED solutions that began mass production with a top-tier panel maker for a leading smartphone brand's mainstream model. Q1 tablet IC sales also increased sequentially, driven by renewed demand for mainstream models from leading customer following several quarters of softness, as well as the commencement of IC shipments for a customer's new premium OLED tablet.

The small and medium-sized driver IC segment accounted for 68.2% of total sales for the quarter, compared to 68.5% in the previous quarter and 70.0% a year ago. Q1 non-driver sales reached $39.0 million, a 7.7% decrease from the previous quarter, reflecting a decline in ASIC Tcon shipments to a leading projector customer, along with a moderation in automotive Tcon shipments following several quarters of solid growth.

However, underlying demand for automotive Tcon business remains robust, supported by a strong pipeline of hundreds of design-win projects poised to enter mass production in the coming quarters. Non-driver products accounted for 19.6% of total revenues, as compared to 20.8% in the previous quarter and 18.4% a year ago.

First quarter operating expenses were $50.3 million, a decrease of 8.4% from the previous quarter, but an increase of 9.9% compared to the same period last year. Both the quarter-over-quarter and year-over-year changes were primarily driven by differences in tape-out expenses, reflecting the timing of major project tape-outs. The year-over-year increase was also attributable to salary expenses and the appreciation of the NT dollar against the U.S. dollar.

Against a backdrop of ongoing macroeconomic challenges, we continue to maintain strict cost and expense discipline, while strategically investing in selected non-driver IC areas with compelling growth potential, some of which are poised to ramp meaningfully starting in 2027.

First quarter operating profit was $10.2 million, representing an operating margin of 5.1%, compared to 3.4% in the previous quarter and 9.2% for the same period last year. The sequential increase was the result of the lower operating expenses. The year-over-year decline reflected the lower sales and gross margin, coupled with higher operating expenses.

First-quarter after-tax profit was $8.0 million, or $0.046 per diluted ADS, compared to $6.3 million or $0.036 per diluted ADS last quarter, and down from $20.0 million or $0.114 in the same period last year.

Turning to the balance sheet, we had $287.6 million of cash, cash equivalents and other financial assets as of March 31, 2026. This compares to $281.0 million at the same time last year and $286.2 million a year ago. As of March 31, 2026, we had $27.0 million in long-term unsecured loans, with $6.0 million being the current portion.

Our quarter-end inventories as of March 31, 2026, were $151.7 million, slightly lower than $152.7 million last quarter, but higher than $129.9 million the same period last year. Having maintained lean inventory levels in prior years, we made a strategic decision about a year ago to selectively loosen inventory control in response to an industry-wide shift toward tight supply.

Accounts receivable at the end of March 2026 was $190.9 million, down from $200.9 million last quarter and $217.5 million a year ago. DSO was 86 days at the quarter end as compared to 88 days last quarter and 91 days a year ago. First quarter capital expenditures were $2.9 million, versus $4.0 million last quarter and $5.2 million a year ago. First quarter CapEx was mainly for R&D-related equipment for our IC design business.

Prior to today's call, we announced an annual cash dividend of $0.252 per ADS, totaling $44 million and payable on July 10, 2026 with a payout ratio of 100% of the previous year's profit. The high payout ratio reflects our healthy balance sheet and positive outlook for cashflow generation over the next few years.

For business areas where we have in-house manufacturing capacity such as WLO and LCoS, existing capacity is in place to support the strong growth anticipated for the next few years. Himax will continue to focus on maintaining a healthy balance sheet and driving sustainable long-term growth, while delivering shareholder value through high dividends and share repurchases.

As of March 31, 2026, Himax had 174.4 million ADS outstanding, unchanged from last quarter. On a fully diluted basis, the total number of ADS outstanding for the first quarter was 174.4 million.

Now turning to our second quarter 2026 guidance. We expect Q2 revenues to increase 10.0% to 13.0% sequentially. Gross margin is expected to be around 32%, mainly reflecting a more favorable product mix, with increased sales from higher-margin non-driver products and reduced sales from lower-margin products. Q2 profit attributable to shareholders is estimated to be in the range of $0.086 to $0.103 per fully diluted ADS.

I will now turn the call over to Jordan to discuss our Q2 outlook. Jordan, the floor is yours.

Thank you, Karen. The rapid rise in AI demand is placing unprecedented strain on memory chip supply, impacting many non-AI applications. This, in turn, has led to capacity tightness across foundry, packaging, and testing in mature process nodes where we are anchored, putting upward pressure on our cost structure.

Rising gold prices have further compounded these cost pressures. With cost pressure expected to persist, we are actively working with customers on pricing adjustments to share rising costs, with some price increases already taking effect in Q2.

Market conditions remain dynamic, compounded by ongoing geopolitical tensions, and the market's visibility remains limited on both consumer electronics and automotives for the second half of the year.

That said, as indicated in our last earnings call, the first quarter marked the trough with the second quarter recovery tracking as anticipated, primarily driven by customer inventory restocking. We expect upward momentum through the remainder of 2026, supported by a meaningful number of new automotive projects scheduled to enter mass production in the second half, a view consistent with our outlook from last quarter's call. The positive outlook is also supported by the anticipated growth in our non-driver IC businesses, particularly Tcon and WiseEye AI.

In our display IC business for automotive, we remain confident in our long-term growth prospects, as automotive is an area relatively insulated from memory price impact compared to consumer electronics products such as smartphone and notebook.

The long-term positive outlook is underpinned by our leading technology portfolio, broad and diversified customer base, strong design-win pipeline across DDIC and TDDI, and substantial lead over competitors. Our display IC portfolio spans a comprehensive range of solutions which enable novel and stylish automotive displays.

Such technologies include automotive Tcon with advanced local dimming functionality, LTDI for ultra-large displays, advanced Tcon solutions for state-of-the-art head-up displays, as well as automotive OLED and Micro LED technologies. Customer adoption of these advanced display technologies continues to accelerate across new vehicle models, driving higher content value per vehicle for us and creating new growth momentum for Himax's automotive display IC business in the years ahead.

Despite ongoing macro uncertainty, Himax continues to expand beyond its traditional display IC business, focusing on key growth areas including smart glasses, ultralow power AI and CPO. These emerging technologies present significant growth opportunities that help diversify our revenue base into areas with attractive gross margin profiles and profitability while also strengthening our overall competitiveness.

Starting with smart glasses, a key strategic focus area we are quite optimistic about. Himax is uniquely positioned as one of the few companies with both ultralow power AI capabilities and microdisplay, both critical for smart glasses. WiseEye provides ultralow power always-on AI sensing capabilities, targeting a broad range of smart glasses, while our LCoS microdisplay solutions enable display functionality critical for AR glasses with see-through displays.

We are pleased to share that a leading brand has adopted our WiseEye for its smart glasses, with mass production expected later this year and additional prominent brands are expected to follow.

In microdisplays for AR glasses, built on the debut of our proprietary Front-lit LCoS microdisplay at Display Week last year, Himax returned to Display Week 2026 with a new-generation upgrade that significantly enhances contrast, dynamic range, and optical efficiency. These advances, driven by Himax's proprietary technologies, deliver a substantial increase in contrast performance while effectively eliminating the postcard effect commonly seen for microdisplays in dark environments.

Himax's Front-lit LCoS solution offers an optimal balance among weight, size, resolution, image quality, power consumption, and cost, positioning it as a compelling choice for AR glasses.

For both WiseEye and LCoS microdisplay, supported by expanding customer engagements across technology heavyweights and smart glasses specialists globally, we are increasingly optimistic about the new space, even compared to just a few quarters ago. We expect revenues from AI and AR glasses applications to grow substantially over the next few years.

Now I would like to provide a brief update on our progress in CPO. Together with FOCI, our strategic partner, we continue to make steady progress on both the Gen 1 and Gen 2 products as planned.

Our Gen 1 solution, supporting 1.6T and 3.2T transmission bandwidth, is now ready with small quantity shipments expected to commence in the second half of this year. Meanwhile, our Gen 2 solution, targeting 6.4T bandwidth with significant volume potential, is nearing completion of customer product validation for AI data center applications.

Building on this momentum, our main goal for 2026 is to achieve mass-production readiness, with only limited shipments expected during the year, followed by an accelerating volume ramp starting 2027.

At the same time, in close partnership with FOCI, we continue to advance multiple future-generation high-speed optical transmission technologies and CPO architectures in collaboration with leading global customers and partners, focusing on higher fiber channels, more advanced optical designs, and enhanced optical precision to meet the explosive bandwidth demands of HPC and AI data center applications.

In early March, FOCI completed a TWD 3.16 billion rights issue to support R&D, equipment purchases and preparations for CPO mass production. Himax, already a shareholder through 2 earlier tranches of share offerings in 2023 and 2024, participated in the rights issue, which not only demonstrates our continued support for our partner and further strengthens collaboration between the 2 companies, but also underscores that advancing CPO technology requires highly integrated efforts through close collaboration and joint development.

With an average acquisition cost of TWD 120.6 per share, our equity stake, representing 5.36% of FOCI, now totals TWD 4.96 billion or USD 156 million as of May 7 when the market closed at TWD 815 per share.

As a reminder, our FOCI investment has been booked as a so-called "financial asset measured at fair value through other comprehensive income" on the balance sheet since day 1 of investment. As such, based on accounting rules, FOCI's share price fluctuations are recognized in our books as so-called "accumulated other comprehensive income", a balance sheet item under owners' equity, and do not affect our profit and loss.

Likewise, upon disposal, any resulting gain or loss will be recognized only on the balance sheet through change of retained earnings and, again, will have no impact on the profit and loss. This accounting treatment we chose underscores our long-term commitment to the FOCI investment. We expect CPO to become a major revenue and profit contributor in the years ahead.

With that, I will now begin with an update on the large panel driver IC business. In Q2, large display driver IC sales are expected to decrease by high-teens quarter-over-quarter, attributable to customers pulling forward their inventory purchases for TV applications in prior quarters. In contrast, both monitor and notebook IC products are poised for sequential increases due to higher legacy product shipments to key customers.

Looking ahead to the notebook market, our focus is on premium models featuring OLED displays and LCD displays with touch functionality. We offer a full spectrum of IC solutions for both LCD and OLED notebooks, including DDIC, Tcon, touch controller, and TDDI, enabling us to provide customers with a comprehensive one-stop solution while increasing our content per device.

We continue to see strong design-in momentum, particularly in OLED for notebooks, where rising memory prices are depressing lower-end demand and accelerating the shift to premium segments. The scheduled ramp-up of new Gen 8.6 OLED fabs later this year and in 2027 in China adds another tailwind, further driving higher OLED adoption in notebooks.

Turning to the small and medium-sized display driver IC business. In Q2, small and medium-sized display driver IC business is expected to increase high-teens from last quarter. Q2 automotive driver IC sales, including TDDI and traditional DDIC, are set to increase by a double digit quarter-over-quarter.

Both DDIC and TDDI sales are expected to increase sequentially, driven mainly by the broad-based replenishment from panel customers with lean inventories, as well as the ramp-up of new TDDI and DDIC projects for a leading panel customer.

Despite global softness in automotive sales, our long-term competitive position remains solid, supported by hundreds of design wins already secured across TDDI, DDIC, Tcon, and an expanding OLED portfolio.

In addition, Himax is deepening its well-established supply chain in Taiwan while expanding across China, Singapore, Japan, Korea and Malaysia. This ensures production flexibility and cost competitiveness, while also addressing customers' geopolitical considerations. We continue to lead the global automotive display market with a 40% share in DDIC, well over half in TDDI, and an even higher market share in local dimming Tcon.

We also continue to lead in automotive display IC innovation, pioneering solutions across a wide range of panel types while addressing diverse design requirements and cost considerations. Recent evidence of such efforts is our LTDI technology for ultra-large touch displays where multiple projects have entered mass production in several car brands across different continents.

After years of engagement with customers globally, we expect meaningful revenue contributions from LTDI starting this year. Our integrated single-chip solution combining TDDI and local dimming Tcon represents another such innovation. Targeting smaller and lower resolution automotive touch displays, it delivers a compelling option for cost- and space-constrained applications without compromising performance. Design-in activities continue to expand globally, with multiple projects underway across leading panel customers, Tier 1s and OEMs.

Looking ahead, the accelerating adoption of OLED displays in automotive creates significant opportunities for Himax. Our ASIC OLED DDIC and Tcon solutions have already been in mass production for several years, with continued customer adoption. We now also offer new standard DDIC and Tcon products to support scalable deployment.

In parallel, collaborations are underway with leading panel makers on new custom ASICs, positioning us well to address diverse customer requirements across a wide range of automotive display applications. Together, these efforts position Himax to capture increasing semiconductor content as premium automotive displays evolve from LCD to OLED.

In addition, Himax's advanced OLED touch ICs are a key pillar of our automotive OLED portfolio, delivering industry-leading signal-to-noise performance and high-precision multi-finger touch capability, enabling reliable operation even when wearing thick gloves or with wet fingers.

Our OLED touch ICs started mass production in 2024. Since then, they have been increasingly adopted by leading panel makers and end customers across Korea, China, the U.S., and Europe. Multiple new projects are poised to enter mass production in the coming quarters.

Moving to smartphone IC sales, we expect Q2 smartphone revenue, covering both LCD and OLED products, to decrease quarter-over-quarter following the initial ramp up of an OLED IC for a leading smartphone brand's mainstream model in the prior quarter.

For tablet ICs, Q2 sales are expected to increase sequentially, driven by customers' early pull-in demand against the backdrop of rising memory price sentiment in the market, with ongoing shipments for a customer's premium OLED tablet also contributing to sequential growth.

I'd like to now turn to our non-driver IC business update where we expect Q2 revenue to increase by double-digit sequentially. First for an update on our Tcon business. We anticipate Q2 Tcon sales to increase by double-digit quarter-over-quarter.

Our automotive Tcon business is expected to deliver decent double-digit growth in Q2, driven by shipments from prior design-wins across the board. Despite automotive market headwinds, Himax continues to enjoy strong growth momentum in automotive Tcon.

Particularly in solutions featuring local dimming functionality, backed by hundreds of secured design-wins across a broad and diversified customer base, we are well positioned for sustained growth. In Q2, we expect Tcon to account for over 12% of total sales, with more than half contributed by automotive Tcon.

Meanwhile, head-up displays are poised to become an integral part of new-generation smart cockpits, driving demand for sophisticated Tcon technologies, an area where Himax holds a strong leadership position.

Our multifunctional Tcon not only delivers excellent contrast, eliminating the so-called postcard effect often seen in HUDs, it also supports full-area selectable local de-warping to correct image distortion caused by windshield curvature and/or projection angle.

In addition, integrated On-Screen Display function ensures that critical safety information remains visible even when the system is malfunctioning and/or powered down. Together, these features make our Tcon a compelling solution for customers' HUD applications, as evidenced by fast expanding design-in activities with leading panel makers and Tier 1 players. This growing HUD pipeline positions us well for broader deployment and meaningful revenue contribution starting in 2027.

Switching gears to the WiseEye product line, a cutting-edge ultralow power AI sensing total solution, targeting endpoint device markets. WiseEye stands out due to its industry-leading, ultralow power design, operating at merely a few milliwatts, combined with an extremely compact size, on-device AI inferencing, and 24/7 always-on image and voice sensing.

This combination enables advanced AI capabilities in endpoint devices that were once constrained by power and size limitations and has already been widely adopted across a wide range of applications, including notebooks, surveillance systems, access control devices, palm vein authentication, smart home solutions, and smart glasses, with further customer engagements currently underway.

On the WiseEye modules front, design-in activities continue to expand, driven by their plug-and-play architecture, combined with ultralow power consumption and on-device AI capabilities. These features help developers accelerate innovation and scale their products from prototypes to commercial deployment. This broad applicability has led to adoption across a wide range of domains, including smart access control, space management, computer monitor, automotive, and bicycle applications.

In particular, our PalmVein module is rapidly securing design wins, offering a touchless, high-security solution with high accuracy and advanced liveness detection. Combined with GDPR-compliant architecture, one of the world's strictest data privacy laws, our PalmVein solution ensures robust data privacy and protection of user biometric information through privacy centric on-device processing.

We are seeing growing PalmVein module adoption across applications such as smart access control, workforce management, and smart door locks, with multiple projects progressing toward mass production in the coming quarters.

As mentioned earlier, WiseEye is gaining broad market recognition in smart glasses as a compact, ultralow power, always-on perceptual front end. WiseEye supports both outward-facing environmental sensing, mainly object classification and scene understanding, and inward-facing capabilities, including eyeball tracking and iris authentication, delivering environment-aware vision AI and responsive, low-latency human-machine interaction for smart glasses.

This combination of capabilities makes WiseEye ideally suited for wearable devices requiring real-time responsiveness with minimal battery impact and is a key factor driving design-in momentum among smart glasses players.

Moving on to our latest advancements in LCoS microdisplay technology. At Display Week 2026 this week in Los Angeles, we showcased our ultra-luminous, high-contrast miniature Dual-Edge Front-lit LCoS microdisplay. We were also invited to deliver an in-depth presentation at the symposium, highlighting Himax's recognized expertise and leadership in LCoS microdisplay technology.

Our LCoS solution is a full color microdisplay that integrates illumination optics and LCoS panel into an exceptionally compact form factor of just 0.09 cc and 0.2 grams, delivering up to 350,000 nits of brightness and 1 lumen output at just 200 mw total power consumption. It can also be configured for high-brightness, low-power, green-only mode and frictionlessly switched back upon command from the central processor, allowing for improved power efficiency across different ambient light conditions while supporting customers' cost targets.

In addition, its ultra-high luminance ensures excellent visibility in bright environments, while our proprietary technologies significantly enhances contrast and reduce the postcard effect frequently observed in low-light conditions.

Himax is currently working closely with multiple waveguide partners across China, Europe, Israel, Japan, Taiwan, and the U.S. to bundle these technologies into display systems for AR glasses, streamlining system integration and driving future design-in opportunities. We will provide further updates in due course.

That concludes my report for this quarter. Thank you for your interest in Himax. We appreciate you joining today's call and are now ready to take questions.

[Operator Instructions] We'll have our first question, Donnie Teng, Nomura.

I have 2 questions. The first question is regarding your automotive business. So wonder if, Jordan, if you can give us a full year outlook regarding your automotive-related business growth. And also what could be the possible quarterly revenue pattern into the second half this year? Because it looks like customers still maintain pretty low inventory. So I'm not sure whether it will be still like restocking, destocking coming off for the coming quarters.

And the second question is regarding to the CPO. So you have mentioned about the Gen 1 and Gen 2 products. Wondering if you can share with us regarding to the competition landscape for the Gen 1 product and Gen 2 products. Are you seeing different competitors? And also another thing is I'm curious is like the overall optical communication supply chain is facing supply tightness at upstream, like indium phosphide substrate for lasers, et cetera. Are you seeing other components are facing the short supply as well? For example, whether the micro lens will be under shortage.

Thank you, Donnie. If I may, I will address your second question first on CPO on competition or potential supply shortage of other components, et cetera. They are not really our major concern to be honest because for now, once the mass production gets started and is successful, what we're seeing is with the multiple customers we have already in hand, I'm talking about major customers that we really, really focus on, they are actually other customers. I mean they are all very big match, but they are still, so to speak, priorities internally. So with their demand, actually based on the opportunity [ made ] is much, much bigger than what we can supply for now.

So we are not worried about competition. I'm not saying whether they are good or whether they exist. What I'm saying is we just need to focus on our completion of validation and that's mostly enter mass production. And once that happens, the customers have put all right to us that the potential demand in the early stage and that actually much always what we can supply.

So I think competition, I mean, for now is not really an issue. I mean I can say the same to answer your question on the potential shortage of other components. And I think, I said in the prepared remarks earlier that 2027 is likely we can see meaningful revenue contribution for us. So well, I like to manage that even before the official mass production, early shipments for engineering rise were already have positive impact on our financials. And as I said earlier, the customer demand almost always what we can supply. So once all the shipments get started, the drills will likely be explosive because of demand driving this there.

And one small production in case we believe CPO will deliver the strongest growth among all our product lines, a drill that is likely to sustain for the years to come. So that is my answer to your CPO question and automotive.

For the full year outlook, I mean bear in mind, we don't actually provide full year guidance. So I'm not going to give numerical projections. But we can say quite comfortably we are well-positioned to see sales growth for the year, obviously gross margin compared to last year, and that is primarily among other things driven by automotive outlook.

So the overall automotive industry outlook, as we all know, remains muted which I think most market surveys project for a flattish, normally a shipment year-over-year. However, I think we believe we will be able to outperform the market like we did last year. And I did say in the prepared remarks that we expect sales automotive to grow quarter-by-quarter this year. So that is a response to your question.

Yes, the customers' inventory level remains fully, but even that they seem to historically handle automobile and then [indiscernible] such a cycle, but I cannot predict whether this cycle will repeat this year in the second half, but our confidence level for the after quarter drills comes mainly from a few major projects with our customers, which are 24 months for exchange second half.

Maybe they are after years of design-in [indiscernible]. So we are now also projecting some growth for this year's automotive sales. And again, I think our automotive business is well positioned to beat the market like last year in terms of growth.

And a follow-up on CPO -- the power and CPO is like are you able to quantify the sales contribution for this year and next year potentially? And I'm also curious that are you -- do you require to expand the capacity for the demand coming in 2027 or you will utilize the existing sale first?

Well, you realize how this is [Indiscernible], which actually is fully utilized for this application, can already generate hundreds of millions of annual sales for us with a very decent profit. Our partner, FOCI, actually, I cannot comment on their behalf, but they did say in their prospectus issued a few months back in their recent rights issue that -- I mean, they too have plan to continually spend a capacity. As we all know, the positive purpose for the right to issue recent deals to build capacity for this purpose for mass production.

So in the prospectus, that is something you would rely on to -- given the right conditions, they would certainly continue to expand the capacity. And that is what they say in their prospectus. And, I mean, certainly beyond that, I cannot say anything more on their behalf.

But what I can say is our capacity actually outweighs their capacity. So, to be honest, they have to expand first. But given where they are at the moment, I think we again feel confident that somehow [indiscernible] mass production progressing, they will sort the issue as well. But yes, our capacity is more than sufficient to support up to hundreds of millions of annual sales for us.

And with that, I'm afraid I am not able to quantify sales contribution for this year or next for now. But this year is still small. They are primarily sampling and engineering shipments. They are not -- I mean quarter-over-quarter, good growth, but they come from a very small base. So for overall group perspective, they are still not meaningful. But next year, as I said, regardless of when mass production will commence, so like the -- even before mass production, the engineering runs will contribute meaningfully to our top line and especially bottom line growth.

Thank you. And there are no questions at the moment. We thank you for all your questions. I'll pass the call back to Mr. Jordan Wu. Thank you.

As a final note, Karen Tiao, our Head of IR/PR, will maintain investor marketing activities and continue to attend investor conferences. We will announce the details as they come about. Thank you and have a nice day.

Thank you, Mr. Wu. And ladies and gentlemen, this concludes first quarter 2026 earnings conference. You may now disconnect. Thank you again. Goodbye.

Hello, ladies and gentlemen, welcome to Himax Technologies, Inc. Fourth Quarter and Fiscal Year of 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded.

I would now like to turn the conference over to Ms. Karen Tiao, Head of IR/PR in Himax. Ms. Tiao, please go ahead.

Welcome, everyone. My name is Karen Tiao, Head of IR/PR at Himax. Joining me today are Jordan Wu, President and Chief Executive Officer; and Jessica Pan, Chief Financial Officer.

After the company's prepared comments, we have allocated time for questions in the Q&A section. If you have not yet received a copy of today's results release, please e-mail [email protected] or [email protected] or download a copy from Himax's website.

Before we begin the formal remarks, I would like to remind everyone that [Technical Difficulty] conference call, including statements regarding expected future financial results and industry growth, are forward-looking statements that involve a number of risks and uncertainties that could cause actual events or results to differ materially from those described in this conference call.

A list of risk factors can be found in the company's latest SEC filings, Form 20-F in the section entitled Risk Factors as may be amended. Except for the company's full year 2024 financials, which were provided in the company's 20-F and filed with SEC on April 2, 2025, the financial information included in this conference call is unaudited and consolidated and prepared in accordance with IFRS accounting.

Such financial information is generated internally and has not been subjected to the same review and scrutiny, including internal auditing procedures and external audits by independent auditors to which we subject our annual consolidated financial statements and may vary materially from the audited consolidated financial information for the same period.

On today's call, I will first review Himax's consolidated financial performance for the fourth quarter and full year 2025, followed by our first quarter 2026 outlook. Jordan will then give an update on the status of our business, after which we will take questions. You can submit your questions online through the webcast or by phone. We will review our financials on an IFRS basis.

We are pleased to report that our Q4 profit was at the high end of the projected range issued on November 6, 2025, while sales and gross margin were both in line with the guidance. Fourth quarter revenue registered $203.1 million, representing a sequential increase of 2.0%, better than our flat quarter-over-quarter guidance.

Gross margin was 30.4%, in line with our guidance of flat to slightly up from 30.2% in the previous quarter. Q4 profit per diluted ADS was $0.36 at the high end of the guidance range of $0.20 to $0.40.

Revenue from large display driver came in at $21.7 million, representing an increase of 14.2% from the previous quarter, outperforming our guidance range of a single digit increase sequentially.

This was primarily due to the rush order for both the TV and notebook IC legacy products from panel makers. Customers restocking of TV and monitor IC products, along with new notebook TDDI project entering mass production during the quarter contributed to the sequential increase. Sales of large panel driver IC accounted for 10.7% of total revenue for the quarter compared to 9.5% last quarter and 10.5% a year ago.

Revenue from the small and medium-sized display driver segment totaled $139.1 million, reflecting a slight decline of 1.3% sequentially. Q4 automotive driver sales, including both the traditional DDIC and TDDI, increased approximately 10% quarter-over-quarter, largely driven by widespread adoption of our market-leading TDDI technology among major customers across all continents.

Despite softness in global automotive markets, our automotive driver IC sales for the full year 2025 grew single digit year-over-year, outpacing the broader market. Meanwhile, revenues for both smartphone and tablet IC segment declined quarter-over-quarter as customers pull forward purchases in prior quarters.

The small and medium-sized display driver IC segment accounted for 68.5% of total sales for the quarter compared to 70.8% in the previous quarter and 70.3% a year ago.

Q4 non-driver sales reached $42.3 million, a 7.9% increase from the previous quarter, primarily attributable to increased ASIC Tcon shipment to a leading projector customer, along with robust Tcon shipment for automotive application.

Tcon -- Himax continued to hold an undisputed leadership position with the dominant market share in automotive Tcon. Tcon business accounted for over 10% of total sales with notable contribution from automotive Tcon.

Also during the quarter, our automotive OLED on sale touch IC enter mass production with the leading brand, marking another milestone and strengthening the foundation for future growth. Non-driver products accounted for 20.8% of total revenue as compared to 19.7% in the previous quarter and 19.2% a year ago.

Fourth quarter operating expenses were $54.9 million, a decrease of 9.6% from the previous quarter, but increase of 11.6% compared to the same period last year. The sequential decrease was mainly attributed to a reduction in the annual employee bonuses and the depreciation of the NT dollar against the U.S. dollar, partially offset by a increase in [ tape-out ] expenses.

As part of our standard company practice, annual cash and RSU bonuses are granted at the end of September each year, leading to higher IFRS operating expenses in the Q3 than in other quarters.

The year-over-year increase was primarily driven by the increase in tape-out expenses. Salary expenses and appreciation of the NT dollar against the U.S. dollar were also factors behind the year-over-year increase. Amid ongoing macroeconomic challenges, we continue to emphasize strict budget and expense controls.

Fourth quarter operating profit was $6.8 million, representing an operating margin of 3.4% compared to negative 0.3% in the previous quarter and 9.7% for the same period last year. The sequential increase was the result of increased revenue and higher gross margin as well as the lower operating expenses.

The year-over-year decline reflected the lower sales and gross margin, coupled with higher operating expenses. Q4 after-tax profit was $6.3 million or $0.36 per diluted ADS compared to $1.1 million or $0.06 per diluted ADS last quarter and down from $24.6 million or $0.14 in the same period last year.

Now let's quickly review the financial performance for the full year 2025. 2025 was a challenging year for the global economy, shared by tariffs and other geopolitical uncertainties.

Panel customers generally maintained a conservative net-to-order strategy with a lean inventory levels. While consumer electronics demand remains soft, automotive and AI-related applications where Himax has strong exposure proved comparatively resilient.

Despite disciplined expense control, our full year 2025 operating expenses increased by 1.1% as we strategically invested in select non-display IC areas with compelling long-term growth potential, some of which are poised to ramp meaningfully starting in 2027.

Reflecting this market conditions, our 2025 full year revenue totaled $832.2 million, a decline of 8.2% compared to 2024. Revenue from large panel display driver IC totaled $90.7 million in 2025, marking a decrease of 28.0% year-over-year and representing 10.9% of total sales as compared to 13.9% in 2024.

Small and medium-sized driver sales totaled $575.1 million, reflecting a decrease of 8.0% year-over-year and accounting for 69.1% of our total revenue as compared to 69.0% in 2024. Non-driver product sales totaled $166.4 million, an increase of 7.0% year-over-year and representing 20.0% of our total sales as compared to 17.1% a year ago.

Gross margin in 2025 was 30.6%, slightly up from 30.5% in 2024. Operating expenses in 2025 were $210.2 million, a slight increase of 1.1% from 2024, primarily due to increase in tape-out and salary expenses as well as the appreciation of the NT dollar against the U.S. dollar in 2025, partially offset by the lower employee bonus compensation compared to last year.

2025 operating income was $44.1 million, or 5.3% of sales, as compared to $68.2 million, or 7.5% of sales in 2024. Our net profit for 2025 was $43.9 million, or $0.25 per diluted ADS, a decline from $79.8 million, or USD 0.46 per diluted ADS in 2024.

Turning to the balance sheet, we had $286.2 million of cash, cash equivalents and other financial assets as of December 31, 2025. This compares to $224.6 million at the same time last year and $278.2 million a quarter ago.

Q4 operating cash inflow was $16.8 million, compared to an inflow of $6.7 million in the prior quarter. We had $28.5 million in long-term unsecured loans, with $6.0 million representing the current portion at the end of 2025.

Our year-end inventories were $152.7 million, an increase from $137.4 million last quarter, but lower than $158.7 million a year ago. Accounts receivable at the end of December 2025 was $200.9 million, little change from last quarter, but down from $236.8 million a year ago.

DSO was 88 days at the quarter end, as compared to 87 days last quarter and 96 days a year ago. Fourth quarter capital expenditures were $4.0 million, versus $6.3 million last quarter and $3.2 million a year ago.

Fourth quarter CapEx was mainly for R&D-related equipment for our IC design business. Total capital expenditures for 2025 were $20.1 million as compared to $13.1 million in 2024. The increase was primarily due to the construction in progress for the new preschool near our Tainan headquarters built for employees' children, with completion expected by the end of Q2 2026.

As of December 31, 2025, Himax had 174.4 million ADS outstanding, little change from last quarter. On a fully diluted basis, the total number of ADS outstanding for the fourth quarter was 174.5 million.

Now turning to our first quarter 2022 (sic) [ 2026 ] guidance. We expect Q1 revenues to decline 2.0% to 6.0% sequentially. Gross margin is expected to be flat to slightly down, depending on product mix.

Q1 profit attributable to the shareholder is estimated to be in the range of $0.02 to $0.04 per fully diluted ADS.

I will now turn the call over to Jordan to discuss our Q1 2026 outlook. Jordan, the floor is yours.les reached $42.3 million, a 7.9% increase from the previous quarter, primarily attributable to increased ASIC Tcon shipment to a leading projector customer, along with robust Tcon shipment for automotive application.

Tcon -- Himax continued to hold an undisputed leadership position with the dominant market share in automotive Tcon. Tcon business accounted for over 10% of total sales with notable contribution from automotive Tcon.

Also during the quarter, our automotive OLED on sale touch IC enter mass production with the leading brand, marking another milestone and strengthening the foundation for future growth. Non-driver products accounted for 20.8% of total revenue as compared to 19.7% in the previous quarter and 19.2% a year ago.

Fourth quarter operating expenses were $54.9 million, a decrease of 9.6% from the previous quarter, but increase of 11.6% compared to the same period last year. The sequential decrease was mainly attributed to a reduction in the annual employee bonuses and the depreciation of the NT dollar against the U.S. dollar, partially offset by a increase in [ tape-out ] expenses.

As part of our standard company practice, annual cash and RSU bonuses are granted at the end of September each year, leading to higher IFRS operating expenses in the Q3 than in other quarters.

The year-over-year increase was primarily driven by the increase in tape-out expenses. Salary expenses and appreciation of the NT dollar against the U.S. dollar were also factors behind the year-over-year increase. Amid ongoing macroeconomic challenges, we continue to emphasize strict budget and expense controls.

Fourth quarter operating profit was $6.8 million, representing an operating margin of 3.4% compared to negative 0.3% in the previous quarter and 9.7% for the same period last year. The sequential increase was the result of increased revenue and higher gross margin as well as the lower operating expenses.

The year-over-year decline reflected the lower sales and gross margin, coupled with higher operating expenses. Q4 after-tax profit was $6.3 million or $0.36 per diluted ADS compared to $1.1 million or $0.06 per diluted ADS last quarter and down from $24.6 million or $0.14 in the same period last year.

Now let's quickly review the financial performance for the full year 2025. 2025 was a challenging year for the global economy, shared by tariffs and other geopolitical uncertainties.

Panel customers generally maintained a conservative net-to-order strategy with a lean inventory levels. While consumer electronics demand remains soft, automotive and AI-related applications where Himax has strong exposure proved comparatively resilient.

Despite disciplined expense control, our full year 2025 operating expenses increased by 1.1% as we strategically invested in select non-display IC areas with compelling long-term growth potential, some of which are poised to ramp meaningfully starting in 2027.

Reflecting this market conditions, our 2025 full year revenue totaled $832.2 million, a decline of 8.2% compared to 2024. Revenue from large panel display driver IC totaled $90.7 million in 2025, marking a decrease of 28.0% year-over-year and representing 10.9% of total sales as compared to 13.9% in 2024.

Small and medium-sized driver sales totaled $575.1 million, reflecting a decrease of 8.0% year-over-year and accounting for 69.1% of our total revenue as compared to 69.0% in 2024. Non-driver product sales totaled $166.4 million, an increase of 7.0% year-over-year and representing 20.0% of our total sales as compared to 17.1% a year ago.

Gross margin in 2025 was 30.6%, slightly up from 30.5% in 2024. Operating expenses in 2025 were $210.2 million, a slight increase of 1.1% from 2024, primarily due to increase in tape-out and salary expenses as well as the appreciation of the NT dollar against the U.S. dollar in 2025, partially offset by the lower employee bonus compensation compared to last year.

2025 operating income was $44.1 million, or 5.3% of sales, as compared to $68.2 million, or 7.5% of sales in 2024. Our net profit for 2025 was $43.9 million, or $0.25 per diluted ADS, a decline from $79.8 million, or USD 0.46 per diluted ADS in 2024.

Turning to the balance sheet, we had $286.2 million of cash, cash equivalents and other financial assets as of December 31, 2025. This compares to $224.6 million at the same time last year and $278.2 million a quarter ago.

Q4 operating cash inflow was $16.8 million, compared to an inflow of $6.7 million in the prior quarter. We had $28.5 million in long-term unsecured loans, with $6.0 million representing the current portion at the end of 2025.

Our year-end inventories were $152.7 million, an increase from $137.4 million last quarter, but lower than $158.7 million a year ago. Accounts receivable at the end of December 2025 was $200.9 million, little change from last quarter, but down from $236.8 million a year ago.

DSO was 88 days at the quarter end, as compared to 87 days last quarter and 96 days a year ago. Fourth quarter capital expenditures were $4.0 million, versus $6.3 million last quarter and $3.2 million a year ago.

Fourth quarter CapEx was mainly for R&D-related equipment for our IC design business. Total capital expenditures for 2025 were $20.1 million as compared to $13.1 million in 2024. The increase was primarily due to the construction in progress for the new preschool near our Tainan headquarters built for employees' children, with completion expected by the end of Q2 2026.

As of December 31, 2025, Himax had 174.4 million ADS outstanding, little change from last quarter. On a fully diluted basis, the total number of ADS outstanding for the fourth quarter was 174.5 million.

Now turning to our first quarter 2022 (sic) [ 2026 ] guidance. We expect Q1 revenues to decline 2.0% to 6.0% sequentially. Gross margin is expected to be flat to slightly down, depending on product mix.

Q1 profit attributable to the shareholder is estimated to be in the range of $0.02 to $0.04 per fully diluted ADS.

I will now turn the call over to Jordan to discuss our Q1 2026 outlook. Jordan, the floor is yours.

Thank you, Karen. Overall, market conditions remain under pressure from ongoing macroeconomic uncertainty. Recent sharp price increases in memory have further weighed on the market sentiment for electronic products.

However, compared with consumer products, the automotive segment, which accounts for over half of Himax's total sales, is more immune to memory price fluctuations.

Having said that, our visibility for the whole year outlook of automotive sector remains limited amid the backdrop of uncertain government policy and consumer sentiment.

However, we expect the first quarter to be the trough of the year, with sales rebounding in the second quarter and business momentum continuing to improve into the second half, supported by lean customer inventory levels and new projects for automotive customers scheduled to enter mass production later in the year.

In addition, continued growth in our non-driver IC businesses, particularly Tcon and WiseEye AI, should provide incremental support.

In the automotive display IC business, we remain optimistic about our long-term business outlook, backed by our leading new technology offerings and strong design-win pipeline. In DDIC and TDDI, we have already secured hundreds of design wins, commanding 40% market share in automotive DDIC and well over half in the global TDDI market, maintaining a substantial lead over competitors.

Concurrently, Himax has also established strong technology leadership in all emerging automotive display areas, including automotive Tcon with advanced local dimming functionality, LTDI for large-size automotive displays, advanced Tcon solutions for advanced head-up displays, automotive OLED panels and Micro LED technologies.

A growing number of customers are accelerating the adoption of these advanced display technologies in new vehicle models, driving new growth momentum for Himax's automotive display IC business in the years ahead.

We believe the automotive market still offers significant upside potential, driven by rapid innovation and ongoing advancements in smart cabin as well as more vivid, intuitive, immersive displays such as knob-on-display, curved display, large-sized HUD on windshield, Micro LED for both interior and exterior of the vehicle and many more.

Despite lingering economic uncertainty, beyond our mainstream business of display IC solutions, we continue to expand into areas such as ultralow power AI for endpoint devices, Front-lit LCoS microdisplay and waveguide for AR glasses and WLO for co-packaged optics.

All these technologies are seeing exciting upside potential in the next couple of years, driven by the recent breakout of AI. As adoption continues to broaden, some of these technologies have already begun translating into real-world applications with more expected to follow suit in the near future.

We expect these initiatives to become new meaningful growth drivers while also improving our product mix and overall profitability. Some of these advanced technological capabilities were showcased through multiple live demonstrations at CES earlier this year.

First, on ultralow power AI, we are differentiated in the market by offering total solutions that integrate in-house AI processor, CMOS image sensor and algorithm, helping customers streamline development and accelerate time to market. Himax's industry-leading WiseEye AI features industry-leading ultralow power design, with power consumption at just single-digit milliwatt levels.

Combined with a compact form factor, on-device AI inferencing, and 24/7 always-on image and voice sensing, WiseEye is empowering battery-powered endpoint devices across a wide range of new AI applications.

For use cases requiring real-time voice and vision sensing, WiseEye also serves as an ideal perceptual front end for large language models, working in tandem with LLMs to enhance a device's ability to perceive and understand real-world contexts and deliver a more intelligent, responsive and low-latency human-machine interaction.

This capability is reflected in applications such as keyword spotting for AI PCs and environmental awareness and sensing in smart glasses.

At CES this year, Himax showcased a broad portfolio of WiseEye-powered endpoint AI solutions spanning applications including smart home, security and surveillance, automotive, smart city, access control, AI PCs and smart glasses.

One notable example in the field of security applications is the newly introduced WiseGuard solution, a significant technological innovation for next-generation security applications. WiseGuard features high-accuracy AI sensing even in low-luminance environments along with proactive key events capture, all while consuming merely mini-watt level power, thereby extending battery life for end devices.

I will elaborate on this later. All these demonstrations reinforced WiseEye's growing relevance across multiple end markets. After many years of R&D and promotion, we expect to see very strong growth for the WiseEye business starting from this year.

Turning to smart glasses, one of Himax's key strategic focus areas. We are uniquely positioned as one of the few companies with both microdisplay and low power AI capabilities, both critical for the success of AR glasses.

Fueled by the rapid advancement of AI, the smart glasses market is undergoing a strong resurgence, creating significant new opportunities for WiseEye AI and LCoS microdisplays. Smart glasses developers can leverage WiseEye's ultralow power AI capabilities to enhance device interactivity, supporting both outward-facing environmental awareness and object recognition as well as inward-facing eye-tracking and iris authentication.

This allows smart glasses to simultaneously understand user intent and external surroundings, delivering a more natural and seamless human-machine interaction experience.

In microdisplay, Himax's latest proprietary Front-lit LCoS microdisplay achieves an optimal balance among size, weight, power consumption, resolution and cost, while meeting the stringent optical performance requirements of next-generation see-through AR smart glasses.

Our LCoS solution is a full-color microdisplay which can be configured for a high brightness, low power green-only mode and switch back upon command from the central processor, seamlessly covering both indoor and outdoor usages.

Himax is working closely with multiple waveguide partners across China, Europe, Isreal, Japan, Taiwan and the U.S., bundling each other's technologies into complete display systems for AR glasses, with several joint achievements demonstrated at CES.

Before turning to our segment outlook, I'd like to highlight our progress in CPO. Himax continues to make solid progress in collaboration with our strategic partner, FOCI.

Our main goal for 2026 is to complete mass-production readiness with just small quantity shipments for the year. In addition, we are actively advancing multiple future generations of high-speed optical transmission technologies and advanced CPO architectures.

These efforts focus on higher fiber channel density and more sophisticated optical designs to support the increasingly demanding requirements. Specifically, in collaboration with the leading global customer and partner, Himax and FOCI are finalizing the manufacturing process of a state-of-the-art design supporting 6.4T transmission bandwidth, a spec positioned for the AI data center market with the biggest volume potential while demanding the highest transmission bandwidth.

Recently, FOCI successfully completed an equity rights issue of TWD 3.16 billion to fund equipment purchases and prepare for CPO mass production. Himax participated in the share subscription, demonstrating our continuous support for our partner and further strengthening the collaboration between the 2 companies. Himax expects CPO to become an important contributor to both revenue and profitability over the next few years.

With that, I will now begin with an update on the large panel driver IC business. In Q1, large display driver IC sales are expected to increase single digit sequentially, mainly driven by continued replenishment of TV IC product from Chinese panel customers, carried over from Q4 last year.

Looking ahead, our focus in the notebook market is on premium models featuring OLED displays and touch functionality. This trend is being reinforced by recent rising memory prices, which have put pressure on lower-end notebook models and further accelerated the shift towards higher-end devices.

Himax offers a full spectrum of IC solutions for both LCD and OLED notebooks, including DDICs, Tcon, touch controllers and TDDI. This broad product coverage allows us to address diverse panel architectures and system designs while increasing our content per device.

During the first quarter, we began mass production of our touch IC for OLED notebooks with a leading notebook vendor, marking a milestone for another key application for our OLED on-cell touch technology beyond automotive.

By leveraging proven touch integration capabilities from automotive applications and extending them into consumer electronics, we are creating new growth opportunities in premium OLED IT devices.

Tcon solutions are a key pillar of our notebook display IC portfolio, playing a critical role in image enhancement and system-level integration, strengthening our ability to provide customers with a comprehensive one-stop solution.

We continue to expand our notebook Tcon portfolio to address diverse customer design requirements and cost considerations. Our solutions support a wide range of panel resolutions, refresh rates and gaming-oriented applications, while delivering high value-added features with a strong focus on power efficiency, which is becoming increasingly important for thin-and-light and AI PCs.

Turning to the small and medium-sized display driver IC business. In Q1, small and medium-sized display driver IC business is expected to decline single digit from last quarter.

Q1 automotive driver IC sales, including TDDI and traditional DDIC, are set to decrease by double digit quarter-over-quarter, following 2 consecutive quarters of order replenishment. This decrease also reflects typical seasonal softness related to the Lunar New Year holidays, along with the tapering effect of automotive subsidy programs in major markets such as China and the U.S.

That said, our long-term competitive position remains solid, supported by hundreds of design wins already secured across TDDI, DDIC, Tcon and an expanding OLED portfolio. In addition, our diversified foundry footprint enables supply flexibility and allows us to better navigate shifts in customer demand.

We continue to lead the global automotive display market with a 40% share in DDIC, well over half in TDDI and an even higher market share in local dimming Tcon.

Himax also continues to lead in automotive display IC innovation by pioneering solutions across a wide range of panel types while addressing diverse design needs and cost considerations. For example, in ultra-large touch displays, we introduced the industry's first LTDI solution back in 2023, which has already been mass produced in several vehicle models.

Design activity continues to expand across continents and after several years of sustained effort, we expect meaningful revenue contributions starting this year. For smaller displays with form factors and budget constraints, we provide single-chip solutions that combine TDDI and local dimming Tcon, an attractive choice for customers as it can significantly reduce cost and improve power efficiency.

Looking ahead, OLED panel adoption in automotive displays is expected to accelerate, creating an opportunity for Himax to further strengthen our leadership in the automotive display market.

Our ASIC OLED driver and Tcon solutions have already been in mass production for a few years and we now offer new standard IC products to support broader and more scalable deployment. At the same time, we continue to collaborate with leading panel makers on new custom ASICs to meet diverse customer requirements.

Together, these efforts position Himax to capture increasing semiconductor content as premium automotive display technologies evolve from LCD to OLED. Complementing our OLED portfolio for automotive applications, we are also a leader in advanced OLED touch ICs, featuring industry-leading signal-to-noise ratio performance that ensures reliable operation even under challenging conditions such as glove or wet-finger use.

Our OLED touch ICs entered mass production in 2024 and continue to see a growing design-in pipeline globally, many of which are scheduled to enter mass production in the coming quarters.

Moving to smartphone IC sales, we expect Q1 smartphone revenue, covering both LCD and OLED products, to increase quarter over quarter as new OLED solutions begin mass production with a leading panel maker for a leading smartphone brand's mainstream model. For tablet ICs, Q1 sales are also expected to grow sequentially, driven by the commencement of IC shipment for customer's new premium OLED tablet.

Moving forward in tablet market, we are advancing new technologies that enable value-added features such as active stylus, ultra-slim bezel design, higher frame rates and power-saving architectures, positioning Himax to capture more semiconductor content in next-generation premium tablets while reinforcing our competitive edge.

I would like to now turn to our non-driver IC business update where we expect Q1 revenue to decrease single digit sequentially.

First for an update on our Tcon business. We anticipate Q1 Tcon sales to decline by a single digit quarter over quarter, primarily due to the absence of ASIC Tcon shipments to a leading projector customer that occurred in the prior quarter.

The sequential decline also reflects a moderation in automotive Tcon shipments following several quarters of solid growth, which we view as normal seasonality rather than a change in underlying demand.

For the full year 2025, our automotive Tcon sales still grew approximately 50% year over year. Backed by hundreds of secured design wins, this momentum provides a strong foundation for sustained growth.

Tcon for monitor, notebook and TV products is expected to increase sequentially in Q1, primarily a result of customers replenishing inventory for high-end products.

Meanwhile, head-up displays or HUDs are poised to become a central element of next-generation smart cockpits, a trend clearly highlighted at CES, where numerous panel makers and automotive names, equipped with our IC solutions, showcased their latest trendy and innovative HUD concepts.

HUD for automotive is rapidly evolving from simple text and symbols to high-brightness, high-contrast, AR-enriched visuals integrated into automotive displays. This shift is driving demand for sophisticated Tcon technologies, an area where Himax holds a strong leadership position in automotive display Tcon solutions.

To address this trend, we introduced a multifunctional integrated Tcon featuring the industry's first full-area selectable local de-warping capability, combined with Himax's market-leading local dimming and on-screen display technologies, offering the flexibility to meet diverse design and cost requirements while simplifying overall system integration.

This new Tcon continues to deliver exceptional contrast performance while effectively eliminating the so-called postcard effect in HUDs, a common issue caused by light leakage in conventional TFT-LCD panels.

Our industry-leading OSD function is also integrated, ensuring that critical safety information remains visible even when the main system is powered down, thereby enhancing overall driving safety.

The new Tcon solution supports a broad range of HUD architectures, including Windshield HUD, Augmented Reality HUD, and Panoramic HUD. Multiple customer projects are already underway with leading panel makers and Tier 1 players, reflecting strong market recognition of our advanced HUD Tcon technology.

Switching gears to the WiseEye product line, a cutting-edge ultralow power AI sensing total solution, targeting endpoint device markets. As AI advances at an unprecedented pace, WiseEye stands out with context-aware, on-device AI inferencing that combines industry-leading power efficiency, consuming only a few milliwatts, with a compact form factor and robust, industrial-grade security and pre-trained no-code/low-code AI algorithm, enabling easy deployment across a broad spectrum of applications.

This powerful combination unlocks advanced AI capabilities in endpoint devices that were once constrained by power and size limitations. This is driving innovative new product concepts across a broad range of applications, from notebooks, surveillance and access control to smart home, smart retail and more recently, smart glasses, which the industry widely expects to become the next breakout market.

Starting with notebooks, WiseEye's human presence detection is seeing expanding adoption among leading global brands, driven by its ultralow power consumption, instant responsiveness and privacy-centric design, well aligned with the industry's move toward always-aware, AI-driven PCs.

Building on this foundation, additional feature enhancements are being developed to address more complex real-world scenarios while preserving exceptional power efficiency and improving user convenience.

One example is gesture recognition that emulates keyboard inputs, enabling users to scroll pages or adjust volume without touching the keyboard. Another advanced feature currently under development for next-generation AI PCs is a voice-activated keyword spotting function.

Here WiseEye acts as an ultralow power front end that continuously monitors audio and performs wake-word detection, activating the main CPU only when a designated trigger phrase is recognized. This advanced feature enables continuous audio monitoring, even in noisy environments, while maintaining minimal impact on overall system power consumption.

In the surveillance domain, at the recent CES we introduced our latest WiseGuard endpoint AI solutions, highlighting the versatile deployment of WiseEye AI in security applications.

WiseGuard is a turnkey solution capable of accurately detecting and tracking multiple individuals, including their presence, location, and movement. Its proactive and continuous sensing capability enables security systems to anticipate and capture important events in advance, providing more forward-looking protection compared with traditional reactive security solutions.

WiseGuard performs always-on sensing and AI processing at single digit mini-watt level, enabling up to 5 years of battery life and reliable, low-maintenance operation in compact, battery-powered devices.

At the same time, it maintains high-precision event detection at distances of up to 10 meters and under extreme low light environments. Immediately after its debut, WiseGuard has attracted strong market interest driven by its compelling advantages for scalable smart home and security systems.

Meanwhile from a module perspective, WiseEye technology is seeing expanding adoption across a wide range of domains, including leading brands' upcoming smart home applications and various surveillance applications.

Notably, our PalmVein module has had a strong design-in pipeline across multiple industries, covering smart access, workforce management, smart door locks and more recently, computer monitor and automotive applications.

In the domain of AR and AI glasses, WiseEye delivers fast responsiveness for a wide range of AI functions while maintaining exceptional power efficiency. It enables intelligent, context-aware vision sensing in next-generation wearable and smart glasses through both outward- and inward-facing capabilities.

Outward sensing supports environmental awareness, object recognition and spatial mapping, while inward sensing enables iris authentication and tracks eye movement, gaze direction and pupil dynamics for natural, intuitive human-machine interaction.

WiseEye is gaining strong traction in smart glasses, with a growing number of design-in engagements underway among global tech names, solution platform providers and smart glasses specialists. A leading brand's smart glasses are poised to enter mass production later this year, marking an important milestone for WiseEye in the smart glasses market.

That concludes my report for this quarter. Thank you for your interest in Himax. We appreciate you joining today's call and are now ready to take questions.human-machine interaction.

This capability is reflected in applications such as keyword spotting for AI PCs and environmental awareness and sensing in smart glasses.

At CES this year, Himax showcased a broad portfolio of WiseEye-powered endpoint AI solutions spanning applications including smart home, security and surveillance, automotive, smart city, access control, AI PCs and smart glasses.

One notable example in the field of security applications is the newly introduced WiseGuard solution, a significant technological innovation for next-generation security applications. WiseGuard features high-accuracy AI sensing even in low-luminance environments along with proactive key events capture, all while consuming merely mini-watt level power, thereby extending battery life for end devices.

I will elaborate on this later. All these demonstrations reinforced WiseEye's growing relevance across multiple end markets. After many years of R&D and promotion, we expect to see very strong growth for the WiseEye business starting from this year.

Turning to smart glasses, one of Himax's key strategic focus areas. We are uniquely positioned as one of the few companies with both microdisplay and low power AI capabilities, both critical for the success of AR glasses.

Fueled by the rapid advancement of AI, the smart glasses market is undergoing a strong resurgence, creating significant new opportunities for WiseEye AI and LCoS microdisplays. Smart glasses developers can leverage WiseEye's ultralow power AI capabilities to enhance device interactivity, supporting both outward-facing environmental awareness and object recognition as well as inward-facing eye-tracking and iris authentication.

This allows smart glasses to simultaneously understand user intent and external surroundings, delivering a more natural and seamless human-machine interaction experience.

In microdisplay, Himax's latest proprietary Front-lit LCoS microdisplay achieves an optimal balance among size, weight, power consumption, resolution and cost, while meeting the stringent optical performance requirements of next-generation see-through AR smart glasses.

Our LCoS solution is a full-color microdisplay which can be configured for a high brightness, low power green-only mode and switch back upon command from the central processor, seamlessly covering both indoor and outdoor usages.

Himax is working closely with multiple waveguide partners across China, Europe, Isreal, Japan, Taiwan and the U.S., bundling each other's technologies into complete display systems for AR glasses, with several joint achievements demonstrated at CES.

Before turning to our segment outlook, I'd like to highlight our progress in CPO. Himax continues to make solid progress in collaboration with our strategic partner, FOCI.

Our main goal for 2026 is to complete mass-production readiness with just small quantity shipments for the year. In addition, we are actively advancing multiple future generations of high-speed optical transmission technologies and advanced CPO architectures.

These efforts focus on higher fiber channel density and more sophisticated optical designs to support the increasingly demanding requirements. Specifically, in collaboration with the leading global customer and partner, Himax and FOCI are finalizing the manufacturing process of a state-of-the-art design supporting 6.4T transmission bandwidth, a spec positioned for the AI data center market with the biggest volume potential while demanding the highest transmission bandwidth.

Recently, FOCI successfully completed an equity rights issue of TWD 3.16 billion to fund equipment purchases and prepare for CPO mass production. Himax participated in the share subscription, demonstrating our continuous support for our partner and further strengthening the collaboration between the 2 companies. Himax expects CPO to become an important contributor to both revenue and profitability over the next few years.

With that, I will now begin with an update on the large panel driver IC business. In Q1, large display driver IC sales are expected to increase single digit sequentially, mainly driven by continued replenishment of TV IC product from Chinese panel customers, carried over from Q4 last year.

Looking ahead, our focus in the notebook market is on premium models featuring OLED displays and touch functionality. This trend is being reinforced by recent rising memory prices, which have put pressure on lower-end notebook models and further accelerated the shift towards higher-end devices.

Himax offers a full spectrum of IC solutions for both LCD and OLED notebooks, including DDICs, Tcon, touch controllers and TDDI. This broad product coverage allows us to address diverse panel architectures and system designs while increasing our content per device.

During the first quarter, we began mass production of our touch IC for OLED notebooks with a leading notebook vendor, marking a milestone for another key application for our OLED on-cell touch technology beyond automotive.

By leveraging proven touch integration capabilities from automotive applications and extending them into consumer electronics, we are creating new growth opportunities in premium OLED IT devices.

Tcon solutions are a key pillar of our notebook display IC portfolio, playing a critical role in image enhancement and system-level integration, strengthening our ability to provide customers with a comprehensive one-stop solution.

We continue to expand our notebook Tcon portfolio to address diverse customer design requirements and cost considerations. Our solutions support a wide range of panel resolutions, refresh rates and gaming-oriented applications, while delivering high value-added features with a strong focus on power efficiency, which is becoming increasingly important for thin-and-light and AI PCs.

Turning to the small and medium-sized display driver IC business. In Q1, small and medium-sized display driver IC business is expected to decline single digit from last quarter.

Q1 automotive driver IC sales, including TDDI and traditional DDIC, are set to decrease by double digit quarter-over-quarter, following 2 consecutive quarters of order replenishment. This decrease also reflects typical seasonal softness related to the Lunar New Year holidays, along with the tapering effect of automotive subsidy programs in major markets such as China and the U.S.

That said, our long-term competitive position remains solid, supported by hundreds of design wins already secured across TDDI, DDIC, Tcon and an expanding OLED portfolio. In addition, our diversified foundry footprint enables supply flexibility and allows us to better navigate shifts in customer demand.

We continue to lead the global automotive display market with a 40% share in DDIC, well over half in TDDI and an even higher market share in local dimming Tcon.

Himax also continues to lead in automotive display IC innovation by pioneering solutions across a wide range of panel types while addressing diverse design needs and cost considerations. For example, in ultra-large touch displays, we introduced the industry's first LTDI solution back in 2023, which has already been mass produced in several vehicle models.

Design activity continues to expand across continents and after several years of sustained effort, we expect meaningful revenue contributions starting this year. For smaller displays with form factors and budget constraints, we provide single-chip solutions that combine TDDI and local dimming Tcon, an attractive choice for customers as it can significantly reduce cost and improve power efficiency.

Looking ahead, OLED panel adoption in automotive displays is expected to accelerate, creating an opportunity for Himax to further strengthen our leadership in the automotive display market.

Our ASIC OLED driver and Tcon solutions have already been in mass production for a few years and we now offer new standard IC products to support broader and more scalable deployment. At the same time, we continue to collaborate with leading panel makers on new custom ASICs to meet diverse customer requirements.

Together, these efforts position Himax to capture increasing semiconductor content as premium automotive display technologies evolve from LCD to OLED. Complementing our OLED portfolio for automotive applications, we are also a leader in advanced OLED touch ICs, featuring industry-leading signal-to-noise ratio performance that ensures reliable operation even under challenging conditions such as glove or wet-finger use.

Our OLED touch ICs entered mass production in 2024 and continue to see a growing design-in pipeline globally, many of which are scheduled to enter mass production in the coming quarters.

Moving to smartphone IC sales, we expect Q1 smartphone revenue, covering both LCD and OLED products, to increase quarter over quarter as new OLED solutions begin mass production with a leading panel maker for a leading smartphone brand's mainstream model. For tablet ICs, Q1 sales are also expected to grow sequentially, driven by the commencement of IC shipment for customer's new premium OLED tablet.

Moving forward in tablet market, we are advancing new technologies that enable value-added features such as active stylus, ultra-slim bezel design, higher frame rates and power-saving architectures, positioning Himax to capture more semiconductor content in next-generation premium tablets while reinforcing our competitive edge.

I would like to now turn to our non-driver IC business update where we expect Q1 revenue to decrease single digit sequentially.

First for an update on our Tcon business. We anticipate Q1 Tcon sales to decline by a single digit quarter over quarter, primarily due to the absence of ASIC Tcon shipments to a leading projector customer that occurred in the prior quarter.

The sequential decline also reflects a moderation in automotive Tcon shipments following several quarters of solid growth, which we view as normal seasonality rather than a change in underlying demand.

For the full year 2025, our automotive Tcon sales still grew approximately 50% year over year. Backed by hundreds of secured design wins, this momentum provides a strong foundation for sustained growth.

Tcon for monitor, notebook and TV products is expected to increase sequentially in Q1, primarily a result of customers replenishing inventory for high-end products.

Meanwhile, head-up displays or HUDs are poised to become a central element of next-generation smart cockpits, a trend clearly highlighted at CES, where numerous panel makers and automotive names, equipped with our IC solutions, showcased their latest trendy and innovative HUD concepts.

HUD for automotive is rapidly evolving from simple text and symbols to high-brightness, high-contrast, AR-enriched visuals integrated into automotive displays. This shift is driving demand for sophisticated Tcon technologies, an area where Himax holds a strong leadership position in automotive display Tcon solutions.

To address this trend, we introduced a multifunctional integrated Tcon featuring the industry's first full-area selectable local de-warping capability, combined with Himax's market-leading local dimming and on-screen display technologies, offering the flexibility to meet diverse design and cost requirements while simplifying overall system integration.

This new Tcon continues to deliver exceptional contrast performance while effectively eliminating the so-called postcard effect in HUDs, a common issue caused by light leakage in conventional TFT-LCD panels.

Our industry-leading OSD function is also integrated, ensuring that critical safety information remains visible even when the main system is powered down, thereby enhancing overall driving safety.

The new Tcon solution supports a broad range of HUD architectures, including Windshield HUD, Augmented Reality HUD, and Panoramic HUD. Multiple customer projects are already underway with leading panel makers and Tier 1 players, reflecting strong market recognition of our advanced HUD Tcon technology.

Switching gears to the WiseEye product line, a cutting-edge ultralow power AI sensing total solution, targeting endpoint device markets. As AI advances at an unprecedented pace, WiseEye stands out with context-aware, on-device AI inferencing that combines industry-leading power efficiency, consuming only a few milliwatts, with a compact form factor and robust, industrial-grade security and pre-trained no-code/low-code AI algorithm, enabling easy deployment across a broad spectrum of applications.

This powerful combination unlocks advanced AI capabilities in endpoint devices that were once constrained by power and size limitations. This is driving innovative new product concepts across a broad range of applications, from notebooks, surveillance and access control to smart home, smart retail and more recently, smart glasses, which the industry widely expects to become the next breakout market.

Starting with notebooks, WiseEye's human presence detection is seeing expanding adoption among leading global brands, driven by its ultralow power consumption, instant responsiveness and privacy-centric design, well aligned with the industry's move toward always-aware, AI-driven PCs.

Building on this foundation, additional feature enhancements are being developed to address more complex real-world scenarios while preserving exceptional power efficiency and improving user convenience.

One example is gesture recognition that emulates keyboard inputs, enabling users to scroll pages or adjust volume without touching the keyboard. Another advanced feature currently under development for next-generation AI PCs is a voice-activated keyword spotting function.

Here WiseEye acts as an ultralow power front end that continuously monitors audio and performs wake-word detection, activating the main CPU only when a designated trigger phrase is recognized. This advanced feature enables continuous audio monitoring, even in noisy environments, while maintaining minimal impact on overall system power consumption.

In the surveillance domain, at the recent CES we introduced our latest WiseGuard endpoint AI solutions, highlighting the versatile deployment of WiseEye AI in security applications.

WiseGuard is a turnkey solution capable of accurately detecting and tracking multiple individuals, including their presence, location, and movement. Its proactive and continuous sensing capability enables security systems to anticipate and capture important events in advance, providing more forward-looking protection compared with traditional reactive security solutions.

WiseGuard performs always-on sensing and AI processing at single digit mini-watt level, enabling up to 5 years of battery life and reliable, low-maintenance operation in compact, battery-powered devices.

At the same time, it maintains high-precision event detection at distances of up to 10 meters and under extreme low light environments. Immediately after its debut, WiseGuard has attracted strong market interest driven by its compelling advantages for scalable smart home and security systems.

Meanwhile from a module perspective, WiseEye technology is seeing expanding adoption across a wide range of domains, including leading brands' upcoming smart home applications and various surveillance applications.

Notably, our PalmVein module has had a strong design-in pipeline across multiple industries, covering smart access, workforce management, smart door locks and more recently, computer monitor and automotive applications.

In the domain of AR and AI glasses, WiseEye delivers fast responsiveness for a wide range of AI functions while maintaining exceptional power efficiency. It enables intelligent, context-aware vision sensing in next-generation wearable and smart glasses through both outward- and inward-facing capabilities.

Outward sensing supports environmental awareness, object recognition and spatial mapping, while inward sensing enables iris authentication and tracks eye movement, gaze direction and pupil dynamics for natural, intuitive human-machine interaction.

WiseEye is gaining strong traction in smart glasses, with a growing number of design-in engagements underway among global tech names, solution platform providers and smart glasses specialists. A leading brand's smart glasses are poised to enter mass production later this year, marking an important milestone for WiseEye in the smart glasses market.

That concludes my report for this quarter. Thank you for your interest in Himax. We appreciate you joining today's call and are now ready to take questions.

[Operator Instructions] Now we'll have our first question, Tiffany Yeh, Morgan Stanley.

Congrats on the great results. Yes. So my first question is on first quarter gross margin. I know why the margin would be flat to down in first quarter. Is it because of product mix? Or are we seeing elevated pressure coming from like the increasing material costs and also the offset costs? And I have a follow-up.

Thank you, Tiffany. Actually, we are only guiding for a flat to slight decline only. So we are not seeing material change from the gross margin last quarter.

And the difference is really the product mix change. We are seeing proportion-wise, slightly less auto shipment in Q1 compared to last quarter. And you pointed out about the material price increase, which is obviously a factor and it has been a factor for like a pretty long time, as we all know, as we know, gold prices -- gold price has been increasing over the years.

And now on top of that, we are seeing foundry capacity tightening and therefore, prices appear to be rising. And for that reason, we -- I mean, with our foundry vendors, we are in discussion with them, how to get our delivery support while in the meantime, hoping for a manageable price increase from them. At the same time, we are also in active discussion with our customers about the possibility for price increase to reflect our cost.

So that both are ongoing. So we don't have any conclusion yet. But I think so far -- I mean, this is all pretty recent. And so far, we are seeing our customers all kind of recognize the fact that as we all know, memory price, the memory demand and squeeze out the supply of other types of ICs and therefore, demand is -- appears to be rising for other kind of memory IC products because the supply is being squeezed and price is rising.

So again, we are in discussion with both our customer side and vendor side. So -- but that doesn't really quite -- that is not really quite a factor for our Q1 corresponding type guidance. If anything, I think that is going to becoming a factor starting from Q2 and onwards.

Very clear. So my second question would be regarding CPO. Could you give us more details or maybe some guidance for the CPO revenue in maybe 2026 and 2027 as I think investors are very excited about our development and progress in this area?

Actually, we are also online getting a few questions surrounding CPO. So I'll try to kind of address them together. Again, we said that in last quarter's earnings call and I'm going to repeat that. Now the main goal of 2026 for us and also for our partner FOCI is to complete the validation of both our Gen 1 and Gen 2 products.

It's validation by key customers/partners. So with the validation being the target, the revenue contribution will be limited for 2026 because we will be talking about sample shipments only.

Notably, while I'm commenting on 2027 in close collaboration with anchor customer and partner, again, [indiscernible] Himax are close to finalizing the Gen 2 product, which targets bandwidth of greater than 6.4T, okay? This is important.

Again, we are finalizing the Gen 2 product for its production readiness targeting bandwidth of greater than 6.4T. And for this product, Gen 2 product, we can potentially see meaningful top and bottom line contribution from -- starting from 2027, even before the official MP gets started.

The reason why I emphasize this is because when and how this CPO product will start up production is really a call which can only be made by the customer. I mean, we don't fully know.

And also a reminder that it actually involves a complex and lengthy ecosystem run by our customer, right? So it is not a matter of when we are proven to be ready, the customer can just click a button and then in full volume production, it is not going to happen that way.

So we cannot -- we don't have full visibility on exactly when and how the ramping -- the mass production ramping will take place. Our current view is that it is likely to be 2027 or 2028, we don't know.

However, what I'm trying to say is even before the official ramping, official MP, let's say, 2027 or 2028, even before then, because prior to the official MP, there will be further [indiscernible] shipments for various purposes with a certain quantity, which will be greater than 2026.

So even before the official MP gets started, just from pre-MP shipments, we -- based on our internal count, the contribution can be already pretty meaningful for Himax as a total -- in terms of our total revenue, certainly even more so for our total profit, right? So I guess that address your issue about 2027.

And again, I want to emphasize these products are targeting 6.5T bandwidth spec is done in close collaboration with our anchor customer and partner. It is not like we are closing our doors and we try to think of a product and try to push it to the customer.

Now it is actually from beginning to now, it has been a joint development by our direct customer -- our direct partner FOCI and our joint anchor customer and partner. And the so-called 6.4T transmission product spec, the target is the AI data center market with the biggest volume potential while demanding the highest transmission bandwidth, it is -- you're talking about the GPU market, right, which requires a very high transmission rate.

So that -- I guess that, Tiffany, that kind of addresses your question directly. And also people asked about what is the volume potential or revenue potential when it start MP.

For this, I'll kind of repeat what I mentioned earlier in our earlier session. Even in what I call early stage of mass production, meaning we are not -- we are far from reaching full penetration, full deployment and so on and so forth. I mean, how exactly that is defined, I cannot say precisely.

But in early-stage mass production, for Himax, we'll be talking about hundreds of millions of sales. So it's going to be very, very significant based on what the customer is telling us, based on how we price it and based on our internal calculation.

And so I'm still holding the same view now. And the good news is we do have existing WLO capacity to support and manage a pretty big volume of production for that kind of scale, hundreds of millions of dollars of annual sales, okay? So I guess that kind of summarizes my answer for all questions related to CPO right now.marizes my answer for all questions related to CPO right now.

[Operator Instructions]

A question from online inquiry.

Our OLED sales, is this going to be huge in 2026? Is price or price premium versus conventional panels?

Actually, for OLED, we have -- in our prepared remarks, we said we started shipping in mass production volume for smartphone starting actually a bit of last quarter and certainly this quarter.

But the sales contribution from the smartphone OLED for Himax right now is still low. If you combine the smartphone OLED for Himax together with IT and automotive OLED together, our expected sales contribution for 2026 is still less than 10% of our total sales. So I would say probably high single digit of contribution 2026.

The ramping -- the real ramping is going to be 2027. I will explain why 2027 and why it's different from 2026 in a minute. I get back to your question about margin.

For Himax, the OLED products gross margin for smartphone, it is actually lower than our corporate average. So to be honest, we are not very, very keen. I mean we recognize the fact that our peers are already ahead of us and probably shipping bigger volume than us. So it is already a very competitive market with low margin across the board. So that is for smartphone.

However, I would say something very different for automotive OLED and IT OLED. The ICs -- these 2 areas are our focus area right now and they both enjoy much better gross margin compared to our traditional LCD products. And also on a per panel basis, the IC content are materially higher, again, than LCD products. So I would probably describe our status separately for auto and IT.

First on auto. We are in strategic partnership with top-tier Korean and Chinese panel makers. And this is a market which is now being led by major Korean panel makers.

And we are the prime IC partners for both Korean panel makers. And I say that we expect to see breakout demand from 2027 mainly because it is actually now the Korea makers leading the charge in terms of aggressively promoting the OLED market, which up to now has been -- volume-wise has suffered from 2 main factors.

One is cost and the other one is reliability. And through many years of efforts across the ecosystem, the reliability has been kind of resolved. So it's a issue of yesterday, it's no longer a issue. So the real issue is now cost.

But Korea makers, they have a lot of legacy OLED capacity, which can only do rigid displays, advantage of those capacities, which are fully depreciated, running with very good efficiency and so on and so forth to price their products aggressively to the extent that the OLED prices for automotive products in certain specs are already approaching the levels of LCD products already.

And certainly, OLED enjoy better quality and lighter weight and so on, a few very good benefits. So when you start to see prices approaching those of LCD, this becomes very appealing.

So we are in the middle of very, very busy design activities with our panel makers and Tier 1s at the moment. So with a lot of design-in design win projects going on and many of which are slated for mass production in 2027.

So this year, while we do ship some volumes, but I think hopefully, 2027 volume will be much, much bigger than this year. And for this, we offer our standard products, including driver IC and timing controller and AC products for both leading panel customers, again, for both timing controller and driver IC.

And on top of that, we also offer discrete touch IC, which we are now leading the pack. We are competed -- they are all -- we are competing in technology in performance compared to their old vendors. So we are [Technical Difficulty] international and Chinese brands. So that is for automotive.

And for IT, slightly different story, but very similar timing. 2027 is likely to be a breakout year. Now for IT, you need large panel size, larger panel size. So you do require Gen 8.5 or 8.6 to be mass producing IT products effectively.

Korean panel makers have led the charge. Back a couple of years ago, they have completed their 8.5 Gen production line. But Chinese are catching up.

So across the board, quite a few Chinese panel makers are starting mass production for their Gen 8.6 OLED line, all targeting IC products, mainly tablet and notebook, right.

And likewise, we are going through very, very busy design status stage with a few such customers. So the story here is that when you have new Gen 8.6 OLED line coming into production, joining production in the same time 2027, it is likely to be price pressure.

And that's certainly for market demand for notebook makers is good news. And again, OLED panel enjoys lighter weight, better contrast and better brightness and good power consumption and all these benefits, as we all know, right?

So the major issue stopping OLED panel from high penetration is cost. And the fact that quite a few Chinese Gen 8.6 are coming online starting 2027, I think it's likely to bring down the cost substantially and trigger the demand. So again, we are going through a design stage right now.

Any other question?go, they have completed their 8.5 Gen production line. But Chinese are catching up.

So across the board, quite a few Chinese panel makers are starting mass production for their Gen 8.6 OLED line, all targeting IC products, mainly tablet and notebook, right.

And likewise, we are going through very, very busy design status stage with a few such customers. So the story here is that when you have new Gen 8.6 OLED line coming into production, joining production in the same time 2027, it is likely to be price pressure.

And that's certainly for market demand for notebook makers is good news. And again, OLED panel enjoys lighter weight, better contrast and better brightness and good power consumption and all these benefits, as we all know, right?

So the major issue stopping OLED panel from high penetration is cost. And the fact that quite a few Chinese Gen 8.6 are coming online starting 2027, I think it's likely to bring down the cost substantially and trigger the demand. So again, we are going through a design stage right now.

Any other question?

Thank you, Jordan. And we don't have further questions at the moment. We thank you for all your questions, and I'll pass the call back to Jordan. Thank you.

Thank you. As a final note, Karen Tiao, our Head of IR/PR, will maintain investor marketing activities and continue to attend investor conferences. We will announce the details as they come about. Thank you and have a nice day.

Yes. Thank you. And ladies and gentlemen, this concludes fourth quarter 2025 earnings conference. You may now disconnect. Thank you again. Goodbye.

Hello, ladies and gentlemen. Welcome to Himax Technologies, Incorporation Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to Ms. Karen Tiao, Head of IR/PR at Himax. Ms. Tiao, please go ahead.

Welcome, everyone, to the Himax Third Quarter 2025 Earnings Call. My name is Karen Tiao, Head of IR/PR at Himax. Joining me today are Jordan Wu, President and Chief Executive Officer; and Jessica Pan, Chief Financial Officer. After the company’s prepared comments, we have allocated time for questions in the Q&A section. If you have not yet received a copy of today’s results release, please e-mail [email protected] or [email protected], access the press release on financial portals or download a copy from Himax website at www.himax.com.tw.

Before we begin the formal remarks, I would like to remind everyone that some of the statements in this conference call, including statements regarding expected future financial results and industry growth and forward-looking statements that involve a number of risks and uncertainties that could cause actual events or results to differ materially from those described in this conference call.

A list of risk factors can be found in the company’s SEC filings, Form 20-F for the year ended December 31, 2024, in the section entitled Risk Factors as may be amended. Except for the company’s full year of 2024 financials which were provided in the company’s 20-F and filed with the SEC on April 2, 2025. The financial information included in this conference call is unaudited and consolidated and prepared in accordance with IFRS accounting.

Such financial information is generated internally and has not been subjected to the same review and scrutiny, including internal auditing procedures and external audits by independent auditors, to which we subject our annual consolidated financial statements and may vary materially from audited consolidated financial information for the same period.

The company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. On today’s call, I will first review the Himax consolidated financial performance for the third quarter 2025, followed by our fourth quarter outlook. Jordan will then give an update on the status of our business, after which we will take questions.

You can submit your questions online through the webcast or by phone. We will review our financials on an IFRS basis. During the quarter, U.S. tariff measures continue to see [indiscernible] global trade dynamics, adding to the macroeconomic and [indiscernible] uncertainty. [indiscernible] we are pleased to report that our third quarter revenue and profit both significantly exceeded the guidance range announced on August 7, 2025, while gross margin came in within guidance.

Third quarter revenue registered $199.2 million, representing a sequential decline of 7.3%, which significantly outperformed our guidance range of 12.0% to 7.0% decline, primarily driven by better-than-expected sales from automotive IC and Tcon product lines. Our gross margin was 30.2%, in line with our guidance of around 30%. Q3 profit per diluted ADS was $0.06, substantially exceeding the guidance range of a loss of $0.02 to $0.04 attributable to the stronger-than-guided revenues.

Revenues from large display drivers came in at $9.0 million, representing a decline of 23.6% on the previous quarters. All three product lines within the large panel driver IC segment declined primarily due to the absence of the traditional seasonal shopping momentum amid a volatile macroeconomic environment as well as the customers pulling forward purchases in prior quarters.

Sales of large panel driver IC accounted for 9.5% of total revenues for the quarter compared to 11.6% last quarter and 13.8% a year ago. Revenue from the small- and medium-sized display driver segment totaled $141.0 million, reflecting a slight decline of 2.4%. Q3 automotive driver sales, including both the traditional DDIC and TDDI increased single digit quarter-over-quarter, outperforming our guidance of a slight sequential decline, indicating resilient underlying demand despite global softness in automotive sales.

The sequential growth was mainly driven by replenishment in both TDDI and DDIC products with customers adhering to a make-to-order model and keeping inventory lean in view of an uncertain demand outlook. Our automotive business comprising DDIC, TDDI, Tcon and OLED IC sales remain the largest revenue contributor in the third quarter, representing over 15% of the total revenue.

Meanwhile, revenue for both smartphone and tablet IC segments declined quarter-over-quarter as customers pull forward purchases in prior quarters. The small and medium-sized display driver IC segment accounted for 17.8% of total sales for the quarter compared to 67.3% in the previous quarter and 69.9% a year ago. Q3 non-driver sales reached $39.2 million, a 13.7% decrease from the previous quarter but outperforming our guidance range, primarily attributable to increased shipment of Tcon for automotive application.

Himax continued to hold an undisputed leadership position with a dominant market share in automotive Tcon. Tcon business accounted for around 12% of total sales with notable contributions from automotive Tcon. Non-driver products accounted for 19.7% of total sales as compared to 21.1% in the previous quarter and 16.3% a year ago. Third quarter operating expenses were $60.7 million, an increase of 24.2% from previous quarter and roughly flat compared to the same period last year.

The sequential annual bonus compensation, which we award employees at the end of September each year, typically resulting in much higher Q3 employee compensation expense compared to our quarters of the year. Increased tape-out expenses, salary expenses as well as the appreciation of NT dollar against the U.S. dollar in Q3 were also factors behind the sequential increase.

Our annual bonus compensation grant for 2025 was $7.7 million, slightly higher than the guidance of $7.5 million as the bonus amount determined based on the expected full year profit was revised upward following a much improved Q3 financial performance. Of the $7.7 million, $7.5 million was immediately invested in expenses in the third quarter. Including the portion of the awards granted in prior year, the total bonus expenses for Q3 2025 amounts to $8.1 million, significantly lower than $13.9 million recorded in Q3 2024.

For reference, the annual bonuses granted for 2024 and 2023 were $12.5 million and $10.4 million respectively, of which $11.2 million and $9.7 million were vested and expensed immediately. Amid ongoing macroeconomic challenges, we continue to exercise strict budget and expense controls. Third quarter operating loss was $0.6 million, representing a negative operating margin of 0.3%, compared to 8.4% in the previous quarter and 2.6% for the same period last year.

The sequential decline was primarily attributable to higher employee bonus which, as stated earlier was $8.1 million, compared to $0.8 million last quarter, coupled with lower revenues and gross margin. The year-over-year decrease was mainly due to the reduced sales. Q3 after-tax profit was $1.1 million, or $0.006 per diluted ADS, compared to $16.5 million, or $0.095 per diluted ADS last quarter, and down from $13.0 million, or $0.074 in the same period last year.

Now, turning to the balance sheet, we had $278.2 million of cash, cash equivalents and other financial assets as of September 30, 2025. This compares to $206.5 million at the same time last year and $332.8 million a quarter ago. The sequential decline in cash balance mainly reflected the $64.5 million dividend and $13.1 million employee bonus payout. Q3 operating cash inflow was $6.7 million, compared to an inflow of $60.5 million in the prior quarter.

The sequential decrease mainly reflected higher accounts payable payments in Q3 for inventory procured in prior quarters to support customer demand, along with employee bonus payment mentioned above. The employee bonus paid out this year included $7.3 million for the immediately vested portion of this year’s award and $5.8 million for vested awards granted over the past three years. We had $30.0 million of long-term unsecured loans at the end of Q3, of which $6.0 million was the current portion.

Our quarter end inventories were $137.4 million, a slight increase from $134.6 million last quarter and lower than $192.5 million a year ago. After several quarters of inventory decline from its peak during the industry-wide supply shortage, Q3 inventory slightly increased but remained at a healthy level. As macroeconomic uncertainty limits visibility across the ecosystem, we will continue to manage our inventory conservatively.

Accounts receivable at the end of September 2025 was $200.7 million, decreased from $219.0 million last quarter and down from $224.6 million a year ago. DSO was 87 days at the quarter end, as compared to 92 days last quarter and a year ago. Third quarter capital expenditures were $6.3 million, versus $4.6 million last quarter and $2.6 million a year ago.

Third quarter capex was mainly for R&D related equipment for IC design business and the construction in progress for the new preschool near Himax’s headquarters built for employees’ children. As of September 30, 2025, Himax had 174.5 million ADS outstanding, little changed from last quarter. On a fully diluted basis, the total number of ADS outstanding for the third quarter was 174.4 million.

Now turning to our fourth quarter 2025 guidance. We expect Q4 revenues to be flat sequentially. Gross margin is expected to be flat to slightly up depending on product mix. Q4 profit attributable to shareholders is estimated to be in the range of $0.02 to $0.04 per fully diluted ADS.

I will now turn the call over to Jordan to discuss our Q4 2025 outlook. Jordan, the floor is yours.

Thank you, Karen. The U.S.-China tariff negotiations recently reached a preliminary framework, sending a positive signal to the market. Yet most panel customers continue to adopt a make-to-order model and maintain low inventory levels. In the automotive display IC business, Himax's most important market accounting for over 50% of total revenues, demand visibility remains low as customers continue to act conservatively and sustain lean inventory levels.

Despite the limited short-term visibility in the automotive market, remains optimistic about our automotive business outlook for the next few years, backed by our leading new technology offerings and comprehensive customer coverage. Meanwhile, we continue to focus on the expansion into emerging areas beyond display ICs, including ultralow power AI, CPO, and smart glasses, all novel applications characterized by high growth potential, high added value, and high technological barriers that are well-positioned to become new growth drivers for Himax soon.

Before I [ leverage ] on those [ new ] business areas let me touch base on the Automotive IC business. Himax has been deeply engaged in the automotive display market for nearly two decades, offering a comprehensive range of display IC technologies spanning from the LCD to OLED. Amid intense industry competition, Himax holds a solid leadership position with #1 global market share across all segments of automotive display ICs and an overwhelming lead over competitors.

As smart interiors advance, demand for automotive displays continues to grow, shifting toward larger, higher resolution and more innovative displays, including the adoption of OLED displays for high-end vehicles. Himax is well-positioned to benefit from this trend. Looking ahead, we expect further growth in automotive TDDI and Tcon technologies, driven by continued adoption from global panel makers, Tier 1 suppliers, and automakers.

Both TDDI and Tcon are advanced display solutions for vehicles and have already been successfully designed into hundreds of projects worldwide. Meanwhile, in the traditional DDIC segment, shipments remain relatively stable due to long product life cycles and the nature of many applications such as dashboards, head-up displays, and rear- and side-view mirrors that do not require touch functionality, thereby continuing to generate long-term and stable DDIC revenues for Himax.

In addition, Himax has been deeply engaged in automotive OLED technology development for many years. With a continuously expanding product portfolio and an increasing number of leading global automakers accelerating adoption of OLED technology in new vehicle models, we expect OLED display adoption in the automotive sector to grow rapidly starting in 2027. Despite lingering economic uncertainty, Himax continues to actively expand its business beyond display ICs, focusing on ultralow power AI, CPO, and smart glasses.

Through years of dedicated investment and R&D, Himax has established a solid technological foundation and a strong patent portfolio in these areas, while closely collaborating with partners to drive products toward mass production and real-world applications. As these emerging businesses gradually materialize, they are poised to become key growth engines for Himax, reduce our reliance on the display IC market and further enhance both profitability and long-term competitiveness.

First, on the WiseEye AI domain; WiseEye enables battery-powered endpoint devices with real-time analysis, precise recognition, and environmental awareness at ultralow power consumption of merely a few milliwatts. Leveraging these core strengths, WiseEye has been successfully adopted by multiple leading global notebook brands with ongoing collaborations with customers to integrate more AI features into next-generation laptops.

WiseEye has also been widely deployed across various domains such as smart door locks, palm vein authentication, and smart home appliances, partnering with top-tier global customers to co-develop a range of innovative applications. Our WiseEye module business features a simple design and ease of integration, making it highly suitable for diverse AIoT applications.

It has already been adopted in applications such as smart parking systems, access control, palm vein authentication, smart offices, and smart home, with the number of design-in projects fast expanding. Further, a recent major application addition is in smart glasses, a new product category characterized by extremely demanding low power.

WiseEye enables real-time AI functionality at industry-leading ultralow power consumption while supporting always-on sensing for surroundings and event-based eye-tracking to deliver a natural and intuitive human–machine interaction. It has been adopted by numerous major tech giants, traditional ODMs, brands, and startups to integrate into their new smart glasses projects.

Looking ahead, the WiseEye business is entering a phase of rapid growth, becoming one of the [indiscernible] key growth engines. In the field of Co-Packaged Optics or CPO, Himax leverages its proprietary WLO advanced nano-imprinting technology. Together with our partner, FOCI, we have achieved significant breakthroughs in silicon photonics technology, with the first-generation solution being validated by customers and partners [indiscernible] towards mass production readiness in 2026.

In parallel, joint development efforts with leading customers and partners are underway, focusing on future-generation high-speed optical transmission technologies to meet the explosive bandwidth demands of HPC and AI applications, while addressing the critical challenge of overheating in high-speed transmission. Himax expects CPO to become a major revenue and profit contributor in the years ahead.

Last but not least let me touch base on the status of our Smart Glasses businesses. Driven by generative AI and Large Language Models, the smart glasses market is experiencing a resurgence and is seen as the next high-growth, high-volume market opportunity. Smart glasses has been one of Himax's long-term strategic focus areas where we are among the few in the industry that possess three critical enabling technologies for smart glasses, namely ultralow power intelligent image sensing, micro-display, and nano-optics, giving Himax a unique opportunity to take advantage of the potentially explosive growth of smart glasses.

In intelligent sensing, Himax's WiseEye AI delivers always-on, ultralow power contextual awareness with average power consumption of just a few milliwatts. It significantly enhances the interactivity and perception of smart glasses while preserving battery life of the smart glasses device. In micro-display, Himax's latest Front-lit LCoS micro-display specifically tailored for AR glasses has attracted strong market attention since its debut.

It achieves an optimal combination of form factor, weight, power consumption, and cost, while delivering high brightness and high color saturation in full-color display performance, all key attributes for AR glasses. With over a decade of mass production experience with leading tech names and a proven record of reliable delivery, Himax's new LCoS product, now in sampling stage, has attracted the attention of numerous AR glasses players worldwide.

In the field of nano-optics, Himax offers proprietary WLO technology for advanced nano-optical foundry service to selected customers to develop waveguide solutions which, when bundled with micro-display, forms the display system required of AR glasses. Looking ahead, we expect revenues from AR and AI glasses related applications to grow substantially over the next few years.

With that I will now [indiscernible] with an update on the Large [ Panel ] Driver IC Businesses LDDIC. In Q4, large display driver IC sales are expected to increase single-digit sequentially, driven by new notebook TDDI projects entering mass production, along with customers' restocking of monitor IC products following several subdued quarters.

Despite a challenging market environment, we continue to advance our technology roadmap for next-generation displays to achieve faster data transmission, lower latency, improved power efficiency, and high-speed interface for next generation premium and gaming displays. In the Notebook sector, we continue to focus on the growing adoption of OLED displays and advanced touch features in premium models, driven by the rise of AI PCs and demand for more interactive, productivity-enhancing experiences.

Himax is well-positioned to capitalize on opportunities with a comprehensive range of ICs for both LCD and OLED notebooks, including DDIC, Tcon, touch controllers, and TDDI. Multiple projects for OLED displays, as well as gaming monitors and notebooks, are currently underway in collaboration with leading panel makers in Korea and China.

Turning to the Small and Medium-sized Display Driver IC business. In Q4 small and medium-sized display driver IC business is expected to slightly decline from last quarter. However, Q4 automotive driver IC sales, including TDDI and traditional DDIC, are set to increase single digit quarter-over-quarter, largely driven by the continued adoption of TDDI technology among major customers across all continents.

Despite the challenging macro environment, our automotive driver IC sales for the full year 2025 are projected to grow single-digit year-over-year, with total volume projected to outgrow the global automotive shipment. Himax remains the leader in this market, with a market share well above 50%, far outpacing those of competitors. Traditional automotive DDIC demand remains solid despite partial replacement by TDDI.

The transition continues to be gradual, as many automotive displays, such as dashboards, HUDs, and rear- and side-view mirrors, do not require touch functionality and typically have long product lifecycles. Himax holds a solid 40% market share in traditional DDIC and remains the go-to supplier for both legacy and next-generation automotive display applications.

Himax also continues to lead in automotive display IC innovation by pioneering solutions across a wide range of panel types while addressing diverse design needs and cost considerations. For example, in ultra-large touch displays, we led the industry by introducing LTDI solution which began mass production in Q3 2023. LTDI has been gaining traction, driven by increasing popularity of larger in-vehicle displays that demand higher performance, improved signal integrity, and simplified system design.

Additional LTDI projects with multiple leading global brands are on track to enter mass production as move into 2026. For smaller displays with form factor and budget constraints, we provide single-chip designs that combine TDDI and local dimming Tcon. This enables advanced local dimming in small-size displays, reduces overall system cost, and improves power efficiency, making it an attractive choice for customers.

For high end displays, during the recent SID Vehicle Displays and Interfaces Symposium, one of the industry's leading events for automotive display and HMI technologies, Himax showcased the industry’s first OLED touch IC that supports both tactile knobs and capacitive touch keys, enabling flexible design options and delivering a safer, more intuitive control experience for OLED automotive displays.

Himax continues to advance interactive display technologies that enhance driver safety and cabin ergonomics. Looking ahead, OLED panel adoption in automotive displays is expected to accelerate starting in 2027. This presents an attractive opportunity to further solidify our leadership in the automotive display market where we already has a dominant market share position across DDIC, TDDI, and local dimming Tcon for LCD displays.

We provide ASIC OLED driver and Tcon solutions that entered mass production a few years back, and now we also provide standard ICs ready for broader deployment. In parallel, we are collaborating with major panel makers on new custom ASIC developments to address diverse customer requirements.

Additionally, our advanced OLED on-cell touch control technology delivers an industry-leading signal-to-noise ratio, ensuring reliable performance even under challenging conditions such as glove or wet-finger operation. These OLED on-cell touch ICs entered mass production in 2024 and are being increasingly adopted by major global automotive brands for their upcoming car models.

As the industry transitions to next-generation OLED display for high-end vehicles, Himax is uniquely positioned to capture the accelerating adoption of OLED in future automotive displays, replicating our success in the LCD by leveraging nearly two decades of automotive display expertise, strategic partnerships established with leading panel makers across China, Korea, and Japan, and a proven record in mass production and product quality that adheres to the world's most stringent global standards for quality, reliability, and safety.

Moving to smartphone and tablet IC sales for LCD panel, we expects revenues for both segments to decline quarter-over-quarter, as customers pulled forward purchases in prior quarters. However, in the smartphone OLED market, we are making solid progress in collaborations with customers in Korea and China, with mass production set to ramp in Q4 this year and volume to increase further in the following quarters.

Meanwhile, for OLED tablets, several new projects with top-tier brands are expected to enter mass production heading into 2026. In parallel, we are developing new technologies that enable value-added features such as active stylus, ultra-slim bezel designs, and higher frame rate to further differentiate our products and reinforce its competitive edge.

I would like to now turn to our Non-Driver IC business update [indiscernible] we expect Q4 revenues to increase single digit sequentially. First for an update on our Tcon business. We anticipate Q4 Tcon sales to be flat sequentially. However, Q4 automotive Tcon sales are well-positioned to grow single digit sequentially, fueled by a strong pipeline of more than 200 design-win projects gradually entering mass production.

Many of these projects feature local dimming functionality, an area where Himax maintains a dominant market position. Our full year 2025 automotive Tcon sales are set to grow by approximately 50% year-over-year, laying a solid foundation for sustained growth as we move into 2026. In contrast, Tcon for monitor, notebook and TV products are expected to decline sequentially, primarily a result of customers pulling forward inventory purchases early this year.

We continue to lead in automotive Tcon innovation. Our new generation local dimming Tcons offer advanced features such as edge sharpness and high dynamic range, ideal for customers looking to upgrade their displays for better panel performance. Meanwhile, head-up displays are rapidly emerging, evolving beyond simple text and symbols to deliver high-brightness, high-contrast, AR-enhanced visuals within automotive displays, fueling demand for advanced Tcon solutions.

To address this trend, we launched an integrated Tcon that features the industry's first full-area selectable local de-warping function, combined with Himax's market-leading local dimming and on-screen display technologies. The newly introduced multifunctional Tcon offers industry-first full-area selectable local de-warping capability, a major advancement over existing solutions that typically offer only full screen or limited split-screen de-warping.

Built on Himax's dominant local dimming technology, the new de-warping Tcon solution continues to deliver exceptional contrast performance and effectively eliminates the undesired postcard effect commonly seen in HUDs, caused by backlight leakage typical of conventional TFT-LCD panels. Our industry-leading OSD function is also integrated within the new Tcon, allowing critical safety information to remain visible on the display even when the main system is shut down, thereby enhancing overall driver safety.

The new Tcon solution supports a broad range of HUD architectures, including Windshield HUD, Augmented Reality HUD, and Panoramic HUD systems, [Audio Gap] design and cost requirements. Several customer projects are already underway, reflecting strong market recognition of our advanced HUD Tcon technology. Switching gears to the WiseEye Ultralow Power AI Sensing Solution, a cutting-edge endpoint Ultralow Power AI processor, always-on CMOS image sensor, and CNN-based AI algorithm at its core.

As AI continues to advance at an unprecedented pace, WiseEye is uniquely positioned with context-aware, on-device AI inferencing that delivers industry-leading power efficiency of just a few milliwatts with a compact form factor while fortified by industrial-grade security.

This combination enables advanced AI capabilities in endpoint devices that were once constrained by power and size limitations, driving expanding adoption across a wide range of applications, including notebooks, tablets, surveillance systems, access control devices, smart home solutions, and, more recently, AI and AR glasses.

This growing momentum highlights WiseEye's role as a trusted on-device AI sensing enabler, powering smarter and more power-efficient solutions across everyday devices and AIoT applications. In notebooks, WiseEye's human presence detection has seen expanding adoption across leading global brands, driven by its ultralow power consumption of merely a few milliwatts, instant responsiveness, and privacy-centric design, perfectly aligned with the industry's transition toward always-aware, AI-driven PCs.

More notebook models are scheduled to enter mass production starting in 2026. Meanwhile, additional feature upgrades are being developed with our notebook customers to tackle more complex real-world scenarios and deliver greater user experience, all while maintaining exceptional power efficiency. One such feature is gesture recognition that mimics keyboard input, allowing page scrolling or volume adjustment without keyboard.

With large language model AI driving a shift from predefined command inputs to natural language human–machine interaction, another advanced feature currently under development is the voice-activated keyword-spotting function, in which WiseEye serves as an ultralow power front end that performs wake-word detection, activating the CPU only when a specific trigger phrase is detected, enabling continuous audio monitoring while consuming very little power.

In the surveillance domain, WiseEye AI enhances security systems by combining accurate human-object distinction with event-driven activation, significantly reducing false triggers. In addition to the China market, where shipments to leading smart door lock vendors are already underway, we are now partnering with world-leading door lock manufacturers to introduce novel on-device AI features such as palm vein biometric access, parcel recognition, and anti-pinch protection.

Recently, we introduced a state-of-the-art bimodal solution combining palm vein and facial authentication to meet customer demand for greater flexibility and reliability in smart door lock. The dual-authentication approach enhances both security and user experience, marking a significant advancement in biometric technology while still consuming extreme low power, making it ideal for door lock application which is extremely demanding for power consumption.

Several of the projects are slated for mass production starting in 2026. Notably, Himax solution complies with Europe's General Data Protection Regulation or GDPR, one of the world's strictest data privacy laws. Our recent exhibitions at Sectech Sweden 2025 illustrate Himax's proactive expansion into Europe's security and access control market, one of the most privacy-regulated and innovation-driven markets globally.

Himax demonstrated its technological readiness and credibility to European system integrators, OEMs, and customers seeking secure, contactless, and power-efficient authentication solutions. Next for an update on our WiseEye Module business, which integrates [Audio Gap] image sensor, AI processor, and pre-trained no-code/low-code AI algorithm.

It's designed to make AI simple and accessible, helping developers accelerate innovation and scale their products from prototype to commercial deployment. Thanks to its broad applicability, the WiseEye Module has been adopted across a wide range of domains, including leading brands' upcoming smart home appliances and various security applications.

Notably, our Palm Vein module has attracted strong interest across multiple industries, rapidly securing design wins in smart access, workforce management, smart door locks, and more. Many of our WiseEye Module projects are scheduled to enter mass production in 2026. In the AI sensing domain for AR and AI glasses, WiseEye AI processors continue to build strong momentum, being adopted and integrated into next-generation smart glasses by a growing number of customers, while deepening collaborations with major tech companies, brands, and startups worldwide.

Smart glasses makers are leveraging WiseEye to deliver instant responsiveness for a wide range of AI applications while maintaining extended battery life. The increasing number of design-in activities reflects broad recognition of WiseEye's unique ability to bring intelligent, context-aware vision sensing to next-generation wearable and AR devices, specifically to empower both outward and inward vision sensing.

Outward vision sensing supports surrounding perception, object recognition, and spatial awareness, while inward sensing tracks eye movements, gaze direction, and pupil dynamics to enable natural and intuitive user interactions. Together, these capabilities redefine how users engage with both digital and physical environments, paving the way for more immersive, power-efficient, and personalized AR experiences.

Moving on to our latest advancement in LCoS micro-display technology; following years of dedicated R&D and close collaboration with leading industry players, our proprietary Dual-Edge Front-lit LCoS micro-display has achieved a breakthrough, delivering an optimal combination of form factor, weight, power efficiency, performance, and cost, while offering ultra-high luminance and vibrant RGB display that meets the industry's stringent specifications for next-generation see-through AR glasses.

This breakthrough is showcased in our industry-leading Front-lit LCoS micro-display, which combines the illumination optics and LCoS panel into an ultra-compact form factor of just 0.09 c.c. and 0.2 grams, delivering up to 350,000 nits of brightness and 1 lumen output with a maximum power consumption of just 250 megawatts.

This exceptional luminance performance ensures outstanding user visibility even under bright sunlight, while the ultra-compact design enables sleek and lightweight AR glasses suitable for everyday use.

Samples of our Front-lit LCoS were released early this quarter and are now being actively evaluated by several leading global tech companies and specialized smart glasses makers, with joint development efforts progressing steadily. We will announce further progress in due course.

That concludes my report for this quarter. Thank you for your interest in Himax. We appreciate you joining today’s call and are now ready to take questions

[Operator Instructions] Now we'll have the first question, Donnie Teng, Nomura.

My first question is regarding to your fourth quarter guidance. So it looks like the revenue and gross margin can sequentially improve from third quarter. But just curious why we have a little bit conservative EPS guidance for the fourth quarter?

And the second question is that for the CPO progress, I noticed that I think in the past couple of quarters, you indicated some breakthrough on the CPO business. And it looks like we have another progress in the revenue. So just wondering if you can elaborate more on [Technical Difficulty] we can deliver meaningful revenue from the CPO business into 2026.

Thank you, Donnie. For your first question about our seemingly better top line and gross margin guidance compared to bottom line. Well thank you for pointing that out. One of the key reasons is income tax adjustment. We -- as a standard practice, we estimate our quarterly income tax based on our assessment of full year total income. And in Q3, as you know, we actually underestimated the Q3 profit in our guidance, right?

And therefore, we have a major [ bit ] in our guidance. And so we underestimated Q3 profit and therefore, also the income tax expense. So [indiscernible] at the time we provided our guidance last quarter. Therefore, we have to kind of [indiscernible] income tax that we accrued in Q3 into Q4 and that turned out to be rather significant given that compared to our current level of income.

So we have to add back the income tax expense in the fourth quarter. Another major reason is higher R&D expenses during Q4. So in addition to a few relatively expensive [indiscernible] scheduled for Q4, which is just the timing issue, right? It's not -- I mean we don't necessarily plan it that way, but it just happened that way. So we have a few more expensive tape-out schedule for Q4.

And also in addition to that, we have recently been awarded the major R&D grant by Taiwan Government's so-called -- I don’t know what is called IC innovation program, [indiscernible] IC innovation program. The government actually announced that publicly so I'm allow to talk about it. The schedule of the grant is such that we are kind of [indiscernible] R&D spending related to that project, which by the way, is about our WiseEye product line.

So we are kind of requested to speed up the spending. We are also getting a speed up in our grant but as you know, our spending has to be much higher than the grant and that's how the [ game ] is made, right? So we have to kind of speed up the R&D spending related to that project in Q4 as well. So these are the reasons. So you are right. If I take a longer term view, there is no particular reason why our expense in Q4 are higher than those of the other three quarters of the year, but it just happened a few factors together.

And again, thank you for pointing that out. And in regard to the CPO progress, your second question, together with our partner [indiscernible] our focus right now is getting the first generation product validation completed and at the same time, finalizing the development for the second generation product, which, by the way, is in a very advanced stage, i.e., the second generation product, which is targeting CPO or GPU product line, customer GPU product line.

So to recap this year, 2024 -- 2025, sorry, 2025 has been a year for engineering validation with small quantity sample shipments. So in all likelihood, we will be fully ready for volume production in 2026. Now, as for the timing of the customers' mass production and also the revenue contribution for us in 2026 next year, it is much harder for us to comment. And again, the main goal of 2026 is to complete the validation of our product and manufacturing process by key customer/partner.

And we believe conservatively, there could be revenue contribution, but we don't really estimate the revenue contribution to be significant compared to our overall revenue. Rather, we believe it will be [ still ] limited because the switch to CPO involves a pretty complex ecosystem which requires long lead time, right?

So we -- our technology may be ready and our immediate customer may be ready, but then the repercussion of the switch throughout the whole ecosystem all the way down to the data center operators can be quite complex. So that is why we are not -- we don't necessarily hold a very aggressive view on that timing. However, we believe we can potentially see rather meaningful top line and bottom line contribution starting in 2027.

When we expect shipments for engineering runs, that is actually, by the way, based on our assessment, it is still [indiscernible] that is only engineering loss. But that again, [indiscernible] contribution we believe can already contribute rather meaningfully to our top line and bottom line. And after that, after 2027, we should enter official [indiscernible] when the growth will likely be explosive.

But again, I want to emphasize all this -- everything I said about timetable and contribution and all that are just our own best estimate for now. Ultimately, when and how the ramp will take place is a call to be made by the customers. Actually related to this we are seeing offline a question about potential market penetration of the CPO technology. So I will address the question online as well.

Naturally, a bit on the timetable, our best estimate is 2028, it will be full blown mass production. And again, the growth will be explosive. And naturally, as the technology becomes proven and more mature CPO adoption, we believe will rise for AI data center application.

So we believe with all the obvious benefits like substantially [indiscernible] transmission bandwidth and reducing power consumption and all that right of data transmission we all know the drill and all at a relatively low cost compared to the overall cost of a complex AI system. The CPO technology has the potential of very, very high market penetration of data center eventually.

And we are not just saying this as our own opinion. We actually got opinions from across the board, our direct customer or end customer. Everybody seems to be holding that view. So everybody is like holding the breath and watching our step by step for validation to engineering up to mass production. And so it's very exciting times for us, we certainly under a lot of pressure, but we are quite confident we should be able to achieve what I just mentioned. But again, the ultimate timetable will be a call to be made by the customer.

[Operator Instructions]

There's one of the question about our outlook for -- particularly for automotive market products 2026. I guess the question is because we do hold a very significant market share in the automotive display market. So Display IC market, Automotive Display IC market. So I guess is probably meaningful for investors.

We believe the auto market seems to be showing signs of bottoming out or bottoming out judging by the customers' low inventory levels and strong rush orders over the last few quarters, and that is also actually the main reason for our exceeding our guidance last quarter. Having said that, the automotive market is quite sensitive to the overall economic condition and tariff.

And therefore, we don't really anticipate a very strong recovery next year. And in our view, and in our internal business projection, we are budgeting for a mild recovery only next year. So our strategy is to maintain the technology leadership and we start to further deepen customer engagement. And a very important focus for us next year is to continue to diversify our supply chain, and this is in response to the customers' request, some customers' request or need for our geographical diversification of our supply chain and our production.

So we have very strong confidence of our overall dominant market share right now, backed by leading technology offerings and strong design win pipelines, numbering hundreds of programs across a very diverse customer base. So we feel we are probably reaching the bottom, but next year, if there's a rebound, we don't anticipate a very, very strong rebound. We believe it's a mild recovery.

That's our [indiscernible]. Another question is what is driving your confidence in AI revenue growth? Is this a design win with a single customer or [ much ] smaller ones? Presumably you are talking about smart glasses. In our prepared remarks, we have three things for smart glasses; WiseEye for [indiscernible] application, both looking outward and inward for smart glasses that covers both AR glasses and AI glasses.

And the second thing is our LCoS micro-display, which is only applicable to AR see through glasses, right? And the third one is our WLO [indiscernible] technology where we are holding what we call optical foundry service business model targeting only a very selective small number of customers. So the third one, evolving rather complex design [indiscernible] development. So it is going to be a few years away, although we are talking about some of the most significant customers, the biggest names, some of the biggest names in the industry.

So we still feel obligated to mention that as a business potential in our prepared remarks. But in terms of revenue contribution the third thing with WLO as a foundry service for [indiscernible] very big name customers, I think it's still a few years away. WiseEye AI is an ongoing, very active ongoing progress. Customers big and small across not just U.S. major names, but also Chinese, even Koreans and Japanese are coming to us. And also there are also major customers who are offering a platform of AI or smart glasses solution.

And we have been working very closely with them for WiseEye solution and our solution, our technology has been taken as the standard offering part of the standard offering. So that platform solution based into -- more production, which is anticipated to take place starting next year. I think we will see revenue contribution from our WiseEye product line.

And for [indiscernible] display, which is for AR see-through glasses only, not AI glasses, you need to have glasses with display to meet our [indiscernible] solution. We -- again, in our prepared remarks, we believe we are offering a combination of factors with a real product, which is quite very promising, and we believe it's something that is fully addressing the very difficult requirements of AI gasses for now.

However, that product we are only in sampling stage. So from sampling stage to ultimate mass production, it is going to take some time. So I don't really anticipate [indiscernible] sales contribution from [indiscernible] next year and hopefully the year after because again, we are only in sampling stage and customers need to take our [indiscernible] solution to match [indiscernible] and then we start as a display solution that develop the full set of smart glasses products.

So that is still going to take some time, although our solution has been anticipated by a lot of customers, big and small across the board. But this is very new, and we are in sampling stage so it's going to be quite an effort for us to mass production to [indiscernible] our customers. Could you give us an update on the second generation [indiscernible]? Do you expect higher revenue number with second gen?

I cannot comment on specifics, but the key difference of first gen and second gen is the number of channels, right? And basically, we are more than doubling up from first gen to second gen. And actually, the technical challenge is tremendous. And that also involves a pretty fundamental revision of our optical design to achieve that goal.

And customers have made it very specific that they -- customers are very hopeful for the success of our second gen because with the success of our second gen, it will be a very good product idea for GPU, which as you know is something requiring high bandwidth transmission. So upon the success and mass production of second gen, we believe certainly the revenue contribution will be significant.

However, as I mentioned in my earlier Q&A we think -- I think to our timetable for next year, the year after, 2028. So we don’t want to overpromise and make people feel that it is going to be immediate revenue contribution. But second is a big deal, is a huge deal for us, for our partner, and our customer.

Okay then thank you for all your questions. I think that will be the end of the Q&A session. And I'll pass the call back to Mr. Jordan Wu. Thank you.

Thank you, operator. As a final note, Karen Tiao, our Head of IR/PR, will maintain investor marketing activities and continue to attend investor conferences, and we will announce the details as they come about. Thank you and have a nice day.

Thank you, Jordan. And ladies and gentlemen, this concludes third quarter 2025 Earnings Conference. You may now disconnect. Thank you again. Goodbye.