Detecting Static in Himax's Prospects

Some of the best bargains in the stock market can be found in the small percentage of initial public offerings that receive little fanfare from the media. That's because most investors don't take the time to read a company's prospectus before shares debut, and thus miss out on critical information and avoid the stock as a result. However, these IPOs can also be a recipe for disaster for the same reason.

One offering that caught our attention was the March 31 debut of Taiwan-based Himax Technologies (HIMX Quote), a semiconductor company that makes chips for televisions and other electronic devices that use flat-panel displays. However, after researching the company thoroughly, we believe shares should be avoided.

The company sold 52 million shares at $9 each, the high end of the indicated pricing range of $7.50 to $9 a share. Shares quickly sold off, however, as competitor Genesis Microchip(GNSS Quote) issued an earnings warning the prior evening that weighed on the entire group.

The market for chips that go into high-end televisions has been on fire, as flat-panel televisions now make up about half of all sets sold each year, and as industry forecasts call for volumes to double again in 2006 to about 40 million flat-panel sets sold. Himax's revenue growth has been equally as impressive. The company turned in sales of $540 million in 2005, a full 80% ahead of 2004 levels and a fourfold leap from 2003 sales of $131 million. ...