Reeling in Google with Technology
Himax Rises from the Ashes
The most important component for Google Glass is being made by Taiwan's Himax Technologies, a company that some gave up for dead two years ago. How did it come up with the technology that Google now covets?
Himax Rises from the AshesBy Liang-Rong Chen
From CommonWealth Magazine (vol. 537 )
At the end of November, the Southern Taiwan Science Park came alive. China's point man on Taiwan, Chen Deming, was visiting the newest, most advanced 12-inch wafer plant owned by the world's largest contract chip maker Taiwan Semiconductor Manufacturing Company, and he was greeted by both a swarming media and anti-China activists.
Not far from there, in a peaceful corner of the park where the sun was flashing its last rays of light for the day, Himax Technologies Inc. chairman Biing-Seng Wu quickly exited the company's four-story production facility, got into an awaiting car and went on his way, seemingly oblivious to the commotion taking place nearby.
During his time as executive vice president at Chimei EL Corporation, the 56-year-old Wu forged a powerful LCD display cluster, and as the Chi Mei Group's technology czar he also spearheaded investments in LED, OLED and other advanced technologies, landing him as the president of many start-ups.
These enterprises, which were seen at one point as cash cows, later struggled and even went bust as parent company Chi Mei Optoelectronics began losing money and eventually merged with the Hon Hai Group's Innolux Display Corp. in 2009. Among those missing the protective cover of the Chi Mei Group was Chi Mei Lighting Technology Corp., which declared bankruptcy in June 2013.
One company, however, has risen like a phoenix from this huge dust heap of tens of billions of Taiwan dollars in investments. Himax Technologies, which originally supplied driver ICs for Chi Mei's LCD displays, has reinvented itself and grabbed the global technology spotlight because of its involvement in Google Glass, the product kicking up a wearable device storm.
Its liquid crystal on silicon (LCOS) micro-displays, about the size of a penny, are the core components in Google Glass, and every part of the manufacturing process, from lithography to liquid crystal infusion to packaging, is done in Himax's seven-year-old factory.
Skyrocketing Stock Price
Himax can currently produce about 200,000 LCOS micro-displays per month, but should Google Glass take off after it formally goes on sale, production could be quickly ramped up to 2 million per month. The company has also bought land near its Tainan headquarters for a plant expansion that could further double its capacity.
Google cemented its access to the technology in July when it announced it would buy a 6.3 percent stake in Himax subsidiary Himax Display Inc., with an option to increase that stake to 14.8 percent within a year of the deal's closing.
One Google employee even privately lauded Himax, saying, "Our company has never done this before (directly investing in another company). Himax is really the pride of Taiwan!"
Such a statement would have been very unlikely as recently as two years ago. In 2011, Himax's net income fell for the fourth consecutive year, and its share price dropped below US$1.00 for the first time since Himax was listed on the Nasdaq in late March 2006, when it opened at US$9.12 a share.
But Himax's move into micro-displays and more recently its partnership with Google has sent its share price soaring from US$1 at the end of 2011 to US$2.40 at the end of 2012 to a close of US$11.815 on Dec. 16, 2013.
According to American media, there were signs of Google's landmark investment as far back as a year ago in July 2012 when Himax Display acquired American micro-display specialist Spatial Photonics, a company with some heavyweight backers, through a stock swap.
The main shareholder of Spatial Photonics is the Glass Collective, a fund created in partnership with Google Ventures to invest in and support the Google Glass ecosystem.
Big-name Silicon Valley venture capitalists Marc Andreessen, the co-founder of Netscape Communications Corp., and John Doerr, a partner in venture capital firm Kleiner Perkins Caufield & Byers, are the main forces behind the Glass Collective and consequently indirect shareholders in Himax Display.
Officially, Google and Himax Technologies said the investment was to "fund production upgrades, expand capacity and further enhance production capabilities at HDI's facilities." But Bank of America Merrill Lynch analyst Daniel Heyler believes Google's real motivation in acquiring the stake was to consolidate its source of supply.
That's because Himax Technologies was quietly drumming up business with another tech powerhouse – Microsoft Corp. – which intends to offer augmented reality glasses that also use Himax's LCOS micro-displays as an accessory for the latest version of the Xbox One. Worried about the Tainan-based supplier's flirtation with Microsoft, Google decided to tighten its bonds with Himax to get priority supply, Heyler said, conjecture that Himax refused to comment on.
What does seem clear is that Himax's 4,000-square-meter factory has become a battleground for two of America's technology giants, drawing no less attention than TSMC's new Fab14 nearby, rumored to be the factory that will supply Apple with its key processors.
Either way, when the two companies' head-mounted displays go on sale next year, Himax's sales are expected to soar.
Keyler estimates that Himax will ship 9.5 million LCOS micro-displays in 2014, five times the number shipped this year. At a price of about US$20 per unit, the business could generate US$200 million in new revenues for the company, leading to a 32 percent increase in revenues and 79 percent increase in net income next year.
Himax's sales could even top NT$30 billion in 2014, which would restore its previous status as Taiwan's third largest IC design company.
The struggling flat panel sector has sacrificed untold numbers of Taiwan's technology elites, so how did Wu, known as one of the sector's "godfathers," find a second wind?
"He is somebody who simply perseveres to the very end," says Wu Tai-kang, a vice president of one of Taiwan's biggest LCD display suppliers, AU Optronics Corp., who has been a friend of the Himax chairman for more than 20 years.
Today, Himax has practically become synonymous with LCOS, yet the technology was considered early on for use in smartphone and mini projectors. Major chip makers, including United Microelectronics Corp. and TSMC, invested in the technology but were eventually forced to admit defeat.
"Those who dealt with LCOS were afraid to touch it again," Wu Tai-kang says.
The major obstacle was finding a light source for the micro-display that was bright enough, a problem that was only resolved in recent years when white LED technology made huge strides. After surviving tough times while never abandoning LCOS technology, Himax finally emerged as the winner in the field.
People close to Biing-Seng Wu use words like "dedicated" and "persistent" to describe his approach to developing technology.
One of the first groups of engineers to tackle LCD display technology in Taiwan, the two Wus laid a foundation for the sector by contributing several patents to the Industrial Technology Research Institute's flat panel display project. In the early 1990s, they invested their own technology in Prime View International Co. (which became E Ink Holdings Inc. in 2010), forging Taiwan's first commercial TFT-LCD production line after surmounting major difficulties.
Biing-seng Wu then led the Chi Mei Group into the new world of flat panels in the late 1990s, insisting that the company develop its own technology rather than following the common Taiwanese practice at the time of relying on technology transfers from the Japanese.
Biing-seng Wu's peers believe his determination to sail in unchartered waters explains why he has transformed Himax from being a "technology follower" into a "pioneer" on the global stage.
"Starting from scratch, we ran into quite a few curves in the road, but we learned a lot through the process," explains Wu Tai-kang.
In fact, the Himax chairman has technologies other than just LCOS up his sleeve that are coveted by Google.
New Stealth Weapons
On Oct. 29, Goldman Sachs released a 14-page report, "Array camera update: new direction & application; Google's vision," which speculated that the futuristic array camera could eventually become standard equipment in the Android operating system. In other words, it could be featured on more than 100 million mobile phones across the globe.
Array cameras replicate the eyes of insects, incorporating multiple lenses arranged two-by-two or four-by-four to capture a composite "array." Advanced image processing software then synthesizes the images from the different lenses into a single, full-resolution image. Himax is one of the global leaders in the field.
A week after the Goldman Sachs report was released, Himax president and CEO Jordan Wu acknowledged for the first time at the company's quarterly investor conference that Himax was developing critical array camera technology.
"The industry is very excited about the potential for array cameras rather than having a big pixel sensor and a big lens on top of the sensor," he said.
The source of the technology is Himax subsidiary Himax Imaging, which has researched for many years the wafer level optics technology that will form the backbone of initial array cameras.
The production process to make the sesame seed-sized micro-lenses that are ideally suited for array cameras mimics that of semiconductors. Fully automated equipment can churn out large volumes of the tiny components quickly and precisely.
A former Motorola executive confirmed to CommonWealth Magazine that the next generation Moto X mobile phone, which is being developed under the auspices of Google and could hit the market next year, hopes to be the first to be equipped with an array camera. The technology offers a fix to smartphone vendors who demand the slimmest devices possible but face thickness limitations with traditional autofocus camera modules as they approach resolutions of 10 megapixels.
Should array cameras quickly gain popularity, they will lead to a paradigm shift in the camera lens sector, says Goldman Sachs technology analyst Robert Yen. Today's dominant player in the smartphone lens market, Taiwan-based Largan Precision Co., would be at risk of seeing its share of the high-end camera market and gross margin slump, Yen believes.
Whether providing LCOS solutions or the lenses at the core of array cameras, Himax Technologies seems ready to navigate unchartered waters as it helps Google in its next round of disruptive innovation.
Translated from the Chinese by Luke Sabatier