The following discussion should be read in conjunction with our audited consolidated financial statements and their accompanying notes included elsewhere herein which are prepared in accordance with IFRS. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those discussed in the forward-looking statements as a result of various factors, including those set forth in “Special Note Regarding Forward-Looking Statements” and “Item 3. Key Information—D. Risk Factors.” 5.A. Operating Results For discussion related to our financial condition, changes in financial condition, and the results of operations for 2024 compared to 2023, refer to “Part I, Item 5. Operating and Financial Review and Prospects,” in our Annual Report on Form 20-F for the fiscal year ended December 31, 2024, which was filed with the United States Securities and Exchange Commission on April 2, 2025. 54 Table of Contents Overview We commenced operations through our predecessor, Himax Taiwan, in June 2001. We must, among other things, continue to expand and diversify our customer base, broaden our product portfolio, maintain our leading technology position, achieve additional design wins and manage our costs to partially mitigate declining average selling prices and any other market risks in order to maintain our profitability. Moreover, we must continue to address the challenges of being a growing technology company, including hiring and retaining managerial, engineering, operational and financial personnel and implementing and improving our existing administrative, financial and operations systems. We operate primarily in a fabless business model that utilizes substantially third-party foundry and assembly and testing capabilities. We leverage our experience and engineering expertise to design high-performance semiconductors and rely largely on third-party semiconductor manufacturing service providers for wafer fabrication, gold bumping, assembly and testing with the exception of manufacturing of LCoS microdisplay, wafer level optics products and active alignment for 3D sensing, which we manufacture through our own factories. We are able to take advantage of the economies of scale and the specialization of our third-party semiconductor manufacturing service providers. Our primarily fabless model enables us to capture certain financial and operational benefits, including reduced manufacturing personnel, capital expenditures, fixed assets and fixed costs. It also gives us the flexibility to use the technology and service providers that are the most suitable for any given product. For LCoS microdisplay and wafer level optics products, our in-house factories enable us to protect our proprietary technologies and manufacturing expertise in the effort to further expand these businesses. As our semiconductors are critical components of flat panel displays, our industry is closely linked to the trends and developments of the flat panel display industry. The majority of our revenues in 2025 were derived from sales of display drivers that were eventually incorporated into TFT-LCD and OLED panels. We expect display drivers for TFT-LCD and OLED panels to continue to be our primary products. The TFT-LCD and OLED panel industry is intensely competitive and is vulnerable to cyclical market conditions. The average selling prices of TFT-LCD and OLED panels could decline for numerous reasons, which could in turn result in downward pricing pressure on our products. See “Item 3.D. Key Information—Risk Factors—Risks Relating to Our Financial Condition and Business—We derive the majority of our net revenues from sales to the TFT-LCD and OLED panel industry, which is highly cyclical and subject to price fluctuations. Such cyclicality and price fluctuations could negatively impact our business or results of operations.” The revenue expansion of our non-driver products as well as TFT-LCD and OLED products trending toward high resolution and any other new product introduction help to mitigate these risks. Factors Affecting Our Performance Our business, financial position and results of operations, as well as the period-to-period comparability of our financial results, are significantly affected by a number of factors, some of which are beyond our control, including: ● average selling prices; ● unit shipments; ● product mix; ● design wins; ● cost of revenues and cost reductions; ● supply chain management; ● share-based compensation expenses and cash awards; and ● tax credits. 55 Table of Contents Average Selling Prices Our performance is affected by the selling prices of each of our products. We price our products based on several factors, including manufacturing costs, life cycle stage of the product, competition, technical complexity of the product, size of the purchase order and our relationship with the customer. We typically are able to charge the highest price for a product when it is first introduced. Although from time to time we are able to raise our selling prices during times of supply constraints, our average selling prices typically decline over a product’s life cycle, which may be offset by changes in conditions in the semiconductor industry such as constraints in foundry capacity. For example, from 2020, the industry-wide tightening of foundry capacity has extended to backend facilities that include assembly and testing and appears to be a long-term phenomenon. Robust demand pushed foundry capacity constraints to a more severe level and rose higher material cost which in turn enabled higher average selling prices. However, decades-high inflation, rapidly rising interest rates in addition to the ongoing war and unexpected lockdowns from Covid-19 in China starting from the end of first quarter of 2022, brought widespread demand halt, resulting in sluggish demand across every aspect of our business, followed by sales declined and average selling price erosion. The general trend in the semiconductor industry is for the average selling prices of semiconductors to decline over a product’s life cycle due to competition, production efficiencies, emergence of substitutes and technological obsolescence. Our cost reduction efforts also contribute to this decline in average selling prices. See “—Cost of Revenues and Cost Reductions.” Our average selling prices are affected by the size and bargaining power of our customers. As new China panel makers emerge in the marketplace and continue to expand their capacity, China panel makers’ bargaining power will increase accordingly, negatively impacting our average selling price. Our average selling prices are also affected by the packaging type our customers choose as well as the level of product integration. See “—Product Mix” below. Lastly, competition level affects our average selling prices as well. However, the impact of declining average selling prices on our profitability might be offset or mitigated to a certain extent by increased volume as lower prices may stimulate demand and thereby drive sales and TFT-LCD and OLED panel products trending toward higher resolution. Unit Shipments Our performance is also affected by the number of semiconductors we ship, or unit shipments. As our display drivers are critical components of flat panel displays, our unit shipments depend primarily on our customers’ panel shipments among other factors. Our unit shipments have grown since our inception primarily as a result of our increased market share with certain major customers and their increased shipments of panels. Our growth in unit shipments also reflected the demand for higher resolution panels which typically require more display drivers. However, the development of higher channel display drivers or new technologies, if successful, could potentially reduce the number of display drivers required for each panel while achieving the same resolution. If such technologies become commercially available, the market for our display drivers will be reduced and we could experience a decline in revenue and profit. Our unit shipments also depend on the capacity we can get from our foundry, assembly and testing house. Product Mix The proportion of our revenues that is generated from the sale of different product types, also referred to as product mix, also affects our average selling prices, revenues and profitability. Our display driver products vary depending on, among other things, the number of output channels, the level of integration and the package type. Variations in each of these specifications could affect the average selling prices of such products. For example, the trend for display drivers for use in large-sized panels is toward products with a higher number of channels, which typically command higher average selling prices than traditional products with a lower number of channels. However, panels that use higher-channel display drivers typically require fewer display drivers per panel. As a result, our profitability will be adversely affected to the extent that the decrease in the number of display drivers required for each panel is not offset by increased total unit shipments and/or higher average selling prices for display drivers with a higher number of channels. The level of integration of our display drivers also affects average selling prices, as more highly integrated chips typically have higher selling prices. Additionally, average selling prices are affected by changes in the package types used by our customers. For example, the chip-on-glass package type typically has lower material costs because no processed tape is required. Moreover, our different non-driver products vary in average selling prices and costs. 56 Table of Contents The proportion of non-driver business would also affect our financial position and results of operations. For the past few years, we have experienced operating losses from our non-driver business. This was partly due to low sales volume during these periods that led to insufficient revenue to fully cover expenses such as research and development and operating expenses. We expect, however, to ramp up the volume production and sales of our non-driver products in the future and generate positive operation income from such non-driver products. Typically, our non-driver products have higher gross margins as well as higher growth potential than our driver products, we expect the overall profit margin across our product platform to improve. Design Wins Achieving design wins is important to our business, and it affects our unit shipments. Design wins occur when a customer incorporates our products into their product designs. There are numerous opportunities for design wins, including, but not limited to, when panel manufacturers: ● introduce new models to improve the cost and/or performance of their existing products or to expand their product portfolio; ● establish new fabs and seek to qualify existing or new component suppliers; and ● replace existing display driver companies due to cost or performance reasons. Design wins are not binding commitments by customers to purchase our products. However, we believe that achieving design wins is an important performance indicator. Our customers typically devote substantial time and resources to designing their products as well as qualifying their component suppliers and their products. Once our products have been designed into a system, the customer may be reluctant to change its component suppliers due to the significant costs and time associated with qualifying a new supplier or a replacement component. Therefore, we strive to work closely with current and prospective customers in order to anticipate their requirements and product roadmaps and achieve additional design wins. Cost of Revenues and Cost Reductions We strive to control our cost of revenues. Our cost of revenues as a percentage of total revenues in 2023, 2024 and 2025 was 72.1%, 69.5% and 69.4%, respectively. In 2025, as a percentage of Himax Taiwan’s total manufacturing costs, the cost of wafer fabrication was 55.5%, the cost of processed tape was 3.5%, the cost of assembly and testing was 40.2%, and overhead was 0.8%. Our cost of revenues may increase as a result of an increase in raw material prices, any failure to obtain sufficient foundry, assembly or testing capacity or any shortage of processed tape or failure to improve our manufacturing utilization rate or production yield. Meanwhile, the long-term capacity agreements carry the risk of substantial inventory write-downs and/or contractual penalties resulted from unfulfillment of committed volume in the event of decreased end customer demand. In second quarter of 2023, amidst strict muted market demand, we strategically terminated high-cost foundry capacity agreements, a one-time expense included in cost of revenues. As a result, our ability to manage our wafer fabrication costs, costs for processed tape, assembly and testing costs and our manufacturing utilization rate or production yield is critical to our performance. In addition, to mitigate declining average selling prices, we aim to reduce unit costs by, among other things: ● improving product design (e.g., having smaller die size allows for a larger number of dies on each wafer, thereby reducing the cost of each die); ● improving manufacturing yields through our close collaboration with our semiconductor manufacturing service providers and in our in-house manufacturing facilities; and ● achieving better pricing from a diversified pool of semiconductor manufacturing service providers and suppliers, reflecting our ability to leverage our scale, volume requirements and close relationships as well as our strategy of sourcing from multiple service providers and suppliers. 57 Table of Contents Supply Chain Management Due to the competitive nature of the flat panel display industry and our customers’ need to maintain high capacity utilization in order to reduce unit costs per panel, any delays in the delivery of our products could significantly disrupt our customers’ operations. To deliver our products on a timely basis and meet the quality standards and technical specifications our customers require, we must have assurances of high-quality capacity from our semiconductor manufacturing service providers. We therefore strive to manage our supply chain by maintaining close relationships with our key semiconductor manufacturing service providers and strive to provide credible forecasts of capacity demand and seek for new manufacturing service providers in case of any manufacturer’s capacity shortage. Any disruption to our supply chain could adversely affect our performance and could result in a loss of customers as well as potentially damage our reputation. Share-Based Compensation Expenses and Cash Awards Our results of operations have been affected by, and we expect our results of operations to continue to be affected by, our share-based compensation expenses and cash awards, which consist of charges taken relating to grants of mainly RSUs as well as stock options, non-vested shares, and cash awards to employees. Restricted Share Units (RSUs). We adopted two long-term incentive plans in October 2005 and September 2011, respectively, which permit the grant of options or RSUs to our employees and non-employees where each unit represents two ordinary shares. The actual awards will be determined by our compensation committee. The 2005 plan was terminated in October 2010. We recognized share-based compensation expenses regarding RSUs under the long-term incentive plan totaling $12.1 million, $12.2 million and $8.1 million in 2023, 2024 and 2025, respectively. Of the total share-based compensation expenses recognized, $9.5 million, $11.1 million and $7.4 million in 2023, 2024 and 2025, respectively, were settled in cash. We measure and recognize compensation expense for all share-based payments at fair value. Set forth below is a summary of our historical share-based compensation plans for the years ended December 31, 2023, 2024 and 2025 as reflected in our consolidated financial statements. We made grants of 1,402,714 RSUs to our employees on September 28, 2020. The vesting schedule for such RSU grants is as follows: 98.68% of the RSU grants vested immediately and were settled by cash in the amount of $4.8 million on the grant date, with the remainder vesting equally on each of September 30, 2021, 2022 and 2023, which will be settled by our ordinary shares, subject to certain forfeiture events. We made grants of 2,604,545 RSUs to our employees on September 28, 2021. The vesting schedule for such RSU grants is as follows: 85.63% of the RSU grants vested immediately and were settled by cash in the amount of $23.2 million on the grant date, with the remainder vesting equally on each of September 30, 2022, 2023 and 2024, which will be settled by our ordinary shares, subject to certain forfeiture events. We made grants of 3,987,509 RSUs to our employees on September 28, 2022. The vesting schedule for such RSU grants is as follows: 86.41% of the RSU grants vested immediately and were settled by cash in the amount of $17.5 million on the grant date, with the remainder vesting equally on each of September 30, 2023, 2024 and 2025, which will be settled by our ordinary shares, subject to certain forfeiture events. We made grants of 1,710,607 RSUs to our employees on September 26, 2023. The vesting schedule for such RSU grants is as follows: 97.45% of the RSU grants vested immediately and were settled by cash in the amount of $9.5 million on the grant date, with the remainder vesting equally on each of September 30, 2024, 2025 and 2026, which will be settled by our ordinary shares, subject to certain forfeiture events. We made grants of 2,014,386 RSUs to our employees on September 26, 2024. The vesting schedule for such RSU grants is as follows: 96.76% of the RSU grants vested immediately and were settled by cash in the amount of $11.1 million on the grant date, with the remainder vesting equally on each of September 30, 2025, 2026 and 2027, which will be settled by our ordinary shares, subject to certain forfeiture events. 58 Table of Contents We made grants of 862,516 RSUs to our employees on September 25, 2025. The vesting schedule for such RSU grants is as follows: 98.74% of the RSU grants vested immediately and were settled by cash in the amount of $7.4 million on the grant date, with the remainder vesting equally on each of September 30, 2026, 2027 and 2028, which will be settled by our ordinary shares, subject to certain forfeiture events. The amount of share-based compensation expense with regard to the RSUs granted to our employees on September 28, 2020, September 28, 2021, September 28, 2022, September 26, 2023, September 26, 2024 and September 25, 2025 was $3.44 per ADS, $10.39 per ADS, $5.09 per ADS, $5.68 per ADS, $5.68 per ADS and $8.65 per ADS, respectively, which was based on the trading price of our ADSs on that day. Cash Awards. We made grants annual bonus by cash payouts totaling $0.7 million, $1.0 million and $0.3 million to the Company’s employees among which $0.2 million, $0.2 million and $0.1 million was immediately vested on September 26, 2023, September 26, 2024 and September 25, 2025, respectively. The remainder will be equally vested at the first, second and third anniversaries of the grant date. Tax Credits Our results of operations have been affected by, and we expect our results of operations to continue to be affected by, tax credits available to us. The Statute for Industrial Innovation entitles companies to tax credits for qualifying research and development expenses related to innovation activities but limits the amount of tax credit to only up to 15% of the total qualifying research and development expenditure for the current year, subject to a cap of 30% of the income tax payable for the current year. Moreover, any unused tax credits provided under the Statute for Industrial Innovation may not be carried forward. Based on the amendments to the above, extended to December 31, 2029, if companies choose to extend the tax credits to three years, the tax credit rate will be 10% of the total qualifying research and development expenditure for the current year and subject to a cap of 30% of the income tax payable for each year. Description of Certain Statements of Profit or Loss Line Items Revenues Historically, we generated the majority of our revenues from sales of display drivers for large-sized applications and small and medium-sized applications. In addition, our product portfolio also includes timing controllers, operational amplifiers, LCoS microdisplay, power management ICs, CMOS image sensors, 3D sensing, WiseEye ultralow power AI sensing, wafer level optics products and ASIC service. The 2025 full year revenues totaled $832.2 million, representing an 8.2% decline compared to 2024. 2025 was a challenging year for the global economy, compounded by other geopolitical uncertainties. Panel customers generally maintained a conservative, make-to-order strategy with lean inventory levels. While consumer electronics demand remained soft, automotive and AI-related applications, where Himax has strong exposure, proved comparatively resilient. 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. In 2025, 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. 59 Table of Contents The following table sets forth, for the periods indicated, our revenues by amount and our revenues as a percentage of revenues by each product line: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ 2023 ​ 2024 2025 ​ ​ ​ ​ ​ ​ ​ ​ ​ Percentage ​ ​ ​ ​ ​ ​ ​ ​ Percentage ​ ​ ​ Percentage ​ ​ ​ ​ ​ of ​ ​ ​ ​ of ​ ​ ​ of ​ ​ ​ ​ Amount ​ ​ ​ Revenues ​ ​ ​ Amount ​ ​ ​ Revenues ​ ​ ​ Amount ​ ​ ​ Revenues ​ ​ (in thousands, except percentages) Display drivers for large-sized applications ​ $ 175,666 ​ 18.6 ​ $ 125,936 ​ 13.9 ​ $ 90,665 ​ 10.9 Display drivers for small and medium-sized applications ​ 629,174 ​ 66.5 ​ ​ 625,390 ​ 69.0 ​ ​ 575,132 ​ 69.1 Non-driver products(1) ​ 140,588 ​ 14.9 ​ ​ 155,476 ​ 17.1 ​ ​ 166,376 ​ 20.0 Total ​ $ 945,428 ​ 100.0 ​ $ 906,802 ​ 100.0 ​ $ 832,173 ​ 100.0 Note: (1) Includes, among other things, timing controllers, LCoS solutions, power management IC, CMOS image sensors, wafer level optics (WLO) products, WiseEye ultralow power AI sensing, NRE incomes, and ASIC service. A limited number of customers account for substantially all our revenues. For example, Customer A and its affiliates accounted for 28.7%, 26.4% and 24.0% of our revenues in 2023, 2024 and 2025, respectively. Customer C accounted for 11.0%, 8.3% and 7.8% of our revenues in 2023, 2024 and 2025, respectively. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ 2023 ​ 2024 2025 ​ ​ ​ ​ ​ ​ ​ ​ ​ Percentage ​ ​ ​ ​ ​ ​ ​ ​ Percentage ​ ​ ​ Percentage ​ ​ ​ ​ ​ of ​ ​ ​ ​ of ​ ​ ​ of ​ ​ ​ ​ Amount ​ ​ ​ Revenues ​ ​ ​ Amount ​ ​ ​ Revenues ​ ​ ​ Amount ​ ​ ​ Revenues ​ ​ (in thousands, except percentages) Customer A and its affiliates ​ $ 271,351 ​ 28.7 ​ $ 239,001 ​ 26.4 ​ $ 200,105 ​ 24.0 Customer C ​ 103,839 ​ 11.0 ​ ​ 75,564 ​ 8.3 ​ ​ 64,755 ​ 7.8 Others ​ 570,238 ​ 60.3 ​ ​ 592,237 ​ 65.3 ​ ​ 567,313 ​ 68.2 Total ​ $ 945,428 ​ 100.0 ​ $ 906,802 ​ 100.0 ​ $ 832,173 ​ 100.0 ​ The global TFT-LCD and OLED panel market is highly concentrated, with only a limited number of TFT-LCD and OLED panel manufacturers producing TFT-LCD and OLED panels in high volumes. We sell panel display drivers to many of these panel manufacturers. Our revenues, therefore, will depend on our ability to capture an increasingly larger percentage of each panel manufacturer’s display driver requirements. The sales to panel makers in China have become a significant portion of our revenue due to the Chinese panel maker business expansion which started in 2011. We derive substantially all of our revenues from sales to Asia-based customers whose end products are sold worldwide. In 2023, 2024 and 2025, approximately 15.0%, 15.3% and 14.7% of our revenues, respectively, were from customers headquartered in Taiwan and approximately 76.2%, 73.4% and 73.8% of our revenues, respectively, were from customers headquartered in China. We believe that substantially all of our revenues will continue to be from customers located in Asia, where almost all of the panel manufacturers and mobile device module manufacturers are located. As a result of the regional customer concentration, we expect to continue to be subject to economic and political events and other developments that affect our customers in Asia. A substantial majority of our sales invoices are denominated in U.S. dollars. Costs and Expenses Our costs and expenses consist of cost of revenues, research and development expenses, general and administrative expenses, sales and marketing expenses, share-based compensation expenses and cash awards. Costs would be greatly affected by product mix. Cost of Revenues The principal items of our cost of revenues are: ● cost of wafer fabrication; ● cost of processed tape used in TAB packaging; 60 Table of Contents ● cost of gold bumping, assembly and testing; and ● other costs and expenses. We outsource the manufacturing of our semiconductors and semiconductor solutions to semiconductor manufacturing service providers. The costs of wafer fabrication, gold bumping, assembly and testing depend on the availability of capacity and demand for such services. The wafer fabrication industry, in particular, is highly cyclical, resulting in fluctuations in the price of processed wafers depending on the available foundry capacity and the demand for foundry services. Research and Development Expenses Research and development expenses consist primarily of research and development employee salaries, including related employee welfare costs, costs associated with prototype wafers, processed tape, masks, molding and tooling sets and depreciation on research and development equipment. We expect to continue increasing our spending on research and development in absolute dollar amounts in the future as we continue to increase our research and development headcount and associated costs to pursue additional product development opportunities. General and Administrative Expenses General and administrative expenses consist primarily of salaries of general and administrative employees, including related employee welfare costs, depreciation on buildings, office furniture and equipment and professional fees. We anticipate that our general and administrative expenses will increase in absolute dollar amounts as we expand our operations, hire additional administrative personnel and incur additional compliance costs required of a publicly listed company in the United States. Sales and Marketing Expenses Our sales and marketing expenses consist primarily of salaries of sales and marketing employees, including related employee welfare costs, travel expenses and product sample costs. We expect that our sales and marketing expenses will increase in absolute dollar amounts over the next several years. However, we believe that as we continue to achieve greater economies of scale and operating efficiencies, our sales and marketing expenses may decline over time as a percentage of our revenues. Share-Based Compensation Expenses Our share-based compensation expenses consist of various forms of share-based compensation that we have historically issued to our employees and consultants, as well as share-based compensation issued to employees, directors and service providers under our 2005 and 2011 long-term incentive plans. The 2005 plan was terminated in October 2010. We allocate such share-based compensation expenses to the applicable cost of revenues and expense categories as related services are performed. See note 19 to our consolidated financial statements. Under the long-term incentive plan, we granted RSUs on December 30, 2005 to our employees and directors and again on September 29, 2006, September 26, 2007, September 29, 2008, September 28, 2009, September 28, 2010, September 28, 2011, September 26, 2012, September 26, 2013, September 26, 2014, September 25, 2015, September 28, 2016, September 29, 2017, September 26, 2018, September 28, 2020, September 28, 2021, September 28, 2022, September 26, 2023, September 26, 2024 and September 25, 2025 to our employees. We did not grant RSUs in 2019 but granted stock options to employees instead. Share-based compensation expenses recorded regarding RSUs under the long-term incentive plan totaled $12.1 million, $12.2 million and $8.1 million in 2023, 2024 and 2025, respectively. Cash Awards. We made grants annual bonus by cash payouts totaling $0.7 million, $1.0 million and $0.3 million to the Company’s employees among which $0.2 million, $0.2 million and $0.1 million was immediately vested on September 26, 2023, September 26, 2024 and September 25, 2025, respectively. The remainder will be equally vested at the first, second and third anniversaries of the grant date. 61 Table of Contents Income Taxes Since we and our direct and indirect subsidiaries are incorporated in different jurisdictions, we file separate income tax returns. Under the current laws of the Cayman Islands, we are not subject to income or capital gains tax. Additionally, dividend payments made by us are not subject to withholding tax in the Cayman Islands. However, if the relevant bylaws of the PEM rules have been adequately enacted and properly advocated, we may be determined to be within the territory of the ROC and our income tax shall be levied in accordance with the Income Tax Act and relevant tax regulations. Therefore, dividend payments made by us would be subject to withholding tax in the ROC. We recognize income taxes at the applicable statutory rates in accordance with the jurisdictions where our subsidiaries are located and as adjusted for certain items including accumulated losses carried forward, non-deductible expenses, research and development tax credits, as well as changes in our deferred tax assets and liabilities. Critical Accounting Policies and Estimates We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements in accordance with IFRS. Inventory Inventories are stated at the lower of cost and net realizable value, and we use judgment and estimate to determine the net realizable value of inventory at the end of each reporting period. Due to the rapid technological changes, we estimate the net realizable value of inventory for obsolescence and unmarketable items at the end of reporting period and then writes down the cost of inventories to net realizable value. The net realizable value of the inventory is mainly determined based on assumptions of future demand within a specific time horizon. The inventory write-downs in 2023, 2024 and 2025 were approximately $21.5 million, $13.6 million and $17.1 million, respectively, and were included in cost of revenues in our consolidated statements of profit or loss. Impairment of Non-financial Assets other than Goodwill We routinely review our non-financial assets at the reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. However, due to the cyclical nature of our industry and changes in our business strategy, market requirements, or the needs of our customers, we may not always be in a position to accurately anticipate declines in the utility of our equipment or acquired technology until they occur. Although we have the recurring losses in non-Driver product segment, we remain positive on the long-term prospect of our non-Driver product segment, judging by the expanding customer list that covers some of the world’s biggest tech names, and the busy engineering activities going on with such customers. For the years ended December 31, 2023, 2024 and 2025, we did not recognize any impairment loss on non-financial assets. Goodwill We evaluate goodwill for impairment at least annually, or more frequently when there is an indication that the cash-generating unit (CGU) may be impaired. For the purpose of impairment testing, goodwill is allocated to each of the Company’s CGU or groups of CGU that are expected to benefit from the synergies of the combination. If the recoverable amount of a CGU is less than its carrying amount, the difference is allocated first to reduce the carrying amount of any goodwill allocated to such CGU and then to the other assets of the CGU pro rata based on the carrying amount of each asset in the CGU. Any impairment loss for goodwill is recognized directly in profit or loss. An impairment loss recognized for goodwill is not reversed in subsequent periods. The recoverable amount is the higher of fair value less costs of disposal and value in use. The assessment of impairment of goodwill requires management to make subjective judgment to determine the identified CGU, allocate the goodwill to relevant CGU and estimate the recoverable amount of relevant CGU. In the process of estimating the recoverable amount of relevant CGU, management is required to make subjective judgments in determining the discount rate, the terminal growth rate, the independent cash flows, useful lives, expected future revenue and expenses related to the CGU. As of December 31, 2024 and 2025, goodwill in Driver IC CGU and WLO CGU was $26,846 thousand and $1,292 thousand, respectively. For the years ended December 31, 2023, 2024 and 2025, we did not recognize any impairment loss on goodwill. 62 Table of Contents Income Taxes According to the ROC Income Tax Act, dividends distributed by a Taiwan company to its foreign shareholders are subject to ROC withholding tax, currently at the rate of 21% on the amount of the distribution in the case of cash dividends or on the par value of the ordinary shares in the case of stock dividends. The surtax rate for undistributed earnings is currently 5%. However, surtax paid on undistributed earnings can no longer be used to offset against the withholding tax imposed on the dividend distributed to foreign shareholders. As of December 31, 2025, we have not provided for retained earnings tax on the undistributed earnings of approximately $1,589.9 million of our subsidiaries since we have specific plans to reinvest these earnings indefinitely. The undistributed earnings in our foreign subsidiaries are mainly from Himax Taiwan totaling approximately $1,587.7 million as of December 31, 2025. We intend to use accumulated and future earnings of Himax Taiwan to expand operations in Taiwan. However, a deferred tax liability will be recognized when the Taiwanese company can no longer demonstrate that it plans to reinvest indefinitely these undistributed earnings. This amount becomes taxable when we execute other investments, share buybacks or shareholder dividends to be funded by cash distribution by our foreign subsidiaries. It is not practicable to estimate the amount of additional taxes that might be payable on such undistributed earnings. We are a holding company located in the Cayman Islands and have paid dividends and repurchased outstanding shares. To fund such dividends and repurchases, in the past years, we have received cash from bank loans and from Himax Taiwan through intercompany borrowings instead of dividends distributed by Himax Taiwan. As part of the process of preparing our consolidated financial statements, our management is required to estimate income taxes and tax bases of assets and liabilities for us and our subsidiaries. This process involves estimating current tax exposure together with assessing temporary differences resulting from differing treatments of items for tax and accounting purposes and the amount of tax credits and tax loss carry-forward. These differences result in deferred tax assets and liabilities, which are included in the consolidated statements of financial position. Management must then assess deferred tax assets at each reporting date and reduce to the extent that it is no longer probable that the related tax benefit will be realized; such reductions are reversed when the probability of future taxable profits improves. Consolidated Results of Operations The following table sets forth a summary of our consolidated statements of profit or loss as a percentage of revenues: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ ​ ​ ​ 2023 ​ ​ ​ 2024 ​ ​ ​ 2025 ​ Revenues ​ 100.0 % 100.0 % 100.0 % Costs and expenses: ​ ​ ​ ​ ​ ​ Cost of revenues ​ 72.1 69.5 ​ 69.4 ​ Research and development ​ 18.1 17.7 ​ 19.4 ​ General and administrative ​ 2.7 2.7 ​ 3.1 ​ Sales and marketing ​ 2.5 2.6 ​ 2.8 ​ Total costs and expenses ​ 95.4 92.5 ​ 94.7 ​ Operating income ​ 4.6 7.5 ​ 5.3 ​ Non-operating income ​ 0.1 1.0 ​ 1.3 ​ Income tax expense (benefit) ​ (0.5) (0.3) ​ 1.2 ​ Profit for the year ​ 5.2 8.8 ​ 5.4 ​ Loss (profit) attributable to noncontrolling interests ​ 0.2 — ​ (0.1) ​ Profit attributable to Himax stockholders ​ 5.4 8.8 ​ 5.3 ​ ​ 63 Table of Contents Year to Year Comparisons ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ % Change ​ ​ ​ 2023 ​ 2024 ​ 2025 ​ from 2024 ​ ​ ​ (in thousands, except for percentages) ​ Consolidated Statements of Profit or Loss Data: ​ ​ ​ ​ ​ ​ ​ Revenues ​ $ 945,428 ​ $ 906,802 ​ $ 832,173 (8.2) % Costs and expenses: ​ ​ ​ ​ ​ ​ ​ Cost of revenues ​ 681,931 ​ 630,601 ​ 577,812 (8.4) % Research and development ​ 171,392 ​ 160,329 ​ 161,128 0.5 % General and administrative ​ 25,037 ​ 24,121 ​ 25,715 6.6 % Sales and marketing ​ 23,856 ​ 23,530 ​ 23,392 (0.6) % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total costs and expenses ​ 902,216 ​ 838,581 ​ 788,047 (6.0) % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Operating income ​ 43,212 ​ 68,221 ​ 44,126 (35.3) % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Non-operating income ​ 1,181 ​ 9,114 ​ 10,741 17.9 % Income tax expense (benefit) ​ (5,028) ​ (2,435) ​ 9,592 493.9 % Profit for the year ​ 49,421 ​ 79,770 ​ 45,275 (43.2) % Loss (profit) attributable to noncontrolling interest ​ 1,195 ​ (15) ​ (1,338) (8,820.0) % Profit attributable to Himax stockholders ​ $ 50,616 ​ $ 79,755 ​ $ 43,937 (44.9) % ​ Year Ended December 31, 2025 Compared to Year Ended December 31, 2024 Revenues. Our revenues decreased by 8.2% to $832.2 million in 2025 compared to $906.8 million in 2024. The decrease was primarily attributable to the challenging global economic environment, compounded by geopolitical uncertainties. As a result, panel customers generally maintained a conservative, make-to-order strategy with lean inventory levels. ● Large-sized Display Drivers. Revenues from display drivers for large-sized application decreased by 28.0% to $90.7 million in 2025 from $125.9 million in 2024. The decline was primarily attributable to weak macroeconomic conditions, including tariff and geopolitical uncertainties, coupled with continued tight inventory management by our key panel customers. In addition, intensified price competition from Chinese peers exerted further pressure on overall performance. ● Small and Medium-sized Display Drivers. Revenues from small and medium-sized display drivers decreased by 8.0% to $575.1 million in 2025 from $625.4 million in 2024. Amid slowing end-market sell-through and tariff-related uncertainties, smartphone and tablet sales were particularly impacted. Nevertheless, our automotive driver sales in 2025 still delivered single-digit year-over-year growth, outperforming overall global automotive industry growth, primarily supported by continued TDDI adoption among customers worldwide. ● Non-Driver Products. Revenues from non-driver products increased by 7.0% to $166.4 million in 2025 from $155.5 million in 2024. The growth was primarily driven by our TCON segment, particularly automotive products, along with our CMOS image sensor business. For the full year 2025, our automotive TCON sales still increased approximately 50% year over year, stemming from the widespread adoption of our market-leading local dimming TCON by panel makers, Tier 1 suppliers, and car makers worldwide. Costs and Expenses. Costs and expenses decreased by 6.0% to $788.0 million in 2025 from $838.6 million in 2024. As a percentage of revenues, costs and expenses increased to 94.7% in 2025 compared to 92.5% in 2024. ● Cost of Revenues. Cost of revenues decreased to $577.8 million in 2025 from $630.6 million in 2024, which was due primarily to a 5.1% decrease in unit shipments in 2025. As a percentage of revenues, cost of revenues slightly decreased to 69.4% in 2025 from 69.5% in 2024, mainly due to the continued cost improvements and operational efficiency optimization, combined with a favorable product mix. The successful diversification of foundry sources also contributed to the margin increase. 64 Table of Contents ● Research and Development. Research and development expenses slightly increased by 0.5% to $161.1 million in 2025 from $160.3 million in 2024. This increase was primarily attributable to increased salaries and tape-out expenses, as well as the appreciation of the NT dollar against the U.S. dollar in 2025, but partially offset by the lower vested portion of the annual bonus compensation awarded to employees in 2025 and preceding years. We strategically invested in select non-display IC areas with compelling long-term growth potential. ● General and Administrative. General and administrative expenses increased by 6.6% to $25.7 million in 2025 from $24.1 million in 2024, primarily as a result of the increased salaries and amortized expenses, as well as the appreciation of the NT dollar against the U.S. dollar in 2025, but partially offset by the decrease in compensation awards to employees described in above Research and Development. ● Sales and Marketing. Sales and marketing expenses slightly decreased by 0.6% to $23.4 million in 2025 from $23.5 million in 2024. This decrease was primarily attributable to decrease in compensation awards to employees described in above Research and Development, but partially offset by increase in salaries expense and the appreciation of the NT dollar against the U.S. dollar in 2025. Non-Operating Income. We had net non-operating income of $10.7 million in 2025 compared to $9.1 million in 2024. The increase was primarily due to increase in other gain recognized for disposal of land held for sale, decrease in finance costs, but partially offset by increase in share of losses of associates. Income Tax Expense (Benefit). Our income tax expense increased to $9.6 million in 2025 from income tax benefit $2.4 million in 2024. Our effective income tax rate increased to 17.5% in 2025 from (3.1%) in 2024. The increase in our effective income tax rate was primarily attributable to the non-recurrence of the prior-year tax benefit and the impact of the non-deductible expense, resulting in a change from an income tax benefit of $14.9 million in 2024 to an income tax expense of $1.2 million in 2025 and income tax benefit for tax credit decreased to $4.7 million in 2025 from $8.6 million in 2024. Profit for the year. As a result of the foregoing, our profit was $45.3 million in 2025, versus $79.8 million in 2024, and profit attributable to Himax stockholders was $43.9 million in 2025, versus $79.8 million in 2024. Segment Results The following table sets forth the revenues and operating results for our reportable segments for the periods indicated: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ ​ ​ 2023 ​ ​ ​ 2024 ​ ​ ​ 2025 ​ ​ (in thousands) Segment Revenues ​ ​ ​ ​ ​ ​ ​ Driver IC ​ $ 804,840 ​ $ 751,326 ​ $ 665,797 Non-Driver Products ​ 140,588 ​ ​ 155,476 ​ ​ 166,376 Total ​ $ 945,428 ​ $ 906,802 ​ $ 832,173 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ ​ ​ 2023 ​ ​ ​ 2024 ​ ​ ​ 2025 ​ ​ (in thousands) Segment Operating Income (Loss) ​ ​ ​ ​ ​ ​ ​ Driver IC ​ $ 75,282 ​ $ 92,699 ​ $ 61,737 Non-Driver Products ​ ​ (32,070) ​ ​ (24,478) ​ ​ (17,611) Total ​ $ 43,212 ​ $ 68,221 ​ $ 44,126 ​ 65 Table of Contents Driver IC Segment Year Ended December 31, 2025 Compared to Year Ended December 31, 2024 Segment revenues. Our revenues from the Driver IC segment decreased by 11.4% to $665.8 million in 2025 from $751.3 million in 2024. The decline stemmed from reduced sales of display drivers for both large-sized and small and medium-sized sectors, driven by the prevailing weak macroeconomic conditions that adversely affected both the demand and procurement processes of panel customers Segment operating income. Operating income from the Driver IC segment was $61.7 million in 2025, down from $92.7 million in 2024. This decrease was primarily attributable to a decrease in revenues. Non-Driver Products Segment Year Ended December 31, 2025 Compared to Year Ended December 31, 2024 Segment revenues. Our revenues from the Non-Driver Products segment increased by 7.0% to $166.4 million in 2025, compared to $155.5 million in 2024. The year-over-year increase was mainly from the growth of TCON and CMOS image sensor. Automotive TCON sales grew approximately 50% in 2025, steaming from expanding adoption globally. Segment operating loss. Operating loss from the Non-Driver Products segment decreased to $17.6 million in 2025 from $24.5 million in 2024. The operating loss decreases were attributable mainly to the increase in revenues and gross margin. 5.B. Liquidity and Capital Resources We need cash primarily for technology advancement, capacity expansion, paying dividends and working capital. We have historically been able to meet our cash requirements through cash flow from operations and borrowings to pay dividends. As of December 31, 2025, we had total current assets of $1,265.3 million, total current liabilities of $799.5 million and cash and cash equivalents of $257.5 million. As of December 31, 2025, we had short-term secured borrowings of $568.2 million with cash and time deposits of $568.2 million as collateral, and long-term unsecured borrowings of $28.5 million, of which $6.0 million was current portion. For enhancing the guaranty, our land, building and improvements of Fab 2 totaling $56.7 million were pledged as collateral for the long-term unsecured borrowings. As of December 31, 2025, we had total unused short-term credit lines of $258.6 million, of which $163.3 million belonging to the parent company, Himax Technologies, Inc., needs to be secured with an equal amount of cash and time deposits when borrowing money from banks. Further, we had unused long-term credit lines of $138.0 million. We believe that our existing short-term and long-term credit lines, together with cash generated from our operations, are sufficient to meet our liquidity needs. We expect to meet our present working capital requirements through cash flow from operations and bank borrowings from time to time. The following table sets forth a summary of our cash flows for the periods indicated: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ ​ ​ 2023 ​ ​ ​ 2024 ​ ​ ​ 2025 ​ ​ (in thousands) Net cash provided by operating activities ​ $ 152,841 ​ $ 115,976 ​ $ 140,027 Net cash (used in) investing activities ​ ​ (88,882) ​ ​ (516) ​ ​ (20,349) Net cash (used in) financing activities ​ ​ (93,591) ​ ​ (88,217) ​ ​ (80,743) Net increase (decrease) in cash and cash equivalents ​ ​ (29,832) ​ ​ 26,399 ​ ​ 39,356 Cash and cash equivalents at beginning of period ​ ​ 221,581 ​ ​ 191,749 ​ ​ 218,148 Cash and cash equivalents at end of period ​ ​ 191,749 ​ ​ 218,148 ​ ​ 257,504 ​ Operating Activities. Net cash provided by operating activities in 2025 was $140.0 million compared to $116.0 million in 2024. This increase in net cash provided by operating activities in 2025 was mainly due to a decrease in cash used for raw materials, assembly, testing process fees in 2025 compared to 2024 and lower income tax paid in 2025. 66 Table of Contents Investing Activities. Net cash used in investing activities in 2025 was $20.3 million compared to $0.5 million in 2024. This increase in net cash used in investing activities was due primarily to an increase of $18.9 million and $6.6 million in net cash used in acquisitions of financial assets at fair value through profit or loss and at amortized cost, respectively, and an increase in cash used in acquisitions of property, plant and equipment of $7.1 million but offset by a decrease of $13.9 million in net cash used in acquisitions of financial assets at fair value through other comprehensive income in 2025 compared to 2024. Financing Activities. Net cash used in financing activities in 2025 was $80.7 million compared to $88.2 million in 2024. This change was due primarily to a decrease in a refund of guarantee deposits received from customers in 2025, but offset by an increase in distribution of cash dividends in 2025. Our liquidity could be negatively impacted by a decrease in demand for our products that are subject to rapid technological change, among other factors, which could result in revenue variability in future periods. In addition, we have at times agreed to extend the payment terms for certain of our customers. The extension of payment terms for our customers could adversely affect our cash flow, liquidity and our operating results. Our subsidiaries’ ability to distribute dividends and other payments to us may be limited by ROC regulations. See “Risk Factors — Risks Related to Our Holding Company Structure — Our ability to receive dividends and other payments or funds from our subsidiaries may be restricted by commercial, statutory and legal restrictions, and thereby materially and adversely affect our ability to grow, fund investments, make acquisitions, pay dividends and otherwise fund and conduct our business.” During the 2021 timeframe, we took steps to address the ongoing foundry capacity shortage worldwide by entering into strategic agreements with our foundry partners to secure the necessary capacity to meet our business requirements. Under these strategic agreements, we are committed to purchasing a specific volume at fixed prices or variable prices. Some of our customers, and even our indirect customers, are also entering into similar strategic agreements to secure their IC supplies with us. However, there can be no assurance that these prices provided in the strategic agreements with our foundry partners and our customers will always remain competitive during the contract term. For example, in the event that the global semiconductor market changes due to foundry capacity expansion and/or shrunken customer demand, the fixed prices we agree to pay our foundry partners may become significantly higher than the prevailing market price. On the other hand, if there continues to be foundry capacity shortages and/or increases in customer demand, the fixed prices our customers agree to pay us may become significantly lower than the then prevailing market price. Any of those situations could materially adversely impact our pricing strategies, competitive position, profitability and results of operation. We may also be subject to contractual penalties if we are unable to purchase the committed volume from our foundry partners. However, after several quarters of aggressive destocking, our inventory has reached a comfortable level. In light of this, we strategically terminated certain high-cost foundry capacity agreements in the second quarter of 2023, prior to their expiration dates. This move aims to improve our cost structure for new wafer starts and maintain competitiveness. This, however, also has resulted in a significant one-time early termination expense incurred in the second quarter of 2023 and hit our gross margin. In addition, since these strategic agreements with our foundry partners typically require us to make prepayments or refundable deposits to such foundry partners, our cash flow, liquidity and financial condition could be adversely affected. We have entered into several wafer fabrication or assembly and testing service arrangements or multi-year purchase agreements with suppliers. We may be obligated to make payments for purchase orders entered into pursuant to these arrangements. Our purchase obligations also include agreements to purchase goods or services, primarily inventory, that are enforceable and legally binding on us and that specify all significant terms, including fixed or minimum quantities to be purchased, fixed or variable price provisions, and the approximate timing of the transaction. Among all these purchase agreements, the longest termination term shall expire in 2030. Purchase obligations exclude agreements that are cancelable without penalty. Contractual obligations resulting from above purchase orders and agreements with known amounts approximately $1,059 million as of December 31, 2025. Of obligations under above purchase orders and agreements, $423 million is expected to be paid in the next 12 months. Our capital expenditures were incurred primarily in connection with the purchase of property and equipment. Our capital expenditures totaled $23.4 million, $13.1 million and $20.1 million in 2023, 2024 and 2025, respectively. Capital expenditures of $20.1 million in 2025 was mainly for R&D related equipment for our IC design business and the construction in progress for the new preschool near our Tainan headquarters built for employees' children. The capex budget will be funded through our internal resources and banking facilities, if so needed. We will continue to make capital expenditures to meet the expected growth of our operations. We believe that our working capital and borrowings under our existing and future credit lines should be sufficient for our present requirements. 67 Table of Contents 5.C. Research and Development Our research and development efforts focus on improving and enhancing our core technologies and know-how relating to the semiconductor solutions we offer to the flat panel display industry. In particular, we have committed a significant portion of our resources to the research and development of non-driver products because we believe in the long-term business prospects of such products and are committed to continuing to diversify our product portfolio. Although a significant portion of the resources at our integrated circuit design center are invested in advanced research for future products, we continue to invest in improving the performance and reducing the costs of our existing products. Our application engineers, who provide on-system verification of semiconductors and product specifications, and field application engineers, who provide on-site engineering support at our customers’ offices or factories, work closely with Panel Manufacturers to co-develop display solutions for their electronic devices. In 2023, 2024 and 2025, we incurred research and development expenses of $171.4 million, $160.3 million and $161.1 million, respectively, representing 18.1%, 17.7% and 19.4% of our revenues, respectively. 5.D. Trend Information Looking ahead, Himax is well positioned for sustained growth, supported by our leadership in the automotive sector, diversified foundry flexibility, and continued focus on high-value segments such as TCON, OLED, AI, and WLO. These businesses generate above-average gross margins and are reinforced by meaningful technical barriers and a robust patent portfolio. As these strategic initiatives begin to bear fruit, we expect them to inject strong momentum into our future operations. Large-sized Display Driver IC Sector Himax remains committed to strengthening its large-size driver IC portfolio, targeting high-value markets through integrated solutions co-developed with leading panel makers. Looking ahead, we continue to advance our technology roadmap for next-generation displays, aiming to achieve faster data transmission, lower latency, improved power efficiency, and high-speed interfaces for premium and gaming applications. These technological advancements further solidify our competitive positioning despite ongoing price competition from Chinese peers. In the notebook sector, our focus is on premium models featuring OLED displays and integrated touch functionality. Himax is well positioned to capitalize on these opportunities with a comprehensive portfolio of IC solutions for both LCD and OLED notebooks, including DDICs, TCONs, 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. Small and Medium-Sized Display Driver IC Sector Himax continues to lead the global automotive display driver IC market, holding approximately 40% market share in DDIC, well over half of market share in TDDI, and an even higher share in local dimming TCON. We offer a comprehensive portfolio spanning both mainstream LCD and emerging OLED technologies. With hundreds of design-wins secured across TDDI, DDIC, TCON, and our expanding OLED portfolio, along with a steady influx of new projects, most of which are scheduled for mass production in the coming quarters, our market leadership remains firmly established. Meanwhile, Himax continues to lead automotive display IC innovation by delivering advanced solutions across a broad spectrum of panel technologies, while addressing diverse design requirements and cost targets. For ultra-large touch displays, we introduced the industry’s first LTDI solution in 2023, which has since entered mass production in multiple vehicle models. Designed for pillar-to-pillar displays, our LTDI architecture supports multi-chip cascading to enable ultra-high resolution, fast data transmission, and precise touch performance across expansive panels. For smaller displays with form factor and budget constraints, we provide highly integrated single-chip solutions that combine TDDI and local dimming TCON. This approach is an attractive choice for customers, as it can significantly reduce system cost while improving overall power efficiency. Together, these differentiated solutions enable Himax to address the full spectrum of automotive display requirements, from entry-level platforms to flagship smart cockpit systems, while increasing content value per vehicle and reinforcing our long-term market leadership. In the tablet market, Himax maintains a leading position in LCD technology. We continue to develop next-generation IC solutions for OLED tablets to expand our product portfolio and further enhance our competitive positioning. Meanwhile, we are advancing innovative technologies that enable value-added features such as active stylus support, ultra-slim bezel designs, higher refresh rates, and power-efficient architectures. These advancements position Himax to capture greater semiconductor content in next-generation premium tablets while reinforcing our competitive edge. 68 Table of Contents In the smartphone segment, our OLED driver solution began mass production in early 2026 with a leading panel maker for a major smartphone brand’s mainstream model. Meanwhile, as expected, our traditional discrete driver ICs for smartphones and tablets continue to be rapidly replaced by TDDI solutions, in line with ongoing industry migration toward higher integration. Non-Driver IC Sector The non-driver category has emerged as our most exciting growth area and a key differentiator for the company. We provide comprehensive solutions, including timing controllers, image processing, WiseEye ultralow power AI sensing, 3D sensing technologies, and optical innovations. In the timing controller sector, we remain highly optimistic about growth prospects, having strategically positioned ourselves in high-end, value-added segments such as gaming TVs, monitors, low-power notebooks and automotive. In automotive applications, we have dedicated to developing this high-barrier technology for years, building a comprehensive TCON product portfolio and establishing an undisputed leadership position. Local dimming technology plays a critical role in enhancing display contrast to ensure superior visibility across various lighting conditions, while also improving power efficiency, particularly important for large-size displays and EVs. To date, we have secured hundreds of design wins with Tier 1 suppliers and automakers, initially in premium car models, with adoption already expanding into mainstream vehicles. Automotive TCON sales in 2025 grew by approximately 50% year-over-year, and we anticipate continued annual growth as we move into 2026. We expect the TCON segment to serve as a key growth engine for our non-driver IC business moving forward. In 2016, our non-driver business experienced tremendous growth, primarily driven by LCoS and WLO shipments to a leading AR device customer. WLO shipments saw a significant year-over-year increase in 2018 due to the customer's large-scale adoption across more models. By 2024, we continued fulfilling demand from our anchor customer for legacy products, albeit at a lower volume due to customer’s technology migration. That said, WLO technology remains a key enabler in next-generation optical applications. Specifically, WLO technology enhances 3D perception sensing, enabling precise controller-free gesture recognition in VR devices. We began volume production of WLO technology for a leading North American customer in 2023, powering their VR devices with 3D gesture control capabilities. Another major application of WLO is in CPO (Co-Packaged Optics) where we collaborated with our strategic partner, FOCI. Himax continues to make solid progress in collaboration with FOCI and are actively advancing multiple future generations of high-speed optical transmission technologies and advanced CPO architectures in collaboration with the leading global customer and partner. These efforts focus on higher fiber channel density and more sophisticated optical designs to meet the explosive bandwidth demands of HPC and AI applications. These developments highlight the versatility of WLO technology across a wide range of applications, including automotive, consumer, industrial, medical, AR/VR/MR devices, and advanced optical communication technologies. Himax WiseEye ultralow power AI sensing solution, a cutting-edge endpoint AI integration, features industry-leading ultralow power AI processor, always-on CMOS image sensor, and CNN-based AI algorithm. WiseEye AI 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 not only unlocks advanced AI capabilities in endpoint devices that were once constrained by power and size limitations, but also makes AI more practical and accessible. Building on the success with Dell notebooks, Himax WiseEye AI is continuing to expand its market presence, with additional use cases expected across other leading notebook brands. Additional features are also being developed to address more complex real-world scenarios while preserving exceptional power efficiency and improving user convenience. These include gesture recognition that emulates keyboard inputs, as well as a voice-activated keyword spotting function that enables always-on audio monitoring, performs wake-word detection, and activates the main CPU only when a designated trigger phrase is identified. WiseEye also continues to achieve market success across various sectors spanning 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. In addition, we also offer ultralow power, plug-and-play WiseEye Modules, featuring no-code/low-code AI platform capabilities, simplifying AI integration and supporting diverse use cases, such as human presence detection, gender and age recognition, gesture recognition, face mesh, voice command, thermal image sensing, pose estimation and more. We are seeing expanding WiseEye modules adoption across a wide range of domains, including leading brands’ smart home appliances 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, computer monitor and more. 69 Table of Contents WiseEye business is in a good position to enjoy rapid growth for years to come and we believe it will serve as a multi-year structural growth driver for Himax. In 3D sensing, we provide both total solutions and key components to our customers. Our 3D decoder IC enhances local image processing for face recognition, ensuring advanced and secure authentication. Certified by leading Chinese electronic payment standards, it meets stringent requirements for accurate data decoding, fast operation, and strict privacy protection. Since 2022, it has been adopted by major Chinese e-payment solution providers. We continue to expand our 3D sensing portfolio to address a broad range of applications, including e-payment authentication, access control systems, biomedical inspection equipment, naked-eye 3D displays, eye-tracking, and hand-gesture recognition, reinforcing our presence in high-value 3D sensing markets and driving long-term growth potential. In our CMOS image sensor business, we continue to supply sensors for webcams and notebook applications while expanding our sensor portfolio to support emerging AI use cases that require continuous, always-on sensing or monitoring with minimal power consumption. We are seeing increasing customer adoption of our AI sensor worldwide across various markets, including notebooks, access control, smart home/office solutions, medical devices, and AIoT applications. Additionally, we are expanding our sensor portfolio into thermal sensing technology through a strategic investment in Obsidian Sensors, Inc. ("Obsidian"), a San Diego-based thermal imaging sensor provider. Obsidian’s proprietary high-resolution thermal sensors have the potential to transform the market with their breakthrough low-cost, high-volume production capabilities. Our expansion into thermal sensing complements our existing WiseEye offerings, further broadening our technological reach and strengthening our position in the growing AI-powered sensing market. Himax has dedicated years of R&D to advancing LCoS technology, focusing on AR goggle devices and automotive AR HUDs. Many industry-leading customers have showcased state-of-the-art products powered by our technology. For AR glasses, Himax’s 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. Currently, 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 over a decade of proven mass production expertise, an ISO-certified liquid crystal assembly line, and more than 4 million units shipped since 2012, Himax’s LCoS technology platform has become a trusted solution for AR glasses, automotive AR HUDs, LiDAR, and optical communication applications. For more trend information, see “Item 5.A. Operating and Financial Review and Prospects—Operating Results.” 5.E. Critical Accounting Estimates The preparation of the consolidated financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected. Note 4 to our audited consolidated financial statements contains a description that sets forth information about critical judgments, estimates and assumptions in applying accounting policies that have the most significant effect on the amounts recognized in the consolidated financial statements. ​ 70 Table of Contents