(Reuters) - Austrian chip maker AMS said on Tuesday it saw potential for strong revenue growth in 2017 helped by its acquisition of optical sensor maker Heptagon in Singapore, sending it shares up nearly 19 percent.
AMS, which supplies Apple and Samsung with chips, reported fourth-quarter revenue at the top end of forecasts it gave in October following a profit warning due to a setback with one client, believed by analysts to be Samsung.
AMS optical sensors help adjust the brightness and colours on smartphone screens. Samsung scrapped its flagship Galaxy Note 7 phone on Oct. 12 less than two months after its launch following reports of batteries overheating and catching fire.
AMS said fourth-quarter revenue came in at 133.6 million euros ($142.5 million), at the top of a 127 million to 134 million range given in October, and that it expected revenue of 141-148 million euros in the first quarter of this year.
The company also said fourth-quarter net income fell by more than half to 13.7 million euros while its adjusted gross margin stood at 52 percent.
AMS said it expected a "substantial contribution" to profitability from Heptagon in the second half and expected revenue from the business of about $300 million in 2017 compared with $200 million expected when the deal was announced.
"We can see the potential for the Heptagon deal to be transformative to the fortunes at AMS (large sales ramp, margin accretion, new tech advantages)," said Stifel analyst Lee Simpson, raising his rating on the stock to "buy".
"We think AMS has finally found the product base to reinvigorate sales for the next 3-5 years," he said.
AMS announced the Heptagon deal in October on the same day as its profit warning, saying it aimed to be, "the absolute number one in optical sensing technologies".
Some analysts said in January that AMS was likely to benefit from the expected launch of the iPhone 8 in September, despite concerns about its acquisition of a loss-making company.
"We believe investors will look beyond a difficult H1 and start to expect an iPhone 8 'super cycle', for which we think AMS is well positioned," Credit Suisse analyst Felix Remmers said then.
Remmers said he believed Heptagon had supplied proximity sensors to previous generations of Apple's iPhones.
Right after the Heptagon deal and profit warning in October, shares in AMS plummeted as much as 24 percent to a low of 22.85 euros though AMS said it was confident of the growth potential from the acquisition.
AMS shares jumped as high as 40.3 euros on Tuesday after the latest revenue figures, their highest since Oct. 26, 2015.
($1 = 0.9376 euros)
Reporting by Anna Serafin; editing by David Clarke