Keith Fiore's Blog

PXLW – Q4 2009 Pixelworks Earnings Conference Call.

Pixelworks is a fabless semiconductor company that designs, develops and markets innovative video and pixel processing chips and software for high-end display applications, including digital projection and large screen LCD flat panels. Our solutions leverage proprietary core technologies that enable digital display and projection device manufacturers to differentiate their products with a consistently high level of video quality, regardless of the content’s source or format. Additionally, our solutions facilitate rapid development and customization of display devices, thus reducing time to market for our customers.

The increasing popularity of large, high-resolution flat panel displays for applications such as digital TVs and digital signage is driving the need for high performance processor solutions to meet the enhanced video quality requirements of next generation display products. As flat panel display resolution and size increase, new challenges emerge that must be addressed to ensure a corresponding improvement in video quality. Pixelworks is focused on providing the solutions to scale poorer quality video, reduce signal noise inherent to networks and enhance image quality in order to ensure optimal video performance across display devices.

Recap: Pixelworks is an innovative provider of powerful video and pixel processing technology.

Pixelworks Reports Fourth Quarter 2009 Financial Results

PORTLAND, Ore., Jan 28, 2010 (BUSINESS WIRE) — Pixelworks, Inc. (NASDAQ:PXLW):

• New Products Driving Growth
• 16% Sequential Quarterly Revenue Increase
• $2.7 Million Cash Generated from Operations

Pixelworks, Inc., an innovative provider of powerful video and pixel processing technology, today announced financial results for the fourth quarter ended December 31, 2009.

Fourth quarter 2009 revenue was $19.4 million, above the range of management guidance for the quarter. Revenue for the 2009 fourth quarter increased 16% sequentially from $16.7 million in the third quarter of 2009 and was up 2% from $18.9 million in the fourth quarter of 2008.

Fourth quarter 2009 GAAP gross profit margin was 46.6%, above the range of guidance for the quarter, compared with 43.9% in the third quarter of 2009 and 45.4% in the fourth quarter of 2008. Fourth quarter 2009 non-GAAP gross profit margin was 50.0%, at the high end of guidance for the quarter, compared with 47.7% in the third quarter of 2009 and 50.4% in the fourth quarter of 2008.

Fourth quarter 2009 GAAP operating expenses were $9.4 million, at the
high end of guidance for the quarter, compared with $8.0 million in the
third quarter of 2009 and $11.1 million in the fourth quarter of 2008.
Non-GAAP operating expenses were $9.2 million in the fourth quarter of
2009, above guidance for the quarter, compared with $7.7 million in the
third quarter of 2009 and $10.1 million in the fourth quarter of 2008.
The sequential increase in operating expenses in the 2009 fourth quarter
reflects higher product development activity in the period, and the
reinstatement of salaries which had been temporarily reduced in the
second quarter of 2009.

On a GAAP basis, the Company recorded net loss of $(0.8) million, or
$(0.06) per share in the fourth quarter of 2009, compared to net loss of
$(0.9) million, or $(0.07) per share in the third quarter of 2009 and
net loss of $(5.1) million, or $(0.37) per share in the fourth quarter
of 2008. GAAP net loss recorded in the fourth quarter of 2008 includes a
$1.4 million charge for other than temporary impairment of a marketable
security. On a non-GAAP basis, net income was $0.2 million, or $0.02 per
diluted share in the fourth quarter of 2009, compared to net income of
$0.1 million, or $0.01 per diluted share in the third quarter of 2009
and net loss of $(1.2) million, or $(0.08) per share in the fourth
quarter of 2008.

As of December 31, 2009, the Company’s total cash and marketable
securities balance was $30.9 million, up $2.1 million from $28.8 million
at September 30, 2009. Pixelworks generated positive cash flow from
operations of approximately $2.7 million in the fourth quarter of 2009.

“2009 was a year of significant challenge and significant progress for
Pixelworks,” said Bruce Walicek, President and CEO of Pixelworks.
“Despite a difficult macro-environment, we achieved important financial
and development milestones and exited the year with significant
momentum. Our focus on execution and operational efficiency enable us to
enter 2010 with an array of exciting new products, bolstered by a
streamlined expense base and a significantly strengthened balance sheet.
Most importantly, we have reached the inflection point where new
products are now driving our growth and the Company is positioned to
take advantage of explosive growth opportunities in the digital video
market.”

Business Outlook for First Quarter 2010

The following statements are based on the Company’s current
expectations. These statements are forward-looking, subject to risks and
uncertainties, and actual results may differ materially. These
statements do not include the potential impact of any investments
outside the ordinary course of business, mergers or acquisitions that
may be completed after December 31, 2009 or other future events. Readers
are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date of this press release. The
inclusion of any statement in this release does not constitute a
suggestion by the Company or any other person that the events or
circumstances described in such statements are material. The Company
does not undertake to publicly update or revise these forward-looking
statements even if experience or future changes make it clear that any
projected results expressed or implied in this release will not be
realized.

The Company expects to record the following in the first quarter of 2010:

• Revenue of $17.5 million to $19.5 million;

• Gross profit margin of approximately 44% to 49% on a GAAP basis and
  48% to 52% on a non-GAAP basis;

• Operating expenses of $9.0 million to $10.0 million on a GAAP basis
  and $8.5 million to $9.5 million on a non-GAAP basis; and
• A benefit for income taxes of approximately $5.0 million to $5.5
  million, or $0.35 to $0.39 per share, on both a GAAP and non-GAAP
  basis. This tax benefit reflects the anticipated reversal of
  previously recorded tax contingencies due to the expiration of the
  statutes of limitations.

Based on the above estimates, the Company expects first quarter 2010 net
income per share of $0.18 to $0.42 on a GAAP basis, and $0.27 to $0.50
on a non-GAAP basis.

Conference Call Information

Pixelworks will host a conference call today at 2 p.m. Pacific Time,
which can be accessed by calling 866-831-6272 and using passcode
49954634. A Web broadcast of the call can be accessed by visiting the
Company’s investor page at www.pixelworks.com.
For those unable to listen to the live Web broadcast, it will be
archived for 30 days. A replay of the conference call will also be
available through midnight on February 4, 2010, and can be accessed by
calling 888-286-8010 and using passcode 71181018.

About Pixelworks, Inc.

Pixelworks, headquartered in Portland, Oregon, is an innovative
designer, developer and marketer of video and pixel processing
technology, semiconductors and software for high-end digital video
applications. At design centers in Shanghai and San Jose, Pixelworks
engineers push pixel performance to new levels for leading manufacturers
of consumer electronics and professional displays worldwide.

For more information, please visit the Company’s Web site at www.pixelworks.com.

Note: Pixelworks^(R) and the Pixelworks logo^(R) are
trademarks of Pixelworks, Inc. All other trademarks are the property of
their respective owners.

Non-GAAP Financial Measures

Safe Harbor Statement

This release contains statements, including, without limitation, the
statements in Bruce Walicek’s quote and the “Business Outlook for First
Quarter 2010″ section above, that are forward-looking statements within
the meaning of the “Safe Harbor” provisions of the federal Securities
Litigation Reform Act of 1995. Such statements are based on current
expectations, estimates and projections about the Company’s business.
These statements are not guarantees of future performance and involve
numerous risks, uncertainties and assumptions that are difficult to
predict. Actual results could vary materially from those contained in
forward looking statements due to many factors, including, without
limitation: current global economic challenges; levels of inventory at
distributors and customers; timely customer transition to new product
designs; product mix; failure or difficulty in achieving design wins;
our ability to deliver new products in a timely fashion; changes in the
digital display and projection markets; changes in customer ordering
patterns or lead times; competitive factors, such as rival chip
architectures, introduction or traction by competing designs, or pricing
pressures; seasonality in the consumer electronics market; our new
product sales and yield rates; supply of products from third-party
foundries; changes in estimated product costs; the success of our
products in expanded markets; our efforts to achieve profitability from
operations; insufficient, excess or obsolete inventory and variations in
inventory valuation; changes in the recoverability of intangible assets
and long-lived assets; and our lower cash position as a result of our
debt repurchases.More information regarding potential factors
that could affect the Company’s financial results and could cause actual
results to differ materially is included from time to time in the
Company’s Securities and Exchange Commission filings, including our
Annual Report on Form 10-K for the year ended December 31, 2008 and
subsequent SEC filings.

The forward-looking statements contained in this release speak as of
the date of this release, and we do not undertake any obligation to
update any such statements.