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Operator
Good day. Welcome to the Pixelworks Incorporated first quarter earnings conference call. Today's call is being recorded. At this time, for opening remarks, and introductions, I
would like to turn the call over to the Chief Financial officer, Mr. Jeff Boucharde. Please go ahead, sir.
JEFF BOUCHARDE
Good afternoon.
Thank you for joining us. With me today is Allen Alley, President, CEO and Chairman. The press release we issued today includes an outlook section containing forward-looking statements about our business.
Additionally, on this conference call, we're going to be commenting on our business outlook and making forward-looking statements based on our current expectations.
Words such as expects, anticipates, intends, plans, believes, seeks, estimates, and variations of such words and similar expressions are intended to identify such forward-looking statements.
All of our forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially.
Please refer to today's press release for a description of factors that could cause actual results to differ materially from those forecast. The forward-looking statements we make today speak as of today and we do not undertake any obligation to update any such statements to reflect events or circumstances occurring after today.
I will now turn the call over to Allen.
Allen H. Alley
Thank you, Jeff.
2002 is off to a great start. In the first quarter, we turned in solid financial results. Our revenue of $22 million was in line if our previously published business outlook and proforma earnings per share were in the high end of our expectations.
While on a GAAP basis, our net loss in the quarter largely due to the in process R&D charge from the NDSP acquisition was $3.9 million. On a proforma basis, our net income was $1.4 million, or 3 cents per share. Additionally, bookings were up across all business segments, and the overall book to bill ratio exceeded one.
We reached a major milestone in the first quarter by shipping more than one million chips. We gained ground in the advanced television market with the acquisition of NDSP, and customer adoption of our new line of video processing chip sets has been outstanding.
I will begin with an overview of the business, and Jeff will review the financial results.
Lately, there's been a lot of speculation about the health of the projector business, which reminds me of a quote from Mark Twain.
The reports of my death have been greatly exaggerated. Our projector revenue, which declined in the fourth quarter, increased in the first quarter.
We continue to maintain our leading market share. As we approach the middle of 2002, forecasting the projector market is still a challenge. while overall, IT spending in the United States continues to be down, We believe, based on our order activity and visibility of new product releases scheduled for later this year, the worldwide projector market units will grow approximately 10 to 15% year over year.
We see two trends will drive this growth. First is the continued introduction of new products targeting consumers. Like Infocus's screenplay and Sony's Snaza, which are powered by Pixelworks, and are bringing projectors into the living room.
The second is the major PC companies are entering the projection market. They will use their broad channels to drive growth for themselves, but we also believe this will increase visibility for the entire projector market.
Earlier this month, HP entered the market by launching two new projectors powered by Pixelworks. We're proud that HP chose us to help them get these innovative products to market. We see this as an industry trend, where major PC brands have recognized the opportunity to drive projector attached rates to notebooks, up dramatically from the current level of approximately 4%.
We believe that we will continue to hold market share throughout the year. As a result, we expect to see modest growth in our projector revenue for the second quarter, followed by increased revenue growth in the third and fourth quarters.
If there's an unturn in IT spending in the second half of the year, we're very well positioned to reap the benefits in the projection business.
We're building momentum in the advanced television market. Our acquisition of NDSP and our internal developments aimed at the advanced television market are already paying dividends.
As a matter of fact, in the first quarter, we got our first LCD TV design win into production that uses both a video processing chip from NDSP and an image processor chip from Pixelworks. As we announced last week, four of the top six CRT television brands, which account for nearly 60% of the overall television market in China, have chosen these high performance digital video signal processors developed by our NDSP design team. Pixelworks advanced television revenue in the first quarter nearly doubled over the fourth quarter. The primary sources of revenue in this business include Plasma displays, LCD TV's, progressive scans, CRT television and rear projection television. Revenue from advanced television and other applications increased to approximately 14% of our business in the first quarter, up from roughly 5 to 7% of our business on a quarterly basis last year.
We're extremely pleased with the development of the quote "Third Leg" of our strategic market.
The advanced television markets we serve are expected to experience very strong growth this year.
Display Search estimates that LCD TV units will grow from 500,000 in 2001 to 1.5 million in 2002.
This growth is similar to the growth we saw in the desktop flat-panel monitor market from 1998 to 1999. We already have secured major design wins in this area that we expect to announce in the coming quarters.
Ultimately, we believe the market for the next generation of television, your next TV, will in fact be larger than the market for desktop monitors. As our new monitor products come online, our monitor business is in a transition phase.
Year over year, our monitor unit shipments were up 64%. But quarterly sequential unit shipments were off about 14%.
This was due to two major factors. Our Smart Panel customers transitioning to our new monitor products and industry-wide constrained panel supply. The LCD monitor business, which decreased about 2.4 million in the first quarter, represented 29% of our total revenue.
Pixelworks continues to lead the way in -- in the Smart Panel revolution, which is streamlining the way LCD monitors are built. we have a strong alliance with Samsung, the world's leading LCD panel manufacturer.
During the first quarter, we began working with Samsung to launch their second generation smart LCD's in both 15-inch XGA and 17-inch SXGA formats, that use our next generation PW-115 image processors, incorporating our innovative Panel IQ technology.
Pixelworks Panel IQ technology combines our industry leading programmable timing controller with the industry's first advanced EMI reduction technologies, which enable lower overall system costs.
As our major Smart Panel customers begin to move from the PW-112 to the new PW-114 and 115's, they begin to balance their inventories, which contributed to the decline in our unit shipment.
Overall shipments to Smart panel customers represented over 25% of our total LCD monitor shipments, reflecting a continuing adoption rate per Smart Panel that validates the concept pioneered by Pixelworks. We believe the supply of LCD panels in the industry did not increase much, if any, from the levels in the fourth quarter, and that clearly constrained revenue.
Not only for us but for the entire industry.
We also believe this is a temporary situation that will greatly improve in the second half of this year, with the additional LCD panel capacity coming online when several generation 5 FABs begin to ramp production.
The second quarter will be a transition quarter with LCD panel supply similar to what we saw in Q1. We're optimistic about our monitor business for the balance of the year.
During the quarter, we strengthened our relationships with our monitor customers and we're actively engaged in the competition for virtually every major monitor deal in the world.
With the release of our new monitor chips, we feel we're well positioned to make major inroads into the business as we drive to our goal of one-third of the market. Now, let me bring you up to date on product development. In January, we officially announced our new PW-130 family of chips that We have been developing in partnership with Analog Devices.
This is a four-chip family that includes chips with integrated ABC, integrated ADC and DVI receiver, and versions of both with integrated TCON or timing control.
Manufactured using a .18 micron process with analog devices leading mixed-signal technology for the front end, we believe these chips will be among the smallest, highest performing LCD monitor chips on the market.
They're small silicone footprint results in lower cost, which enables us to compete very effectively for the high-volume XGA monitor business as well as higher resolution SXGA and UXGA business.
If this were an election, I would say the early returns look encouraging.
The performance of the PW-130 family is excellent for early silicon, and the partnership with Analog Devices is outstanding. Early customer reaction is extremely positive.
Customers particularly like the architectural commonality between the PW-130 and the PW-112 family.
Their investment in software is preserved and migration is straightforward. In fact, we have achieved several design wins for the PW-112 family, because of their architectural commonality with PW-130 family.
We first showed the PW-130 family to customers at the CES show in January. We have shipped Evaluation boards to customers and expect to have production revenue beginning in Q3. In Q1 we also began shipping production qualities of our PW-2100 signal processor, an integrated analog and DBI digital receiver chip, and they're in monitors today sold by one of our largest OEM partners. We have continued to work with early customers on the PW-103 series, however, once we released demos samples of the PW-130 family, almost all of the interest has swung hard to the PW-130.
The raw performance of the PW-130, even in prototype samples, is so good, the customers are moving quickly to embrace it.
In fact, our first customer for the PW-112 is using a combination of PW-2100 and the PW-114 as a bridge to the PW-135. Going forward, I believe the PW-130 family will provide a vast majority of our revenue for the integrated single-chip monitor business.
Our partner, Jaldi Semiconductor, made excellent progress in the first quarter in the development of their advanced video system on a chip.
They received first silicon and began integrating the Pixelworks software.
The results are very encouraging, with all of the major functions of this very complex system on a chip up and running. Our four-year investment in the Pixelworks SDK software is paying dividends.
The fact that they could bring up the Pixelworks SDK on an entirely new, very complex chip designed outside of Pixelworks, is a testament to the quality and versatility of our software platform.
The results so far are outstanding and speak to the excellent job done by the Jaldi team.
During the first quarter, we had our first customer demonstrations and engaged with lead customers. Based on these results, We expected to exercise our option this quarter to acquire Jaldi.
And now, let's turn to the Jolt technology. The PWM-1,000 media processor is our highly advanced system on a chip that combines the 128 bit risk processor from the Sony Playstation Two home entertainment system, intelligent connectivity, and windowing with leading edge image processing. The target markets for Jolt include television products of all types, including Plasma, LCD, and progressive scan CRTs, as well as multi-media monitors and projectors.
I'm particularly pleased with the new look and feel for the user interface that we have developed that is suitable for both lean back family-room TV use as well as lean-forward monitor use.
You can get a feeling for the new look and feel by going to our website and looking at our 2001 annual report online. The combination of the new user interface with the powerful windowing capabilities of the PWM-1000 is unique in our industry and brings differentiable features to the customers' products. Jolt labeled products are by far the most sophisticated system-on-a-chip products that we have ever brought to market. To quote Ross Young, President of Display Search, there is no other product like Jolt in existence anywhere.
During Q1 we hosted a week long training class for our lead customers and have delivered demonstration boards. We expect to have lead customers in production with
the PWM-1000 in the latter part of the year. I'll now turn the call over to Jeff, to review the financials.
JEFF BOUCHARDE
Thank you, Allen.
Before going over the first quarter financial, I will quickly provide the financial highlights of the NDSP Acquisition that closed in the first quarter. Approximately 1.2 million shares were issued with the value of the acquisition at approximately $21 million.
The fair value of the intangible assets acquired were $4.2 million per acquired inprocess R&D, which expensed in the first quarter, 3.7 million for develop technology, which is being amortized over the life of the technology, and approximately 14.3 million for goodwill.
There are also 2.1 million in tangible assets and 3.5 million in liabilities assumed.
I'll now cover the financial results for the first quarter. As Allen mentioned previously, we're pleased with our financial results for the first quarter. Revenue of $22 million was in line with our expectations, and proforma net income of $1.4 million or 3 cents per share came in at the high end of our expectations due to better than expected gross profit margin and lower effective tax rate. Proforma net income in the first quarter excluded non-cash charges totaling 5.3 million. Including these non-cash charges, the net loss in the quarter, according to generally accepted accounting principles, was 3.9 million or 9 cents per share. Please refer to the financial statement and notes in the earnings release for reconciliation of the differences between proforma net income and net loss according to GAAP. Bookings were up 47% sequentially and the book to bill ratios increased across projectors, LCD monitors and advanced television.
The overall book-to-bill exceeded one, which resulted in an increase in backlog of approximately 30% over the fourth quarter. At this point in time, we have approximately 80% of the mid-point of our outlet revenue range in scheduled backlog or already shipped. Revenue of 22 million was up 3% year over year. And down 3% sequentially. Projector revenue represented approximately 57% of total revenue, LCD monitors 29%, and advanced television 14%.
Projector revenues increased about 300,000 sequentially, with unit growth being largely offset by ASP erosion. Tha increase in projector revenue while modest was a little better than we anticipated, due primarily to increased projector production in Taiwan to support new PC companies that are entering the market. LCD monitor units declined approximately 14% sequentially, which led to the LCD monitor revenue declining approximately 2.4 million in the first quarter. Advanced television business was very robust in the first quarter, with revenue roughly doubling over the fourth quarter.
The primary growth drivers were LCD TV and progressive scan CRT television business. Looking at our customer concentration, our top 10 end customers represented 68% of revenue in the first quarter, with the largest customer representing 12% of revenue and the smallest representing 4% of revenue.
Overall, we did business with over 90 customers in the first quarter. Gross profit margins were 52.1% in the first quarter, which was better than our projection of 49 to 51%. Due to more favorable mix of projector and advanced television chips, which carry higher average margins than LCD monitor chips. We anticipate gross profit margins declining to 49 to 51% in the second quarter. Operating expenses, excluding a 4.2 million non-cash charge for inprocess R&D expense related to the acquisition of NDSP and the one million non-cash expense for the [INAUDIBLE] of diversified compensation were 10.6 million. This represented an increase of approximately 900,000 over the 4th quarter, most of which was related to the absorption of the employees and associated operating expenses from NDSP, which closed in mid-January.
We exited the first quarter with 223 employees, up from 176 at the end of the fourth quarter. The second quarter, we expect combined R&D and SG&A expenses to be in the 10.8 to 11.2 million range. Other income of 645,000 in the first quarter consisted of 675,000 of interest income, partially offset by 30,000 in interest expense, related some equipment debt that was assumed as part of the NDSP acquisition. Other income decreased approximately 200,000 from the fourth quarter, due to lower averages on invested cash. We expect other income of 625,000 for each of the remaining quarters of 2002, assuming no significant changes in interest rates. Proforma pre-tax income of 1.6 million or 7.1% of revenue was in line with our expectations.
On a GAAP basis, the pre-tax loss of 3.8 million in the first quarter improved from a pre-tax loss of 34.1 the first quarter of 2001. The year over year improvement resulted mainly from a 28.2 million reduction in inprocess R&D expense, as well as the elimination of 2.9 million in expenses for the amortization of goodwill and assembled workforce that resulted from the implementation of FAS-142.
We recorded a tax provision in the first quarter of 151,000 or approximately 10% of proforma pre-tax income.
This was lower than the 30% rate we projected which resulted from a change to forecasted tax credits and deductions, relative to taxable income. We're estimating our tax rate for remaining quarters of 2002 will be approximately 20% of proforma pre-tax income.
We expect in 2003 and beyond our rate will be approximately 35%. Proforma net income was 1.4 million or 6.4% of revenue. Proforma EPF of 3 cents per share, was the high end of our expectations. On a GAAP basis, the net loss in the first quarter was 3.9 million or 9 cents per share, which improved from a net loss of 34.1 million or 87 cents per share in the first quarter of 2001.
I'll now quickly cover the balance sheet highlights. Cash and marketable securities of 105 million decreased 800,000 in the first quarter. Year over year, cash and marketable securities were up 7.1 million. Cash generated during the quarter included 2 million from operations, and approximately 500,000 from financing activity resulting from employee stock option exercises. The 2.5 million of cash generated was more than offset by 1.7 million in capitol asset purchases, and 1.5 million from the acquisition of NDSP. Accounts receivable of 7.5 million was up 1.1 million from the fourth quarter. DSO of 31 days was up from 26 days in the fourth quarter. In the short-term, we expect DSO to remain in the 30 to 35 day range. Inventories increased approximately 3.6 million to 7.8 million in the first quarter. This represented about seven weeks of inventory, which was within our ongoing target of four to eight weeks of inventory.
Inventory increased primarily as a result of a large amount of inventory that was received in the last few days of the quarter.
Goodwill and assembled workforce of 83.5 million increased 14.4 million from the fourth quarter, as a result of the acquisition of NDSP in the first quarter.
Other assets of 17 million were up 4.3 million from the fourth quarter, primarily as a result of 3.7 million of acquired development technology as a result of the NDSP acquisition.
Accounts payable of 6.9 million increased 4.5 million from the fourth quarter, primarily as a result of the receipt of inventory late in the quarter.
That concludes the review of our financial results. For information on our business outlooking, please refer to the press release issued earlier today announcing our first quarter earnings, which contained a business outlook section.
The press release is available on our website at www.Pixelworks.Com. I also want to briefly mention that our annual meeting will be here in Portland on May 6th at the Oregon Museum of Science and Industry. Additionally, we will be presenting at two upcoming conferences in May. We'll at the Salomon Smith Barney Semiconductor Conference on May 8th in Monte Ray, and the CIBC World Market Annual Electronics Food Chain conference on May 15th in New York. I'll now turn it back to Allen for his closing comments.
Allen H. Alley
Thanks, Jeff.
2002 is shaping up to be a great year for Pixelworks. Q1 bookings were up 47% sequentially. The book-to-bill ratios increased across all business segments and the overall book to bill exceeded one.
Our backlog was up 30% from Q4. We shipped over one million chips in the quarter for the first time. Our investments in the advanced television market are already paying dividends with chip shipments into this emerging market totaling 14% of our total revenue. Our investments in Jaldi and Jolt are on track and are raising the bar for the next generation of advanced multi-media products that will power your next TV. And finally, we have recently begun sampling the PW-130 family of products that we believe will set a new standard of performance, features, quality, and price for the mainstream LCD monitor market.
We'll now open up the call for questions.
Operator
Thank you.
The question and answer session will be conducted electronically. If you want to ask a question, press star one on your telephone keypad. Due to time constraints, please initially limit yourself to one question and one follow-up question.
Again, that is star one to ask your question. We'll go first to Jonathan Joseph
of Salomon Smith Barney.
Unidentified
Hi guys. It's actually Don here calling in for John. Great quarter, by the way.
JEFF BOUCHARDE
Thank you.
Unidentified
Just a couple questions.
For maybe Allen, if you can just maybe expand a little bit on what's going to be happening to the PW-103 series. You talked a little bit about
that. With the interest that people are focusing on the PW-130.
Allen H. Alley
Right.
Yeah, when we released the PW-130, there's a couple of things. As I mentioned, the raw performance -- and when I say that, I'm talking about the raw ADC, PLL and DIV performance is excellent for these parts, even in the early silicon.
And in this market, I believe one of the things that is really missing is an integrated chip with sort of an -- a very high-end of the analog performance that the get in the discreet parts by Analog Devices.
So when we start sampling these chips, people are enamored with this raw performance.
The second thing is, the PW-130 uses the microprocessor that is common with all of the other chips we've ever shipped.
That's the 112 series, as well as our 164's and 264's. It can run the full Pixelworks Software Developers Kit, SDK. So customers that already have the Pixelworks SDK are kind of enamored with the idea of importing that software over to the PW-130.
And those two factors
really have drawn attention away from our 103 family, over to the 130 family, and that is really where the focus of the attention is right now, is on the 130's.
Unidentified
Okay. Does that mean now that the PW-130 maybe will occupy some of the space that the PW-103 was supposed to be?
Allen H. Alley
You know, we're looking at that right now, about how to expand the family since it's being so well received.
I think -- there's another factor probably two years ago, or so, when we were planning these chips, there was actually a slight cost penalty to have an embedded microprocessor because the external ROM was more expensive than an external 8051.
And what's happened over the past couple years is that's swung so that now from a system cost standpoint, the external ROM is actually in many cases less expensive than an external microprocessor. So I'd say yeah, you're right, we're looking at expanding the 130 family, probably broader than what it was before, to touch all segments of the market, including the most cost-sensitive XGA segment.
Unidentified
Okay.
Just one quick question for you Jeff. You mentioned LCD ASP declined about 2% last quarter?
What is your outlook for this quarter and maybe the rest of the year?
JEFF BOUCHARDE
On your ASP reduction there, for LCD monitors you're referring to?
Unidentified
Yes.
JEFF BOUCHARDE
Yes, our aggregate ASP's have been declining kind of in the low double digits per quarter, as we kind of start shipping into the mainstream monitor business.
And I think that was consistent with last quarter as well.
It was low double digit. And our expectations for the foreseeable future over the next few quarters is, we'll continue to see ASP erosion in that kind of range, until we get out three or four quarters and we're more closely aligned with where the aggregate ASP of the leader in the industry is.
We'll probably still be at a little bit of a premium on an aggregate basis just because we expect to have a disproportionate amount of high resolution, higher ASP business.
But we'll be a little bit more
close in line with the industry's leader.
Unidentified
Allen H. Alley
Yeah, high single digits is, for example, where Genesis is at, on average.
I mean, they sell chips from the mid-single digits on into the teens. But on average they're around
$9 or so.
Unidentified
Okay. Excellent. That'S all I have. Good quarter.
JEFF BOUCHARDE
Thank you.
Operator
From Pacific Edge, JD Abishard.
JD ABISHARD
Great, thank you. Question. You said you were going to exercise your option on Jaldi. What are the terms?
Allen H. Alley
Yes, we haven't yet exercised our option.
But what we said is we expect to be exercising the option here probably over the next month. The terms would be to purchase
the remaining portion of the company for 1.85 million shares.
JD ABISHARD
Okay. Great. And are you still sticking with your goal of Q3 market share that you outlined in the last conference call?
JEFF BOUCHARDE
The goal is still a third of the market. We think that's an attainable goal for us, and once we reach that goal, we'll reassess that goal and let you know where we're going from there.
JD ABISHARD
And currently, Where do you think standing current?
Allen H. Alley
Last quarter, this is Display Search numbers, this is just through the fourth quarter, on a unit base it was just under 6%, and on a dollar basis it was about 12.5%.
JD ABISHARD
And your unit shipments were down this quarter?
Allen H. Alley
Yes.
JD ABISHARD
Great. Thank you.
Operator
Unidentified
Good afternoon. Wondering if you could give any color to Q1 revenue. We talked before, I think in Q4, that new products have contributed about 1% or so. Did you see any increase in Q1 for revenue coming from the new production introductions?
JEFF BOUCHARDE
We did have some new product shipments, Sherry, in the first quarter.
I don't think I'm prepared to quantify that. But I would say, just to give you a sense for that, it was probably still in kind of the single digit range as a percentage of our total revenue.
Unidentified
Okay. So we're still looking towards the second half for a ramp in revenue as a result from the new product introductions?
JEFF BOUCHARDE
Yes. That's where we expect to see the big ramp.
Unidentified
Okay.
And then, on Smart Panel shipments. Did I read between the lines, seeing that, that is coming
down a bit from expectations, and perhaps being replaced by the PW-130 family and the regular monitors?
Allen H. Alley
Sherry, what happened there is, we were shipping PW-112's into Smart Panels, and those are -- do not have an integrated timing controller.
Unidentified
Okay.
Allen H. Alley
In late fourth quarter and early first quarter, we introduced the PW-114's and 115's, architecturally compatible, but they both include the timing controller, which is critical for reducing costs in the Smart Panel business.
And what we -- what happened is, we're changing over from 112's to 114's and 115's in the Smart Panel business, and Q1 was a changeover quarter where we shipped some of the 112's, 114's and 115's.
They wanted to minimize inventories of the 112's, so the net was, we shipped less Smart Panels in Q1 than we did in Q4.
Unidentified
Okay. Is it industry, do you see the adoption about the same as you expected or slower?
JEFF BOUCHARDE
You know, I think the adoption is about the same as what was expected.
I believe that ultimately most of this monitor business turns into Smart Panel business.
Clearly we're not at that stage yet. We're still in the embryonic stage of that. But I don't know why any of these monitors would not be Smart Panels, as we move out into time.
It's absolutely the lowest cost way to build a monitor, and when we're all scrambling around to find a dollar here and a dollar there in these monitors, it's inevitable that they're all going to become Smart Panels.
Unidentified
Great. Thank you.
Operator
And as a reminder, to ask a question, Please press star one on your telephone keypad. We'll go next to Jay Data at Hopper and Arnett.
Joann Data
Good afternoon, Allen and Jeff.
JEFF BOUCHARDE
Joann Data
I wanted to ask about this yearly revenue [INAUDIBLE] you gave one 20 to 125 million. You gave a composition of last quarter's revenue, projectors 57, monitors 29, TV 14. What do you expect composition of the [INAUDIBLE] to be?
Allen H. Alley
We haven't really given any kind of specific numbers there.
But in general, what we expect to happen is that the monitor and the television pieces to continue to increase over the remaining quarters of the year. And the projector pieces as a percentage of our total revenue to come down. Just the growth rates in both the markets for monitors and advanced television, in the market rates of growth are faster than projectors, and also we'll be introducing some products that we think are going to fit very, very well in those markets.
So just in a rough sense, those are the dynamics. But in terms of specific numbers, I don't have any for you.
Joann Data
But isn't it the case that the competition in much less in the projector market for you than in the monitor market in TV market?
Allen H. Alley
Yes. That's true today.
Joann Data
So the projector market faces much less a decline rate?
Allen H. Alley
That is true. But again, we're just beginning to introduce some products that were specifically designed, for example, the LCD monitor market in particular, so there's a great opportunity for us there to not only grow as the panel supply increases, but also to increase our market share in that market.
Joann Data
Okay.
Allen H. Alley
The projector market, we're clearly the leader in that market, so our growth will be more dependent on what the industry does, rather than a combination of industry growth and market share growth In the other segment.
Joann Data
Okay. And last question. For the year, what do you expect diluted share [INAUDIBLE] to be?
Allen H. Alley
For the year, I'd estimate somewhere -- again, this is assuming that the acquisition of Jaldi is closed, I would expect it to be in the 45 to 46 million range.
Joann Data
Okay. Thanks.
Allen H. Alley
You bet.
Operator
From Weiss Partners, Jay Gregor.
Jay Gregor
Hi.
Let's see, I may have missed this in your earlier part of the call and I apologize if I did. The -- the NDSP revenues would
be -- are they fully consolidated in this quarter?
Allen H. Alley
Yes.
We closed that transaction in mid-January, so revenues and expenses from mid-January on were within the numbers that
we reported.
Jay Gregor
So of the $22 million.
Allen H. Alley
We don't break out specific product level revenue information. But what we had outlooked in January was for the NDSP products to contribute at least 500,000 in revenue, and I'll tell you that we got off to a great start relative to those expectations.
Jay Gregor
I'm sorry, you outlooked in January for 500,000 in revenues for -- for the full quarter.
Allen H. Alley
Yes.
Jay Gregor
Okay.
Allen H. Alley
Yes.
Jay Gregor
Which on a quarterly basis is a little more, I guess, than 500,000.
Allen H. Alley
Right.
Jay Gregor
Like 800,000. So did you do 800,000, you think, in the quarter.
Allen H. Alley
Well, again, we're not going to break out specific product level information. But what we'd outlooked is 500, and we certainly were very pleased with the contributions of those products this quarter.
Jay Gregor
Okay. So, regarding the advanced TV product line, would all of the NDSP products fall within that category?
Allen H. Alley
Yes.
Jay Gregor
Allen H. Alley
Jay Gregor
All right, okay. I understand.
Allen H. Alley
Yeah. It was within the 14%.
Jay Gregor
Okay. Let's see. And I guess that's it for now. I'm going to come back around in a second. Thank you.
JEFF BOUCHARDE
Jay, one other thing on that, going forward. The NDSP products will sell into some of the other markets as well. Going forward, that may not be a completely accurate characterization to say all of the NDSP products only to the advanced television business. We'll use the NDSP products as co-processors in projectors, in monitors, in all the segments. So I wouldn't make that assuming going forward necessarily.
Jay Gregor
Okay.
You just reminded me of another question I wanted to ask. Did NDSP -- well, was -- did it contribute to the gross margin?
Allen H. Alley
The gross margins in general, in advanced television products and projectors, are better on average than the gross margins that we report. So -- I think that gives you a sense for the margins.
Jay Gregor
Okay. All right. Thank you.
Allen H. Alley
You bet.
Operator
We'll hear next from Brian Alger at Pacific Growth Equities.
JEFF BOUCHARDE
Good afternoon, guys.
JEFF BOUCHARDE
Hi, Brian.
JEFF BOUCHARDE
Couple quick questions, and I apologize if this has been addressed.
I'm moving between calls. The 130 series, obviously the customers are reviewing it fairly favorably. Has it been designed into any products today?
JEFF BOUCHARDE
We haven't announced anything.
What I have said is that I'm happy with the design activity that we've seen so far. But we haven't announced anything.
We tend to not announce design wins until they're actually in production.
JEFF BOUCHARDE
Meaning the monitors themselves are in production?
JEFF BOUCHARDE
Yes.
The monitors are in production, and our customer and us have work out a way to announce it that works for both of us. So typically, we don't
announce design wins until they're -- the monitors themselves are actually in production and you can buy it off the shelf.
JEFF BOUCHARDE
Okay. When do you think we'll get those first type of announcements?
Allen H. Alley
Well, we said in terms of revenue expectations, that it will begin for those products in the third quarter.
So that's kind of the point of production. So some point probably in that time
frame.
JEFF BOUCHARDE
Okay. And have we essentially written off the Panstera products at this point?
JEFF BOUCHARDE
No, the 2100's, like I said, is one of the products that had the roots at Panstera.
And that is actually in production and shipping to a major OEM of ours.
The 103 series is collaboration between us and Panstera, using some of the digital sides from what when we did and some of analog stuff from what they have done.
And the 103 is the one that's hanging in the balance right now, based on the success of the 130's.
So, the jury is still out on the 103 right now.
JEFF BOUCHARDE
Okay. Alright, Thanks, guys.
Allen H. Alley
You bet.
Operator
We'll hear next from Bob [INAUDIBLE] at PMT Capital.
Unidentified
Hi.
Good job, in a tough environment. Couple things I guess I just want to try and straighten out in my head. First of all, Allen, the guidance you gave on the press release, just want to make sure I'm doing the math right.
So you have 122 million for the full year in guidance and looks like 46 for Q1 and Q2. Is that right, you guys?
To make that guidance, you have to jump to 38 million in Q3, Q4? I just want -- it sounds like
a -- I guess, almost 50% sequential growth? Is that right or am I missing something?
Allen H. Alley
We haven't provided any specifics kind of quarterly or outlined any specific quarterly expectations for revenue.
So, there are a number of ways which you can get that yearly
outlook that we provided. But we won't have any specifics for you on the quarterly numbers.
Unidentified
But on the call, on the -- is this -- we describe in terms of the full year guidance being 120 to 125, so the -- yeah, I guess -- and I have the guidance for next quarter right, in terms of the -- I guess you guys are -- okay, so it works out.
Within the ballpark of something on the order of, you know, 50ish percent sequential growth, somewhere along the line, right?
JEFF BOUCHARDE
Well, the other way to look at this is, it's really hinging on the monitor business.
And you look at the 130 family that we're beginning to ship right now, samples to customers, and engaged in every major monitor design win in the world.
And you look at the number of monitors that are shipped, and our customer list of who we have access to, and you kind of put all those pieces together and run that out.
I think those numbers, along with the growth of the advanced
television business, and some growth or at least stability on the projector side of the business, and you can kind of piece together a model that makes sense from the atomic level, bottoms ups or tops down.
Unidentified
I guess the reason I'm scratching my head with numbers, Allen, is from everything I have seen from Display Search, and the people that are a lot smarter than I am, looks like a fairly constrained in price pressure intensive monitor market for the balance of the year.
I think I saw somewhere that LG's new line is not -- 5G line, isn't even coming on until beginning of Q4 for production.
So you must be talking about
massive market share gains then, right?
Allen H. Alley
Well, let me talk a little bit about, at least what I believe is going on in the panel market.
The -- it's in the best interests of the LCD suppliers to low-ball the forecast of what they think is going to be available.
Because what they're trying to do is hold the prices up of the LCD's.
And say there's a ton of capacity coming online, everybody starts clamoring for lower prices. If you look back at last year,
for example, what were the numbers, Jeff, in when we went into the year with a forecast of 12 million? And we ended up at what, 16 or something like that?
JEFF BOUCHARDE
Yeah, little over 15.
Allen H. Alley
So that increase came from somewhere, and it wasn't that somebody built another liquid crystal plant.
It was that there's historically some low-balling on the side of liquid crystal supply from the FAB's themselves.
So I think there's an element of that this year, and also when they were to talk about the Gen 5 plants coming online, they're gonna kind of push those dates out as far as they can, and it certainly wouldn't surprise me that as they're bringing up this plant they start to get some yield from those lines earlier in the year than in late Q4.
Unidentified
But Allen, just -- I mean, the Display Search guys, which seem to be -- seem to have plugged into this, their numbers are significantly lower than the kind of -- I mean, just to confirm, they're forecasting a pretty flat market in terms of unit growth, sequentially through the end of Q4, is that right?
Allen H. Alley
Jeff, do you have the numbers?
JEFF BOUCHARDE
I would say it's more modest than we saw last year in terms of rates of quarterly sequential growth.
And that does reflect in the near term the panel supply issues. But again, I think we're all pretty confident as we look to the second half year that we'll see a fair uptick in panel supply.
The tough part is estimating,
trying to quantify, how significant that increase will be.
Unidentified
I'm not -- I'm not trying to be a dead horse.
I just want to understand how you guys were getting it. I had one other thing I wanted to touch on. In the projector market, I think Allen,
you mentioned your expectations were 10 to 15% growth.
Allen H. Alley
Yeah, unit growth, year to year.
Unidentified
And I'm just -- I kind of think of Infocus as the proxy for the market in my mind because they've done a great job maintaining share against a lot of very tough competitors over the years, and I -- I ran through their first column numbers, and they're showing down 13% in rev '01 versus the forecast for '02.
And it looks like every quarter of '02 is down over '01.
I'm trying to understand the -- how do I reconcile that with the idea that -- with the notion
that -- with the notion that -- maybe they're going light or they're losing share?
Allen H. Alley
There's a couple things going on.
One is, there is ASP reductions on the projectors themselves. In sort of, what it is, Jeff,
double digits, 10% of --?
JEFF BOUCHARDE
Yeah, in items of projectors, they're forecasting in the range of 15 to 20% or so a year.
Allen H. Alley
So units have to grow 15 or 20% to have a flat year in revenue, which I think is what you're looking at.
For us, the units are the most important thing. It's moving those units, because one chip per unit. The second dynamic is something we alluded to, HP just announced their entry into the projector market, and we alluded that there's other large PC OEM's that are going to be releasing their products shortly, and we did say that those are powered by Pixelworks as well. So first of all, the unit is more -- the units are more robust than what you would see from a revenue standpoint because of this ASP decline.
And
the second thing is, there are some significant new entrants to this market that have selected Pixelworks, that we think will be quite successful.
Unidentified
Okay. I apologize for having so much of the time. I just -- I got my fingers crossed on this one. But I guess you guys know your business better than I do. So good luck.
Allen H. Alley
Okay. Thanks.
Operator
And we'll hear next from Greg Weaver at Kern Capital.
Greg Weaver
Hi. Was there any gross margin benefit from inventory?
JEFF BOUCHARDE
Greg Weaver
Okay. And if you exercise your option to acquire the rest of Jaldi, is there any impact on operating expense?
JEFF BOUCHARDE
Yeah.
It's hard to estimate what that impact would be Real finely at this point. But roughly speaking, we're expecting, you know, assuming it would close, for example, sometime in the third quarter, it's probably a few hundred thousand of operating expenses in that time frame.
And then -- perhaps somewhere in the 600, 700 thousand range in the 4th quarter would be my best estimate.
But it's very, very preliminary at this point. We haven't even exercised the option at this point. So we really need to get through that process and work through the closing process, and then I'll have a better update and more specific estimates.
There are other things that we're going to need to consider. They have a number of employees, and we're in the same type of business and we have hiring plans that may be changed as a result of the integration of that business.
So there's a lot of things to consider that I'm just not prepared to speak about at
this time.
Greg Weaver
Okay.
Lastly, Allen, you made a comment about looking to expand the 130 family to go
into XGA mainstream markets? Did I misunderstand you, or is the current chip not well suited for that?
Allen H. Alley
I'm sorry, wasn't here on that. The 130 absolutely is an XGA product today. And it's very, very well suited for that.
What we're looking at is sort of how aggressively do we go after the lower reaches of the XGA monitor market, and are there some things, looking at speed rating the 130's, so that we have some lower speed parts that we can get some more yield to go after even the lowest end of the XGA monitor market.
So that's what I was referring to, really.
Greg Weaver
Do you foresee the initial traction you get on the space, more on the higher end of FXGA-UXGA space?
Allen H. Alley
No, not neccesarilly. I see really good traction in all sections, XGA, FXGA and UXGA for that part.
Greg Weaver
So even on the XGA segment, these guys aren't as price sensitive, given the performance?
Allen H. Alley
Well, They are price sensitive, there's no doubt about that.
But I don't believe there's been a part with this kind of performance, and this kind of quality and repeatability that has been introduced into this market.
So we're very bullish on the prospects for it.
Greg Weaver
Okay. Thanks.
Operator
We now have a follow-up question from Sherry [INAUDIBLE].
Unidentified
Hi again. Just a quick follow-up on the advanced TV markets. Did you say that it comprised 14% of your revenue in Q1?
Allen H. Alley
Yes.
Unidentified
Okay.
Great. And then, you also mentioned the LCD TV design win, your first one. Is that different than the NDSP China design wins?
JEFF BOUCHARDE
Yes.
Sherry, and this is a little bit of a subtle distinction. We've have had LCD TV design wins before The one we talked about in the call specifically was the first one where we had an NDSP video processing chip and a Pixelworks image processing chip used together in a design win in an LCD TV. Previously, we had LCD design wins, but it was just one of the Pixelworks image processor chips.
And yes, that's a different design win than the CRT's that we talked about, which are the standard cathode ray tube televisions that we talked about it the press release a few days ago.
Unidentified
Great. Thank you.
Conference Facilitator
We'll go next to Nelson Coe at [INAUDIBLE] Partners.
NELSON COE
Hi.
Good afternoon. I have a question regarding the PW-130 series versus the PW-103 series. Allen, you said that the PW-130 is being more attractive to customers right now. And I noticed on your product at a glance PS file on your website, that the PW-130 series includes a microprocessor and memory? And can you tell me what extra features that serves over the lower end, PW-103 series?
Allen H. Alley
All of these products, whether they have the microprocessor onboard or externally, require microprocessor for doing things like source selection, keypad interface, for doing our auto image adjustment and for doing your on-screen displays. So all of the products had to have a microprocessor either off board or onboard.
NELSON COE
Okay. And about memory?
Allen H. Alley
With -- memory is something that many of the products have, and I think on the chart we have not drawn a distinction between the different types of memory.
The PW-130 does have a little bit of memory onboard. We used that for some of our scaling and also for the auto failsafe feature that we have on the 130 products.
NELSON COE
Okay.
Allen H. Alley
Right.
NELSON COE
versus the 103.
Then can I -- can I believe that the ASP of the more feature-rich series is higher than the PW-103?
Is that the case?
Allen H. Alley
Yeah.
And what we've been looking at is, are there opportunities to strip out some of those features on the 130? To even lower the ASP of the 130, and to attack every single segment of the XGA monitor market. You're right, the 130's have more features than the 103 do right now.
NELSON COE
Okay.
Allen H. Alley
Yeah, we've sampled the 103's and we have them out with customers, and there absolutely is a market for the low end.
And we will address that
market with either the 103 or the 130, and we are evaluating which way to go right now.
NELSON COE
Okay. Should we expect revenue from the 103 sometime in the second half?
Allen H. Alley
You should expect revenue from one or the other sometime in the second half.
NELSON COE
One or the other. Okay. Great. Thank you very much.
Operator
We'll hear next from Mike Melvin at Salomon Smith Barney.
Mike Melvin
Thank you. You mentioned in talking about the projector market, some units versus revenue. You also talked about HP and I guess you didn't mention Dell, I'm not sure why. But getting into the market, did -- in the first quarter, the ramp up for their suppliers in Taiwan with -- was that something to build an inventory for them and now they're going to see if they can sell them?
Or is that something that you expect to continue at that same rate?
And do you think that, with Dell and HP enter the market, are they likely increase the market or they
more likely to share the market?
Allen H. Alley
Well, I think I'll let Jeff talk about the -- well, the chips we sold in the first quarter in Taiwan, it's difficult to tell because you sell to one integrator and they sell to multiple OEM's.
It's difficult to tell who they were selling to. We can tell you that the projector OEM's, or the projector integrators in Taiwan had a good quarter in the first quarter. I don't think we break that down exactly. Jeff, have we done that, exactly what the breakdown is?
JEFF BOUCHARDE
Allen H. Alley
So that's one data point.
Second one is, I think the HP and other large PC companies that are going to get into the projector business aren't just going to increase the business.
I think it's going to increase the channels, increase the awareness, increase the attach rates. Once they do that, they have opportunities of bundling projectors with notebook computers and that sort of thing, and I think that's a very, very easy and powerful way to purchase them.
I was kind of stunned that the data says that there's only about an attach rate of 4% of the notebooks, with projectors to date.
Mike Melvin
Is it four or -- actually I thought it was three.
Allen H. Alley
Well, I've seen -- I haven't seen three yet.
I've seen four, and I've seen five. So -- but whatever it is, it's very, very low, and a very small increase in that drives projector revenue quite nicely.
Mike Melvin
Thank you.
Operator
We'll take a follow-up question from Jay Craiger.
John Craiger
Hi.
Let's see. I saw some sort of a comment in the 10k regarding -- I assume this was regarding difficulty with the PW-130. And there was reference made to having to take some product back, and then reference to satisfying customers with like a third-party solution or something like that.
Can you describe what is going
on there more fully? Is that in fact regarding the PW-130?
JEFF BOUCHARDE
Yeah, that -- I think you're looking at one of the risk factors in the 10K. That didn't specifically identify products. I think what that was meant to suggest is from time to time, there are product issues that we need to deal with.
It certainly wouldn't be from the 130 family, since they're not at a stage where they're kind of in full-scale production at this point.
And I don't think we referenced anything with regards to using a third-party
solution to solve the problem.
John Craiger
Where is it?
Can you refer me to the page? I think it was in the 40s. Hold on. There was -- all right.
It referred to some other party. The conclusion -- that I reached was that -- I don't know, maybe you used a discreet solution instead of integrated solution? Does that make sense?
Allen H. Alley
Certainly, I can tell you it did not refer to the 130 family of products. From time to time, these products are complex. So you deal with yield challenges in getting new products out. But again, I don't have any specifics for you on which product we were referring to.
John Craiger
Okay.
Thank you. I appreciate that. Now, coming back around to -- a fellow was referring to this ramp on -- in the latter part of the year, that has to occur for you to hit your targets.
And he kind of referred to Ross Young's numbers, which a lot of us are now familiar with.
I guess we're all paying Ross a bunch of money. It seems he's working really hard and doing a good job. And, I mean -- I don't want to believe the numbers Ross puts out.
But at one time it looked like he was forecasting 19% unit growth over the course of the year, on the LCD flat panel side, and he brought that down.
Which -- so, if LCD panels were the place where growth is supposed to come from, it would suggest you have to gain a tremendous amount of market share to hit your targets. So I guess my long-winded statement question is, where do you expect to pick up this additional revenue? Is it from the LCD side or is it from the projector side or from the -- can you focus with respect to that?
Allen H. Alley
Let me talk about that.
First of all, we certainly have to mark up market share. There is absolutely no question about that, in the monitor business. And that's XGA, SXGA, UXGA, across the board. We think we have a great product line to do that. I think that the second thing here, and we pay Ross a lot of money too, and I think they do an excellent job.
But the thing that I keep harkening back to, is, as we entered last year, the forecast was 12
million units and we actually did about 16 million units.
John Craiger
Allen H. Alley
Well, we didn't believe that there was. I don't think anybody believed that there was.
John Craiger
But I think that when the price of the glass fell below 200 dollars, it was understood that there was a lot of capacity.
That's why the prices fell so low.
And that's the big difference. It's not that -- I think the forecasts at that time were focused on how much -- how quickly could
demands take up the new supply? And no one imagined the demand could come on so quickly.
Allen H. Alley
Right.
There certainly was an element of that. I think the other thing, though, is that the forecast of what is the ability of these guys to produce, is not as crisp as we'd all like it to be.
And we're very, very close to the LCD manufacturers.
I would say we're probably close -- closer than Display Searches to the LCD manufacturers, and I'll just leave it at that.
John Craiger
Uh-huh.
Well, okay. So response to my question is that we really should look for your market share gains and gains
in the LCD space?
Allen H. Alley
Yeah. I'd say -- I would say I would expect both to happen.
John Craiger
Okay.
Well, I mean, I -- you know, I'm pulling for you and for this whole market. I couldn't believe Ross's numbers when I looked at them.
Anyway, thank you. I guess that's it.
Allen H. Alley
Thank you.
Operator
We'll take our next question from Brian Alger at Pacific Growth [INAUDIBLE].
JEFF BOUCHARDE
Hi, guys.
Just kind of a follow-up question here. Clearly, the market share gains need to occur towards the second half of this year for you guys to meet your goals.
Allen, are you backing off at all on your one-third of the market target you mentioned earlier in the year?
Allen H. Alley
No, I think I even repeated it today.
JEFF BOUCHARDE
Okay. So -- and obviously, your new products need to generate a lot of that market share gain, or you're expecting your new products to be fairly successful in the second half, is that fair?
Allen H. Alley
Yep.
JEFF BOUCHARDE
Okay, now the tough question. Why should we expect the second half to see those products adopted, when the Panstera products failed so miserably last year?
JEFF BOUCHARDE
I would -- it's several things. First of all, it wouldn't say the Panstera products failed miserably. I would say that the Panstera products are being eclipsed by the 130 products. In a way, we're kind of the victim of our own success with the 130 products. Although you can't see them in the numbers yet, the performance of the 130 products, and the architecture of the 130 products, is just extremely compelling. In fact, I would say that the Panstera products were, and are, as good as, many of the lower-end products in the market today.
The success of the 130, I think, is going to be driven by the quality of partners that are collaborating on it, between Analog Devices and Pixelworks.
And I think if you do your homework and you go out and talk to people and you say, would you like an Analog Devices quality part, front end, with a Pixelworks quality image processor, integrated into a single component and priced competitively with the others in the market?
The universal overwhelming, absolute response is yes, absolutely!
And I think if you go talk to
the customers, that is what you will find out. And that is why I am so bullish on those products.
JEFF BOUCHARDE
I think that brings up my second question, with regards to pricing. Obviously, through [INAUDIBLE] through obviously the other industry press, pricing is drastically coming down in the marketplace, not only your own parts but across the board, across all segments, pricing is coming down.
Do you think you currently have the right price points targeted for the market?
Are you going to have to further reduce the prices to get that initial traction and get the engine engaged?
JEFF BOUCHARDE
I think absolutely we have the right price points. And it's being proven -- I think I mentioned to you that although we haven't announced design wins, I'm very, very happy with the design win activity that we've seen so far with those products.
I think the other thing is, is that we've made a bet on the future. Our products are .18 micron, and we've kind of thrown the long ball there. It gives us a competitive product right now, but going forward over the next year, or even two years, I think we've already moved to the next generation, and will be the most competitive in terms of our costs moving out in time.
JEFF BOUCHARDE
Okay. So if we look at the market today, you believe your price competitive with the products that are out there, and the products work as you described.
Your confidence obviously is very strong. We're all hearing that communicated. Should we deduce that you have design wins that have already
been awarded, that are non-cancelable, that, you know, we can take to the bank for the second half of the year?
JEFF BOUCHARDE
Brian, we'll announce the design wins per our usual schedule, and that's when the monitors and the projectors and the televisions are shipping.
JEFF BOUCHARDE
So without announcing that, we're working on basically a product forecast or a sales forecast.
But -- but your internal team
is confident, is that fair?
JEFF Boucharde
You're working on the data we've given you so far, and any checks that you would like to do in the channels and with the customers to verify that.
JEFF BOUCHARDE
All right. Thanks.
JEFF BOUCHARDE
You bet.
Operator
We'll take a follow-up question from Bob [INAUDIBLE] at GMC Capitol.
Unidentified
My question have all been answered, thank you.
JEFF BOUCHARDE
Thanks Bob.
Operator
Gentleman, there are no further questions. At this time, I'll turn the call back over to you for any additional or closing comments.
JEFF BOUCHARDE
Okay.
I think that's all we have. We'll be at a couple conferences in May, please stop by and see us at Salomon Smith Barney in Monte Ray or CIBC in New York. Thanks.
Operator
That concludes todays Pixelworks Incorporated's first quarter earnings release conference call.