Pixelworks Inc (PXLW) 2002 Q4 法說會逐字稿

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Good day and welcome to the Pixelworks, Incorporated fourth quarter earnings release conference call the.

Today's call is being recorded employ at this time you would like to turn call over to chief financial officer Mr. Jeff Bouchard.

Good afternoon thank you for joining us.

With me today is Allen Alley President, CEO and Chairman.

The press release we issued today includes and outlook section containing forward looking statements about our business.

Additionally on this conference call we are going to be commenting on our business outlook and making forward looking statements based on current expectations.

Words such as expect, anticipate, intend, plan, forecast, believe, estimate, and variations of such words or 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 it over to Allen.

Thank you Jeff I'll spend a few minutes giving you an overview of our business before turning the call back to Jeff to review forth quarter and year end financial results.

The fourth quarter was very strong ending to a solid year for Pixelworks.

Fourth quarter revenue, gross profit margins and operating expenses all came in favorably relative to our outlook which produced better than expected earnings of 5 cents per share on pro forma basis and 1 cent per share on GAAP basis.

We’re again cash flow positive in the fourth quarter resulting in a strong year ending balance sheet with over $101m in cash and marketable securities.

The fourth quarter was another record quarter for us with 29.1m in sales.

This represents an increase of 2.2m or 8% over 23 and is up 6.5m or 29% year over year.

We had over all record unit shipments again in Q four of more than one 1.3m chips bringing us to more than 5m chips for the year an increase of 82% compared to 2001.

Our fourth quarter book to bill ratio was over one to one giving us a book to bill in excess of one to one in ever quarter of 2002.

For the year we achieved record revenue of 102.6m while increasing gross profit margins.

On the bottom line we were consistently profitable on pro forma basis throughout the year delivering 7.2m or 16 cents per diluted share on a GAAP basis the net loss for the year of 20.9m or 48 cents per share was improved over the net loss of 42.6m or $1.05 per share in 2001.

The gap net losses in both years resulted from large non cash acquisition related expenses.

The 2002 gap net loss includes the restatement of third quarter GAAP financial results that comes from a reversal of previous advice from our external auditors regarding the accounting treatment for Jaldi semiconductor.

This revision only affects the accounting for intangible assets from the acquisition and does not change our previously reported third quarter pro forma earnings of 4 cents per share.

The key factor that we had to consider to be able to properly account for acquisition was whether or not Jaldi was at the time of acquisition a quote business or a quote development stage company as it turned out this was an especially difficult determination for a company like Jaldi where they were engaged with customers but had not shipped a significant amount of product for revenue.

After reviewing existing accounting literature and how it applied to the facts of the transaction we asked for and received guidance from our external auditor for the appropriate accounting treatment based on their guidance we accounted for Jaldi as a business combination.

After further review by external auditors at year end of the same unchanged facts, they reversed their prior position and determined that we should treat Jaldi as a quote development stage company rather than as a business.

Further revised guidance we have restated the third quarter gap financial resulting accounting for Jaldi as a development stage company which is considered an acquisition of assets.

Please refer to today's earnings release for details of the changes to the third quarter balance sheet and income statement which includes a reconciliation between gap earnings and pro forma earnings.

Let me now turn to discussing the state of our three end markets and our competitive position within those markets.

I will begin with the advanced television market which we believe is likely to be ultimately the biggest market that we serve.

The advanced TV market is really starting to take off this year the market for advanced TVs, meaning progressive scan carts LCD TVs, digital rear projection TVs and plasma displays, will be approximately 15m units.

There are currently more than 150m TVs sold annually and we believe that ultimately they will all be flat.

This was never more evident than at consumer electronic show or CES in Las Vegas where it was difficult to find a CRT on the show floor.

We're quite confident that the market for LCD TVs in particular will grow very quickly in the coming years as the cost of large size LCDs dropped dramatically as 6 and 7 generation LCD pads come on line.

Display search recently revised their forecast for LCD TVs and now believes they will grow at a projected #182% in Q three and reach more than 16m units by 2006.

As a company we are investing most heavily in the advanced television market: The two acquisitions that we made this past year MBSP and Jaldi were both made to supercharge our competitive position in the advanced TV market.

They are already paying dividends ref cents 16% of total revenue in 2002 versus 3% in 2001 and we think their contributions will become even more evident in the coming years.

Our Pixelworks Toronto team formally Jaldi Semiconductor is continuing to make great progress developing exciting products for the advanced TV market: P W 2200 which was announced in a press release issued earlier today is a product developed by Jaldi that is currently sampling to lead customers and expected to be in production by mid year: P W 2200 is a ground breaking product that combines in a single chip a digital video decoder, an analog pc interface and HD TV interface with several other TV system functions that are currently handled by multiple discreet I Cs.

The P W 2200 typically replaces three to four chips in a digital TV reference design and can save approximately $10 to $15 in system costs.

Our Toronto team from Jaldi is also nearing completion on its flagship advanced television product the PW 565.

The PW 565 features a reconfigurable system on a chip video dsp architecture with dual interlaces that enables significant performance enhancement to be made through software making it a very flexible architecture for a variety of advanced television products.

We also show the P W 565 at CES.

The customers are excited about the features of the 565 including full dual channel interlacing the highest resolution h d t v interlacing and a special boost function that improves the performance of LCDs for TV applications.

The P B W 585 is sampling to customers and in fact was on the floor at C E S inside a number of prototype LCD TV products from a major consumer electronics company.

We believe the P W 565 will be in production with this lead customer by mid year.

At CES we also unveiled a new family of front end processors and interlaces including PW 1225, P W 1231, and P W 1235 designed to bring state of art performance to the advanced television market.

These new products combine multiple functions onto a single chip enabling simple flexible cost effective solutions for digital and analog television manufacturers.

This new family of video IC is aimed at every major segment of the advanced television market: P W #1225 is designed for mainstream progressive CRTs.

The P W 1231 targets entry level LCD televisions and the PW 1235 has the features required for high performance televisions using LCD plasma and rear projection technologies.

All of these new ICs incorporate Pixelworks patent pending—interlacing, scaling and video enhancement technologies.

Using highly efficient video algorithms these chips deliver natural lifelike cinema video while meeting cost demands of the high volume consumer’s electronics market.

As we discussed in the past Jolt Technology has embodied in our P W M 1,000 is powerful and sets new standards for features although at a higher price point than our mainstream offerings.

While we continue to drive the PWM 1000 into production we are leveraging our investment in Jolt Technology to bring Jolt features to our mainstream products.

An example of these efforts is we demonstrated P W 1235 at C E S: The P W 1235 is part of our cost effective line of video ICs that we announced earlier this month the P W 1235 provides many of the intelligent windowing features of our Jolt Technology at a very compelling price point.

By adding the PW 1235 to an advanced television design manufacturers can add movable resizable windows with adjustable transparency to high performance digital or analog televisions where premium features are required.

We are bringing the vision of a new advanced television user experience that debuted with our first demonstrations of our Jolt Technology to a cost effective reality in the P W 1235.We also introduced at CES two digital TV production reference designs that we developed slash time to market for manufacturers of flat panel televisions use, LCD or plasma technology.

Pixelworks has created two production ready designs than an advance television manufacture can quickly implement based on our complete hardware and software solutions these digital reference designs leverage Pixelworks years of experience of provides system solutions to the most demanding and diverse digital display products.

By following reference design we helped marches get to market in the fraction of the time while implementing development expenses so as to tap those markets sooner with less investment.

Our time to market strategy has been validated by two electronics manufacturers who are leveraging these reference designs for their first entries necessary the rapidly growing flat panel television market.

Chong Hong, the largest television manufacturer in China and Investel Europe’s second largest television manufacturer are planning on introducing their first flat panel television in first quarter 2003 all powered by Pixelworks.

Chong Hong is entering the LCD TV market with five products based on our reference designs by leveraging the reference design they were able to develop five products in the time typically required to develop one.

Investel is introducing new full featured plasma TV with performance and innovative features required to compete in Europe.

The addition of NDSP and Jaldi strengthen our arsenal of people to give us one of the finest IC and software development engines in the world that is focused on the advanced television market.

We believe that ultimately the advanced television market will be our largest market and we are making the investments necessary to be a leading company in this space.

I'll now turn to LCD monitor market.

The fourth quarter was a good one for us in the monitor market.

Units were up approximately 7% and revenue increased approximately 39% sequentially as average sale prices actually increased over the third quarter with the strength our higher resolution businesses.

Even with the 39% increase over Q three, monitor book to bill was still in excess of one to one.

Monitor revenue accounted for about 22% of our overall business.

We continue to be committed to monitor strategy that we outlined two quarters ago.

We believe our progress in the monitor business is a confirmation of that strategy where we focus on the three most technically demanding and highest growth segments of the monitor business that play to the strength of both Pixelworks and our partner Analog Devices.

Specifically these are SXGA and higher resolution monitors where premium is placed on high speed mixed signal analog and digital design dual interface and or video and finally our focus on Smart Panel.

The corner stone of our monitor strategy continues to be P W 130 family of products these new chips combine Pixelworks award winning image processing technology with analog devices world leading interface technology to deliver a complete low cost monitor solution using cost effective .18 micron fab process.

In the last call I told you that our customers were telling us that the analog performance of the PW-130 was already on par with the best in the industry and we were working to improve the DBI performance.

Since that time we made further improvements to both the analog side and the DBI.

We now have analog and DBI performance that's gaining customer acceptance for both XGA and the more demanding SXGA application.

We shipped more than 80 thousand chips of the P W 130 family including both XGA and SXGA versions in the fourth quarter.

Going forward we plan to continue to refine our performance with analog devices in our relentless pursuit of excellence.

As I said before developing and mass producing mixed signal chips with integrated ADC and DBI technology that are capable of performing at SXGA and higher resolutions is extremely challenging much more challenging than we or our competition originally thought.

Add on top of this integrating the timing controller or T con and you have sophisticated chips that are difficult to design or produce in volume.

We continue to believe there will ultimately be few companies in the world that can compete in this space and Pixelworks has the products, technology, partnership, and customer relationships necessary to be one of the leaders.

The fourth quarter was a transition quarter for our Smart Panel business.

Smart panel chips accounted for only approximately 10% of our monitor chip shipments as we began shifting customer design from our older PW115 to our latest PW135.

We expect to complete the transition during the first quarter and Smart Panel shipments as a percentage of our overall monitor sales should return to previous levels.

In fact over the last quarter we saw the number of manufacturers developing Smart Panel monitors more than doubled from approximately 10 to more than two dozen.

We continue to believe the Smart Panel methodology provides the lowest cost monitor solutions and ultimately the lowest cost solutions always prevail.

Worldwide LCD monitor shipments were relatively flat in the first half of 2002 due to a shortage of LCD panels.

Now the industry is poised for growth again as result of production ramp of the fifth generation of LCD fabs.

Recently LCD prices have tumbled as the fab pasts have come on line.

Our latest checks and monitor street prices show 15-inch monitors can be found for as low as $250 and some 17 inch monitors have already dipped below the historically magic $500 level with several models below $400.

As a result we believe industry is on track to ship 45m to 48m LCD monitors in 2003, which would be a 40% to 50% percent increase over 2002.

The projector market continued to be strong for us representing approximately 58% of total revenue in the fourth quarter.

Shipments to projector customers hit record levels with revenue up 12% sequentially and 38% year over year while revenue was up sequentially the book to bill as expected was a little less than 1% indicating some typical seasonal softness in the first quarter as Japanese customers end their fiscal years.

At CES we demonstrated new image processors and chip sets designed to cover the spectrum of price performance for projection.

Our innovative semi automatic keystone correction technology called corner click received enthusiastic responses from world's leading projection companies.

Pixelworks has been a leader in keystone correction technology.

We first introduced vertical keystone correction in 1999 and followed with a combination of vertical and horizontal keystone correction in 2001.

Pixelworks has set the standard in the industry for quality and performance.

Virtually ever projector in the world today uses vertical keystone correction and we are now driving horizontal keystone correction to lower and lower cost points.

Almost every one of our projector customers as already introduced or is designing products that use our new horizontal keystone correction products.

Our latest keystone correction capability allows the projector to be placed virtually anywhere in the room and we correct the projected image to give a square high quality picture.

The problem has been that the adjustment of the image is not intuitively obvious to the end user.

To correct this problem we have developed an innovative and intuitive semi automatic keystone correction technology that we call corner click.

With our patent pending corner click users simply point and click using your remote control to identify the four corners of their projection screen.

Our chip uses that information to calculate and render a perfectly squared projected image that instantly pops into place.

Corner click make its so easy to adjust keystone correction the customers have now asked us to provide greater keystone correction range to give more flexibility to mount the projector anywhere in the room.

We have answered their wish and at CES demonstrated our new advanced keystone correction chip called P W K E. We did this in conjunction with the unveiling of corner click.

P W K E is used as co processor with other image processor chips to extend horizontal and vertical keystone range for most demanding application.

These new chips will begin shipping later this year.

We're working closely with projection manufacturers to drive projector prices to new thresholds of affordability.

The industry is relentlessly driving toward the $1000 projector.

We have leveraged our work in monitors to provide manufacturers with new chips offering higher levels of integration while preserving Pixelworks features and image quality to deliver significant cost advantages.

Pixelworks chip sets combining image processors the interlaces and keystone correction extension parts give our projector customers unmatched feature flexibility for new value price projectors.

We believe we continue to be well positioned to maintain our industry leading market share in projectors.

I’ll now turn the call over to Jeff to review the financials.

Thanks Allen.

Obviously we were very pleased with the financial results over the fourth quarter.

Revenue of 29.1m gross profit margins of 47.6% and combined R & D and S D A and 12.1m all came in favorable end of outlook result over better than expected .05 cents per share pro forma earnings.

Fourth quarter marked 11th straight quarter of profit article on pro forma basis.

We were also profitable on GAAP on forth quarter with income of 679d this or 1 cent per diluted share please refer to financial states for reconciliation of the differences between proforma and net income and net income according to gap.

For the year we achieved record revenue of 102.6m up 13% over 2001.

While improving gross past margins to48.8% to 49.6%.

We are very pleased to see our revenue growth accelerate throughout the year ending with 29% year over year revenue growth.

As result of this growth combined r, and d, s g, and a dropped to 48.4% to 41.7% in the 4th quarter despite technology expenses of two early stage companies through acquisition this lead to pro forma operating margins increases in the 4.2% in the first quarter to 6.3% in the fourth quarter.

On the bottom line, we were profitable on pro forma basis in each quarter of the year leading to pro forma net income 7.2m or .16 cents per diluted share.

Take a closer look at the fourth quarter.

Record revenue of 29.1m was up 29% year over year and 8% sequentially.

The LCD monitor business picked up considerably in 4th quarter of 39% sequentially the strong growth resulted from new design winds going into production plus a greater supply of 17 inch and larger LCDs.

As Allen mentioned earlier we were also helped by the first production shipments of our new PW130 platform of monitor chips.

Projector business was also strong up 5% sequentially.

Advanced TV business was down 21% sequentially however up 341% year over year.

The sequential decline in the advance TV business was related to seasonal softness and shipments to progressive scan TV in China we expect pick up in the advance TV business in the first quarter and are excited about prospective growth in this area.

As result of very strong growth in LCD monitor business a greater percentage of revenue came from LCD monitors in the 4th quarter compared to the 3rd quarter.

In fourth quarter projectors was represented 58% of revenue up from 57% in the third quarter LCD monitors 22% up from 18% and advanced TV 15% down from 20%.

Revenues from other sources remained approximately 5% in the 4th quarter.

As a result of a greater mix of LCD monitor business which has the lowest gross profit margin of our three end markets overall gross profit margins declined in the 4th quarter to 47.6% from 49.2% in the third quarter.

Gross profit margins were however on the high end of our outlook of 46% to 48%.

Excluding 132,000 of non cash expenses for amortization of purchased development technology that resulted from proforma gross profit margins were 48% in the 4th quarter.

R & D and SG&A combined were 12.1m up from 11.7m in the third quarter.

The increase was primarily due to having a full quarter of expenses from Jaldi compared to a months in third quarter.

Despite an increase in expenses R&D and SG&A expenses combined from in the third quarter to fan point accept percent of revenue in the 4th quarter.

For bam we also incurred 242,000 in non cash expenses of amortization of assembled work force from the Jaldi acquisition $1.1m in stock compensation from the three acquisitions we have made.

Proforma income before taxes which excluded $1.5m in non cash expensese were $2.3m a 7% increases over the previous quarter.

Including the $1.5m in non cash expenses were income before taxes according to gap were 852,000 which compared to gap loss before taxes in the third quarter.

The third quarter gap pretax loss resulted from 20.1m charge from acquisition of Jaldi.

The tax provision in the 40 quarter of the accept point 7.4% of proforma income before taxes.

Next net income according included was 679,000 over .01 cent per diluted share.

This was improved from $19m in the third quarter.

Proforma net income in the 4th quarter excluded 1.5m was 2.2m or 5 cents per share.

It was up from 2m or .04 cents per share in in the third quarter.

The balance sheet remained strong.

Cash and marketable securities increased 1m to 101.6m.

Accounts receivables out standing improved from 33 day necessary third quarter to 32 days in the fourth quarter.

Inventory increased 2.7m to 6.8m inventory remains -- represents four to five weeks of inventory.

On going goal is to hold four to eight weeks of inventory.

That concludes the review of our fourth quarter and year end financial results.

We believe revenue in the first quarter will be 29.5m to 31m this represents 34% to 41% increase year over year.

Due to typical seasonal softness in projectors we are not planning projector growth revenue in the first quarter we believe we will see increase in LCD monitor and advanced TV business.

We have approximately 80% of mid point reef new range either already shipped or in backlog scheduled for T1 shipment.

This is similar to the same point last year.

We expect proforma gross profit margins of 46% t o47% in the first quarter whether we're on a high or low or other monitor business -- combined R&D and SGXA expenses are expected to increase to 12.4m to 12.8m in the first quarter which is up from 12.1m in the fourth quarter.

We expect most of the growth in the LHRX did line for product development.

Expect tax provision in 2003 to be approximately 35% of proforma income before taxes.

This represents no change from previous guidance.

For information on all elements of our business outlook refer to business outlook today which also contains business outlook section.

The press release is available on the investor section on our website at www.pixelworks.com.

Before turning it back to Allen I want to quickly mention we will be presenting at Davidson technology conference in Utah on February 21 and the Display Industry Investment Conference in New York on March 18.

I will now turn it back to Allen for closing comments.

Thank you Jeff.

In summary and let me say it was very pleasing to end the year on such a strong note.

We achieved record revenue again in the fourth quarter capping our sixth consecutive record year.

We delivered solid financial results including our 11th consecutive quarter of proforma profitability since going public and positioned ourselves well for growth in the future with some key acquisitions made over the course of the year.

To top it all off in November we were recognized by Deloite and Touche as the 22nd fastest growing technology company in America.

I'm very excited by the prospects for the coming year.

We will have without a doubt the broadest product line up in the history of our company and we are participating in not only one exciting market but three markets that offer tremendous prospects for growth I would like to close by thanking all my fellow workers for a great ending to a prosperous year.

We will now open for questions.

Thank you today’s question and answer session will be conducted electronically.

If you would like to ask a question please do so by pressing the star key followed by the digit one on your touchtone telephone.

If you are on a speaker phone please be sure the mute function is turned off to allow your signal to reach out equipment.

We will proceed in the order that your signal is.

We do have[Inaudible] leverage yourself to one question and one follow p question so that more people can ask questions today.

Once again please press star one on your touchtone telephone to ask a question.

We will go First to Brian Alger .

Great quarter.

Looks like the panel display revenues were up quite a bit, certainly better than we expect on a revenue basis, but I think you said units were up open only 7%.

Do you believe that in line with the growth of the market or is it a little bit shy that.

Should we expect market share to rebound in Q one.

Yeah, we think that's a little bit less than the market grew in units.

Mostly because I think you -- you also heard us talk about the Smart Panel units being down in the quarter from the previous quarter through this transition, we expect that once we get the 135 into production with the Smart Panel customers that will come up and I think that of the aberration that you saw this quarter but we were happy with the strength of the higher end business, higher resolution businesses and that's what caused the revenue up take.

Jeff did you want to add anything to that.

No.

Okay.

Quick follow up of the PW 130 series parts that you are shipping, sounds like it wasn't a 135.

Which part made up the bulk of 80,000 units?

You know we didn't break that out what I did say was if the XGA and FFGA I think I can say -- I'm speaking without my notes here but I think I said we shipped at least something of every one of those parts including the parts with the timing controllers.

It's just we didn't ship as many timing control parts in the fourth quarter as we had in the third quarter.

Fair enough.

Good Quarter.

Thank you.

Thanks.

Just a reminder it is star one to ask a question today .

We will go from Noel Atkinson in the emerging growth equity.

I was wondering if you could talk about some of the pricing trends for your chips in the three categories.

In the three categories meaning resolution.

Actually by monitor projector TV.

Okay in terms of fourth quarter, you might have guessed by looking at the unit and revenue growth for monitors we actually experienced in increase there of about 30% and again that's just driven by mix and we had much greater percentage of resolution business in the 4th quarter compared to third quarter.

As we get the mainstream 130 series ramped up we do expect [DST’s] to come back down.

Again, it will be heavily dependent in terms of the rate of decline on the volume of the TW 130 series that we shipped in the coming quarters.

In terms of the projector very little AFP erosion there I think it was less then one percent sequentially.

That's not you know out of line I guess with our expectation is kind of low single digit. [Inaudible].

In this quarter we had a greater proportion of TV chips going into plasma displays for example then we did going in to progressive scene [Inaudible] television, so it drove the AFP up.

In terms of predicting the AFP’s moving forward, again it's going to be very heavily dependent on the particular mix of chips that we ship in a quarter.

Great.

As a follow up, you mentioned that the number of manufactures was smart panel wept up from 10 to 24.

Does that mean all 24 are using Pixelworks.

As I was reading that I realize today that it wasn't specifically clear.

What we were talking about is 10 customers of product that use Pixelworks going to 24 customers of products that use Pixelworks.

So there's 24 manufactures that are building Smart Panel monitors that use Pixelworks chips, not 24 in the total industry doing anything with Smart Panel with other people's chips.

Does that make sense?

Just one side to that.

Do you guys believe that you would have strong position in terms of Smart Panel relative to your competitors?

You know, I don't than we ever gotten into that.

The one thing that we have had is we believe we probably have a greater focus on driving Smart Panel than many of our competitors especially for the high resolution products, the FXGA which requires the reduced swing differential signal timing controller.

I don’t know that we are trying to lay claim to marked share numbers and smart panels and we had a terrific focus in that area and we believe that is going to be the model for a bulk of the monitor business.

Thanks.

Our next question is from Rick Shaffer from CIBC world market.

[Inaudible] I just wanted to clarify is the 1225, 1231,1235.

Presuming 1225 is NDSP deriver chip, and 31, 35 are jaldiscpe 35 is a mix of jolt.

Is that correct.

Yes and going forward it's going to get difficult to sort of assign responsibility for each of these chips because the groups are collaborating with each other and we are cross piling technologies between the groups.

But generally speaking, the whole 12 serious, 2525, 1231, and 1235 were basically derived from the NDSP group, when you get up into the higher end chips there [Inaudible] there is cross [polarization] going on but for this round you could pretty much say that those are NDSP chips.

On a follow up, aside from genesis and their based products who else you see in the market?

Are you see [Inaudible] anything other players we should know of?.

In which segment are you talking about.

Advanced TV market.

You know, in that market, you run into sort of traditional competitors that have been there for long time, Philips, SP’s even folks like Toshiba that have been selling chips in analog television for a long time.

So you see, the people in the analog TV business sort of trying to migrate in to the digital TV business and flat panel TV business.

And then from the other side you see all the kind of traditional competitor in the monitor space that we have seen that are sort of trying to get into the TV business.

So it's sort of a mix.

But the new folks are really those big multi-national consumer electronics companies that are traditionally built chips for analog television.

And was your technology, which aspects of your technology do you feel separates you from your peers.

Is it the scales, is it interlacing.

In the TV business.

Yes in the TV business.

There are a lot of things.

I would say the scaling certainly is one and the scaling gets into the warping that you have to do for 16 by nine displays and 16 by 10 displays, the way you have to stretch them.

We believe that the portfolio of the interlacing technology that we have, when I say that I mean the peer interlacing and then some of the image improvement things, the contrast improvement that sort of thing that we do, we think that portfolio is very strong.

Specifically we think we have extraordinarily good interlacing performance at very very low cost points meaning that it takes us less silicon to get extraordinary good performance than some of our competitors.

We think ultimately in the television business delivering great quality at the lowest possible cost is really going to be a huge differentiator for us.

All right well thank you, and congratulations on a great quarter.

We will go next to Jonathan Joseph from SSP

Yes.

Good Afternoon.

I want to ask you folks about the break out of your competitors in the monitor space.

Whether Genesis has the momentum there, you know they did previously also on a Taiwanese side, how would you characterized your competitor from the Taiwanese silicon side.

Hi John this is Jeff.

Genesis still today obviously has the lion share of the monitor business.

I think they are in the 55-60% range in term of market shares, so they continue the good product and continue to lead the industry.

As you look to the next pear of competitors and specifically Taiwanese competitors, market share can shift quite very quickly and among those competitors but the ones that appear to the have the most market share today is MRT and I think last quarter that had about nine percent market shares.

So in terms of unit market share you go from Genesis 55-60 % on the unit basis and MRP at ten and then you have a lot of players including ourselves that are kind of in the mid single digits on a unit basis.

On the dollar basis it's again Genesis in the same percentage range 55-60% and we're actually number two last I looked on a dollar basis.

So I think we have roughly 10-11% share on a dollar basis.

Then again you go to the next highest competitor would be MRT which probably has in the higher single digit range in terms of market shares.

So there's a number of Taiwanese competitors but there isn’t one kind of individually that has stuck out to this point.

: Jeff, given the nice pot that you got in average prices in last quarter is it your sense that pricing pressure in this market has relatively abated.

Well, I think there's going to be on going pricing pressure.

I think in the higher resolution phase, FXGA and higher, there isn't as much pressure as there is in [XTA’s] baize.

Which is still pretty competitive.

I think there certainly has been some moderation of the pricing pressure lately.

And I think it's more due to -- we're getting down to the point in this business where the larger players actually have cost advantage because of the ability to buy many many more wafer’s than the smaller players do, and that that cost advantage is actually is getting down to the difference between being able to be in this business profitable and being unprofitable.

If you are unprofitable in the business you are not going to be able to stay in it -- cyou only stay in it by raising money from other sources and as we saw in other industries that doesn't last for long.

I think that's the phenomenon that you are beginning to see is that the low hanging fruit of where you just into this business grab a few percent of market share and some margins, even if you are buying few wafers a month is gone now.

And how about new players Allen like national semi conduct data quiet a bit annoys you about getting you in the scalar basis.

Have you seen or making quite a bit of noise about getting in the scale of business.

Have you seen new players entered the market recently.

Well, Nation’s been there, ST’s been there, Philips been.

You know the big players.

You know, we're not seeing sort of a huge shift in that direction.

Certainly MRT has taken share from the other Taiwanese guys but you know so far it doesn't look like they have made huge [Inaudible] road into the Genesis share.

And the trick now is really going to be who can move to the next level, who can move to FXGA and above.

The difference here is that a year and-a-half ago the margins available to somebody, even if small guy in XGA were pretty good and today the margins even in FXGA have come town pretty dramatically.

So that a small player trying to get into that FXGA business has much higher challenge than they did getting in to a XGA business you know let’s say a year and-a-half ago or so.

: Thank you gentleman.

Thanks.

Thanks John.

Our next question is Tom Burns from Hands on research.

Hello.

I was wondering if you had any capacity con straights in the fourth quarter and looking ahead to 2003, how much can your production grow before you do hit capacity constrain.

I'd say generally in the semiconductor business nobody has capacity constrains right now.

And we don't for see any short term or long term.

Okay and did you break out or do you have a number for cash flow from operation for full year of 2002.

Yes, for the full year it was $6.7m cash flow from operation.

Okay thank you very much.

You bet.

We'll go next to Brian Alger from Pacific Growth Equities.

Hey Guys.

Just a couple quick follow ups from John’s comments or questions. [Inaudible] landscape obviously has been very much in debate and in the press and what not, and I guess what it boils down to is, you guys seem to have finally made the transition into FXGA market with both analog and DVI and Genesis has been there for a short period of time.

Do you see anyone in the market today also shipping production chip or any quantity of what so ever other then yourself and Genesis.

What I said in the past Brian is, that only two I knew of was Analog Devices and Genesis.

And Analog Devices does it with stand alone front end chips.

There are -- besides those two no.

Not that I know of.

So the claims that we see from the various other participants may be aren’t as incredible.

Well you know, and I said this before too, it's pretty easy -- not easy.

It's possible to produce a hand full of these chips whether they are analog interface chip -- you can take analog interface FGA chip and short them and find some that run at FXGA and sample them to customers.

DPI is very similar.

You can always sort chips and get a few that run at higher speed [Inaudible] that allows you to show somebody a product that runs and works and it can be tested and evaluated and it looks pretty good the trick has been shipping hundreds of thousands or millions of units in a quarter at those higher speeds.

And so far the only two [Inaudible] that I know of are Genesis, and Analog Devices.

In the advised television market there are starting to get to be little more conversation once again on the interface that we might receive the signal you know certainty comes [Inaudible].

And one of those applications DBI interface now that you have solved the issue with DBI for the LCD monitor market, can you then apply that into the consumer electronics market or do you have some hurdles that you have to go thru in order to support the consumer applications.

Yeah, the -- we're exceeding my technical abilities here.

But the under pinning of DBI for consumer for the monitor are the same, the consumer has more security features and scrambling features for the DBI and the consumer market.

So the under pinning transport sort of the way you move the bits is the same.

It's what you do with them in a sort of encoding and decoding.

So yeah, that technology certainly applies in the consumer space with the addition of little bit more technology on top.

Does that affect your ability to penetrate the market with your own solutions or are they today discrete functions

When you say our own solutions do you mean our own DBI solutions.

No.

I guess the one I'm referring to is you gained really good successes with NDSP and related parts and I'm -- to the best of my knowledge they are not utilizing [Inaudible] receiver certainly not one [Inaudible] certified.

I was wondering if that hampering you’re able to penetrate some of the larger bigger name accounts, because there isn’t any integrated part available yet or is that just something that customers don't even need at this point in the game.

I think we are still at a stage where people are kind of swirling around trying to figure out what are going to be the standers on that side.

One thing that they do know is that they need the interlacing and need to be able to interlace everything from you know anyone of the 18 different high definition television standards and we have solutions for all of those.

One final question.

Trying to understand the latest chip that was announced after the close date of the 2200.

Does that include demodulator and de-mux or is just simply the video decode.

You know, I don't know that we got down to that level of detail in that.

I don't know.

We being do it off line later if that's all right.

What you can do it refer to the press release then go to the website to go any public information that we release on that.

Because I'm sure there's going to be some things posted over the next couple of months that would clarify that.

Great.

Thanks again.

We'll go next to Alex Wodder-- capitol management.

Congratulations on a great quarter.

Thanks.

Great congratulation on the nice quarter.

I wanted to ask you but the new products the PW 2200, 1225, 1235, 1231, what process technologies are those?

Are those .18.

You know we didn't -- I don't think we said.

The 2200 is .18, the 12 series is not but the 2200 is .18.

Okay.

Very good.

And can you tell me how many new products were introduced in 2002 in total.

Wow.

I don't know.

I don't have the compilation.

It was dozens.

Would you expect to be more in 2003 than there were in 2002 in aggregate.

I would say that we're -- that the teams that are in place from 2002 are similar to those teams those are in place for 2003.

The velocity of new product introduction I would expect would be similar.

Okay and last quarter you mentioned that you shaped out five new chip designs?.

How many did you shape out this quarter?

I thought I was going to get this question.

I just didn't check.

I don't know the exact number but it's similar to that number.

It's -- you know it's similar to that last number just off the top of my head.

Okay and the last question that I have is what is the road map for [Inaudible] to .15 or .13.

I don't think we tied that down specifically.

I think as you move to the deep deep -- [Inaudible] .90 nanometers or .70 nanometers, I think there is going to be some things that people do differently at that point in time.

So there's not a define growth map but I think the -- anything up to 90 nanometers is going to be fairly straight forward.

The 90 nanometers or .70 nanometers I think we are going to be rethinking some of the architecture for the chips and how we do that.

Okay.

Congratulations on a very strong quarter.

Thanks.

Thank you.

We have a follow up from Noel Atkinson from Emerging group equity.

I was just wondering your advance television space, how important is it for emergence of the high definition television for your strategy itself.

I think it's nice to have but not essential.

One of the things that's happening is just digital TV and just simple progressive scan digital TV is getting a lot of traction specifically in China.

I think the other thing is that I feel like we're sort of crossing over where even if people don't have hi-definition broadcast to their home or don't have hi definition cable that, next big investment that they're making in there thousand dollar television set, they would like to be sure that it's high definition capable for the future and that's just kind of what is feels like to me.

Practically speaking, there was an article I think it was in USA today several months ago about the number of households in United States that receive multiple digital broadcast.

I don’t know if you say it Jeff.

It was an astounding number.

Like 65% of household in United States today already get at least one hi-definition broadcast.

So both trends are going on but we don't have to have 65-70% of the household watching mostly hi-definition television for it to drive our business.

[Inaudible] Are you interested in adding more HD functionality weather it was decoders or demodulator or tuners.

Yeah, just like in all the business that we have been in, if you take one of the boards, if you look at those production reference designs that we talked about, if you look at those boards, there's probably 20 discreet IC’s on those board or something like that with the Pixelworks IC sitting in the middle or maybe two or three Pixelworks IC’s on that board.

We mention in the television business in particular we're getting much much more into chip set, so there's opportunities to integrate all of those functions and infect one of the exciting thing about the television business is today those boards have two tuners on them to allow two live broadcasts to be viewed simultaneously.

I think some day we are going to have three, four, five six, seven tuners, which today would be seven times the silicon real-estate that you see right now.

So I think there's lot of head room for further integration and for adding features as we move forward in that space.

Okay thank you.

That concludes our request and answer session.

I would like to turn back over to Allen Alley.

Thank you very much.

We look forward to seeing you at our future conferences.

That concludes our conference call.

You may now disconnect.

Call ended at five opinion p.m.Call ended at 5:57 p.m