Pixelworks Inc (PXLW) 2007 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to this first quarter earnings announcement for Pixelworks, Inc.

Today's call is being recorded, and now for opening remarks and introductions, I'd like to turn the conference over to Mr.

Rich Brooks.

Mr.

Brooks, please go ahead.

Thank you.

Good afternoon, and thank you for joining us.

With me today is Hans Olsen, president and chief executive officer.

The main purpose of this conference call is to supplement the information provided in our press release earlier today, announcing the company's financial results for the first quarter, ended March 31, 2007.

The press release and contents of this conference call contain comments about our business outlook, including forward-looking statements, and are based on our first quarter financial results.

Investors are cautioned that all forward-looking statements involve risk and uncertainties that could cause actual results to differ materially.

The forward-looking statements that we make today speak as of today, and we do not undertake any obligation to update any such statements, reflect events or circumstances occurring after today.

Please refer to today's press release, our annual report on Form 10-K for the year ended December 31, 2006, and subsequent SEC filings for a description of factors that could cause forward-looking statements to differ materially from actual results.

During this conference call, we will also be making reference to non-GAAP gross margin, operating expenses, EBITDA, net loss, and net loss per share.

These measures exclude certain restructuring charges, amortization of acquired intangible assets, intangible asset impairments, stock based compensation expense, and the gain on the repurchase of long-term debt.

The company uses these non-GAAP measures internally to assess its operating performance.

The company believes these non-GAAP measures provide a meaningful perspective on its underlying cash flow dynamics, but caution investors to consider these measures in addition to, not as a substitute for, nor superior to, the consolidated financial results as presented in accordance with GAAP.

A complete reconciliation between GAAP and non-GAAP financial measures is included in the press release, which is available in the Investor Relations section of the company's website.

I will now turn the call over to Hans.

Good afternoon, and thank you for taking the time to join us today.

I'd like to start off by welcoming Rich Brooks, our interim chief financial officer.

Rich has only been with us for a few weeks, but he's already making valuable contributions, and I am pleased to have him on the team.

Since our call in January, we have been focusing our efforts on implementing our new product and technology strategy and continuing our restructuring efforts.

We still have a long road ahead of us, but we have made a great deal of progress this quarter, and we believe we have turned a corner.

First quarter revenue of $24 million was at the high end of our outlook range, and was down from $29.8 million in the fourth quarter of 2006.

The decline resulted from anticipated seasonality in the projector market, as well as a decline in shipments of legacy products.

Our revenue split for the quarter was 53% projectors, 24% advanced televisions, 16% advanced media processors, and 7% LCD panels, monitors, and other applications.

Looking more closely at the results, we see a number of encouraging signs that show Pixelworks moving in a positive direction, and demonstrate that we are making substantial progress in our restructuring efforts.

We trimmed our non-GAAP operating expenses for the quarter by $1.3 million, and we believe we're on track for achieving our goal of reducing quarterly non-GAAP operating expenses to $15 million by the end of the third quarter of this year.

Our gross margins went up sequentially, by nearly 10 percentage points on a GAAP basis, and by nearly 3.5 percentage points on a non-GAAP basis.

We saw a strong book-to-bill, of 1.15 to 1 in the first quarter, and we are projecting second quarter revenues to be in the range of $25 million to $27 million.

We believe we have seen the low point for revenue for 2007, and we are expecting gradual improvements over the remainder of the year, based on our forecast for the projector market and the rollout of our new products.

As I mentioned in my quick financial highlights for the quarter, we are making substantial progress in our restructuring efforts.

A year ago, our non-GAAP operating expenses exceeded $23 million in the first quarter, and we're now below $18 million and closing in on our goal of $15 million.

The management team has acted very decisively, and made significant changes in a very short period.

I'm pleased to report that most of the organizational restructuring has been accomplished ahead of schedule during the first quarter, and that we have a new team in place, and have consolidated our primary design centers in Shanghai and San Jose.

The net effect of these organizational and operational changes has been a 16% reduction in headcount -- from 449 at the end of 2006, to 376 at the end of the first quarter.

The result is a $1.3 million reduction in our non-GAAP operating expenses to $17.8 million in the first quarter.

We have aligned our operations and our resources closer to our customers, who are primarily located in Asia, which will help us to be more responsive, competitive and efficient.

In 2007, we intend to continue making the changes necessary to align our business model, to ensure that Pixelworks has the foundation to succeed in the future.

We are not yet where we need to be, but I'm very pleased with our improvements.

We are making progress on our new product strategy, and I believe we can continue to excel as the leader in pixel processing by pushing this performance to new levels, in new ways.

We are well positioned for the transition to the next generation, 120 hertz display, and the increased image and video quality requirements that we expect to occur over the next 12 to 24 months.

Additionally, we're taking our technology into new areas behind our traditional TV and projector applications.

Our continued investment in developing our smart timing controllers has positioned us well to put our technology closer to the panel, a place that we see as strategically critical.

By working directly with large LCD manufacturers, our pixel processing IP can be implemented on the panels themselves, which increases performance and adds value at or below current costs.

Turning to our mainstay projector business, we remain focused and committed.

Our projector business has been the foundation of Pixelworks from the beginning.

We are committed to extending our leadership in this market by investing in further development of our leading image processor architecture, and remaining true to our philosophy of taking a systems approach to designing our chips.

I'll now take a few moments to provide an update on several products, which highlight our strategic direction.

These chips will support revenue in our existing markets over the next few quarters, incorporate new IP and technologies, and most importantly, keep us engaged with key customers.

In the advanced television market, several new products that were announced earlier this year are gaining traction with our customers.

One of our strengths is powerful pixel processing that delivers outstanding image quality.

In fact, we have started to participate in new applications that have some of the highest standards for video processing.

Our Pearl2 image processor brings the latest pixel processing technology to our customers, and as announced earlier today, we have added Daewoo as our most recent design in for this product in a PDP TV application, and we expect to further expand our business for Pearl2.

As reported in January, NEC is our lead customer using Pearl2, and its Chroma Key feature set for PC TV applications in Japan.

We are also finding that Pearl2 has interest for applications demanding superior video processing outside our typical TV customer base.

Our PixelAmp+ color enhancement coprocessor chip greatly enhances the video experience with improved color and image detail.

Because of compelling price and performance, PixelAmp allows us to create incremental revenue opportunities, shipping coprocessor chips into customers who are using a competitive image processor.

Significantly, with PixelAmp, we are discovering new places where this level of enhancement and our unique implementation is opening up new opportunities, especially entertainment applications such as media centers and gaming PCs.

In the first quarter, we began working with a customer to build PixelAmp+ onto a multimedia PC board for enhanced pixel-by-pixel performance.

We continue to make strides in the advanced CRT segment of the television business, where we leverage existing IP to enable new CRT applications, and help build a bridge for this technology into the digital age.

The most visible update in this area was our announcement in February that we are now in production at Samsung with our new coprocessor IC called Bluejay.

Bluejay is designed to digitally pre-process video images to optimize them for slim CRT televisions.

Additionally, we talked previously about our CRT image processor known as PixelGX, which is an entry-level product aimed at the HD-ready advanced CRT market.

It is currently in production, and we have secured design wins with several major Chinese television manufacturers.

Another new member of our coprocessor category is Cranberry, that we announced at CES.

Cranberry is an innovative chip that is a companion to our image processor ICs, that enables extended horizontal Keystone correction.

In conjunction with our Opal family of image processor ICs, digital projectors can achieve a maximum range of 45 degrees of horizontal and vertical Keystone correction.

Turning to our timing controller business.

During the first quarter, we further advanced the development and qualifications of Peanut.

Additionally, we continued development of our next generation of panel products with our lead customer Samsung, which could further expand our reach into panel applications.

With the current version of Peanut, we are ramping production of a variety of LCD panels targeting multiple applications.

Finally, I want to mention our motion engine IP, which represents the next generation of our pixel processing technology.

Pixelworks' engineering teams are focused on efforts to release our innovative motion engine product later this year.

Benchmark testing of our unique IP for motion estimation and compensation, which will be the core of the motion engine, makes us optimistic that this product will once again show our strengths as the leading innovator in video and image processing.

I will now turn the call over to Rich, and he will walk you through the details of the first quarter financial results.

Thanks, Hans.

Revenue in the first quarter of $24 million, a decrease of $5.8 million, or 19.6%, from $29.8 million in the fourth quarter.

We've previously stated that we expected Q1 to be a low point for our revenue this year, and that's consistent with what we're seeing in our booking patterns.

We are now past the seasonally slowest part of the year, and we believe customers have largely worked through inventory buildup from the holiday buying season.

Our Q1 book-to-bill ratio is 1.15 to 1.

That reflects improving order patterns in each of our markets, except advanced television.

Therefore, we are anticipating a sequential increase in revenue, the second quarter to be in the range of $25 million to $27 million.

I want to take a couple of minutes to discuss first quarter revenue by market, starting with projectors.

Consistent with our previous outlook, first quarter project revenue was down 9% sequentially, and year over year.

ASPs were down 5.8% sequentially, primarily due to product mix, while year-end volume decreased 3.7%.

Looking to the second quarter of 2007, we expect to see a seasonal upswing in orders, as our Japanese customers begin rebuilding supply chain once again after managing down their inventory in anticipation of the March 31 fiscal year ends.

Taking this into account, we expect second quarter revenue from projectors to be up approximately 10% to 15% from the first quarter of 2007.

Consistent with our previous outlook, first quarter advanced television revenue was down 33% sequentially, and down 58% year over year.

Unit volumes decreased 35% sequentially, partially upset by a 3% increase in average sales price in the quarter.

We expect advanced television revenue in the second quarter to be down approximately 20% to 30% from the first quarter.

Revenue for the advanced media processor market in the first quarter was approximately $3.9 million, down 9% sequentially and 25% year over year.

This decline, while slightly higher than expected, reflects our decision to wind down this market over the course of 2007 as part of our new price strategy.

Accordingly, we expect second quarter amp revenue to be flat from the first quarter, and to decline over the remainder of 2007.

LCD monitor and panel revenue in the first quarter was $1.2 million, down 30% sequentially and down 38% year over year.

Looking forward to the second quarter of 2007, we expect monitor and panel revenue to be up 100% to 150% from the first quarter.

GAAP gross profit margin the first quarter was 41.1%, compared to fourth quarter at 31.5%.

Including cost of sales during the first quarter, it was approximately $100,000, and restructuring charges, along with seven -- with approximately $700,000 non-cash expense, for the amortization of acquired intangible assets and stock based compensation.

Excluding these costs, non-GAAP gross profit margin improved nearly 33.5 percentage points to 44.5% in the first quarter, from 41.1% in the fourth quarter, as a result of a more favorable product mix and lower material costs.

We expect GAAP gross profit margins in the second quarter to be 40% to 42%, and non-GAAP gross profit margin to be 43% to 45%, excluding an estimated $800,000 in restructuring charges, and non-cash expenses for the amortization of acquired intangible assets and stock based compensation.

GAAP operating expenses were $22.4 million the first quarter, including a $2.8 million in restructuring charges, and $1.8 million in non-cash amortization of acquired intangible assets and stock based compensation.

Excluding restructuring charges and non-cash expenses, non-GAAP operating expense in the first quarter was $17.8 million, down $1.3 million from $19.1 million in the fourth quarter, primarily due to lower outside service expense, NRE and development expense, depreciation, and travel.

This is better than we had outlooked last quarter, reflecting our successful efforts to accelerate the organizational restructuring and relocation of key resources to Shanghai and San Jose.

We expect second quarter GAAP operating expenses of $18.7 million to $20.2 million, and non-GAAP operating expenses of $16.5 to $17.5 million.

This expected reduction in operating expenses is due, in large part, to lower compensation expense.

Excluded in non-GAAP operating expenses are an estimated $2.2 million to $2.7 million in restructuring charges and non-cash expenses for stock based compensation and amortization of acquired intangible assets.

Non-GAAP EBITDA was a loss of $3.2 million in the first quarter, compared to a loss of $2.6 million in the fourth quarter, as the improvements in operating expenses were not enough to offset the lower revenue in the quarter.

Interest and other income, net, was approximately $700,000 in the first quarter, consistent with the fourth quarter in our outlook.

We expect interest and other income to be approximately $600,000 in the second quarter.

The provision for income taxes in the first quarter of $622,000 reflects our actual accrual for current and contingent taxes payable, and profitable costs plus foreign tax jurisdictions.

We expect income tax expense in the second quarter of 2007 to be approximately $500,000.

The first quarter GAAP net loss was $12.4 million, or $0.25 per share, compared with a fourth quarter GAAP net loss of $15.5 million, or $0.32 per share.

Excluding the non-cash expenses and restructuring charges, net loss on a non-GAAP basis on the second -- first quarter was $7 million, or $0.14 per share, compared to a non-GAAP net loss of $4.7 million or $0.10 per share in the fourth quarter of 2006.

The increase in non-GAAP net loss resulted from a non-GAAP tax provision, which increased from a benefit of $1.4 million in the fourth quarter to an expense of $600,000 in the first quarter.

Now let's move to the balance sheet.

Cash and marketable securities, consisting of cash and cash equivalents and short and long term marketable securities, were $122.5 million on March 31, a decrease of $12.1 million from a balance of $134.6 million at December 31, 2006.

The decrease in cash and marketable securities during the quarter resulted primarily from the net cash use in operating activities of $5.8 million, $3.3 million increase in accounts receivable due to the concentration of shipments in the last month of the quarter, and income tax payments of approximately $800,000.

Accounts receivable net of $12.6 million, an increase of $3.3 million or 35%, from $9.3 million at December 31, reflecting the concentration of shipments in the last month of the quarter.

Combined with the overall decline in first quarter sales, day sales outstanding increased to 47 days compared to 28 days at December 31.

Inventory net at March 31 was $13.9 million, compared to $13.8 million at December 31.

Inventory turns were 3.8 times in the first quarter, versus 4.9 in the fourth quarter 2006.

Property and equipment net of $18.5 million is down $3.5 million, from a balance of $21.9 million at December 31, reflecting normal depreciation and amortization, asset write-off, and minimal capital expenditures as part of our goal to improve free cash flow.

In Q2, we expect our depreciation and amortization expense to be approximately $4 million, and second quarter capital expenditures will total approximately $1.5 million to $2 million.

I'll now turn the call back to Hans for his closing comments.

Thanks, Rich.

Before we take questions, let me quickly summarize our progress against our new product strategy, and operational restructuring.

Our new product strategy is designed to capitalize on several technology trends by leveraging the pixel processing technologies for which Pixelworks has earned a reputation as an industry leader.

Our restructuring efforts are ahead of schedule, and our new consolidated teams are performing well in Shanghai and San Jose.

We are slightly exceeding expectations on our efforts to reduce operating expenses and are on track to further reduce operating expenses to less than $15 million by the end of the third quarter of this year.

We continue to believe we can be EBITDA positive in the second half of 2007.

We ended Q1 with a strong book-to-bill of 1.15 to 1, which supports our expectations that Q1 will be the low point for revenue.

We are projecting Q2 revenue in the range of $25 million to $27 million.

Over the coming quarters, we are committed to demonstrating to our investors why we believe Pixelworks is now fundamentally different, and uniquely positioned to enhance shareholder value moving forward.

Thank you.

We can now open the call up for your questions.

Thank you, gentlemen.

The question and answer session will be conducted electronically.

If you would like to ask a question, simply press the * key, followed by the digit 1.

Again, that's *1 to ask a question.

Now, remember if you are using a speakerphone to pick up your handset, or turn off your mute function before signaling.

Once again, that is *1 to ask a question.

I will pause for a moment to assemble our roster.

Our first question coming from Jefferies and Company -- Adam Benjamin.

Thanks.

This is Blaine Curtis for Adam.

Just one clarification -- on the book-to-billing, you said it quickly, but it was excluding the ATV?

You said, all units up except ATV?

No.

It excludes -- it includes everything.

Oh.

So all -- you're saying that trend for all --

This question is for Hans.

It's for all products, yeah.

Okay.

Thank you.

The question for Hans -- the project market, could you just give us your view on that market in '07?

Well, we see it continues to be very strong for Pixelworks.

The market itself is growing, and as you probably know, projectors are finding its way into a number of new applications.

And as a result, we see continued strength.

We saw it grow from 2005 to 2006, and we expect again a healthy growth from 2006 to 2007.

Is there any way that you could quantify that as far as market growth, what your expectations are, and -- would you be able to put anything like that?

For Pixelworks?

Just the projector market -- your view of the projector market growth, and --

Oh, you know, I have those numbers -- just not at -- hold one -- one second.

If you have another question, we can go back and answer this later.

Sure, no problem.

I -- the question on the new products, there are -- you have several new product drivers coming in, whether it's PixelAmp, the Bluejay, the PixelGX.

If you can just kind of go through some of the timing -- when to expect these, in what quarter, I think some of the first ones -- you had the win with the Bluejay.

I believe that's ramping in Q2.

If you can kind of just go through those kind of five new products, and when to expect those to hit production ramp.

OK.

Well, let me start with the products that we believe will help set the new direction for the company, and it is indicative of our new strategy.

On the Pearl2, which is a product that is now very well known for its high picture quality, it is, as evidenced by the design win that we announced today with Daewoo, we are starting to get design wins.

We already, last quarter, announced our design win with Sony for the projector application.

We are working with a number of different customers on getting them into production, and the Pearl2 is probably the product that you -- where you will start to see some revenue buildup towards the middle of the year, and certainly in the second half of the year.

Likewise, with PixelAmp and PixelAmp+, we already have multiple design wins, and production will be ramping here in the second quarter and through the back end of the year.

On the CRT chips, as evidenced by the Samsung design win that we announced in February, that has gone into production here in the second quarter, and that production will continue for the second half of the year as well.

PixelGX, likewise, designed into a number of Chinese CRT manufacturers.

And you'll also start to see the revenue buildup for the second half of the year.

Okay.

Thank you.

Moving on, we'll take a question from Craig Berger with Wedbush Morgan.

I'll skip -- you answered my question.

Thank you.

Moving on, let's take a question from Eric Reubel with Miller Tabak Roberts.

Hi, good afternoon, gentlemen.

Thanks for taking my question.

Rich, on the cash burn in the quarter, down $12 million, if I look at the balance sheet, it looked like receivables about -- ah, were about offset by an increase in payables.

So I was wondering if you could give a little bit more color around the $5.8 million that was used for operating expenses.

How do you see that playing out over the next quarter, and -- with your goal of getting to EBITDA breakeven and free cash flow breakeven by the second half of the year?

Well, we don't usually give out guidance on detailed cash, so -- anything I can address other than that kind of detail, or --

Well, how do you see working capital in the next quarter?

There will be, as you can see there, there are limited additional use of capital in the coming quarter, as we are continuing our restructuring efforts.

We are very much focused on reducing operating expenses and capital preservation.

We have a plan in place for the year, and we are -- we are moving towards what we -- where we believe we will be at the end of the year, which -- I think we have earlier stated that by the end of the year, we'll be somewhere in the $115 million range.

We're not giving out any details by quarter.

Well, I guess -- I understand that you have operating expense savings goals in place, but with the new products ramping, if you can give me a sense of how you're viewing working capital over this quarter and through the year?

Or at least in the coming quarter -- should I be looking at that as a use of cash for inventory -- with respect to the inventory and the product build, how much do you think --

I don't think you should expect any major change in the cash position over this quarter.

Okay, great.

On the TV -- if you -- you went through the TV revenue very quickly in the quarter.

Could you give me that number?

Advanced TVs were, the revenue in the quarter?

$5.8 million.

$5.8 million?

Yeah.

And, you did give some color on sort of the expected ramp up on -- into the second half.

If I can characterize this that, the CRT is the only product right now that will be in production for the second quarter, and then the other products that you talked about will be ramping in the September quarter and into the back half of the year.

We also -- there are production of Pearl2 in the second quarter has started also.

It's the early stages of the ramp, but Pearl2 has started as well.

Can you frame for me sort of an expectation around what the size of the CRT market, the slim CRT market will be in 2007, and sort of what your expectation of the market -- your market share will be?

I -- it's -- as you know, it's a new market.

It's an emerging market, and there are a number of different forecasts out there for the market.

But we -- last year, in 2006, the market size was estimated to be about eight million units, and it's forecasted to be about 35 million in 2009.

Depending on how successful this will be, and this is -- this is our take on it.

Depending on how successful the slim CRT will be, it will either reach these numbers or it may go -- they may be lower, they may be higher.

But those are the kinds of numbers we're looking at.

So there's pretty significant potential.

We believe that we can take a -- you know what, a decent market share in this market.

We are teamed up with certainly one of the leaders in the CRT business, and that gives us a good foundation for where we will be starting, with our market share.

But it's a new market, it's an emerging market, and I think it's -- as always, it's hard to predict on the future.

But we believe that we are well positioned.

I'll tell you -- I have one more question on the new strategy.

Backing -- backing down from the integrated chip strategy is -- to my mind, makes a lot of sense and is a good move.

But the coprocessor segment of the market is definitely not one without competitive challenges of its own.

Can you describe to me the landscape that you're seeing?

Who you're running up against, and what -- you mentioned that you're being designed in with other media processors.

Are you -- can you give me some examples of competitive situations where you've won, and who you've won against?

There's a number of different areas that we are being considered.

There are -- call it the mainstream TV market, where we will be designed in as a picture enhancement chip along with -- call it a mid-range TV chip, where we provide some added performance and picture enhancement.

That situation exists primarily with some of our Asian competitors.

There are other situations where we are being considered because of the very -- the high end features.

We're looking at 1080p applications where a customer is just looking for the ultimate performance, and is interested in getting a performance level that you cannot get with an integrated SOC, expected over at least the next 18 to 24 months.

We are taking the same technology -- we are taking it into panel applications, so we're not just looking at -- on the TV side.

We are also looking at the panel side.

So there's a two-prong strategy here for our technology.

One is to go on the TV side, go in the box, and the other strategy is to go on the panel.

Thank you very much.

Our next question comes from Ian Gilson with Zacks Investment Research.

Thank you.

Good afternoon, gentlemen.

I didn't get all of the numbers for the second quarter outlook.

Could you go through those again for me, please?

On the revenue side?

Revenue, and also expenses.

You broke some of these numbers down.

Yeah, revenue at $25 million to $27 million.

Uh hm -- by product?

GAAP gross margins, 40% to 42%.

Non-GAAP gross profit margins, 43% to 45%.

Non-GAAP expenses of $15.5 million to $17.5 million.

GAAP operating expenses, $18.7 million to $20.2 million.

Interest and other income of approximately $600,000.

Income tax provision, approximately $500,000.

Okay, on the taxes that you charged in the first quarter -- but isn't China --

They're in various probable tax, foreign tax jurisdictions, various entity -- various countries.

Well, I'm not sure if the tax credit going forward -- do you have outside the United States, that could be offset by future earnings?

[inaudible]?

Yeah.

If I believe correctly, at one time, there was no tax loss carry back in most countries outside the United States, but there was a tax loss carry forward.

So in other words, when you earn income outside of the United States, you can offset the tax loss.

Is that still correct?

And if so, how much do you have?

Yes.

Find a number here -- we don't have that number right here in front of us, so I apologize for that.

But that is a correct statement, though.

Okay.

If you could send me an e-mail sometime, I'd appreciate it.

Sure.

Thank you.

Moving on now, taking a question from Jeff Cohen with Southpaw Asset Management.

Thank you.

My question has actually been asked and answered.

Thank you, Mr.

Cohen.

Let's take a follow up from Adam Benjamin.

He's with Jefferies and Company.

Thanks.

Blaine Curtis for Adam, again.

Could you just -- I believe the guidance for the LCD monitor business was up 100% to 150%.

I just want to, one, clarify that, and then if you could just give me a little color, is that still with that lead customer coming back?

That's a correct number.

Yeah, the number is correct.

The LCD monitor number includes the panel products, and what you're seeing reflected there is some increased traction with our T-con applications, and we're getting traction with Peanut at Samsung.

Okay, so you -- could that be a gross business for you, in '07?

Yeah.

And then, just going to the TV guidance, down in Q2 20% to 30%.

That's typically a seasonally stronger period.

Could you just talk about the pace of the legacy products kind of trailing off for the next couple of quarters here?

We know about the new products layering in over the same period, but if you could just talk about how you view the legacy products there?

Yeah, and you're obviously seeing the effect of the trail off of the legacy products.

You're seeing that -- you saw it for the Q1, you're seeing it for Q2.

We do still have a number of very loyal customers that's staying with us.

We're continuing to breathe some new life into some of the existing products and the product platforms.

It's hard to predict, exactly, how the trail off is going to happen.

I think you are seeing, between last quarter and this coming quarter, I think you're going to see the majority of the drop, and I think it will level off at a certain level.

I'm not sure what that level is yet, but I don't think you'll continue to see this level of drop.

But it is the legacy products that -- where it didn't -- platforms just -- we cannot continue to support them, for competitive reasons.

Okay.

And just quickly, on the gross margin implications here.

As these new products ramp in, would they -- would you view them as contributing to your gross margin in this division?

I mean, assuming as the legacy products trail off, you walk away from lower margin business.

And would you view the gross margin for your TV business eventually increasing, through the back end of the year, here?

Well, I think what you're going to see, as a result of the product mix changes more towards the projectors in the short term, that is the increase in gross margin.

We believe that some of the new products that we're bringing out also will have good, solid margins.

However, it may be offset by some of the more competitive business that we will be entertaining on the panel side.

So I -- I think in the short term, you can assume that we're going to be at the level that we're at now.

I wouldn't expect significant increases over the current level.

Okay.

Thanks.

Our next question is also a follow up, coming from Craig Berger, Wedbush Morgan.

What's the tax rate that we should be using, going forward?

Is there one that we should kind of target?

Negative 5%.

You mean for '07 and '08?

At least for '07.

Oh, okay.

Okay.

And then, can you go over the sequentials by product, and with ASP and the guidance one more time?

I'm sorry to have you repeat that, but if you can do that, that would be great.

You are looking for --

You were talking about projectors was down 9%, ASPs were down 5.8%, and guidance was up -- can you go over that, kind of that, again?

Yeah.

Projector market revenue, up 10% to 15%.

Television revenue, down 20% to 30%.

Advanced media, flat from the first quarter, a decline over the remaining 2007.

And the monitor and panel revenue up, 100% to 150%.

Okay.

Okay, terrific.

Thank you.

Yeah.

Thank you, and moving on, let's take a question from Kevin [Oshio] at R.G.

Capital.

Yes, hi, guys.

Thanks for taking the call.

I thought I heard you say that you're still targeting EBITDA positive for the second half, or the back half of the year.

Is that -- should we be looking -- I guess I'm not completely clear on what you mean by that.

Is it over the second half, or on a run rate by the end of Q4?

Yes, by the end of Q4.

Great.

Thank you.

And our next question is a follow up with Eric Reubel, with Miller Tabak Roberts.

Gentlemen, thank you for taking my follow up.

Hans, if you could discuss a little more detail around Peanut -- a product that has been through several spins, with the key customer -- it's never really launched into production volume.

Can you -- given some nice guidance for the segment of 150%, frame my expectations around whether or not this is still testing volume, or if this is production volume, ramp up, how many units could this possibly be going into?

You know, is this something to really get excited about?

Peanut had been sort of talked about as a level for the business in '06.

Is the lever here really coming into the model in '07?

Okay, I can give you some -- I will give you some context for it.

I don't know that I can give you all the detail that you are asking for.

We are finally at the point where we are in early production with a product that's qualified.

And it is correct that we've labored through many, many versions of Peanut before we finally arrived at one here that is in production.

So Peanut -- we'll be seeing production volumes.

We're seeing early production here in this quarter, and we'll continue to see production built in the second half of the year.

I think maybe more importantly is some of the follow on projects that we are currently in the process of exploring with Samsung, which are the extensions of Peanut for different LCD sizes and for different cost points.

But there is a -- call it a renewed effort on this product line, and I believe that you will continue to see improvements in the performance of this product line for us.

And just kind of a technical question.

Is this a product that is in addition to a display driver?

Does it --

It's in addition to a display driver.

Yeah.

In addition.

Okay.

Then, a question on the strategy of pursuing intelligence inside the TV through a coprocessor as well as pushing that technology directly onto the panel.

When the coprocessor is on the panel, help me understand -- does it -- does it minimize -- does it decrease or increase the ability of the TV maker to achieve relative quality, in the instance -- if the panels are getting the intelligence, how does the TV maker create strategic advantage through their own brand?

Help me understand that.

Or, is that a concern I should be worried about?

Well, it's certainly -- it's a market dynamic that's out there, and it's something that both the TV companies as well as the panel manufacturers are debating on.

Where does this intelligence, or where does this technology -- where does it go?

Does it go on the TV side, or does it go on the panel side?

And I am sure, depending on who you ask out there, you may get different answers.

I think the reality is, that for some period of time, there will be a variety of different ways of implementing this technology.

It will be in -- on the TV side, it will be on the panel side.

And it may be that the market goes on, and there are -- there will be applications on both sides, or one side will win out.

I don't know that it's clear at this point.

I certainly know that there's a lot of momentum building, both on the TV side as well as on the panel side.

And we are participating on both sides.

Okay, thank you.

Gentlemen, we have no further questions in our queue at this time.

Mr.

Brooks, I'll turn the conference back over to you for additional or closing remarks.

Thank you, everyone, for joining us today, and we look forward to speaking to you next quarter.

Take care.

That does conclude today's conference call.

Thank you for your participation.

Have a great day.