Pixelworks Inc (PXLW) 2007 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2007 Pixelworks Earnings Conference Call.

My name is Eric, and I will be your coordinator for today.

At this time, all participants are in a listen-only mode.

We will facilitate a question-and-answer session towards the end of the conference.

If, at any time, during the call you require assistance, press star followed by zero, and a coordinator will be happy to assist you.

I would now like to turn your presentation over to your host for today's call, Mr.

Steven Moore, Chief Financial Officer.

Please proceed.

Good afternoon, and thank you for joining us.

This is Steve Moore, CFO of Pixelworks.

With me today is Bruce Walicek, who is Acting President and Chief Executive Officer while Hans Olsen is out on medical leave.

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

The press release and contents of this conference call contain comments about our business outlook and include forward-looking statements.

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

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.

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 margins, operating expenses, EBITDA, net income loss, and net income loss per share.

These measures exclude, among other costs, restructuring charges, amortization of acquired intangible assets, and stock-based compensation expense.

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 cautions investors to consider these measures in addition to, not as a substitute for nor superior to, its 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.

Bruce will begin today's call with a strategic update on the business, after which I will review our Q4 '07 results and discuss our outlook for Q1 of '08.

Thanks, Steve.

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

2007 was a year of restructuring and refocus for Pixelworks as management took the tough actions necessary to reduce expenses and streamline our business model.

I'd like to take a minute to recap some of the operational objectives that were achieved in 2007.

They illustrate the progress that management has made to streamline our organization and significantly reshape our business model.

Non-GAAP operating expenses decrease from $19.1 million a year ago to $11.9 million in Q4 '07, a reduction of nearly 40% as a result of company-wide restructuring aimed at making Pixelworks profitable.

Our employee base has contracted from 449 at the end of 2006 to 246 at the end of 2007, a reduction of 45%.

We have consolidated several facilities, actions which have helped reset our global expense base to a lower-cost profile.

Our focus on reducing costs has resulted in greater operational efficiencies throughout the organization.

And 51.5% in Q4 '07 non-GAAP gross profit margin has improved by more than 10 percentage points over Q4 '06, the result of focused cost reduction efforts and improved product mix.

The fourth quarter 2007 was a solidly profitable quarter with non-GAAP net income of $2.3 million, or $0.05 a share compared with non-GAAP net loss of $4.7 million, or $0.10 a share a year ago, and we exit 2007 with three consecutive quarters of positive non-GAAP EBITDA.

Having reached our first positive EBITDA quarter in Q2 '07, two quarters ahead of expectations, bringing 2007 EBITDA to $5.4 million on a non-GAAP basis.

These initiatives the Pixelworks team executed in 2007 have created a solid financial foundation from which to return the company to growth and profitability as we enter the next phase of our turnaround plan.

But equally important, the Pixelworks team was able to return the company to engineering execution and deliver two new leading-edge coprocessor products, which were successfully demonstrated earlier this month at the Consumer Electronics Show in Las Vegas.

These new products include the PW610 Digital Projection Post-Processor, which is based on Pixelworks's proprietary ARK engine technology and provides the industry's highest quality keystone and image correction performance for digital projection systems.

This product is aimed at our core projector business and reaffirms Pixelworks's commitment and leading technology position in this key market.

We also introduced the PW9800 DNX Motion Engine, which is designed to significantly improve the performance and viewing experience of large, high-end LCD TVs, advanced projectors, and other consumer products requiring 120Hz support.

The dramatic shift to large high-end LCD panels combined with the transition to 1080P content and 120Hz refresh rates is driving the need for high-performance coprocessing to meet the video quality requirements of next-generation products.

We believe that our unique proprietary approach based on DNX pixel enhancement algorithms will be able to offer Motion Engine technology at superior price performance points.

At CES these products were successfully demonstrated.

Pixelworks's leading-edge technology, image quality, and price performance, as we are exceptionally pleased and highly encouraged by the level of customer interest and engagement.

Both of these new products incorporate Pixelworks's proprietary video processing technology.

Our core technology and advanced video algorithms and intellectual property address a broad range of challenges in digital video.

We will focus our R&D efforts on architectural and algorithmic innovation to continue to provide high-quality video solutions that Pixelworks has been known for over the last decade.

The number and variety of digital video applications is exploding, and video is expanding to play a pervasive role across every aspect of business and personal lifestyles.

Digital video content is being delivered from an increasing array of sources of varying quality from the Internet to Blueray DVDs and displayed in a widening variety of formats from handheld devices to large-screen TVs.

Not only is digital video becoming pervasive, but the demand for higher quality is increasing dramatically as the industry transitions to higher resolutions.

This is placing new processing demands on next-generation products.

These trends are not only driving the convergence of digital media but pushing digital video into a wide variety of consumer and business markets such as projectors, digital signage, and video teleconferencing, to name a few.

We see many opportunities for our video processing technology in this changing landscape of increased video requirements, but the key will be focus.

As outlined in our last call, our strategy will be to focus our development resources to maintain our lead in the digital projection market, enhance our DNX Motion Engine platform, and look for ways to leverage our R&D investment into products that address high-value markets where our innovative proprietary technology provides differentiation for Pixelworks and our customers.

While a lot of progress was made in 2007, and we are encouraged by the results, we still have a lot of work to do.

Our top priority and focus is to return the company to consistent growth and profitability as we enter the next phase of our turnaround plan.

That being said, we enter 2008 with a streamlined business model, with a significantly lower breakeven point that has put the company on a more solid financial footing, two new leading-edge coprocessor products, PW610 Digital Projection Post-Processor for the projector market, and the PW9800 Motion Engine for next-generation displays.

During 2008, our key focus will be ensuring that we continue to take the necessary actions to maintain the integrity of our business model, aggressively market our new and existing key products, officially leverage our R&D investment into value-added products and markets, build upon the engineering execution momentum established in 2007 and, most importantly, focus on servicing our top-quality customer base of leading global consumer electronics companies.

I would now like to turn the call over to Steve for our Q4 financial review and Q1 outlook.

Thank you, Bruce.

Revenue in the fourth quarter of 2007 was $27 million, a decrease of $1.2 million, or 4% sequentially from $28.1 million in the third quarter of 2007, and a decrease of $2.9 million, or 10%, from $29.8 million in the fourth quarter of 2006.

Revenue in the fourth quarter of 2007 was at the high end of the guidance we gave at the beginning of the quarter of $25 million to $27 million driven by stronger-than-expected sales of projector and advanced television products.

The split for our fourth quarter revenue by market was -- 59% projects; 15% advanced television; 14% advanced media processors, or AMP; and 12% LCD panels, monitors, and other applications.

Our Q4 book-to-bill ratio was approximately 0.9 to 1, and reflects stable orders in our projector market and a decline in orders in our legacy AMP and ATV products.

Now let's look at fourth quarter 2007 revenue by market beginning with projectors.

Fourth quarter projector revenue was approximately $16 million, down 13% -- excuse me -- down 3% sequentially, which was better than expected, and up 14% year-over-year.

ASPs were essentially flat.

Advanced television revenue in Q4 was approximately $4.1 million, down 26% sequentially, and down 52% year-over-year as expected.

Also, ASPs were essentially flat.

Revenue for the AMP market in the fourth quarter was approximately $3.7 million, down 2% sequentially, and down 14% year-over-year.

Fourth quarter revenue from LCD monitor, panel, and other applications, was approximately $3.2 million, up 32% sequentially, and up 8% year-over-year.

For the first quarter of 2008, we expect top-line revenue to be in the range of $22 million to $24 million, reflecting annual inventory adjustments from our Japanese customers, whose fiscal year ends March 31st.

Looking now at gross profit margin, GAAP gross profit margin in the fourth quarter of 2007, was 48.7% compared with 43% in Q3 '07 and 31.5% in the fourth quarter of 2006.

Included in cost of sales during the fourth quarter of 2007 was approximately $25,000 in restructuring charges and approximately $733,000 of noncash expenses for the amortization of acquired intangible assets and stock-based compensation.

Excluding these costs, non-GAAP gross profit margin was 51.5% in the fourth quarter compared with 45.7% in Q3 of '07 and 41.1% in fourth quarter of 2006.

Gross profit in the fourth quarter of 2007 was positively affected by a more favorable mix of products sold as well as the lower cost of materials and continued improvement in production yields.

We expect GAAP gross profit margin the first quarter of 2008 to be in the range of 46.5 to 49.5%, and non-GAAP gross profit margin to be in the range of 49.5% to 52.5% excluding an estimated $700,000 in noncash expenses for the amortization of acquired intangible assets and stock-based compensation and restructuring charges.

GAAP operating expenses were $19.7 million in the fourth quarter including $6.2 million in restructuring charges and $1.6 million in noncash stock-based compensation and amortization of acquired intangible assets.

Approximately $5.4 million of the restructuring expense taken in Q4 relates to a write-down of under-utilized assets as a result of the rebalancing of our R&D capital structure to align with our ongoing development requirements.

Excluding restructuring charges and noncash expenses, non-GAAP operating expenses in the fourth quarter were $11.9 million, down $1.6 million from $13.4 million in the third quarter and down $7.2 million from $19.1 million in the fourth quarter of 2006.

The sequential and year-on-year decreases in operating expenses are the direct result of the company's restructuring actions throughout 2007, which included headcount reductions, facility closures, reduction in the use of third part professional services, lower depreciation, and a tighter reign on discretionary spending.

The goal of our restructuring program has been to position the company to be consistently profitable and throughout 2007 we have made significant and sustainable progress towards this goal.

We expect GAAP operating expenses in the first quarter of 2008 to be between $12.4 million and $13.4 million and non-GAAP operating expenses to be between $10.5 million and $11.5 million.

Excluded from non-GAAP operating expenses are an estimated $1.9 million of noncash expenses for stock-based compensation and amortization of acquired intangible assets and restructuring charges.

Going forward, we will continue to evaluate our operations and pursue additional efficiencies while investing in the development of our next-generation products.

Non-GAAP EBITDA was approximately $5 million in Q4, nearly double the $2.7 million we recorded in the third quarter of 2007 and up significantly from EBITDA $1 million in the second quarter.

Interest and other income net was approximately $557,000 in the fourth quarter and compared with $631,000 in the third quarter.

We expect interest and other income to be approximately $450,000 in the first quarter of 2008.

The provision for income taxes in the fourth quarter of approximately $441,000 reflects our accrual for current and contingent taxes payable in profitable foreign tax jurisdictions and adjustments to previously recorded deferred tax assets.

We do not expect to record any net income tax expense in the first quarter of 2008.

Fourth quarter GAAP net loss was $6.4 million, or $0.14 loss per share compared with $4.4 million loss, or $0.06 (sic - see press release) loss per share in Q3 of '07 and $15.5 million loss, or $0.32 loss per share in Q4 of '06.

Excluding the noncash expenses and restructuring charges, we recorded non-GAAP net income in the fourth quarter of $2.3 million, or $0.05 income per share compared to a non-GAAP net loss of $900,000, or $0.02 loss per share in the third quarter of 2007, and non-GAAP net loss of $4.7 million, $0.10 loss per share in Q4 of '06.

We expect to record a GAAP net income loss per share in the first quarter of 2008 of breakeven to loss of $0.06 per share and to record non-GAAP net income per share of breakeven to $0.06 per share.

Now let's move to the balance sheet.

Cash and marketable securities, which consists of cash and cash equivalents and short and long-term marketable securities were $119 million at December 31, 2007, a decrease of $1.7 million from $120.7 million at September 30, 2007.

This result was quite a bit better than the $115 million that we guided to the last couple of quarters for year-end, especially as we utilized $4.3 million to repurchase company stock during the quarter.

Offsetting the use of cash for the stock buyback program was positive cash flow from operations of approximately $5 million, which was generated by decreases in accounts receivable and inventory partially offset by decreases in accounts payable and accrued liabilities.

Accounts receivable net at December 31, 2007, was $6.2 million compared with $8.7 million in September 30.

Day sales outstanding on December 31st improved to 21 days from 28 days on September 30th.

Inventory net at December 30th was $11.3 million down $4.2 million from $15.5 million at September 30th.

Inventory turns increased slightly to 3.9 times in the fourth quarter compared with 3.8 times in the third quarter.

Property and equipment net on December 30th of $6.1 million was down $7.2 million from a balance of $13.3 million at September 30th, reflecting the previously mentioned write-off of under-utilized assets along with normal depreciation and amortization for the quarter.

In the first quarter of 2008, we expect our depreciation and amortization expense to be approximately $1.8 million and Q1 capital expenditures to be approximately $1.4 million.

Before closing, I'd like to give you a brief summary of our two buyback programs.

As we announced in September, Pixelworks' Board of Directors has approved a stock repurchase program that authorizes the repurchase of up to $10 million worth of the company's common stock over the next 12 months.

Under this program, the company has paid $4.3 million to repurchase approximately 3.8 million shares during the fourth quarter of 2007 at an average price-per-share of $1.12.

Today we also announced a bond buyback program under which the company is initiating a cash tender offer of up to $50 million to purchase a portion of our convertible debt securities.

Further details of the program can be found in our press release entitled, "Pixelworks Announces Modified Dutch Auction Tender Offer for up to $50 Million Principal Amount of its Convertible Debt Securities," which is posted on our website.

As a final note, as we announced on December 28th, Pixelworks has received notice from the NASDAQ stock market that the bid price of our common stock is trading below the market's minimum price requirement, and the company has been given until June 23, 2008, to regain compliance.

Pixelworks' Board and management are actively reviewing all options to maintain the company's listed status.

That concludes my remarks.

We can now open the call up for your questions.

Eric?

(Operator Instructions) Adam Benjamin, Jefferies.

Congratulations on a profitable quarter.

I was wondering if you could talk about what drove the strength in gross margin in the quarter as well as guidance?

Well, a number of things.

We did have a favorable mix that we expect to continue to be favorable in the first quarter of '08 selling, obviously, a larger percentage of our higher-margin projector and AMP products.

Additionally, however, we did see improved material costs, and we did see improved yields on the production of our chips.

So would you -- would this be something that you could see continuing beyond Q1?

It sounds like the cost reductions, at least, would be --?

Well, we don't guide beyond Q1, but I think the other element that will contrast Q3, of course, with Q4 is that in Q3 we had a pretty significant write-down of inventory as we had, I believe, in the quarter prior.

We've worked our inventories down.

We still look at them every quarter and analyze whether we believe we have the appropriate level of reserves, but this quarter did not have what had become a fairly routine amount of charge in the cost line, and, going forward, I do not have any expectation to have further significant charges.

Great, thanks, and can you talk about your decision to [retire] the debt this quarter?

And what level of cash you're comfortable with operating, going forward?

Well, taking the second question first, both management and the board looked at our balance sheet in the fourth quarter and the Q1 outlook and determined that we had been EBITDA-positive.

We have been through most, if not -- the majority, certainly, of our restructuring, and if you take the high end of the range of the bond buyback and subtract that from the $119 million in currently level of cash and securities, that leaves you with a number that we're all comfortable with that, from an ongoing -- from a continuing basis -- should cover our operational needs.

Why now?

I think, again, the -- you know, we're comfortable where we are from the cash standpoint.

We also have had bondholders looking for liquidity and felt that this was probably the most fair method for us to provide some liquidity to them.

The bonds have also been trading in the sort of range that the company did its last purchase of bonds.

Back in February of 2006 we purchased at 68, I believe.

Eric Ruebel, MTR Securities.

First off, on the outlook, Steve, can you talk a little bit about each business?

You know, which ones that -- how you expect that to play through Q1?

From a revenue standpoint, we are no longer going to be giving specific guidance to each of the product lines, but I think we can say that, overall, our projector business continues to be very strong, and our other legacy products are holding in reasonably well, but we do expect them to decline.

On the new products, last quarter you talked about introducing the PA120, and you talked about design wins in Q1 were expected.

I didn't hear you mention that particular product.

You also talked a motion estimation, motion control product.

Have you renamed them?

Yeah, it might be a little confusing.

Let me clarify.

Last call, I think the company was still using sort of an internal part number for this device called the PA120, and so you kind of got a sort of a preview of that device, and sort of the activities around it.

I think that the official announcement and launch of the product was at CES here earlier in January, and so the official kind of part number and name of two products, actually, there was another one discussed that we were calling "Cranberry 2," as well.

So, kind of, going forward, we refer to them as the actual product, you know, product name, which is the PW9800 for what was the PA120, and the PW610, for what was the Cranberry 2.

Okay, and, you know, we just came out of Consumer Electronics.

Going into that big show, there was sort of an expectation that there would be design wins coming out for Q1.

Any color on how the process went and you had talked about working with a few very good customers that were the best fit for the Motion Engine.

Can you give me any color on how that's tracking?

So I think we had -- sort of, as I mentioned in my comments, we had a really good CES.

We're very pleased and happy with the level of reception, I think, pretty much across the board from all the customers that we had come through.

The flow of sort of defining the product, making sure that the feature performance, benefits, price points, all that kind of stuff was on target was, kind of, what I think Hans was referring to last quarter in terms of working closely with customers to ensure that the product was on spec and met the market need when we got it there.

In terms of design wins, I think, we don't announce design wins not unless our customers announced those.

I think if you look back at our -- from time to time, we do that sort of a thing.

But if -- we don't have a policy of announcing design wins, not unless our customers let us do that, and we usually do that in a joint press release sort of a thing.

But I would just say, from a color standpoint, we are very pleased with where we are with the product right now.

We are very pleased where we are with, like I said, the level of customer interest and engagement.

Do you have any expectation that there can be revenue ramping in the back half of the year, sort of the old products trail off, and this new product hopefully takes off?

I'm not going to give any guidance about what our revenue outlook is.

As Steve mentioned, we only give one quarter.

You can kind of do the math for yourself a little bit, as you know, cycles, design cycles, production cycles, can go from six to nine months to a year or something along those lines.

So we're not going to outlook what the revenue might be from any particular product out beyond Q1, but go back and look -- do the mapping of the cycles and so forth, and these parts are out on the market right now in the hands of customers and so forth.

Are they not only sampled, but are they coming out of your foundries on what could be called a "production yield?" Or is that not required at this point?

Well, the parts were just officially announced here at CES, so they are, as far as we're concerned, ready to go in terms of market penetration, customer designs, all that sort of a thing.

Just a couple of quick questions -- you gave guidance for CapEx and depreciation for Q1.

What were those numbers and what was CapEx in the fourth quarter?

Capex in the fourth quarter was approximately $1.2 million.

Okay, and do you have a sense of what CapEx will be in 2008?

Again, we don't give guidance beyond the first quarter.

Okay, the new level of depreciation -- is that kind of a level run rate that we can assume for -- quarterly?

You can assume that is the depreciation level for Q1.

I mean, the nature of depreciating assets, I think, gives you some of your answer there, particularly if we're only adding $1.4 million in new depreciable assets.

Assets will be depreciated over their lives and by definition have to be more than a year.

Then what -- do you expect any cash restructuring costs for Q1 '08?

Well, the guidance that we gave was for all of our noncash expenses, was $1.9 million.

That includes stock compensation and without -- I'm not going to break it out entirely, but in Q4 our stock compensation was about $1.5 million.

I'm asking about cash restructuring costs.

Do you expect any in Q1 '08?

And what I'm saying is we didn't guide to the exact number but within the $1.9 million, it includes both stock comp and potential restructuring charges.

You can tell -- we've given a specific number for stock comp for Q4.

I would not expect it to be wildly different in Q1, leaving the remainder to be restructuring.

Fair enough.

It's a significantly smaller number than in Q4.

And on -- you did a -- it seems like you did a very good job on generating cash from the balance sheet.

What do you expect your working capital could be for Q1 '08?

I don't expect -- generally, I don't expect that we're going to be generating or using cash from our working capital levels.

In other words, I think they're pretty much -- they will fluctuate but not dramatically from one quarter to the next for the foreseeable future.

Given the outlook for revenue, one would expect our receivables to be reasonably flat.

For example, we have a pretty good control of our inventory now.

So likewise, with that flows the liability side, the AP is not likely to change dramatically.

I'm not forecasting any given line specifically, but, in total, I would not expect a lot of change.

Vijay Rakesh, Oppenheimer.

On the projector market, can you give us an idea of what the size of the projector market is employed -- what is the growth year-over-year and what kind of pricing pressures are you seeing in the projector market?

So, Vijay, I think that the projector market is 5.5 million unit type of market in '07.

I think the forward projections are, you know, it's at 15% kind of growth rate sort of market.

So depending on which market service you look at -- some show faster, some show slower, but I think a good inherent growth rate on that market is about 15%.

It's largely a business market, as you know.

I think, incrementally, there are education applications that are causing that part of it to grow.

There are some new potential uses for projectors that you might have seen in CES in terms of handheld devices and things like that, and those are not in that sort of numbers.

And what are ASPs on the chip side that you're seeing in that market?

Is that what you're saying -- 15% [kind of win] year-over-year?

I'm sorry, can you clarify all that?

There have been declines year-over-year?

Is it the same kind of moderate 15% kind of declines that you're seeing in that market?

Well, we haven't seen the ASPs decline.

I think the market --

That rate, no.

I'm not sure what our historic rate was, but I would suspect that it's largely a -- not a competitive market from a lot of new entrants and things like that, right?

So you don't have the same kind of pricing pressure you may have in some other high-profile markets.

It turns out there's quite a bit to do these projector chips as well.

So we're sort of viewed more as a technology supplier, if anything, to a lot of these customers that we have, which tend to be large Japanese CE customers, as you know.

You probably know our number one, because it's greater than 10%.

But, no, we don't see that type of pricing pressure.

It might even be flattish, but I think, you know, a 3% to 5% kind of number is probably a good modeling kind of a number from a market standpoint.

And as you look at the silicon projector market, what share does it have [including] '07 and should we expect that to stay flat to '08?

What do you mean?

What are the sales of silicon for the [full] market?

Between silicon and DLP, what are the shares of (inaudible)?

Oh, I see, yeah, yeah.

The market numbers I've seen have it pretty steady at 50% plus or minus maybe 1%.

That's been true for a couple of years now.

You know, there was the big incursion of DLP into the market back in the 2003-2004 timeframe where we lost share to DLP, but since then, the last several years, it's been pretty stable.

Okay, and your share in that market is right now -- you probably are most of the silicon side of the market now, right?

You still share that with (inaudible)?

We really don't talk about that or give guidance on that.

You can just kind of look at who our customers are.

I mean, it's a pretty observable market from your standpoint to get a handle around that sort of a thing, but we kind of don't talk about our market share.

And as you look at Q1 here, a nice pickup in gross margins.

How much of it is product mix between projectors and, let's say, the TV and AMP business, and how much -- what are other factors going into the margin improvement, I guess.

The margin improvement from Q3 to Q4?

For Q4 and Q1, I guess.

So from Q4 to Q1, we're outlooking about the same level for gross margins.

And then Q3 to Q4, the margin improvement was mostly product mix here?

The three factors, or the four factors -- there was a $1 million write-off in -- of inventory in Q3 that did not occur.

But then, additionally, I would say about evenly split between -- just a moment -- so I get the right numbers for you -- between mix and product costs, both had a similar impact.

Okay.

And just going -- I mean, is this gross margin level -- it looks like -- is that a steady state, that's sustainable, right?

It looks like it's mostly on the projector side and the pricing there is pretty benign.

Again, we're not going to give guidance beyond Q1, but I think you're analysis makes sense.

Okay, and on the OpEx side, should -- is there a focus to kind of keep it, grow it slower than the top line or kind of keep it under leash as you look at the rest of the year?

Well, we still have some activities that we're planning that have been already internally announced, at least.

So there will be some further actions within the year.

But, for the most part, we believe our -- we've been through the most -- or the heavy lifting of our restructuring.

We, of course, always are looking for efficiencies within the company.

Yeah, I would say the -- 2007, as I sort of mentioned in the comments, was really about the heavy lifting on resetting the company's breakeven point, and so forth.

So I think, from here, we're looking at more efficient ways to implement our business model, more efficient ways to deliver essentially video technology to the market.

So I think those kinds of things will certainly be the major focus in terms of continuing to help manage our expenses and keep our business model in line.

Got it, and one last question now that you're getting to kind of an EBITDA parts to non-GAAP -- is there a tax rate that you are out looking for '08?

I'm sorry, I didn't follow the question.

Well, is there a tax rate that you would get to in calendar '08?

Well, we are likely to have taxes within '08 given that we have most of our sales are in Asia and flow-through countries where we do pay taxes.

(Operator Instructions) Ian Gilson, Zacks Investment Research.

On the bond buyback, will you record a profit on that transaction?

If we're successful within the bond buyback boundaries, there would be a recorded gain, yes.

When you say "successful," what sort of thing are we looking back at -- with this account price -- are they exactly the same, and you announce buyback is completed in, say, one quarter?

Well, by "successful" the -- it's a tender offer for up to 50 million at par bonds, and it's within a range of 68% to 75%.

Our bondholders may not choose to tender, and that would be one way that it could be non-successful.

We certainly have some belief that it will be successful, or we would not have embarked upon it, but there is the qualification that we don't control that.

Adam Benjamin, Jefferies.

Thanks, just one more follow-up on the gross margin.

You talked about the improvement in the projector and AMP products.

Your TV products have typically trailed your corporate average.

With these new products, should we look at them still trailing the corporate average or as those blend in would you be able to see some improvement?

Well, again, since we're a few quarters out, I don't think we can say precisely where they are going to sell and what their gross margin will be.

The television business, in general, is more competitive from a price standpoint than the projector business.

The part of our strategy of being in the coprocessor is to be perhaps in the better part of the television business, but it remains to be seen what our ASPs will be on these products.

What about some of the other -- you talked about specifically the 120Hz product, but what about some of the other drivers that you talked about last year as this 120 is designed today for revenue in '09, but what about some of the slim CRTs and some of the other products you were talking about?

We still supply those products.

I think that some of the products that you've talked about have been talked about before.

We're still supplying those products, so we're not getting out of those markets.

But I think that I said in my preamble a little bit here, what our strategy is going to be and where we're going to focus our R&D efforts in dollars is really leveraging what we're doing.

What I mean by that, if you look at the technical requirements for the projector market, for instance, it's mapping onto a lot of areas of video that are tangential to that sort of a market.

You look at the Motion Engine and some of the problems that it solves, such as judder, as film rates convert to video rates, that's a little bit of a bigger problem than just TVs, as well.

It hits other products, HD DVDs, regular DVDs, and I'm not saying we're going after those markets.

What I'm saying is that we're going to focus our R&D effort and leverage our R&D effort around the IP that we're already creating for the markets that we're in.

We're not getting out of the other markets, but it's more of a focus of where our future R&D dollars are going to go.

Gentlemen, this concludes our Q&A session.

At this time I would like to turn the call over to Bruce Walicek for closing remarks.

Thank you, and thank you for your time today and appreciate your interest in Pixelworks, and we'll look forward to talking to you on our Q1 '08 conference call.

Thank you.

Thank you for your participation in today's conference.

This concludes our presentation.

You may now disconnect and have a good day.