Pixelworks Inc (PXLW) 2010 Q3 法說會逐字稿

Good day ladies and gentlemen.

Welcome to the third quarter Pixelworks earnings conference call.

My name is Yvette and I will be your operator for today.

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

You may queue up an advance by pressing star one.

If any time during the call you require assistance please press star zero and an operator will be happy to assist you.

I would like to turn the call over to Mr.

SteveMoore.

Please proceed, Sir.

Good afternoon and thank you for joining us.

This is Steve Moore, Chief Financial Officer at Pixelworks.

With me today is Bruce Walicek, President and CEO.

The purpose of today's conference call is to supplement the information provided in our press release issued earlier today announcing the Company'sfinancial results for the third quarter ended September 30, 2010.

Before we begin, I would like to remind you that various remarks we make on this call, including those about our projected future financial results, economic and market trends and our competitive position constitute forward looking statements.

These forward looking statements and all other statements made on this call that are not historical facts are subject to a number of risks and uncertainties that may 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 10K for the year ended December 31, 2009.

and subsequent FCC filings for description of the 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 results or projections including gross margin, operating expenses, EBITA, net income loss and net income loss per share.

These Non-Gaap measures exclude restruction charges, acquisition-related items, stock-based compensation expense and additional amortization of a prepaid royalty.

Pixelworks uses these Non-GAAP measures internally to access our operating performance.

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

The complete reconciliation between GAAP and Non-GAAP financial measures is included in the press release which is available in the investor relation section of Pixelworks web-site.

Bruce will begin today's call with a strategic update on the business.

After which, I will review our Q3 results and discuss our outlook for the 2010 fourth quarter.

Thanks, Steve.

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

Q3, 2010 was another solid quarter of execution for Pixelworks.

Revenues where up 8% year-on-year and down subsequently 3% coming in at the low end of guidance as we begin to feel the effects of a slowing environment during the quarter, driven by an industry wide inventory correction.

Non-GAAP OpEx came in slightly below our guidance of $9 million as we continue to officially ramp up and invest in our new product pipeline.

Despite the slowing consumer environment we have very strong performance from new products in the quarter driven by new programs ramping in the full volume production.

New products were up 109% year-on-year and comprised 40% of revenues in Q3 up from 26% in Q2.

In total new and current products accounted for 84% of revenue in the quarter, while legacy products continue to be a smaller part of our revenue stream, coming in at 16%.

In Q3 we began initial production of several new products, which were introduced in Q2, 2010.

The BWC808 and 806 for the value segment of the DLP and 3LCD digital projection market.

These products offer extended connectivity and video performance at an industry leading price performance point.

And the PWC980, which offers leading video performance for the high end of the projected market and when combined with our PA series Motion Engine products, such as the PA131 and 132 provides the compelling platform for 3D enabled projectors.

Both of these products are supported by the Pixelworks network display software suite, which enables advanced connectively and content sharing for the next generation of digital projection systems.

Pixelworks also has an outstanding new products introduction quarter as we deliver initial samples of our next generation motion and devices.

During the quarter, we introduced the PA132, which is our fourth generation Motion Engine device.

The PA132 offers support for advanced 3D video systems, 240Hz performance and LED backlight control, all at a compelling price performance for the next generation black panel and digital projection systems.

This panel also supports Pixelworks innovative and proprietary end-to-end technology which enhances the quality of internet video.

We also sampled the PA131, which offers the feature and video quality of the PA132 but provides leading price performance for the advanced high volume cost sensitive 120Hz segment of the market and these products are experiencing very strong design wind traction in the TIER one segment of the market.

We are seeing an acceleration of major technology transitions that are driving the need for high performance in innovation and video quality and Pixelworks continues to deliver leading deferential products that play directly in to this exciting and explosive trends.

This acceleration is providing opportunity for companies like Pixelworks that can quickly deliver innovation and compelling price performance points.

Of course, 3D is the most visible of these trends and according to a recent display search report released this month, shipments of 3D TVs in 2010 are expected to reach 3.2 million units a growth to over 90 million units in 2014.

Based on this forecast 3D TVs will grow from 2% of the total flat panel TVs shipped in 2010 to 41% in 2114.

Also, the trend towards smart connected TVs that is being enabled by the increasing penetration of both wired and wireless broadband access combined with the explosion of video content is opening up new markets for video requiring enhancement an band with efficiency.

Pixelworks is bringing innovation to this market with features such as our proprietary end to end technology that improves the viewing experience of internet video.

In closing, Q3, 2010 was another solid quarter of execution as we ramp our recently introduced products into production and introduce several new products that are seeing strong TIER one design on traction and addressing markets that are experiencing rapid growth and demanding innovation.

Our focus is to continue to drive fundamental execution, build our on our new product momentum and aggressively drive our products to market while at the same time continuing to efficiently invest in our new product pipeline.

Now I would like to turn to call to Steve to review our financial details of our third quarter 2010.

Thank you, Bruce.

Revenue in the third quarter of 2010, was $18 million.

At the low end of the range of guidance we gave at the beginning of the quarter of $18 million to $20 million dollars, and down slightly down from $18.7 millionin the previous quarter as a result of lower projector and levateen chip sales.

Compared with the $16.7 million recorded in the third quarter of 2009.

Q3 revenue increased 8% year-over-year.

The split of our third quarter revenue by market was 76% digital projection, 8% TV and panel and 16% other.

The split for a third quarter revenue by new current and legacy products was 40% new, 44% current and 16% legacy.

Third quarter digital projection revenue was approximately $13.8 million, down slightly compared with the previous quarter.

Projections revenue include sales of chips targeted at the advance digital projection industry.

TV and panel revenue in Q3 was approximately $1.5 million up from $114 thousand from the previous quarter.

TV revenue includes sales of our chips targeted at the large screen flat panel display market.

Other revenue in the third quarter was approximately $2.8 million, down 13% from Q2, 2010 due to decreased sales of legacy products.

Other revenues include sales of chips to other segments, including video conferencing and monitors.

For the fourth quarter of 2010, we expect revenue to be in the rage of $15 million to $17 million reflecting a more cautious economic environment.

Looking now at gross profit margin.

Non-GAAP gross profit margin was 46.1% in the third quarterat the low end of the range of guidance provided as a result of the most favorable products sold.

Contributing to the mix with the higher percentage of sales coming from our new products, which at this stage in their life cycle carry a higher material cost.

This compares with Non-GAAP gross profit margin of 47.7% in the third quarter and of 2009 and 49% in Q2, 2010.

We expect gross profit margin in the fourth quarter of 2010 to be in the range of 46% to 50% on both a GAAP and Non-GAAP basis.

Pixelworks gross margin is subject to variability based on changes in revenue levels, product mix, start up costs, the timing and execution of manufacturing ramp and other factors.

Non-GAAP operation expenses were $9 million in the third quarter at the low end of the range of management guidance of $9 million to $10 million and excluded $345,000 in non-cash stock-based compensation expense.

Q3 Non-GAAP operating expenses were down 3% subsequently and up 16% year-on-year driven by increased investment in new product development.

Operating expense levels will continue to vary based on the timing of development activities.

For the fourth quarter of 2010, we expect operating expenses on both a GAAP and Non-GAAP basis to be between $9.5 million and $10.5 million, reflecting continue spending on new product development.

We recorded positive Non-GAAP EBITA of $493,000 in Q3 compared with EBITA of $1 million in Q2.

On a Non-GAAP basis we recorded net income in the third quarter of $172,000 or $0.01 income for diluted share compared with net income of $119,000 or $0.01 income per diluted share in the third quarter of 2009 and a net loss of $438,000 for a $0.03 loss per share in the second quarter of 2010.

Looking forward we expect net loss per share in the fourth quarter of 2010 to be between $0.09 and $0.30 on a GAAP basis and Non-GAAP net loss per share to be between $0.10 and $0.31.

Moving to the balance sheet, cash and marketable securities, which consist of cash and cash equivalents as well as short and long term marketable securities were $31.2 million at September 30, down approximately $1.7 million from $32.9 million at June 30, and up approximately $386,000 from $30.9 million at December 31, 2009.

In Q3, 2010, the Company generated approximately $200,000 cash from operations.

Other balance sheet metrics includes sales outstanding of 27 days at September 30, compared with 23 days at June 30, and inventory turns at seven times in Q3 compared with six point five times in the previous quarter.

That concludes my comments.

We now open the call for your questions.

(Operator Instructions).

I want to thank everyone for listening today and were look forward to talking to you on our Q4, 2010 conference call.

Thank you for your participation.