Pixelworks Inc (PXLW) 2011 Q1 法說會逐字稿

Good day, ladies and gentlemen and welcome to the first quarter 2011 Pixelworks Inc.

earnings conference call.

My name is Melanie, and I'll be your coordinator today.

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

(Operator Instructions) Also, please note, today's call is being recorded for replay purposes.

I would now like to turn the call over to Mr.

Steve Moore.

Please proceed.

(inaudible) 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's financial results for the first quarter ended March 31, 2011.

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 10-K for the year ended December 31, 2010, 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 results or projections, including gross margin, operating expenses, EBITDA, net income loss and net income loss per share.

These non-GAAP measures exclude restructuring charges, amortization of acquired developed technology, stock-based compensation expense, gain on sale of patents, gain on sale of marketable securities, and additional amortization of accrued paid royalty.

Pixelworks uses these non-GAAP measures internally to assess our operating performance.

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

Bruce will begin today's call with a strategic update on the business, after which I will review our Q1 results and discuss our outlook for the 2011 second quarter.

Thanks, Steve.

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

Let me start off with a few comments about our Q1 2011 results.

Overall, revenue grew sequentially, and was up 4% in Q1 despite the continuing inventory correction in our core projector business we noted on our Q4 conference call.

Bookings came in strong with our book to bill at 1.2, as customers increased orders and provided visibility in the future periods.

Overall, our new product category was up sharply, rising 157% year-over-year, and up 11% sequentially.

New products accounted for 51% of revenue during the quarter, up from 16% in the first quarter of 2010, as our continued focus on design and execution delivers results.

This increase was largely driven by a strong performance from our TV panel segment, which offset continuing weakness in the projector market.

During the quarter, we ramped our PH series products into high-volume production, and this segment was up 128% sequentially, and comprised 17% of revenues compared with 8% in Q4 2010.

And lastly, the segment called Other Video Applications, which are products sold into end-markets for embedded video displays, such as medical imagining and video teleconferencing, was up sequentially and came in at 15% of revenues.

Going forward, we will be describing this segment as embedded video applications so it is more reflective of our business.

All Pixelworks products are sold into these markets, where designs tend to last three to five years or more, and we expect this segment to become a source of growth for the Company over time.

In our projector market segment, Pixelworks had an outstanding new product introduction quarter as we delivered the initial products on our next-generation platform for the projector market, code named Topaz.

The first of these devices, the PW878, is currently sampling and being designed in by customers today, and we'll be introducing other members the Topaz family throughout 2011.

This is a significant engineering and operational milestone for the Company, since it is a comprehensive upgrade to our product line based on a next generation video processing architecture designed from the ground up.

The Topaz family of products will cover multiple segments of the projector market from entry level to high-end 3D-enabled systems, and offer unparalleled video performance and network connectivity, all at a leading price performance point.

It is important to note that Pixelworks projector solutions provide a full suite of software with our projector chips, which drives very close relationships with our customers, as projector platforms tend to last three to five years or more.

The Topaz family products are software compatible with our Ruby series, allowing customers to maintain their investment in software, while migrating to a next generation, highly integrated, cost-effective solution.

Customers are designing image products now, and we expect them to drive growth and market share gains late this year and into 2012.

In our TV panel segment in Q1, we ramped our PH series devices, introduced in second half 2010, into volume production in a number of platforms, many of which were a top five tier one TV manufacturer.

Penetrating the top five tier one segment validates Pixelworks' leading innovative solutions in video processing and our ability to deliver quality product and high volume to the most demanding customers in the industry.

In Q2, we will sample the PA136, our fifth generation advanced video processor, which provides significant improvements over the PA131 for 120 Hertz systems, all at a compelling price-performance point and with Pixelworks' industry-leading video quality.

Also in Q2, we will be following up this product with our PA138 advanced 240 Hertz high-end systems.

It includes all the improvements and features of the 136, but with support for the latest generation high-performance panel interface technology.

We believe these are industry-leading products from the performance, quality and cost standpoint, and have tier one customers waiting for these devices.

Overall, we had a solid design and performance in Q1 across our projector, TV panel, and embedded video segments, and believe that the design [book] will meaningfully drive growth in the second half of 2011 and 2012.

From an [oak] market standpoint, we are continuing to see an acceleration of major technology transitions, and rapidly changing market dynamics are driving the need for high performance video processors and creating opportunity for Pixelworks.

The trend towards smart connected TVs, enabled by the increasing penetration of wired and wireless broadband access, combined with the explosion of user-generated video content, positions the TV platform as the emerging entertainment portal to the Internet.

This is driving convergence among platforms, and in the future, not only will your Smartphone and pad device run an operating system like Android, but soon your TV will as well.

This is causing complexity in the TV platform as a seed to increase dramatically, and driving the need for separate, advanced video processors.

According to Display Search, the market for advanced video processors in 2012 is projected to be a $500 million market and represents a large growth opportunity form Pixelworks.

The demand for high-performance video processing is continuing to accelerate, as we are now seeing disruptive new requirements, such as 4000 by 2000 resolutions, new panel technology, 21 by nine screen size, and ultimately glasses 3-D video processing.

Market dynamics are also changing the competitive landscape as over the last few years, a number of competitors have merged or been acquired, leaving Pixelworks as one of the last pure play companies only focusing on this problem, as others focus on integration driven by (inaudible) complexity to address a larger commodity TV segment.

All of these trends are creating opportunity as Pixelworks continues to deliver industry-leading differentiated products that are validated in the marketplace and play directly into the exciting and explosive trends.

In closing, Q1 2011 was a solid quarter of execution as we were able to grow sequentially in a difficult environment, driven by the performance of our new products.

We ramped our recently introduced TV panel products into high volume production at a top five tier one customer, which validates our value proposition, and we will be sampling the next generation of our PA series products in Q2.

We delivered our next generation projector platform, Topaz, which is a significant milestone for the Company, and we had a solid design win quarter that we believe will drive growth in the second half of 2011 and 2012.

Now, after many years of work to turn around the Company, we are poised to generate meaningful growth and take advantage of the explosive opportunities in video.

Now I would like to turn the call over to Steve to review the financial details of the quarter.

Thank you, Bruce.

Revenue in the first quarter of 2011 was $14.7 million, up 4% from $14.1 million in the previous quarter, as a result of significantly higher sales and to the advanced TV market.

Revenue in Q1 was down 21% compared with the same quarter a year ago, as a result of ongoing inventory correction in the digital projection market.

The split of our first quarter revenue by market was 68% digital projection, 17% TV and panel, and 15% embedded video display.

As Bruce mentioned, the portion of our business that we have defined as Other in past quarters has been shifting over time to include a lower proportion of sales to legacy markets, and a higher proportion of sales to growing markets, which include video conferencing, medical imaging, auto and in-flight entertainment systems and video surveillance systems, that as a group, we are calling embedded video displays.

Over time, we expect that sales for embedded video displays will grow and we will be including this market category in our breakdown of revenue by market.

We have over the last two years also provided a split of our revenue by new, current, and legacy products.

However, in 2010 we had largely completed the end-of-life cycle for legacy products, so that what remained in the category are mostly products for the embedded video display market.

Going forward, we will report these products as part of our current category.

For Q1 2011, the revenue split by product was 51% new and 49% current, of which embedded video display products accounted for approximately 15% of the total.

First quarter digital projection revenue was approximately $9.9 million, down 12% compared with the previous quarter, primarily as a result of continued channel inventory correction.

Projection revenue includes sales of our chips targeted at the advanced digital projection industry.

TV and panel revenue in Q1 was approximately $2.6 million, up 128% from the previous quarter, as a result of delivering volume shipments of our PA series products for advanced digital televisions to top-tier customers in the quarter.

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

Embedded video display revenue in the first quarter was approximately $2.2 million, up 26% from Q4 2010.

While bookings in Q1 were strong and provide a good base of visibility, our revenue outlook for Q2 is unchanged from Q1 levels as a result of continued softness in the projector market, the uncertain timing of the production ramp of new design wins into the TV panel segment, and uncertainty about the impact of the earthquake in Japan on our customers' supply chains.

For the second quarter of 2011, we expect revenues to be in the range of $14.5 million to $16.5 million.

Looking now at gross profit margins, non-GAAP gross profit margin was 45.5% in the fourth quarter, compared with 47.1% in the previous quarter, and 49.4% in the first quarter of 2010.

Lower absorption of operating costs -- operations costs negatively impacted Q1 gross margin percentages, as did the product mix, which reflected lower volumes of digital projection chips, and higher volumes of advanced TV chips.

We expect gross profit margins in the second quarter of 2011 to be in the range of 44% to 48% on a GAAP basis, and 45% to 49% on a 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.

The non-GAAP operating expenses were $9.4 million in the first quarter, which was slightly below the range of management guidance of $9.5 to $10.5 million, and some of the development expenses planned for Q1 will likely occur in Q2.

Non-GAAP operating expenses in Q1 excluded $448,000 in non cash stock-based compensation expense.

Our operating expense levels reflect our ongoing investment in new products and will continue to vary based on the timing of development activities.

For the second quarter of 2011, we expect operating expenses to be between $10 million and $11 million on a GAAP basis, and between $9.5 million and $10.5 million on a non-GAAP basis.

Non-GAAP EBITDA was negative $1.4 million in Q1, compared with negative $1.8 million in Q4.

On a non-GAAP basis, we've recorded a net loss in 2011 first quarter of $2.8 million, or $0.20 loss per share, which excluded a $1.6 million gain on the sale of patents.

This compares with net loss in the previous quarter of $3.6 million, or $0.27 loss per share, and net income of $5.2 million or $0.37 income per diluted share in the first quarter of 2010, which included a $5 million tax benefit.

Looking forward, in the second quarter of 2011, we expect GAAP net loss per share to be between $0.17 and $0.38, and non-GAAP net loss per share to be between $0.12 and $0.33.

Moving to the balance sheets, cash and marketable securities, which consists of cash and cash equivalents, as well as short and long-term marketable securities, was $29.6 million at March 31, 2011, compared with $29.8 million at December 31, 2010.

Our Q1 cash balance includes an additional $1 million draw-down on our short-term line of credit relative to Q4.

Overall cash used in operations and for capital expenditures during the quarter was partially offset by the sale of patents that generated $1.6 million in cash.

Other balance sheet metrics include day sales outstanding of 26 days at March 31, compared with 29 days at December 31, and inventory turns of 6.7 times in Q1, compared with 5.8 times in the previous quarter, due to lower average inventory balances in the quarter.

That conclude my comments.

We will now open the call for your questions.

(Operator Instructions).

And I'm showing no audio questions on the line.

I would like to turn the call over to Mr.

Walicek for closing remarks.

Please proceed, sir.

Great.

Thank you for attending our conference call today, and we'll look forward to discussing our Q2 2011 results with you on our next communication.

Ladies and gentlemen, thank you for your participation in today's conference.

That does conclude the presentation.

You may disconnect.

Have a wonderful day.