Pixelworks Inc (PXLW) 2021 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to Pixelworks Fourth Quarter and Fiscal Year 2021 Earnings Conference Call. I will be your operator for today. My name is Carmen. (Operator Instructions) This conference call is being recorded for replay purposes. I would now like to turn the call over to Brett Perry with Investor Relations. The floor is yours.

Thank you, Carmen. Good afternoon, and thank you for joining today's conference call. With me on the call is Pixelworks President and CEO, Todd DeBonis, and Chief Financial Officer, Haley Aman. The purpose of today's conference call is to supplement the information provided in Pixelworks' press release issued earlier today announcing the company's financial results for the fourth quarter of 2021.

Before we begin, I'd like to remind you that various remarks we make on this call, including those about our projected future financial results, economic and market trends, 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.

All forward-looking statements are based on the company's belief as of today, Thursday, February 10, 2022. The company undertakes no obligation to update any such statements to reflect events or circumstances occurring after today. Please refer to today's press release, annual report Form 10-K for the year ended December 31, 2020, and subsequent SEC filings for a description of factors that could cause forward-looking statements to differ materially from actual results.

Additionally, the company's press release and management statements during this conference call will include discussions of certain measures and financial information in GAAP and non-GAAP terms, including gross margin, operating expenses, net loss and net loss per share. Non-GAAP measures exclude amortization of acquired intangible assets, stock-based compensation expense, restructuring expense and gain on extinguishment. The company uses these non-GAAP measures in to assess our operating performance, we believe the non-GAAP measures provide a meaningful perspective on core operating results and underlying cash flow dynamics. We caution investors to consider these measures in addition to, not as a substitute for nor superior to the company's consolidated financial results as presented in accordance with GAAP.

Also note throughout the company's press release and management statements during this conference call, we refer to net loss attributable to Pixelworks, Inc. as simply net loss. For additional details and reconciliations of GAAP to non-GAAP net loss and to GAAP to adjusted EBITDA, we would refer you to the press release issued earlier today.

With that, it's now my pleasure to turn the call over to Todd for his opening remarks. Please go ahead.

Thank you, Brett, and good afternoon or morning to everyone on the phone and webcast. As reported in today's press release, we closed out the year with another consecutive quarter of growth and increasing momentum entering 2022. Total revenue in the fourth quarter was up 72% year-over-year and mobile revenue was another record, growing 29% sequentially and 194% over the year ago quarter.

For the full year, total revenue increased 35%, with mobile revenue growing 203%. In addition to strong top line growth, gross margin expanded throughout the year as a result of improved overhead absorption as well as our ability to pass on a majority of the higher semiconductor material cost to customers. Gross margin was particularly strong in the fourth quarter due to product mix and recognition of license revenue from a mobile customer for our Soft Iris solution that covers several phone models.

With regards to our progress with our China-based subsidiary, Pixelworks Shanghai, we are continuing to build out a strong local leadership team. Earlier this week, we announced the appointment of 2 highly experienced executives to our Shanghai organization. The first is our new Senior VP of Operations, Mr. Frank Lu who brings extensive experience from similar prior roles at Dialog Semiconductor, MStar, TSMC and Skyworks Solutions. We also appointed Linna Liu as CFO and Senior Vice President of Finance of the Pixelworks Shanghai subsidiary. Most recently, Linna served as the interim CFO and General Manager for NTT Data Systems and prior was the Global CFO of Chemtex Chemical Engineering. Together with the restructuring and financing of our Shanghai subsidiary, these most recent appointments are an important element to establishing independence for our Pixelworks Shanghai subsidiary. We remain on track to be positioned to submit our application as early as the latter part of this year.

Turning to a review of activity across our primary end markets. Our mobile business had another strong quarter with revenue increasing 29% sequentially and over 190% year-over-year. Q4 represented the sixth consecutive quarter of sequential growth with record revenue contribution from both our visual processors and software-only solutions.

Briefly highlighting several announced wins since our prior conference call. Two multiyear customers, OPPO and OnePlus, both introduced new models incorporating our Soft Iris solution. OPPO launched the brand's first ever foldable phone, the OPPO Find N, leveraging our patented high-efficiency color and brightness calibration technology. Then OnePlus launched the 10 Pro smartphone using our latest Pro software solution, including features such as absolute color accuracy, professional brightness calibration and ambient color correction.

On the visual processor hardware side, Vivo launched 3 next-gen series of its iQOO smartphones. In December, Vivo launched the iQOO Neo5S as a refresh of the Neo5, which was our first ever win with Vivo in early 2021. The iQOO Neo5S incorporates our X5 Pro visual processor, coupled with Qualcomm Snapdragon 888 platform, enabling overall high performance and an ultra-premium 120-hertz visual display experience for gaming. In January, Vivo launched its iQOO 9 and iQOO 9 Pro each also incorporating our X5 Pro visual processor, specific to the 9 Pro flagship model, it features a 6.78-inch curved flexible AMOLED screen with LTPO controller capable of 1 to 120-hertz variable frame rate adjustment at a maximum resolution of 1,400 by 3,200 pixels. Potentially even more distinguishing in terms of the uniquely high performance of the smartphone. The iQOO 9 series has been designated as the official smartphone partner of the King Premier League, KPL, which is dedicated competition for the single most popular game in China, Honor of Kings. Acknowledging this doesn't have a lot of meaning for those of us here in the U.S. I don't believe there's ever been an equivalent. The game, Honor of Kings, is estimated to have over 100 million active daily users. As discussed on previous calls, mobile gaming has become a dominant market trend on which nearly all OEMs are keenly focused and attempting to capitalize.

However, when combined with the industry's ongoing rapid adoption, of more advanced display panels capable of HDR, higher resolution and higher frame rates, mobile gaming introduces a series of system level and display optimization challenges, most notably resulting in undesirable power consumption and excessive heat. Even the newest premium applications processors do not overcome these challenges. Just consider the iQOO smartphones that I just mentioned. The solution is a distributed visual processing architecture utilizing Pixelworks' dedicated visual processors that offload intensive high frame rate processing and upscaling from the APU and GPU.

While we've convincingly proven the benefits of our solution through a growing number of design wins for our X5 visual processor, we are constantly driving to challenge perceived limitations and raise the bar on the leading edge of display innovation and high-quality, high-efficient visual processing. Our advanced algorithm team's effort and our visual processor road map reflect this ambition.

As such, we formally introduced our X7 mobile visual processor, which we believe will redefine the immersive visual performance for gaming on a mobile device. Our X7 visual processor incorporates significant upgrades to the visual enhancement features we've offered in previous generations and also add several completely new game-changing capabilities. Low-power super resolution and our new ultra-low latency motion engine technology, which provides additional ultra-low latency in HFR modes while improving the overall picture quality.

The low-power resolution feature leverages advanced and proprietary algorithms to boost content resolution from low resolution to high resolution, yet while allowing the mobile device to remain in a low power consumption state. This provides users with a significantly enhanced visual quality for what are frequently low-resolution games and simultaneously extends the length of the time a gain can be played before requiring recharging. Then the ultra-low latency motion engine in our X7 processor is the most innovative and advanced feature that we've introduced in a chip to date.

Based on Pixelworks' fundamental industry-leading motion estimation, motion compensation technology or MEMC. Our latest motion engine is specifically designed and optimized for increasing the frame rate of gaming content. In addition to producing superior high-frame rate motion, we've coordinated with Unity's game engine platform on an integrated solution to provide the X7 with a unique ability to dramatically reduce the latency during HFR conversion while improving the overall PQ.

Unlike streaming of video, processing frames with low latency is critical for competitive gaming, where user interaction frequently and rapidly influences the next frame of content. Notably, the X7s offloading of processing from the GPU can also dramatically lower power consumption, extending the length of time a user can enjoy a sustained high frame gaming experience on their mobile device.

Our X7 visual processor enables dramatically improved video and image quality on both LCD and OLED screens with the support of refresh rates of up to 180 frames per second. We are on track to release our X7 for commercial production in the current quarter and expect the first models incorporating the processor to be launched in the Q3 time frame.

Our mobile growth strategy has evolved over the years and is now focused around 3 key objectives: first, cultivating and expanding an ecosystem that positions Pixelworks' technology as the default solution; second, the expansion of programs, customers and applications; and third, providing unique capabilities and differentiation to each of our strategic customers. We've made consistent progress in all 3 of these areas in the recent quarters.

Related to ecosystems. We continue to actively collaborate with Unity and its game engine platform on the integration and testing of our gaming SDK that enables gaming customers to target the utilization of our X7 MotionEngine. Another element of our cooperation with Unity has been joint outreach and engagement of leading mobile game creators and studios in support of our shared goal, which is to bring an immersive gaming experience to the mobile environment.

Separately, in December, we announced a new cooperation and ISV agreement with MediaTek. This is a meaningful milestone. As historically, our visual processing technology had been exclusively incorporated into mobile devices built on a Qualcomm platform. The cooperation with MediaTek represents an opportunity for significant expansion of our mobile SAM as it will extend the availability of Pixelworks' advanced visual display processing to mobile products based upon MediaTek's Dimensity 5G Open Resource Architecture.

Thus far, our team's initial collaboration efforts have been progressing well and at a relatively fast pace. We expect several new models from multiple customers to be announced this year. More broadly with respect to expansion of mobile programs and customers, our current pipeline of active mobile engagement is strong as it has ever been. Our initial win with the third Tier 1 mobile OEM that we had previously mentioned is currently slated for launch in the current quarter. Additionally, we believe we can secure engagements with 4 Tier 1 mobile customers and expand into an adjacent unique personal display markets by the end of this year.

Shifting to TrueCut, which, as most of you know, has been in development for several years. In mid-December, we formally launched the TrueCut Motion platform. While the underlying fundamental motion grading technology and algorithms for TrueCut have existed and innovated upon for years have been innovated upon for years. Our announced launch marks the availability of a commercially ready platform capable of providing a true end-to-end solution. This includes both a new content delivery format and structure for implementing device-based certification. For those who would like to better understand what TrueCut Motion is all about, we recently published a new TrueCut section of our website I would encourage you to visit.

In conjunction with the Consumer Electronics Show in early January, we announced another significant milestone in announcing our collaboration with TCL. TCL is the first device manufacturer to join and publicly endorse the TrueCut Motion ecosystem. In addition to be one of the world's largest and fastest-growing TV manufacturers, TCL has demonstrated a track record of technology first, including the first TV brand to introduce Quantum Dot displays, the first to introduce mini LED backlight technology and the first TV brand to incorporate Roku TV. Today, we are both actively promoting and co-marketing with the intent to expand the TrueCut ecosystem, while simultaneously supporting plans to bring the TrueCut Motion platform to TCL TVs in North America.

As an end-to-end platform technology, realizing TrueCut's potential relies on firm acceptance from an ecosystem of partners from content creators to post production to content distributors and device manufacturers, many of which are focused on or motivated by different objectives, but with 1 consistent belief. The high frame rate immersive content needs to be created in order to take advantage of the technology that currently exists in display devices.

This ecosystem collaboration will be able to deliver enhanced high-resolution HDR video with incredible motion, while consistently preserving the artistic intent of the filmmaker regardless of the type of size of the screen and all without the consumer having to manually adjust display settings on his or her device.

Today and throughout 2022, our primary focus with TrueCut is on building out the support of ecosystem. TCL is simply the first partnership that has agreed to be named publicly. However, we continue to be in various stages of discussions and evaluations with several market leaders as part of the building out of the TrueCut Motion ecosystem. As we make progress, new e-com system partners will be announced.

In the projector business, we've continued to see further extension of the recovery in both customer and end market demand. Although revenue was down single digits sequentially following a strong snap back in Q2 and 3Q, our fourth quarter projector business was up over 38% year-over-year. For a full year, projector revenue grew 20% and which understates demand and largely reflects a function of supply limitations. Pixelworks' ability to supply projector SoCs has remained tight. -- but we've continued to be successful in mitigating any major impacts to our customers.

The more prevalent real-time constraints in the fourth quarter and entering 2022, primarily relate to the broader supply chain and our customers' ability to source adequate supplies of other required components. Given this backdrop, we expect Q1 to be consistent with Q4 demand, bucking the traditional seasonality of the projector business. Looking beyond Q1, we have good visibility and strong indications from customers. including existing bookings that extend throughout the end of 2022. We also have a healthy pipeline of design and activity while simultaneously working to migrate certain customers away from legacy SoCs to a smaller number of newer products. Although supply chain dynamics will dictate the pace, we believe the projector business will continue to recover with year-over-year growth in 2022.

In summary, the Pixelworks team did an outstanding job during the challenging year with exceptionally strong growth in our mobile business and a recovery in our projector business. The realignment of our Pixelworks Shanghai subsidiary and continued progress in preparation for a local listing was also a significant accomplishment. Our organization has executed well as we continue to expand our executive team and bring on exceptional new talent at Pixelworks Shanghai in support of our mobile and other adjacent opportunities. Pixelworks is in a great position to execute our growth initiatives this year.

Before handing the call over, I want to briefly introduce and welcome Haley Aman as our recently appointed CFO. Haley has been with Pixelworks for more than a decade and served in various financial roles during her tenure. Most recently as the leader of our finance and accounting team. She has also been integral to spearheading several of the organizational transitions we've undertaken as part of the realigning our Pixelworks Shanghai subsidiary. It is great to have her as a member of the executive leadership team.

And with that, I will turn the call over to Haley.

Thank you, Todd. It's great to be here and be joining you today as Pixelworks' CFO. I I'm really looking forward to speaking with many of you over the coming months and quarters. Revenue for the fourth quarter of 2021 was $16.6 million, an increase of 9% from $15.2 million in the third quarter of 2021 and an increase of 73% from $9.6 million in the fourth quarter of 2020.

As Todd previously highlighted, the sequential increase was driven by continued growth and record revenue in our mobile business. Year-over-year, the increase reflected a combination of strong mobile growth and an ongoing recovery in the projector market. The breakdown of revenue for the fourth quarter was as follows: revenue from mobile increased 29% sequentially and 194% year-over-year to approximately $6.2 million. This represented 37% of total revenue.

Although we don't provide a detailed breakout between sales of our visual display processors and software solutions, both reached quarterly records with hardware continuing to represent the majority of our mobile revenue in the quarter.

Revenue from digital projector was approximately $8.1 million, down single digits from the third quarter, but up 38% year-over-year and consistent with the recovery we continue to see in customer and end market demand. Video delivery revenue was approximately $2.2 million in the fourth quarter.

Non-GAAP gross profit margin expanded to 55% in the fourth quarter of 2021 from 53.1% in the third quarter of 2021 and 49.6% in the year ago quarter. Fourth quarter gross margin was at the high end of our historical range and benefited from license revenue related to our mobile software solution.

As communicated in recent quarters, we continue to execute on initiatives to mitigate the higher material costs that have been observed across the industry. To date, we've largely been successful at passing through most of these cost increases to our customers. We continue to closely manage these costs as well as our pricing as part of our target to maintain gross margins. that are consistent with our historical range in the low 50s.

Non-GAAP operating expenses were $11 million in the fourth quarter compared to $10.1 million last quarter and $9.5 million in the fourth quarter of last year. The increase in operating expenses over the comparison period was primarily driven by annual merit increases and increased headcount.

On a non-GAAP basis, fourth quarter 2021 net loss was $1.4 million or a loss of $0.03 per share compared to a net loss of $2.2 million or a loss of $0.04 per share in the prior quarter. And a net loss of $4.9 million or a loss of $0.11 per share in the fourth quarter of 2020.

Adjusted EBITDA for the fourth quarter of 2021 was negative $1.1 million compared to negative $1.6 million in the third quarter of 2021 and a negative $3.8 million in the fourth quarter of 2020.

Turning to the balance sheet. We ended the quarter with cash and cash equivalents of $61.6 million, and our total assets and liabilities remained largely unchanged from the prior quarter.

Now shifting to our current expectations and guidance for the first quarter of 2022. Consistent with the comments made in our preliminary results release, we expect the first quarter to be better than typical seasonality and with total revenue anticipated to be in a range of between $15.5 million and $17.5 million. This expected range at the midpoint would equate to revenue being approximately flat sequentially and represent growth of more than 75% year-over-year.

Non-GAAP gross profit margin in the first quarter is anticipated to be between 50% and 52%. First quarter gross margin is expected to reflect a significantly larger mix of chip revenue versus licensing revenue as compared to the most recent quarter. Additionally, we expect operating expenses in the first quarter to range between $11.5 million and $12.5 million on a non-GAAP basis.

The anticipated sequential increase in operating expenses for the first quarter primarily reflects our ongoing hiring plans as well as incremental development costs. Lastly, we expect first quarter non-GAAP EPS to be in a range of between a loss of $0.09 per share and a loss of $0.05 per share.

That completes our prepared remarks, and we look forward to taking a few of your questions. Operator, please proceed with the Q&A session. Thank you.

(Operator Instructions) We have a question from the line of Suji Desilva with ROTH Capital.

Todd , and Haley, welcome to the call and best of luck in the new role. So Todd, you can talk about these -- the Tier 1 customers, the third and fourth customers you're expecting I'm wondering if you could describe perhaps the opportunity at those customers incrementally versus the ones you've already had and what perhaps the timing of those coming online would be in mobile?

Well, the timing, I think I was rather specific. The third week -- we don't -- I may give an indication that we are going to -- we're engaged or going to land a customer, but I won't announce who it is, what it is that much context on size and substance because I don't want to front run their marketing. In many cases, the features that we collaborate with that particular OEM can be the major differentiating features of that model. So I think I mentioned this many times. So I just want to be consistent with that. So we're not going to talk too much about it, too much about what to expect from it until I can give more color once it's officially announced.

The models released -- you know who the customer is, we'll put out PR and then I can talk about it. But what I have said is that third Tier 1 is expected to launch that model this quarter. And what I have said is we are engaged and feel comfortable communicating that we expect to leave the year with a fourth Tier 1.

Okay, helpful, Todd. And then you mentioned the personal display market. I wasn't sure what you were referring to there as opposed to the smartphone market. Any clarity there would be helpful.

No. I was vague on purpose. There is so much hype out there for the new visual experiences that people will consume content, whether it be gaming content, live entertainment or traditional long-form video content, let's say. And so we have -- clearly, I'm in some very specific engagements and discussions with customers. And so I know exactly what that personal display device is, I just don't want to talk any more detail about that.

Fair enough, a lot to look forward to there, Todd. And then perhaps switching over to TrueCut. Can you talk about this platform that you've launched now? And maybe what new customer opportunities that might unlock that previously were not available because the platform hasn't been available? Perhaps that's when we think about the go-forward opportunity here?

Well, I think -- listen, one of the things that we've done with TrueCut, you go back, and we've been evangelizing this technology. We did an interesting deal with the YOUKU Group of Alibaba almost 3 years ago. Then we subsequently won some awards down in Hollywood from -- these are mainly technical awards. So these are from groups that their job is to try to evaluate and bring new technology to the moviemaking process and then evangelize it and make it available to the broader production ecosystem.

And so we've been doing that for 3 years, where we've been effectively introducing the technology, making people aware that the technology is there and getting acceptance that being able to produce high frame rate content and deliver it as the creator intended to multiple home entertainment devices, okay, or theatrical devices.

We've been on that evangelism for the last 3 years, and we talk about it periodically. What we've now done is sort of formalize that technology into a combination of tools for the content creator and postproduction houses to use to create this content. And to make motion rendering part of the moviemaking process. So that's one element.

Another element is we've worked on creating the appropriate technology for these new streaming distributors to deliver that created content that I just mentioned. And then finally, we've created a way to collaborate and certify devices to seamlessly, and without interaction from the consumer, display that content on their device as it was intended with no adjustments by the consumer themselves.

So what we're doing is we're going from a technology evangelist to, okay, we're trying to be in the, I'll call it, product service business. But in order for this product service to really work, it's not one ended. We can't just go and sell it to the device manufacturer. We can't just go create tools that enable the content creator to create this content. We have to go deliver multiple pieces to the ecosystem and bring the ecosystem a form of maturity simultaneously. That makes sense?

Okay. That does, Todd.

Our next question comes from Raji Gill with Needham & Company.

Congrats on the great momentum and welcome, Haley. A question for you, Haley, when you're thinking about the revenue going into I know bucking seasonality overall, and it will be flat. I'm just wondering is there -- is mobile going to be maybe will grow in Q1 and maybe the other segments will be down or is pretty much all the segments going to be kind of flat and basically bucking normal seasonality of being down, any one group that stands out?

Yes. So in mobile, specifically, our hardware will be up, and the software would be down, but it should be basically flat across all of the lines for Q1. But the hardware will be up in mobile.

Okay. Got it. And then for the other business projector and video delivery will it essentially be, I guess, flat?

Yes, yes.

Okay. Got it. And then on the gross margin, obviously, the margins benefited from more mix of software in Q4 and in the opposite is happening in Q1. When you're looking at your pipeline, any sense of how to think about the split of software and hardware through as you progress throughout the year? And I know you're maintaining low 50s. Yes, I just wanted to get some more details on how to think about the margins so we have that modeled correctly as best we can.

Yes. So as we move throughout the year, that shift could change a little bit. We're trying to think of ways to maybe increased software in some areas. So I don't want to say too much right now, but yes, we are trying to kind of get that -- get some ideas out there and work on that.

Let me add a little bit there, a little color to what Haley said. So I think what you're seeing is not just us, but the rest of this industry had absorbed price increases. So back half of '21 majority, I think some things started increasing Q2 of '21. Most of those increases were passed -- in fact, all those increases were passed on to our customer base.

Then in '22, again, most of the supply chain has increased cost. And we, as I think most in our space have passed those increases on. Some people pass those increases on and keep their margin when they pass them on. Some people maybe just pass the cost on, which means the effective margins may decrease a bit. I think it depends who you're talking to and where they are in their business cycle. Where we are in our business cycle is in an aggressive buildup of this mobile ecosystem. And so that helps us -- 2 things. We're trying to build more content support on the software and gaming engine side, but we're also trying to get a broader expansion of models and customers that enable this unique gaming experience.

And so yes, we have transferred many of these cost increases. But I would say for '22, we didn't compound that with forwarding the gross margin increases, if you get what I'm saying, okay? So if somebody raises your cost, let's just say, $0.20, and your margins are in the 50s, if you don't want dilutive to your margins, you've got to increase prices to your customers, double that. In many cases, we didn't -- we offload cost increases, but not with our margin adder. So that means we've had a headwind on margins. So that's one thing.

And we chose to do this because we are in -- as you -- I mean, we just said we're growing the mobile business, I think, 80% year-over-year. right, on this quarter, right? So you clearly were in growth. We're in a growth phase of the business.

And so I think what you'll see is we are trying to offset that aggressive posture. From a margin perspective, by bringing in higher margin licensing business from both. You could see TrueCut at some point. We won't break it out. We'll still make it part of mobile and our Soft Iris licensing business. We've changed the way we do soft iris licensing. We've gone from a royalty based licensing model to an upfront licensing model.

Part of the reason you saw a big increase in Q4 was because with one of the customers that was coming up with a bunch of new models, we switched gears with them. And instead of doing those models on a royalty base, which you get paid after they ship the device, we went with an upfront licensing model. So it effectively allowed us to -- it's more predictable way for us to do business. It's better for the customer, frankly. If they have high growth models, then it's less per model for them. And I think it's going to be good for both us and our customers in the long term. But when you go through this transition, it's going to be a little lumpy and not -- it's going to be a little bit hard to predict a quarter-by-quarter extrapolation of that business.

But all in all, our goal is to continue with building out that mobile ecosystem as aggressively as we can. And getting and maintaining, let's just say, the low [50] margin range, and we will use various different methods to get there. At some point, we do expect our ability to increase margins will be there. We just -- we -- right now, we don't want to slow the demand side now. I hope that's a lot of color I gave you and everybody else on the call. I hope that helped. Did I lose you, Raji?

No, I'm sorry, I had it on mute. No. No, I think that makes a lot of logical sense. I appreciate that. And just for my follow-up, the Iris has built on a 20-nanometer ultra-low leakage process at TSMC, where the capacity, as you noted, has been extremely tight. And you mentioned in the past, had there been no capacity restrictions, you probably would have shipped a lot more units last year -- or sorry, you could ship me more this year. Could you give us an update in terms of when the capacity is coming online? I think in the past, you mentioned you're committed to kind of second half of 2022 that TSMC will bring a significant amount of capacity on 22-nanometer ULLL. And that should be the right -- hopefully, the right timing as a lot of these models start to kind of move forward and go into production and as well as the fact that you've unveiled your I7 -- I'm sorry, your X7. So just could you update me, Todd, on that and I appreciate that insight.

Yes. Well, we are seeing additional support for our growth I would still say that, for sure, through the front half of '22, we are constrained. Based upon how we would like to grow in the back half of '22, we're still constrained. But I am feeling more comfortable like -- put it this way. We're going to spend the OpEx, like the revenue is going to come, okay? Because I can't wait that long to decide. And so I'm going to drive the organization like that capacity is going to be available to us. And our new operations VP, Frank, knows exactly that's what I'm doing, and he's on board. Now there's risk to that. But look at what we're trying to do. We have no choice. We're going to grow.

Our next question comes from Derek Soderberg with Colliers Securities.

So very nice performance and congrats on the progress there. Todd, I think in the past, you put a number on the level of engagements. I'm wondering if you could share sort of where you're at now and where you'd like to exit the year. And I think there was a prior related question. But just with the supply constraints in mobile, our engagements, I guess, over the next couple quarters heavily weighted towards Soft Iris?

No, no. Actually -- so first of all, I'd say our pipeline is strong as it's ever been. I did not say it was a higher quantity, and we're not really talking about quantity because for me, the value of quantity isn't quite there anymore, right? I think early in the process, I think articulating the quantity of engagements gave comfort to our early patient investors that it was -- the reality was starting to happen.

What's more important now is the quality of the engagement, right? And it's twofold when I say quality is what's the volume? Which customers with? Which product is being designed into that customer? And does it meet not only our revenue objectives for return on our resources, but does it also meet our long-term objectives of -- are they going to truly demonstrate the immersive gaming experience that we can enable, which then builds stickiness and a flywheel approach so that more models will want to use this, and more content creators will want to target their content to a Pixelworks-enabled phone?

So what's important to me now and the team is the quality of those engagements. And I would say that today, what the constraint is, is probably not production capacity, although we have to be careful on where we -- how we utilize that production capacity. It's growing production capacity. We have to still be very careful how we utilize it. The bigger issue is our resources. We are dedicating resources to building out content targeted to our platform. We are -- have resources dedicated to both existing X5 programs and the new X7 programs across multiple customers and Soft Iris programs. And so we're growing but I would still say that's the larger constraint for us.

So we -- those engagements that we pick and choose, which we market and we get high demand for engagement. In some cases, we don't engage in some cases, the customer doesn't engage. But when we get to choose, we target the highest quality to achieve both our return on resource and our strategic intent.

Got it. That's helpful. And just on OpEx for the year, Haley. It sounds like a lot of activities going on in mobile and TrueCut. You've got an R&D program as well. Just curious how we should think about OpEx levels as we move sort of throughout the year? Any help on OpEx would be great.

Yes. I think you should think of this next -- this year, 2022 as an investment year for the company. We're trying to grow, and you should expect to see that in OpEx as well.

It will be controlled, okay, but it will be growing.

Our next question comes from Richard Shannon with Craig-Hallum.

Let's see here Todd, just looking backwards into your announcement from December on MediaTek, can you explain the relationship there? And then do you still view them as a competitor in any way? And when will we see a phone that uses the MediaTek apps process around it?

Okay. Well, the last one, I mentioned in my prepared remarks that you should see one -- you should see several from multiple customers this year, right? I'm probably not going to give you any more color than that. But you probably should see them before midyear is my guess, at least the first one.

The relationship with -- the formal relationship that we announced, okay? So there's always a formal relationship and then there's your informal how you deal with your partners. And in our environment -- you asked if they're a competitor or not. In our environment, there's always competitive aspects to almost to every partner, right? It's just the nature of the beast.

I would say our formal relationship we announced is that we are an independent software vendor for their Dimensity 5G line of products, right? And we've collaborated before they announced their products to make sure that our Soft Iris software solutions that all the benefits that those software products we're bringing to the Qualcomm platforms are available on the Dimensity 5G platforms. So now it benefits both companies, right? We're able to go out and market our software to programs that MediaTek has secured. But at the same time, MediaTek gets to go out and offer absolutely world-leading best color calibration to their customers, and they're on equal footing with their competitor, Qualcomm. So that -- I would say that's the formal announced relationship, and it's working well.

And then what you see is the informal relationship where remember, we have a software product, and we have a hardware product. But I've said this many times before, and sometimes it gets lost, but I want to make sure it does not, is almost in all cases, our hardware customers, our visual processor customers also use the software. So it's part of the solution. So making sure that your software is bedded on the AP and flawlessly working also paves the path for your visual processor to be next to that AP.

So with that said, that sort of says where we're at now. Where the relationship will go? Who knows, but we have a very positive, productive working relationship with MediaTek, and we -- just as we've had with Qualcomm in the past.

Okay. Helpful perspective, Todd. My second question is in your prepared remarks, and hopefully, I type the -- your wording down here, your mobile growth strategy here. One of them is to expand an ecosystem with Pixelworks as the default. And then in response to one of the past few questions here is talking about creating stickiness. Can you talk about your efforts here, how that's happening, progress there? How -- when are we going to see the ultimate outcome of this? To what degree is Unity involved with this. Can you kind of talk to that ability to stickiness in default usage of Pixelworks in mobile devices?

Well, it's one of the -- okay, so what I'm talking about is one of those goals that you never obtain but you constantly reach for okay? Will we ever reach the point where people just never think about an alternative, either not using us or not using somebody else, et cetera, I don't know. But it is what we strive for, okay? And that is what I'm articulating.

So what are we trying to do? Well, first of all, we're at the forefront of this. Nobody else is doing what we're doing today. Does that -- I mean, given the awareness that we're creating other people are starting to look around. Given the -- if you could probably go in, and I think we would all agree we all have smartphones. I'm not sure if there's anybody on this call that doesn't have a smartphone sitting next to them right now. And my guess is there's not a person on this call that hasn't refreshed that smartphone in less than 3 years. And when they went and refreshed it, there was -- they made some decisions on why they should buy that particular model and spend that particular money.

For the last 5 or 8 years -- and most of the people on this call, I would say, are U.S.-based. We'll probably have some people in China or Asia on this call because we are creating awareness there now. So -- but when I'm talking to the people here in the U.S., probably the #1 decision-making was probably the camera capabilities. And then the #2 decision was the display capabilities. The #3 decision was what ecosystem are you on, right?

Our target customer base today, now that may change over time, but our target customer base today is in China. And those Chinese OEMs are strong in their home market, and they're very strong in the broader Asian markets and now starting into the European markets. But in specific in their home market of China and the broader Asian markets. One of the top decisions over the last 24 months when somebody goes to refresh that phone, has migrated away from camera, display is still very important. But how you experience a mobile game has become a much higher priority on their decision-making list. I'm not the only one that sees this. The AP vendors see this, the display vendors see this, the OEMs see this, the mobile content creators see this. And so you've seen recent acquisitions here in the U.S. from gaming content providers trying to expand their reach into mobile gaming. They see this, okay?

So our goal is to go out and be at the tip of the spear and create -- having -- literally have a road map -- I mean we just announced X7, we're working on X8 and X9. Have a road map of products that are at the forefront of pushing that immersive experience on a mobile device. And then go out -- and part of how you -- I mean some of the times when you try to solve a problem, you can go out and solve the problem in an isolated point resolution fashion. Some cases, the best way to solve the problem is distribute the solution across an ecosystem and have them help you solve the problem to make it more immersive.

We have seen -- we started with X7, and you'll see more of it on our road map that if we go out and collaborate with the game engine and content providers and AP providers that we can make this more immersive experience, a reality sooner than versus trying to do it all on our own. So what I'm talking about there is that aspiration and that intent. I hope that answers your question.

It did, Todd. I always appreciate the detail. So if I had to try to summarize this, it would seem that gaming is probably the center of trying to make the experience sticky. Is that -- or -- and therefore, Pixelworks inclusion as the default -- that's kind of the center of that (inaudible), is that fair?

It is. I mean we will never forgo that, first and foremost, to deliver all this immersive display experience we talk about, you should have a very high-quality calibrated, color-accurate, color rich in different ambient environment display. And so if you go look at what we really started off was delivering that promise to the customers. We will never go away from that promise. So the first thing we do is make sure that this display is best-in-class. Then we add all these other capabilities to now deliver content or part -- it's not really delivering content with gaming, you're creating the content when you make the -- when you're playing the game. So now we're trying to improve that experience on top of this world-class display.

Okay. Fair enough. I guess last question, I guess we're getting closer into the hour here. Kind of following on one of the prior questions here. As you think about your Tier 1 customer base, where -- how fast do you think or how do we think about increasing the breadth is thinking about this in terms of attach rate of their unit base here, how do we think about that? Where is that going to go throughout the end of the year or over the next couple of years? How would you help characterize and quantify that?

Well, I had one customer that wanted to dramatically expand the product lines and the price points, the Pixelworks-enabled features would be in their portfolio of phones. The problem with that was, even though we have growing capacity available to us, we do not have unlimited capacity. If we would have gone down that path, it would have probably alienated our ability to diversify across multiple customers.

So to answer your question correctly, you have to say, okay, the demand would like to expand across price points and categories of phone. This is no longer just going to be put on a gaming phone. They want to improve the gaming experience on all types of phones. Since I do not have unlimited resources and unlimited capacity, manufacturing capacity, we have to be very careful on where we go and choose and engage in how we do it. This frustrates some customers. It makes other customers happy.

Last quick follow-up to that, Todd. When do you expect to be not supply limited in your mobile business? This year or next year?

I think we're going to be able to show dramatic growth this year, but we will be constrained throughout the entire year because we're showing dramatic growth. I think I'll be fighting for capacity throughout 2022. But our growth -- our thirst for growth is voracious.

And this concludes our Q&A session. I will turn it back for final remarks.

Okay. Thank you. Well, thank you for the long call today, a lot of extensive prepared remarks and some very interesting questions. I'd like to finish on once again welcoming Haley to the team and the conference call. Thank you very much for attending.

Thank you.

And with that, ladies and gentlemen, we conclude today's program. You may now disconnect.