Pixelworks Inc (PXLW) 2021 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to Pixelworks, Inc.'s Third Quarter 2021 Earnings Conference Call. I will be your operator for today's call. (Operator Instructions) This conference call is being recorded for replay purposes.

I would now like to turn the call over to Pixelworks' CFO, Mr. Elias Nader.

Thank you. Good afternoon, everyone, and thank you for tuning in to today's call. With me on the call is Todd DeBonis, Pixelworks' President and CEO. 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 third quarter of 2021.

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.

All forward-looking statements are based on the company's beliefs as of today, Tuesday, November 9, 2021. 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, our Annual Report on 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 and restructuring expense. The company uses these non-GAAP measures internally to assess our operating performance. We believe these non-GAAP measures provide a meaningful perspective on our core operating results and underlying cash flow dynamics. We caution investors to consider these measures in addition to, and 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, we refer to net loss attributable to Pixelworks Inc. as simply net loss. Included in the company's press release are definitions and reconciliations of GAAP to non-GAAP net loss and GAAP net loss to adjusted EBITDA that will provide additional details.

With that said, I will now turn the call over to Todd for his opening remarks. Thank you.

Thank you, Elias, and good afternoon or morning to everyone on the phone and webcast today. As reported in our press release earlier today, Pixelworks had a solid quarter as we extended our recent momentum with sequential growth in each of our end markets. Mobile revenue increased for the fifth consecutive quarter to reach another quarterly record and combined with a sustained recovery in the projector market, resulted in our highest quarterly revenue since the onset of the pandemic.

Total revenue for the quarter was up 85% year-over-year. Gross margin expanded over the prior quarter, driven by a combination of improved overhead absorption as well as our ability to pass a portion of the higher material cost to customers. We also held OpEx flat sequentially, contributing to another quarter of improvement in our bottom line results.

Also during the quarter, we closed on the previously committed investments in Pixelworks Shanghai subsidiary from a combination of private equity and new strategic investors, as well as most of our employees. In total, we brought in the equivalent of approximately $40 million in net capital investment at a premium valuation, significantly strengthening our cash balance and overall financial position. Since our last conference call, we have continued to finalize on the strategic realignment by transforming our Shanghai subsidiary, which has served as our primary R&D center for many years, into an established profit center while maintaining majority ownership by Pixelworks, Inc.

To briefly reiterate the rationale, our strategic realignment accomplished several objectives that further supports accelerated long-term growth. First, it facilitates direct employee equity ownership in Pixelworks Shanghai, which provides a critical advantage for attracting and retaining key talent in a highly competitive China labor market.

Second, it consolidates Pixelworks' resources and focus on our mobile projector and video delivery businesses in Asia, bringing us closer to our core customers. And as I just highlighted, the reworked operating structure provides access to new sources of capital as well as alignment with strategic investors and ecosystem partners on new potential opportunities in adjacent markets.

Finally, it positions us to address specific qualification requirements for the Pixelworks Shanghai subsidiary to pursue a future IPO and listing on the star market in China. Specific to the pursuit of an IPO and listing for Pixelworks Shanghai, I want to reemphasize that this is a lengthy process that requires meeting certain regulatory criteria and multiple periods of review. Consistent with our previously communicated plan, we estimate the earliest we could apply for a listing would be the second half of 2022.

Turning to a review of our end markets and beginning with the mobile business. During the quarter, we continued to extend our momentum in mobile, achieving another consecutive quarter of growth and a new quarterly record. Mobile revenue in the third quarter and for the first 9 months both increased more than 200% over the same periods in 2020, driven by growth from both our Iris hardware and Soft Iris solutions.

One of the contributors to our growth in Q3 was the ramp of our most recent win with Vivo on their iQOO brand 8 series smartphones. The incorporation of Pixelworks' X5 Pro visual processor in the iQOO Series 8 builds on previous success of our first ever win with Vivo in the iQOO Neo5, which was launched earlier this year.

As the flagship device in the new 8 series, the iQOO 8 Pro features a 6.8-inch slightly-curved AMOLED screen and is capable of 1 to 120 Hertz variable frame rate adjustment with resolution of 1,440 by 3200 pixels. Following extensive lab tests and measurements, this smartphone earned DisplayMate's highest display performance grade of A+ while also setting 14 performance records. All phones in the iQOO 8 Series leverage Pixelworks' content optimized motion estimation and motion compensation mimic to combine ultra-smooth motion with high refresh rates, proving end users with ultra-premium display performance and a truly differentiated gaming experience.

More broadly speaking, gaming has emerged as the dominant market trend that is driving the next wave of innovation in mobile devices. As advanced display panels and technology increasingly become mainstream, standard hard -- and standard hardware and smartphones, mobile OEMs are confronting new system-related and display pipeline optimization challenges.

A prominent example of this high frame rate, high-resolution gaming where an OEM elects to incorporate a high-resolution display capable of 90 to 120 Hertz refresh rates but encounters detrimental impacts of overall device performance, such as reduced battery life, excessive heat and AP throttling, which ends up limiting the rendering performance significantly below the capabilities of the display. These challenges do not apply only to gaming centric phones. These are the exact issues that numerous OEMs are facing on an increasing number of their next-generation models as they adopt display panels capable of higher resolution, higher frame rates and wider color gamuts. Pixelworks' digital display processors solve these critical system performance challenges, by utilizing a distributed visual architecture to offload the intensive processing and upscaling associated with higher frame rate and resolution from the AP and GPU. The result is dramatically lower power drain, extended battery life and allows the users to take full advantage of the high frame rate capabilities of the display.

To date, the value proposition of our visual processing solution has primarily been evaluated and adopted by OEMs as a stand-alone solution for improving display, quality and performance. However, we have been working to position Pixelworks more aggressively and cultivate an ecosystem that inherently drives accelerated adoption of our technology.

Consistent with this objective, this week our Pixelworks Shanghai subsidiary announced a collaboration agreement with Unity Technologies China. Unity is the world's leading gaming engine platform for creating real-time 3D content. Unity provides game developers, a comprehensive set of software solutions to create, run and monetize interactive real-time 2D and 3D content across multiple categories of devices. Unity's platform is utilized to develop nearly 50% of all mobile games today.

The genesis of this collaboration is to synchronize and enhance the mobile game ecosystem with our advanced visual display solutions that are optimized for gaming on mobile devices. As part of our joint efforts, we aim to bring together and integrate resources of the key players across the gaming ecosystem, including game developers, mobile platforms and technology solution providers, to align on a shared goal of enabling superior visual display performance with high frame rate and higher resolution and deliver the highest quality immersive gaming experience possible.

Today, a growing number of OEMs are looking to Pixelworks' visual processing solutions to make sustainable, high frame rate mobile gaming a reality across an expanding range of next-generation smartphones. We have a growing pipeline of new design-ins for both our X5 and Soft Iris solutions with several of these smartphones targeted for customer launches in Q4 and throughout Q1. I can confidently say that we now fully expect this time frame to include a launch of the first of multiple plan models with our third Tier 1 mobile OEM. Separately, we've continued to make a very good progress to make very good progress on our initiative aimed at expanding Soft Iris' capability to run on a new application processor platform, which will represent an expansion of our current mobile [SAM].

Additionally, following the tape-out of our new seventh-generation visual processor that I mentioned last quarter, we have successfully brought up initial samples and finalized the preparation to demonstrate the solution to customers. Our newest visual processor is by far our most advanced processor to date, incorporating improved versions of all the features from both our X5 and I6 devices, including improved Mimic performance as well as advanced AI optimized picture quality that we first introduced in our I6 processor. We will formally announce this solution later this month, and we'll be able to expand on all the benefits this solution will bring the mobile gaming and the entertainment experience.

Shifting to the projector business, we continue to see a sustained recovery in customer demand throughout the quarter. Revenue increased sequentially from a strong initial setback in orders that we experienced in Q2, resulting in the highest quarterly projector revenue since the onset of the pandemic. While both customer and end-market demand have demonstrated steady improvement, customers have noted ongoing concerns related to the tight supply of other non-Pixelworks components, limiting further upside volume in the near-term.

Specific to Pixelworks' ability to supply, our operations team has continued to work closely with both our projector OEM customers and supply chain partners. As a result, we've largely been able to mitigate any significant impact. We have extended the required lead times on purchase orders and modified cancellation terms to better reflect the current environment. We expect supply conditions remain very tight in the coming quarters, and we're currently having bookings from certain projector OEMs that extend as far out in the second half of next year.

With respect to an update on the broader supply and capacity constrained environment, the industry-wide challenges are considerable and costs have increased across our supply chain. That said, to date, I believe, with the support of our supply chain partners, the team has done a terrific job to mitigate the impact on our overall business. The biggest challenge is securing the incremental capacity allocation needed to meet the accelerated growth our mobile customers are currently demanding.

In the current environment, upside capacity is priced at a premium, which further adds to the higher cost of materials. Through a combination of efforts, we've largely been successful in passing through this higher pricing to customers in all of our visual display solutions. Through this and similar collective efforts, we've been able to maintain our historical gross margins.

Looking beyond Q4, it remains difficult to forecast how current supply chain dynamics will evolve throughout 2022, although we believe new capacity from our partners will start coming online in the second half of next year. Currently, we have indications from our customers for demand that meaningfully exceeds the supply we have secured to date for next year. We believe that we will have enough headroom to grow. However, the magnitude of growth is likely to be gated based upon how much supply we ultimately are able to secure.

Turning to an update on TrueCut, as part of our recent and ongoing evaluations by several of the world-leading entertainment companies, we continue to receive positive feedback, affirming that TrueCut remains unmatched as a solution for preserving and delivering the original artistic intent of video, including resolution, HDR color tone and motion. Our TrueCut tools and solution are a platform technology. Therefore, the trigger for adoption has always required the alignment of supporting ecosystem partners. This includes content creators, post-production studios, content distributors as well as leading device manufacturers. In recent months, we've made continued progress on advancing multiple in-depth engagements across all categories of the ecosystem. Our goal remains to coordinate buy-ins from multiple parts of the ecosystem simultaneously.

In summary, we are executing well and continue to build our momentum in our mobile business as well as support the steady demand recovery in our projector business despite the natural challenges associated with driving accelerated growth in a supply-constrained environment.

There are several positive catalysts and potential milestones on the horizon for Pixelworks in 2022, the most immediate of which include a healthy pipeline of design-ins with mobile customers, the availability of our most advanced seventh-generation visual processor and expanded engagements with both strategic and ecosystem partners. We've recently begun adding to our team and capabilities in support of these expanding opportunities, which also demonstrates our confidence about the broadening adoption of Pixelworks technology.

The magnitude of our growth in the coming year will continue to depend on the supply chain dynamics and our operations team focused on securing additional capacity to support the significant growth potential we believe exists. Near term, we are well positioned and expect to deliver another consecutive quarter of sequential and year-over-year revenue growth in the fourth quarter.

With that, I'll hand the call over to Elias to review third quarter financials and provide guidance for the fourth quarter.

Thank you, Todd. Revenue for the third quarter of 2021 was $15.2 million compared to $14.1 million in the second quarter of 2021 and $8.2 million in the third quarter of 2020. As Todd previously highlighted, the sequential increase in revenue and year-over-year growth of 85% reflected a combination of continued traction and record revenue in the mobile market and a sustained recovery in demand from projector customers during the quarter.

The breakdown of revenue in the third quarter was as follows; revenue from mobile increased to approximately $4.8 million, representing 32% of total revenue, driven by strong sales of both our visual display processors and software solutions. Revenue from digital projector increased to approximately $9 million. Video delivery revenue was approximately $1.4 million.

Non-GAAP gross profit margin expanded by 40 basis points sequentially to 53.1% in the third quarter of 2021 from 52.7% in the second quarter of 2021 and compared to 55.6% in the third quarter of 2020. We anticipate gross margin to remain steady and near our historical rate for the balance of the year as we continue to pursue initiatives targeted at offsetting generally higher material costs as well as succeed in passing through increased pricing to customers.

Non-GAAP operating expenses were $10.1 million in the third quarter of 2021, flat with the $10.1 million reported last quarter compared to $8.9 million in the third quarter of last year. On a non-GAAP basis, third quarter 2021 net loss was $2.2 million or a loss of $0.04 per share compared to a net loss of $2.6 million or a loss of $0.05 per share in the prior quarter and a net loss of $4.5 million or a loss of $0.11 per share in the third quarter of 2020. Adjusted EBITDA for the third quarter of 2021 was a negative $1.6 million compared to a negative $1.8 million in the second quarter of 2021 and a negative $3.5 million in the third quarter of 2020.

Moving to the balance sheet, we ended the quarter -- the third quarter of 2021 with cash and cash equivalents of approximately $66.6 million, a significant increase from $23.6 million at the end of the second quarter. The primary contributor to the $43 million increase was a previously discussed closing of investments in our Pixelworks Shanghai subsidiary by a combination of private equity and strategic investors as well as employees of the company. Also contributing to the increased cash balance quarter-over-quarter was receipt of the first $5.8 million payment from our projector co-development customer. We expect to use these funds over the next 6 months as we continue this development activity associated with previously announced co-development agreement.

In terms of other balance sheet metrics for the third quarter, days sales outstanding were 36 days at quarter-end compared to 41 days at the end of the second quarter. Inventory turns were 17.8x in the second quarter, up from 16x in the prior quarter.

Now turning to our guidance for the fourth quarter of 2021, based on recent order trends and our current backlog, we expect continued sequential growth and another quarter of strong year-over-year revenue growth in the fourth quarter, driven by solid demand in both mobile and projector. Specific to the supply chain for Q4, we expect supply to remain very tight across both businesses, with 40 nanometers for projector continuing to be the most acutely constrained.

Taking all factors into account, we currently anticipate total revenue in the fourth quarter to range between $15.5 million, and $17.5 million. Consistent with my previous comments, we anticipate gross margin to remain a historical range in the third quarter, supported by sustained trends in mobile and projector as well as the benefits of better overhead absorption associated with higher total revenue. More specifically, we expect non-GAAP gross profit margin in the fourth quarter of between 53% and 55%.

We anticipate operating expenses in the fourth quarter to range between $11 million and $12 million on a non-GAAP basis. The higher anticipated range for OpEx in the fourth quarter primarily reflects a combination of annual merit increases as well as planned hiring to support a growing number of customer engagements on new mobile programs in Asia. Finally, we expect fourth quarter non-GAAP EPS to be in the range of between a loss of $0.07 and a non-GAAP loss of $0.03 per share.

That concludes our prepared remarks, and we will now open the call for questions. Thank you very much. Operator, please proceed with managing the Q&A session. Thank you.

(Operator Instructions) Our first question comes from Raji Gill with Needham & Company.

Congrats on the great momentum in [ARRS] and the rest of the segments. Just on the mobile business, you kind of hit a record quarter in 3Q. Based on the guidance, it looks like it's going to grow again sequentially in Q4. I'm wondering if you could kind of talk a little bit about the attach rates for the -- kind of the capacity constraint environment affecting the mobile business as you go into 2022? Any thoughts there on how you're going to try to mitigate that?

Okay. So 2 questions, one is a market-driven question and the other one is a supply constraint question, and I'll try to separate the 2, Raji. So on the market demand for mobile, what we set out to do -- we had success on both our I6 processor and the X5 processor, initial success with both, where we're really focused at improved display quality metrics and delivering a better video experience for the most part. Even though we delivered a better gaming experience, it didn't really focus on differentiating that gaming experience.

With the iQOO brand of products, which is a sub-brand of Vivo, and they're one of the 4 large providers in China, the entire iQOO brand of products, and there's probably between 8 and a dozen models launched a year at various price points, with the Neo5 in the early part of this year, we went out and the 2 teams collaborated and worked with third-party game manufacturers to really do this offload rendering idea so that you could bring high frame rate -- an improved high frame mobile gaming experience with 40% to 50% longer battery life while you're operating at higher frame rates and higher resolution.

And what the brand of Vivo found out is that this was a highly desired feature. And so they went from bringing it out, investigating whether the market really wanted us and would give them that pool that they needed to differentiate in a crowded space, and they've come back and said, yes, we're all in.

And so, what we've not only seen is they're all in, their competitors targeting the same demographic are all in. And so, the demand we have for X5 going into Q4 and then the first half of '22 -- I gave up designs 3 months ago because I knew I wouldn't have the capacity. Even with that, we're going to grow significantly. I'm trying not to give up any more designs. But at some point, you have to make a decision on whether you have the capacity to align the design or not.

So far, we've done a good job with our partners at securing additional capacity, both through our fab and through assembly and test. We are not meeting the demand of the market, right. So we're going to be demand constrained through the front half of '22. We expect in the back half of '22, there's 2 things happen. We'll still see demand for these X5 programs, but our newest seventh-generation will be hitting production in the second half. The programs that are targeting there are all second half '22 programs. This is a bigger chip, so less die per wafer.

If we continue to grow with the -- with an increased quantity of phones and models which we're targeting, as you can imagine, that we have an exponential demand increase for supply in the second half. And then this will continue -- our road map continues beyond the seventh generation. And now, our road map really is starting to reflect feedback from all the ecosystem partners, game content providers, game engine providers, the Tier 1 mobile phone companies and AP partners, what they're putting in their phones and not putting -- in their chipsets and not putting in the chipsets. So we expect that demand to continue through 2023. The question is when do we get ahead of supply constraints for mobile.

So in the past, I would say, projector was more acute on the supply constraints because we were -- most of our projector products were in 40 or 55 nanometer, this is in the same domain that a lot of the automotive constraints existed. We are working our way through that. In fact, we probably shouldn't be constrained somewhere in the front half of '22, we'll see. I mean -- and we've managed through it. I mean we have not caused any of our customers to not build product in the projector space. They've had bigger issues with non-Pixelworks suppliers, right. So far, we have not left any business on the -- off the table. But mobile, because of this dramatic uptick in demand will be constrained and it's for sure in the first half of '22.

That's really helpful. And Elias, on the gross margins, so the margins are 4% at the midpoint, so about 100 basis points sequential increase and kind of steady increases in the margin, which is great to see. What's driving the margins? You have all the supply constraint, all the cost on the back end, yet the margins are kind of moving up. Is it more of a mix of Iris? Is it better pricing? Is it better yields? So I'm just curious what's driving the margins despite some of the cost pressures?

Yes, there's a couple of factors, for sure better yield. And we kept -- as you can tell, we kept OpEx at a very low range in the quarter. And as Todd has mentioned in his comments, we did pass on some of the price increases. So I'm sure that also helped. Gross margin is going to be steady and we're very pleased where we're at and what we're looking for.

Our next question comes from Suji Desilva with ROTH Capital.

Congratulations on the progress here. Yes, so understanding, Todd, there's supply constraints gating your mobile growth, but is there a point in time where kind of the wins proliferate from the premium phones, similar to the mainstream and create a potential for an inflection in the demand and unit run rates if supply allows it? Is that -- what time frame could that be potentially?

Some of the programs that are being positioned or requested for us to support are mid-tier mainstream high-volume phones today. So the demand part of that inflection point is here, Suji. So the question is when do I expect supply to catch up with the demand profile, that is a tougher question to answer. I'm feeling pretty good. Our partners are the right partners. They've done a very good job at supporting us in tight environments. The particular process nodes we're in are in high demand. But our partners have done a very good job of trying to get us what -- as much as they can.

They did not expect this much demand from us. We gave them insight 9 months ago to a demand profile. I would say the demand we're receiving today surpasses the insight I gave them 9 months ago, and we were bullish on the business.

I appreciate you trying to answer the difficult supply question twice. The -- can you talk about the work you're doing with Unity and more generally the gaming guys? And have you kind of hit all the guides in the ecosystem you want to or are there still more folks that you can partner with to kind of -- to grow sort of the presence of the Pixelworks products from video to gaming?

Oh, I would say we're just scratching the surface on the gaming ecosystem right now. We have -- we announced this partnership with Unity. They are a leading game engine provider, but there are people that do custom game engines and there are other game engine providers that serve a portion of the market. We are very focused -- because we're focused on -- if you look at our roadmap, which we'll talk a little bit about as we announce the seventh generation, we're very focused on delivering a cinematic immersive mobile gaming experience. There's been a big push by the content providers that saw this during the pandemic, this strong demand as an alternative entertainment experience to video and so many other things to go do this immersive cinematic gaming experience.

Now that we're post pandemic, both the consumers and the content providers want to deliver -- want to experience and the content providers deliver that same immersive experience. We call them AAA games. And the AAA game companies, we're starting to talk to because they want to overcome the current challenges that I alluded to in my prepared remarks that exist with delivering that immersive experience on a mobile platform.

So I would say, today we're just scratching the surface with how many content providers we can engage with early on and game engine providers. So we ratcheted back and kept steady with our business plan through the pandemic, but I kept a lid on hiring. And we -- as a company, we're about 200 people. In the third quarter, we added net 12; in the fourth quarter, we'll probably add a similar amount, and we're on a growth rate.

And so even though near term we're a bit constrained by capacity, it doesn't mean we're not growing, it's just we're not growing as fast as I would like it to grow. We are growing. We don't believe that the supply constraints are going to last forever. And we do believe this is a multi-year opportunity. And so we're going to go and try to expand those -- the number of ecosystem partners and game content providers and then mobile platforms to deliver this mobile gaming experience that I talked about.

Okay. Appreciate that color, Todd. And then one last question, if you don't mind. For TrueCut, I'm curious, we're all kind of waiting for see that US announcement that you have to follow the strong China progress you have. I'm curious just order of magnitude, how many active engagements there are that you're working in the pipeline, that one of these can come out of. And you mentioned device manufacturers. I'm curious, is TrueCut being talked about with guys who are also visual processor customers, just to understand that overlap?

So TrueCut today is we're narrowing our focus to people that really want to deliver a premium motion-based experience. The number one -- there's 2 sides of that equation. The guys in the middle, they're not going to be the lead in that. These are the content distributors. The ecosystem partners on both ends, so the true content creators, and we're talking about people that are pushing the envelope of filmmaking, they're evaluating TrueCut and its capabilities to deliver a different experience, both on a theatrical release of their content as well as a streaming release of their content.

And then all the way on the other end, the device manufacturers, predominantly for the streaming end of the delivery of that same content, they are very interested in solving these motion problems. They've looked at alternatives to solve these problems like filmmaker mode. They've concluded that, that is not the way to go, the particular device manufacturers we're engaged with. And frankly, they're all in at helping us build that ecosystem acceptance.

But to get back to your question, which was are they visual processor companies which is mobile, no, they are Tier 1 TV manufacturers.

Our next question comes from Sam Peterman with Craig-Hallum Capital.

Congrats on the announcement. I wanted to ask a follow-up -- so I wanted to follow-up on the question about Unity there, maybe ask it a little bit different way. Kind of 2 things, I'm curious kind of what the partnership looks like practically speaking and kind of any -- if you think there'll be any direct financial benefit there and what that could look like over time or if it's more just to get kind of exposure to the wire ecosystem out of your technology?

And then I'm also curious kind of why that subsidiary nearly specifically rather than Unity as a whole? Was this sort of testing the waters arrangement that might lead to something bigger or any insight of the strategic rationale there would be great.

Okay. Well, I'm going to start with the last part of your question first, why our subsidiary and the subsidiary in China inked a deal, and that one is a simple one to answer. Our focus at delivering the cinematic mobile gaming experience is in China. The leading mobile gaming market is in China. The leading mobile game content providers are in China. So Unity China is a very important part of Unity Global to execute on our strategy. So to say that -- will it evolve into something bigger, I'm not sure that doing something with the parent corporate makes it any bigger. We're very focused at the China mobile gaming experience. And those content providers will export their content outside of China. But if it doesn't succeed in China, it's probably not going to succeed elsewhere. So this is the hot bed of where a AAA mobile gaming experience is going to be.

And so one thing -- so Unity as far as adding money, et cetera, I mean you have to bring in the more content that -- so I'm not going to move too much because until we announce Iris 7, you won't understand exactly why we brought in the game engine and the content providers. We're only a couple of weeks away from announcing the product, so I don't want to get too far in front of that. But what I will say is, as we bring in the content providers, it creates a much larger demand for our visual processors. So it helps create the demand profile for our visual processors. It improves the experience and the performance for the cinematic mobile gaming experience, if the content providers are on board with what we're trying to do. And so, we'll give much more clarity on this in the coming weeks.

And so, that's how we improve performance of it. But to get back to the Unity China thing, this is where the hotbed of development is going on right now. And so, this -- that's -- our subsidiary is the one focused on this and Unity China is their group focused on solving this problem. Hopefully, that answers your question.

Yes, that's great. And then one on mobile on your new Tier 1. I think -- I just want to clarify that you said this was for a phone that was launching sometime between 4Q and 1Q. And then I wanted to ask kind of how you would size the opportunity at this new Tier 1 relative to what you have at the other 2 Tier 1s. I know you said multiple models I think, but curious for any kind of color you can provide there.

I don't want to get in front of the product announcements. This particular company is doing okay in the market, doing fairly well in the market. They are trying to re-establish themselves in the higher end range and they're going to come out with a new higher end range of products that include our products. And so, when they announce we'll also announce, and then I'll be able to elaborate a little bit more on it, but not until then.

Okay, fair enough. And then if I could squeeze a last one in, I wanted to ask on the Soft Iris capability. You said you were expanding that to run on a new AP platform that expands the SAM. I'm curious, I mean can you talk at all about how much that improves the SAM? And then, are you guys targeting this new platform because you think it's a good opportunity and it's the right time to try to go after this customer or did this customer kind of come to you to solve a problem that they couldn't involve?

So the AP partner, we sort of discussed this and we're coming to a conclusion on collaboration. And then that AP partner was prodded by a common large customer to make sure they work with us. And now, that effort is expanding into not just Soft Iris development but also hardware collaboration.

Our next question comes from Derek Soderberg with Colliers Securities.

Todd, just curious if the new strategic investors could help you guys at all on the supply front, but also on the business side, I imagine there are some opportunities for both some help on the supply and business side. Is that the case or should I be thinking about that partnership more in a different way, or how should I be thinking about that on the business development side? And Todd, just generally, how do you hope to leverage those new relationships?

So the strategic investors that came into Pixelworks Shanghai all had various adjacent markets that they would like us to collaborate in that were sort of non-competitive. They're all in unique areas where we have technology and they have an interest in investing. And so, it was a wide range of opportunities for us. They're all long-term for us, not short-term. They were not -- none of the relationships were driven by support in the supply constraint environment. I'm not sure they could even help us in the particular supply constraint environment we're in right now. Anybody that can help us we do leverage, but I'm not sure those strategic partners are there to -- to help us.

So it's more on can -- depending on which strategic partner it is, can we collectively focus our expertise in a particular adjacent market that we both see as being a potential and have that adjacent market grow in business. So I would say that's more of a multi-year opportunity for us, not short-term on the capacity side.

Okay, got it. Yes, that makes sense. And then just looking forward on OpEx, I mean you guys have done a good job of managing expenses. But with the new operating structure, are you guys sort of consolidating resources? Is there sort of a point at which we can expect OpEx to come down or is it more the case that this really just frees up room for you guys to invest more in the business, new products, things like that? How should we think about the move as it relates to OpEx looking forward?

Yes, what you're going to see is we kept a tight lid on OpEx through Q3. Even with the new adds that we had, we still kept a tight it on OpEx. But as we move forward, we're investing for this, I mean we see a multi-year, 3-, 4-year accelerated growth in the mobile domain and some of these adjacent markets.

In order to fully capture that -- and we see only the front end of that 3 or 4-year period being capacity constrained. We're not going to be capacity -- I mean, there is a ton of new capacity coming online, some as soon as 9 months away, some 18 months away. We do not believe a year to 18 months down the road, we will be in a supply-constrained environment. So we are investing now for the 3 to 4-year horizon.

And so you will start to see our OpEx creep up a bit. And we're still a good steward of shareholders' money. We will do it in a controlled fashion. But there -- in my mind, the -- there's very little risk to invest the money now. There's more risk, if I don't invest we will miss this huge opportunity sitting in front of us.

And I'm currently showing no further questions at this time. I'd like to turn the call back over to Todd DeBonis for closing remarks.

Well, for those of you that are long-term investors, and I see a couple of names up there that I know have been in this as long as I've been the CEO of this company, it's been a long time coming, and I appreciate your patience. And for those new investors, hats off to you, you came at the right time. The company is executing on its long-term strategy, and we look like we're in good shape right now. So thank you for your patience.

This concludes today's conference call. Thank you for participating. You may now disconnect.