Release Date: May 14, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Pixelworks Inc (PXLW, Financial) reported a solid first quarter with total revenue just above the midpoint of guidance.
- Gross margin expanded nearly 600 basis points sequentially to over 50%, driven by a favorable shift in revenue mix towards newer X7 Gen 2 visual processors and increased TrueCut revenue.
- Year-over-year mobile revenue was up nearly 200%, representing a record 61% of total revenue for the first quarter.
- The introduction of IRX (Image Rendering Accelerator) has led to collaborations across industry-leading game engines and studios, with nine IRX certified mobile games and over a hundred IRX qualified games.
- Pixelworks Inc (PXLW) secured a multiyear agreement with Walt Disney Studios to bring TrueCut Motion-graded titles to select home entertainment devices, marking a significant milestone.
Negative Points
- The largest mobile customer over the past two quarters recently informed Pixelworks Inc (PXLW) of a near-term reduction in their demand, leading to a pause in orders that is expected to extend into Q3.
- There is a delay in the market introduction of the next-generation mobile visual processor, pushing out its production release to later in the year.
- This delay in the new processor release will cause Pixelworks Inc (PXLW) to miss a couple of customer design-in windows for new premium models in the back half of 2024.
- Due to the anticipated short-term drawdown in revenue, Pixelworks Inc (PXLW) is reviewing near-term operating expenses and areas to maximize operational efficiencies.
- The company reported a non-GAAP net loss of $4 million, or a loss of $0.07 per share, in the first quarter of 2024.
Q & A Highlights
Q: Hi, Todd. Hi, Haley. Couple of questions on the mobile. First of all, on the mobile customers, just curious how much concentration there is in the $20 million the last two quarters? The customer that's having, I guess, model challenges now, and are other large customers in mobile, just to understand the concentration there?
A: So of the $20 million in the last two quarters, a significant portion was with one large customer. We don't break out each customer because we don't want to break out too much information about the models. You know, we're still on a handful of [ROI on a] per customer basis, but we were overweight one particular customer, and that is the customer that is pulling back.
Q: Okay. That's helpful color. And then on the new chip, on the pushout in the launch, is that a chip architecture issue? Is it a design issue, or software, firmware, or is it a issue with the manufacturing process? Any color there on the challenge would be helpful.
A: So it's not an architecture issue. I mean this is an entirely new architecture. We put several new features and functionality in the device as we were progressing to our first chip in 12 nanometer. When you move to a new process node like this, one of the things we have is we have mixed signal analog interfaces, corporate supporting those two new process technology is always challenging. Some of the new features are taking us longer to bring up, but it's certainly not anything to do with the process, technology, or our manufacturing partner. It is design related. We got devices back, I think late April, they were in good enough shape that we actually sampled devices to customers on [May]. So we wouldn't have done that if there was something architecture fundamentally wrong. But needless to say, we were already running on a tight schedule with the customers that were committed to use it in the near term. So it was already a bit of a risk. And I would say some of the challenges we have, it was just too much of a risk to engage on those models. So these are companies that put out new models every six months. And so from their perspective, risk became too high to go on the near term, and we have ample time now to bring it up for the subsequent models.
Q: Hey guys. I guess just a couple of follow-ups on Suji's question. I guess what gives you confidence that the large customer pausing through the third quarter -- what gives you confidence that it will come back in the fourth quarter? And then also how big is the impact that you'll miss the design window for these new premium models? How are you thinking about that? Thanks.
A: So Nick, so first of all, (technical difficulty) By saying that we're inferring that their order coverage will start to come back in partial third quarter. I do not anticipate we will be overweight one customer on a go forward basis. We've had a lot of design activity out over the last six months outside this large customer, that continues with our newest partner, Transsion, and it also continues outside of China, which is good for us. And so even though this customer will be coming back (technical difficulty) And the second question, Nick, was can you repeat the edge? How big of an impact is it that you'll miss the design window for these premium models? Well, for the new device, which was very high ST, it's significant. You know, it will impact our mobile growth for this year. So we'll probably not see mobile growth this year because of that.
Q: Okay. And then on the international expansion, what I mean, did you see any trends in the first quarter with the OnePlus Ace? And then kind of moving over to trend in their global OEM, which ties in China, but focused in these emerging markets, including Africa and the Middle East and I think Europe, where are you focused on expanding internationally and what are the biggest challenges you see there? Thanks.
A: Okay. So the OnePlus Ace 3 was not an international release, it was domestic-only from OnePlus. The one phone that they did put in an international market, so they put both the domestic version and their international, was their flagship their OnePlus 12. Transsion -- and by the way, to go back to OnePlus -- they still probably sell more domestically than they do internationally with [inflation]. Transsion does not sell domestically. They are a [ace share] publicly-traded company [that particularly from one of the significant functional product model], they sell throughout emerging markets throughout the world. And they're and they were the fastest growing mobile phone customer by unit growth in Q1. I think they grew over 80% year over year. And all of that growth is by selling phones in what I would call low to mid tier price ranges, throughout the emerging markets. So engaging with them on this design, Transsion, has been a very good thing for our international expansion. When we started with them, we had modest expectations for this first model. We believe there will be more. By the time we launched the model, we've been working with them probably eight months on this model. By the time we launched the model, their forecast had tripled. Meaning the emerging markets they serve, there is pent-up demand for gaming centric mobile phones, and not a lot of companies have been targeting those emerging markets with these capabilities at this price point. And what we've seen is there's a strong demand for them. So let's hope that continues.
Q: Well, hi, Todd and Haley. Thanks for taking my questions here on time. Todd, maybe I'll hit on gaming and IRX. I think you talked about I know it was 100% to 200% increase in the number of games announced by the end of year. Apologies, if I missed it. My line was garbled at times. Is that the same numerical goal as what you talked about a couple of quarters ago, when you're talking about a 400% increase? I don't have the numbers in front of me to do the math, but is that the same goal?
A: It's consistent with what I think I've talked about in the past. I mean what I said in the prepared remarks is we have nine IRX certified games as of today. And our current goal is to double them by the end. I also said one other thing, Richard. I also said for the first time, I brought up something besides certified, I brought up what we call qualified. And we have over 100 IRX-qualified. The difference between certified and qualified is a certified game is we work directly with the studio, and they incorporate our game engine SDK to support their game playing on an IRX enabled phone. An IRX qualified again, is where we work with the phone manufacturer to make sure that game works well
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
