PXLW

Pixelworks, Inc. (PXLW)

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Pixelworks, Inc. (PXLW)

Q4 2011 Conference Call

30 January 2012, 5:00 PM ET

Executives

Bruce Walicek - President and CEO

Steve Moore - Chief Financial Officer

Presentation

Operator

Good afternoon and welcome to Pixelworks Inc. fourth quarter and fiscal 2011 financial results conference call. At this time, all participants are in a listen-only mode. At the conclusion of today conference call instructions will be given for the Q&A session. If anyone needs assistance at any time during the conference call, please touch the star followed by zero on your touch-tone telephone. As a reminder, this conference call is being recorded today, Monday, January 30, 2012. I would now like to turn the conference over to Mr. Steve Moore, please proceed.

Steve Moore

Good afternoon and thank you for joining us. This is Steve Moore, Chief Financial Officer of Pixelworks. With me today is Bruce Walicek, President and CEO. The purpose of today’s conference call is to supplement the information provided in our press release issued earlier today announcing the Company’s financial results for the fourth quarter ended December 31, 2011.

Before we begin, I would like to remind you that various remarks we make on this call -- including those about our projected future financial results, economic and market trends, and our competitive position -- constitute forward-looking statements. These forward-looking statements and all other statements made on this call that are not historical facts are subject to a number of risks and uncertainties that may cause actual results to differ materially.

All forward-looking statements are based on the Company's beliefs as of today, Monday, January 30, 2012, and we undertake 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, 2010, 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’s 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 income loss, and net income loss per share. These non-GAAP measures exclude restructuring charges, amortization of acquired developed technology, stock-based compensation expense, gain on sale of patents, gain on sale of marketable securities, and additional amortization of a prepaid royalty. We use these non-GAAP measures internally to assess our operating performance. The Company believes these non-GAAP measures provide a meaningful perspective on our core operating results and underlying cash flow dynamics, but 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.

Included in the Company's press release are definitions and reconciliations of GAAP to non-GAAP net income/loss and GAAP net income/loss to adjusted EBITDA, which provide additional details.

Bruce will begin today’s call with a strategic update on the business, after which I will review our Q4 financial results and discuss our outlook for the first quarter of 2012.

Bruce Walicek

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

2011 was a year of solid progress for Pixelworks, as we expanded our product lines for the digital projection and advanced TV markets. Building on our new product momentum in 2010, we delivered a series of new products, that extended our product lines and experienced strong customer traction. While overall revenues for 2011 were down 7%, as the year began on a difficult note characterized by an inventory correction and major earthquake in Japan, our new products gained significant traction and are now driving growth.

On a year over year basis new products were up 66% over 2010 and represented 56% of total sales, compared with 31% in the prior year. While Projector products were down for the year, that was largely offset by Advanced TV products which grew 97% year on year driven by our new product momentum and Tier 1 customer penetration. And lastly embedded video products were down 32% year over year reflecting the winding down and discontinuation of legacy products in 2011 versus 2010.

In our Projector Product line, we now offer a full range of products for the entire spectrum of the Projector market, from low-end connected systems, to high-end 3D cinema projectors. Our products enable advanced applications in the Business and Consumer segments as well as the Education Market which now accounts for “over 50%” of the global projector market and is driving growth. Applications such as interactivity, 3D Video, and network as well as mobile connectivity are increasingly being demanded as the global education market shifts to the digital classroom.

In 2011 we introduced our next generation projector platform code named TOPAZ that offer unparalleled integration, video performance and connectivity as well as support for advanced keystone correction and 3D video. The Topaz family of products covers multiple segments of the projector market, from entry level 2D education and business projectors, to high end 3D home theatre systems. Topaz is a significant operational milestone for the company, since it is the first comprehensive upgrade to our product line since 2005, and is based on a next generation video processing architecture designed from the ground up. We believe the TOPAZ family of products will serve the market well for the foreseeable future, as projector platforms tend to last 3-5 years or more.

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