Pixelworks Reports Second Quarter 2021 Financial Results and Announces Realignment Plan and Strategic Equity Investments Into Pixelworks Shanghai

Revenue Increases More than 50% Sequentially and Year-over-Year, Driven by Continued Growth in Mobile and Strong Recovery in Projector Business

SAN JOSE, Calif., Aug. 10, 2021 — (PRNewswire) —  Pixelworks, Inc. (NASDAQ: PXLW), a leading provider of innovative video and display processing solutions, today announced financial results for the second quarter ended June 30, 2021.

Second Quarter and Recent Highlights

  • Mobile revenue increased sequentially and year-over-year to a record, driven by expanded adoption of both hardware and software-based visual processing solutions across a growing number of launched smartphones
  • ASUS launched Zenfone 8 and Zenfone 8 Flip flagship smartphones incorporating Pixelworks' leading color calibration, DC Dimming and HDR tone mapping technology
  • Projector revenue increased over 100% sequentially and 30% year-over-year, reflecting a recovery in customer and end market demand
  • Secured $10.6 million co-development agreement with existing Japanese OEM customer to develop an advanced SoC for a planned next-generation product family for the 3LCD Projector market
  • Appointed Mr. Lei (Leo) Shen, a seasoned mobile industry executive, to the newly created position of Senior VP & General Manager to lead continued growth and expansion of Mobile business in China
  • Announced a strategic plan to transform Pixelworks' Shanghai subsidiary ("PWSH") from an R&D center into a profit center for the Mobile, Projector, and Video Delivery businesses, including the positioning of that subsidiary to qualify and seek an initial public offering on the STAR Market in China
  • Signed agreements for funding commitments into PWSH from private equity and strategic investors, with our existing partner MTM contributing amounts in RMB equivalent to approximately $20.0M and new investors Verisilicon, Canaan, and Chipone Technology contributing amounts in RMB equivalent to approximately $3.1M, $3.1M, and $4.6M, respectively
  • Signed agreements for funding commitments into PWSH by employee stock ownership platforms representing approximately 75% of PWSH employees and totaling amounts in RMB equivalent to approximately $12.3M.

"We had a solid and very busy second quarter, highlighted by revenue growth of over 50% on both a sequential and year-over-year basis," stated Todd DeBonis, President and CEO of Pixelworks. "Mobile revenue set another quarterly record, as we continued to gain increased traction across an expanded number of OEMs and launched models during the first half of the year. Also in the second quarter, our projector business benefited from a significant market recovery as well as increased demand, with revenue more than doubling from the first quarter. Consolidated gross margin also expanded significantly in the quarter to above 50% and contributed to sequential and year-over-year improvement in our bottom-line results.

"Additionally, as announced today we have completed a series of actions as part of a broader strategic plan designed to accelerate Pixelworks' future growth and success by transforming our existing Shanghai R&D center (PWSH) into a profit center. This will enable us to enhance the focus of our mobile, projector, and video delivery businesses on their global center in Asia, increasing our ability to access capital, ecosystem partners, customers, and key talent. In conjunction with these efforts, we have secured commitments for significant capital investments in PWSH from a combination of private equity, strategic partners and our current employees in China. Longer-term, we intend to continue to take steps to qualify PWSH for an initial public offering on the STAR Market in China. We believe a listing in China will provide expanded access to future potential growth capital at what could be meaningfully higher valuations than what Pixelworks trades at today in the U.S. This plan will also allow Pixelworks to increase the focus on its TrueCut business, as well as other licensing opportunities.

"Overall, we have executed well during a dynamic and supply-constrained environment. Our team's aggressive and ongoing efforts to secure committed capacity from both our foundry and backend packaging partners has been effective and enabled us to support a large majority of the product demand from our customers. We've also expanded our pipeline of mobile design-ins on next-generation smartphones across both existing and new tier-one mobile OEMs. In July, we taped-out our seventh-generation visual processor for Mobile, which we will be sampling with select customers in the third quarter. Looking to the second half of the year and into the first half of 2022, we have strong bookings from a combination of mobile and projector customers. The magnitude of our growth will depend on continued execution from all areas of the organization and support from our supply chain partners."

Strategic Plan and Pixelworks Shanghai Subsidiary

The Company has been engaged in a strategic plan to transform its existing subsidiary, Pixelworks Semiconductor Technology (Shanghai) Co., Ltd ("PWSH") into a profit center for its mobile, projector, and video delivery businesses. The global center of those businesses continues to be in Asia, and the steps taken by the Company to date and going forward are intended to improve its ability to access capital, customers, and talent. The Company has operated PWSH as its primary R&D center in Asia for over 15 years and feels that the time is right to take advantage of that existing footprint and develop PWSH as a full profit-and-loss center underneath the Company for the mobile, projector, and video delivery businesses. Most of these steps have been completed or will be completed before the end of 2021.

This plan will further enable PWSH to seek qualification to file an application for an initial public offering on the Shanghai Stock Exchange's Sci-Tech innovAtion boaRd, known as the STAR Market (the "Listing"). The Company believes that the Listing will have many benefits, including improved access to new capital markets and the funding of its growth worldwide. The Company presently intends to qualify PWSH to apply for the Listing so that the Listing is consummated in the first half of 2023.

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