Pixelworks outlines strategic review progress and projects Q3 revenue of $8.5M–$9.5M as TrueCut Motion gains momentum

Earnings Call Insights: Pixelworks (PXLW) Q2 2025

MANAGEMENT VIEW

* CEO Todd A. DeBonis stated that "we reported top and bottom line results that were within our guidance and reflected our expectations for a return to sequential revenue growth in the second quarter." He highlighted that gross margin was better than anticipated due to yield improvements on a ramping new co-development projector SoC. Operating expenses decreased more than $3 million year-over-year to below $10 million, and he noted ongoing cost reduction efforts.
* DeBonis provided updates on the TrueCut Motion platform, noting accreditation with three new theatrical releases and emphasizing growing demand in premium large-format theaters: "As of today, titles that utilize TrueCut Motion have achieved over $4 billion at the box office." He also mentioned the return of "Avatar: The Way of Water" to selected IMAX screens using TrueCut Motion and the format’s presence on Apple Vision Pro devices.
* On the mobile business, DeBonis indicated that revenue had a similar profile to the prior quarter, with the realme P4 series in India set to launch with Pixelworks X7 Gen 2 visual processor. He described a two-pronged strategy: expansion in lower-cost smartphones with a new graphics accelerator and continued pursuit of premium gaming experiences through IP licensing and custom design engagements.
* Regarding the Shanghai subsidiary, DeBonis stated: "Although the planned recovery in mobile revenue is taking a bit longer than previously anticipated, we are still targeting for our Pixelworks Shanghai subsidiary to reach profitability as soon as the fourth quarter." The strategic review process for the Shanghai subsidiary is progressing, with three nonbinding term sheets received and due diligence underway.
* CFO Haley F. Aman reported, "Revenue for the second quarter of 2025 was $8.3 million compared to $7.1 million in the first quarter and $8.5 million in the second quarter of 2024." She noted home and enterprise revenue at approximately $7.1 million and mobile at approximately $1.2 million. Aman added, "Second quarter non-GAAP gross profit margin was 46% compared to 49.9% in the first quarter of 2025 and 51% in the second quarter of 2024." Non-GAAP operating expenses fell to $9.7 million. The company recognized $1.6 million in cash subsidies from China's Little Giant program.

OUTLOOK

* Aman guided third quarter 2025 revenue to be between $8.5 million and $9.5 million. Non-GAAP gross profit margin is expected between 47% and 49%, driven by a more favorable product mix within home and enterprise. Third quarter operating expenses are forecasted between $8.5 million and $9.5 million on a non-GAAP basis. Expected non-GAAP EPS is between a loss of $0.70 per share and a loss of $1.02 per share. Management reiterated, "we are still targeting for our Pixelworks Shanghai subsidiary to reach profitability as soon as the fourth quarter."

FINANCIAL RESULTS

* Revenue for Q2 2025 was $8.3 million, up from $7.1 million in Q1 2025 and slightly down from $8.5 million in Q2 2024. Home and enterprise revenue was $7.1 million, and mobile revenue was $1.2 million. Non-GAAP gross profit margin was 46%, compared to 49.9% in Q1 2025 and 51% in Q2 2024. Non-GAAP operating expenses decreased to $9.7 million. Non-GAAP net loss was $5.3 million, or a loss of $1 per share, narrowing from prior quarters. Cash and cash equivalents stood at $14.3 million at quarter end.

Q&A

* Suji Desilva, ROTH Capital: Asked about the shift toward custom ASICs for mobile customers in China. DeBonis responded that differentiation is the main driver and highlighted a "hypercompetitive environment" among Chinese OEMs, noting, "in the premium segment, they're going to want to differentiate and especially in the geopolitical environment we're in showing technology leadership."
* Desilva followed up on whether Pixelworks would manufacture chips or license IP. DeBonis explained, "if it's an ancillary chip opportunity, we would do the production. If it's somebody who is trying to integrate this into their own apps SoC, it would probably be a combination of IP and design services."
* Desilva asked about the timing and magnitude of the transcoding onetime customer order. Aman replied, "that would be hitting in the fourth quarter. Magnitude, I don't know that we're going to share the magnitude right now."
* Desilva inquired about the strategic impact of potential changes at the Shanghai subsidiary. DeBonis said, "It's too early to give any color on that...as soon as I'm in a position to give color in that regard, I will."
* Nicolas Emilio Doyle, Needham & Company: Asked about the breadth of ASIC design and IP opportunities. DeBonis stated these are not limited to smartphones and mentioned potential applications in tablets, AR/VR, LED panels, and gaming monitors.
* Doyle also asked about the new SoC’s impact on home and enterprise. DeBonis noted growth is partly due to higher ASP and inventory stocking with new chips.
* Doyle sought clarification on EOL business in Q2. DeBonis confirmed engagement with two former customers for EOL transcoding chips, with one purchase order in hand and another potential order pending.

SENTIMENT ANALYSIS

* Analysts presented a neutral to slightly positive tone, focusing on strategic direction, mobile differentiation, and visibility on order timing. Their questions were mostly information-seeking, with some gentle pressure for specifics on strategic review outcomes and new business magnitude.
* Management maintained a confident but cautious tone, emphasizing ongoing progress and strategic opportunities. DeBonis used phrases such as "we believe the process is progressing well and nearing closure" and "we remain committed" to reinforce direction.
* Compared to the previous quarter, analyst and management tone remained consistent, both showing cautious optimism with slightly more emphasis from management on cost controls and near-term profitability targets.

QUARTER-OVER-QUARTER COMPARISON

* Revenue increased sequentially from $7.1 million in Q1 to $8.3 million in Q2, with a continued focus on cost reduction and streamlining, evidenced by lower operating expenses. Non-GAAP net loss narrowed from $6.5 million to $5.3 million quarter-over-quarter.
* Guidance for Q3 2025 projects higher revenue and margins compared to Q2 guidance, with continued anticipation of Shanghai subsidiary profitability in Q4, a shift from earlier expectations for the second half of 2025.
* Management’s confidence in TrueCut Motion expanded with additional high-profile title releases and partnerships, while strategic review updates for the Shanghai subsidiary advanced toward closure.
* Analysts continued to focus on the Shanghai subsidiary, mobile business differentiation, and new revenue streams, mirroring last quarter’s themes.

RISKS AND CONCERNS

* Management acknowledged that recovery in mobile revenue is taking longer than anticipated, but reiterated commitment to existing engagements. The hypercompetitive environment and potential for market consolidation among Chinese OEMs were cited as ongoing challenges.
* Uncertainty remains regarding the outcome of the Shanghai subsidiary's strategic review, with three nonbinding term sheets under consideration but no definitive resolution yet.
* Potential revenue from EOL transcoding chips is contingent on customer decisions and production feasibility, introducing unpredictability for that segment.

FINAL TAKEAWAY

Pixelworks leadership reported sequential revenue growth and improved margins driven by new product ramps, cost reductions, and expanding TrueCut Motion adoption. The company projects continued revenue growth and margin improvement in Q3, with the Shanghai subsidiary’s profitability targeted for Q4. Strategic realignment, new partnerships, and a growing pipeline in both IP licensing and design services position the company for broader industry relevance, while management remains focused on cost control, strategic review closure, and capturing upside from new and existing business opportunities.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/pxlw/earnings/transcripts]

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