About Pixelworks

Pixelworks, Inc. (Pixelworks) provides high-performance and power-efficient visual processing semiconductor and software solutions that enable consistently high-quality and authentic viewing experiences in a wide variety of applications. The company defines its primary target markets as Mobile (smartphone and tablet), Home & Enterprise (projectors, personal video recorders (‘PVR’), and over-the-air (‘OTA’) streaming devices), and Cinema (creation, remastering, and delivery of digital video content). The company’s core visual processing technology intelligently processes digital images and video from a variety of sources and optimizes the content for a superior viewing experience. Rapid growth in video and gaming consumption, combined with the move towards bright, high resolution, high frame rate and high refresh rate displays, especially in mobile, is increasing the demand for the company’s solutions. The company’s technologies can be applied across a wide range of applications: cinema theaters, low-power mobile tablets, smartphones, streaming devices, and digital projectors for the home, school, or the workplace. The company’s products are designed and optimized for power, cost, bandwidth, viewer experience, and overall system performance, according to the requirements of the specific application. On occasion, the company has also licensed the company’s technology. During the third quarter of 2021, the company engaged in a strategic plan to re-align the company’s Mobile and Home & Enterprise businesses to improve their focus on their Asia-centered customers and employee stakeholders. The company’s subsidiary, Pixelworks Semiconductor Technology (Shanghai) Co., Ltd. (or ‘PWSH’), operates these businesses as a full profit-and-loss center underneath Pixelworks. Key Markets The company targets three key markets with the company’s products and services: Mobile, Home & Enterprise, and Cinema. Mobile The company’s Mobile market category is composed of smartphones and tablets. The user experience with mobile video and gaming is a key driver of growth in the smartphone and tablet market. Smartphones and tablets pose a number of unique challenges as mobile display systems. Digital video content is available in a wide range of resolutions and frame rates. Power is of primary importance, impacting form factor, cost, and performance. As these systems have added more functionality, new features have had to compete for battery life, internal bandwidth, and space. The addition of high-resolution and high refresh rate displays has further increased the burden on these resources. The challenges of playing low resolution and frame rate content on a high resolution and frame rate display and of rendering high resolution and frame rate mobile games in a power-efficient way are limiting the users’ visual experience on mobile video and gaming. The company’s Mobile solutions are designed improve this user experience. To furnish the Mobile market with appropriate solutions, the company has taken a holistic, system-wide view and re-invented its visual processing technology to fit within the mobile constraints of battery life, bandwidth, form factor, performance, and use cases. This approach has enabled the company to create technology that meets the power and size requirements of mobile, as well as enabling low power but high frame rate, high resolution and high dynamic range video and gaming experiences. The company’s visual processor solutions enable the most popular mobile games to achieve previously impossible visual experiences and battery life. Home & Enterprise The company’s Home & Enterprise market category is composed of digital projection and video delivery devices and applications. Digital Projection Projector models range from larger units designed to be permanently installed in a conference hall or other venue to ultra-portable devices weighing fewer than two pounds for maximum portability. The feature set of projection systems differs from that of a typical large-screen flat panel display, such as a TV. The digital projection market serves several different areas, such as business, education, and home theater. Video Delivery With the acquisition of ViXS Systems Inc. in August 2017, the company expanded both its market presence and product portfolio. The video industry continues to evolve and adopt new video standards, such as High Efficiency Video Coding, 4K Ultra HD and HDR. The technical and processing demands of these standards are complex and play directly into the company’s core competencies. The company’s technologies for video delivery are highly integrated, low power, and provide high quality video processing, allowing seamless connectivity between devices while maintaining end-to-end content security. With the advent of digital video, it has become possible to deliver video to consumers in an ever-increasing number of ways. Traditional delivery mechanisms, such as over the air broadcasts, cable, satellite, DVDs, and Blu-ray, are being supplemented with Internet streaming and download services. With these new video delivery options comes the ability to offer more services and improved quality. High-resolution (UHD/4K), sustained bitrate decoding (100Mbit), and advanced video formats (HDR10, HDR10+) are key requirements for advanced personal video recorder (‘PVR’) products sold in the Japanese market, where consumers rate video quality as a key acquisition criteria. The advanced PVR market in Japan is experiencing growth as products move from 2K to UHD/4K formats and support new broadcast technologies, like Advanced Digital Satellite Broadcast (‘ADSB’) in Japan. Cinema The company’s Cinema market category is composed of applications and services for content creation, remastering and video streaming for cinematic video. The company’s Cinematic solutions expand the creative palette for filmmakers, and ensure the correct presentation of creative intent across screens. The company’s TrueCut Motion platform is the industry’s first solution to give filmmakers the ability to cinematically fine-tune motion blur, judder, and frame-rate appearance and can be used as part of the creative process to empower filmmakers to shoot at any frame-rate and then deliver a cinematically-tuned, broader set of motion and frame rate appearances. TrueCut technology preserves artistic intent across screens, from theaters to TVs to smartphones. Core Products and Technology Core Products The company’s products include the following: Semiconductor Hardware (integrated circuits or ‘ICs’): Visual Processor ICs for mobile devices, ImageProcessor SoCs for digital projectors, and Transcoder ICs for media players, set-top-box recorders. Software and Platform Licensing: Pixelworks Pro display processing software for smartphones and TrueCut Motion grading, content creation and distribution tools and device certification. The vast majority of the company’s revenue is generated from the sale of the following ICs. ImageProcessor ICs. The company’s ImageProcessor ICs include embedded microprocessors, digital signal processing technology and software that control the operations and signal processing within high-end display systems. The company has continued to refine the architectures for optimal performance, manufacturing the company’s products on process technologies that align with the company’s customers’ requirements. Additionally, the company provides a software development environment and operating system that enables the company’s customers to more quickly develop and customize the ‘look and feel’ of their products. Visual Processor ICs. Products in this category work with a mobile application processor to enhance the performance or feature set of the overall display solution. The company’s Visual Processor ICs can be used with many popular mobile application processors (such as from Qualcomm Incorporated and MediaTek Inc.) to help OEMs enhance their smartphone or tablet products. In addition, the company provides a software development kit to the company’s gaming eco-system partners (including publishers of AAA mobile games) that enables the use of the company’s Rendering Accelerator technology in the company’s visual processors to improve game performance and reduce overall system power while playing high frame rate mobile games. Transcoder ICs. The company’s Transcoder ICs include embedded microprocessors, digital signal processing technology and software that control the operations and signal processing for converting multiple bitrates, resolutions and codecs to provide bandwidth efficient video transmissions based on industry standard protocols. The company’s transcoder technology allows for single, dual and even quad streaming solutions for OTA products. Like the company’s other ICs, the company has continued to refine the architectures for optimal performance, manufacturing the company’s products on process technologies that align with the company’s customers’ requirements. Additionally, the company provides a software development environment that enables the company’s customers to more quickly develop and customize their products. Revenue is also derived from the following software and platform licensing products, which are included in the Engineering services, license and other revenue category: Pixelworks Pro Software. The company’s Pro Software is a software development environment that enables the company’s customers to more quickly develop and customize the ‘look and feel’ of their mobile products by use of various features, such as absolute color accuracy, HDR tone mapping, SDR-to-HDR conversion, and others. Customers can use the company’s Pro Software on the application processor or in connection with the company’s visual processor products. TrueCut Motion Platform. The company’s TrueCut Motion content creation tools provide filmmakers with the ability to dial in a motion look on a shot-by-shot basis. The company provides motion grading services that use these tools as a service, and the tools are also available for license. For content finishing, specific to certain displays, TrueCut Motion will pre-process the content in order to ensure playback according to the original creative intent. For display makers and brands, the company provides the certification services, support, and IP licensing necessary to play back TrueCut Motion processed content, and the right to use the TrueCut Motion brand. Technology The company’s core visual processing technologies include: MotionEngine MEMC. The company’s proprietary MEMC technology significantly improves the performance and viewing experience of any screen by addressing problems, such as judder and motion blur. Unlike competitive solutions it also reduces halo effects that are a typical byproduct of MEMC technology in general. Halos are objectionable blurred regions that surround moving objects as the MEMC algorithms try to reconstruct missing image data caused by the concealing and revealing of objects as they pass over or behind one another. Removing halos dramatically improves image quality and is of particular importance on high-resolution and bright displays where artifacts become more visible. AI Based Display Processing. This technology dramatically improves video and image quality and sets a new standard for picture quality on both LCD and OLED mobile displays with a new AI-driven architecture and dynamic refresh rate support for up to 144 Hz. Its lightweight AI display inferencing augments the company’s knowledge base, numerous real time inputs, and fuzzy logic IP to adaptively and intelligently optimize overall picture quality for video, games, and photos at low power, including real time SDR-to-HDR conversion and AI adaptive display. Advanced Scaling. As display resolutions continue to increase, there is a need to convert lower resolution content to higher resolution in order to display content properly. With the latest wave of high-resolution displays, the quality and quantity demands of scaling have increased significantly. Artifacts become more noticeable on these types of displays as they distract from the realism effect. In addition, with the availability of high-resolution content lagging behind the availability of high-resolution displays, high-quality scaling is required to ensure these new high resolution displays (such as 4K) do not suffer when compared to lesser resolution displays of the same size. The company’s advanced scaling is designed to ensure that up-conversion of lower resolution content is of the highest quality in maintaining the fidelity of image. Mobile Visual Processing. The company has developed visual processing solutions that are designed to optimize power consumption for mobile devices. Beyond MEMC and advanced scaling, these mobile solutions provide the kind of improvements in color, contrast, sharpness, and de-blur that are only found in high quality TVs today. Furthermore, this technology can reduce system power consumption and extend battery life. Transcoding/Decoding. Digital Delivery forms the bulk of not just video content, but all internet bandwidth today. However, throughout the entire chain from inception to consumption, there are multiple variations in bitrate, resolution, and codecs used for both audio and video. Transcoding is a fundamental technology used throughout this pipeline that leads to moving pictures viewed on TVs and mobile devices. The XCODE family of ASICs has enabled many devices within this pipeline, from the racks in some service providers all the way down to the home user watching broadcast OTA TV on a smartphone. XCODE technology provides solutions that deliver UHD Blu-ray PVRs with capability of transcoding recorded content suitable for viewing on smartphones. The technology supports today’s broadcast standards, such as ATSC 1.0, DVB/T/T2/S/S2, ISDB/T/S, and ADSB and is scalable to support upcoming broadcast standards, such as ATSC 3.0. SDR to HDR Conversion. UHD video has standardized on a technology known as HDR to deliver higher dynamic range content. This has resulted in several competing HDR deployments like HDR10, HLG and HDR10+ with support by multiple industry giants. The company’s HDR conversion technology can not only convert between SDR (Standard Dynamic Range) and HDR10, it can also convert among HDR10, HLG and HDR10+, solving an interconnectivity problem between content formatted in one HDR format and display devices that support a different HDR format. Rendering Accelerator. The company has developed technology that is enabled via a software development kit used by gaming content makers to allow their games to leverage the resources and features of the company’s most visual processing technology to improve the user experience with high frame rate, high resolution games while reducing overall system power consumption. TrueCut Motion Grading and Pre-processing. Through the company’s end-to-end platform, filmmakers determine the motion look and their creative intent at the source. Their creative intent is preserved through a certified distribution and playback platform all the way to the final presentation to viewers. This approach provides a closer relationship between the filmmaker and the viewer than has been previously possible. Customers, Sales and Marketing IC Products The company utilizes direct sales and marketing resources in Japan, China, Europe and Taiwan. In addition to sales and marketing representatives, the company has field application engineers who provide technical expertise and assistance to manufacturing customers on final product development. The company’s global distribution channel is multi-tiered and involves both indirect and direct distribution channels. Indirect Distribution Channels The company has indirect distribution relationships through the company’s distributors. Distributors are resellers in local markets who provide engineering support and stock the company’s semiconductors in direct relation to specific manufacturing customer orders. The company’s distributors often have valuable and established relationships with the company’s end customers, and in certain countries it is customary to sell to distributors. One of the company’s distributors, Tokyo Electron Device Ltd. represented more than 10% of revenue in 2022, and accounted for more than 10% of accounts receivable as of December 31, 2022. Another distributor, Upstar Technology Limited accounted for more than 10% of revenue in 2022 and accounted for more than 10% of accounts receivable as of December 31, 2022. Direct Distribution Channels The company has direct distributor relationships in Japan, China, Europe and Taiwan. The company has established direct relationships with companies that manufacture high-end display systems. Revenue through direct relationships accounted for 43% of total revenue in 2022. The company has direct relationships with companies falling into the following three classifications: Integrators: Integrators are OEMs who build display devices based on specifications provided by branded suppliers. Branded Manufacturers: Branded manufacturers are globally recognized manufacturers who develop display device specifications and manufacture, market and distribute display devices either directly or through resellers to end-users. Branded Suppliers: Branded suppliers are globally recognized suppliers who develop display device specifications and then source them from integrators, typically in Asia, and distribute them either directly or through resellers to end-users. End Customers End customers include customers who purchase directly from the company, as well as customers who purchase products indirectly through distributors. Sales to Seiko Epson Corporation represented more than 10% of revenue in 2022, and accounted for more than 10% of accounts receivable as of December 31, 2022. Sales to vivo Communication Technology Co. Ltd. represented more than 10% of revenue in 2022. Sales to Guangdong OPPO Mobile Telecommunications Corporation, Ltd. accounted for more than 10% of revenue in 2022. TrueCut Products The sales and marketing of the company’s TrueCut products differs in approach from that of the company’s IC products. The TrueCut platform includes a mix of services and licensing that is targeted at all levels of the creation, finishing, and distribution of cinematic or streaming digital video. For the company’s TrueCut Motion content creation tools the company seeks to work directly with filmmakers, providing motion grading services, or the tools are also available for license. For content finishing, specific to certain displays, TrueCut Motion will pre-process the content in order to ensure playback according to the original creative intent. For display makers and brands, the company provides the certification services, support, and IP licensing necessary to play back TrueCut Motion processed content, and the right to use the TrueCut Motion brand. The company does not use distributors for its TrueCut products. Revenue from the company’s TrueCut products is thus far not material, and therefore the company includes all such revenue in the company’s Engineering services, license and other category for the Mobile market. Seasonality The company’s business is subject to seasonality related to the markets the company serves and the location of the company’s customers. For example, the company has historically experienced higher revenue from the digital projector component of the Home & Enterprise market in the third quarter of the year (year ended December 2022), and lower revenue in the first quarter of the year, as the company’s Japanese customers reduce inventories in the anticipation of their March 31 fiscal year end. Research and Development The company’s research and development expenses were $30.5 million in 2022. Intellectual Property As of December 31, 2022, the company held 291 patents and had 17 patent applications pending. The company’s U.S. and foreign patents are generally enforceable for 20 years from the date they were filed. Accordingly, the company’s issued patents have from approximately 1 to 16 years remaining in their respective term, depending on their filing dates. Competition The company competes with specialized and diversified electronics and semiconductor companies that offer display processors or scaling components, including: Actions Microelectronics Co., Ltd., ARM Holdings PLC, Dolby Laboratories, Inc., Egis Technology Inc., Hisilicon Technologies Co., Ltd., i-Chips Technology Inc., Lattice Semiconductor Corporation, MediaTek Inc., Novatek Microelectronics Corp., NVIDIA Corporation, Qualcomm Incorporated, Realtek Semiconductor Corp., Renesas Electronics America Inc., Socionext Inc., Solomon Systech (International) Ltd., STMicroelectronics N.V., Sunplus Technology Co., Ltd., Synaptics Incorporated, Texas Instruments Incorporated, Unisoc Communications, Inc., and other companies. History Pixelworks, Inc. was founded in 1997. The company was incorporated under the laws of the state of Oregon in 1997.