Bruce Walicek - President and CEO Steve Moore - Chief Financial Officer

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.

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.

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…

Thank you, Bruce. Revenue in the fourth quarter 2011 was $16.8 million, compared to $17.4 million in the third quarter and $14.1 million in the year-ago quarter. Revenue declined sequentially primarily due to weaker than expected demand in the digital projection market, while the increase compared to the year-ago quarter was driven by higher sales of new products and volume shipments for advanced TV. The split of our fourth quarter revenue by market was 67% digital projection, 25% TV and panel and 8% embedded video display. The revenue split between new and current products during the quarter was 65% new and 35% current. Revenue from digital projection, which includes sales of our chips targeted at the advanced digital projection market, was down sequentially to approximately $11.2 million in Q4 on weaker than expected demand. Revenue from TV and panel, which includes sales of our chips targeted at the large screen flat panel display market, was approximately $4.3 million in Q4, up 43% from the prior quarter and up over 200% from the year-ago quarter. Revenue growth in our advanced TV product line was primarily the result of the continued ramp of previous design wins for our PA series chips at tier-one manufacturers. Embedded video display revenue in Q4 was approximately $1.3 million. Non-GAAP gross profit margin was 48% in the fourth quarter, compared to 49.4% in the previous quarter and 47.1% in the fourth quarter of 2010. The sequential decrease in gross margin was primarily the result of a shift in product mix and the manufacturing ramp of new products into volume production for both the TV and Projector markets. Pixelworks' gross margin is subject to variability based on changes in revenue levels, product mix, startup costs, and the timing and execution of manufacturing ramps as well as other factors.…