Pixelworks Q2 2023 Earnings Call Transcript

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August 8, 2023

There are 7 speakers on the call.

Operator

Good day, ladies and gentlemen, and welcome to Pixelworks Incorporated's Second Quarter 2023 Earnings Conference Call. I will be your operator for today's call. At this time, all participants are in a listen only mode. Following management's prepared remarks, instructions will be given for the question and answer session. I would now like to turn the call over to Brett Perry with Shelton Group Investor Relations.

Operator

Please go ahead.

Speaker 1

Thank you, Benny. Good afternoon and thank you for joining us on today's call. With me on the call are Pixelworks' President and CEO, Todd DeBonis and Chief Financial Officer, Haley Amon. The purpose of today's conference call is to supplement the information provided in Pixelworks' press release issued earlier today announcing the company's financial results for the Q2 of 2023. Before we begin, I'd like to remind you that various remarks we make on this Call, including those about projected future financial results, economic and market trends and competitive position constitute forward looking statements.

Speaker 1

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, Tuesday, August 8, 2023. The company undertakes no obligation to update any such statements to reflect events or circumstances occurring after today. Please refer to today's press release, the company's annual report on Form 10 ks for the year ended December 31, 2022 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 statements during this conference call will include discussions of certain measures and financial information in GAAP and non GAAP terms, including gross margin, operating expense, net loss and net loss per share.

Speaker 1

Non GAAP measures exclude amortization of acquired intangible assets and stock based compensation expense as well as the tax effect of these non GAAP adjustments. The company uses these non GAAP measures internally to assess operating performance. We believe these non GAAP measures provide a meaningful perspective into core operating results and underlying cash flow dynamics. 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 U. S.

Speaker 1

GAAP. Also note throughout the company's press release and management statements during this conference, we refer to net loss attributable to PixWorks Inc. As simply net loss. For additional details and reconciliations of GAAP to non GAAP net loss and GAAP net loss to adjusted EBITDA, please refer to the company's press release issued earlier today. With that, it's now my pleasure to turn the call over to Pixelworks' CEO, Todd DeBonis.

Speaker 1

Please go ahead.

Speaker 2

Thank you, Brett, and good afternoon, and welcome to all of you joining us on today's call. As reported in today's press release, Our top and bottom line results for the quarter were within guidance and reflected the rebound from a uniquely challenging Q1. Our 37% sequential revenue growth in the 2nd quarter was primarily driven by increased shipments of our mobile ICs, resulting in mobile revenue more than doubling and reaching a record 50% of our total revenue. Combined with a Moderate sequential increase in home and enterprise attributable to stabilization in the projector market. Q2 marked the end of a smartphone inventory correction for Pixelworks, which gives us confidence in resuming our growth trajectory.

Speaker 2

Before jumping into commentary on our end markets, I believe it would be helpful to first provide some brief High level perspective on what we're generally expecting in terms of the rest of the year. First, we believe our sequential revenue growth in Q2 was not a 1 quarter event. Even though it was coming off an unusually low base in the Q1, We expect continued sequential growth in mobile for the balance of the year. Looking at our internal forecast for the second half of the year, which today is largely booked. We also anticipate mobile revenue to reflect significant top line growth over the first half of twenty twenty three.

Speaker 2

With that as a background context, I'll start a review of our mobile business. As widely reported, many component suppliers that sell into the smartphone market are continuing to experience weaker demand as distributors and smartphone OEMs continue to work down previously overbuilt Inventories. This combined with a more sluggish recovery than expected in end demand has contributed to a prolonged market weakness, with prevailing consensus suggesting that current inventory correction in the smartphone supply chain will likely extend into next year. As reflected by the sequential increase in mobile revenue for the 2nd quarter and our current expectation for continued sequential growth in the second half, the trend we are experiencing is meaningfully different than those of the broader smartphone market. While Pixelworks certainly experienced the impact from a correction of mobile inventory During the Q4 of last year and the Q1 of this year, since April, we've effectively been completely clear on inventory of our mobile ICs, both within the channel and held by current customers.

Speaker 2

In fact, as mentioned on our prior call, we experienced multiple instances of mobile OEM customers requesting upside orders due to better than anticipated sell through on several smartphone models incorporating our X5 and 7 visual processor ICs. This has continued into the current quarter as many of the programs we are participating on have experienced upside demand post launch. In addition to closely managing inventories, we sustained our aggressive mobile product and ecosystem development efforts throughout the downturn. A significant portion of these efforts have been centered around cultivating and leveraging the robust mobile gaming ecosystem. Our team has and continues to execute well on this strategy.

Speaker 2

And our growth in an otherwise weak demand environment is evidence of our mobile strategy is working. In July, we expanded upon our existing mobile ecosystem initiatives with the announcement of the formal introduction of Pixelworks' IRX gaming experience branding, IRX referencing image rendering accelerator. In a first for Pixelworks, our new IRX gaming experience brand directly targets smartphone end users. The brand itself is underpinned by Pixelworks' extensive portfolio of proprietary mobile visual processing solutions, coupled together with our unique and in-depth game tuning services. In conjunction with the IRX brand, we are also establishing and supporting IRX certification program that will comprise both a mobile device incorporating FixItWerk's Mobile Visual Processor as well as a certified list of top mobile games that meet our minimum visual quality performance standards after tuning these games for play on IRX certified smartphones.

Speaker 2

Concurrent with the launch of IRX Gaming Experience brand, we published the initial pre certified list of 20 Pop! Mobile games, which we will continue to expand over time. We are also engaged with multiple OEM customers to incorporate the IRX device certification on their next gen models. In advance of the phone officially being launched, a press briefing held last week, The Redmi K60 Ultra Smartphone was pre announced in collaboration with MediaTek, Xiaomi and Pixelworks Shanghai. This announcement with our 4th Tier 1 mobile customer Xiaomi also revealed that the Redmi K60 Ultra Smartphone will be the first ever IRX certified phone when it is officially launched later this month.

Speaker 2

Also last week, OPPO affiliate OnePlus previewed the scheduled launch of its OnePlus H2 Pro flagship Smartphone, reminding consumers of OnePlus' groundbreaking multiyear partnership with Pixelworks and featuring simultaneous super frame rate and super resolution functionality enabled by Pixelworks X7 visual processor. As additional mobile games and devices are certified, we believe the IRX gaming experience will contribute to higher consistency and quality mobile gaming for end users, while also bringing increased consumer awareness to Pixelworks and our content and OEM partners. Turning to a brief update on our TrueCut Motion platform. TrueCut Motion has now been established as the only commercially We validated scalable and filmmaker endorsed end to end solution for creating and delivering premium experience through the cinematic high frame rate content. Today, though most of us are accustomed to new technology seemingly being adopted And proliferating overnight, the professional film industry is different.

Speaker 2

Despite all the technological advancements, Including most of device display systems capable of high frame rate and high resolution output, Hollywood centric content production has continued to utilize 24 frames per second since the early commercialization of motion pictures. While there are multiple reasons behind the historical aversion to embracing higher frame rates, There is growing evidence that the adoption of higher frame rates is necessary to deliver high resolution HDR content without artifacts. Most prominently, the future of Motion Pictures was foreshadowed by the theatrical release of James Cameron's Avatar: The Way of the Water, as well as re releases of Avatar and Titanic, all three of which were released globally to theaters in 4 ks HDR and featured cinematic high frame rate enabled by Pixelworks TrueCut Motion platform. The box office success of these three titles instilled a new motivation among multiple industry participants to not only accept change, but also pivot towards increased releases of premium large format content. Specific to Pixelworks and our TrueCut Motion platform, We believe that we are making significant progress toward broader commercialization.

Speaker 2

I want to reemphasize that TrueCut Motion is a full ecosystem play And the opportunity for TrueCut Motion is bigger than any one customer or partner announcement. We do expect we do, however, expect that we'll be making Additional announcements before year end that will serve as tangible proof points of TrueCut Motion's value proposition and continued adoption. Continuing with an update of our on our home and enterprise business, which now predominantly consists of visual processor SoCs For the digital projector market, revenue was up sequentially over the Q1, however, continued to reflect subdued orders from the projector OEMs in response to macro related uncertainty and softer end market demand, particularly in China. Additionally, our largest projector OEM customer is still working to normalize their internal inventories and lead times followed by the prolonged period of supply constraints and demand imbalances. With that said, order patterns have stabilized in recent months, and we currently expect a slow recovery in customer demand during the second half as the ongoing inventory correction continues to run its course.

Speaker 2

During the Q2, we delivered initial samples of our next generation SoC as part of our co development project with our largest projector customer. As a result, we recognized an anticipated milestone payment as an R and D credit that reduced total OpEx for the quarter. We continue to expect this new SoC to achieve volume production and contribute to overall revenue growth beginning in 2024. Finally, an update on the progress related to our Pixelworks Shanghai subsidiary and the status of our progress towards a listing on the Star Exchange. As briefly highlighted in our last call, we've retained CITIC Securities as our advisor and sponsor to support Pixelworks Shanghai throughout the application and underwriting process.

Speaker 2

During the quarter, we submitted the application to formally begin the tutoring process, which is now well underway. The tutoring process is a prerequisite for any company seeking to apply for a new listing and It's anticipated to take roughly 2 or 3 to 4 months. The team is concurrently compiling a draft of the prospectus and supporting the associated multiyear audit for the subsidiary. I'm very pleased with our continued preparation and advancement toward a local listing. And today, we remain on track to formally file before year end.

Speaker 2

In conclusion, I continue to be inspired by our team's execution of strategic initiatives and our renewed growth and momentum in mobile in spite of the current environment. Although the ultimate recovery in the end market demand specifically in China is slower than most had We are optimistic about our positioning and growth prospects for the second half of the year. Specific to the 3rd quarter, We are fully booked to achieve sequential top line growth, coupled with expected improvement in gross margins as the projector market continues to gradually recover and we further ramp mobile shipments in support of customers' upcoming launches of new smartphone models. With that, I'll hand the call to Haley to review financials and provide guidance for the Q3.

Speaker 3

Thank you, Todd. Revenue for the Q2 of 2023 increased 37% sequentially to $13,600,000 from $10,000,000 in the Q1 and was lower compared to $19,100,000 in the second quarter of The sequential revenue growth in the Q2 was driven primarily by increased shipments into the mobile market. The breakdown of revenue in the Q2 was as follows. Revenue from mobile increased by over 100% sequentially to approximately $6,900,000 which represented a record 50 percent of total revenue in the quarter. Home and Enterprise revenue was approximately $6,700,000 reflecting a small sequential increase compared to the prior quarter.

Speaker 3

Within Home and Enterprise, Sales into the projector market continue to represent approximately 90% of this business during the Q2. Non GAAP gross profit margin was 40.5 percent in the Q2 of 2023 compared to 44.1% in the Q1 2023 49.3 percent in the Q2 of 2022. As discussed last quarter, The lower gross margin level in the 2nd quarter reflected not only the shift in product mix toward mobile, but also previous increases in cost of materials that we chose not to immediately pass through to customers. Beginning in the Q3, we have begun passing through a portion of the higher cost of materials to customers. And as a result, we believe the 2nd quarter marks the bottom for gross corporate gross margin and expect to realize incremental improvement in gross margin starting in the second half of this year.

Speaker 3

Non GAAP operating expenses were $10,700,000 in the 2nd quarter compared to $13,600,000 in the prior quarter and $12,900,000 in the Q2 of 2022. During the Q2, we achieved another anticipated related to our co development agreement resulting in a $1,900,000 credit to R and D, which contributed to our reduced Total operating expenses for the Q2. On a non GAAP basis, 2nd quarter 2023 net loss was $4,800,000 or a loss of $0.09 per share compared to a net loss of approximately $8,200,000 or a loss of $0.15 per share in the prior quarter and a net loss of $3,300,000 or a loss of $0.06 per share in the year ago quarter. Adjusted EBITDA for the Q2 of 2023 was a negative $4,000,000 compared to a negative $7,800,000 last quarter and a negative $2,400,000 in the Q2 of 2022. Turning to the balance sheet.

Speaker 3

We ended the quarter with cash and cash equivalents of $54,500,000 and the company continued to have no outstanding debt. Shifting to our current expectations and guidance for the Q3 of 2023. Based on current order trends and backlog, We anticipate Q3 total revenue to be in a range of between $15,000,000 $17,000,000 At the midpoint of this range, Total revenue would represent an increase of approximately 17% over the 2nd quarter, driven by In terms of gross profit margin, As discussed in my earlier remarks, we've recently begun passing through incrementally higher material costs to our customers. This combined with higher unit volumes and increased overhead absorption from higher total revenue, we Gross profit margin to be between 42% 44%. We expect operating expenses in the 3rd quarter to range between $13,000,000 $14,000,000 on a non GAAP basis.

Speaker 3

Keep in mind the operating expenses The 2nd quarter had the benefit of a milestone credit to R and D and we do not expect a credit associated with the co development agreement during the 3rd quarter. Lastly, we expect Q3 non GAAP EPS to range between a loss of $0.13 per share and a loss of $0.09 per share. That completes our prepared remarks and we look forward to taking your questions. Operator, you can proceed with the Q and A session. Thank you.

Operator

Thank Our first question comes from the line of Suji Desilva of ROTH Capital, your line is now open.

Speaker 4

Hi, Todd. Hi, Haley. Congrats on the progress here. I know it's coming out of the bottom. Sorry for that.

Speaker 4

So Todd, the new 4th Tier 1, I'm just trying to understand that ramp Versus the other 3 you've already had and the initial ramp here, how it sizes versus the other 3? And more importantly, your confidence that there is Steady sequential growth given that sometimes the newer customers have an initial build and then kind of pause to see how the program goes before they move forward. So any color there would be helpful.

Speaker 2

Okay. Well, so the customers announced that Xiaomi, we can talk about them. Yes.

Speaker 4

Sure.

Speaker 2

They had

Operator

so let me just talk about

Speaker 2

what I feel are the differences between this product launch and previous product launches with other Tier 1. First, I would it's a sizable launch. I would say we've had some larger, we've had smaller. So it's in the mid From a quantity perspective. They did up their quantities twice pre launch.

Speaker 2

So they feel they're going to get good demand for this. But the most notable difference between this launch and all the other launches is They fully embraced marketing, the differentiation that Pixelworks Visual Processing brings them and Fully embraced co marketing the IRX ecosystem brand. And They did this in a large event last week where 70 local press attended. And they effectively Launched a three way partnership between ourselves, MediaTek. MediaTek is on this particular gaming platform, their newest Dimensity.

Speaker 2

And all executives from MediaTek, Pixelworks and Xiaomi presented the output of this collaboration. And so I would say that's the most notable, both marketing and how they presented it. And if you go back and look at some of our previous Tier 1 launches, the customers try to present this, our technology is their technology. We had some co marketing, but they sort of buried it. They wanted to present it that their innovation Was differentiating the market.

Speaker 2

I think what you're going to see go forward is the market brand launches are going to acknowledge Us and our ecosystem.

Speaker 4

Okay, Todd. That's helpful. And this IRX brand, I'm curious how this that going to be marketed going forward? It sounds like it could be a good way of pulling in incremental demand for your products. So what are the latest that's going to be marketed?

Speaker 2

Well, we're going to market it. Our OEM customers are going to market it. Our gaming vendors are going to market it. But we will be the predominant marketeer of the brand. Understand, right now I'm talking to predominantly U.

Speaker 2

S. Investors. A big part of our marketing will be local marketing in China and Southeast Asia and targeted towards the end markets where these phones go.

Speaker 4

Okay. Last question for me on the smartphones. How do you seeing a bifurcation of the demand that's kind of recovering modestly here Between the premium smartphones where I think Pixelworks is represented well versus the broader smartphone market, is that part of the dynamic that's giving you more confidence maybe than the rest of the Smartphone component peers you have? Thanks.

Speaker 2

Well, what's giving me confidence is backlog. What but I do believe that the premium market held up much better than the low cost

Speaker 5

Okay. Thanks, Todd.

Speaker 2

Thank you, Suji.

Operator

Thank you. One moment please for our next question. Our next question comes from the line of Quinn Bolton of Needham and Company LLC, your line is now open.

Speaker 6

Hi, Todd. Wanted to follow-up on C. G. Question. Obviously, we've all gone this sort of inventory correction in the China market and you're sort of coming out of it much earlier than many others.

Speaker 6

And I guess I'm wondering, Do you get pretty good sell through data for the models that you're in? And do you have a way of tracking whether inventory of those handsets It's pretty clean. Obviously, the Xiaomi is a new launch. But for the run rate business, I think you mentioned multiple customers, I believe we're upsiding orders in the quarter. So it sounds like that activity was broader than Xiaomi.

Speaker 6

So just trying to get a sense of If you have a pretty good view into the sell through of those phone models.

Speaker 2

I wish I had a better view. Our view is through our customer dialogue, through executives at the customer dialogue. And then When they come in and with short notice start upsiding us on quantity, then I clearly get a picture, Right. My take on this is, I think in general, the premium brands held up a little bit better. I think specifically the brands we were or the models we were in are doing well.

Speaker 2

But when I say doing well, I meant doing well to the OEMs' expectations The model when we first started on it, right? One of the things I've witnessed is if you go back to 2021, The forecast data and the order coverage that customers gave us for models going into 2021 Was all inflated. I mean, we realize that today. We probably didn't realize it as much then. The behavior of the customers today is the opposite.

Speaker 2

They really I mean, in some cases, they bid off 2x or 3x the amount of inventory they would digest of a particular component, not us, but other components in an entire year. They have gone over the last 6 to 9 months of trying to burn through some of this old inventory, but this is the smartphone marketplace. And if you use old inventory too long, your product is not competitive. So what they're doing is you will I think they're going to get towards the end of this. They won't burn All these old inventories, they'll start just jettisoning it, right?

Speaker 2

They'll scrap it. They'll write it off their books And they'll be clean. But that exercise has left all of the ODMs In China, extremely cautious. So I think going into this year, the projections they gave us for some of these model launches was low. Because one thing that happened over the last 3 years, and I think it's definitely happened for us, I don't know if it happened for all the suppliers.

Speaker 2

Going into it, China ODMs would not give component suppliers full coverage. We might have a 26 week cycle time to build our products. We going into the Constraint period, everybody tightened up their requirements, non cancelable, nonreturnable orders, full cycle time, lead times. I see other suppliers in more commodity oriented aspects of the supply chain. They're backing off to where they're absorbing The cycle time and they don't get a lot of order coverage.

Speaker 2

We've retained it. So if somebody comes in and wants to do a program with us, They're pretty much booked. Most of these programs get fully built out in 9 months. They're almost fully booked for the entire program before we launch the phone, Non cancel, non returnable. Hopefully, that gave you a little insight, Quinn.

Speaker 6

Yes. No, that was great. And then I guess maybe 2 for Haley. You guided margins to a range of 42% to 44%. How quickly Or should we expect margins can get back to the kind of 48% to 50% level, especially as Mobile becomes a greater part of the overall mix.

Speaker 6

Is that is 48 to 50 still something you'd see happening perhaps in 2024?

Speaker 3

Yes. Actually in 2024, we're targeting to end the year with mid-50s for margin. So absolutely getting up to the $48,000,000 to $50,000,000 but even further than that by the end of 2024.

Speaker 6

Perfect. And then last for me. The NRE payments that offset R and D in the June quarter, you're not expecting a payment in Q3, 3, but you said you'll that program ramps in 2024. Are there still additional NRE payments for milestones before that Project completes and begins to ramp? Or was the 2nd quarter payment the last large NRE with that program?

Speaker 3

There is still one more NRE payment, which we currently expect to achieve in Q4.

Speaker 4

Similar size?

Speaker 3

No, a little smaller.

Speaker 6

Okay.

Speaker 3

Not quite 1.9, a little less than that.

Speaker 6

Great. Okay. Thank you.

Operator

Thank you. One moment please for next question. Our next question comes from the line of Richard Shannon of Craig Hallum Capital Group. Your line is now open.

Speaker 5

Hi, Todd and Haley. Thanks for taking my questions as well. Maybe I'll start with a tactical question. You're just on the Q3 guidance in terms of sales. You're talking about some nice sequential growth here.

Speaker 5

Anyway, you'd like to delineate whether there's a meaningful difference growth rates between mobile and projector to get to that midpoint.

Speaker 2

Hailey, do you want to answer that question?

Speaker 3

Yes. I would think about it both mobile and Tahoma Enterprise are kind of contributing Equally to that growth in Q3 compared to Q2.

Speaker 5

Okay, good. That's good to see here in the context of increasing gross margins. So nice job there. Todd, maybe a couple of questions on IRX. I guess I'm just asking both right off here.

Speaker 5

Just want to get your sense of breadth of acceptance across all the OEMs, the gaming studios and even the gaming engines To the degree that they're important here. And then maybe you can talk a little bit about the cost of implementation of this branding exercise.

Speaker 2

So listen, this is something we've been thinking about for a while. We've been in implementation mode for maybe 3 to 5 months and it's in the early stages. So you should see we expect to

Speaker 5

see much broader adoption. We expect to see everybody adopt it, right?

Speaker 2

And that's across our ODM customers and models and across The games that we tune. And We definitely will see increased marketing costs. But I we will leverage The ecosystems marketing costs as well.

Speaker 5

Okay. So that last point, Tyler, you're saying it's going to be a barely noticeable or sort of noticeable impact on your OpEx going forward? Or

Speaker 2

I'm definitely ramping up headcount in both The gaming ecosystem team, which is a technical team and the outbound marketing communications team, We if you're asking me outright, are we funding market development funds? Today, we are

Speaker 5

not. Sounds like you're suggesting that might be a possibility down the road. Is that fair to thank you, Clay?

Speaker 2

Well, so I really believe in Communicating a common theme in brand around a differentiated experience to consumers. We in the hardware space and we live in this world all the time. When you market it to consumers, we think they And all of the acronyms, Eaton's feeds that we live in, they don't. So if we can get them to understand, they definitely I mean mobile gaming is they spend a lot of time. It's probably The top 3 use for mobile phones, right?

Speaker 2

As far as data. If they can understand the difference of experience of an IRX branded ecosystem, meaning the game, The ODM, etcetera. And they noticed the difference. They noticed the difference in the look, the feel, the speed, the smoothness and the power consumption. I mean, some of these gains understand, let me give you one example.

Speaker 2

There's a very There's a game called Genshin Impact that most of the OEMs in China will use to demonstrate the performance of the solution because of its actually gaining the peak year. And if you try to render it in real time in native mode On the most advanced telecom or MediaTek GPU, you will be lucky to Sustain 50 frames per second and play for maybe 2 hours before you burn through That a large battery on one of these new phones, if you're displaying it on one of the newer OLED display. The same phones that you're hit that we just launched, we render, so we offload the GPU, It's now rendered at a lower frame rate by 30 frames per second. At a lower resolution, we do post processing. We render the game At 140 hour frames per second, that's full capability of the display that's there.

Speaker 2

In Xiaomi's case, I think it was a 1.5 ks display. And then we increased the ability for the user to play the game for up to 3 hours. If they just if you can quantify that differentiated experience with a brand, everybody benefits. The ODM benefits, the gaming manufacturers benefits and the consumer benefits and of course Pixelworks will benefit. So to me it's about bringing the benefit.

Speaker 2

You're asking me specific Questions about are we willing to spend money to build that brand and that recognition within the consumer marketplace? We absolutely are. We're doing it today and we'll ramp up more as we see success.

Speaker 5

Okay. Great. We look forward to seeing that happen here. A couple of last questions for me and I'll jump out of line. I got a follow-up on the answer on the gross margins from a little earlier.

Speaker 5

Haley, you were talking about a goal of gross margins in the mid-50s exiting next year. I would think everyone would assume that the mix of mobile will be noticeably higher than even it is today. With that correct my assumption if I'm wrong and then mobile tends to be a lesser mix for you and you're ramping from the low 40s up to mid 50s be a pretty impressive scenario. And I would assume that we're also excluding the potential for TrueCut Contribution in there. So, I wonder if you could help me understand the bridge between today and that mid-50s.

Speaker 5

How does that happen? Either a sense of volume or Any other dynamics here that can help the mix improve that much?

Speaker 3

Yeah. So We will be increasing margins for mobile more than projected over that period And as new digital processes are adopted, all of that kind of Hope to get to that number the mid-50s. And Todd feel free to jump in if you want to So,

Speaker 2

Richard, as we If you look historically, our input costs went up quite a bit over the last 2 years, as did anybody that use TSMC.

Speaker 5

Some of those input costs got passed forward to the customers, not all

Speaker 2

of them, right? And certainly not all of them With margin, right? So we are now catching up to some of that activity that's being settled down. It's part of it. But in mobile specifically, what is part of it is we you're going to see us introduce a new visual processor Publicly, the customers have been introduced over 6 months ago.

Speaker 2

They're already they're working on phones with it. That's beyond the X7. And we made sure that the margin profile on that device is better Then the previous device, the MX-seven. And we are introducing yet another device in, I'd say, mid 2014, it will be our first 12 nanometer based device. That's why you've seen so far the reason why you've seen some of our OpEx R and D go up as we're focused on

Speaker 5

a 12 nanometer device, which is 22 nanometer.

Speaker 2

And the margin profile on that device It is incrementally better than the device we're going to announce in a month. So as the adoption If our roadmap happens, we will see significant increase in margin profile for the mobile specific business.

Speaker 5

Okay. Excellent. That's great detail. Thanks for that time. The last one I'll jump out of line here.

Speaker 5

Tru Cut, you teased some Some announcements or at least a announcement before the end of the year about a tangible proof point of the ecosystem developing here. Wondering if you want to give us any clues as to what part of that ecosystem or suggest how should we think about what kind of events can happen here?

Speaker 2

I don't want to give too much hoot. What I'll say is there are several things we're working on. Lightstorm has been a big advocate For using TrueCut technology and high frame rate in general to deliver A unique experience to premium large format theaters, okay? And premium large format theaters Or all types of theaters, but I would say the most recognized ones for this audience on the call would be Dolby Cinema, Timex. And in China, there's something called Finity.

Speaker 2

And As you go to the 3 and large format theaters and you want to deliver high resolution 4 ks and high dynamic range In either 2 d or 3 d, but even more noticeable in 3 d, because of the contrast of brightness And the expanded resolution. Our facts are much more noticeable If you deliver it in 0.4 frames per second, okay? If you go to 48, it's even more Noticeable, unless you do use our technology to do cinematic high spend rates. And so What we've seen is we've seen other people, other what we would call On the creative side, want to take advantage of this technology to do a similar delivery of it. You've also seen premium large format we've seen premium large Well Matt, technology leaders come to us and say how do we get more content to our POS leaders.

Speaker 2

So that gives you a little bit of color of where we've been spending a lot of time and energy. There's more than that. I just don't want to go into it.

Speaker 5

Fair enough. That's some big color there, Scott. I will step on the line. Thank you.

Speaker 2

Yes. Thank you, Richard.

Operator

Thank you. Okay. I do not see any other questions at this Point, I would like to turn the conference back to management for closing remarks.

Speaker 2

Okay. So thank you. I have no further closing remarks. Continued progress in a reasonably difficult environment, but we feel pretty good about our prospects right now. So

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