TUALATIN, Ore.--(BUSINESS WIRE)--Oct. 16, 2001--Pixelworks, Inc. (Nasdaq:PXLW):

CONFERENCE CALL at 2 p.m. PDT, October 16, 2001 - Pixelworks will host a conference call at 2 p.m. PDT, October 16, 2001, which can be accessed at 719/457-2646 using pass code 746352, or at www.companyboardroom.com. A replay will be available by telephone through October 18, 2001, at 719/457-0820 using pass code 746352. The Web broadcast will also be available at www.companyboardroom.com through October 30, 2001.

Selected Highlights

• Record third quarter revenue of $24.1 million increases 58 percent over the third quarter of 2000

• Gross profit margin improves for the seventh consecutive quarter to 47.6 percent, up from 41.5 percent in the third quarter of 2000

• Record pro forma net income(NOTE) of $3.9 million increases for ninth consecutive quarter

(NOTE) Pro forma net income (loss) represents net income (loss) excluding non-cash expenses for the amortization of goodwill and assembled workforce, patent settlement expense, in-process research and development expense, amortization of deferred stock compensation, accretion of preferred stock redemption preference and preferred stock beneficial conversion feature. Net income (loss) excluding these expenses differs from net income (loss) according to generally accepted accounting principles.

Pixelworks, Inc., a leading provider of system-on-a-chip ICs for the advanced display market, today announced financial results for the third quarter ended September 30, 2001.

Revenue for the third quarter of 2001 was $24.1 million, a 58 percent increase over revenue of $15.3 million in the third quarter of 2000 and six percent increase from $22.7 million in the second quarter of 2001.

Pro forma net income(NOTE) for the third quarter was $3.9 million, or $0.09 per diluted share, a 62 percent increase over pro forma net income of $2.4 million, or $0.06 per diluted share in the third quarter of 2000. Pro forma net income for the third quarter of 2001 increased 12 percent sequentially from $3.5 million, or $0.08 per diluted share for the second quarter of 2001.

Non-cash charges recorded in the third quarter in accordance with generally accepted accounting principles included $4.4 million for amortization of goodwill and assembled workforce related to the acquisition of Panstera, Inc., and $2.5 million for amortization of deferred stock compensation. Including these non-cash charges, net loss for the third quarter was ($3.0) million, or ($0.07) per diluted share, compared to net income of $1.8 million, or $0.05 per diluted share, in the third quarter of 2000 and a net loss of ($3.4) million, or ($0.08) per diluted share, in the second quarter of 2001.

"We had another outstanding quarter with record revenues and record pro forma earnings. Our solid financial performance is a direct result of our strong customer relationships and our broad technology portfolio targeting markets that continue to grow despite a challenging economic environment, as well as the operational excellence demonstrated throughout our company," said Allen Alley, President, CEO and Chairman of Pixelworks.

"With markets for our products that offer great growth prospects, and new products coming to market over the next few quarters that will unquestionably be the most exciting in the company's history, our future is indeed bright," Alley concluded.

Business Outlook

The following statements are based on current expectations. These statements are forward-looking, subject to risks and uncertainties, and actual results may differ materially. These statements do not include the potential impact of any investments outside the ordinary course of business, or mergers or acquisitions that may be completed after September 30, 2001. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release. The inclusion of any statement in this release does not constitute a suggestion by the company or any other person that the events or circumstances described in such statements are material. The company does not undertake to publicly update or revise these forward-looking statements even if experience or future changes make it clear that any projected results expressed or implied in this release will not be realized.

• The company estimates revenue of approximately $24.0 million in the fourth quarter of 2001. Revenue is highly dependent on a number of factors including, but not limited to, general economic conditions, timely new product introductions, the company's ability to secure additional design wins with customers, growth rates in the flat panel monitor, multimedia projector, and advanced television markets, and increased supply of products from the company's third party foundries.

• The company expects gross profit margins of approximately 46 to 47 percent in the fourth quarter of 2001. Gross profit margins may be higher or lower than expected due to many factors including, but not limited to, competitive pricing actions, changes in estimated product costs, and changes in estimated product mix.

• The company expects combined operating expenses for R&D and SG&A of approximately $8.9 million in the fourth quarter of 2001.

• The company expects non-cash charges related to the amortization of deferred stock compensation to be approximately $2.5 million and non-cash charges from the acquisition of Panstera, Inc. for amortization of goodwill and assembled workforce to be approximately $4.4 million for the fourth quarter of 2001.

• The company expects interest income of approximately $900,000 in the fourth quarter of 2001. This estimate is dependent on no material change to average cash balances and interest rates from those at September 30, 2001.

• The company expects no tax provision will be necessary for the remainder of 2001.

About Pixelworks, Inc.

Pixelworks, headquartered in Tualatin, Oregon, is a leading provider of system-on-a-chip ICs for the advanced display market. Pixelworks' solutions process and optimize video, computer graphics and Web information for display on a wide variety of devices used in business and consumer markets. Pixelworks ImageProcessor Architecture powers the world's most highly regarded flat panel display products, including monitors and projectors marketed by Compaq, Dell, NEC-Mitsubishi, Samsung, SANYO, Sony and ViewSonic. For more information, please visit the company's Web site at www.pixelworks.com.

Pixelworks is a trademark of Pixelworks, Inc. All other trademarks and registration marks are the property of their respective corporations.

Safe Harbor Statement

The statements by Allen Alley and the statements in the business outlook above are forward-looking statements within the meaning of the Securities Litigation Reform Act of 1995. Such statements are based on current expectations, estimates and projections about the company's business. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict. Actual results could vary materially from the description contained herein due to many factors including those described above and the following: business and economic conditions, changes in growth in the flat panel monitor, multimedia projector, and advanced television industries, changes in customer ordering patterns, competitive factors, such as rival chip architectures, pricing pressures, insufficient, excess or obsolete inventory and variations in inventory valuation, continued success in technological advances, shortages of manufacturing capacity from our third-party foundries, litigation involving antitrust and intellectual property, the non-acceptance of the combined technologies by leading manufacturers, and other risk factors listed from time to time in the company's Securities and Exchange Commission filings. In addition, such statements are subject to the risks inherent in investments in and acquisitions of technologies and businesses, including the timing and successful completion of technology and product development through volume production, integration issues, unanticipated costs and expenditures, changing relationships with customers, suppliers and strategic partners, potential contractual, intellectual property or employment issues, accounting treatment and charges, and the risks that the investment or acquisition cannot be completed successfully or that anticipated benefits are not realized. The forward-looking statements contained in this press release speak only as of the date on which they are made, and the company does not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the date of this news release. If the company does update one or more forward-looking statements, investors and others should not conclude that the company will make additional updates with respect thereto or with respect to other forward-looking statements.

                           PIXELWORKS, INC.
                   CONDENSED STATEMENT OF OPERATIONS
                 (In thousands, except per share data)

                          Three Months Ended       Nine Months Ended
                            September 30,            September 30,
                          2001        2000         2001        2000


Revenue                $ 24,074    $ 15,285     $ 68,149    $ 34,472

Cost of revenue          12,607       8,941       36,667      20,847
                       --------    --------     --------    --------

          Gross profit   11,467       6,344       31,482      13,625

Operating expenses:
   Research and
    development           4,379       3,112       12,913       7,146
   Selling, general and
    administrative        4,226       2,497       11,833       6,402
   Amortization of
    goodwill &
     assembled workforce  4,359          --       11,623          --
   Patent settlement
    expense                  --          --           --       4,078
   In-process R&D expense    --          --       32,400          --
   Amortization of deferred
    stock compensation    2,539         600        6,873       1,627
                       --------   ---------    ---------   ---------
    Total operating
     expenses            15,503       6,209       75,642      19,253
                       --------   ---------    ---------   ---------
    Income (loss)
     from operations     (4,036)        135      (44,160)     (5,628)
                       ---------  ---------    ---------   ---------

Interest income             997       1,677        3,587       2,898
Interest expense             --          --           --         (38)
Other expense, net           --         (34)          --         (24)
                       --------   ---------    ---------   ---------
 Interest and other
  income (expense), net     997       1,643        3,587       2,836
                       --------   ---------    ---------   ---------
 Income (loss) before
  income taxes           (3,039)      1,778      (40,573)     (2,792)
                       --------   ---------    ---------   ---------

Income tax provision         --          --           --          --
                       --------   ---------    ---------   ---------

 Net income (loss)       (3,039)      1,778      (40,573)     (2,792)

Preferred stock
 beneficial conversion
  feature                    --          --           --       9,995
Accretion of preferred
 stock redemption
  preference                 --          --           --       2,100
                       --------   ---------    ---------  ----------

Net income (loss)
 attributable to
  common
   shareholders        $ (3,039)    $ 1,778    $ (40,573)  $ (14,887)
                       ========     =======    =========   =========

Basic net income
 (loss) per share      $  (0.07)    $  0.05    $   (1.00)  $   (0.68)
                       ========     =======    =========   =========

Diluted net income
 (loss) per share      $  (0.07)    $  0.05    $   (1.00)  $   (0.68)
                       ========     =======    =========   =========

Weighted average
 shares-basic        41,128,835  36,309,018   40,453,591  21,879,089
                     ==========  ==========   ==========  ==========

Weighted average
 shares-diluted      41,128,835  39,386,761   40,453,591  21,879,089
                     ==========  ==========   ==========  ==========

Proforma net
 income(1)              $ 3,859     $ 2,378     $ 10,323     $ 2,913
                        =======     =======     ========     =======

Basic net income
 per share               $ 0.09      $ 0.07       $ 0.26      $ 0.13
                         ======      ======       ======      ======

Diluted net income
 per share               $ 0.09      $ 0.06       $ 0.24      $ 0.09
                         ======      ======       ======      ======

Weighted average
 shares-basic        41,128,835  36,309,018   40,453,591  21,879,089
                     ==========  ==========   ==========  ==========

Weighted average
 shares-diluted      43,490,151  39,386,761   42,941,237  33,082,995
                     ==========  ==========   ==========  ==========

(1)  Proforma net income excludes amortization of deferred stock
     compensation, amortization of goodwill and assembled workforce,
     patent settlement expense, in-process R&D expense, accretion of
     preferred stock redemption preference and preferred stock
     beneficial conversion feature.


                           PIXELWORKS, INC.
                        CONDENSED BALANCE SHEET
                            (In thousands)

                                      September 30,      December 31,
ASSETS                                    2001               2000

CURRENT ASSETS
 Cash and cash equivalents             $ 61,941           $ 49,681
 Short-term marketable securities        33,024             54,051
 Accounts receivable, net                 8,518              6,608
 Inventories, net                         3,693              3,280
 Prepaid expenses and other
  current assets                          3,259                592
                               ----------------    ---------------
        Total current assets            110,435            114,212

Property and equipment, net               5,289              3,660
Goodwill and assembled workforce, net    74,352                 --
Long-term marketable securities           2,325                 --
Other assets, net                        10,499              2,422
                               ----------------    ---------------
Total assets                          $ 202,900          $ 120,294
                               ================    ===============

LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
  Accounts payable                      $ 6,360           $ 10,724
  Accrued liabilities                     4,025              3,117
                               ----------------    ---------------
                    Total current
                     liabilities         10,385             13,841

Shareholders' equity                    192,515            106,453
                               ----------------    ---------------
Total liabilities and
 shareholders' equity                 $ 202,900          $ 120,294
                               ================    ===============

--30--KS/se*