UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934

PIXELWORKS, INC.

(Exact name of registrant as specified in its charter)

OREGON		000-30269		91-1761992
(State or other jurisdiction of incorporation)		(Commission File Number)		(I.R.S. Employer Identification No.)

8100 SW Nyberg Road
Tualatin, Oregon 97062
(503) 454-1750
(Address, including zip code, and telephone number, including
area code, of registrant’s principal executive offices)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o     Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o     Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o     Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o     Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

Item 2.02 Results of Operations and Financial Condition.

On October 24, 2007, Pixelworks, Inc. (the “Company”) issued a press release announcing financial results for the three and nine month periods ended September 30, 2007. The press release contains forward-looking statements regarding the Company, and includes cautionary statements identifying important factors that could cause actual results to differ materially from those anticipated.

The press release issued October 24, 2007 is furnished herewith as Exhibit 99.1 to this Report. The information in this Item 2.02, including Exhibit 99.1, is being furnished and shall not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liability of that Section, nor shall such information be deemed to be incorporated by reference in any registration statement or other document filed under the Securities Act of 1933 or the Exchange Act, except as otherwise stated in such filing.

Item 9.01 Financial Statements and Exhibits.

     (d) Exhibits.

          99.1 Press Release issued by Pixelworks, Inc. dated October 24, 2007.

SIGNATURE

     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Pixelworks Reports Third Quarter 2007 Financial Results
October 24, 2007
Page 2

expenses; and third quarter 2006 GAAP operating expenses included $1.9 million in restructuring charges and $2.2 million in non-cash expenses.

     Non-GAAP operating expenses were $13.4 million in the third quarter of 2007, down $1.8 million from $15.3 million in the second quarter of 2007, and down $6.8 million from $20.2 million in the third quarter of 2006. The significant decrease in GAAP and non-GAAP operating expenses was a direct result of the accelerated implementation of the Company’s restructuring plans, which are focused on returning Pixelworks to profitability.

     Third quarter 2007 GAAP net loss was $(4.4) million, or $(0.09) per share, compared to $(7.6) million, or $(0.16) per share in the second quarter of 2007 and $(10.1) million, or $(0.21) per share in the third quarter of 2006. Third quarter 2007 non-GAAP net loss decreased to $(0.9) million, or $(0.02) per share, compared to $(2.7) million, or $(0.06) per share in the second quarter of 2007 and $(5.2) million, or $(0.11) per share in the third quarter of 2006.

     Under its previously announced stock repurchase program, the Company has repurchased approximately 2.2 million shares through October 23, 2007.

     “During the third quarter we continued to make progress against our strategy to lower Pixelworks’ expense structure and to develop new products that address both current and future markets. Both are important areas of focus, as we are committed to making the Company profitable while investing in the products that will drive future growth,” said Hans Olsen, President and CEO of Pixelworks.

     “With difficult restructuring efforts now largely behind us and our expense base reduced by one third, Pixelworks is well ahead of schedule in rebalancing our expenses to match current revenue opportunities. We will continue to carefully manage our expenses as we develop industry leading pixel processing technologies for the digital projection and flat panel LCD markets,” concluded Olsen.

Business Outlook for Fourth Quarter 2007

     The following statements are based on the Company’s 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, mergers or acquisitions that may be completed after September 30, 2007 or other future events. 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

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Pixelworks Reports Third Quarter 2007 Financial Results
October 24, 2007
Page 3

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 expects to record a GAAP net loss per share in the fourth quarter of 2007 of $(0.05) to $(0.11) and to record non-GAAP net income (loss) per share of $0.02 to $(0.03), based on the following estimates:

	§		The Company anticipates fourth quarter revenue of $25 million to $27 million. Revenue is highly dependent on a number of factors including, but not limited to, consumer confidence and spending, seasonality in the consumer electronics market, general economic conditions, the Company’s ability to secure additional design wins, timely customer transition to new product designs, new product introductions, production yields, growth rates in the advanced television, multimedia projector, advanced media processor, and LCD monitor and panel markets, levels of inventory at distributors and customers, and supply of products from third party foundries.
	§		GAAP gross profit margin of approximately 41.5 to 43.5 percent. Non-GAAP gross profit margin of approximately 44.0 to 46.0 percent, which excludes an estimated $0.8 million for the amortization of acquired intangible assets, restructuring charges and stock-based compensation. Gross profit margin may be higher or lower than expected due to many factors including, but not limited to, competitive pricing actions, changes in estimated product costs, revenue levels and product mix, new product yields, and inventory and warranty reserve changes.
	§		GAAP operating expenses of $14.1 million to $15.6 million and non-GAAP operating expenses of $11.5 million to $12.5 million. Non-GAAP operating expenses exclude approximately $2.6 million to $3.1 million in expenses for stock-based compensation, restructuring charges and amortization of acquired intangible assets.
	§		Interest and other income, net of approximately $550,000 on both a GAAP and non-GAAP basis.
	§		A tax provision of approximately $500,000 on both a GAAP and non-GAAP basis.

About Pixelworks, Inc.

     Pixelworks, headquartered in Tualatin, Oregon, is an innovative provider of powerful video and pixel processing technology for manufacturers of digital projectors and flat panel display products. Pixelworks’ flexible design architecture enables our unique technology to

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Pixelworks Reports Third Quarter 2007 Financial Results
October 24, 2007
Page 4

produce outstanding image quality in our customers’ display products in a range of solutions including system-on-chip ICs, co-processor and discrete ICs. At design centers in Shanghai and San Jose, Pixelworks engineers relentlessly push pixel performance to new levels for leading manufacturers of consumer electronics and professional displays worldwide.

     For more information, please visit the Company’s Web site at www.pixelworks.com.

#####

     Pixelworks^® and the Pixelworks logo^® are trademarks of Pixelworks, Inc. All other trademarks are the property of their respective owners.

Non-GAAP Financial Measures

     This press release makes reference to non-GAAP gross profit margins, operating expenses and net income (loss) which exclude restructuring charges, acquisition-related items, goodwill and intangible asset impairments, stock-based compensation expense, and a gain on the repurchase of long-term debt, all of which are required under GAAP. The Company believes these non-GAAP measures provide a meaningful perspective on its underlying cash flow dynamics, but cautions investors to consider these measures in addition to, not as a substitute for, its consolidated financial results as presented in accordance with GAAP. A reconciliation between GAAP and non-GAAP financial measures is included in this earnings release which is available in the investor relations section of the Company’s website.

Safe Harbor Statement

     This release contains statements, including the statements in the “Business Outlook for Fourth Quarter 2007” section above, that are forward-looking statements within the meaning of the “Safe Harbor” provisions of the federal 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: changes in growth in the advanced television, multimedia projector, advanced media processor, and LCD panel and monitor markets; changes in consumer confidence or spending; changes in customer ordering patterns or lead times; seasonality in the consumer electronics market; the success of our products in expanded markets; success in achieving operating efficiencies from our restructuring efforts, our efforts to achieve profitability and a positive EBITDA, competitive factors, such as rival chip architectures, introduction or traction by competing designs, or pricing pressures; insufficient, excess or obsolete inventory and variations in inventory valuation; our product mix; new product yield rates, changes in regional demand for our product, non-acceptance of the combined technologies by leading manufacturers; changes in the recoverability of intangible assets and long lived assets; supply of products from third party foundries; and other risk factors listed from time to time in the Company’s Securities and Exchange Commission filings.

     The forward-looking statements we make today, speak as of today, and we do not undertake any obligation to update any such statements to reflect events or circumstances occurring after today. Please refer to our Annual Report on Form 10-K for the year ended December 31, 2006, Quarterly Report on Form 10-Q for the quarter ended June 30, 2007, and subsequent SEC filings for a description of factors that could cause actual results to differ materially from the preliminary results announced.

— Financial Tables Follow —

Pixelworks Reports Third Quarter 2007 Financial Results
October 24, 2007
Page 5

PIXELWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2007				2006				2007				2006
Revenue, net		$	28,133			$	36,309			$	79,010			$	103,778
Cost of revenue (1)			16,025				22,694				45,447				87,059
Gross profit			12,108				13,615				33,563				16,719
Operating expenses:
Research and development (2)			8,962				13,981				30,612				43,974
Selling, general and administrative (3)			5,697				8,391				20,235				26,884
Restructuring			1,645				1,858				7,048				2,751
Amortization of acquired intangible assets			89				90				269				513
Impairment loss on goodwill			—				—				—				133,739
Impairment loss on acquired intangible assets			—				—				—				1,753
Total operating expenses			16,393				24,320				58,164				209,614
Loss from operations			(4,285	)			(10,705	)			(24,601	)			(192,895	)
Interest income			1,454				1,521				4,425				4,241
Interest expense			(658	)			(667	)			(2,003	)			(2,041	)
Amortization of debt issuance costs			(165	)			(166	)			(496	)			(502	)
Gain on repurchase of long-term debt, net			—				—				—				3,009
Interest and other income, net			631				688				1,926				4,707
Loss before income taxes			(3,654	)			(10,017	)			(22,675	)			(188,188	)
Provision for income taxes			775				87				1,796				540
Net loss		$	(4,429	)		$	(10,104	)		$	(24,471	)		$	(188,728	)
Net loss per share — basic and diluted		$	(0.09	)		$	(0.21	)		$	(0.50	)		$	(3.92	)
Weighted average shares outstanding — basic and diluted			48,921				48,414				48,853				48,175
____________________
(1) Includes:
Amortization of acquired developed technology		$	705			$	705			$	2,115			$	3,382
Restructuring			11				—				147				—
Stock-based compensation			22				43				70				162
Impairment loss on acquired developed technology			—				—				—				21,330
Amortization of acquired inventory mark-up			—				—				—				26
(2) Includes stock-based compensation			538				831				1,718				3,088
(3) Includes stock-based compensation			684				1,325				2,633				4,172

Pixelworks Reports Third Quarter 2007 Financial Results
October 24, 2007
Page 6

PIXELWORKS, INC.
RECONCILIATION OF GAAP AND NON-GAAP FINANCIAL INFORMATION *
(Dollars in thousands)
(Unaudited)

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2007				2006				2007				2006
Reconciliation of GAAP and non-GAAP gross profit
GAAP gross profit		$	12,108			$	13,615			$	33,563			$	16,719
Amortization of acquired developed technology			705				705				2,115				3,382
Restructuring			11				—				147				—
Stock-based compensation			22				43				70				162
Impairment loss on acquired developed technology			—				—				—				21,330
Amortization of acquired inventory mark-up			—				—				—				26
Total reconciling items included in cost of revenue			738				748				2,332				24,900
Non-GAAP gross profit		$	12,846			$	14,363			$	35,895			$	41,619
Non-GAAP gross profit margin			45.7	%			39.6	%			45.4	%			40.1	%
Reconciliation of GAAP and non-GAAP operating expenses
GAAP operating expenses		$	16,393			$	24,320			$	58,164			$	209,614
Reconciling item included in research and development:
Stock-based compensation			538				831				1,718				3,088
Reconciling item included in selling, general and administrative:
Stock-based compensation			684				1,325				2,633				4,172
Restructuring			1,645				1,858				7,048				2,751
Amortization of acquired intangible assets			89				90				269				513
Impairment loss on goodwill			—				—				—				133,739
Impairment loss on acquired intangible assets			—				—				—				1,753
Total reconciling items included in operating expenses			2,956				4,104				11,668				146,016
Non-GAAP operating expenses		$	13,437			$	20,216			$	46,496			$	63,598

Pixelworks Reports Third Quarter 2007 Financial Results
October 24, 2007
Page 7

PIXELWORKS, INC.
RECONCILIATION OF GAAP AND NON-GAAP FINANCIAL INFORMATION *
(In thousands, except per share data)
(Unaudited)

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2007				2006				2007				2006
Reconciliation of GAAP and non-GAAP net loss
GAAP net loss		$	(4,429	)		$	(10,104	)		$	(24,471	)		$	(188,728	)
Reconciling items included in cost of revenue			738				748				2,332				24,900
Reconciling items included in operating expenses			2,956				4,104				11,668				146,016
Gain on repurchase of long-term debt, net			—				—				—				(3,009	)
Tax effect of non-GAAP adjustments			(134	)			39				(123	)			98
Non-GAAP net loss		$	(869	)		$	(5,213	)		$	(10,594	)		$	(20,723	)
Non-GAAP net loss per share — basic and diluted		$	(0.02	)		$	(0.11	)		$	(0.22	)		$	(0.43	)
Non-GAAP weighted average shares outstanding — basic and diluted			48,921				48,414				48,853				48,175

Pixelworks Reports Third Quarter 2007 Financial Results
October 24, 2007
Page 8

PIXELWORKS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)

		September 30,				December 31,
		2007				2006
ASSETS
Current assets:
Cash and cash equivalents		$	73,643			$	63,095
Short-term marketable securities			35,933				53,985
Accounts receivable, net			8,669				9,315
Inventories, net			15,512				13,809
Prepaid expenses and other current assets			2,800				6,374
Total current assets			136,557				146,578
Long-term marketable securities			11,146				17,504
Property and equipment, net			13,254				21,931
Other assets, net			7,525				9,287
Debt issuance costs, net			2,426				2,922
Acquired intangible assets, net			7,165				9,549
Total assets		$	178,073			$	207,771
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	7,159			$	8,093
Accrued liabilities and current portion of long-term liabilities			16,106				19,319
Current portion of income taxes payable			681				10,997
Total current liabilities			23,946				38,409
Long-term liabilities, net of current portion			2,319				7,414
Income taxes payable, net of current portion			9,904				—
Long-term debt			140,000				140,000
Total liabilities			176,169				185,823
Shareholders’ equity			1,904				21,948
Total liabilities and shareholders’ equity		$	178,073			$	207,771