[Management View]
Pixelworks reported sequential revenue growth in Q2 2025, driven by increased shipments in the home and enterprise segment and improved yields on new projector SoCs. The company reduced non-GAAP operating expenses and improved adjusted EBITDA, supported by cost streamlining and government subsidies. Management highlighted the growing adoption of TrueCut Motion in premium cinemas and home entertainment, as well as new design wins in mobile with the Realme P4 series. The strategic review of the Pixelworks Shanghai subsidiary advanced, with three non-binding term sheets received and a decision expected before the end of the current quarter.

[Outlook]
Pixelworks expects Q3 2025 revenue to be between $8.5 million and $9.5 million, supported by existing backlog. Non-GAAP gross profit margin is projected in the 47%-49% range, reflecting a more favorable product mix in home and enterprise. Operating expenses are expected to be between $8.5 million and $9.5 million, reflecting incremental cost reduction benefits. Non-GAAP net loss per share is projected between $0.70 and $1.02. The Pixelworks Shanghai subsidiary aims for profitability as early as Q4 2025, dependent on mobile recovery and cost actions.

[Financial Performance]
Revenue for Q2 2025 was $8.3 million, up from $7.1 million in Q1 2025, primarily driven by product shipments in the home and enterprise market. Non-GAAP gross profit margin was 46%, down from 49.9% in Q1 2025, due to a unique product mix. Non-GAAP operating expenses decreased to $9.7 million from $10.4 million in Q1 2025. Net loss was $5.3 million, or $1.00 per share, compared to a net loss of $6.5 million, or $1.30 per share, in Q1 2025. Adjusted EBITDA improved to negative $4.3 million from negative $5.8 million in Q1 2025.

[Q&A Highlights]
Question 1: Why are mobile customers emphasizing custom ASIC versus standard merchant products?
Answer: Mobile customers seek differentiation in a flat market, especially Chinese OEMs aiming to expand globally. In the premium segment, differentiation is crucial due to competitive pressures. Custom solutions offer technology leadership, unlike standard products. The geopolitical environment also influences this trend.

Question 2: After design work for a customer, would Pixelworks manufacture the chips or is it a royalty model?
Answer: If it's an ancillary chip opportunity, Pixelworks would handle production. For integration into a customer's own apps SOC, it would likely involve IP and design services.

Question 3: Will the transcoding one-time customer revenue hit in Q3 or Q4, and what's the magnitude?
Answer: The revenue will hit in Q4. The magnitude is not disclosed at this time.

Question 4: How would Pixelworks be different pre and post the Shanghai division transaction?
Answer: It's too early to provide details on how Pixelworks would differ post-transaction.

Question 5: How broad is the ASIC design and IP opportunity with prospective customers?
Answer: The opportunity is not limited to smartphones; it extends to tablets, AR/VR markets, LED panel walls, monitors, and gaming monitors.

Question 6: What drives strength in the home and enterprise market with the new SoC?
Answer: The new SoC has a higher ASP, and customers need to stock production-based inventory, driving initial demand.

Question 7: Did Pixelworks do any EOL business in February or is it expected in Q4?
Answer: EOL business was completed by the end of 2024. Two customers expressed interest in one-time orders, with production validated.

[Sentiment Analysis]
Analysts showed interest in strategic directions and market differentiation strategies. Management maintained a confident tone regarding strategic reviews and future growth prospects, emphasizing differentiation and technology leadership.

[Quarterly Comparison]
| Metric | Q2 2025 | Q1 2025 | Q2 2024 |
|-------------------------|---------|---------|---------|
| Revenue | $8.3M | $7.1M | $8.5M |
| Gross Margin (Non-GAAP) | 46% | 49.9% | 51% |
| Operating Expenses | $9.7M | $10.4M | $12.8M |
| Net Loss (Non-GAAP) | $5.3M | $6.5M | $7.7M |
| Adjusted EBITDA | -$4.3M | -$5.8M | -$7M |

[Risks and Concerns]
Risks include geopolitical tensions affecting market expansion, competitive pressures in the mobile segment, and potential delays in strategic review outcomes. The mobile market remains flat, posing challenges for growth.

[Final Takeaway]
Pixelworks demonstrated resilience with sequential revenue growth and strategic advancements in Q2 2025. The company's focus on differentiation through custom ASIC solutions and IP licensing positions it well in a competitive market. The strategic review of the Shanghai subsidiary could lead to significant changes, with potential profitability by Q4 2025. Investors should monitor the strategic review outcomes and mobile market recovery closely.