On Wednesday, Needham maintained a Buy rating on Pixelworks (NASDAQ:PXLW) but lowered the price target to $2.50 from the previous $3.50. This adjustment follows Pixelworks' latest earnings report, which revealed a modest beat on expectations. However, the company issued guidance that fell short of forecasts due to an unexpected order halt from its primary customer.
Pixelworks disclosed that its main customer has put a temporary stop on orders to manage excess inventory, a situation anticipated to extend into the third quarter. Additionally, the company has postponed the launch of its new generation visual processor, the X8, which has resulted in missed opportunities for inclusion in premium model designs.
The company's recent developments have led to substantial reductions in financial projections for fiscal years 2024 and 2025. As a result, Needham no longer predicts Pixelworks will achieve profitability by 2025. Despite the significant downward revision, the firm believes that the current reset in expectations is a one-time event and does not foresee a recurrence.
Needham remains optimistic about Pixelworks' future, expecting the Mobile unit Total Addressable Market (TAM) to grow, particularly in emerging markets through partnerships with companies like Transsion. The firm also anticipates potential gains from the company's TrueCut technology. The new price target of $2.50 is based on revised segment estimates for the calendar year 2025 and a sum-of-the-parts (SOTP) valuation method.
InvestingPro Insights
As Pixelworks navigates through its current challenges, including the temporary order halt from its main customer, investors may benefit from considering additional insights. According to InvestingPro data, Pixelworks holds a market capitalization of $108.08 million USD, with a Price / Book ratio for the last twelve months as of Q4 2023 standing at 8.62. Despite a revenue decline of 14.92% in the same period, the company saw a quarterly revenue growth of 18.87% in Q1 2023, indicating potential recovery dynamics.
Two InvestingPro Tips that are particularly relevant in light of Needham's report are: 1) Pixelworks is not expected to be profitable this year, aligning with Needham's revised profitability outlook; and 2) the company's stock price has experienced significant volatility, as evidenced by a 44.96% increase over the last six months, yet also a 28.08% decrease over the last three months. This volatility may reflect investor uncertainty about the company's near-term prospects.
For investors looking to delve deeper into Pixelworks' financial health and future prospects, InvestingPro offers additional tips and metrics, which can be found at InvestingPro Pixelworks. To access this valuable resource, use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription. Note that there are 11 more InvestingPro Tips available, providing a comprehensive analysis to guide your investment decisions.
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