Pixelworks Soars on Apple Relationship
Shares of Pixelworks, Inc. (PXLW) soared 87.5% ($4.20) to $9.00 on Mar 6, 2014, after it announced that Apple Inc. (AAPL) accounted for more than 10.0% of its revenues in 2013. Pixelworks earned revenues of $48.1 million in 2013.
Pixelworks’ solutions are used for processing high-end digital video applications. Its technology solves judder and motion blur problem and also reduces halo effects on any screen. Pixelworks’ solutions help in converting low resolution content to high resolution display and also deliver high-quality mobile video on networked screens.
Although it is not exactly clear what Pixelworks is supplying to Apple, the revelation has started a strong rumor-mill about the iPhone makers’ next innovative device. It is a well-known fact that Apple is developing wearable devices, which, according to its Chief Executive Officer (CEO) Tim Cook, is an interesting market.
In an interview at All Things D's D11 Conference, CEO Cook had specified that Apple TV continues to hold great importance for the company. The growing relationship with Pixelworks suggests that Apple could use its technology in overhauling the long awaited iTV. Apple can also use it in building high-resolution screens for mobile and wearable devices.
Nonetheless, we believe this is an important relationship for both Pixelworks and Apple. The association will not only drive Pixelworks’ top line but also improve its competitive position. We also believe that Pixelworks can be a prospective acquisition candidate for Apple.
Apple has a habit of grabbing small companies and start-ups, whose technology boosts and extends its eco-system. In this regard, Pixelworks is a perfect fit as it will boost Apple’s footprint in the smart television market, where Samsung has a predominant presence.
Apple continues to lose market share against Google’s (GOOG) Android operating system and handset maker, Samsung. Tim Cook also admitted that iPhone sales in North America were stalled in the first quarter, which is a major concern.
Although the distribution partnership with China Mobile (CHL) and partnerships with 50 new carriers are positive for overall sales, sluggish North American business will negatively impact gross margins. Moreover, lack of a new innovative product continues to remain an overhang on the stock.
Currently, Pixelworks has a Zacks Rank #4 (Sell). We believe the revelation of the Apple relationship will significantly improve analyst estimates for Pixelworks in the near term, which should boost its Zacks Rank.
Apple has a Zacks Rank #3 (Hold).
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