For a company that only went public a few months ago, PixelPlus (NASDAQ:PXPL) is having a dubious debut in the public markets.
First, its shares opened at $8, roughly 25% below what was anticipated; now, its first-quarter revenue estimates are expected to come in about 22% less than its previous forecast. And just to ensure that we don't miss the sorry state of this company's affairs, it also announced that it will already have to restate its fourth-quarter earnings because a Taiwan affiliate was improperly recognized, reducing revenues by $3.7 million. An independent audit of its 2005 finances won't be completed until mid-May.
PixelPlus should be having a grand time. Its targeted market -- chips for mobile cameraphones -- is potentially a hot growth area. Market research firm IDC forecasts demand for worldwide cameraphone shipments to grow exponentially, from 270 million units in 2004 to as many as 766 million by 2009. Currently, PixelPlus caters primarily to Asian cameraphone manufacturers like China TechFaith Wireless (NASDAQ:CNTF), Seiko, and Sharp, with virtually all of its revenues (around 99%) derived overseas.
PixelPlus has other problems too. It's being sued for patent infringement by another Korean manufacturer, MagnaChipSemiconductor. MagnaChip is seeking $12 million in damages for PixelPlus's alleged violation of four of its patents, though PixelPlus is seeking to void those patents. MagnaChip holds or has applied for nearly 12,000 patents relating to its image-sensor technology, and it contends that PixelPlus has improperly incorporated that technology into its chips.
PixelPlus blames its revenue estimates on weaker-than-expected sales to certain customers. That's the problem with a concentrated customer base. The company has found itself beholden to a small group of customers, with its top five accounting for almost two-thirds of its revenues. Sharp alone accounts for more than one-third of PixelPlus' unit shipments, though that's down from the 71% it shipped to the consumer electronics company in 2004.
PixelPlus may be focused on the mobile cameraphone market, but it hasn't yet developed a compelling reason for investors to jump on board. In its brief public history, I'd give it a big minus thus far.
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Fool contributor Rich Duprey does not own any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.
