Item 1. Business
Item 1. Business.
Overview
Pixelworks, Inc. (the “Company” or “Pixelworks”) provides industry-leading content creation, video delivery and display processing solutions, and technology that enable highly authentic viewing experiences with superior visual quality across all screens, from cinema to smartphone and beyond. Pixelworks has been delivering image processing innovations to leading providers of consumer electronics, professional displays, and video streaming services for more than 20 years.
On January 6, 2026 (the “Closing Date”), the Company completed the previously announced sale (the “Sale”) of all of the shares of common stock of Pixelworks Semiconductor Technology (Shanghai) Co., Ltd. (“PWSH”) held by Pixelworks Semiconductor Technology Company, LLC, a wholly owned subsidiary of the Company (“Pixelworks LLC”), to Tiansui Xinyuan Technology (Shanghai) Co., Ltd. (the “Buyer”). The terms of the Sale were set forth in a Purchase Agreement dated as of October 15, 2025 (the “Purchase Agreement”), among the Company, PWSH, Pixelworks LLC, all other shareholders of PWSH except VeriSilicon Microelectronics (Shanghai) Co., Ltd. (each, a “Selling Shareholder"), and the Buyer. Each Selling Shareholder and VeriSilicon Microelectronics (Shanghai) Co., Ltd. (collectively, the “Minority Shareholders”) and Pixelworks LLC also entered into Support Agreements (the “Support Agreements”), and Pixelworks LLC, PWSH and each of the Minority Shareholders entered into a Termination and Release Agreement (the “Release Agreement”), in each case dated October 14, 2025. On the Closing Date: (i) Pixelworks LLC transferred to the Minority Shareholders shares of PWSH capital stock representing a total of approximately 29% of the total outstanding shares of PWSH capital stock; (ii) the Selling Shareholders sold and transferred all of their PWSH shares to the Buyer; (iii) Pixelworks LLC sold and transferred its remaining shares of PWSH capital stock, representing approximately 49% of the total outstanding shares of PWSH capital stock, to the Buyer; and (iv) the Buyer paid the Company approximately RMB 357 million, or approximately $51.0 million in U.S. dollars, net of transaction costs and withholding taxes paid in China. The remaining transaction expenses incurred by the Company in connection with the Sale, not including compensation that has been paid to the Company’s executive officers and other employees, totaled approximately $1.0 million in U.S. dollars. Additionally, approximately RMB 8.7 million, or approximately $1.2 million in U.S. dollars, is being held in an escrow account to be released upon the resolution of certain tax matters in China.
The foregoing references to certain provisions of the Purchase Agreement, the Support Agreements and the Release Agreement are not complete and are subject to and qualified in their entirety by reference to the Purchase Agreement filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission (the “SEC”) on October 15, 2025 (the “October 15 8-K”), the Amendment Agreement filed as Exhibit 10.2 to the October 15 8-K, and the form of Support Agreement, together with the form of Termination and Release Agreement attached to the form of Support Agreement as Exhibit A, filed as Exhibit 10.3 to the October 15 8-K. The Company’s definitive proxy statement filed with the SEC on October 27, 2025, includes additional information under the heading “Principal Terms and Conditions of the Purchase Agreement”, which description is incorporated herein by reference.
As a result of the Sale, Pixelworks no longer operates a semiconductor business, which included the businesses that it previously described as “Mobile” (smartphone and tablet) and “Home & Enterprise” (projectors, personal video recorders, and over-the-air streaming devices). Following the Sale, the Company is focused on developing and licensing cinematic visualization solutions, including its flagship TrueCut Motion TM platform. For more information regarding the events leading up to the Sale, and about the Mobile and Home & Enterprise businesses, see Item 1 under the heading “Overview” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2024, filed with the SEC on March 13, 2025 (the “ 2024 10-K ”).
Pixelworks has one remaining subsidiary in China, Frame Shadow Technology (Shanghai) Co., Ltd. (formerly called Mucheng Huai Management Consulting (Shanghai) Co., Ltd), which is a research and development center. Our executive officers and all of our directors are located in the United States. Our auditor is Grant Thornton LLP, with headquarters in Chicago, Illinois.
Following the Sale, we have an intellectual property portfolio of 56 patents issued and 6 patents pending related to the visual display of digital image data. We are focusing our research and development efforts on developing video algorithms that improve quality and enable the delivery of highly authentic viewing experiences with superior visual quality, across all screens – from cinema to smartphone and beyond. We seek to expand our technology portfolio through internal development and co-development with business partners, and we continually evaluate acquisition opportunities and other ways to leverage our technology into other high-value markets.
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Key Markets
Prior to the Sale, the Company focused on its Mobile and Home & Enterprise markets. For more information about the Mobile and Home & Enterprise markets, see Item 1 under the heading “Key Markets” in the 2024 10-K . Following the Sale, the Company is focused on what it calls the Cinematic market.
Cinematic
Our Cinematic market category is composed of applications and services for content creation, remastering and video streaming, and display of cinematic video. Our Cinematic solutions expand the creative palette for filmmakers and ensure the correct presentation of creative intent across screens. In recent years, the trend towards brighter, high dynamic range ("HDR")-capable screens, larger screen sizes and higher resolutions has amplified artifacts such as judder and strobing and caused the filmed shutter speed to appear faster and more choppy than intended. Furthermore, the mismatch between the 24 frame per second rate that is the standard for cinema and the higher screen refresh rates used in some Premium Large Format theaters and on home entertainment screens creates additional artifacts that further degrade the viewing experience and are no longer faithful to creative intent.
Our TrueCut Motion platform is the industry’s first solution to give filmmakers the ability to cinematically fine-tune motion blur, judder, and frame-rate appearance and can be used as part of the creative process to empower filmmakers to shoot at any frame-rate and then deliver a cinematically tuned, broader set of motion and frame rate appearances. TrueCut Motion technology preserves artistic intent across all screens, from theaters to TVs to smartphones to augmented and virtual reality devices.
Core Products and Technology
Core Products
Prior to the Sale, the Company’s core products consisted of Semiconductor Hardware and Software products developed and sold by the Company. For more information about the Semiconductor Hardware and Software Products, see Item 1 under the heading “Core Products” in the 2024 10-K . Following the Sale, the Company is focused on our TrueCut Motion Platform and developing other cinematic visualization solutions.
TrueCut Motion Platform
Our TrueCut Motion content creation software tools provide filmmakers with the ability to customize a motion look on a shot-by-shot basis. We provide motion grading services that use these tools, which are also available for license. For content finishing, specific to certain displays, our TrueCut Motion product may be used to pre-process the content in order to ensure playback according to the original creative intent. For display makers and brands, we provide the certification services, support, and IP licensing necessary to play back TrueCut Motion content, and the right to use the TrueCut Motion brand.
Technology
Prior to the Sale, our core technology supported the Mobile and Home & Enterprise businesses. For a description of the technology supporting our products in the Mobile and Home & Enterprise businesses, see “Technology” in the 2024 10-K . Following the Sale, the Company is focused on the technology described below with respect to our Cinematic business.
Evolution of Display Technology and The Performance Gap
Display technologies continue to evolve to enable higher resolutions, faster response times and frame rates, higher contrast, increased brightness, and deeper and richer colors. Many smartphones, tablets and PC displays now can display video in High Dynamic Range (HDR) using the same DCI-P3 color gamut used in digital cinema theaters. Television manufacturers, including Samsung Electronics Co., Ltd. ("Samsung"), TCL Technology, Sony Group Corporation (“Sony”), and LG Electronics, Inc. (“LG”), bring to the living room high resolution HDR TVs that deliver high contrast and high brightness using organic light emitting diode (“OLED”) and local-dimming liquid crystal display (“LCD”) panels. Movie exhibitors are now offering a different sort of theatrical experience by providing Premium Format theaters such as IMAX, Dolby Cinema, AMC PRIME, Laser, and XL, Cinemark XD, Marcus Theaters UltraScreen DLX, and others. These enhanced theaters use much larger screens, superior 4K laser projection, and other technologies to provide brighter, bigger and more colorful displays than standard theaters. Finally, a new product category of virtual and augmented reality technology, such as Meta AI and Ray Ban glasses and Apple VisionPro headsets, enables a 3D visual experience that is more immersive to the user.
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This evolution of display technology outpaces that of mainstream content formats, creating a quality gap that makes it difficult to provide a consistent experience across the varied platforms. For example, movies, TV shows, and other premium content are usually authored at 24 frames per second, or 24 Hz. At this frame rate, the brain can easily notice the transition from one frame to the next. As the brain and eyes track objects in motion, they have to jump in discrete steps due to the low frame rate. This stop-start motion is perceived by the brain as judder, jitter or strobing, reducing the visible clarity and fidelity of objects in motion and distracting from the main subject of the content. Additionally, when a motion sequence is played on a digital display device, the new updated frame is drawn over the top of the still visible previous frame. This “hold” effect is perceived by the brain as motion blur. There are other causes of motion blur as well. The materials used in constructing pixels on the display take a finite amount of time to transition from one state to another. If this time is too long, the image does not update swiftly and motion sequences seem to smear or blur.
These judder and motion blur artifacts are even more noticeable on bright, large screen, high contrast displays, and the displays themselves offer only mitigation that leads to other troublesome and distracting artifacts. Television manufacturers attempt to solve judder and blur by including frame-rate conversion in the TV hardware, but many reviewers complain about new artifacts that are created, such as halos, breakup in the image and the so-called “soap opera effect”. But without frame-rate conversion, the judder and blur are substantially worsened by HDR, 4K and other improvements in contrast, color and detail.
Pixelworks was a pioneer of frame rate conversion technology and, prior to the Sale, was well known as the picture-quality leader in display processors for mobile and 3LCD projection devices. In contrast, Pixelworks’s TrueCut technology, including its flagship TrueCut Motion platform, addresses the problem at the source, providing controls to the creator and technology and a format to distributors and exhibitors that ensures a consistent presentation of titles across all display devices that remains true to the creator’s intended look. Our TrueCut Motion platform provides creators, distributors, and display brands with a solution to mitigate judder and motion blur while staying true to creative intent, thereby providing the consumer with true cinematic content on whatever display they choose.
Our Technology: Bridging the Gap Between Device and Content While Preserving Creative Intent
Our TrueCut Motion platform was developed using advanced video algorithms, motion appearance training data, and other intellectual property to address the challenges posed by motion in digital video due to the quality gap. We believe our technologies can significantly improve video quality while retaining the creator’s intended visual presentation and will become increasingly important as the popularity of video content consumption continues to grow and expand to new and different devices with differing pixel densities, screen sizes and image quality.
Our TrueCut Motion platform leverages our proprietary MotionEngine® motion estimation/motion compensation (“MEMC”) algorithms that we developed over many years for our display processors. This technology significantly improves the handling of judder and motion blur. Unlike competitive solutions it also reduces halo effects that are a typical byproduct of MEMC technology in general. Halos are objectionable blurred regions that surround moving objects as the algorithms try to reconstruct missing image data caused by the concealing and revealing of objects as they pass over or behind one another. Removing halos dramatically improves image quality and is of particular importance on high-resolution and bright displays where artifacts become more visible.
The TrueCut Motion platform is an end-to-end solution that enables “motion grading” by the creator during the production and post-production process. Through motion grading, filmmakers determine the motion look and their creative intent at the source. This creative intent is preserved through a certified distribution and playback platform all the way to the final presentation to viewers in a theatrical or home entertainment setting, on consumer devices that are reviewed and certified by us. This approach provides a closer relationship between the filmmaker and the viewer than has been previously possible.
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Customers, Sales and Marketing
IC Products
For a description of the IC Products sold by the Company prior to the Sale, see Item 1 under the heading “IC Products” in the 2024 10-K . Following the Sale, the Company no longer sells any IC Products.
TrueCut Motion Products
The TrueCut Motion platform includes a mix of services and licensing that is targeted at all levels of the creation, finishing, and distribution of theatrical or streaming digital video. For our TrueCut Motion content creation tools we seek to work directly with filmmakers, providing motion grading services, or the tools are also available for license. For content finishing, specific to certain displays, the TrueCut Motion tools pre-process the content in order to ensure playback according to the original creative intent. For display makers and brands, we provide the certification services, support, and IP licensing necessary to play back TrueCut Motion processed content, and the right to use the TrueCut Motion brand. We do not use distributors for our TrueCut products.
Seasonality
For a description of the seasonal nature of our Mobile and Home & Enterprise products prior to the Sale, see Item 1 under the heading “Seasonality” in the 2024 10-K . Sales in the Cinematic market were not material in 2025 or 2024.
Geographic Distribution of Sales
Prior to the Sale, substantially all of the Company’s sales were in the Mobile and Home & Enterprise market outside the U.S. Sales in the Cinematic market were not material in 2025 or 2024.
Financial information regarding our domestic and foreign operations is presented in "Note 14. Segment Information" in Part II, Item 8 of this Annual Report on Form 10-K.
Backlog
For information regarding the impact of backlog on the financials of the Company prior to the Sale, see Item 1 under the heading “Backlog” in the 2024 10-K . Sales in the Cinematic market do not have a backlog.
Competition
For information regarding competition in the Mobile and Home & Enterprise businesses applicable to the Company prior to the Sale, see Item 1 under the heading “Competition” in the 2024 10-K .
Although TrueCut Motion is the first motion grading solution for the cinematic market, competitive solutions could arise rapidly. These competitive solutions could come from several sources, including companies that provide solutions for other post-processing needs (such as Dolby Laboratories, Inc., Epic Games, Inc., Unity Technologies, Adobe Inc., Soluciones Gráficas por Ordenador S.L. (SGO), The Foundry Visionmongers Limited, and Autodesk, Inc.) as well as visual effects studios that use digital effects to reduce artifacts before they are created (such as Wētā FX, DNEG Plc, Pixar Animation Studios, Digital Domain, and Industrial Light & Magic (ILM)). We believe that we would compete favorably with respect to these potential competitive solutions and services in terms of cost, price, functionality, efficiency, patented methods, and time to market.
Research and Development
For information regarding the Company’s research and development prior to the Sale, see Item 1 under the heading “Research and Development” in the 2024 10-K .
Research and development efforts are focused on the development of our solutions for the Cinematic market. Our development efforts are focused on pursuing higher levels of video performance in order to provide our customers with solutions that enable them to better preserve creative intent while delivering content to a myriad of display devices, from the basic to the most cutting-edge.
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Manufacturing
For information regarding manufacturing in our Mobile and Home & Enterprise products prior to the Sale, see Item 1 under the heading “Manufacturing” in the 2024 10-K . Because our TrueCut products are based on IP, software, and services, they do not require manufacturing.
Intellectual Property
For information regarding the Company’s intellectual property prior to the Sale, see Item 1 under the heading “Intellectual Property” in the 2024 10-K .
Following the Sale, we use a combination of nondisclosure agreements and patent, copyright, trademark and trade secret laws to protect the algorithms, design and architecture of our technology. Following the Sale, we hold 56 patents and have 6 patent applications pending. The patents we hold generally relate to improvements in the visual display of digital image data including, but not limited to, improvements in motion estimation/motion compensation, motion grading, image scaling, image correction, automatic image optimization and video signal processing for digital displays, and in large part, are implemented in our core technologies and products. Our U.S. and foreign patents are generally enforceable for 20 years from the date they were filed. Accordingly, our issued patents have from approximately 1 to 16 years remaining in their respective term, depending on their filing dates. We believe that the remaining term of our patents is adequate relative to the expected lives of our related products.
We intend to seek patent protection for other significant technologies that we have already developed and expect to seek patent protection for future products and technologies as necessary. Patents may not be issued as a result of any pending applications and any claims allowed under issued patents may be insufficiently broad to protect our technology. Existing or future patents may be invalidated, diluted, circumvented, challenged or licensed to others. Furthermore, the laws of certain foreign countries in which our products are or may be developed, manufactured or sold, including various countries in Asia, may not protect our products or intellectual property rights in the same manner and to the same extent as do the laws of the U.S. and, thus, make the possibility of piracy of our technology and products more likely in these countries.
See "Risk Factors" in Part I, Item 1A, and "Note 11. Commitments and Contingencies" in Part II, Item 8 of this Annual Report on Form 10-K for information on various risks related to intellectual property.
Employees
As of December 31, 2025, we had a total of 163 employees, the majority of which were full-time, compared to 196 employees as of December 31, 2024. Following the Sale and the restructuring related to the Sale, we will have a total of approximately 23 full-time employees.
Corporate Information
Pixelworks was founded in 1997 and is incorporated under the laws of the state of Oregon. Our stock is traded on the Nasdaq Capital Market under the symbol "PXLW".
Availability of Securities and Exchange Commission Filings
We make available through our website our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports and any filings filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, free of charge, as soon as reasonably practicable after we electronically file or furnish such material with the SEC. Our Internet address is www.pixelworks.com . The content on, or that can be accessed through, our website is not incorporated by reference into this filing. Our committee charters and codes of ethics are also available free of charge on our website.
The SEC maintains an Internet site at www.sec.gov that contains our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports, if any, or other filings filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, and proxy and information statements.
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