Pixelworks, Inc. (NASDAQ:PXLW) Q4 2023 Earnings Conference Call February 8, 2024 5:00 PM ET
Brett Perry – Investor Relations, Shelton Group
Todd DeBonis – President and Chief Executive Officer
Haley Aman – Chief Financial Officer
Conference Call Participants
Suji Desilva – ROTH
Nick Doyle – Needham
Richard Shannon – Craig-Hallum
Good day, ladies and gentlemen and welcome to Pixelworks, Inc.’s Fourth Quarter 2023 Earnings Conference Call. I will be your operate for today’s call. At this time, all participants are in a listen-only mode. Following management’s prepared remarks, instructions will be given for the question-and-answer session. This conference is being recorded for replay purposes.
I would now like to turn the call over to Brett Perry with Shelton Group, Investor Relations.
Thank you, Jonathan. Good afternoon and thank you for joining us on today’s call. With me on the call are Pixelworks President and CEO, Todd DeBonis; and Chief Financial Officer, Haley Aman. The purpose of today’s conference call is to supplement the information provided in Pixelworks press release issued earlier today announcing the company’s financial results for the fourth quarter of 2023.
Before we begin, I’d like to remind you that various remarks we make on this call, including those about projected future financial results, economic and market trends, and competitive position, constitute forward-looking statements. These forward-looking statements and all other statements made on this call, that are not historical facts, are subject to a number of risks and uncertainties that may cause actual results to differ materially. All forward-looking statements are based on the company’s beliefs as of today, Thursday, February 08, 2024. The company undertakes no obligation to update any such statements to reflect events or circumstances occurring after today.
Please refer to today’s press release, the company’s annual report on Form 10-K for the year ended December 31, 2022, and subsequent SEC filings for a description of factors that could cause forward-looking statements to differ materially from actual results.
Additionally, the company’s press release and management statements during this conference call will include discussions of certain measures and financial information in GAAP and non-GAAP terms, including gross margin, operating expense, net loss, and net loss per share. Non-GAAP measures exclude amortization of acquired intangible assets and stock-based compensation expense, as well as the tax effect of the non-GAAP adjustments.
The company uses these non-GAAP measures internally to assess operating performance. We believe the non-GAAP measures provide a meaningful perspective into core operating results and underlying cash flow dynamics. We caution investors to consider these measures in addition to and not as a substitute for, nor superior to, the company’s consolidated financial results as presented in accordance with U.S. GAAP.
Also note throughout the company’s press release and management statements during this conference, we refer to net loss attributable to Pixelworks, Inc. as simply net loss. For additional details and reconciliations of GAAP to non-GAAP net loss and GAAP net loss to adjusted EBITDA, please refer to the company’s press release issued earlier today.
With that, it’s now my pleasure to turn the call over to Pixelworks CEO, Todd. Please go ahead.
Thank you, Brett. Good afternoon and welcome to everyone joining us today on the phone or webcast.
Jumping right in. Our fourth quarter results marked a strong finish to the year, which was highlighted by the continued momentum and significant growth of our mobile business. Total revenue for the quarter increased 25% sequentially and was up 19% year-over-year. Our mobile revenue reached a new quarterly record, increasing 44% sequentially and growing more than 200% year-over-year.
In addition to strong top line growth, gross margin expanded for the second consecutive quarter as we continued to execute on certain cost related initiatives, while also driving increased sales of newer products with higher ASPs and better margin profiles. We expect this gross margin expansion to continue in 2024 as we introduce and ramp shipments of higher value processors and TrueCut services and licensing.
As previously mentioned, the highlight of the past year was the breakout performance of our mobile business, with revenue for the second half of 2023 growing more than 100% year-over-year. For the full year, mobile revenue grew 33% to a record $30 million, expanding to represent more than half of the total revenue.
Underpinning our momentum in mobile against a challenging market backdrop for consumer semiconductors is the differentiated display performance enabled by our visual processing technology. With this superior visual experience being especially prevalent for mobile gaming, we formally introduced Pixelworks IRX branded gaming experience and certification program. IRX, which stands for image rendering accelerator, represents an end-to-end ecosystem solution that has been quickly embraced by leading game engine companies, including Unity and Unreal, as well as top gaming studios, including Nuverse, Tencent, NetEase and Perfect World.
To date, there are eight IRX certified games by these leading game studios that integrate our SDK solution. Additionally, our current generation mobile visual processors have been individually tuned to optimize the visual performance on another 30 mobile games that have not yet integrated our SDK.
IRX certified games integrating our SDK deliver unparalleled visual quality, enabling a truly immersive gaming experience while also saving overall system power and providing for longer battery life. The most recent game Earth: Revival was announced earlier this week and we expect to see a significant number of new IRX certified games incorporating our SDK as well as IRX tuned games released over the coming year.
Complementing our engagement with mobile game developers is our expanding product portfolio of IRX capable mobile visual processors, which are designed to leverage our rendering accelerator SDK that is integrated into the IRX games.
Following the formal introduction of our latest mobile visual processor in October, in early January, the OnePlus Ace 3 smartphone became the first device launched incorporating our X7 Gen 2. The X7 Gen 2 is the first to feature our internally developed AI-based, high-efficiency, super resolution technology. This enables exceptional picture quality with simultaneous operation of up to 144 frames per second and 1.5K resolution for immersive mobile gaming while also maintaining lower power consumption.
For the next phase of our growth, we continue to focus on expanding to global model adoption of our visual processing solutions within our existing Tier 1 handset customers. Our past design wins and growth of our mobile business have historically been in the customers’ flagship and premium smartphone models sold domestically within China. Following the December launch of OnePlus’s 12 in China, the global version of the OnePlus 12 was launched in January, becoming the first flagship international model to incorporate both our X7 visual processor and IRX certification.
Launching a model into multiple international markets while marketing the benefits of IRX and X7 visual processor in local languages around the world is no easy feat. We believe that this model launch represents a definable moment in the next leg of our growth.
While these expansion efforts have been focused on our four existing Tier 1 customers, we also expect an initial program with a new first time volume OEM later this year. To the extent we are successful in securing additional international models and expanding our customer base, we believe that both will contribute incremental unit volumes, accelerate the ecosystem development, and accelerate our mobile growth.
Specific to our expectations for mobile in 2024, we are targeting annual revenue growth of 50%, driven by a combination of increased unit volumes and a favorable mix of newer visual processors with higher ASPs. This growth takes into consideration the recent ecosystem traction and momentum of our IRX-based solutions, resulting in an increased pipeline of design-ins.
Turning to our TrueCut Motion Platform, which we are just now beginning to commercialize following years of technology development and evangelism within the Hollywood technical community. Given the recent news and subsequent inbound questions, I want to briefly reiterate what TrueCut is and what this technology platform enables.
TrueCut Motion is both a first of its kind, end-to-end solution for the creation of cinematic high frame rate content as well as a delivery platform. It enables filmmakers to fine tune or motion-grade, the motion look of cinematic content shot by shot, while also eliminating motion playback artifacts, all as part of a standard post-production workflow. This can be done with both new release titles and the remastered rerelease of existing titles.
The TrueCut Motion delivery platform precisely captures the content creator’s intended cinematic look and feel in the source, and through device certification, ensures consistent delivery and appearance across all screens, from premium large format theaters to any premium home entertainment screen.
As articulated on previous conference calls, establishing the foundational end-to-end ecosystem for TrueCut Motion requires bringing together content creation and content distribution, first theatrical and then to home entertainment devices in order to deliver a truly cinematic high frame rate experience to consumers.
Our announced partnership with Lightstorm Entertainment and the endorsement of James Cameron was a major turning point. This led to TrueCut Motion grading being used in the theatrical rereleases of both the original Avatar and Titanic, as well as Disney’s global theatrical release of James Cameron’s Avatar: The Way of Water. All of which were released to theaters in 4K, HDR, and 3D, featuring cinematic high frame rate for which Pixelworks was credited.
The global box office success of these three titles was an important first step. Not only did it validate the commercial viability of our TrueCut Motion technology with millions of global consumers in theaters, it also ushered in a broader industry acceptance and started a pivot toward more cinematic high frame rate content.
In 2023, we focused on the next element of the ecosystem development, to formalize engagements with global home entertainment partners. We’ve now secured our first such ecosystem partner with our recently announced multi-year agreement with Walt Disney Studios to bring a collection of TrueCut Motion graded titles to select home entertainment devices.
Initially available for streaming via the Disney Plus app and in the Apple TV store will be two of the three previously mentioned titles for which the first time can be experienced exactly as James Cameron brought it to the theaters, but now in the home on the recently launched Apple Vision Pro.
Separately last week, we announced Matthew Vaughn’s newest film Argylle, would be released in select premium theatrical screens worldwide in TrueCut Motion’s cinematic high frame rate format. Argylle was produced by Apple Original Films in association with MARV and released in theaters globally by Universal Studios.
With support of multiple filmmakers and leading studios for TrueCut Motion showing in both premium theaters and the home, consumers will get to truly experience the joy of immersive cinematic high frame rate content. We believe this is only the beginning. You can expect additional announcements of new titles and ecosystem partners as we progress throughout the year.
Shifting to an update on our home and enterprise business, which largely consists of visual processor SoCs for the 3LCD digital projector market. Revenue from home and enterprise increased sequentially in the fourth quarter and was in line with our expectations. More generally, the market dynamics throughout 2023 reflected a prolonged period of inventory adjustment by projector OEMs. Although end demand for digital projectors appears to have stabilized, most of our projector customers are still in various stages of realigning their business following previous component supply imbalances.
Regarding our multi-year codevelopment project with our largest projector customer, we successfully taped out this next-generation SoC in the fourth quarter. Achieving this final development milestone allowed us to recognize an anticipated R&D credit, which reduced our reported OpEx in the quarter. We’ll be delivering production samples to the customer in the first quarter, and this new SoC will go into volume production in the second half of the year.
Overall, we anticipate the projector market to reflect further normalization of customer and channel inventories over the next few quarters, contributing to roughly flat year-over-year revenue from home and enterprise in 2024. However, additional takeaways include that this continues to be a high margin, profitable and cash generating business for Pixelworks. In addition, we believe our new codeveloped chip will increase our market share in the 3LCD projector market over the next several years.
Shifting gears, I want to briefly comment on the status with respect to our Pixelworks’ Shanghai subsidiary, especially for new investors and those new to our story. As part of our now completed multi-year effort, we have reorganized our existing business operations and employees in China, Japan, Canada, and some in the U.S. into an independent P&L center, with the end goal of the subsidiary pursuing a public listing on the STAR Market in China.
As discussed on the previous conference call, the filing of our application for listing requires suitable market conditions in China, which we will continue to monitor together with our advisors. Today, we are and we will remain fully prepared to move forward with a local listing when we believe the market conditions in China are supportive.
In closing, over time, we believe 2023 will prove to have been a pivotal year for Pixelworks and our growth trajectory. I would like to specifically acknowledge our team’s solid execution on our strategic growth initiatives, including the building of two influential ecosystems that will become the foundation of our mobile and TrueCut businesses. Exiting 2023 I believe the company is well poised and better positioned than at any time in my tenure as CEO. We continue to build a strong, capable team.
Collectively, these factors have cleared a path to profitability, which looks to be achievable this year and then accelerating in 2025. We believe both of these objectives are within reach. We have entered 2024 with strong momentum across our mobile visual processing solutions and IRX certification program, coupled with the recently secured commercial engagements with two major Hollywood studios for our TrueCut Motion Platform. Specific to mobile, we expect to achieve another year of accelerated growth driven by a combination of increased unit volumes and the continued ramp of new product introductions. As previously communicated, we do anticipate revenue contribution from TrueCut Motion in 2024. However, the size of the contribution will be lumpy as we progress throughout the year.
Additionally, our current base case assumes that home and enterprise will be roughly flat in 2024. Also fundamental to achieving non-GAAP profitability in the back half of this year will be our continued expansion of corporate gross margins and tightly managing OpEx, while still adequately funding our existing growth initiatives.
With that, I’ll hand the call to Haley to review financials and provide our guidance for the first quarter.
Thank you, Todd. Revenue for the fourth quarter of 2023 increased 25% sequentially to $20.1 million from $16 million in the third quarter and increased 19% from $16.9 million in the fourth quarter of 2022. As Todd previously highlighted, the sequential and year-over-year increase in fourth quarter revenue was primarily driven by continued strong growth in mobile.
The breakdown of revenue in the fourth quarter was as follows. Revenue from mobile increased 44% sequentially to approximately $11.9 million, which represented a quarterly record and a record 59% of total revenue. Home and enterprise revenue was approximately $8.2 million.
Third quarter non-GAAP gross profit margin expanded 170 basis points sequentially to 44.8% from 43.1% in the third quarter of 2023 and compared to 53.3% in the fourth quarter of 2022. As discussed in recent quarters, we expect to continue to drive gross margin expansion by passing through an increased portion of previously incurred higher material costs to customers as well as improving manufacturing cost efficiencies with our suppliers. We anticipate further benefits to gross margin from a combination of incremental sales of new products with higher margins as well as increased overhead absorption.
Non-GAAP operating expenses were $12 million in the fourth quarter compared to $13.3 million in the prior quarter and $10.8 million in the fourth quarter of 2022. During the fourth quarter, we completed the last scheduled milestone related to our codevelopment agreement with our largest projector customer, resulting in a final credit of $1.3 million to R&D. Excluding the credit, fourth quarter operating expenses would have been effectively flat compared to the prior quarter.
On a non-GAAP basis, fourth quarter 2023 net loss was $2.6 million or a loss of $0.05 per share, compared to a net loss of $5.7 million or a loss of $0.10 per share in the prior quarter, and a loss of $0.8 million or a loss of $0.01 per share in the year ago quarter fourth quarter.
Adjusted EBITDA for the fourth quarter 2023 was a negative $1.9 million compared to a negative $5 million in the third quarter and a negative $1 million in the fourth quarter of 2022.
Turning to the balance sheet. We ended the quarter with cash and cash equivalents of $47.5 million. Shifting to our current expectations and guidance for the first quarter of 2024. As a reminder, our first quarter results typically reflect seasonality in both the mobile market and the home and enterprise market. Recent order patterns in our current backlog are consistent with this seasonality, and we expect total revenue for the first quarter to be in a range of between $15 million and $17 million. In addition to this guidance reflecting normal seasonality, I would like to highlight that at the midpoint of this range, total revenue for the first quarter would represent year-over-year growth of approximately 60%.
In terms of gross profit margin, as discussed in my earlier remarks, we expect to drive continued gross margin expansion in the current quarter and throughout the year. Specific to the first quarter, we anticipate non-GAAP gross profit margin to increase by more than 600 basis points sequentially and be between 51% and 53%. The expected sequential increase in first quarter gross margin primarily reflects increased shipments of our newest generation mobile visual processor, which has a higher margin profile compared to prior generation mobile chips.
We expect operating expenses in the first quarter to range between $12.5 million and $13.5 million on a non-GAAP basis. As a reminder, operating expenses in the fourth quarter had the benefit of the final milestone credit related to our codevelopment project, and we do not expect additional credits associated with this project going forward. Lastly, we expect first quarter non-GAAP EPS to range between a loss of $0.10 per share and a loss of $0.06 per share.
That completes our prepared remarks, and we look forward to taking your questions. Operator, please go ahead and proceed with the Q&A. Thank you.
Certainly. [Operator Instructions]
Our first question comes from the line of Suji Desilva from ROTH. Your question, please.
Hi, Todd. Hi, Haley. Congratulations on the progress here. Maybe you can talk about the revenue. You talked about gross margin — profitability in 2025. Can you give a sense of what revenue level that might be occurring at roughly?
Well, I would say that we are going to — we said that we’re going to grow 50% in 2024 in mobile. We haven’t given guidance for TrueCut growth, but it’s going to grow considerably faster than that. And then we do expect in 2025, home and enterprise will probably have churned through all the inventory issues. We think that we’ll actually exit the year without inventory issues in 2024, and home and enterprise will go back to probably low double-digit growth in the 2025 timeframe, especially as we start to ramp up our new SoC. So, you put it all together, Suji, you’re probably looking at top line growth of 50%.
Okay, great. Thanks. And then maybe on the mobile side, you talked about a new smartphone OEM win. Is that a global Tier 1 or is that a new China OEM?
Repeat the question for me.
I’m sorry, I thought you talked about a new smartphone OEM win in prepared remarks. I’m wondering if that was another China OEM or if that’s a global Tier 1.
Well, they’re global Tier 1. They sell around the world.
Okay. That’s great. And then lastly, on the gross margin, can you talk about the elements that drive the gross margin expansion from here? Where is the mix shift in the mobile processors — to the newer mobile processors in the market? And then, I guess, obviously, there’ll be other elements contributing, maybe, TrueCut and so forth.
So, let’s just focus on Q1 right now. The margin guidance we gave increases the margin by 600 basis points. It really is made up of three elements, and I’ll give them back to you in size of magnitude by the largest first. The shift to our newest visual processors in mobile changes the margin profile quite a bit for the mobile business. So that’s number one. Number two is the contribution of high margin services and licensing business from TrueCut. And then number three, we have rolled out a different pricing strategy for our projector OEMs that are volume based. And based upon this new rollout of pricing, it improves the margin profile across all of the projector product lines.
Thanks Todd. Thanks Haley. I’ll pass it on.
Thank you. One moment for our next question. [Operator Instructions]
Our next question comes from the line of Quinn Bolton from Needham. Your question, please.
Hey, guys. This is Nick Doyle on for Quinn. Thanks for letting me ask a couple questions. The first one on TrueCut. If you can just expand on your expectations for 2024, I understand it’s lumpy, but is there a number we can expect? And then, are all these contributions going to be split between those services, the remastering, and the licensing fees? Are there any device royalties in the picture that’s further down the road?
You guys are amazing, man. Usually, we don’t give any annual guidance, let alone this level of clarity, but thanks for asking the question, Nick. Let me tell you what I will say. What I will say is we’re not going to give annual guidance for TrueCut. It’s definitely a business now.
To give you some color, I would just probably start to guide it. Let me back up. Where is the revenue going to come from in 2024? It’s predominantly where we’re focused, which is new content, new quality content. And so maybe I should just repurpose exactly or revisit how we get revenue. One, we license our technology, and we give services. So, we do the motion grading services for these cinematic releases. And so, the contracts we sign with the production companies are on a film-by-film basis. It’s a service — a post-production service we provide them, and we give them access to our tools. With that, we also license the theatrical rights to that version, that cinematic high frame rate version of the content.
The second element of revenue is if a large distribution partner, we announced this relationship with Disney, wants to distribute those films to home entertainment devices, there is a distribution license involved. And then the third element will be royalties from TrueCut Motion certified devices.
Today and throughout most of 2024 what we’re focused on is the pipeline of content. It’s a big deal. And most of that content will be targeted towards theatrical release — premium, large format theatrical release globally, whether it be in Dolby cinema theaters globally or Cinity theaters, possibly others. Some of that content will want to make its way to home entertainment devices. I had mentioned on the prepared remarks that the first couple of films coming to home entertainment devices are coming to the Vision Pro. And I would strongly encourage consumers to go see that experience. Go watch Avatar 1 and Avatar 2 on the Apple Vision Pro.
There is a — I don’t know, there’s probably today maybe 50 3D titles on the Disney Plus streaming app, and they’ve designed an app specifically for the Apple Vision Pro. It’s a unique experience. You can select an immersive background. I would suggest you go select a theater background. You will feel like you are in a theater. It is an amazing thing. And watch either Avatar 1 or Avatar 2. They’re both an incredible experience on the Apple Vision Pro. I would also encourage you to watch some of the other titles. They’re pretty good, but there are no other titles that are in high frame rate. My guess is the consumer will notice the difference between cinematic high frame rate and non-cinematic high frame rate.
So to get back to your original question, we will probably — I would just guide low single-digit millions of dollars right now. It’s going to be predominantly service revenue for new theatrical releases where we give the theatrical licensing. If those films start to accelerate for home entertainment, then the guidance would accelerate.
Thanks a lot for the color. You know I had to ask, Todd.
If you don’t ask, you don’t get an answer, Nick. And you probably got more color than I was really prepared to give, so hats off.
So, we’re hearing a lot about these new AI phones. Gartner actually came out this week estimating 295 million units in 2024. That’s 20% of all shipments expected. So, first, would your X7 Gen 2 with the neural network processor classify as one of those phones? And second, just maybe your thoughts on AI phones in general. I understand you can run LLMs on device, but I don’t think consumers understand the benefit. I think people still feeling like, what is this. So maybe just your thought overall.
Well, so the numbers that I think they’re quoting are bringing, I don’t know the terminology they’re using. I’m going to probably use my own terminology, which is edge based AI. It’s a large language model, but that’s been ported for some processing to be done at the edge, not everything going back to the cloud, so you can have a quicker response and answer. My guess is it can’t be for complex questions to answer, right? It probably could be very simple questions that they can answer on the phone. I think that the ability of AI based phones will increase over time. There’s quite a bit of processing power in a phone.
None of that is really reflective of what we do. We’ve been working on AI for motion models for a while, long before this advent of OpenAI and large language model, and then this rush — the gold rush to heavy-duty use GPUs. I mean, I will say, if you go look at what we do with TrueCut, the servers that we’ve been employing for the last four or five years look a lot like a large language model AI server. They’re multiple high-end CPUs with, I think, the largest configuration we use in our own server is eight large NVIDIA GPU cards. And that’s where we run our TrueCut algorithms is on these models.
What we do for mobile phones, we are now putting a very specific neural processor. We looked at general purpose neural processors that we could license from various companies that are in the marketplace licensing IP. There’s several of them. And a lot of them very good technology, but we are very focused on really just a couple of advanced algorithms. We felt we could design our own neural processor specific to those algorithms and run it at a higher performance per watt, because it’s very important that we keep our power low. One of the things we do, we can put simultaneous super resolution scaling on concurrently with our motion processing where we’re increasing the frame rate of a rendered game at 40 frames per second, so it’s being natively rendered at 40 frames per second and we can do 120 frame per second output while simultaneously using our AI super resolution processor and SDR to HDR. So, we’re also converting it from standard dynamic range to high dynamic range.
We can do all of that, and we can save about a 1.5 watt over the phone natively rendering the same game at 800K resolution, 60 frames per second. So, it’s really pretty compelling what we do, because not only are we taking full advantage of the display that are on these phones. Many of these phones, like the newest OnePlus 12 is a 2K 120 frame per second display. There are very few immersive mobile games that can natively be rendered on either Qualcomm or MediaTek and take advantage of the full resolution and frame rate of that display. And if they did, it would burn a lot of power. So the reason they can’t take advantage, they usually hit this heat thermal limiter within a phone. If a phone gets too hot, bad things happen. So they will clamp down on the native rendering and limit the frame rate, so it doesn’t get too hot.
By doing what we do, you can take full advantage of the display and still save, depending on the game, anywhere between 1 and 2 watts of power. So, to get back to the original question AI, what we’re doing is very specific to creating an AI trained model. And we can tune to each game, so we can go in and try to make each game look specific and better based upon training with a dataset that we get from the partner, so one of these studios, to make sure that when we are doing our rendering acceleration that the game looks as good as it could be.
Lot of answer there. Hopefully it helped on your question.
Thank you. [Operator Instructions]
And I am not showing any further — one moment. And our next question comes from the line of Richard Shannon from Craig-Hallum. Your question, please.
Hi, Todd and Haley. Thanks for taking my questions. I might have jump on the call late with a couple going on at the same time. So hopefully I’m not repeating questions on topics that were already discussed here. But Todd, your press release talks about getting to non-GAAP quarterly profitability in the second half of the year. Not sure if you’ve addressed what that level looks like or kind of the progression of that happening by segments. I’m assuming all of this is coming from mobile growth with some TrueCut contribution, but maybe you can detail that, please.
Well, I think I’ll just repeat what I said. I think I outlined in the previous investor pitch, which is on our website, what the various different businesses would — the ranges they would have to get at to hit profitability. And I think we mapped mobile was — overall, it was I think between $23 million and $26 million in revenue. It’s on the low side of that if there’s more contribution from TrueCut in home and enterprise. It’s on the high side of that revenue if it’s more mobile oriented, right? And so, I guess, what we’re telling you is we believe we’re going to have a quarter, probably the last quarter, if you go look at our seasonality, usually Q4, especially with mobile for China, Q4 is our big quarter, we will probably exceed that target and that mix that I’ve outlined on the investor presentation.
Okay. And how do you think about — both the attach rates and the increase in ASP and content in mobile processors transitioning from December quarter to say this mythical breakeven point in December of this year?
Well, I wouldn’t say it’s so mythical, Richard.
Well, I didn’t say it wasn’t going to happen.
It hasn’t happened yet, but we believe it is going to happen, okay? Otherwise I wouldn’t say it.
Yeah. I know.
Okay. So, what’s the specific question?
Yeah. So, the question is what kind of attach rates and what kind of ASP increase do you expect in order to drive to an outcome getting to a breakeven or better point in fourth quarter this year?
Well, I don’t know about attach rates. But if we ship 5 million to 6 million mobile units at a 30% higher ASP in a quarter than we did in the fourth quarter, we’ll hit the mobile target of the total revenue. If we increase the revenue — if we basically are flat with home and enterprise to Q4 of this year and then TrueCut contributes $1 million for the quarter, we probably are at that breakeven profitability stage. We’re just not that far away. That’s why it’s not mythical, Richard.
Poor choice of words. I didn’t say that I didn’t believe you. I just want to know what’s built into your assumptions, assumption is the word I should have used here. And I came in on — one of your answer to one of the last question on TrueCut here, and is that $1 million a quarter? Is that assumed to be somewhat a consistent or modestly growing revenue stream here throughout this year?
It’ll be lumpy, as I said in the prepared remarks, which you probably didn’t get a chance to hear. It will be very contingent on the pipeline of content. It will accelerate when we line up more distribution partners. And we announce home entertainment device licensees. Most of the revenue you’re going to model this year is all service revenue for content.
Okay. But I think over time, it’s supposed to be largely device or heavily device oriented. Is that fair to think few years down the road when things roll?
When the business really gets its momentum, yes. When we have a builtout ecosystem and you have multiple home entertainment devices that consumers can take advantage of cinematic high frame rate content, the content that we’re building right now with our partners, yes. I would imagine that the royalties from home entertainment devices will be over half the total revenue. Device, or excuse me, home distribution so — from distribution partners will be a portion and then service and theatrical licensing will be another portion.
Okay. And I guess my last question, I’ll jump out of line, Todd. As we think about building ecosystem, particularly on the endpoint devices, where the long-term revenues are going to be coming from, how do we think about public acknowledgment of new partners coming in here? Presumably they have been seeing this ecosystem develop and you’ve been communicating with them well in advance of these announcements you’ve had here in — just the last couple of weeks. How should we think about this ecosystem developing? How many customers or how many partners on the TV side and other maybe more unique endpoint display devices should we be looking for over the next months and quarters?
Well, so this year, let’s just not get ahead of ourselves. Let’s focus on content right now, right? Right now, we’re focused on building out the content, okay? And the content will come from — so far, we’ve announced content with Lightstorm and Universal, and actually was a Universal/Apple production. You will see new studios that we also — you’ll see the same studios do more content and you’ll see new studios added to the mix, okay? That’s the first thing you’re going to see.
Then the next thing to look for is, is this content pipeline that we’re building being distributed by our partners to any home entertainment devices. That’s the next thing you need to really focus on. And then once you see that, then okay, how many home entertainment devices are those distribution partners streaming that content?
Okay. Okay, fair enough. Thanks for that perspective. I will jump out of line. Thanks Todd.
Thank you, Richard.
Thank you. This does conclude the question-and-answer session of today’s program. I’d like to hand the program back to management for any further remarks.
End of Q&A
Yeah. Thank you very much for joining us on the call and hearing about our continued progress. I encourage investors to go to our website and check out the new TrueCut Motion section of our website. It’s informative. It will reiterate some of the things I mentioned, and it’ll probably help you understand our value proposition and how we go to market. Thank you.
Thank you, ladies and gentlemen for your participation in today’s conference. This does conclude the program. You may now disconnect. Good day.