Why Pixelworks Inc. (Nasdaq: PXLW) Stock Soared 85%

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Sep 19 01:42 PM
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Price: 6.69 | Ch: -0.29 (-4.3%)

What happens when an obscure small-cap company announces behemoth Apple Inc. (Nasdaq: AAPL) is a major customer? Shares skyrocket.

That's exactly what happened Thursday when Pixelworks Inc. (Nasdaq: PXLW) disclosed Apple is a chief purchaser.

Reports of the Pixelworks/Apple association came late Wednesday when Pixelworks released its 10K (annual report) to the U.S. Securities and Exchange Commission. In the mandatory report, which gives a comprehensive summary of a company's financial performance, Pixelworks divulged that Apple accounted for more than 10% of its 2013 revenue.

The news sent PXLW shares soaring 85% intraday to $8.87. Volume during the first half hour of trading was brisk at 1.62 million shares. That compares to PXLW's average daily volume of 461,000. By noon, more than 12.5 million shares changed hands.

One year ago, PXLW shares fetched a mere $2.45 and volume was a scant 2,100 shares daily.

Having Apple Inc. as a major customer is a win for any company - but Pixelworks' name dropping didn't stop there.

The San Jose, Calif.-based company also shared that Tokyo-listed giant NEC Corporation is another key client. A Japanese multinational provider of information technology, the company was formerly known as the Nippon Electric Company Limited before rebranding in 1983 as just NEC.

Until now, Pixelworks kept its affiliations quiet. In Apple's case, it's because the iPhone maker strongly encourages its suppliers not to discuss any dealings unless required by law. Most do, as they don't want to lose $474.61 billion market cap Apple as a customer.

So it was only because it had to that Pixelworks made the disclosure. The SEC requires companies to publicly list customers who kick in more than 10% of revenue.

About Pixelworks (Nasdaq: PXLW)

Founded in 1997, Pixelworks is an innovative provider of video display processing technology that enables the highest-quality video viewing experience for displays of all sizes.

The company has benefited as improved video quality has become increasingly important. The popularity of video content continues to grow at a rapid clip, and Pixelworks finds its expertise in demand as pixel densities, screen sizes, and image quality increase. Pixelworks' products can be used alone or in powerful combinations in smartphones, tablets, ultrabooks, TVs, computer monitors, and projectors.

The majority of Pixelworks' products include more than one of its technologies to provide enhanced, high-quality video display, regardless of screen size.

And thanks to the explosive mobile communications market, future demand for Pixelworks' technology should only grow.

As explained in its 10K:

"Recent advancements in display manufacturing technology have allowed display manufactures to pack an increasing number of pixels into tighter spaces. This transaction was led by the mobile segment, and in particular by Apple's 'Retina' display, which set the standard for smaller screens. The resolution on display devices in all segments is increasing. This trend of providing more pixels is likely to continue as display manufacture and device manufacturers seek differentiation, and as content is created at increasingly higher resolution."

PXLW's Potential

Before Thursday's stratospheric rise, Pixelworks was just another micro-cap company.

The last time an investment house initiated an upgrade or downgrade was in September 2007, when Jefferies changed its rating to Hold from Underperform, according to Thomson/First Call.

Now, it's an Apple supplier.

Pixelworks is also a leading player in ultra-high-definition video processing.

Just this week, Digitimes reported that ultra HD TV demand is expected to reach more than 12 million units this year. Taiwan panel makers are expected to be responsible for more than 50% of ultra HD TV panels in 2014. That explains Pixelworks' relationship with NEC Corp.

Pixelworks is likely to garner more buzz when it presents at the 26th Annual ROTH Conference. Held March 9-12 in California, the event is a platform for growth companies to show off their products and technologies.

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