SAN FRANCISCO -- Pixelworks ( PXLW) saw its sales fall 10% in the fourth quarter, but predicted it could return to break even ahead of Wall Street's expected timeline.

The news sent Pixeworks shares up 25% to 90 cents in extended trading Tuesday.

The Tualatin, Ore., chipmaker also announced plans Tuesday to buy back up to $50 million of its convertible bonds in a so-called modified Dutch auction tender offer.

Pixelworks said sales in the three months ended Dec. 31 totaled $27 million, vs. $29.8 million at this time a year ago. The average analyst expectation called for $26.5 million in sales.

Pixelworks incurred a net loss of $6.4 million, or 14 cents a share, compared with a net loss of $15.4 million, or 32 cents in the year ago period. The fourth-quarter loss was deeper than Pixelworks' own projections, which had called for a loss in the range of 5 cents to 11 cents.

But after backing out more than $8 million in restructuring charges and stock compensation expenses, Pixelworks appeared to surpass Wall Street expectations, delivering adjusted EPS of 5 cents. The average analyst expectation, which generally exclude one-time charges, called for Pixelworks to lose 2 cents a share.

In fact, Wall Street estimates project Pixelworks continuing to lose money on an adjusted basis until the third quarter of 2008.

Pixelworks said it could reach break-even on a GAAP basis as soon as the current quarter, with EPS guidance between a loss of 6 cents to break-even.

"The restructuring initiatives that we executed in 2007 have created a sound financial foundation from which to return the company to growth and profitability," said acting CEO Bruce Walicek in a statement.

"In addition to reshaping the company's expense base, the Pixelworks team was able to bring new solutions to market within a more restricted spending environment," he said.

Pixelworks makes chips for digital televisions and projectors. The company's stock is down roughly 65% from its 52-week high of $2.48 and was recently put on notice by Nasdaq that its failure to maintain a minimum bid price above $1 could get it booted from the exchange. To regain compliance Pixelworks' stock must close above $1 for 10 consecutive days before June 23.

The company said Tuesday that it expects revenue in the current quarter to range between $22 million and $24 million. Wall Street was looking for $24.8 million.

Pixelworks said that first-quarter revenue is "highly dependent" on numerous factors including consumer confidence and spending, general economic conditions, inventory levels at its customers and distributors and its ability to secure additional design wins.

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