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Executives

Thomas Gay - Chief Financial Officer, Principal Accounting Officer and Secretary

Edward McGregor - Manager, Investor Relations

Thinh Tran - Founder, Chairman, Chief Executive Officer and President

Kenneth Lowe - Vice President of Strategic Marketing

Analysts

Hamed Khorsand - BWS Financial Inc.

Daniel Amir - Lazard Capital Markets LLC

Gary Mobley - The Benchmark Company, LLC

John Vinh - Collins Stewart LLC

Quinn Bolton - Needham & Company, LLC

Sigma Designs (SIGM) Q1 2012 Earnings Call May 25, 2011 5:00 PM ET

Operator

Good day, ladies and gentlemen, and welcome to the First Quarter 2012 Sigma Designs Earnings Conference Call. My name is Alicia, and I will be your coordinator today. [Operator Instructions] I would now like to turn the call over to Mr. Edward McGregor, Manager of Investor Relations. Please proceed.

Edward McGregor

Thank you, Alicia. And welcome to Sigma Designs conference call to discuss financial results for our first fiscal quarter 2012. I'm Ed McGregor, Sigma's Manager, Investor Relations. With me today are Thinh Tran, Sigma's Chairman and CEO; Tom Gay, our CFO; and Ken Lowe, our Vice President of Strategic Marketing.

The press release containing the quarter results, including selected income statement balance sheet information, was released after the market closed today. If you did not receive the results, the release is available in the Investors section of our website. Today's agenda will begin read my brief introduction; a review of selected financials by Tom; an executive overview by Thinh; market update by Ken; and comments on guidance by Thinh. We'll then open the call to questions for the analysts and institutional investors, and we expect to conclude the call within one hour.

Before we begin, I would like to remind everyone that today's call contains forward-looking information, including guidance to provide a better future revenue, gross margins and other financial measures, anticipated trends in our target markets. We caution you that the forward-looking information that we present today is based on our current beliefs and assumptions and expectations, speak only as of today's date, and involve risks and uncertainties that could cause actual results to differ materially from our current expectations.

Other risk factors that may affect our business and future results are detailed from time to time in Sigma's SEC reports, including Sigma's annual report on Form 10-K as filed with the SEC on March 28 of this year. A partial list of these important risk factors is set forth at the end of today's earnings release. Sigma undertakes no obligation to revise or update publicly any forward-looking statement except as required by law.

In addition, during today's call, we will be reporting certain financial information on a non-GAAP basis, such as non-GAAP net income, which excludes certain costs and expenses. These excluded items are described in more detail in today's earnings press release, along with a detailed reconciliation of our GAAP to non-GAAP results.

And now we'll hear from Tom.

Thomas Gay

Thank you, Ed. For the first quarter of fiscal 2012, revenue was $60.6 million, a decrease of $10 million or 14% compared to $70.6 million for the previous quarter. Compared to the year-ago quarter, our revenue decreased $4.6 million or 7% from $65.2 million.

Our revenue breakouts for the quarter are as follows: Our business segment and percentage of total revenues for the quarter, IPTV media processors represented $22.3 million or 37% of the total Connected Home Technologies was $27.2 million or 45% of the total; Connected Media Players, $8.1 million or 13%; and Prosumer, $2.9 million or 5% of the total.

During the first quarter, we had 2 customers that each exceeded 10% of our net revenue. First was Gemtek at $18.1 million or 30% of total and Motorola at $12.2 million or 20% of the total revenue.

GAAP gross margins were 49.1% for the first quarter compared to 49.4% in the preceding quarter and 49.3% in the same period last year. Non-GAAP gross margins were 53.7% for the first quarter compared to 53.3% in the preceding quarter and 54.1% in the same period last year. GAAP net loss for the first quarter of fiscal 2012 was $5.7 million or $0.18 per share. This compares to GAAP net income of $2.5 million or $0.08 per diluted share in the previous quarter and GAAP net income of $1.1 million or $0.04 per diluted share in the year-ago quarter.

On a non-GAAP basis, net income for the first quarter was $2.3 million or $0.07 per diluted share. Compared to the previous quarter, this was a decrease of $7.5 million from non-GAAP net income of $10.1 million or $0.32 per diluted share. Compared to the year-ago quarter, non-GAAP net income decreased $6.6 million from $9.2 million or $0.29 per share that we reported.

Please refer to our press release for a detailed reconciliation of our GAAP to non-GAAP performance.

The reconciliation includes the following 3 categories of differences for the first quarter: First, amortization of intangible assets associated with acquisitions, a total of $4.7 million; second, stock-based compensation of $3.2 million; and third, acquisition expenses of $0.1 million.

Now, I'd like to cover a few key areas from our balance sheet. Cash, cash equivalents, restricted cash and marketable securities totaled $169 million at the end of the quarter, a decrease of $10 million or $0.35 per share outstanding compared to the beginning of the fiscal year. Based on our shares outstanding at the end of the quarter, the total value of cash, cash equivalents, restricted cash and marketable securities equals $5.31 per share outstanding. The decrease in cash for the quarter was primarily driven by the timing of shipments, as well as a sharp increase in payments for fixed asset purchases, such as engineering design tools and software.

Net accounts receivable was $37.3 million at the end of the first quarter, an increase of $6 million compared to the beginning of the fiscal year. The average days sales outstanding for our receivables as of the end of the first quarter was 56 days, an increase of 16 days compared to the previous quarter. The increased DSO for the quarter was a reflection of our customers' scheduling of product deliveries much later in the quarter than usual.

Net inventory was $38.4 million at the end of the quarter, an increase of $0.7 million compared to the beginning of the fiscal year. The increase in revenue brings our inventory turns for the quarter to 3.2x per year. The small increase was attributable to the decrease in shipments, as well as purchases of newer products to support our sales forecast.

Now I will turn the call over to Thinh for an executive overview.

Thinh Tran

Thank you, Tom. I would like to start by thanking all of you for joining us today and for your continued interest in Sigma. Today's call, I would like to review the results for the first quarter and emphasize our achievements.

First off, we report $60.6 million of revenue for the first quarter. This 14% first quarter decrease in revenue was primarily due to product transition to the next-generation IPTV solutions, as we discussed last quarter. While we were within the guidance providing during last quarter earnings call, we are disappointed with this quarter results. Our new management team is confident in our Connected Media Platform strategy and our operational improvement. Amid the long-term, optimization before us are promising. Our new generation of media processes, the 8650 series and the 8670 series are being well received by the marketplace and we're encouraged by the design in both service providers and OEMs. We continue to invest executing our platform strategy and believe we are well-positioned to capitalize on developments in the connected media market.

Over the last year, we have doubled our sales force, resulting in much closer and productive relationship with top service providers globally. As a result of this efforts, we have much better visibility to design cycle Windows and key market requirements. This will help us develop our product growth map and win important new designs which we expect to positively impact our revenues later this fiscal year.

Moreover, married to our ability to bring in new products to market quickly. While investment in new product has contribute to a cash decrease in the first quarter, this investment, our testament of an aggressive business of our product development efforts.

Finally, we continue to enter adjacent businesses such as video encoder, which complement our strong experience in video decoding and home connectors. This new products will allow us to leverage our customer base and leading set-top box and Consumer Electronics OEM by expanding our footprint with these valued customers as video calling become more common.

Since our last call, we continue to make progress in each of our core business segments. Here are some highlights. First, we entered a joint venture in Vietnam with Vietnam Multimedia Corporation. The joint venture, VSilicon, was formed to develop and market high-performance set-top box for digital television, smart energy products, and home connectivity solutions to help facilitate growth in the Vietnamese market.

Second, we announced that Mitsumi is now licensed as a second source for our popular Z-Wave wireless RF technology. As a second source, Mitsumi will independently produce and delivered the popular Z-Wave modules with the goal of making it easier for large multinational companies and government businesses that require a second source to adopt the technology. In time, this is expected to lead the consumer market share growth and could result in adoption by additional standard acquisition.

We introduced our recently acquired PL330, a new low-power HD video encoder processor aimed at capturing high-definition video for video calling or set-top box, connected Media Players, Voice over IP device, videophone, videoconferencing, TV and video surveillance device. Compaq computer has integrated this technology into videoconferencing and encoding camera products.

We also announced that our 8652 secure media processors was awarded TMC net cable spotlight Product of the Year award. The award recognize companies and product for their most significant accomplishment in the advancement of cable technology industry.

Moving forward, our vision for Sigma to become the leading provider of Connected Media Platform at the highest level of integration possible. This mean continued advancement in each of our 4 core technology areas, as well as the ongoing penetration into related market segments. Towards this goal, one of our key trusts is the development of keeping our direct relationship with different service providers.

During recent quarters, I have been very impressed with the progress we've made and the increased opportunities this has provided. This represents a strategic investment for Sigma for this relationship acuity would build over time, placing Sigma in the inner circle of deployment planning. As a result, we are confident in our ability to win a sizable portion of this market.

I'd now like to pass it over to Ken who will discuss long term significance of these technologies in the marketplace. Ken?

Kenneth Lowe

Thank you, Thinh. Sigma continues to make strides on becoming a leader in connected media platforms. In this call, let's take a broad look at Sigma's future to the trends in our target markets and technology developments, starting with the summary of highlights.

First, we continue to expand our product portfolio in both breadth and depth, providing resilience against future generational transitions. Second, is the outlook for each of the markets we address remains positive. Our standing within each segment is also positive, and we want significant design wins across every product line where we're well-positioned to grow share in new segments while regaining share in others. Third, our connectivity Prosumer Z-Wave products continue to receive relatively steady revenue demand during periods of Media Processor variability. Finally, our Z-Wave technology is gaining interest amongst telco service providers, such as Verizon, who will begin to deploy in the next few months.

The world of video delivery services is steadily moving toward IP-based distribution across all types of network providers and geographies. As a result, most industry analysts project strong unit growth for all types of IP and hybrid set-top boxes. For instance, during last summer, SNL Kagan released figures showing that IPTV adoption increased to the compound annual growth rate of 92% and moving forward as predicted to grow from 40 million subs in 2010 to 70 million subs in 2014. Sigma's a leading worldwide provider of IP-based solutions and we continue to be well-positioned in the Telco Provider segment. We've also been chosen by the largest service providers and their most recent set-top box and residential gateway designs.

Growth trends in the telco IPTV segments are taking place in emerging markets, such as Latin America, China and India, where Sigma has seen multiple design wins. As the market leader, Sigma has a customer base of over 40 telco providers, and we're also working on new initiatives with an increasing number of total set-top manufacturers in the world.

We're well-positioned for Mediaroom Generation 2, led by Ray 652 which combines the highest performance, lowest cost and lowest power and lowest bond cost of any Mediaroom SOC. We've also prepared a strong package and support for Android-based systems, which appear to be gaining interest within the set-top-box community.

Cable market and its 60 million annual set-top-box shipments poised for transition to hybrid cable IP solutions, creating strong future revenue demand potential for Sigma. Service providers are actively developing software on our cable platform and specifying products based on around our silicon. As the service providers move to their next generation, we are actively partnering with them during this transition.

The market for Home Control appears to be poised for rapid transition, as many new initiatives are taking place in some of the largest providers for energy management and security services. As a result, major design wins have been emerging over the last year with Sigma becoming a leader in many applications, such as Verizon's home services and the new line of Security Services from ADT and Vivint. We expect to continue to benefit from this trend since Sigma's Z-Wave devices the world's leading standard for home control applications, with over 450 interoperable Consumer devices on the market today.

The market for Connected Media Players continues to expand and evolve new product classes, such as Intel's wireless display media players. As a leading player, Sigma offers a strong class of value line media processors that are optimal for these consumer applications. Sigma continues to invest heavily in dozens of over-the-top software applications, such as Netflix, Pandora and YouTube that enable these products to tap into a vast array of Internet content and grow the overall market.

Next, Sigma addresses the market for connectivity of video inside the home, which is expected to grow globally at 73% over the next 3 years to 113 million units. As the leader in IPTV video networking over coax and phone lines, Sigma continues win new deployments and is well-positioned to continue its growth in residential gateways and routers. To develop a stronger presence in Europe, Sigma's patented award-winning ClearPath technology has excited the market and positions the company for growth in powerline, based IPTV and consumer device market opportunities.

Each quarter, we continue to grow our network presence globally, with deployments in Latin America, China, India, Russia and Eastern Europe. Going forward, Sigma's well positioned for the future opportunities with the introduction of our G.hn silicon. After introducing in the markets, first G.hn silicon Sigma already is working with operators and manufacturers worldwide on deployment plans based around this revolutionary technology.

Finally, Sigma's Prosumer offerings provides studio quality video for a host of professional and high-end consumer applications this market serves to drive. Our video processing technology has grown into a highly profitable segment of over 15 million in annualized revenues. Video conferencing applications is the leading driver of this growth, with shipments taking place by Polycom and others. Other applications that are fueling this segment include front projection displays, professional broadcast products and high-end consumer video.

In summary, we're in the right markets. We have the right technology, and we have the right partners. We're winning substantially designed and we're well-positioned for leadership in these markets going forward.

I'd now like to pass the call over to Thinh to cover our forward guidance.

Thinh Tran

Thank you, Ken. As indicated, we continue to build a leading connected media platform company with strength in connectivity, media playback, video optimization and home control. Overall, our engagement for optimum design wins remains strong and we introduce compelling and innovate product solutions.

This quarter, we gave momentum in winning new service provider accounts, expanding our set-top box and connected media player customer portfolio, but providing new product solution with media processors, home networking and home control to all major service providers and OEM manufacturers across the world.

Moving on to our formal guidance, we would like to shape the expectation for Sigma's performance over the course of this coming year. In the IPTV market, we are in the middle of product transition. There's cost funding fluctuation in customer orders, and as a result, we expect our first half of fiscal 2012 to dip in revenue.

We expect second quarter revenue to be in the $50 million, $55 million as the transition ends, we anticipate that overall revenue will grow in the fiscal second half, especially as we move towards the end of the year.

You'll also see a ramp up in our Connected Media Player business, as well as our market leading customers adopt our 8670 family, as well as our 8650 family that is gaining popularity for wireless display applications. The wired business continues to grow as major service providers and channels deploy new home control service for customers. We expect our second quarter gross margin on a pro forma basis to be in the 51% to 53%.

In summary, I would like to reinforce that we believe we are in strong growth market, the whole last market share demonstrate technology leadership in each core segment. Furthermore, we are making strategic investments in new technologies, as well in emerging markets like China, India, Russia and Latin America. Our fundamentals remains strong, our team is in place, and our process are being optimized to maximize our long-term success.

We now would like to open the call for Q&A.

Question-and-Answer Session

Operator

[Operator Instructions] And the first question comes from the line of John Vinh with Collins Stewart

John Vinh - Collins Stewart LLC

First question is, I think you guys had previously talked about revenues being down in the quarter, given the product transition to these next generation Mediaroom set-top boxes. It appears your guidance right now is tracking slightly below those expectations. I was wondering if you could talk about what change, is this transitioning happening faster than you had expected? Or if you could just give us some more color, that would be great.

Kenneth Lowe

Well, essentially what we're seeing is the transitioning between generations. And there's a lot of moving parts to it. First of all, there's the actual timing of deployment changes, then there's the inventory adjustments that happened prior to that and after that. And then finally, there's the expectation, both on the lead side and on trailing side by the set-top box manufacturers. So when you get all those moving parts together, what happens is it becomes very difficult to predict exact numbers for exact time periods. Where we're at right now is we're going through a trough right now, and the trough is a transition -- product transition trough, first-generation moving down, second-generation moving up. So that's what we're seeing. And we see it as a true trough. As we've indicated before, we're pretty confident our second half is going to be a lot stronger than our first half. So we view this as the bottoming period of the trough.

John Vinh - Collins Stewart LLC

Okay. And then flipping to your second half guidance, can you clarify in terms of a rebound in revenues, are you looking at a rebound in revenue on a year-over-year basis, second half of fiscal '12 or the second half of fiscal '11, or is a sequential rebound in revenues? Also, what level of confidence do you guys have that Q2 here is the trough? And then finally, my last question is, you guys seem very confident that you're positioned to regain share here on kind of second-generation media boxes. Can you give us an update on that, and what sort of visibility do you have there?

Thomas Gay

Well, actually at this point, we see the direction of our design wins being very positive. The timing is not as clear. We just witnessed the quarter that fell to the lower end of our expectations. We're being a bit conservative and thinking that it's probably closer to the end of the year when we start to see the actual top line increase, and just getting a little concerned about predicting timing quarter-over-quarter so that Q4 is actually where we see a little more confidence that these things eventually playing out.

John Vinh - Collins Stewart LLC

For Q3, you're looking at, we should be thinking about modeling kind of slight increases in Q3 revenues?

Thomas Gay

We find it difficult to predict. And considering that it's following short of our expectations already, we're still a little hesitant to say that Q2 will be the first place to see the real increases.

Operator

And the next question comes from the line of Daniel Amir with Lazard Capital Markets

Daniel Amir - Lazard Capital Markets LLC

So I guess based on kind of this new guidance and the challenges you've had in the past couple of quarters, it does look like that this fiscal year could be down between 15%, 20% on a year-over-year basis. I mean, it's a little -- contradicts a bit the thesis here, that you feel that there's significant growth in these markets, and you're going through these product transitions. Many companies go through project transitions. So it almost looks like that as you go into next year, in fiscal year '13, your revenue could be similar like fiscal year '11. So there seems to be some disconnect, and we'd appreciate if you can give us a little more guidance how to look at this, considering your visibility has not been very good in the past 6, 9 months.

Kenneth Lowe

We understand the perception that exists, and it is a reasonable question. Part of the transition is going from one generation of product to the next. And as you can imagine, in going through a transition like this, we've got a lot of strength in our second-generation product line, so we're winning some new sockets that we've never held before. And as you can also imagine, as your first-generation trails down, second-generation moves in, we've also lost a couple of sockets from that we used to have in previous generation. So in some cases, there's a time gap between when we lost the first socket and the second one jumps in. So, I think, what you're seeing is you're seeing a, in some cases, a troughing effect that has a combinational effect of that. So there's the transition taking place, there's inventory adjustment, people do an expanded buy the quarter before they think they're going to run out. And then they sucked it out of the next quarter and then maybe it's a couple of quarters before that the new design win really starts in some other areas. So we're trying to manage this as with as much continuity as we can. So there's a lot of moving parts, as we mentioned before.

Daniel Amir - Lazard Capital Markets LLC

Okay, so if you look at some of these newer products that you've been talking to, some of these acquisitions you've done in the past couple of years, I mean, I guess outside the CopperGate acquisition, the other acquisitions have really not generated much revenues yet. I mean, is there anything there? I mean, it seems like you're pouring in money into some of these new products. You're now going to burn cash probably next quarter as well based on this guidance. So how should we look at the cash flow going forward? And how should we look at the revenue potential of some of these new product areas that you've been talking about?

Kenneth Lowe

Well, most of these acquisitions that we've made, we try to ensure that they're accretive as soon as possible. But in almost every case, we're acquiring these companies because of the synergistic value they have to provide RSOCs with a sustainable competitive advantage. So in most cases, our big payoff is the long-term ability to compete with firms like Broadcom and stay one step ahead of them in some cases, like we have with home control product technology. I think, some of the payoffs have also come slower, but very steady. The VXP product line we acquired, the pay off there has been slowed to rise, but it's been a very steady contributor at a very high margin. So we've got a mixture of rationale and bottom line results from the acquisitions. But I think we're -- and I think if you look at the CopperGate acquisition, right now the Connected Home Technologies that, that produces has been an outstanding contributor to both top and bottom line.

Daniel Amir - Lazard Capital Markets LLC

Yes, absolutely. I mean, the CopperGate acquisition is probably the best acquisition you have done. So, okay, so just one final question and then I'll get back into the queue. So how should we look at the cash flow here the next few quarters, and can you give us a bit visibility on the OpEx side as well?

Thomas Gay

The cash flow is kind of a combination of several factors that went negative on us at the same time. Our steady generation of cash, this is probably the first quarter in quite some time that, that's been interrupted. And we believe that as the accounts receivable settles down a little bit here, that will reverse itself and probably come back even stronger in bringing cash into the company. The timing of some of the fixed asset purchases, both out of Q4 and in Q1 being paid for both in Q1, was another stronger negative influence. So showing positive income on a pro forma basis generally correlates to generation of cash. And so we think a reversal of the negative cash results in Q1 plus continued progress will get us back in the cash generation business real soon. In terms of expenses, there was a bit of a timing surge in research and development. About $1 million of that was based on a flurry of new chipsets and experiments going on in R&D, not really part of the baseline spending. That did come a bit above our expectation, as we expressed a quarter ago. As you can see, sales and marketing actually came down a little bit, but holding in a steady territory for the last few quarters. G&A tracked against its seasonal increase for the year-end expenses that fell pretty heavily into the Q1 range. And we do not expect that to be continued. That should come back down for the remainder of the year until Q4 when year-end expenses, once again, come forward.

Operator

And the next question comes from the line of Gary Mobley.

Gary Mobley - The Benchmark Company, LLC

Tom, could you clarify what the cash flow from operations was for the quarter and the said number?

Thomas Gay

Well, the overall cash, itself, was down $10 million. But when you look at the balance sheet changes, and a couple of them are sort of hidden from the macro numbers that you see in our financials, cash generated by operations was actually positive for the quarter, but I do not have the exact number at this time.

Gary Mobley - The Benchmark Company, LLC

What are you developing now that is causing this big capital expenditure? And could you give us some sense of how that CapEx is divided between EDA tools or licensing of design IP? Any help would be great.

Thomas Gay

We can't be specific about particular silicon but in general, the design tools have an annual renewal and we stepped up with a number of new seats based on our added designers and folks. So the actual expense gets amortized over the life of the licenses and things. But the cash tends to go out on an annual basis.

Gary Mobley - The Benchmark Company, LLC

Okay. So focusing specifically in your HomePNA sales. If I'm not mistaken you're about to go through a product transition whereby you're reducing the process node and as well the average selling price. How do you see that playing out for the balance of the year in the impact it will have on the revenue trend line for those product sales?

Thomas Gay

Good question. It's true we've been talking about this reduced ASP in the next generation. However, we are continuing to see design wins and hope that the added volumes will make up for most of the decrease in ASPs as we transition. However, with the change in generation right now, there's been a bit of inventory buildup out in the supply chain. So we may see some letdown in revenues in the next couple of quarters in that area.

Kenneth Lowe

You know the thing I'd like to add on top of that is that we have, with our new products coming out, we have bifurcated into a value line and a premium line. And the value line allows us to address the mainstream features at a very, very tightly managed cost. And this has been a very attractive prospect in the set-top box world. The premium products, at the same time continue to maintain flagship technology and they also allow us to provide differential performance for gateways and lower volume products. So although we found that the ASP declines a little bit by doing that, it's made us more competitive by being able to bracket in customers' needs. So, I think, it's been very effective.

Gary Mobley - The Benchmark Company, LLC

Last question for me. Your mix of HPNA sales was the highest it's been, perhaps ever, in the just reported quarter. But yet your gross margin was at one of the lowest points it's been in recent times. Where are the dynamics going on there? Are you seeing margin pressure on a specific product set, in particular, HPNA sales?

Thomas Gay

Well, there's several factors that contribute to that. Part of it is with the lower overall volume, the fixed portions of cost of goods sold become more evident and less absorbed. So that does put a little pressure on the gross margin all by itself. There's also shifts in product mix in various ways. So that, as you heard, our guidance was expected to come down about a point on a non-GAAP basis coming into Q2, which just seems to be within our normal bracket of shifts and mix.

Operator

And the next question comes from the line of Quinn Bolton with Needham & Company

Quinn Bolton - Needham & Company, LLC

Just wanted to ask on the Set-top Box business, obviously, it sounds like the transition is occurring a little bit faster, at least the ramp down of the first generation boxes is ramping down faster. But now that we're another 90 days into the year, do you guys have increased confidence in terms of your market share? About the second generation boxes, do you think that you've actually picked up market share over the last quarter, held market share? Any dynamics you can talk about would be helpful.

Kenneth Lowe

I think, looking at that question a year ago, we were in kind of tenuous position. I would say right now, very definitely, we're growing market share. We've expanded our footprint in Mediaroom. We think that we're in a very, very strong position there to begin winning. And we are in fact winning more sockets, almost every major OEM in the Mediaroom sector is using the Sigma 865X series in one product or another. And I think that you look outside a Mediaroom, and we're starting to get into new operators that we've never been into before. So I would say in IPTV, certainly. I think that we're also looking forward to a ramp in connected media players. And part of that is just the strength of the market, part of it's the kind of partners that we're working with. So I think we're pretty confident that the sockets are growing. And we're pretty confident that the volumes of the markets themselves are growing. And that both the combination of those 2, I think, is where we're getting our expectation for the future. That and the relationships we develop with the OEMs we're dealing with is, I think, putting us in a much higher visibility position.

Quinn Bolton - Needham & Company, LLC

Just a second question on mix. It sounds like, again, in the fiscal second quarter, that most of the revenue decline still associated with the media player or IPTV Set-top Box segment and that the other segments probably have a more stable outlook. But I just wanted to confirm if that's the right mix going on in the second quarter?

Kenneth Lowe

Now, if I understand this, you're talking about as far as revenue decline in mix? What was the exact question you wanted me to answer?

Quinn Bolton - Needham & Company, LLC

Oh, sure. Just sort of any comments about mix. Is the revenue decline in Q2 being driven primarily by the IPTV Set-top Box segment?

Kenneth Lowe

Actually, it's more of a combination of -- that's probably the number one contributor. And, yes, I think, we'll probably return to normal ratios mixed in, in the second quarter more likely than not. And so the mix is changing, and so margins will go up and down as a result and ASPs will go up and down as a result. But in general, I would say that, look forward to Q2 being more of a normalized product mix.

Quinn Bolton - Needham & Company, LLC

Okay, great. And then just lastly, you mentioned comments in the prepared script about the cable market and some of the cable set-top box OEMs or carriers beginning to write software for -- or based on your media processors. Does that give you increased confidence in terms of timing of trials or eventual volume deployments in the Cable segment?

Kenneth Lowe

Well, we are certainly feeling as though each quarter we go through, we gain more confidence that, that process is getting closer and closer. I guess the difficulty is, is it was hard to predict exactly how conservative the cable industry would be in actually making its move. And so, we're cautiously optimistic that the cable industry will start to move in the second half of this year, and it will start slowly. But as soon as 1 or 2 of them have demonstrated success with the IP transition, I think it will start a snowball.

Operator

[Operator Instructions] And the next question comes from Hamed Khorsand, BWS Financial.

Hamed Khorsand - BWS Financial Inc.

Just a couple of questions. One, just to build on an earlier split question. How much of Q1 and Q2, regarding as far as your 8630 series and 8650 series, could you provide that? Also, any color as far as what the split would've looked like in Q2?

Thomas Gay

We don't give a specific split, but I can comment on the trend, where the 8634 is winding down a bit. Although it is designed into a number of products across a couple of our market areas, so that it's not going to just drop off too sharply. But then the 8650 is becoming the dominating chip in that area, and the 8670 is beginning to deploy.

Hamed Khorsand - BWS Financial Inc.

Okay. And then my other question is, as far as your guidance goes, what kind of assumption are you using? I mean, it sounded like earlier in your pre-made comments that you're expecting the timing issues, as far as purchasing. So how much clarity do you have, as far as revenue goes and as far as purchasing, purchase orders that come in?

Thomas Gay

Well, we continue to be frustrated by our customers who give us forecast that help us get our inventory levels geared towards a certain level, and yet the timing can vary by a week or 2 and have a significant influence on our quarter-to-quarter revenues. So it's one of those things, especially when you have 2 customers that total half of your total revenue, just a little bit of change here and there can have a significant effect. So we do our best to estimate what's the way it's going to turn out based on historic patterns and forecast that we receive, and sometimes results will vary.

Hamed Khorsand - BWS Financial Inc.

Okay. So, are you assuming any, like, big purchases in there? Or, I mean, could that occur, or a decline in purchases?

Thomas Gay

In general, we take weekly deliveries and try to smooth it out. The production is, at least in set-top box areas, tends to be gradual week by week and varies on a more gradual basis. Connected media players is more a month-to-month kind of lumpy thing, but it's still, in the aggregate, averages out fairly well.

Operator

Ladies and gentlemen, this concludes the question-and-answer session for today's call. I would now like to hand the call over to Mr. Edward McGregor for closing remarks.

Edward McGregor

Thank you. Well, we would like to thank everybody for attending our conference call to discuss our results for our first fiscal quarter of 2012. We do appreciate your interest in Sigma, and we look forward to our next scheduled conference call to discuss our second fiscal quarter results 2012. Thank you.

Operator

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect.

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