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Executives

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

Kenneth Lowe - Vice President of Strategic Marketing

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

Edward McGregor -

Analysts

Stephen Chin - UBS Investment Bank, Research Division

Hamed Khorsand - BWS Financial Inc.

John Vinh - Collins Stewart LLC, Research Division

Gary W. Mobley - The Benchmark Company, LLC, Research Division

Sigma Designs (SIGM) Q3 2012 Earnings Call November 30, 2011 5:00 PM ET

Operator

Good day, ladies and gentlemen, and welcome to the Third Quarter 2012 Sigma Designs Earnings Conference Call. My name is Keith, and I'll be your operator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. And I would now like to turn the conference over to your host for today, Mr. Ed McGregor, Director of Investor Relations. Please go ahead, sir.

Edward McGregor

Thank you, Keith. Welcome to Sigma Designs' conference call to discuss financial results for our third fiscal quarter of 2012. I'm Ed McGregor, Sigma's Director of Investor Relations, and 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 and 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 with my brief introduction, a review of selected financials by Tom, an executive overview by Thinh, a market update by Ken and comments on guidance by Thinh. We will then open the call to questions from 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 we provide about our future revenue, gross margins and other financial measures and anticipated trends in our target market. We caution you that the forward-looking information that we present today is based on our current beliefs, assumptions and expectations, speak only as of today's date and involves 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 quarterly report on Form 10-Q as filed with the SEC on September 8, 2011. A partial list of these important risk factors is set forth at the end of today's earnings press 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 I'd like to turn the call over to Tom.

Thomas E. Gay

Thank you, Ed. For the third quarter of fiscal 2012, revenue was $39.7 million, a decrease of $7 million or 15% compared to $46.7 million in the previous quarter. Compared to the year-ago quarter, our revenue decreased $38.1 million or 49% from $77.8 million. Our revenue breakouts for the quarter are as follows: by target market and percentage of total revenues for the quarter, IPTV Media Processors represented $10.8 million or 27% of the total; Connected Home Technologies, $16.8 million or 42%; Connected Media Players, $9.1 million or 23%; Prosumer, $2.8 million or 7%.

During the third quarter, we had 3 customers that each exceeded 10% of our net revenue. Alpha Networks represented $5.5 million or 14% of the total; Gemtek, $5.4 million or 14%; and Motorola, $5.1 million or 13% of the total. GAAP gross margins were 45.3% for the third quarter compared to 27.8% in the preceding quarter and 49.6% in the same period last year. Non-GAAP gross margins were 52.4% for the third quarter compared to 34% in the preceding quarter and 53.2% in the same period last year. A major factor causing last quarter's gross margin being lower was a write-down of excess inventory valued at $7.8 million, which equals a gross margin decrease of 16.7%.

GAAP net loss for the third quarter of fiscal 2012 was $121.6 million or $3.78 per diluted share. This compares to a net loss of $22 million or $0.69 per share in the previous quarter, and GAAP net income of $5.1 million or $0.16 per diluted share in the year ago quarter. Included in this quarter's loss was a $111 million write-down of goodwill and a portion of our intangible assets based primarily on reductions of our market capitalization. These intangible assets were created in association with our various acquisitions and are a noncash expense in this quarter.

On a non-GAAP basis, net loss for the third quarter was $2.7 million, or $0.08 per diluted share. Compared to the previous quarter, this is an improvement from $11.3 million of non-GAAP net loss of $14 million or $0.44 per diluted share. Compared to the year ago quarter, non-GAAP net income decreased $15.7 million from income of $13 million or $0.41 per diluted 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 third quarter: first, the write-down of goodwill in the process R&D and other intangible assets associated with acquisitions, a total of $111.3 million; second, amortization of intangible assets associated with acquisitions, a total of $4.8 million; and third, stock-based compensation of $2.8 million.

And now I'd like to cover a few key areas from our balance sheet. Cash, cash equivalents, restricted cash and marketable securities totaled $162 million at the end of the quarter, a decrease of $4.5 million or $0.15 per share outstanding compared to the beginning of the fiscal quarter. Based on our shares outstanding at the end of the quarter, the total value of cash, cash equivalents, restricted cash and marketable securities equals $5.02 per share outstanding. Significant items contributing to the year-to-date decrease in cash includes payments for capital and other assets of $14.3 million and a long-term investment of $2 million. Cash used by operations in the third quarter was $2 million.

Net accounts receivable was $26 million at the end of the third quarter, a decrease of $4.3 million compared to the beginning of the fiscal quarter. The average days sales outstanding for our receivables as of the end of the third quarter was 60 days, an increase of 1 day compared to the previous quarter. The higher than usual DSO for each of these quarters was a reflection of our customers scheduling product deliveries towards the end of the quarter rather than in an even flow each week.

Net inventory was $22.5 million at the end of the quarter, a decrease of $0.9 million compared to the beginning of the fiscal quarter. The decrease in inventory brings our inventory turns for the quarter to 3.8x on an annual basis. The decrease was attributable to decreased levels of our older products as they are phased out of production and reduced purchases of newer products to support our sales forecast.

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

Thinh Q. 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. In today's call, I would like to review the results of the third quarter and discuss our achievements.

First off, we reported $39.7 million in revenue for the third quarter. The decrease in revenue from prior periods was primarily a result of our transition to second-generation media processors and connectivity products, which have lower ASP while designed to maintain our target gross margin. These more aggressively positioned second-generation products provide us with cost and performance advantages that are designed to result in higher overall unit volumes as we penetrate and deploy to a widening set of accounts.

Towards this goal, we are making continued progress in new design wins that should propel our growth in the expanding market for IP-delivered content. Our direct engagement with service providers is also a fundamental part of this strategy, which enables us to gain the visibility and influence needed to anticipate new trends and roll out new products before our competition. Our confidence in our long-term strategy drives us to continue investing in new technologies that will enable Sigma to become the leading connected media platform company.

During the quarter, we continued to make progress in many business segments. We achieved telco deployment of a new Mediaroom set-top box ,and have completed validation of set-top box from 2 additional OEM customers during the quarter. All 3 OEMs are aggressively promoting these set-top boxes for operator deployments.

We unveiled the Sigma Designs CG2210, a new HomePlug AV chipset that delivers high HD quality video across electrical wiring inside the home. We believe this home video networking solution reaches significantly more outlets ,and runs faster over surge protectors versus competitors while adhering to the stringent new EuP 2013 energy conservation guideline. That CG2210 platform includes Sigma-patented ClearPath technology, positioning the new 2210 as the most stable and reliable HomePlug AV solution on the market.

We announced that Verizon Home Monitoring and Control service is now available, based on Sigma's Z-Wave technology. The system will enable customers to lock doors remotely, see what is happening at home via network cameras and set and adjust control lights, thermostats and appliance. This can all be done using just a smartphone, a computer or through FiOS TV.

We have announced the Zonoff Z-Wave Bridge Platform, which enables ZigBee-based utility meters to communicate with all Z-Wave home control technologies. These bridge modules are the first enabled cross-use integration electric meter data, enabling utilities to control high-load devices at any Z-Wave enabled home with consumer permission. As a result of this progress, we feel that we are in better position to take advantage of several new business opportunities.

Moving forward, our vision is for Sigma to become the leading provider of connected media platforms at the highest level integration possible. Towards this goal, we are heavily investing in a wide range of technology platforms that are driven by emerging market trends.

I'd like now to pass the call over to Ken who will discuss the long-term significance of these technologies and the markets they play into. Ken?

Kenneth Lowe

Thank you, Thinh. Sigma continues to make substantial investments toward becoming the long-term leader in connected media platforms. For this call, let's summarize our outlook before we drill down into the details.

First, we're continuing to experience revenue weakness impacted by many prior customer transitions. This should open up to new opportunities by the middle of next year. Second, we're forging ahead with multiple strategic thrusts to penetrate new opportunity areas, most of which will not become externally useful for several quarters.

Third, we expect our overall market position in IPTV to become stronger over the course of the next year, owing largely to the introduction of unique new technologies that match the desires of operators. Fourth, overall demand for our Z-Wave product line continues on a growth trajectory that will make it one of our top revenue producers within the next 2 years. And fifth, we're continuing to execute our strategy to deliver complete platform solutions based on the strong synergies between our technologies, which should increase our revenue per share and improve customer time to market.

So the world of video delivery services is steadily moving toward IP-based distribution across all types of network providers and geographies. This is evident by the broad adoption of the gateway client architecture, where the clients all receive video through simple IP streaming. As a result, the market for all forms of IP and hybrid IP set-top boxes is projected off for strong unit growth over the next several years by many industry analysts.

Sigma's leading provider of IP-based solutions remains well positioned in the telco provider segment with an active customer base of over 40 telco providers. We have strong relationships with the majority of top tier telco operators, which provide ongoing visibility, influence and opportunity.

As a result, we have one or more opportunities for new upcoming deployments at each of the following telcos that we would expect to result in additional revenue growth for 2012 and beyond. This would include AT&T, Telefónica, Deutsche Telekom, TELUS, CenturyLink, Bell Canada, VimpelCom and Verizon, plus many second- and third-tier opportunities. We're well positioned for Mediaroom Generation 2, led by our 865x media processor family, which combines the highest performance, lowest power and lowest volume cost of any Mediaroom system-on-chip. As a result, we expect to see substantial deployments begin at many providers during calendar 2012.

We're also beginning to participate in opportunities for hybrid set-top boxes that combine IP with satellite, terrestrial or cable broadcast reception. We have the key platform technologies to become the leading player in this segment and anticipate this to be one of the strongest areas of growth for Sigma. We're also following the cable segment's transition into its gateway client era and expect to obtain reasonable revenues in the future focused primarily on thin client set-top boxes.

The market for home control appears to be rapidly expanding as many initiatives are taking place with many large providers for energy management and security services. More and more operators, especially telcos, have been entering this market to increase their average revenue per unit. As a result, major design wins have been emerging over the last year with Sigma becoming a leader in much of these applications through the appeal of our Z-Wave product line. These design wins include Verizon's Home services, Security Services from ADT and Vivint and Best Buy's Insignia cTV products.

This will result in increased revenue as these announced wins continue to ramp. Furthermore, these design wins work synergistically with the development of our industry-leading home control ecosystem, which now supports over 500 interoperable consumer devices on the market today. We expect Z-Wave to continue its strong growth in the foreseeable future, as well as provide value-added leverage to our position within set-top boxes and operator deployment plans.

The market for connected media players continues to expand and evolve new product classes. These product classes include IP streaming players, direct or network-attached storage players, WiDi and Wi-Fi devices and combination players that include Blu-ray, tuners and other consumer video elements.

As a leading player, Sigma offers a strong class of value line media processors that are optimal for these consumer applications. We offer a combination of performance, price and software support that's unique in the industry. Furthermore, we're preparing additional features that are expected to be launched in 2012 that should put additional distance between us and our competitors. This is partially evidenced by our increased revenue this quarter.

As a major thrust, Sigma is investing heavily into the dozens of over-the-top software applications such as Netflix, Pandora and YouTube that will enable these products to tap into a vast array of Internet content and grow the overall market. As our software portfolio expands, so does the barriers to entry for other rivals in the space.

Next, Sigma's Prosumer offerings provide studio-quality video for a host of professional and high-end consumer applications. This market serves to drive our video processing technology and has grown into a highly profitable segment of around $3 million per quarter.

Moving into connectivity. We're leveraging our industry-leading status in IPTV networks, so that Sigma's positioned itself as a key provider of network solutions, installation diagnostics and as a technology adviser for many of the top-tier operators. As a result, we're working with some of the largest operators to plan future deployments of Sigma-driven solutions for a wide range of technologies.

HomePNA solutions continue to deploy in mass volumes in North America with major new rollouts already ramping in Latin America. Based on current usage trends, we expect this strong based business to continue until it blends into the growth of G.hn solutions. HomePlug AV solutions, which offer our patented ClearPath technology, are in final preparation for deployment, expecting to begin volumes in the first half of 2012 resulting in modest revenue contributions for the next few years. Towards this goal, we announced the new CG2210, which offers the best combination of price, performance and powered available in the industry.

G.hn solutions are now in field trials and expected to begin deployment during the second half of 2012, driven largely by robust power line connectivity and all-wire flexibility. Based on current demand indications, we expect this segment to continue to grow -- to continue its growth. Wi-Fi solutions based on Sigma media processor reference design with key industry partners are being evaluated for use in many product classes. Based on current demand trends and partnership models, Sigma expects to participate in a wide range of Wi-Fi deployments in the future.

As a long-term goal, Sigma is developing differentiated technology for consumer entertainment products that's delivered with a connected media platform. These platforms combine 5 key technology areas into an application-specific solution for each of our target markets. These technology areas include both hardware and software elements for video decoding and encoding, video display processing, home or network connectivity, media input processing and system core elements. Since new products and technologies are the lifeblood of semiconductor industry, Sigma's continuing to invest in each of these core areas at a record rate, with plans to intercept our target markets at key transition points. Market transition points afford a nearly level playing field from which new markets may be successfully entered and penetrated.

In summary, Sigma continues to invest in the future and develop complete technology platforms to enable products for the way consumers want to live. I'd like to now pass the call to Thinh to cover our forward guidance.

Thinh Q. Tran

Thank you, Ken. As indicated, we are confident that our long-term strategy to build the leading connected media platform company will eventually result in strong future growth. Overall, we remain heavily engaged with service providers and OEMs and continue to win new accounts for media processors, home networking and home control.

Moving onto our forward guidance. We would like to shape the expectation for Sigma performance toward the remainder of this year and provide specific guidance for our next quarter. Given reasonable visibility at this time, we expect revenue for fourth quarter to be $35 million to $40 million. We expect to resume sequential growth in the first half of next year subject to further change in operator deployment with our Mediaroom-certified solutions. We expect our of fourth quarter gross margin on a pro forma basis to meet our target of 50%.

In summary, I would like to reinforce that our fundamentals remain strong, our team is in place and our processes are being optimized to maximize our long-term success.

We'd now like to open up the call for Q&A.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question is from the line of Stephen Chin with UBS.

Stephen Chin - UBS Investment Bank, Research Division

First one I have is just on the visibility commentary. Thinh, you mentioned the visibility is reasonable right now. Can you qualify that a little bit in terms of what that means from an order standpoint or from a backlog coverage?

Kenneth Lowe

Speaking for this issue, I think what we're indicating is our visibility into what the operators plans are, the point they're at with their transition between first and second generation. And our OEMs themselves, with their buildup of product, we believe we've got reasonable visibility into the chain of events that will lead to unit shipments. So we believe that we can see ahead 1 to 2 quarters at this point in time.

Stephen Chin - UBS Investment Bank, Research Division

As far as the service provider qualification of some of the platforms where you have design wins currently for Mediaroom Gen 2, can you discuss, just probably speaking in terms of North American geography as well as Europe, what part of the qualification process you're in? Like, what inning are we in currently in, especially in Europe? Do you guys also have a very significant amount of exposure there also?

Kenneth Lowe

Yes. Well, specifically in Mediaroom, we have a number of set-top boxes that have gone through the validation process. I think there are -- at this point in time, we have 3 OEMs that offer second-generation products today that are based -- actually 4 OEMs that have second-generation products that have passed the validation test and can be made available to the market. So we're well covered at this point in time from an OEM standpoint. There's an operator, bidding process and also lab and field trial evaluation process that also has to be passed. So by the time you net this out, there's a fairly long pipeline that has to be gone through, and we've gone through that with a couple of different providers and we think we're fairly close, at this point, to starting that ramp with a couple of key people. So we're in a position to factor that in as we look at the next couple of quarters.

Stephen Chin - UBS Investment Bank, Research Division

Ken, just to verify there, testing that has been passed, is that the Microsoft certification? And if so, can you elaborate a little bit more on the service provider specific testing and any features that they want sort of, I guess, last-minute or continue to change? I guess, are there a lot of features that are being slipped in last-minute here that continue to delay the ultimate qualification and going into the networks?

Kenneth Lowe

Such a good question. Yes, it's a Microsoft process. They have a formal validation process. It comes out of that and at that point ready for operator deployment, assuming the operator accepts it and go through its testing. Typically, there is a month or more of lab trial followed by some number of field trial time frame. Through that process, what happens is the operator takes it from Microsoft's validation, they go ahead and put custom skins on it and then they bring it up to the current revision of client that they want to look at targeting for. Very little risk is really introduced after the Microsoft validation. The majority of things that we find are typically very specific compatibility issues with the television or something like that, that doesn't really introduce any showstopper nature to it. It's just a note to carry on. That in fact is what happened with our most recent cycle with Deutsche Telekom in validation of our box for deployment. So there was nothing found that would hold them up from deployment, so that is now been approved to be pushed out.

Stephen Chin - UBS Investment Bank, Research Division

Great. Just one last one and this is for Tom. Any formal OpEx guidance for the January quarter? And as looking out into next year, what are some of the implications of the, I guess, increased software investments or development from a over-the-top video support standpoint onto the R&D and video general market expenses?

Thomas E. Gay

If you look at the OpEx on a pro forma basis the past 3 quarters, it's been relatively flat. We've been trying to focus on efficiency while continuing to invest in our initiatives. Some of the headcount growth has been in lower cost offshore locations. We've also been having headcount growth through conversion of outsourced and consulting relationships into employee ones. We will invest opportunistically as we see fit, but we are keeping an eye on being efficient and trying to keep expenses from growing too much under the current circumstances.

Operator

Your next question is from the line of Gary Mobley with Benchmark.

Gary W. Mobley - The Benchmark Company, LLC, Research Division

Focusing specifically on your IPTV media process revenue in the just reported third quarter, I believe it was about $11 million in the quarter. What was the mix between Gen 1 product and Gen 2, if there was any at all in there?

Kenneth Lowe

We're now getting to where it's switching over heavily to Gen 2. So Gen 1 has wound down significantly.

Gary W. Mobley - The Benchmark Company, LLC, Research Division

Okay. So if I have the numbers down correctly, it looks like your IPTV media processor revenue decreased about $7 million sequentially. How much of that decline was a function of the lower ASP associated with Gen 2 and how much was associated with market share loss?

Kenneth Lowe

It's almost all associated with ASP adjustment for the product mix.

Gary W. Mobley - The Benchmark Company, LLC, Research Division

Okay. So are you close to shipping an equivalent volume level in the mid part of the fiscal year here between -- comparing between Q2 and Q3?

Kenneth Lowe

Could you clarify, Gary, what you mean by volume?

Gary W. Mobley - The Benchmark Company, LLC, Research Division

The $7 million delta from the last quarter to the just reported quarter, was that decreased on the same or an equivalent number of unit shipments?

Kenneth Lowe

So the unit shipments remained approximately the same between Q2 and Q3. So we adjusted revenues down because the mix moved predominately to Gen 3 with Gen 2, which is much more aggressively positioned. So I guess, are you asking is there much more ASP decline for the next quarter that we'll see?

Gary W. Mobley - The Benchmark Company, LLC, Research Division

Yes.

Kenneth Lowe

Okay. Still a little bit because there's still a little bit of Gen 1 in the mix, but I would say we're through the largest portion.

Gary W. Mobley - The Benchmark Company, LLC, Research Division

Okay. And on the connected home side, are we now in a sustainable revenue run rate in that product given the same sort of ASP decrease dynamics?

Kenneth Lowe

I think we've also gone through the majority of the price slope downward there on the generation transition as well. So coincidentally, we've gone through the Generation 2 -- 1 to 2 transition on both of those areas that were really not connected to each other, didn't have to be, but they have to be coincident in time frame. And yes, we believe we actually were all the way -- pretty close all the way through that price transition and shipping the newer products.

Gary W. Mobley - The Benchmark Company, LLC, Research Division

And focusing specifically on the connected home technology revenue, how diversified is the revenue stream right now between what was previously dominated by AT&T versus now? I'm assuming you're receiving larger portion of revenue from Z-Wave product revenue and then as well perhaps from HPNA product revenue too, right?

Kenneth Lowe

Yes, I guess the easiest way for me to answer that is we have 3 major service providers that are shipping HPNA now in addition to some very small ones over in Asia. So I think we are much more diversified. AT&T is the largest still, but we're not solely dependent on AT&T the way it originally started out.

Gary W. Mobley - The Benchmark Company, LLC, Research Division

Okay. And you speak of 3 or 4 OEMs now pushing the second generation of the Sigma media processors for IPTV boxes. Are these box OEMs of the same caliber that Sigma was originally engaged with looking back 2 or 3 years ago?

Kenneth Lowe

Yes. I mean, by name, Motorola, Cisco, Samsung, Tatung and Pace.

Operator

Your next question is from the line of Hamed Khorsand with BWS Financial.

Hamed Khorsand - BWS Financial Inc.

So a couple of questions here. I would like, first off a clarification, Tom, you made on the call. You said that market cap dictated your goodwill charge. Could you explain that? Because usually companies don't listen to what the Street is doing to stock. They dictate the Street. So could you just clarify why you guys took that charge?

Thomas E. Gay

Yes. Based on the accounting rules and what happens is that the value of the company grows with investments in acquisitions, and some of that is allocated to intangible assets. What happens is that there becomes a disconnect when the overall value of the company goes below what's on the books, and the rules dictate that the intangibles should be evaluated and adjusted to a fair value according to their adjusted earnings output. So kind of a technical answer, but there's been some changes in the past few years about capitalizing some of these things in acquisitions that used to be expense such as IP R&D. Goodwill is frozen, doesn't get amortized at all but is subject to this kind of an adjustment as conditions change and earnings power gets adjusted. So it's one of those things. It's not a cash item. It makes kind of ugly headlines, but those who follow the non-GAAP numbers will recognize that the non-GAAP impact is just not there.

Hamed Khorsand - BWS Financial Inc.

Okay. And then my other question on the Z-Wave line, are you guys able to provide any sequential growth numbers as to what you saw in Z-Wave in the Q3 period?

Thomas E. Gay

Yes, Z-Wave actually fell off to $2.3 million this quarter. So we had quite a surge last quarter, and now the supply chain and deployment surge adjusting a little bit to a more sustainable rate.

Hamed Khorsand - BWS Financial Inc.

Okay. What do you expect that sustainable rate to be?

Thomas E. Gay

We don't have anything specific, but the growing interest in the size of the customers expressing interest in Z-Wave continues to be very encouraging.

Hamed Khorsand - BWS Financial Inc.

Okay. And just my last question around a follow up there, in you guidance, what are you guys projecting as far as Z-Wave is doing in Q4? Is it going to be up sequentially?

Thomas E. Gay

We haven't given anything specific, but it should at least be similar if not growing.

Operator

[Operator Instructions] Your next question is from the line of John Vinh with Collins Stewart.

John Vinh - Collins Stewart LLC, Research Division

First question is I was wondering if you can clarify at AT&T. Have you -- you've talked about where you are in the qualifications sound like you've gone through that, but can you clarify, have you started to ship second-gen boxes into AT&T this quarter?

Kenneth Lowe

Well, we don't usually talk by name, but we have not begun shipping second-generation products yet. That's part of the delay. It's due to our largest provider. It's part of the delay that we talked about in revenue moving from Gen 1 to Gen 2. Not every Gen 2 provider takes off at the same time.

John Vinh - Collins Stewart LLC, Research Division

When would you expect to start shipping second-gen boxes into North America?

Kenneth Lowe

First half.

John Vinh - Collins Stewart LLC, Research Division

Okay. And what's your visibility and confidence that, that timelines are not going to get pushed out further at this point?

Kenneth Lowe

For the first half, very confident.

John Vinh - Collins Stewart LLC, Research Division

Okay. Great. And then on ASPs, can you help us understand how we think about your IPTV ASPs with kind of 40% decline in revenues? That kind implies that your IPTV ASPs are sub double digits at this point in time.

Kenneth Lowe

So basically, as you move -- first generation were products that were generally speaking selling in the teens. Second-generation products are selling in the low double digits. And in some cases with certain suppliers, they may be very aggressively positioned. So...

John Vinh - Collins Stewart LLC, Research Division

Okay. So you're still low double digits. Okay. And as we go into the first half of fiscal '12, I've seen this quarter, you had a strong quarter in terms of connected media players. Do you expect to be able to sustain kind of a 50%-plus gross margin profile in 2012?

Thomas E. Gay

We continue to exceed our goal of 50% by a few percentage points, which indicates the cost effectiveness and competitiveness of the new generation of products is still holding up our target.

John Vinh - Collins Stewart LLC, Research Division

Got it. Okay. And then last question for me is can you give us kind of directional guidance on your key segments for Q4?

Kenneth Lowe

Usually, we don't pierce down the -- drill down on the guidance for the segments. I guess the one thing I would say is because of the generation transition, the IPTV media processors is probably a little bit weak. The others I think are -- the others are pretty reasonable at this point in time.

Operator

And there's no other questions at this time, so I'd like to turn the call back over to Mr. McGregor for closing comments.

Edward McGregor

Thanks, Keith. Well, I'd like to thank everybody for attending our conference call to discuss our results for our third fiscal quarter of 2012. We do appreciate your interest in Sigma, and we do look forward to our next scheduled conference call to discuss our fourth fiscal quarter results 2012. Thank you.

Operator

Ladies and gentlemen, that concludes today's conference. We thank you for joining us, and you may now disconnect. Everyone, have a great day.

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