Selling Yahoo and Buying Sigma

 |  Includes: SIGM, YHOO
by: Shlomi Cohen

I am now adding a US chip company called Sigma Designs Inc. (NASDAQ:SIGM) to my portfolio.

Sigma is leading the new up-and-coming field known as IPTV, meaning television broadcasts over the Internet, which the telephony companies will be offering us in the coming years, as an alternative to the broadcasts from cable companies. I am also dropping Yahoo Inc. (NASDAQ:YHOO) from my portfolio, as I feel that the recent change in CEO does not bode well for the company's upcoming second quarter results, due to be unveiled on July 17. These are likely, at best, to be in line with market expectations, since it is generally feared that a new CEO is always keen to make a fresh start and "push" all the troubles back to the last quarter of his predecessor.

Sigma set its sights on the IPTV niche a few years back, and thanks to some long, hard work during which it incurred substantial losses, it managed to develop the best processors in this field. When Microsoft made its own entry to the field, it looked for a chip partner with which to collaborate in the development of its IPTV set top box system. It was with left with no alternative but to work with little Sigma, after the latter's much larger counterpart, Broadcom Corp. (BRCM) told Microsoft it wasn't interested and that it didn't think there was a big market for this technology.

Today, Sigma's processors together with Microsoft's software are installed in 75% of IPTV set top boxes, and Broadcom has been trying, in vain, to catch up with Sigma.

Sigma is by no means a one-product company, and in addition to the IPTV niche, analysts are expecting it to begin sales of processors for the new generation of HD DVD players by as early as the end of this year. It now has many design wins for products based on the leading Blue Ray Disc standard, and Sony Corporation (NYSE:SNE), Pioneer, Panasonic, and Sharp are just some of the disc manufacturers using this standard, which use Sigma's processors.

Charlie Burger, the analyst who writes on George Gilder's website, estimates that Sigma's sales of products for the new DVD standard will reach $20 million by the end of the current financial year in January 2008, with annual sales to the IPTV sector likely to reach $160 million. Analysts are forecasting earnings per share for Sigma of at least $1.30, more than double its earnings per share last year.

SIGM 1-yr chart:


Published originally by Globes [online], Israel business news -
© Copyright of Globes Publisher Itonut (1983) Ltd. 2006. Republished on Seeking Alpha with full permission.