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For months now, the big bear on Sigma Designs (NASDAQ:SIGM) has been Jeff Schreiner, an analyst at American Technology Research. Back in April, he dropped his rating to a Sell, knocking the stock back by 10% plus, citing fears of increasing competition in the market for chips used in IPTV set-top boxes.

But Tuesday, Schreiner backed away from that call, which he now says was too early. Schreiner increased his rating on the stock to Neutral from Sell, asserting that strength in demand from both IPTV and Blu-Ray components should allow the company to beat expectations for the July quarter - which will be reported Thursday - and to raise guidance for the October quarter.

Schreiner isn’t entirely backing off here; he still thinks there will be more competition emerging in the IPTV market from STMicro (NYSE:STM) and Broadcom (NASDAQ:BRCM) in the next 3-6 months. But he now says that his bearish scenario will take longer to play out than he had expected. And he advises that investors “should reduce short exposure ahead of a blow-out on Wednesday.”

Schreiner says the company apparently has won a big order from Motorola (MOT) for IPTV chips which is not reflected in current expectations. He also says Blu-Ray sell-through could be stronger than expected.

Schreiner Tuesday raised his estimate of July quarter revenue to $41 million from $39 million; he raised his pro-forma EPS estimate to 37 cents from 26 cents (he notes that in addition to the higher revenue number, the sharp jump in his EPS forecast reflects correction of an error in his calculation of stock compensation expense). The Street consensus is for $38.9 million and 34 cents.

For the January 2008 fiscal year, he upped his revenue forecast to $169 million from $155 million, with pro forma EPS now at $1.43 up from $1.11. For ‘09, he sees $174 million, up from $169 million, and $1 a share, up from 96 cents. He’s still far more bearish than the consensus for next year; the Street sees EPS of $1.42 this year and $1.53 next year.

Sigma is up about $10 since Schreiner went to a Sell rating on the stock.

SIGM 1-yr chart:

Source: Sigma Designs: AmTech Decides Sell Call Was Premature; Now Sees Blowout Quarter