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Sigma Designs, Inc. (NASDAQ:SIGM)

Acquisition of Trident's Digital Television Business Call

April 04, 2012 4:30 pm ET

Executives

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

Kenneth Lowe - Vice President of Strategic Marketing

Analysts

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

Quinn Bolton - Needham & Company, LLC, Research Division

Hamed Khorsand - BWS Financial Inc.

Stephen Chin - UBS Investment Bank, Research Division

Daniel L. Amir - Lazard Capital Markets LLC, Research Division

Operator

Good day, ladies and gentlemen, and welcome to the Sigma Designs discussion of the Trident Digital Television Business purchase. My name is Alicia, and I will be your operator for today. [Operator Instructions] I would now like to turn the call over to Mr. Tom Gay, CFO. Please proceed.

Thomas E. Gay

Thank you. Welcome to Sigma Designs conference call to discuss the acquisition of Trident's Digital Television Business. I am Tom Gay, Sigma's Chief Financial Officer. With me today are Thinh Tran, Sigma's Chairman and CEO; and Ken Lowe, our Vice President of Strategic Marketing.

The press release announcing this investor presentation was distributed on Monday, April 2, inviting all interested analysts and inventors to attend. The copy of our presentation materials was posted to the Investor Relations section of Sigma's website after the market closed today so you can follow along with our prepared remarks. Today's agenda will begin with my brief introduction and executive overview of Trident's DTV Business and strategy by Ken and financial comments by myself. We will then open the call to questions from analysts and the institutional investors. 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 the anticipated benefits of the DTV acquisition, our future revenue, gross margins and other financial measures and anticipated trends for the DTV product line. We caution you that the forward-looking information that we present today is based on our current beliefs, assumptions and expectations, speaking only as of today's date, and involve risks and uncertainties that could cause actual results to differ materially from our current expectations. These risks include the risk the acquisition will not be completed as a result of Trident's bankruptcy process, the failure to satisfy closing conditions or otherwise the risk of the DTV Business will deteriorate before we close the acquisition and other risks related to our ability to operate the DTV Business successfully after the closing.

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 29, 2012. Sigma undertakes no obligation to revise or update publicly forward-looking statement except as required by law. We caution you that the financial values presented are based on historical quantities and values for Trident's books, which will be adjusted to actual quantities and fair market valuation as part of the purchase and audit process. We are also providing non-GAAP forward-looking information but are not able to provide a reconciliation as one is not reasonably available at this time. And now we'll hear from Ken.

Kenneth Lowe

Thank you, Tom. I'd like to start by thanking you for joining us today and for your continued interest in Sigma. Today's call, I'd like to present the rationale for acquisition of the Trident Digital TV Business unit and the benefit we expect it to bring.

Overall, the addition this Trident DTV Business should become EBITDA positive in 12 months and accretive thereafter in year -- calendar year 2013. We believe that the marriage Trident DTV and Sigma provides substantial benefits to our existing business while positioning our combined company to offer superior value for the future. In short, our goal is to take the lead in converged media platforms.

Next slide, please. The transaction specifically positions Sigma for the upcoming convergence between SmartTV, connected media players and set-top boxes. We feel this opportunity is supported by 4 media benefits of this transaction. First, it expands our total available market with the addition of Digital TV, which will enable us to directly serve the SmartTV Solutions, as well as hybrid solutions that will be combining set-top box and Digital TV functions.

Secondly, we'll be in direct leverage by sharing a single R&D team for the 2 -- for 2 key technology areas, mainly the vast investments being made in the over-the-top software development and the support of broadcast standards, both of which are used in SmartTVs and hybrid set-top boxes.

Third, this will increase our tier-1 OEM and ODM penetration, enabling us to provide stronger SoC footprint within top OEMs and to provide complete consumer offerings for the connected home.

Fourth, this will immediately add approximately $100 million in revenue to our top line, providing us with increased volume-based benefits in manufacturing, as well as a greater scale leverage in selling activities.

Next slide. Now we would like to fill in some of the background behind the Trident DTV Business starting with a broad-brush overview. The past 2 years, the Trident DTV Business has been increasingly focused on innovative solutions for connected and SmartTVs where they gain traction with a number of Digital TV SoCs.

This growth was on top of their existing legacy business for analog televisions and PC-to-TV products. As a result, Trident was projecting sales of over $100 million for calendar year 2012, about $70 million of which is the strategic growth segment of SmartTV and FRC. Supporting this business was a resource base of 484 employees, 86% of which are performing engineering functions.

As part of our immediate thrust to make our combined business more profitable, we're only assuming about 2/3 of their employees for approximately 300 total additions to Sigma. This eliminates duplicated job functions due to R&D leverage, unnecessary resources for legacy products and other nonessential jobs.

Trident penetrated a number of tier-1 customers, including their top customer, Philips, as well as ODMs such as TPV and Isets [ph]. Trident's foundational technology was wrought from over 10 years of R&D investments, most recently focused on SmartTV softwares and ecosystem.

Next slide. The Trident DTV business, targeting SmartTV SoC Solutions, is strategically focused on 5 key thrusts. First, creating OEM Solutions with proprietary user interface and software stacks to enable customization of branded products. Second, creating ODM Solutions with an open architecture turnkey design that's ready for market and readily extensible through open standards. Third, integration launch with major Digital TV OEMs using extensive designing team to work intensively with each OEM. Fourth, broadcast stacks for all major regions to enable over-the-year reception in countries all over the world. And fifth, partner certification for OEM platform solutions to ensure that products have third-party approval to go to market. This focus is aimed at maximizing penetration into the SmartTV market where estimates of 38% compound annual growth are common.

Next slide. Over the years, Trident has also developed a substantial technology base for Digital TV. Based on both acquisition and internal development, their IP portfolio reads like a list of current DTV market trends, including integrated SoCs with industry-leading 240-hertz motion-estimation motion-compensation algorithms, support for 21:9 CinemaScope TVs, view-enhancing technologies with 2D-to-3D and 3D-to-3D conversion algorithms, advanced Picture Quality for motion-compensated deinterlacing and noise reduction, picture quality refinement based on 20 separate U.S. patents that won an ISO award for picture quality.

370 U.S. patents are involved in Trident's DTV products, with foundational work in MEMC, FRC, Picture Quality and Broadcast Demodulation. At the same time, an equal effort is in place on creating a comprehensive software stack, leveraging a wide array of industry standards, including Android, Linux and third-party applications, all built on an extensible framework.

Next slide. With the addition of Trident's DTV Business, Sigma Designs will accelerate its roadmap toward connected media solutions for global video delivery convergence.

Moving forward, our strategy is to use the Trident assets to create the strongest portfolio of connected media platforms, expand our core markets to include the strong growth of SmartTV, increase our SoC footprint within leading consumer OEMs, enable substantial R&D leverage along with support for all broadcast standards, and improve our revenue scale for all forms of operating leverage.

Next slide. Sigma's overall strategy is to make intelligent media platforms the core of our development, and translate this leveraged investment in the market share growth within the SmartTV connected media player and IPTV set-top box segments. These intelligent media devices all share the same fundamental elements, which include IP video streaming, Internet and web access, over-the-top content and home connectivity for content sharing.

Next slide. With this Digital TV addition, Sigma will gain its dramatic expansion of our total addressable market, adding connected DTV on top for our existing set-top box and connected media player markets. Selling activities for the Trident line will take on renewed focus as we continue with their advanced DTV SoCs that improve industry-leading Picture Quality and support for global broadcast standards. Over the next 4 years, our TAM is expected to expand from its 45 million units of last year to 240 million units in 2015.

Next slide. Increasing our addressable market also enables us to gain greater synergies in the digital media ecosystem. Not only will we benefit from the leveraged R&D team, but we'll also gain increased appeal for many of the key players in ecosystem who desire access to the emerging market for SmartTV products.

This includes industry players offering Core System technology, middleware security, as well as a vast array of third-party content and applications.

Next slide. The Trident acquisition is fully complementary to our customer engagements, adding a wealth of consumer partners such as Philips, TPD, LG and Huawei, while reinforcing our penetration into common accounts such as Samsung, Sharp and Toshiba.

Our joint accounts represent a large portion of the overall consumer and set-top box space.

Next slide. The further complementary benefit is our combined strength and service provider relationships and global broadcast standard support. Support for all of the primary broadcast standards ensures faster time to market for customers, while our depth of offerings for IPTV ensures smooth transitions for the worldwide shift from analog to digital television.

Next slide. By adding the Digital TV product line, Sigma also gains improved breadth of offerings compared to our primary competition. This translates into greater penetration within major consumer customers that prefer to leverage common SoC technology across their multiple product lines.

Now I'd like to pass it over to Tom, who's going to cover the financial impact of this acquisition

Thomas E. Gay

Thank you, Ken. First of all, I want to provide a profile of the DTV business. What we are acquiring is a subset of the business segment that Trident has been reporting as its DTV business.

For example, we are not acquiring a software group in India that is being taken over by Philips. The largest group of employees is an engineering team in China, totaling over 200 employees. The next largest group is here in the Bay Area, totaling approximately 40 employees mainly focused on marketing and engineering, that will be joining Sigma's headquarters location here in Milpitas.

Additionally, there are 4 smaller locations in Asia and Europe primarily focused on customer support and engineering. The next slide will help you see the effect on our cash and Trident's current estimated value of the assets being acquired. Our bid of $21 million will purchase finished goods inventory, accounts receivables and some equipment, with a total value on Trident's books that is a few million dollars less than our purchase price. We will also be assuming approximately $1 million of employee-related liabilities in buying out the work-in-process inventory at Trident's primary supplier at its cost, which is expected to be approximately $7 million.

As required by financial regulations, we will be assessing the current realizable value of these assets and liabilities, including marking the inventory up to its expected sales value. The main point here is we expect there to be no goodwill associated with this acquisition.

The next slide starts with 2 typical quarters as expected during 2012. The first column shows Trident's current margin and cost structure with operating expenses based on their current product mix, manufacturing costs, headcount, amortizations and occupancy expenses. The second column reflects the effect of 2 main synergies that we expect to achieve after integration, mainly manufacturing cost reductions and operating cost reductions primarily in G&A. This is where we expect to be in the fourth quarter of fiscal 2013. Now we will take any questions from analysts.

Question-and-Answer Session

Operator

[Operator Instructions] And the first question comes from the line of Gary Mobley with Benchmark.

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

Focusing specifically on Slide 15, Tom, the one that you finished with, you mentioned that your gross margin could rise 300 basis points from 35% to 38% after some synergies are realized. But I'm just curious how you plan to get, perhaps, better pricing in wafers, considering that the Trident business was already working with TSMC under, I think, even a higher revenue scale than the combined Sigma and Trident DTV Business.

Thomas E. Gay

Yes, the idea is that in terms of total volume represented here and some other ways that we have identified the efficiencies, we think that that's a fairly modest goal and expectation. TSMC is one of our targets for negotiating, and there's a part of that cost-reduction process.

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

Okay. So you're expecting to get to $30 million in quarterly revenue. You mentioned currently that this is running about $25 million a quarter, what gives you comfort that you can achieve such growth? And have you met with any of the Trident OEM customers, such as Philips, already as part of your diligence process.

Thomas E. Gay

Clearly, I've spoken with the main driving customers. I have talked about roadmaps, talked about us restoring the health of the efforts to innovate and bring new products out. In fact, there's a new product launch already under way. We've advanced the amount for a tape out to be able to get that going. Our customers find that very reassuring that the milestones and roadmaps are back under way, so that's one of the key elements. The other is in declaring bankruptcy. Trident's supply chain was interrupted and some of its backlog got deferred a little bit, and so the -- it made the balance of the current year pop up a little bit in some of the revenues, so that's another effect that you'll see there.

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

Okay. Last question for me. I know Sigma, on its own, has had a dual development track utilizing both ARM process cores and MIPS as well and, if I'm not mistaken, Trident has had the same path as well. So is it the intent to continue down the path of using ARM cores for some products and MIPS for others?

Thomas E. Gay

Yes, we're finding that there's a mix between the 2 that is both cost-effective and efficient for operations. It takes care of some of those areas where there's an actual requirement for one or the other and yet it's cost effective for us.

Operator

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

Quinn Bolton - Needham & Company, LLC, Research Division

First question. I just wanted to ask -- Tom, you mentioned, I believe, about $70 million of the revenue was sort of in the SmartTV and FRC segments. I'm assuming that the remainder, and I don't know if you're basing this on the base of $100 million or $120 million, but it sounds like the other segment would be discrete. If that's correct, how quickly do you expect the discrete business whether it's the older analog TV stuff or the modulators or other discrete components, audio ICs, to go away? How quickly does that roll off? And is that incorporated in your thinking for Slide 15?

Thomas E. Gay

Well, let me clarify a little bit there. The idea -- currently the mix between legacy products, which you're referring to as discrete, it's about 30% of the revenue. And it's come down considerably in the past years but we see the slope still diminishing but not sharply over the next couple of years. We do see growth in the DTV segment, the 70% of newer digital products and we see the growth in that area being greater than whatever losses we'll have in the legacy area.

Quinn Bolton - Needham & Company, LLC, Research Division

And that SmartTV or that focus area, is that all SoCs or frame-rate converters?

Thomas E. Gay

Yes, both of those are major elements of that segment.

Quinn Bolton - Needham & Company, LLC, Research Division

Okay. Great. Within the SoC platform, I believe, Trident had 2 families. One was, I believe, the new Fusion SoC that had the 240 hertz MEMC technology, but I think there is also more of a legacy platform, perhaps that Philips designed, platform-to-TV 550. Wondering if you can comment whether you intend to support both platforms going forward or will there be some merging of those 2 product families over time so that you're not supporting different architectures for different customers.

Thomas E. Gay

Well, our initial intent is to carry on with everything that's currently being shipped. We've got the recipe and the expertise to be able to maintain that. We have no intention to invest any more engineering in the legacy area, just some minimal customer support in order to make sure that any customer needs are met. What we do have is successive products coming in to inherit the future roadmap of the DTV area and so both the Fusion and the 550 are currently supported -- have some engineering development support under way. But the best answer going forward is the next version referred to as UXL, which I referred to earlier as being taped out as we speak.

Quinn Bolton - Needham & Company, LLC, Research Division

And does both Fusion SoC and 550 sort of the next step both converges on UXL or is there a UXL version of both? Just to clarify.

Thomas E. Gay

They're adjusting a little bit different segment of the market. There will be some overlap but not completely.

Quinn Bolton - Needham & Company, LLC, Research Division

Okay. Last question for me. I know that, obviously, Trident had purchased the Philips DTV Business or the NXP business, but a very strong relationship with Philips, going all the way back to the Philips semiconductor. It looks like you're taking the employees based in China and primarily in North America. But I'm assuming that many of the employees that may not be coming over are based in Europe. What can you say about your ability to sort of maintain that Philips relationship, because I believe that was a significant customer for Trident. You have mentioned that the software team in India is actually going to go back to Philips. I mean, is that something that you see as a challenge maintaining that? Or what can you do to maintain that relationship with a smaller employee base and perhaps some of the old Philips semiconductor engineers not part of your organization.

Thomas E. Gay

Yes, we've already visited Philips. VP of sales and marketing has already been over there. They have a very strong relationship and dependency on the Trident product line and they're very encouraged over the fact that Sigma Designs has decided to take on this product line and will support it moving out in the future. And the software stack that they've been developing together with this is one of the parts that keeps them married to us and makes this thing sticky. So I think in the future we not only expect to continue to do business with Philips. Part of the plan is to increase the penetration and continue to move from the top, from the highest-end products and continue to move down to the midrange and keep moving down and envelope more of their product line.

Thomas E. Gay

It is a financially healthy partner capable of carrying forward their commitment to this product line and developing it further, especially with their commitment to taking over the software development group in India. So that's part of the way of remixing this business to be more effective.

Operator

And the next question comes from the line of Hamed Khorsand with BWS Financial.

Hamed Khorsand - BWS Financial Inc.

Just a couple of questions here. One is, as far as the timeline for the closing, when do you expect this deal to close?

Thomas E. Gay

We believe within a month. It's a little indefinite at this point. There's a number of things Trident and its employees are anxious to get on with the next phase, but there is some diligence and other challenges that need to be taken care of. The bankruptcy process adds a few extra twists to it, but we believe that the sooner we can get this taken care of, everybody is straightened out and focused on getting back to effective work, the better for all of us.

Hamed Khorsand - BWS Financial Inc.

Okay. And as far as you guys are talking about being in different areas of the home and so forth, but your -- on your page 15 of the slides you're giving us an assumption that revenue stays flat. So what are your expectations for this business? I mean, in one slide you're saying the market is going to expand the TAM for you by 2015 but then on other slides, you're saying that revenues will be down. I would have to assume that ASP erosion's there as well. So I mean, what are you expecting other than just buying revenue?

Thomas E. Gay

Well, in the near term, the products are already set. They're qualified. Everybody's manufacturing plans are not really subject to near-term change. So what we see in the near term is taking over the backlog, taking over the forecast for the next few quarters. Our strategy is to bring the development process back to a healthy pace to be able to broaden the current software stacks from the currently manufactured products, as well as follow-through on the tape-out, which expands the available market, as well as deeper engagements with current customers and brings opportunities for additional customers. But that's going to take time. Televisions are not produced in a matter of months. It takes a bit more time to do this, so we're -- our signal right now is, to both our current and potential customers, that we are here and want to make this work for them and we're proceeding with that terms.

Hamed Khorsand - BWS Financial Inc.

Okay, my last question. As far as -- I would assume you guys were looking at this from a standpoint of the DTV and the hybrid kind of sequence, but how long would it have taken you if Sigma hadn't waited this long to go into this market?

Kenneth Lowe

You mean if we had organically developed this capability?

Hamed Khorsand - BWS Financial Inc.

Yes.

Kenneth Lowe

There's a tremendous amount of technology tied up in the framework conversion and on the other video quality issues. These -- the back end part that's inside the TV that the set-top box never touches is finely tuned to match the different panels that each of these TV manufacturers puts in and. Then on top of that, the software stack for the SmartTV has also got different aspects to it that you find inside a TV. So this thing would have been a few years of solid engineering development with a sizable team to even broach this market.

Thomas E. Gay

I mean, the customer relationships that come with this bargain is part of the value also.

Kenneth Lowe

Put it this way, we didn't pay anything essentially for the enterprise. We bought the inventory and receivables and some equipment, and that's what we paid for. The enterprise came with it. So we feel like we're -- we kind of stepped into this thing at the right time. We really believe strongly in the convergence here, and we believe that you need to monetize this -- the biggest investment here is creating a software stack that provides perfect playback for over-the-top content that everybody is desirous of, all the way out to the mobile applications. And you've got to be able to recoup the investment and we need to be able to apply that to all of our markets, including SmartTV. So this was a very necessary step.

Hamed Khorsand - BWS Financial Inc.

No. I mean, I understand the reasons for -- financially this makes sense for how cheaply you're buying it. But my concern is, you guys have a history where you've gone into new markets. I mean, let's just look at -- you guys went to Blu-Ray and you guys dropped the ball on Blu-Ray. I mean, what's the risk that you guys could mishandle going into a new market like this?

Kenneth Lowe

Well, this is -- we're at a point of cohesion at this point in time. The core of everything we invest in at this point in time is going to be intelligent TV devices. And so basically, every one of our markets is going to be tied together. IPTV is going to go into SmartTVs. IPTV and connected media devices are going to get merged at some point. Most of the operators do not envision themselves 10 years from now providing 3 and 4 set-top boxes for the home. They envision they put the gateway inside and everybody proliferates within their own home, just like your telephones are done. They bring service to the house, you're responsible for your phone. So anybody that's not playing into that paradigm is going to find themselves caught behind and operating without a growth market in front of them.

Operator

And our next question comes from the line of Steven Chin with UBS.

Stephen Chin - UBS Investment Bank, Research Division

First one -- first question I had was in regards to Slide 15 with the -- from a financial model. Just wondering, just going back to the gross margin line again. With some of the -- I guess, they call it synergies there is -- some of that from mix or in addition to a new partial notes for existing products potentially?

Thomas E. Gay

Well, the savings we see in the next few quarters, because this is a near-term example of what we can see just ticking down the numbers. And one of the other elements besides the direct cost is the overhead operating our existing supply chain, as well as this additional one is not going to take a lot of duplication. There is also a group that's managing this on Trident's side that will add to the efficiency and lower the overall cost when absorbed by the total revenue volume.

Stephen Chin - UBS Investment Bank, Research Division

And can you comment on what process node the majority of Trident's current sales are centered on right now?

Kenneth Lowe

Most of the stuff that they put out right now is 40 nanometer. Their process, their back end and everything like that is very similar to ours in terms of the node that they're at and the size of these chips. So one of the benefits of integration we're going to find, that we're expecting is to be able to consolidate to one back-end design process, to be able to have one leveraged team, again, greater operating efficiency.

Stephen Chin - UBS Investment Bank, Research Division

Ken, one question for you then. In terms of product roadmap going forward, I know it's still very early in the process, but if you were to project out and give an estimate on what's the time frame in the future that you might have an integrated product that marries the technology that you're applying from Trident with your connectivity technology and also what time frame are we talking about in terms of when new products that are highly integrated will be available in the market, at least maybe for sampling them?

Kenneth Lowe

I think we're going to look at all of those opportunities. I think it's probably somewhere 18 to 24 months. It's probably in the range where you'd find that integration comes together and it's commercially available.

Stephen Chin - UBS Investment Bank, Research Division

Okay, that's helpful. And I guess in terms of implications of the rise of SmartTVs to your existing connected media services that's with the little small OTT box there today. I guess, over the next couple of years as SmartTvs have a higher penetration based on your forecast. Can you expect the same business as far as little boxes go [indiscernible] or do you see that trying to go away after certain point in the future years or...

Kenneth Lowe

Well, I think it's interesting because there's a three-way confluence. You've got connected media players, the little boxes, as you referred to them, you've also got SmartTVs and you've also got IPTV and other types of set-top boxes. So as the confluence of all those 3 happen together, I think you're going to find that, first, you're going to see the SmartTV start to absorb some of the connected media players and then you're going to see certain amount of set-top boxes get absorbed by one or the other. And the survivor in the long, long term in non-living room is most likely going to be the television that integrates most of it, so yes. And legacy TVs are served by the standalone boxes, so as long as there's still legacy TVs that want to be brought into the smart world, there's going to be a market for connected media devices that stand alone.

Stephen Chin - UBS Investment Bank, Research Division

Okay, that's helpful. And lastly just with the patent portfolio that Trident has. Is there any current revenue that's from royalties or licensing revenue that -- because I recall Trident -- potentially starting or pursuing a licensing business? Wondering if maybe that was anything that was actually meaningful to their business.

Kenneth Lowe

We're never been in the business of licensing or IP or anything like that.

Thomas E. Gay

We will have the benefit of over 370 patents as part of this business but we will not have the right to the royalty streams that have already been established.

Operator

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

Daniel L. Amir - Lazard Capital Markets LLC, Research Division

A couple of questions here I guess, first of all on the logic of the acquisition of the DTV business in the first place, bigger and stronger companies have kind of failed in this market and it seems like that Mediatek and Mstar have been pretty dominant in this space. It's somewhat unclear why necessarily your solution will be more attractive than what Trident tried on their own or other companies have tried on their own as well. So if you can maybe sharpen that point, because I think that that's probably one of the most concerning things around the acquisition, even though from a price perspective obviously it' fairly attractive.

Kenneth Lowe

Well, I guess, you got to take every one of these companies that have tried it and look at them one at a time. I mean, Broadcom busted its neck on trying to get into the market. They never established traction. And meanwhile, looking down from the top of them, they're making huge investments in trying to break into the mobile space in a bigger way, which has much higher volumes for them. So I think their decision to move out of it was driven by that. Trident on the other end already has an established position. They have a robust software stack. They have huge investment and a great reputation for video quality. So they've got the 2 elements you'd really want to start with if you were going to go in this business, and Broadcom had to develop them both. Intel had to develop them both. Intel was thinking about pulling away from the market then did an about face a couple of weeks ago. And so no, no, we're not pulling out, we just kind of took a pause. So I think it really depends on the applicability of the company. I think we're going to add a lot of value to the Trident line in terms of reinforcing the software development effort that they had and leveraging the great video quality they created. And again, combining with the synergy of the rest of the products aspect that we can bring. Very few other people can take -- can integrate IPTV into a television chipset like Sigma can. So I think there's a lot of synergy here that I think many companies will see in the next couple of years come out of this thing.

Thomas E. Gay

We also see Trident's sweet spot as having been in the higher end of the DTV market and what we're seeing under way right now is another generation of products addressing the middle of the market, which we believe is ours to begin challenging it and that there is space for quality picture at a reasonable price in much of the television-manufacturing community.

Daniel L. Amir - Lazard Capital Markets LLC, Research Division

Okay. And in terms of the financial assumptions here. I mean, without going into real detail, how much buffer do we have, I guess, in terms of this OpEx assumption? I mean, and the cost savings. I mean, is this a optimistic goal that you have? Is this very realistic? I mean, what type of work have you done around as to feel comfort that this is the level you can be in a few quarters in terms of the margin and the cost structure?

Thomas E. Gay

Actually, what I did is identify some of the larger, more obvious areas that we are very confident we can achieve. I believe that this is a fairly conservative estimate, as you can see the amounts are pretty round at $1 million each in the 2 principal areas. There's more to be done as we get forward with integration. The process has been fairly quick, and so I have not gone into the lower levels of detail. Another byproduct of the synergies will be the cost savings on the existing Sigma side of the business where we see some economies of scale that are not reflected at all in what we presented today. So all in all, that should add up to a fairly conservative estimation of the synergies.

Operator

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

Quinn Bolton - Needham & Company, LLC, Research Division

Tom, I just wanted to ask you a quick follow-up on Slide 15. You've got about $2.5 million difference between sort of the EBIT and the EBITDA, so I'm assuming you've got $2.5 million of depreciation and amortization. It looks like you're not really buying much equipment, so I'm assuming there's not a lot of depreciation that comes with the business. So I was wondering if you could give us a sense of what that $2.5 million is that gets you from sort of the EBIT to the EBITDA line?

Thomas E. Gay

Yes. It's -- well, it has to do with the current rate of depreciation and amortization on Trident's books. One of the things that I'm not able to really address at this point is what the effect of the fair market value adjustment will be, whether those fixed assets will be brought up in value or down or similar and what the remaining useful life will be. So those are all subject to change. So the approach I had to take was from Sigma's book -- or from Trident's books and keep the numbers cast in their context.

Quinn Bolton - Needham & Company, LLC, Research Division

I mean, when you buy the business, you're only bringing over $3 million of equipment or is there other depreciation generating items that come with that purchase?

Thomas E. Gay

Yes, there's also software tools, design tools and a number of other items that are being amortized into that number.

Quinn Bolton - Needham & Company, LLC, Research Division

Yes, okay. And so if we look then at '15, the numbers down to EBITDA -- or sorry, to EBIT, those are pro forma numbers, so $11 million of OpEx in the current sort of format, $10 million with synergies. That's sort of the non-GAAP figure but will include those amortization of software costs in those line items or could be in the cost of goods. I'm not sure which line item it falls in, but this is sort of the non-GAAP numbers.

Thomas E. Gay

That's correct. That's the best context to put it in for our analysts and investors.

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. Tom Gay for closing remarks.

Thomas E. Gay

Thank you. We would like to thank everybody for attending our conference call to discuss our acquisition of the Trident DTV Business. We do appreciate your interest in Sigma, and we look forward to our next scheduled conference call to discuss our first quarter results for fiscal year 2013. Thank you.

Operator

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

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Source: Sigma Designs Management Host Conference Call to Discuss Acquisition of Trident's Digital Television Business (Transcript)
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