Deutsche Bank's Nagesh Sukhi is out with some very good comments on Sigma Designs (NASDAQ:SIGM) following yesterday's sell-off caused by Baird & Co. note saying Broadcom (BRCM) had won a design at Motorola (MOT) for its next generation IPTV set-top box.
- According to the firm have they have always maintained the view that Broadcom would likely garner some share of IPTV set-top boxes in 2009 and so this is not new or surprising. They also note that winning a design does not necessarily mean that Broadcom's chip will be used in higher volume boxes from the STB OEMs. They have said all along that Sigma's market share in both the IPTV and Blu-ray DVD markets is likely to decrease starting in 2009 due to new entrants, which is normal in any fast growing end markets.
Back in March based on existing inventory levels of set-top boxes at Motorola/AT&T, the firm determined that the company's FY2009 revenue guidance of $300-350 million (mid point of which would indicate +47% y/y growth) was likely unrealistic. Based on their assumptions for market share this year and next they believe that the company can realistically achieve +25-35% growth in FY2009 (already reflected in DB's numbers). They believe the rest of the sell-side is now realizing this as well and as a result they expect the Street numbers to come down to DB estimates.
Deutsche Bank continues to like Sigma due to its leadership position in the IPTV and Blu-ray DVD markets. They believe SIGM will likely outgrow all its peers this year and again likely next year.
Maintains Buy and $43 target on the stock.
Notablecalls: I didn't think Baird's call would do THAT much damage to SIGM stock. While very good, it was still mostly based on speculation. I expected to stock to see 10% downside at best with some stops being hit creating some additional 5% follow-through over the next couple of days.
Yet, the stock got taken to the back and SHOT (-25.5%). Execution style. Boom.
The shorts and scared sellers overdid it here. It needs to bounce. My gut tells me $18+ level is fair enough today. I almost want to call it Actionable here.
Oh and btw, this is what Lightreading.com has to say about SIGM:
...But Sigma isn't convinced that Motorola has made any decisions on its next generation of boxes, considering Broadcom's relatively recent entry into the market. "Decisions like that are not usually made in that way," says Ken Lowe, Sigma vice president of business development.
Even if Motorola has decided it likes Broadcom, Sigma probably wouldn't lose all its business there. "The type of position somebody like Motorola would take is that they want to offer as many options as they can," Lowe says. "As far as I'm concerned, we're in very good position with our next-generation product...