Sigma Designs: The Bulls Strike Back

Sigma Designs (SIGM) shares are on the mend today following yesterday’s sharp selloff, as some analysts take issue with yesterday’s cautionary report from Robert W. Baird analyst Tristan Gerra.

To review: Gerra reported that Motorola (MOT) had decided to use a chip from Broadcom (BRCM) in its next-generation IPTV set-top box for systems that use Microsoft’s (MSFT) Mediaroom software. Gerra asserted that the company could lose considerable market share as a result with companies like AT&T (T) and British Telecom (BT).

But this morning some Sigma bulls are taking issue with Gerra’s report.

Jay Srivatsa, an analyst with Roth Capital, says his checks find that “Broadcom has yet to be designed into a single set-top box that supports Microsoft Mediaroom software,” and adds that at the National Association of Broadcasters trade show at Las Vegas this week Microsoft was demonstrating only MOT boxes using the SIGM chip. “As such, we believe it is highly unlikely that Motorola would have made a decision to solely use BRCM’s solution in its next generation boxes.” He adds that “We do not believe chip selection for next generation boxes have been determined as yet.”

Sukhi Nagesh, an analyst at Deutsche Bank, responded to Baird’s report as well, but with a more measured response. “We 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,” he says. “We 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. We 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.” He thinks a bigger issue is an excess inventory situation for IPTV boxes at Motorola.

Nagesh has a Buy rating on the stock, but nonetheless says the Street’s numbers are too high: He expects the Street to gradually reduce numbers. He sees revenue of $64 million in the July quarter, versus $71 million for the Street; for the October quarter he sees $76 million, below the Street at $84 million, and for the January quarter, he’s at $89 million, while the Street is at $94 million.

SIGM, which yesterday fell $5.36, or 25.5%, today had rebounded 1.56 cents, or 9.9%, to $17.23 at midday.

Comments

[turdfurgeson]

Tristan Gerra's report was at best speculative and unsubstantiated. At worst, I see a far more dubious cause and motive for his actions. We all know what that is, don't we?

[mscpt]

Gerra's report was a reasonable commentary, as the analyst from DB mentioned.It is rather the 'Ready Fire Aim" Mature of the current market that produced yesterday's selloff and today's modest recovery...