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Just released Sigma Designs (SIGM) Q1 results (see conference call transcript) are probably the worst nightmare for a non-cyclical growth company to shrink both top and bottom lines.  But is this the beginning of the end of SIGM or does this create an opportunity to own a piece of a great company on cheap? 

I think it is the latter.  Their main business - IPTV and Blu-ray HD DVD - will remain sluggish for th remain of 2008, but may have an significant upswing in 2009, benefiting from the next generation IPTV 8654  media processor, which "provides a 50% improvement in performance along with lower overall system costs"; delevering of their new Blu-ray chips and possible Taiwan and China design wins; and many of their initiatives may come to fruits starting the begining of next year as well, leading to potential upside surprises. 

Compared to its strategic competitor Broadcom's  (BRCM) P/E ratio of about 70, SIGM is selling for a meager 8 times earnings or 7 times cash flow. That is too cheap for a growth company.  When SIGM is back to its growth mode again in 2009, it could easily triple its ratios, and needless to say, its stock price.

If Buffet would buy a tech company, I guess he might buy the entire SIGM at this price level, as he did on GEICO and Washington Post (WPO).  But, some other companies (like Cisco (CSCO), Texas Instruments (TXN), NVDIA (NVDA) or Qualcomm (QCOM)) may find SIGM attractive.

Disclosure: Author holds a long position in SIGM


Source: Sigma Better Designed for 2009