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Just released Sigma Designs (NASDAQ: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  (NASDAQ: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 (NASDAQ:CSCO), Texas Instruments (NASDAQ:TXN), NVDIA (NASDAQ:NVDA) or Qualcomm (NASDAQ:QCOM)) may find SIGM attractive.

Disclosure: Author holds a long position in SIGM

 

Source: Sigma Better Designed for 2009