Sigma Designs Should Fall on Lost Blu-ray Customer

Baird is out with a very negative call on Sigma Designs (SIGM) saying their recent checks indicate Sigma Designs has lost one more tier-one Blu-ray customer recently and has likely lost its top two customers in this segment, leading them to believe the company's market share of the Blu-ray DVD player market could be well below 50% by year-end.

Additionally, checks indicate continued weakness in digital TVs for Sigma, a segment which had previously looked promising for this year. Baird does not expect year-over-year growth for Sigma's digital TV revenues in the July quarter as a result. They believe weakness is predicated
on lack of a strong integrated de-interlacing solution.

Despite their expectation for Sigma Designs to ramp at France Telecom in the second half of this year (which they estimate is a $20 million revenue opportunity), the firm would remain cautious on Sigma's near-term prospects.

Cutting estimates and reducing price target to $20 from $22. Reiterating Neutral rating on SIGM shares.

Notablecalls: I suspect SIGM is going to get whacked today. We may be near capitulation but I just don't see SIGM hitting consensus estimates. Consensus needs to come down big time (so will the stock).

Comments

[SevePC:]

This shouldn't be a big surprise to anyone. The company has talked at length about loss of market share this year which necessarily implies that they will lose some customer relationships for a while. Panasonic is now making their own chip and other Japanese manufacturers are getting more aggressive.

Sigma has already stated that their goal is to control about 1/3 of the Blu-Ray market going forward. Next year when their new chip ships in volume the surprise may be that ther market share approaches 40%. But in my mind, this would be pretty decent given the enormous size of the market and the sophisticatio of their competition. How many companies can go one-on-one against Japanese electronics companies and still come out with 30% to 40% share?

No question that they fumbled the ball here getting the new design out in time, but remember this is a four quarter game and the next generation chip will have a very competitive feature set.

2008 Jun 10 11:49 AM

[xsuddensam:]

Another great Cramer pick!

2008 Jun 10 01:13 PM

[FourBrane:]

This is Baird's second full-bore attack on Sigma. The stock is already in take-over range, so they need to close their short position and move on. Even with this new attack, they haven't been able to do more than squeeze another three bits out of the stock. I'm a buyer at these levels as there's nowhere to go but up.
Most of these losses should really be thought of as second-sourcing arrangements which are to be expected as Blu-ray makers scramble to ramp volume. As to consensus, they have always been wrong on this stock. Never close, even once. (Sigma needs to hire someone who can handle a conference call and knows how to drop hints to help these incredibly stupid analysts look better. Hell hath no fury like an analyst with egg on his face.)
At this PE for a company with products in several growth markets, there just is no short case to be made.

2008 Jun 10 04:57 PM

[D Lesh:]

Baird doesn't mention the customers they picked up over seas in Asia. Also missed the boat on calling and checking bluRay inventroies. Stores are sellingthem like hot cakes if you bother to go visit the stores and ask. Thanks to baird I was able to acquire shares and calls at suck cheap prices i will look back at Christmas and say Ho Ho Ho!

2008 Jul 19 04:30 PM