Sigma Designs Inc. (NASDAQ: SIGM) is a small-cap company that provides system-on-a-chip solutions serving the Internet Protocol ("IP") television, connected media player, residential gateway and home control system markets. While the company reported an 18.6% increase in revenues in FY 2012 and projected profitability starting in the first quarter, these efforts failed to impress some shareholders including Raging Capital Master Fund Ltd.
On April 3, 2013, Raging Capital filed a Schedule 13D filing with the SEC, disclosing a 5.6% stake in Sigma Designs worth more than $9.3 million. The filing detailed concerns with the pace of the Board of Directors' efforts to reduce expenses and improve operational focus and execution, while requesting decisive and expedient action to effect a turnaround, by focusing on cost rationalizations, implementing management changes, and exploring strategic options.
Many of these efforts have already been a work in progress for the company, which reduced its headcount by 15% and use of external contract labor in R&D. During the fourth quarter of the year, these efforts resulted in a non-GAAP gross margin that would have been 52.0% without a $3.4 million write down on its inventory valuation. The firm further expects these margins to improve to between 52% and 53% moving into the first quarter of the year.
Raging Capital's efforts could have several beneficial effects for shareholders. First, the push to management should help cost cutting continue, while the request to explore strategic options to unlock shareholder value could generate value of its own long-term. And second, the hedge fund's increased stake in the company suggests confidence that either management's turnaround plans are working, or at least that the valuation discount remains.
About Sigma Designs, Inc.
Sigma Designs, Inc. (NASDAQ: SIGM) is a leader in connected media platforms. The company designs and builds the essential semiconductor technologies that serve as the foundation for the world's leading IPTV set-top boxes, connected televisions, connected media players, residential gateways, home control systems and more. For more information about Sigma Designs, please visit sigmadesigns.com.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.