Home media controllers
Sigma Designs Inc (SIGM.O) is a leading supplier of controllers for Mediaroom internetprotocol TV (IPTV) set-top boxes (STBs) and digital TVs (DTVs), which are undergoing market transitions amid slack seasonality. It is positioned to serve emerging home opportunities that include its established Z-Wave remote controls and HomePlug AV and G.hn home networking standards.
Q3 moving parts
In the quarter ended 2 November, revenue grew 1.2% to $54.4m, pro forma gross margin was 59.8%, with a GAAP loss of $0.09 per share, pro forma EPS of $0.10, $86.3m in cash and both short- and long-term marketable securities, and no debt. Annual operating expenses were cut by $40m over the last year. Home Multimedia declined sequentially 13% to 42% of sales (including 24% DTV and 18% STB), Home Connectivity declined 3% to 46% of sales (including 35% networking and 11% control), and margin-rich licensing nearly tripled to 12% of sales.
Near-term weakness
Q4 guidance called for a sequential revenue decline of 19-27%. The company recently added a Mediaroom VP to its board after Microsoft sold it to Ericsson last April, but second-generation offerings are delaying current sales. It is positioned well with DTV controllers, but the market has plateaued; seasonality is soft; and next-generation UltraHD is only a tiny portion of the market. The company also enjoys HomePNA strength associated with AT&T’s U-Verse IPTV offering, though competitive Wi-Fi offerings are encroaching on the market. And Z-Wave offerings are experiencing a channel-inventory correction after three quarters of growth.
Longer-term opportunities for growth
The Mediaroom second-generation is ramping, UltraHD TV growth is accelerating, and it continues to drive the Z-Wave standard from an installed base of 200Mu into Internet-of-Things opportunities as well. HomePlug AV devices used in VoD and multi-room DVR designs at European service providers are expected to ramp in the coming quarters. And G.hn chipsets are in field trials with multiple service providers for potential deployments next year. Revenue growth is expected later this year.
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