In our latest post on Sigma yesterday, we argued that Sigma is leveraging it’s core capabilities. We can no give several examples from this from their conference call transcript. It gives us a considerable amount of confidence that we’re near (or perhaps even at) the lows, while we believe significant upside still exists.
That might take a while, as confidence is low in the company at the moment. But we think most, if not all bad news is in the price. Agreed, we said that before, but in fact what has changed? Management announced that there were inventory build-ups in IPTV (especially with Motorola).
And it was an analyst call in the first place (which caused an comparable sell-off like Friday’s a couple of months ago on roughly the same news) This could hardly have come at a surprise. It’s always darkest just before dawn.
Now, some quotes from the conference call:
Several new products in the wings to interest next generation Blu-ray players and take advantage of future growth the market has to offer. Additionally, we are encouraged by the potential opportunities emerging from our strategic initiatives including penetration in to the HDTV market, the ultra wideband connectivity market, the [inaudible] video processing products as well as the penetration of the cable set top box market.
Our SMP 8630 Series represent the defacto standard in the IP set top box industry and our recently launched 8654 looks to be its direct successor. Already the 8654 has secured a position in the next generation Microsoft Mediaroom platform and also has garnished support from four major OEMs.
8654 provides a 50% improvement in performance along with lower overall system costs to provide a substantially improved value proposition for the burgeoning IPTV market.
So, they’re introducing much improved versions of existing products which already meet market acceptance, and new products and they’re entering even new markets, all based on it’s core competence, designing processors for advanced multi-media applications.
The one exception is the ultra-wideband chip. This is related though, it’s a high, variable frequency wireless technology that enables to send very high capacity bandwith, ideal for wireless in-house sending and receiving multi-media files.
It’s seen as the ideal technology to unwire the house, as it enables wireless sending of even high-definition signals from one device to another. Adding this capability makes others future proof, so it’s a very sensible move.
And Sigma’s financial position is also, well, pretty good:
Cash, cash equivalents and marketable securities totaled $190.1 million, a decrease of $85.6 million from the previous quarter. The overall decrease of $85.6 million is primarily due to stock repurchases of $80.6 million.
And, management stressed that their main markets (IPTV is it’s largest by far, followed by Blue-ray) will take off in the near future, although they didn’t argue when. We probably need pretty convincing signs of this for the stock price to move, but we think management is right.
People keep warning about coming competition. Yes, this will happen, but Sigma has shown it’s not taking anything for granted, and I do think anyone arguing that this would be a monopoly market with monopoly like margins was not realistic anyway.
There are still 1.2M shares to go in the stock buy-back program, it’s $8 per share in cash is a very sound groundfloor, and shorters will have to cover some time, all of which suggest to us that the downside is not very large. We can’t see it going below $15, bar some disaster.