Sigma Designs, Inc. – Trillium Asset Management

1778 McCarthy Boulevard
Milpitas, CA 95035
United States
Phone: 408-262-9003
www.sigmadesigns.com
Sigma Designs, Inc. (NASDAQ-SIGM) is a fabless provider of integrated system-on-chip solutions used to “power the digital media generation.” The stock is a play on the shift toward higher quality, consumer-centric, digital video technology. Several trends favors Sigma’s products including the shift from analog to digital TV, increasing demand for HDTV and Internet enabled television content, video conferencing, and centralized home energy management systems.
Sigma is a first mover and market share leader in the IPTV (Internet Protocol TV) market with 75 percent share. Telephone carriers such as Verizon and AT&T are adopting IPTV to compete with cable companies who have infringed on their fixed line phone business. IPTV delivers high quality video to customers’ homes via telephone lines or the Internet and is popular in European and Asian countries with low levels of cable TV. IPTV revenues are projected to scale from $780 million in 2006 to $26 billion in 2011, as it displaces cable and satellite TV. IPTV contributes 67 percent of Sigma’s revenue, while 26 percent is derived from sales of chips for Blu-ray DVD players, the market winner after the HD format war. Given the growth profiles of Sigma’s target markets, earnings are projected to increase 15 percent over the next three to five years.
Sigma’s recent acquisition of Zensys Holding Corp. gives the company access to the emerging smart device and energy management markets. Its Z-Wave product creates a wireless network of electronic devices in the home, allowing for Internet based access. These digital systems are used to monitor, control, and manage electricity use and are an important progression toward user-controlled energy efficiency. Sigma’s video conferencing chips also have an environmental benefit. Sigma sells chips to companies such as Cisco, who is revolutionizing the way corporations work through videoconferencing technologies that greatly reduce the need for travel.