SOURCE: Sigma Designs, Inc.

Sigma Designs, Inc.

December 01, 2010 16:01 ET

Sigma Designs, Inc. Reports Third Quarter Fiscal 2011 Results

MILPITAS, CA--(Marketwire - December 1, 2010) - Sigma Designs®, Inc. (NASDAQ: SIGM) ("Sigma"), a leading provider of highly integrated system-on-chip, or SoC, solutions used to deliver multimedia entertainment throughout the home, today reported financial results and business highlights for its third fiscal quarter ended October 30, 2010.

Net revenue for the third quarter was $77.8 million, up $4.5 million, or 6%, from $73.3 million reported in the previous quarter and up $42.3 million, or 119%, from $35.5 million reported for the same period last year.

GAAP net income for the third quarter was $5.1 million, or $0.16 per diluted share. This compares to GAAP net income of $0.5 million, or $0.02 per diluted share, for the previous quarter and a net loss of $2.3 million, or ($0.09) per diluted share, in the same period last year. In the second quarter, Sigma wrote off $5.2 million associated with a strategic investment in a privately held company which reduced Sigma's GAAP net income after taxes for the quarter by approximately $0.10 per diluted share.

At the end of Sigma's third quarter, cash, cash equivalents and marketable securities totaled $175.4 million, or $5.59 per share outstanding, an increase of $27.5 million, or $0.80 per share outstanding compared to the beginning of the fiscal year. This increase was primarily generated by income from Sigma's operating activities.

Non-GAAP net income for the third quarter was $13.0 million, or $0.41 per diluted share. This compares to non-GAAP net income of $8.2 million, or $0.26 per diluted share, for the previous quarter and non-GAAP net income of $2.8 million, or $0.10 per diluted share during the same period one year ago. Non-GAAP net income for the previous quarter would have been $11.6 million, or $0.37 per diluted share, after excluding the effect of the investment write-off described above. Non-GAAP adjustments for the third quarter consisted of $4.6 million in amortization expense for acquired intangibles related to acquisitions, $3.3 million in non-cash share-based compensation expenses and $0.1 million of gross profit reduction resulting from the mark-up on inventory purchased as part of Sigma's Zensys acquisition. The reconciliation between GAAP and non-GAAP net income for all referenced periods is provided in a table immediately following the GAAP financial tables below.

Management Comment

"We are pleased to report over $77 million in revenue for the third quarter, representing approximately 6% growth over our second quarter. Our largest increase came from sales in our home connectivity product line in addition to a large increase from our prosumer product line. In the IPTV processor market, many accounts are beginning their transition to our new generation SMP8650 media processors, which represents a growing opportunity. Likewise, connected media players and other consumer products are undergoing a similar transition, which further validates these market opportunities and Sigma's strong position. Moving forward, we are continuing to pursue major design wins in our target markets with special initiatives for penetrating the hybrid IP Cable set-top box industry and the increased adoption of Z-Wave based home control solutions," stated Thinh Tran, chairman and chief executive officer, Sigma Designs.

Third Quarter Highlights

--  We announced that our HomePlug® AV with ClearPath™ (CG2110CP) has
    been named an International CES Innovations 2011 Design and Engineering
    Award Honoree in the Enabling Technology category. It was also named a
    TelcoTV Vision Award Winner.  HomePlug AV with ClearPath is a
    breakthrough home networking technology that enables carrier-class
    streaming of HD video, voice, and data over existing powerlines in the
--  We announced the CG5110, the industry's first chipset for home
    entertainment networking. As the International Telecommunication
    Union's (ITU) next-generation standard for wired home entertainment
    networks over any wire, represents an enormous step forward for
    consumer electronics OEMs, PC manufacturers and broadband service
    providers in terms of performance and ease-of-deployment.
--  We announced that the SMP8633 secure media processor is the first and
    only media processor powering wireless PC-to-TV display devices.
    NETGEAR's Push2TV™ adapter uses Sigma's chipset to display content
    from Intel® Wireless Display enabled notebook PCs on a big screen
    HD-TV, wirelessly.
--  We jointly announced, along with TDVision Systems, the leader in Full
    HD 3D to the home technologies, that Sigma is the first chip company
    to publicly support TDVision System's Full HD stereoscopic video
    decoding technology.
--  We announced that our SMP8656 Secure Media Processor™ will enable
    the new Android-based Over the Top (OTT) media player by Dvico. The
    TVIX Xroid A1 is the first Android connected media player on the market
    to use Sigma's cutting edge media processor to deliver premium quality
    video and music streaming services.

Investor Conference Call

The conference call relating to Sigma's third quarter fiscal 2011 results will take place following this announcement at 5:00 PM ET today, December 1, 2010. Investors will have the opportunity to listen live to the conference call via the Internet through or Institutional investors can access the call via Thomson StreetEvents at To listen to the live call, please go to the website at least 10 minutes early to register and download and install any necessary audio software. For those who cannot listen to the live broadcast, a replay will be available shortly after the call via the internet through or The audio replay will be available for one week after the call.

Use of Non-GAAP Financial Information

In addition to reporting financial results in accordance with generally accepted accounting principles, or GAAP, Sigma reports non-GAAP net income, which excludes amortization of acquired intangibles and developed technologies, share based compensation and the mark-up from cost to fair market value of sold inventory acquired from purchased companies and, with respect to the third quarter of fiscal 2010, acquisition-related expenses and, with respect to the first quarter of fiscal 2010, the expense resulting from the write-off of the deferred tax asset due to the change in California tax laws. Sigma believes that its non-GAAP net income provides useful information to management and investors regarding financial and business trends relating to its financial condition and results of operations. Sigma also believes the non-GAAP measures provide useful supplemental information for investors to evaluate its operating results in the same manner as the research analysts that follow Sigma, all of whom present non-GAAP projections in their published reports. As such, the non-GAAP measures provided by Sigma facilitate a more direct comparison of its performance with the financial projections published by the analysts as well as its competitors, many of whom report financial results on a non-GAAP basis. The economic substance behind its decision to use such non-GAAP measures is that such measures approximate its controllable operating performance more closely than the most directly comparable GAAP financial measures. For example, Sigma's management has no control over certain variables that have a major influence in the determination of share-based compensation such as the volatility of its stock price and changing interest rates. Sigma believes that all of these excluded expenses do not accurately reflect the underlying performance of its continuing operations for the period in which they are incurred, even though some of these excluded items may be incurred and reflected in Sigma's GAAP financial results in the foreseeable future.

The material limitation associated with the use of the non-GAAP financial measures is that the non-GAAP measures do not reflect the full economic impact of Sigma's activities. Sigma's non-GAAP net income is not prepared in accordance with GAAP, is not an alternative to GAAP financial information, and may be calculated differently than non-GAAP financial information disclosed by other companies. Accordingly, investors are cautioned not to place undue reliance on non-GAAP information.

Safe Harbor Statement

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including statements regarding potential opportunities emerging for Sigma's strategic initiatives, the timing of deployments of products that use Sigma's SoCs, anticipated features and benefits of Sigma's new products, growth in the IPTV market and demand for Sigma's SMP8650 media processors, future market opportunities with connected media players and other consumer products, and the potential impact of special initiatives for penetrating the hybrid IP Cable set-top box industry and the increased adoption of Z-Wave based home control solutions. Actual results may vary materially due to a number of factors including, but not limited to, the risk that, upon completion of further closing procedures, that the financial results for the third quarter are different than the results set forth in this press release, general economic conditions, including continuance of the current economic conditions specific to the semiconductor industry, the rate of growth of the IPTV, connected home technologies, connected media player and prosumer and industrial audio/video markets in general, the ramp in demand from Sigma's set-top box and telecommunication customers, Sigma's ability to deploy and achieve market acceptance for Sigma products in these markets, the ability of Sigma's SoCs to compete with other technologies or products in these emerging markets, the risk that such products will not gain widespread acceptance, or will be rendered obsolete, by product offerings of competitors or by alternative technologies, the risk that anticipated design wins will not materialize and that actual design wins will not translate into launched product offerings, and other risks including delays in the manufacturer's deployment of set-top boxes or consumer products. Other risk factors are detailed from time to time in Sigma's SEC reports, including Sigma's quarterly report on Form 10-Q as filed September 8, 2010. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. Sigma undertakes no obligation to publicly release or otherwise disclose the result of any revision to these forward-looking statements that may be made as a result of events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

About Sigma Designs, Inc.

Sigma Designs is a leading fabless semiconductor provider of highly integrated system-on-chip (SoC) solutions that are used to deliver multimedia entertainment throughout the home. SoC solutions include media processing, wired and wireless networking, video image processing, and home control along with system software to form the critical components of consumer electronic products that include internet protocol TV (IPTV) set-top boxes, gateways, Blu-ray players and media communication devices. Headquartered in Milpitas, Calif., Sigma Designs has direct sales representatives in the United States, Brazil, China, Europe (Denmark), Israel, Japan, Singapore, Taiwan and a third-party distributor in Korea. For more information, please visit Sigma Designs' web site at

                            SIGMA DESIGNS, INC.
                              (In thousands)

                                                    October 30, January 30,
                                                       2010        2010
                                                    ----------- -----------

Current Assets:
  Cash and cash equivalents                         $    81,999 $    81,947
  Short-term marketable securities                       46,683      51,176
  Restricted cash                                         1,583       1,500
  Accounts receivable, net                               38,216      36,127
  Inventories                                            31,991      18,187
  Deferred tax assets                                     2,739       2,235
  Prepaid expenses and other current assets               7,393       8,925
                                                    ----------- -----------
     Total current assets                               210,604     200,097

Long-term marketable securities                          45,126      13,257
Software, equipment and leasehold improvements, net      26,538      23,810
Goodwill                                                 44,910      44,910
Intangible assets, net                                  111,819     125,568
Deferred tax assets, net of current portion              11,143      11,575
Long-term investments                                     3,000       4,000
Other non-current assets                                    611         680
                                                    ----------- -----------

     Total assets                                   $   453,751 $   423,897
                                                    =========== ===========

Liabilities and Shareholders' Equity

Current Liabilities:
  Accounts payable                                  $    18,755 $    10,943
  Accrued liabilities and other                          25,679      23,164
                                                    ----------- -----------
     Total current liabilities                           44,434      34,107

  Other long-term liabilities                            20,874      20,968
                                                    ----------- -----------
     Total liabilities                                   65,308      55,075

Shareholders' equity                                    388,443     368,822
                                                    ----------- -----------

     Total liabilities and shareholders' equity     $   453,751 $   423,897
                                                    =========== ===========

                           SIGMA DESIGNS, INC.
                  (In thousands, except per share data)

                           Three months ended           Nine months ended
                     -------------------------------  --------------------
                      October     July      October    October    October
                     30, 2010   31, 2010   31, 2009   30, 2010   31, 2009
                     ---------  ---------  ---------  ---------  ---------
Net revenue          $  77,805  $  73,326  $  35,464  $ 216,310  $ 137,990

Cost of revenue         39,192     38,343     19,396    110,563     74,285
                     ---------  ---------  ---------  ---------  ---------
Gross profit            38,613     34,983     16,068    105,747     63,705
Gross margin percent      49.6%      47.7%      45.3%      48.9%      46.2%

Operating expenses:
  Research and
   development          20,484     17,823     11,727     57,065     34,961
  Sales and marketing    8,357      7,344      3,488     23,023     10,181
  General and
   administrative        4,781      4,317      5,467     14,033     12,220
                     ---------  ---------  ---------  ---------  ---------
     Total operating
      expenses          33,622     29,484     20,682     94,121     57,362

Income (loss) from
 operations              4,991      5,499     (4,614)    11,626      6,343
Interest and other
 income (expense),
 net                       425     (4,749)       564     (3,600)     1,610
                     ---------  ---------  ---------  ---------  ---------

Income (loss) before
 income taxes            5,416        750     (4,050)     8,026      7,953
Provision for
 (benefit from)
 income taxes              351        254     (1,752)     1,351      2,708
                     ---------  ---------  ---------  ---------  ---------

Net income (loss)    $   5,065  $     496  $  (2,298) $   6,675  $   5,245
                     =========  =========  =========  =========  =========

Net income (loss)
 per share:
  Basic              $    0.16  $    0.02  $   (0.09) $    0.21  $    0.20
  Diluted            $    0.16  $    0.02  $   (0.09) $    0.21  $    0.19

Shares used in
 computing net
 income (loss) per
  Basic                 31,327     31,180     26,782     31,167     26,681
  Diluted               31,646     31,598     26,782     31,610     27,354

                            SIGMA DESIGNS, INC.
                  (In thousands, except per share data)

                               Three months ended       Nine months ended
                          ----------------------------  ------------------
                          October     July    October   October   October
                          30, 2010  31, 2010  31, 2009  30, 2010  31, 2009
                          --------  --------  --------  --------  --------
GAAP net income (loss)    $  5,065  $    496  $ (2,298) $  6,675  $  5,245

Items reconciling GAAP net income (loss) to non-GAAP net income:

  Included in cost of
    Amortization of
     acquired developed
     technologies           (2,586)   (2,587)     (712)   (7,763)   (2,148)
    Mark-up on purchased
     inventory sold
     during the period         (52)      (96)     (335)     (538)     (765)
     compensation             (159)     (141)      (89)     (431)     (254)
                          --------  --------  --------  --------  --------
       Total related to
        cost of revenue     (2,797)   (2,824)   (1,136)   (8,732)   (3,167)

  Included in operating
    Research and
      Amortization of
       acquired intangibles    ---       ---       ---       ---       (19)
       compensation         (1,806)   (1,682)   (1,178)   (5,188)   (3,633)
    Sales and marketing:
       compensation           (541)     (532)     (384)   (1,525)   (1,102)
      Amortization of
       acquired Intangibles (1,996)   (1,995)      (85)   (5,986)     (258)
    General and
       compensation           (824)     (717)     (560)   (2,382)     (563)
      Acquisition expenses     ---       ---    (1,755)      ---    (1,755)
                          --------  --------  --------  --------  --------
        Total related
         to operating
         expenses           (5,167)   (4,926)   (3,962)  (15,081)   (7,330)
                          --------  --------  --------  --------  --------

    Write-off of deferred
     tax asset                 ---       ---       ---       ---    (3,540)
                          --------  --------  --------  --------  --------

    Net effect of non-GAAP
     adjustments            (7,964)   (7,750)   (5,098)  (23,813)  (14,037)
                          --------  --------  --------  --------  --------

Non-GAAP net income       $ 13,029  $  8,246  $  2,800  $ 30,488  $ 19,282
                          ========  ========  ========  ========  ========

Non-GAAP net income per
 diluted share            $   0.41  $   0.26  $   0.10  $   0.96  $   0.70