|To: John Finley who wrote (846)||7/30/2008 2:46:33 PM|
|From: Bret Masterson|
|Just started getting interested in this stock. Haven't really studied the stock in depth, but have heard that despite the recession, end sales of HDTV are still strong, which should bode well for them. No position yet. Seems like there could easily be a $10 point turnaround to the upside.|
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|From: Paul Lee||12/18/2008 7:41:15 AM|
|Sigma Signs Definitive Agreement for Acquisition of Zensys|
Thursday December 18, 6:00 am ET
Wireless Start-up Markets Widespread RF Standard for IP-based Home Control Including Energy Management and Entertainment Appliances
MILPITAS, Calif.--(BUSINESS WIRE)--Sigma Designs (Nasdaq:SIGM - News), a leader in digital media processor SoC’s for consumer electronics, today announced that it has signed a definitive agreement to acquire Zensys Holdings Corporation, a wireless start-up company. Zensys, headquartered in Fremont, California, is an innovative developer of single-chip RF solutions called Z-Wave® that has already been designed into over 250 smart home products world-wide.
Consumers throughout the world have been embracing an increasing number of devices placed under electronic control in their homes. As more of these disparate devices come into the home, the various types of technologies used by manufacturers have provided limited interoperability, creating a confusing landscape for the consumer. Moving to the next generation, home products are trending toward more intelligent solutions that are interoperable as well as accessible through the Internet. Although wireless RF is commonly regarded as the base technology for these next generation home products, there is a need for a universal RF standard that establishes a common protocol for remote control and monitoring coupled with a simple, low-cost RF implementation that enables widespread use.
In response to this market situation, Zensys has developed Z-Wave®, a solution designed to provide manufacturers with an intelligent and interoperable standard that has been incorporated into over 250 household products by more than 60 world-class suppliers Z-Wave® establishes a wireless mesh network that transforms virtually any electronic device into an intelligent networked device that can be controlled and monitored wirelessly, and can seamlessly interact with other home devices and systems. These networked devices can then be accessed through a gateway or set-top box to enable Internet based monitoring and control of the entire range of devices in the home. The devices are implemented using a family of low-cost, low-power integrated RF transceiver chips embedded with Z-Wave®, along with a suite of development tools and services designed to make it easy to create compelling wireless consumer products. These products include home audio/video entertainment, lighting and appliance control, energy management, access and security control, and building automation, among others.
Zensys was founded in 1999 to develop wireless solutions for the emerging home automation and remote control markets. Over its 10-year history, Zensys has developed a line of RF transceiver chips and the Z-Wave® wireless mesh network ecosystem, which has been designed into more household products than any other competing standard. The Z-Wave® Alliance, an industry consortium founded by Zensys, administers and promotes this standard. Zensys is currently shipping over a million RF transceiver chips per year into a widening range of consumer devices.
Upon completion of the acquisition, Zensys’ headquarters will be physically merged into the headquarters of Sigma Designs in the neighboring city of Milpitas. Zensys also has an R&D center located in Copenhagen, Denmark, housing all engineering and operations personnel, which will remain in place. The group currently employs 33 people, 23 of which are engineers.
“The Zensys acquisition provides a very attractive business and technology addition for Sigma at multiple levels,” said Thinh Tran, chairman and CEO of Sigma Designs. “First, the Zensys family of consumer chips will add a new layer of revenue growth for Sigma. Second, we believe this class of extremely efficient and low cost RF technology will become pervasive in many more types of future home products. Finally, we see a strong synergy with our set-top box offerings as the world moves toward IP-based video delivery and providers are able to establish platform extensions for additional services.”
Under the terms of the merger agreement, Sigma Designs will make an undisclosed cash payment for the acquisition of Zensys. The acquisition is subject to various standard closing conditions and is expected to close by the end of December.
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|From: Paul Lee||6/25/2009 7:20:47 AM|
|Sigma Design is the global leader in decoder chips used in IPTV set top boxes. IPTV is an alternative distribution medium to cable TV and satellite which uses existing telephone wire infrastructure to deliver high definition TV content. In order to accomplish this, the signal must be compressed at the point of transmission and decompressed or decoded where it is being watched. |
Microsoft has developed their own software platform that helps companies efficiently deliver high definition TV that not only minimizes the amount of computer hardware that would be necessary on the transmission side of the equation, but also includes software tools that enables 2-way interactivity along with sophisticated digital rights management software (DRM) that protects the high quality digital content from being hijacked.
Sigma Design is the only company in the world that is currently certified as a Microsoft Mediaroom development partner owing to the fact that the company aptly foresaw this trend years before anyone else and was directly responsible for the birth of the industry because their sophisticate system on a chip (SOC) design allowed them to sell the decoder chips for around $25 which in turn allowed the cost of a set top box to fall from $500 to $150.
IPTV is a global phenomenon owing to the fact that most countries outside of the US do not have cable TV systems. Adding to this, telephone companies around the world are hard pressed to develop alternative revenue sources to generate a return on their previously invested capital. As we all know, telephone service has commoditized to the point where it is practically given away.
Recent forecasts show worldwide IPTV subscriber growing form 24.4 million to 92.8 million from 2008 through 2012. It is important to understand that not all subscribers are in the high definition market which utilizes Microsoft Media room or High-Def Linux platforms , both segements that Sigma dominates. This year decoder chip growth in units is expect to grow to 16 million units from 12 million in 2008. The company anticipates that it will garner approximately 75% share. This is very admirable growth in the face of=2 0the most severe worldwide recession since the 1930’s. I t appears that the IPTV market is resistant to the global recession for obvious reasons.
Last year the stock took off to ~$70 based on strong IPTV growth along with the anticipation that Sony Blue Ray DVD platform would capture the DVD market and that one of Sigma’s chips would be used in virtually all of them. Unfortunately, the company was delayed with their next generation Blue Ray chip causing them to lose the mafority of their Blue Ray market share.
Further frustrating the hockey stick type growth that the company experienced form 2007 to 2008 was an air pocket they hit when Motorola, supplier to the ATT U-verse account cut back their orders because they had overbought chips in 2008—a common practice among OEMs.
At the same time the short position began to climb as rumors surfaced that Broadcom was going to enter the market and take it away from Sigma. This deadly combination of a temporary flattening of revenues and earnings along with fears of pending competition eventually coll apsed the stock price. However, throughout this entire adjustment period, the company has not only remained EPS positive, it also has been generating roughly $12 to $20 MM in cash each quarter. Presently, the company has aaround $8 per share in cash after making 2 small acquisitions and after buying back roughly $80 million of stock. It still sports 40 to 55% gross margins—extraordinarily high for a chip company and there is no real competition on the horizon—perhaps until the middle of next year. Further depressing the stock price is the company’s reticence to issue definitive guidance. While they have actually beaten their rough projections for the last 2 quarters they rightfully have shied away from the predicting business.
Subtracting out the $8 per share in cash and with approximately $1.50 in earnings this year, the stock is ridiculously cheap especially given the tremendous potentially that lies ahead for the company. For all the brouhahas that the company was going to get put out of business by Broadcom, the more likely scenario in my opinion is that Sigma will wi nd up taking market share from them in Docsis 3 market next year—a market that is many times larger than IPTV. SIGM has always been realistic about the Telco market always demands second source supplier. But with a market growing at 15 to 25% per year, there is room for 2 players.
Recently, Broadcom has been underplaying IPTV as a source of growth and at a recent UBS investor conference, they didn’t even mention ATT as a customer next year further supporting the thesis that they still cannot solve the problem of making all the various codecs and the Microsoft DSM work in a seamless fashion.
Also during this time the Sigma has developed their next generation IPTV processor the 8654 chip and has developed their new Blue Ray chip. They have also partnered with Texas Instruments to develop an IPTV over coax Docsis 3 set top box that should begin to take market share from Broadcom in the cable market (a market which Broadcom has traditionally dominated). They also purchased 2 wireless companies that are leaders in their respective fields: Ultra Wide Band, and Z-Wave, a wireless RF protocol designed to control and read devices in residential and light commercial environments.
The number one concern for investors over the last year and a half has been the pending competition from Broadcom. This has been very much overstated and misunderstood and largely driven by short sellers. For example, a few months ago analyst Todd Cooper from Stephens & Company reported that Broadcom would begin shipping in May of this year. A similar story followed by the analyst from Lazard. This caused the stock to plummet from $16 to $10. One can only assume that either they had clients that were heavily short or they failed to grasp that even if Broadcom were to get certified today, Microsoft would require 6 months of seasoning before allowing the chips to be sold. They reported this while other20reliable industry sources were saying that Broadcom was still having problems with the chip (rumored to have heat problems).
Also what has continued to confuse the issue is the failure of some analysts to understand that the Broadcom 7405 chip as well as Sigma’s next generation 8654 are both designed for the next generaton Telco installations and they won’t be implementing until next year at the earliest. So even if the chip were ready to ship, there really wouldn’t be much of a market for it until next year. One thing is absolutely certain—the longer Broadcom delays, the more difficult it will be for them to overtake Sigma in the IPTV market.
Here is an overview of the worldwide market for IPTV:
North America: ATT U-verse 1.3MM subscribers
Canada: TELUS 100,000 subscribers, MTS Allstream 85,000 and Sasktel 62,000 subscribers
Europe: 16 Telcos in deployment: Free, France Telecom, Neuf, Deutche Telecom (added 120,000/600,000), British Telecom (added 25, 000 / 555,000) , Belgacom (added 49,000 subs/423,000), Protugal Telecom, Swisscom (added 21,000 subs /139,000), Telefonica, Ya.com, PBC Telecom Italia, Fastweb, wind and T-Com affiliates.
ASIA: 10 Telcos: Korea Telecom, Hanro, China Telecom, China Netcom, USEN, KDDI, Chunghwa Telecom (added 10,000/686,000), PCCW, LG Dacom (85,000 IPTV subs out of 2MM installed customers), Singtel (added 19,000/78,000) ,MTNL and Guangzhao. In the meantime, Asia is beginning to accelerate deployments with Korea really taking off with Taiwan and mainland China on the way.
In India Sigma is partnered with Reliance and they could begin implementing soon.
In Europe, England, France, Italy and Spain are also accelerating deployment.
In my opinion, the trend is unstoppable and Sigma is going to ride the next wave.
If you figure 12.5 million units growing to 16.5 million this year and an average ASP of $16 I arrive at a revenue number of $198MM based on a 75% market share (not all installations are high20def) and add to that approximately $50MM in various other sales, this fiscal year (January 2010) could approach $240MM. Most street estimates are in the $180MM range. Assumng a 45% gross margin, would get you to $108MM operating earnings which would get you to $48MM pre tax and after an estimated 20% tax rate it is possible to arrive at $39MM in earnings or approximately $1.56 per share.
After subtracting out $8 per share in cash, I arrive at a PE on this year’s earnings of roughly 5 which is extraordinarily low for a cash generating company poised to renew strong growth in a market growing around 25% per year and with a huge Docsis 3 growth opportunity that is not in anyone’s forecasts. Other opportunities like building Docis Blue Ray players into High Def TVs; new markets for Digital Media Adapters; new products based on Ultra Wide Band and Zensys . A more appropriate multiple would be at a conservative 20x on next year’s which will likely grow around 25% a perhaps more if they g ain any meaningful market share in the cable TV market. Consider that there are more than 2 billion set top boxes around the world that will need to be replaced once the new standard takes hold. My base target for the stock is $40 next year.
from the sumzero board by S C
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