"Sigma Designs Inc. (NasdaqNM:SIGM - News) sank Wednesday after delays in a customer order caused the Milpitas, Calif., company to miss Wall Street expectations for the third quarter.
Sigma, which provides digital video encoding and decoding for the personal- computer DVD market, late Tuesday reported earnings of a penny a share, three cents shy of the mean estimate of only two analysts surveyed by Thomson First Call (News - Websites) . The company lost five cents a share in the year-earlier period.
In a research note Wednesday, Needham & Co. analyst Anton Wahlman said he believes a major customer in Europe postponed its order deliveries for an unknown reason. Sigma's third-quarter revenue of $7.5 million fell shy of Mr. Wahlman's estimate of $8.8 million in sales.
Mr. Wahlman, however, said he still has confidence in the business and believes the day's selloff will provide a buying opportunity for investors.
The analyst, who maintained a "hold" rating on the stock, said he is still concerned with the company's near-term revenue "lumpiness," coming from an expected seasonal weakness in Europe.
As a result, Mr. Wahlman is lowering his fourth-quarter earnings per-share estimate to three cents from six cents, and his full-year projection to eight cents from 14 cents. The analyst doesn't own shares in Sigma, but Needham has an investment-banking relationship.
Sigma believes the revenue and earnings shortfall due to the order delay is an "anomaly," said Chairman and Chief Executive Thinh Tran in a late Tuesday conference call transcript provided by CCBN StreetEvents.
The order, which Mr. Tran characterized as significant, was recorded in the fourth quarter.
At about 10:45 a.m. EST, Sigma was down $1.26, or 17%, at $6.07, on volume of 2.2 million shares. Average daily volume is 498,500 shares.
Many consumer-electronics and digital-subscriber-line and cable set-top box makers are expected to adopt MPEG-4 encoding for high-definition television, and Needham's Mr. Wahlman said Sigma could obtain a strong market share in the segment.
In the long run, Sigma is poised to be the leader in the MPEG-4 business, which Mr. Wahlman said could be a billion dollar market in 2005.
The analyst said he would be interested in revisiting his "hold" rating if the market capitalization fell to about $100 million. Based on its recent trading price of $6.07, the stock has a market cap of $123.4 million.
Among its encoding chips for digital video disc players, Sigma saw competition in its low-end DVD market, Mr. Tran said in the call. He acknowledged there were some small price concessions made, but noted the company tends to focus more on the high-end market.
During the same conference call, Chief Financial Officer Kit Tsui said he believes demand for advanced and portable DVD players will increase next year, and noted Sigma has a strong position providing chip sets for the players."
-By Roger Cheng, Dow Jones Newswires; 201-938-5393; roger.cheng@dowjones.com |
