Wall Street Transcript, April 29, 2002:
KENNETH LOWE - SIGMA DESIGNS INC (SIGM)
CEO Interview - published 04/29/2002
DOCUMENT # PAL632
KENNETH LOWE is currently the Vice President of Business Development and
Corporate Communications for Sigma Designs, Inc. His role in this
position includes developing strategic partner relationships, directing
public and investor relations, directing trade show and special
promotions and managing market research. Mr. Lowe has more than 20 years
of industry experience in a wide variety of marketing and business
management roles primarily focused on multimedia technologies. Mr. Lowe
joined Sigma in May 2000 as Vice President of Marketing and was promoted
to Vice President of Business Development in January 2001. Immediately
prior to joining the company, he served as the Director of Multimedia
Marketing for Cadence Design Systems. Before this, he was Vice President
of Marketing for Chrontel Inc., a consumer semiconductor company focused
on TV encoder products. Prior to Chrontel, Mr. Lowe was the Director of
Marketing for the Multimedia Division of Sierra Semiconductor, where he
directed the launch of a new line of graphics/video controllers. Prior
to this, he was the Director and Principal Analyst of Dataquest's
Microcomponents Service, where he led the market research and analysis
for microprocessors, graphics/video controllers and core logic devices.
Before joining Dataquest, Mr. Lowe founded his own technology company,
Performix and also held marketing management positions at WYSE
Technology, Personal CAD Systems and Gould-Biomation, as well as an
Engineering position at Watkins-Johnson. Mr. Lowe holds a BSEE degree
from California Polytechnic State University at San Luis Obispo,
California.
Sector: semiconductors
TWST: Could we get started with an overview of Sigma Designs?
Mr. Lowe: Sigma Designs is a manufacturer of MPEG decoding solutions for
broadband set-top appliances. We have, as a result, two primary focal
areas: we focus on providing chip and software solutions for the
consumer set-top appliances, of which there are many new platforms
available; we also market system solutions and PC cards for commercial
applications. Our strategy involves creating a complete architectural
solution for an interactive video appliance, then determining the
appropriate chips and software to develop to fulfill the architecture.
Architecting involves the research and partnering with other chip
vendors, other software vendors and other vendors of associated
interoperable equipment. That strategy insures that the components we
develop and sell to OEMs are well targeted and match in with next-
generation products coming from other industry partners. At this point
in time, the company enjoys an advantage in being the first to introduce
a full DVD-resolution decoder for MPEG-4, which is the newest standard
being used for digital video. By maximizing that advantage, Sigma has
gotten involved in some development opportunities within the cable and
telco industries. One such opportunity is our recent announcement of the
e-BOX company, a seven-member company that is focused on next-generation
solutions for the cable industry that includes two large consumer
equipment vendors, Sharp and Pioneer. This technology has also gotten us
involved with telco operators in the Asia Pacific, Europe, and the
United States alongside a widening range of set-top box manufacturers
that wish to enter the market. Sigma also offers MPEG-4 based solutions
to our existing commercial customers, including hotels, corporations,
and other deployments.
TWST: What about the genesis of the company?
Mr. Lowe: The company was founded by our CEO, Thinh Tran and three
others back in 1982, and it has existed for approximately 20 years. It
began in the graphics board business, then moved into providing higher
performance solutions including complete monitor and display systems,
and by the mid-1990s, it had transitioned from a graphics and display-
centric focus on PCs to a focus on MPEG and digital video technologies.
That shift in company focus spurred the transition from development of
board-level products to chip-level products, and from a PC market focus
to a consumer market focus. We are now almost completely focused on the
broadband set-top appliances that are forming the new generation of
consumer products being deployed by telcos, cable companies and other
entertainment providers. The company's management team includes the CEO
Thinh Tran, who was one of the initial Founders; Silvio Perich, Senior
Vice President of Sales, who has been with the company for 15 years; our
CFO Kit Tsui who has been with the company for 15 years; our VP
Engineering Jacques Martinella who has been with the company for eight
years; and myself as VP of Business Development, having been with the
company for two years and previously for three years in the late 1990s.
TWST: What's the cash and capital status at this point? Are there
limitations as you look at the opportunities ahead?
Mr. Lowe: At this point, the company has been public for quite some
time. It has cash on hand of over $5 million, plus an additional line of
$12 million. The company feels that it is secure with this amount of
cash for the remainder of this year; however, it may decide to pursue
financing, depending on needs, should the growth exceed a certain level.
TWST: What's the competitive landscape? Who do you see as your peers and
how is the market segmented to your advantage?
Mr. Lowe: We really face competition at two levels. At what I would
describe as the first level there are smaller competitors that are
trying to enter the market and make a name for themselves. These players
include Equator Technologies and TriMedia Technologies, that are trying
to break into the same market space. Their architecture is different,
and they have not to date had the success in gaining set-top-box design
wins that Sigma has achieved. Sigma has over 50 design wins in the
space. There's a second level of competitors, which is the entrenched
competition in the MPEG market ' Broadcom, LSI Logic and ST
Microelectronics. These three are the dominant players, representing
over 90% of the volume being delivered in these types of chips, and they
are the companies that we would like to take market share away from.
TWST: Is M&A activity a growth strategy?
Mr. Lowe: The company has acquired other companies before as a part of
its growth strategy, but we are very selective and it's not common for
Sigma Designs to use M&A as a growth strategy. Primarily, our core
technologies have been developed organically, and our secondary
technologies have been licensed as the need arises. Though M&A
strategies can be attractive, the technology industry is rife with
companies that have quickly propelled themselves from acquisitions, only
to take a long downhill slide as the challenge of integration takes its
toll.
TWST: While there's a general positive attitude toward the electronic
industry and the opportunity for retail from these components, when you
mention telcos, I don't think everybody gets a real rush of imagination
or optimism! Why is that a good market at this point?
Mr. Lowe: I would describe it as a nascent market from an entertainment
perspective. It's an opportunity area where there are regional and
country-specific deployments taking place. Often people look at the US
telco industry as a model ' when in fact, the US telco industry, like
other areas, doesn't necessarily lead the world in adoption and
deployment. We have a tremendous amount of regional interest in both
Europe and Asia Pacific in different types of deployments that involve a
new range of entertainment and interactive services. The relationship
between telcos and cable/satellite offerings is very complex and in many
areas it is more interwoven. So I guess I would describe the telco
market as a regional specific opportunity.
TWST: For Sigma, what specifically is on the agenda when you look out
over the next 12 months? What will make that time frame a success?
Mr. Lowe: I think, as we look over the next 12 months, we have a vested
interest in seeing the MPEG-4-based technology take root and expand,
creating a differential advantage for our company, and enabling us to
become involved in deployments of set-top boxes that take advantage of
our expertise. We have a wide range of partners that are synergistically
working together with us to make that happen, and there's a wide range
of industry adoption that's evidencing its support. There is a movement
to create a singular standard for streaming of MPEG-4 to make
standardized video-on-demand a reality ' the Internet Streaming Media
Alliance. It's led by vendors such as Cisco, Sun, Apple and others who
are creating a higher profile for both the standard of MPEG-4 and a
unified standard for streaming. This should lead to additional network-
provider opportunities as the standards enable them to utilize
interoperability between various types of devices.
TWST: As a small-cap company working with a smaller capital base,
controlling expenses and still looking to grow top line and bottom line
is a challenge, and it's hard to get recognition, to attract analysts
and investor interest in general. But what do you feel have been the
success factors with Sigma Designs in managing those dynamics? What has
been the key to the company's performance and enabled it to become of
interest to the investment community?
Mr. Lowe: That question is really twofold. One part of it is, what are
the prospects for a small-cap company to successfully penetrate and
establish a substantive share in a large competitive market? And really,
the advantage to us is the agility that we have as a small company in
being able to make decisions and enter more quickly into markets before
they become substantial. That aspect is supported by the enormous range
of visibility we have into the market from the range of partnerships we
have. Another advantage of a smaller company is the cohesiveness of
execution, having all resources focused on a singular overall goal
without the coordination issues that a large multi-divisional company
has. The answer to the second part of the question is operating with a
small cap and also a low share price, we are in a position to afford a
larger percentage of growth. If we successfully execute, we offer a
larger growth range on a percentage basis than that of a larger-cap,
higher-share-price company.
TWST: Am I understanding correctly that an advantage is being able to
look at markets that might not be large enough to interest the big
players but that allow you to establish a good, solid position and grow
that position?
Mr. Lowe: Exactly. A large player that's doing $500 million in MPEG
components will find little interest in an emerging segment worth $25
million, but for Sigma Designs, this represents a substantial
opportunity that could fuel a large amount of top-line growth.
TWST: What would be three or four key summary points you would make to
compel an investor to buy in?
Mr. Lowe: The first key point is that Sigma is addressing an upcoming
growth segment. Interactive set-top appliances are already in trial or
deployment in most regions and video-on-demand by streaming over IP is
one of the key features creating demand. There looks to be a confluence
of interest between the content providers, the network providers and the
equipment industry to make that a reality. Secondly, Sigma has developed
a number of technologies and has a substantive amount of experience in
the area of streaming video and video-on-demand, and we now have a wide
range of technologies that offer technological advantage in several
areas. One of these key advantages is our MPEG-4 technology; an
advantage we earned by having the insight and expertise in streaming
required to take the lead in its development. Finally, Sigma has
established the widest range of streaming video partnerships that enable
us to offer interoperable end-to-end solutions. The range of
opportunities we're facing now, such as the e-BOX company, are to a
large part due to partnerships that we have established over the last
several years and are just now creating more and more leverage. So I
would say the market area that we're facing looks to be a strong growth
opportunity; the technology advantage that we have now, including the
MPEG-4 technology and other leading-edge streaming expertise, is coming
to the fore; and the partnerships we have are beginning to produce
fruits. We feel confident that these are the ingredients of future
success.
TWST: Thank you. (DWA) |
