Sigma Designs, Inc. (SIGM)

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Sigma Designs Inc. (SIGM)

F4Q10 Earnings Call

March 3, 2010 5:00 pm ET


Edward McGregor - Manager, Investor Relations

Thomas E. Gay - Chief Financial Officer

Thinh Q. Tran - Chairman and Chief Executive Officer

Kenneth Lowe - Vice President, Strategic Marketing


Daniel Amir – Lazard Capital Markets

John Vinh - Collins Stewart

Analyst for Tristan Gerra - Robert W. Baird

Mark Sue - RBC Capital Markets

Uche Orji - UBS

Hamed Khorsand - BWS Financial

Dunham Winoto - Avian Securities

Quinn Bolton - Needham & Co.



Welcome to the fourth quarter 2010 Sigma Designs earnings conference call. (Operator Instructions) I would now like to turn the presentation over to your host for today’s call, Mr. Edward McGregor, Manager of Investor Relations. Please proceed.

Edward McGregor

Thank you and welcome to Sigma Designs' conference call to discuss financial results for our fourth fiscal quarter 2010. I am Ed McGregor, Sigma’s Manager of Investor Relations. With me today are Thinh Tran, Sigma’s Chairman and CEO; Tom Gay, our CFO; and Ken Lowe, our Vice President of Strategic Marketing.

The press release containing the quarter results, including selected income statement and balance sheet information, was released after the market closed today. If you did not receive the results, the release is available in the Investor section of our website, Today’s agenda will begin with my brief introduction, a review of selected financials by Tom, an executive overview by Thinh, a market update by Ken, and comments on guidance by Thinh. We will then open the call to questions from analysts and institutional investors. We expect to conclude the call within one hour.

Before we begin, I would like to remind everyone that today’s call contains forward-looking information including guidance we provide about our future revenue, gross margin, and other financial measures and anticipated trends in our target markets. We caution you that the forward-looking information we provide today is based on our current beliefs, assumptions, and expectations; speak only as of today’s date, and involve risks and uncertainties that could cause actual results to differ materially from our current expectations.

Specific factors that may affect our business and future results are discussed in our SEC reports most recently on Form 10-Q filed with the SEC on December 10, 2009. A partial list of these important risk factors is set forth at the end of today’s earnings press release. Sigma undertakes no obligation to revise or update publicly any forward-looking statement except as required by law.

In addition, during today’s call we will be reporting certain financial information on a non-GAAP basis, such as non-GAAP net income which excludes certain costs and expenses. These excluded items are described in more detail in today’s earnings press release along with a detailed reconciliation of our GAAP to non-GAAP results.

Now, I would like to hand the call over to Tom, who will review our financial results.

Thomas Gay

Thank you, Ed. For the fourth quarter of fiscal 2010 revenue was $68.1 million, an increase of $32.6 million or 92% compared to $35.5 million in the previous quarter. Compared to the year-ago our revenue increased $20.8 million or 44% from the $47.3 million we reported then.

Our revenue breakouts are as follows: By business segment and percentage of total revenues for the quarter IPTV processors represented $34.8 million or 51% of the total. Connected media players came in at $15.1 million or 22%. Connected home technologies were $15.7 million or 23% of the total and the Prosumer segment was $2.3 million for the quarter or 3%. By billing region, Asia represented $51.8 million or 76% of the total. Europe was $9.2 million or 14%. North America was $7.1 million or 10% of the total.

During the fourth quarter we had two customers that each exceeded 10% of our net revenue. Motorola was $16.6 million or 24% and Gemtec was $9.8 million or 14% of the total. Gross margins were 41.1% for the fourth quarter compared to 45.3% in the preceding quarter and 45.1% in the same period last year. A significant factor in our fourth quarter cost of goods sold was the fair value markup of inventory acquired through our recent acquisitions which totaled $4.6 million, an impact of 6.8%. Had we acquired that inventory directly from the manufacturers our gross margin would have been 47.9% for the fourth quarter.

CopperGate has now sold through its inventory that was on hand at the time of the acquisition which will make the pro forma gross margin adjustment minimal in the future.

GAAP net loss for the fourth quarter of fiscal 2010 was $2.8 million or $0.09 per share. This compares to a GAAP net loss of $2.3 million or $0.09 per share in the previous quarter and GAAP net income of $6.6 million or $0.24 per diluted share in the year-ago quarter. On a non-GAAP basis net income for the fourth quarter was $11.3 million or $0.37 per diluted share compared to the previous quarter this is an increase of $8.5 million from the non-GAAP income of $2.8 million or $0.10 per diluted share. Compared to the year ago quarter non-GAAP net income increased $0.9 million from $10.4 million or $0.39 per share that we reported.

Please refer to our press release for a detailed reconciliation of our GAAP to non-GAAP performance. The reconciliation includes the following categories of differences for the fourth quarter; First was amortization of intangible assets associated with four acquisitions. A total of $4.3 million from Blue 7, ZXP, Zensys and CopperGate. Second was share based compensation of $3.2 million. Third, the fair value markup of inventory purchased through acquisitions and sold during Q4 came in at $4.6 million and last G&A expenses of $1.9 million associated with the work done for the acquisition of CopperGate.

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