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Article by DailyStocks_admin    (07-02-08 08:59 AM)

The Daily Magic Formula Stock for 07/02/2008 is Sigma Designs Inc. According to the Magic Formula Investing Web Site, the ebit yield is 19% and the EBIT ROIC is >100 %.

Dailystocks.com only deals with facts, not biased journalism. What is a better way than to go to the SEC Filings? It's not exciting reading, but it makes you money. We cut and paste the important information from SEC filings for you to get started on your research on a specific company.


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BUSINESS OVERVIEW

Overview

We are a leading fabless provider of highly integrated system-on-chip, or SoC, solutions that are used to deliver multimedia entertainment throughout the home. Our SoC solutions combine our semiconductors and software and are a critical component of multiple high-growth, consumer applications that process digital video and audio content, including internet protocol TV, or IPTV, high definition DVD players, high definition TVs, or HDTVs, and portable media players. Our semiconductors provide high definition digital video decoding for multiple compression standards, graphics acceleration, audio decoding, a central processing unit, or CPU, and display control. Our software provides control of media processing and system security management. Together, our semiconductors and software form a complete SoC solution that we believe provides our customers with a foundation to quickly develop feature-rich consumer entertainment products.

We believe we are the leading provider of digital media processor SoCs for set-top boxes in the IPTV market and a leading provider of such SoCs in the high definition DVD player market, in terms of units shipped. For set-top boxes in the IPTV market, we are currently the only provider qualified to ship digital media processor SoCs based on the Microsoft IPTV platform. Our SoC solutions are used by leading IPTV set-top box providers, such as Cisco Systems/Scientific Atlanta, Motorola, Netgem and UTStarcom. IPTV set-top boxes incorporating our SoC solutions are deployed by telecommunications carriers globally, including carriers in Asia, Europe and North America, such as AT&T, British Telecom, Deutsche Telekom and Freebox. We work closely with these carriers and set-top box providers, as well as with systems software providers, such as Microsoft, to design solutions that address the carriers' specific requirements regarding features and performance. Our products are also used by consumer electronics providers, such as D-Link, Netgear, Panasonic, Pioneer, Sharp, Sony and Toshiba, in applications such as high definition DVD players, HDTVs and portable media players.

We have been providing video and audio solutions for over 15 years. We began volume shipments in January 2006 of our SMP8630 series, our fourth generation SoC solution serving the IPTV, high definition DVD player and HDTV markets.

Industry Background

The growth of the Internet, proliferation of rich multimedia content, advances in communications infrastructure, digital video and audio compression technologies and improvements in television displays have resulted in significant demand for the applications that we primarily target, which are IPTV, high definition DVD players and HDTVs.

The IPTV market consists of consumer and commercial products that distribute and receive streaming video using IP. IPTV is emerging as an important consumer multimedia application as it allows telecommunications carriers to deliver advanced video services to consumers using existing telecommunications infrastructure. These carriers are actively pursuing the deployment of IPTV because it enables them to offer attractive video, voice and data, or triple play, services and increase their revenue per subscriber. According to Infonetics Research, the worldwide IPTV subscriber base is expected to grow from 12.7 million in 2007 to 97.2 million in 2011, representing a compound annual growth rate of 66%. The key challenges faced in delivering high-quality video content to end users across existing copper-based telecommunications infrastructure are limited bandwidth and security of the content. These challenges are addressed by advanced video compression technologies and security technologies that providers of IPTV set-top boxes are increasingly incorporating in their devices. Currently, IPTV set-top boxes use one of two platforms based on software developed by either Microsoft or various Linux providers, each of which offers certain advantages and disadvantages.

High definition DVD players are becoming increasingly popular among consumers. This is driven primarily by the superior video and audio quality they provide relative to standard definition DVD players, the increasing availability of high definition prerecorded content, the proliferation of HDTVs enabling display of this content and the steadily declining prices of the high definition DVD players and the HDTVs themselves. According to research firm iSuppli, 6.6 million Blu-ray players will ship this year, rising to 17.4 million in 2009, 28.7 million in 2010 and 45.4 million in 2011 (© 2008 by Investor’s Business Daily, Inc. Reprinted with permission). These devices have previously been based on two standards, Blu-ray and high definition DVD. However, since Toshiba, as the primary proponent of HD-DVD, has withdrawn its support for that standard, Blu-ray is now considered by many the only viable standard for high definition DVD players moving forward.

The proliferation of HDTVs is being driven by consumer demand for higher quality video, increasing availability of higher definition content, improved television displays, declining prices and various mandates to shift from analog to digital broadcast worldwide.

The consumer multimedia entertainment applications that we target increasingly require video and audio data to be processed, transmitted, stored and displayed in an efficient and secure manner, while simultaneously maintaining high resolution, multi-channel video and audio and providing the end-user a variety of interactive options. In order to provide this increased functionality in a cost-effective manner, manufacturers of consumer electronics demand semiconductors that integrate more features on a single chip, as well as reduce their costs, time-to-market and power consumption. We believe the challenge to manufacturers of digital media processor SoCs is to balance the integration of more functionality with lower costs and shorter development cycles.

Our Solutions

We provide SoC solutions that consist of highly integrated semiconductors and a rich suite of software that enables real-time processing of digital video and audio content, which we refer to as real-time software. Our real-time software is readily customizable by our customers and is interoperable with multiple standard operating systems. As a result, we believe our SoC solutions enable consumer multimedia devices to be quickly brought to market. We believe IPTV set-top box and high definition DVD player designers and manufacturers select our SoC solutions because of the compelling nature of their performance and ease of integration. Our highly integrated products have replaced a number of single function semiconductors with a multi-function SoC, which significantly improves performance and lowers power consumption and cost.

We believe our SoCs have been able to deliver industry-leading performance in video decoding, graphics acceleration and audio decoding, which allows our customers to offer consumers a high-quality viewing experience. We surround this media processing functionality with a robust security management solution, an on-chip CPU, a high-speed memory interface, and complementary system peripherals. This SoC architecture with memory components establishes a complete hardware development platform for our target applications. We also add a suite of real-time software that reduces the complexity of our SoC architecture and enables our customers to quickly design consumer multimedia devices. Our software includes an industry standard operating system, embedded software tools and development kits that enable our customers to easily port their software to run on our processors.

Our Strengths

We have internally developed the core technologies, expertise and capabilities necessary to provide a complete digital media processing SoC solution. We believe we have the following strengths:

• Strong Position Within IPTV and High Definition DVD Player Markets. We believe we are the leading provider of digital media processor SoCs for set-top boxes in the IPTV market and a leading provider of such SoCs in the high definition DVD player market, in terms of units shipped. For set-top boxes in the IPTV market, we are currently the only provider qualified to ship digital media processing solutions based on the Microsoft IPTV platform. In the high definition DVD player market, we believe our suite of software for Blu-ray players is the most comprehensive offering available to date. We have built this position, in part, by being one of the first multimedia processing semiconductor providers to work extensively with both IPTV and high definition DVD player providers as well as telecommunications carriers to design solutions that address their specific feature and performance requirements. Through this process, we have gained valuable insight into the challenges of our customers and such carriers and have gained visibility into their product development plans. As a result, we believe we are able to provide our customers with a stable and reliable source of field-proven digital media processing solutions that our competitors cannot easily replicate.

• Highly Integrated SoC Leveraged Across Multiple Consumer Applications . We have developed a proprietary SoC architecture that allows us to integrate high-performance digital video and audio decoding and graphics processing with security management, memory control, a CPU and complementary peripheral interfaces. Our SoCs can replace a number of single function semiconductors, which significantly improves performance and lowers power consumption and cost to our customers. Furthermore, all of these functions can be performed synchronously at high processing speeds, typically up to 200 Megahertz. Our ability to integrate these multiple functions into a single, high-speed semiconductor allows us to satisfy many different consumer multimedia entertainment applications with the same hardware platform.

• Differentiated Software Development Capabilities. As a result of our 15 years of experience in delivering video and audio solutions, we have developed expertise in real-time software that synchronizes and controls the playback of video and audio from a variety of sources. This software translates the complex silicon architecture of our SoCs into a much simpler application programming interface. Using this interface, our customers are able to program under industry standard operating systems, enabling them to easily customize our solutions and reduce their time to market. The majority of our engineering personnel are dedicated to software development.

• Multi-Standard Functionality. Our SoC solutions are designed to support multiple industry standards that are used in the consumer applications we target. For example, there are over a dozen different video and audio standards used in current consumer applications, including video standards, such as H.264, MPEG-4, MPEG-2, MPEG-1 and WMV9, and audio standards, such as Dolby, DTS and MP3. Beyond this, there are a range of digital rights management security standards such as AES, RSA and MSDRM. Additionally, there are two primary operating systems, Microsoft Windows CE and Linux, that each has its own middleware standards. We support all of these standards.

• Breadth and Depth of Relationships Within the IPTV Ecosystem. In order to provide a complete system-level solution for the IPTV market, we have developed strong relationships with industry leaders that form the ecosystem required to deliver an end-to-end solution, from content creation to content display. The IPTV ecosystem consists of providers of middleware, encoders and security solutions. For middleware and server software, interoperability with products provided by Alcatel, Microsoft and Siemens, among others, is required. For encoders, providers such as Harmonic, Tandberg and Modulus (now part of Motorola) must design products that operate compatibly with digital media processors such as ours. For security solutions, there are also a range of providers, including Microsoft, Nagra and NDS. Our strong position in the IPTV market has enabled us to develop and maintain relationships with these providers and offer solutions that are interoperable with their products.

Our Strategy

Our objective is to be the leading provider of digital media processing SoCs for multiple consumer applications. To achieve this objective, we expect to continue to pursue the following strategies:

• Extend our Leadership Position in IPTV and High Definition DVD Player Markets. We have achieved a significant share in the IPTV and high definition DVD player markets by providing our customers with highly integrated digital media processor SoCs that are readily customizable. In addition, our solutions work effectively across different platforms and standards in each of these markets. We intend to provide the most compelling integrated digital media processing solutions to our customers and support multiple standards in these end markets in order to maintain our high market share.

• Increase Penetration in HDTVs. We have successfully penetrated high-end HDTVs that, as a key feature, enable Internet connectivity and wired or wireless networking with media centers and other consumer electronics devices. Our SoC solutions incorporate software that enables the interoperability of HDTVs with standards such as Intel's Viiv, Microsoft's Media Center Extender and the Digital Living Network Alliance. We believe our software, which fully supports the various standards and technologies required to provide Internet connectivity and networking functionality, differentiates us from our competitors. We intend to leverage our semiconductor and software expertise to develop additional SoC solutions targeted specifically towards HDTVs such that we are able to increase our penetration in the HDTV market as a whole.

• Enhance our Software Development Advantage . We believe our software provides a suite of capabilities that are not currently available from our competitors. Our software is integrated and embedded into our customers' products during their product design stage. As a result, once we are designed into our customers' product, we believe it is difficult for our competitors to displace us. We intend to leverage our software development capabilities and continue to invest significant resources in recruiting and developing additional expertise in the area of high-performance software development.

• Expand into Complementary Technologies and Products. We will continue to evaluate opportunities to expand, whether through acquisition or internal development, into technologies and products that are complementary to the applications we target. On February 11, 2008, we acquired certain assets of the VXP group from Gennum Corporation. We intend to leverage the VXP image processing technology and skilled VXP design team to expand into the professional video market and add broadcast studio quality capability to our product offerings for high-volume consumer applications in set-top boxes for IPTV, high-definition DVD players and HDTVs. In 2006, we acquired Blue7, a developer of advanced UWB technologies, in order to extend our product offerings into wireless solutions for the home entertainment environment. We believe that the combination of wireless communication technologies with our existing media processing SoC solutions will enable us to increase the value we deliver to our customers.

• Leverage Existing Partner and Customer Relationships. We have developed partnerships with standards and platform defining entities like Microsoft, which enable us to win new customers effectively. We also have strong customer relationships with many IPTV set-top box and high definition DVD player designers and manufacturers. We also work closely with telecommunications carriers to understand their needs in advance of our customers' product development cycle. We intend to leverage our existing position with our partners and customers to identify and secure new market opportunities.

Our Products

We offer semiconductors along with real-time software that together enable digital media processing solutions for consumer entertainment products. We believe our line of digital media processor SoCs features industry leading performance and video/audio quality. We complement our semiconductors with a suite of real-time software that enables synchronous processing of video, audio and graphics streams for a wide range of applications. Our software is currently available under Microsoft WinCE and Linux operating systems with support for applications such as IP video streaming, video-on-demand, DVD navigation, personal-video-recording, multi-window video, and terrestrial broadcast reception. In addition, we provide reference platforms designed around our silicon and software as a convenient basis for customer development.

Customers

We sell our products principally to designers and manufacturers and to distributors who, in turn, sell to manufacturers. Typically, when we sell to distributors, they have already received an order for our products directly from a manufacturer. Our sales to our customers are typically accomplished on a purchase order basis.

For the year ended February 2, 2008, MTC Singapore, Uniquest and Macnica accounted for 23%, 19% and 12%, respectively, of our net revenue. For fiscal 2007, Freebox and Uniquest accounted for 20% and 17%, respectively, of our net revenue. For fiscal 2006, Uniquest accounted for 26% of our net revenue. Our distributor customers, such as Macnica and Uniquest, in turn sell our products to multiple designers and manufacturers that produce our target applications.

Substantially all of our product shipments are to customers outside of North America. In fiscal 2008, 2007 and 2006, shipments to customers outside of North America accounted for 95%, 89% and 88% of our net revenue, respectively. Revenue from our customers in Asia accounted for 69%, 53% and 82% of our net revenue in fiscal 2008, 2007 and 2006, respectively.

Sales and Marketing

We sell our products worldwide through multiple channels, including our direct sales force, manufacturer representatives and independent distributors strategically located in many countries around the world. We have sales representatives in the United States, Belgium, China, Japan and Taiwan. In Korea and Japan, we sell our products primarily through independent distributors.

Our sales cycle typically ranges from nine to eighteen months, but may last longer, and depends on a number of factors, including the technical capabilities of the customer, the customer's need for customization of our SoCs and the customer's evaluation and qualification process. We generally plan the fabrication of our products based on customer forecasts.

For our larger volume designer and manufacturer customers, purchase orders for our products are generally non-cancelable between four and twelve weeks before our scheduled delivery dates, and within four weeks of scheduled delivery dates.

Competition

The market for digital media processors is highly competitive and is characterized by rapid technological change, evolving standards and decreasing prices. We believe that the principal factors on which we compete include time-to-market for new product introductions, product performance, industry standards compatibility, software functionality, price, and marketing and distribution resources.

We believe our competitors include AMD (ATI Technologies), Analog Devices, Broadcom, Conexant Systems, Genesis Microchip, Mediatek, NXP Semiconductors, Pixelworks, ST Microelectronics, Texas Instruments and Tzero. Many of these companies have higher profiles, larger financial resources, and greater marketing resources than we do and may develop a competitive product that may inhibit the wide acceptance of our products. We believe that other manufacturers are developing products that will compete directly with our products in the near future.

Research and Development

We focus our development efforts primarily on three areas: video/audio decoder technologies, secure media processing and fully integrated SoC solutions. To achieve and maintain technology leadership, we intend to continue to make advancements in the areas of video and audio compression and decompression, as well wireless connectivity. We expect these advancements will include maintaining compatibility with emerging standards and multiple platforms, and making improvements to the current architecture.

We have invested, and expect that we will continue to invest, substantial resources to research and development of future generations of MPEG and other multimedia technologies. During fiscal 2008, 2007 and 2006, our research and development expenses were $31.4 million, $22.5 million and $15.0 million, respectively.

We have assembled a large team of experienced engineers and technologists. As of February 2, 2008, we had 143 research and development employees. These personnel conduct all of our product development along with the assistance of a number of independent contractors and consultants.

Intellectual Property

Our success and future revenue growth depend, in part, on our ability to protect our intellectual property. We rely primarily on patent, copyright, trademark and trade secret laws, as well as agreements with customers, suppliers and employees, to protect our proprietary technologies and processes.

As of February 2, 2008, we held 30 issued patents and we had 24 patent applications pending for our technology. The termination dates of these patents range from five to sixteen years. We cannot assure you that more patents will be issued or that such patents, even if issued, or our existing patents will provide adequate protection for our competitive position. Although we intend to protect our rights vigorously, we cannot assure you that these measures will be successful.

Manufacturing

We are a fabless semiconductor company and we do not own or operate a fabrication, packaging or testing facility. We depend on third-party vendors to manufacture, package and test our products. By outsourcing manufacturing, we are able to avoid the cost associated with owning and operating our own manufacturing facility. This allows us to focus our efforts on the design and marketing of our products.

Semiconductor fabrication

We rely on Taiwan Semiconductor Manufacturing Company, or TSMC, to fulfill substantially all of our manufacturing needs, including SoC manufacturing. We believe that our fabless manufacturing approach provides us with the benefits of superior manufacturing capability as well as flexibility to move the manufacturing, assembly and testing of our products to those vendors that offer the best capability at an attractive price. Nevertheless, because we do not have a formal, long-term pricing agreement with our third-party manufacturers, our costs and services are subject to sudden price fluctuations based on the cyclical demand for semiconductors.

Assembly and test

Once our products have been manufactured, we have them packaged and tested. Our products are shipped from TSMC and our other third-party manufacturers to third-party sort, assembly and test facilities where they are assembled into finished semiconductors and tested. We outsource all packaging and testing of our products to third-party assembly and test facilities, primarily to Advanced Semiconductor Engineering, Inc., or ASE, in Taiwan. Our products are designed to use low-cost, standard packages and to be tested with widely available test equipment.

Quality assurance

We are committed to maintaining the highest level of quality in our products. We have designed and implemented a quality management system that provides the framework for continual improvement of products, processes and customer service. We also rely on in-depth simulation studies, testing and practical application testing to validate and verify our semiconductors. To ensure consistent product quality, reliability and yield, together with our manufacturing logistics partners, we closely monitor the production cycle by reviewing manufacturing process data from each wafer foundry and assembly subcontractor. Both TSMC and ASE have been awarded ISO 9000 certificates.

Backlog

The amount of backlog at any date depends upon various factors, including the timing of the receipt of orders, fluctuations in orders of existing product lines, and the introduction of any new lines. Accordingly, we believe that the amount of our backlog at any date is not a useful measure of our future sales.

Employees

As of February 2, 2008, we had 219 full-time employees worldwide, including 143 in research and development, 40 in sales and marketing, 13 in operations, and 23 in finance and administration.

Our future success will depend, in part, on our ability to continue to attract, retain and motivate highly qualified technical, marketing, engineering and management personnel, who are in great demand. Our employees are not represented by any collective bargaining unit and we have never experienced a work stoppage. We believe that our employee relations are satisfactory.

CEO BACKGROUND

Mr. Tran, one of our founders, has served as our President and Chief Executive Officer and as Chairman of our Board of Directors since February 1982. Prior to joining us, Mr. Tran was employed by Amdahl Corporation and Trilogy Systems Corporation, both of which were involved in the IBM-compatible mainframe computer market.

Mr. Gay has served as our Chief Financial Officer and Secretary since June 1, 2007. From May 1998 to May 2007, Mr. Gay served as the Vice President of Finance and Administration and Chief Financial Officer of Catalyst Semiconductor, Inc., a memory and analog/mixed-signal semiconductor company. Prior to joining Catalyst Semiconductor, Inc., Mr. Gay held positions at Wireless Access, Inc., a communications device manufacturing company, where he was Controller and Sanmina Corporation, a contract manufacturer, where he was the Corporate Controller.

Mr. Perich has served as our Director of Sales since September 1985, when he joined us. In September 1992, Mr. Perich became our Senior Vice President of Worldwide Sales. Mr. Perich was a co-founder of Costar Incorporated, a manufacturers' representative organization for high technology products, where he served as partner from October 1979 to September 1985. From September 1972 until September 1979, Mr. Perich served in several sales management roles at Siliconix Inc, a specialty semiconductor manufacturer.

Ms. Tsui has served as our Vice President of Planning and Administration since February 2007. From January 2001 to February 2007, Ms. Tsui served as our Chief Financial Officer. Prior to January 2001, Ms. Tsui served as our Director of Finance from February 1990 to December 1996 when she was appointed acting Chief Financial Officer and Secretary. Ms. Tsui was appointed as our Chief Accounting Officer in January 2000.

Mr. Martinella has served as our Director of VLSI Engineering since May 1994, when he joined us. In December 1995, Mr. Martinella became our Vice President of Engineering. From June 1990 to April 1994, Mr. Martinella served in engineering and management positions at Weitek, a microchip manufacturer. In addition, Mr. Martinella was an engineer at National Semiconductor, a semiconductor manufacturer, from June 1982 to June 1990.

Mr. Lowe has served as our Vice President of Marketing since May 2000, when he joined us. In December 2000, Mr. Lowe became our Vice President of Strategic Marketing. Prior to joining us, Mr. Lowe served as the Director of Multimedia Marketing for Cadence Design Systems, a design automation software company. From 1996 to 1998, Mr. Lowe served as the Vice President of Marketing for Chrontel, Inc., a digital video semiconductor company. Prior to 1996, Mr. Lowe held various marketing management positions at Sierra Semiconductor, Dataquest, Personal CAD Systems, Performix and Gould-Biomation. In the late 1980's, Mr. Lowe served as our Product Marketing Director.

MANAGEMENT DISCUSSION FROM LATEST 10K

Overview

We are a leading fabless provider of highly integrated system-on-chip, or SoC, solutions that are used to deliver multimedia entertainment throughout the home. Our SoC solutions combine our semiconductors and software and are a critical component of multiple high-growth, consumer applications that process digital video and audio content, including IPTV, high definition DVD players, HDTVs, and portable media players. Our semiconductors provide high definition digital video decoding for multiple compression standards, graphics acceleration, audio decoding, a CPU and display control. Our software provides control of media processing and system security management. Together, our semiconductors and software form a complete SoC solution that we believe provides our customers with a foundation to quickly develop feature-rich consumer entertainment products. We believe we are the leading provider of digital media processor SoCs for set-top boxes in the IPTV market and a leading provider of such SoCs for the high definition DVD player market, in terms of units shipped.

Our primary target markets are the IPTV, the high definition DVD and other media players and the HDTV markets. The IPTV market consists of consumer and commercial products that distribute and receive streaming video using internet protocol, or IP. The high definition DVD and other media players market consists primarily of set-top boxes and portable media products that perform playback of digital media stored on optical or hard disk formats. The HDTV product market consists of digital television sets offering high definition capability. We also sell products into other markets such as the PC-based add-in market. Although we no longer specifically target them, we continue to derive revenue from sales of our products into these markets.

Our primary product group consists of our SoC solutions. To a much lesser extent, we provide other products, such as customized development boards. For fiscal 2008 and 2007, we derived 98% and 95%, respectively, of our net revenue from our SoC solutions. Our SoC solutions consist of highly integrated semiconductors and software that process digital video and audio content. Our net revenue from sales of our SoC solutions increased $129.7 million, or 149%, from fiscal 2008 compared to fiscal 2007. This increase in our SoCs sales in fiscal 2008 was in part attributable to many of our customers commercially launching products incorporating our SoCs after successful initial trials. We began volume shipments in January 2006 of our SMP8630 series, which is our latest SoC solution for these markets. This product series represented 81% of our net revenue in fiscal 2008 and 60% of our net revenue in fiscal 2007. We believe our success with the SMP8630 series product demonstrates our success in the emerging IPTV and high definition DVD player markets. As a result of increased customer adoption, our net revenue increased from $91.2 million in fiscal 2007 to $221.2 million in fiscal 2008, representing growth of 143%.

We do not enter into long-term commitment contracts with our customers and receive substantially all of our net revenue based on purchase orders. We forecast demand for our products based not only on our assessment of the requirements of our direct customers, but also on the anticipated requirements of the telecommunications carriers that our customers serve. We work with both our direct customers and these carriers to address the market demands and the necessary specifications for our technologies. However, a failure by us to accurately forecast demand can lead to product shortages that can impede production by our customers and harm our relationship with these customers.

Many of our target markets are characterized by intense price competition. In addition, the semiconductor industry is highly competitive and, as a result, we expect our average selling prices to decline over time. To date, we have not experienced significant competitive pricing pressures with respect to our SoC solutions in our primary target markets. However, on occasion, we have reduced our prices for individual customer volume orders as part of our strategy to obtain a competitive position in our target markets. The willingness of customers to design our SoCs into their products depends to a significant extent upon our ability to sell our products at competitive prices. If we are unable to reduce our costs sufficiently to offset any declines in product selling prices or are unable to introduce more advanced products with higher margins in a timely manner, we could see declines in our market share or gross margins. We expect our gross margins will vary from period to period due to changes in our average selling prices, volume order discounts, mix of product sales, our costs, the extent of development fees, changes in estimated useful lives of production testing equipment and provisions for inventory obsolescence.

In October 2007, we completed a follow-on public offering in which we sold and issued 4,600,000 shares of our common stock at an issue price of $46.00 per share. We raised a total of $211.6 million in gross proceeds from the follow-on public offering, or approximately $198.9 million in net proceeds after deducting underwriting discounts and commissions of $11.6 million and other direct offering costs of $1.1 million.

Tender Offer to Amend the Exercise Price of Certain Options

On May 15, 2007, we filed a Tender Offer Statement on Schedule TO with the SEC and commenced an offer, which we refer to as the Offer, to amend certain options granted under our Amended and Restated 1994 Stock Plan or our 2001 Employee Stock Option Plan that had original exercise prices per share that were less than the fair market value per share of the common stock underlying the option on the option’s measurement date for financial reporting purposes and were unvested as of December 31, 2004, which we refer to as the 409A Affected Options. Under the terms of the Offer, individuals eligible to participate in the Offer must have been: (a) a non-executive employee of the company or one of its subsidiaries as of the date on which the Offer commenced and on June 13, 2007, the date on which the Offer expired; (b) subject to federal income tax in the United States; and (c) holding Section 409A Affected Options grants that were unvested as of December 31, 2004. Our executive officers and directors were not eligible to participate in the Offer. Options that were eligible for amendment under the Offer are referred to below as Eligible Options.

The terms of the Offer provided that employees could elect to have Eligible Options amended to increase their exercise price per share to be equal to the fair market value used for financial reporting purposes and to receive a cash payment with respect to such amended options equal to the difference between the amended exercise price and the original exercise price of each Eligible Option, less applicable withholding taxes. The cash payments were made on the first payroll date following January 1, 2008, regardless of whether the holder of the amended Eligible Option remained employed with us on the actual cash payment date.

We received election forms from eligible employees agreeing to amend and increase to fair value the exercise price with respect to approximately 1.2 million shares underlying Eligible Options. Under the terms of the Offer, we made cash payments in January 2008 totaling approximately $2.4 million to the individuals, who amended their Eligible Options, which were accrued for in the second quarter of fiscal 2008.

For those employees who exercised a 409A Affected Option during 2006, we are participating in the IRS and the California Franchise Tax Board, or FTB, settlement programs they developed to allow employers to pay certain taxes on behalf of employees to settle potential tax liabilities resulting from the exercise of these 409A Affected Options during 2006. In connection with our participation in these programs, we paid an aggregate of approximately $0.3 million to the IRS and FTB. We also approved bonuses of an aggregate of approximately $0.2 million payable to these affected employees to compensate them for additional income tax imposed on them as a result of the payments we made on their behalf to the IRS and FTB.

Share Repurchase Program

On February 27, 2008, we announced that our Board of Directors had approved a share repurchase program that authorized us to repurchase up to 2,000,000 shares of our common stock. On March 18, 2008, we announced that our Board of Directors had approved an increase of 3,000,000 additional shares to the program, resulting in a total amount authorized to be repurchased under the share repurchase program of 5,000,000 shares. The amount and timing of specific repurchases are subject to market conditions, applicable legal requirements and other factors, including management’s discretion. Repurchases may be conducted in the open market or in privately negotiated transactions and the repurchase program may be modified, extended or terminated by the Board of Directors at any time. There is no guarantee as to the exact number of shares that will be repurchased under the program. As of April 2, 2008, we had purchased a cumulative total of approximately 3.8 million shares of our common stock pursuant to the repurchase program for an aggregate purchase price of $80.6 million at an average price of $21.01 per share.

Critical Accounting Policies and Estimates

The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States requires us to make judgments, assumptions, and estimates that affect the amounts reported in the consolidated financial statements and accompanying notes. Note 1 of the notes to consolidated financial statements describes the significant accounting policies and methods used in the preparation of the consolidated financial statements. We consider the accounting policies described below to be our critical accounting policies. These critical accounting policies are impacted significantly by judgments, assumptions, and estimates used in the preparation of the consolidated financial statements and actual results could differ materially from the amounts reported based on these policies.

Revenue recognition: We derive our revenue primarily from three principal sources: product sales, product development contracts and service contracts. We generally recognize revenue for product sales and service contracts in accordance with Staff Accounting Bulletin (“SAB”) No. 104, Revenue Recognition , under which revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred or service has been rendered, the fee is fixed or determinable, and collectability is reasonably assured.

Revenue from product sales to original equipment manufacturers (“OEMs”), distributors and end users are generally recognized upon shipment, as shipping terms are FOB shipping point, except that revenue is deferred when we cannot reasonably estimate the amount of returns or where collectability is not assured. In those situations, revenue is recognized when collection subsequently becomes probable and returns are estimable. Allowances for sales returns, discounts and warranty costs are recorded at the time that revenue is recognized.

Product development agreements typically require that we provide customized software to support customer-specific designs; accordingly, this revenue is accounted for under the American Institute of Certified Public Accountants (“AICPA”) Statement of Position (“SOP”) 97-2, Software Revenue Recognition . We offer post-contract customer support (“PCS”) on a contractual basis for additional fees, which is typically a one year term. In instances where software is bundled with the PCS, vendor specific objective evidence does not exist to allocate the total fee to all undelivered elements of the arrangement and, therefore, revenue and related costs are deferred until all elements, except PCS, are delivered. The total fee is then recognized ratably over the PCS term (typically one year) after the software is delivered. We classify development costs related to product development agreements as cost of revenue.

Revenue from service contracts consist of fees for providing engineering support services, and are recognized ratably over the contract term. Expenses related to support service revenue are included in cost of revenue.

Accounting for income taxes: Deferred income taxes are provided using the asset and liability method. Under this method, deferred income taxes are recognized for tax credits and net operating losses available for carry-forwards and significant temporary differences. Deferred tax assets and liabilities are classified as current or non-current based upon the classification of the related asset or liability in the financial statements or the expected timing of their reversal if they do not relate to a specific asset or liability. A valuation allowance is provided to reduce the amount of deferred tax assets if it is considered more likely than not that some portion of, or all of the deferred tax assets will not be realized. Current income taxes are provided for in accordance with the laws and regulations applicable to the entity as enacted by the relevant tax authorities.

In July 2006, the FASB issued Interpretation No. 48 , Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No.109, Accounting for Income Taxes (“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in entities’ financial statements in accordance with SFAS 109 and prescribes a recognition threshold and measurement attributes for the financial statement disclosure of tax positions taken or expected to be taken on a tax return. Under FIN 48, the impact of an uncertain income tax position on the income tax return must be recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. Additionally, FIN 48 provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. We adopted the provisions of FIN 48 on February 4, 2007. The total amount of unrecognized tax benefits as of the date of adoption was $2.4 million.

Valuation of inventory: Inventories are stated at the lower of standard cost (approximating a first-in, first-out basis) or market value. We periodically review our inventories for excess and obsolete inventory items and adjust carrying costs to estimated net realizable values when we determine they are less than cost. This review requires an estimation of the future demand for our products and these adjustments are recorded when the inventory on hand exceeds our estimate of future demand for each product, generally for a period of one year. Once the inventory is written down, a new cost basis is established.

We evaluate our ending inventories for excess quantities and obsolescence on a quarterly basis. This evaluation includes analysis of historical and forecasted sales levels by product. A provision is recorded for inventories on hand in excess of forecasted demand. In addition, we write off inventories that are considered obsolete. Obsolescence is determined from several factors, including competitiveness of product offerings, market conditions and product life cycles. Increases to the allowance for excess and obsolete inventory are charged to cost of revenue. At the point of the loss recognition, a new, lower-cost basis for that inventory is established, and subsequent changes in facts and circumstances do not result in the restoration or increase in that newly established cost basis. If this lower-costed inventory is subsequently sold, the related allowance is matched to the movement of related product inventory, resulting in lower costs and higher gross margins for those products.

Results of Operations

IPTV : For fiscal 2008, revenue from sales of our SoC solutions into the IPTV market increased $102.6 million, or 167%. This was in part attributable to our customers in the IPTV market continuing to increase sales of their products that incorporate our SoCs, primarily our SMP8630 SoC series. Our revenue from the IPTV market as a percentage of our total revenue for fiscal 2008 as compared to fiscal 2007 increased by 7% primarily due to expansion of the IPTV market and increased sales to existing customers as well sales to new customers. For fiscal 2007, revenue from sales of our SoC solutions into the IPTV market increased $42.3 million, or 221%, from fiscal 2006. The increase in revenue in the IPTV market for fiscal 2007 as compared to fiscal 2006 was in part attributable to our customers commercially launching their products incorporating our SoCs, primarily our SMP8630 series. Our revenue from the IPTV market as a percentage of our total revenue for fiscal 2007 as compared to fiscal 2006 increased by 9% primarily due to expansion of the IPTV market and increased sales to existing customers as well sales to new customers. We expect our revenue from the IPTV market to fluctuate in future periods as this revenue is based on IPTV service deployments by telecommunication service providers.

High definition DVD and other media players : For fiscal 2008, revenue from sales of our products to the high definition DVD and other media players market increased $24.4 million, or 99%, from fiscal 2007. This increase was primarily attributable to increased sales volume of our customers’ products incorporating our SoCs, including an increase in Blu-ray and digital media adapter applications. However, for this period our percentage of net revenue from sales into the high definition DVD and other media players market decreased 5% as a percentage of our total revenue, primarily due to a disproportionate increase in the sales of our products into the IPTV market. For fiscal 2007, revenue from sales of our products to the high definition DVD and other media player market increased $13.5 million, or 120%, from fiscal 2006. This increase was primarily attributable to increased sales of our customers’ products, including an increase in Blu-ray and digital media adapter applications. However, for this period our percentage of net revenue from sales into the high definition DVD and other media players market decreased 7% as a percentage of our total revenue, primarily due to a disproportionate increase in the sales of our products into the IPTV market.

HDTV : For fiscal 2008, net revenue from sales of our products into the HDTV market increased by $2.0 million, or 119%, from fiscal 2007. This increase was primarily attributable to an overall increase in demand for our HDTV applications. Our net revenues from sales into the HDTV market as a percentage of our total net revenues from fiscal 2007 compared to fiscal 2006 remained flat due to a disproportionate increase in the sales of our products into the IPTV market.

Other : Our other markets consist of PC add-ins and other ancillary markets. Net revenue increased $0.9 million, or 28% from fiscal 2008 to fiscal 2007 and $1.2 million, or 58% from fiscal 2007 to fiscal 2006. These increases were primarily attributable to an increase in nonrecurring engineering and service revenues.

Net revenue by product group

SoCs : Our SoCs are targeted toward manufacturers and large volume designer and manufacturer customers building products for the IPTV, high definition DVD and other media players and HDTV consumer electronic markets. The increase of $129.7 million, or 149%, in net revenue from SoCs in fiscal 2008 as compared to fiscal 2007 was due primarily to an increase in sales of our SoC solutions into newer generation IPTV products and high definition DVD players. The increase of $58.8 million, or 208%, in net revenue from SoCs in fiscal 2007 as compared to fiscal 2006 was due primarily to a $65.2 million increase in sales into the newer generation of IPTV, high definition DVD players and other media players and HDTV products, offset by a $7.5 million decrease in sales of our legacy products.

Other: We derive net revenue from other products and services, including engineering support services for both hardware and software, engineering development for customization of SoCs and other accessories. The slight increase in our net revenue from other products in fiscal 2008 from fiscal 2007 was due primarily to increases in sales of our engineering development kits related to our SoCs and increases in support services as a result of our increased SoC sales, partially offset by a decrease in sales of our board products as a result of decreased demand. The decrease of $0.9 million, or 17%, in net revenue from other products in fiscal 2007 as compared to fiscal 2006 was primarily attributable to decreased demand for our board products. We anticipate our net revenue from board products will be relatively flat or decrease in future periods due to our strategic decision to focus on our SoC solutions.

Net revenue by geographic region

Asia : Our net revenue from Asia increased $104.8 million, or 217%, in fiscal 2008 as compared to fiscal 2007. The revenue from Asia increased $21.1 million, or 77%, in fiscal 2007 as compared to fiscal 2006. The increases in net revenue from Asia in both absolute dollars and as a percentage of our net revenue were due primarily to our customers’ continued expansion of their products incorporating our SoCs. Also, companies who incorporate our products into their finished goods and are located in other regions continued to move their production orders to large designers and manufacturers located in the Asia region, which has led to a further shifting of our net revenue from other regions into the Asia region, as many of our direct customers are large designers and manufacturers located in Asia. We also continued to experience large volume orders from two distributors located in Asia. The increase in net revenue from the Asia region in fiscal 2007 compared to fiscal 2006 was primarily due to completion of our customers’ initial product trials and successful launches of end products that contain our SoCs.

Europe: Our net revenue from Europe for fiscal 2008 increased $23.7 million, or 72%, as compared to fiscal 2007 and for fiscal 2007, our net revenue increased $31.0 million, or 1,491%, as compared to fiscal 2006. The increases in net revenue from Europe were primarily attributable to major deployments by our European customers using our SoCs in their IPTV set-top boxes. Our net revenue from Europe in any given period fluctuates depending on whether our customers place their orders locally or through their overseas manufacturers who incorporate our SoCs into their final products.

For fiscal 2008, our revenue in France was 14% of our net revenue. For fiscal 2007, revenue in France was 29% of our net revenue. No other European country accounted for more than 10% of our net revenue in fiscal 2008 and 2007. For fiscal 2006, we did not have revenue in excess of 10% of our net revenue from a single European country.

North America: Our net revenue from North America increased $1.6 million, or 16%, for fiscal 2008 as compared to fiscal 2007. The increase in absolute dollars was primarily attributable to increased demand for our SoC solutions for the IPTV market. However, our net revenue from North America as a percentage of our net revenue declined from 11% in fiscal 2007 to 5% in fiscal 2008 as a result of the continuation of the trend of companies located in North America who incorporate our products into their finished products moving their production orders to large designers and manufacturers located in the Asia region. Our revenue from North American increased $5.7 million, or 144%, for fiscal 2007 as compared to fiscal 2006. The increase was largely due to our customers’ initial trails and successful launches of their products that incorporate our SoCs. Our revenue from North America in any given period fluctuates depending on whether our customers place their orders locally or through overseas manufacturers who incorporate our products into their final products.

In fiscal 2008, our net revenue generated outside North America was 95% of our net revenue as compared to approximately 89% in fiscal 2007 and 88% in fiscal 2006. We expect that net revenue outside of North America will continue to account for a significant portion of our net revenue.

MANAGEMENT DISCUSSION FOR LATEST QUARTER

Our net revenue for the three months ended May 3, 2008 increased approximately $20.9 million, as compared to the corresponding period in the prior fiscal year. The increase in net revenue for the three months ended May 3, 2008 was primarily due to an 86% increase over the prior period in unit shipments of our SoC’s into the IPTV, Blu-ray and other media players markets, which was partially offset by a 12% decline over the prior period in average selling prices of our products. The increase in unit shipments was driven primarily by our participation in the increased market adoption of IPTV. The decrease in average selling prices was driven primarily by the achievement of volume pricing targets by our customers.

Net revenue by target market

We sell our products into three primary markets, which are the IPTV market, the Blu-ray and other media players market and the HDTV market. We also sell our products, to a lesser extent, into several other markets, such as the PC-based add-in market and prosumer audio/video market, which we refer to collectively as our other market.

IPTV : The increase of $15.1 million, or 54%, in net revenue from sales into the IPTV market for the three months ended May 3, 2008 as compared to the corresponding period in the prior fiscal year was primarily attributable to our customers in the IPTV market incorporating our SoCs into their products, primarily our SMP8630 SoC series.

Blu-ray and other media players : The increase of $4.4 million, or 62%, in net revenue from the Blu-ray and other media players market for the three months ended May 3, 2008 as compared to the corresponding period in the prior fiscal year was primarily attributable to increased sales volume of our customers’ products incorporating our SoCs, including an increase in Blu-ray and digital media adapter applications.

HDTV : We reported a decrease in net revenue from sales into the HDTV market of $0.1 million or 15% for the three months ended May 3, 2008 compared to the corresponding period in the prior fiscal year.

Other : Our other markets consists of PC add-ins and other ancillary markets, including products acquired in connection with an acquisition of certain assets of the VXP Group from Gennum Corporation. Sales to our other markets for the three months ended May 3, 2008 increased $1.5 million or 274% compared to the corresponding period in the prior year was primarily attributable to $1.1 million of revenue from sales of our VXP product, which we commenced selling in February 2008 following the asset acquisition from Gennum Corporation.

Net revenue by product group

SoCs: Our SoCs are targeted toward manufacturers and large volume designer and manufacturer customers building products for the IPTV, Blu-ray and other media players and HDTV consumer electronic markets. The increase of $21.7 million, or 63% in net revenue from SoCs for the three months ended May 3, 2008 compared to the corresponding period in the prior fiscal year was due primarily to increased demand in sales of IPTV products and Blu-ray players.

Other : We derive revenue from other products and services, including engineering support services for both hardware and software, engineering development for customization of SoCs and other accessories and wireless devices. The decrease of $0.9 million or 54% for the three months ended May 3, 2008 compared to the corresponding period in the prior fiscal year was due to lower sales of our engineering development kits related to our SoCs and support services.

Net revenue by geographic region

Asia : Our net revenue in absolute dollars from Asia increased $­­­9.3 million, or 43% in the three months ended May 3, 2008 compared to the corresponding period in the prior fiscal year. Our net revenue from Asia represented 55% and 61% of our net revenue for the three months ended May 3, 2008 and May 5, 2007, respectively. This 6% decrease as a percentage of revenue was primarily due to the disproportionate increase in sales into Europe during the three months ended May 3, 2008.

Europe: Our net revenue in absolute dollars from Europe increased $11.2 million, or 103% for the three months ended May 3, 2008 compared to the corresponding period in the prior fiscal year. The increase in our net revenue from Europe was primarily attributable to major deployments by our European customers using our IPTV SoCs in their products. Our revenue from Europe in any given period may also fluctuate depending on whether our European customers place their orders locally or through their non-European manufacturers who incorporate our SoCs into their products.

North America : Our net revenue from North America increased $0.4 million, or 11% for the three months ended May 3, 2008 compared to the corresponding period in the prior fiscal year. The increase in the comparative three month period was primarily attributable to increased demand for our SoC solutions for the IPTV market and partially offset by the continuation of the trend that companies located in North America who incorporate our products in their finished goods are moving their production orders to large designers and manufacturers located in the Asia or Europe regions. Our revenue from North America in any given period fluctuates depending on whether our customers place their orders locally or through overseas manufacturers who incorporate our SoC’s into their products.

CONF CALL

Ed McGregor

Welcome to Sigma Designs’ conference call to discuss financial results for our first fiscal quarter 2009. I’m Ed McGregor, Sigma’s Manager of Investor Relations. With me today are Thinh Tran, Sigma’s Chairman and CEO, Tom Gay, our Chief Financial Officer and Ken Lowe, our Vice President of Strategic Marketing. A 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 investors section on our website.

Today’s agenda will begin with this brief introduction, a review of selected financials by Tom, an executive overview by Thinh, a market update by Ken and a forward guidance statement by Thinh. We will then open the call to questions from the analysts and institutional investors. We expect to conclude the call within one hour.


Before we begin I would like to read our statements about Safe Harbor and non-GAAP information. This conference call contains forward-looking statements including statements regarding Sigma’s expectation of sequential growth in net revenues for the second fiscal quarter, anticipated gross margins and anticipated trends in Sigma’s target markets.

Actual results may vary materially due to a number of factors including but not limited to the risk that the SEC disagrees with the manner in which Sigma has accounted for and reported or not reported the financial impact of past stock option grants, actions by other regulatory agencies as a result of Sigma’s past stock option practices, ongoing derivative litigation, determination upon completion of further quarterly closing and review procedures that the financial results for the first quarter of fiscal 2009 are different than the results set forth in this call, general economic conditions including continuance of the current economic conditions specific to the semiconductor industry, the rate of growth in IPTV, high definition DVD and HDTV markets, the ramp in demand from our set top box customers, our ability to deploy and achieve market acceptance for Sigma products in these markets, the ability of our SOCs to compete with other technologies or products in 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 risks that anticipated design wins will not materialize and that actual design wins will not translate in to launch product offerings and other risks including delays in manufacturers deployment of set top boxes or consumer products.

Other risk factors are detailed from time-to-time in our SEC reports including our Form 10K filed with the SEC on April 2, 2008. Readers are cautioned to not place undue reliance on these forward-looking statements which speak only as of the date hereof. Sigma undertake no obligation to publically release or otherwise disclose the results of any revisions 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.

In addition to reporting financial results in accordance with generally accepted accounting principles or GAAP, we report non-GAAP net income which excludes amortization of acquired intangibles and stock-based compensation calculated under APB No. 25 and SFAS No. 123. We believe that our non-GAAP net income provides useful information to management and investors regarding financial and business trends related to our financial conditions and results of operation.

We also believe the non-GAAP measure provides useful supplemental information for investors to evaluate our operating results in the same manner as the research analysts that follow us, all of whom present non-GAAP projections in their published reports. We caution investors however not to place undue reliance on non-GAAP measures and to read them in connection with our GAAP results. You can find a detailed reconciliation between our GAAP and non-GAAP results in our financial tables included in our written earnings release which is currently posted on our website.

Now, I’d like to turn the call over to Tom who will review our financial results.

Thomas E. Gay, III

For the first quarter of fiscal 2009, net revenue decreased to $56.9 million, down $19.5 million or 26% from $76.4 million for the fourth quarter of fiscal 2008 compared to the first quarter of fiscal 2008 when we reported $36 million. Our revenues increased $20.9 million or 48%.

Our revenue break outs are as follows: by market segment and percentage of total revenues for the quarter, the IPTV segment represented $43 million or 76% of the total; high definition DVD and other media players $11.5 million or 20%; and the other category came in at $2.4 million or 4%. Broken down by billing region: in Asia we had $31.1 million or 55% of the total; in Europe $22.1 million or 39%; and North America $3.7 million or 6% of the total.

During the first quarter we had four customers that each exceeded 10% of our revenue. Highest was Cisco Systems at $8.9 million or 16%, Motorola Singapore $8.5 million or 15%; [Macknika], our distributor in Japan, $6.5 million or 11%; and Freebox $6 million or 11%.

GAAP net income for the first quarter decreased to $4.7 million or $0.16 per diluted share, down $30.6 million or 87% from $35.3 million or $1.12 per diluted share for the fourth quarter of fiscal 2008. Compared to the first quarter of fiscal 2008, GAAP net income decreased $.7 million or 13% from $5.4 million. Gross margins were 45.1% for the first quarter compared to 49% in the preceding quarter and 49.5% in the same period last year.

Several factors contributed to the lower gross margin for the quarter including intangible cost amortizations of $541,000 from our two most recent acquisitions, charges of $712,000 from a provision for excess inventory and approximately $600,000 of margin associated with inventory acquired in the VXP purchase. These factors total $1.9 million or a 3.2% impact on our gross margin. To a lesser extent, our gross margin was also impacted by previously negotiated volume pricing.

Operating expenses on a GAAP basis were $21.5 million or 38% of revenue in the first quarter compared to $16.6 million or 22% in the previous quarter and $12.6 million or 35% of revenue in the same period last year. The operating expenses for our first quarter included the following notable items: $1.6 million was expensed in the quarter as the value of the in process development costs included in the VXP acquisition. This is a one-time expense recognized during the quarter of closing the VXP acquisition.

In R&D the increase of $1.4 million of expenses over the previous quarter is equal to the additional expenses associated with the VXP group. G&A included a $2.1 million expense as the Black-Scholes value of the stock option grant of 100,000 shares to our CEO which was immediately vested.

You can find a copy of our press release with the detailed reconciliation of our GAAP to non-GAAP performance on our website. The reconciliation includes the following categories of differences for the first quarter: the one-time write off of $1.6 million for the in process R&D from the VXP acquisition; amortization of intangible assets associated with two acquisitions; $.3 million from [Blue 7] and $.4 million from VXP; and stock-based compensation expense of $4.8 million. On a non-GAAP basis, net income for the first quarter was $11.7 million or $0.40 per diluted share, a decrease of $13.7 million or 54% from $25.4 million or $0.80 per diluted share in the previous quarter and an increase of $3 million or 38% from $8.5 million or $0.32 per diluted share for the non-GAAP net income in the first quarter of fiscal 2008.

In the first quarter the provision for income taxes was $1.6 million or 26% of income before taxes. The rate is better than the full statutory rate of 41% due to our establishment of an operation center in Singapore during the quarter to better serve our international customers. Based on our most recent estimates, we expect to see a similar income tax rate for the balance of 2009.

Now, I’d like to cover a few key areas from our balance sheet. Cash, cash equivalents and marketable securities totaled $190.1 million, a decrease of $85.6 million from the previous quarter. Of that amount, $52.1 million is classified as long term securities. That number breaks down in to $9.1 million of securities with maturities longer than one year from the date of purchase and $43 million of auction rate securities that have limited liquidity. The overall decrease of $85.6 million is primarily due to stock repurchases of $80.6 million and the purchase of the VXP assets for $18 million. These decreases were partially offset by cash from operations and the exercise of stock options.

Net accounts receivable was $33.7 million, a decrease of $6.5 million over the previous quarter. The average days sales outstanding for our receivables as of the end of the first quarter was 54 days as compared to 47 in the previous quarter. The increase was principally caused by an increase in shipments towards the end of the first quarter. If the DSO was calculated based on days of shipments, this metric would have decreased slightly from the previous quarter. Inventory was $34.5 million, an increase of $8.2 million over the previous quarter primarily due to the decrease in our shipment and the purchased VXP inventory. Accounts payable was $17.5 million, a decrease of $1 million from the previous quarter due to decreased inventory purchases towards the end of the quarter. Shareholders’ equity was $277.2 million, a decrease of $68.4 million from the previous quarter principally due to $80.6 million in stock repurchases during the quarter.

Now, I will turn the call over to Thinh for an executive overview.

Thinh Q. Tran

I would like to start by thanking all of you for joining us today and for your continued interest in Sigma. In today’s call I would like to review the results of the first quarter and emphasize the significant activities and achievements. First off, we are disappointed to begin this fiscal year on a negative note hosting our first down quarter after nine quarters of strong sequential growth. However, this was primarily due to an inventory correction and we continue to maintain our strong position in the IPTV market.

Our SMP 8630 Series represent the defacto standard in the IP set top box industry and our recently launched 8654 looks to be its direct successor. Already the 8654 has secured a position in the next generation Microsoft Mediaroom platform and also has garnished support from four major OEMs.

Several new products in the wings to interest next generation Blu-ray players and take advantage of future growth the market has to offer. Additionally, we are encouraged by the potential opportunities emerging from our strategic initiatives including penetration in to the HDTV market, the ultra wideband connectivity market, the [inaudible] video processing products as well as the penetration of the cable set top box market.

On the profitability side, we are managing the elements that are under our control. Though a portion of gross margin slippage was due to negotiated volume pricing, we intend to hold the line on future pricing and taking advantage of minor cost declines in order to stabilize our returns. Furthermore, as we move forward set top box [inaudible] on our next generation IPTV chips, we eventually expect to see a rebound in our gross margin. Additionally, our operating margin continues to reflect our profitable operations and relatively stable ongoing operating expense outside the one-time expense related to the VXP acquisition.

Now, I would like to highlight some of the important business developments we have achieved since our last conference call. We announced that Sigma has began sampling of its new 8654 media processor designed for the next generation IP set top box. The product demonstration held at the 2008 NAP Show. 8654 provides a 50% improvement in performance along with lower overall system costs to provide a substantially improved value proposition for the burgeoning IPTV market.

We also jointly announced a collaboration with Microsoft to enable the Microsoft Mediaroom IPTV and multimedia platform to operate on the next generation set top box using our new 8654. The solution will provide high performance, cost effective design that will give service providers the ability to offer innovative connect TV service such as PCTV to TV photo and music sharing and also DVR anywhere which gives consumers the flexibility to watch their recorded programs on any TV in their home.

We announced the Sigma 8654 media processor is being used by Pirelli’s broadband solutions to power their line of IPTV set top boxes which are currently being deployed by two major European operators. We also announced that a new VXP9452 processor [inaudible] video imagining processor that offers two fully separable video processing channels each featuring full [inaudible] and output support intended for the use by the leading digital broadcast TV, cinema studio and home theater manufacturer.

We also announced the at the company’s new 8622 media processor was selected by Panasonic to power the new ANYPLAY DVR being jointly developed with Comcast Corporation a national leading provider entertainer. We also announced the DOCSIS 3.0 multi-channel and TRU2WAY set top box reference designed jointly developed using Texas Instruments [inaudible] cable technology and VividLogic comprehensive TRU2WAY software which was unveiled at the NCTA Cable Show.

Now, I would like to pass the call to Ken who will discuss current market trend.

Kenneth Lowe

For this call I’d like to discus focused primarily on the market trends for IPTV. Then, briefly discuss our outlook for future contributions from other segments. In general, we feel the IPTV market is continuing to ramp around the world though there are some regions of demand that are currently flat, it appears that most telcos are indeed experiencing increasing deployments as we move throughout 2008. We continue to believe, as we have stated, that the available market for IPTV set top boxes this year will be around 14 million units based on our own internal analysis.

Let’s now discuss the current IPTV landscape, the subscriber base model that leads to that projection, then conclude with some market share expectations. In North America, there are four active telcos in active deployment at this time where AT&T dominates the scene with the stated goal of reaching one million subscribers this year and a run rate of 40,000 installed per week by the fourth quarter. Based on their public comments, it would appear that AT&T is on target for this level of deployment. Other active North American deployments include leading Canadian telcos, Telus, Bell Aliant and Sasktel and the expectation that Bell Canada will start deploying later this year as well.

From a platform basis, AT&T and Bell Canada are based on the Microsoft platform while others used independent LINUX based systems. Adding up the anticipated new subscribers for each telco, multiplying by the average number of set top boxes per household and adjusting for the typical lead time of component and box shipments, we estimate that the total North American demand for IPTV media processors this year should be about 4.2 million units.

In Europe, there are 16 telcos in active deployment at this time where major carriers in France dominate the scene followed by Germany and the UK. Major carriers in a rear deployment are [Free] France Telecom, [inaudible], Deutsche Telekom, and British Telecom. Most of these carriers that we deal with appear to be on target for their deployments this year.

These major carriers are followed in turn by a wide array of smaller carriers that include [Belcacom], Portugal Telecom, Swiss Com, Telefonica, [Yadotcom], TVC, Telecom Italia, [Tescali], FastWeb, Wind and TCom affiliates. From a platform basis these carriers are evenly split with eight each based on the Microsoft platform and LINUX platforms. Again, adding up the net new subscribers for each telco and adjusting for the set top boxes per household and shipment lead times, we estimate that the total European demand for IPTV media processors this year should be about five million units.

In Asia, there’s a total of 10 telcos in active deployment at this time where the major carriers in Korean and China dominate the volume. In order of volume, the largest telcos are Korea Telecom, Hanaro, China Telecom and China Netcom and these are followed by smaller deployments for [Ucent], KDDI, Chunghwa Telecom, PCCW, SingTel and MT&L. Reliance is also expected to begin deployment sometime later this year.

From a platform basis, nearly all these carriers are based on LINUX systems with the exception of Reliance and potentially a switch by Chunghwa Telecom. Again, adding up the net new subscribers for each telco and adjusting for the set top boxes per household and ship and lead times, we estimate that the total Asian demand for IPTV media processors should be about 4.8 million units this year.

The IPTV market is begin supplied with Sigma powered set top boxes from Motorola, Cisco, Free Box, UT Starcom, Celrun, [Dayson], Netgem, [Tatong], Pirelli and Pace. As the market grows, the largest suppliers of set top boxes will need to take advantage of multiple sources of media processor chips to achieve maximum supply assurance, price negotiation and other advantages. To the extent they can leverage these chips across multiple market segments including IPTV, cable, satellite, etc., it will increase their leverage.

It would therefore be logical to expect that the set top box vendors will evaluate new chips from their suppliers and potentially create prototype platforms. In the end, it’s the telcos and key middleware suppliers like Microsoft that will determine most of the fate of the chip vendors with regard to selection. Furthermore, the next generation set top box deployment cycle will not likely begin to mid 2009 and it’s probably premature to project the general chip landscape keeping in mind that Sigma remains the single dominate supplier in the low risk solution with the most proven track record.

Examining the IPTV market from a platform standpoint, you find that 12 telcos are using the Microsoft Mediaroom platform while 20 use a customized LINUX based platform. For the Microsoft Mediaroom platform, we’re confident in our belief that this will remain 100% Sigma based during the rest of 2008.

For the LINUX based platforms we also expect to retain our estimated 75% share of the market for the foreseeable future. As the Microsoft based telcos are growing rapidly as a group, Sigma believes its overall IPTV market share will rise to about 85% by volume during this calendar year. Although there are a number of assumptions here that are outside of Sigma’s control, we feel confident that these are reasonable targets given our current market position, customer relationships and leading technology.

Now, let’s move on to the Blu-ray market. Although it appears that Blu-ray is in for an increase in overall demand this year, there are a number of a factors that indicate that this will be both smaller in magnitude and later than initially expected. Since the format war came to a conclusion far sooner than the industry had anticipated, the Blu-ray camp has been somewhat caught off guard which has created issues with the level of component supply, the continued transition to format and the state of promotional campaigns.

Specifically, there appears to be a limitation of Blu-ray drives available for the next several months as manufacturing plants gear up for a shift in magnitude. Secondly, most vendors will not be initiating aggressive pricing or promotional campaigns until later this year when their supply catches up. Third, the upcoming second tier vendors face certification hurdles that will likely take them until late summer to surpass. And finally, the evolution of Profile 2 players is not expected until the early fall timeframe. As a result, any large upswing in Blu-ray demand is not anticipated until the middle of Christmas selling season or potentially later.

As we move in to the second half of this year, there is also an increased amount of competition and the expectation of more market fragmentation to come. As most of you have seen, Panasonic offers a range of new Blu-ray chips that will certainly be used for the majority of their future players. Additionally, NEC has been aggressively courting other Japanese Blu-ray accounts and as a result of these competitive forces and the delays that we suffered in the development of our next generation Blu-ray chip, Sigma will likely experience a decrease in market share during the second half of this year. Specifically, we expect many of our current customers to add a second source of chip supply to fulfill part of the road map.

However, based on our strong relationships and positive reputation, we expect to regain much of this ground next year as our new chips become available and our customers move in to their next design cycle. Additionally, we expect to secure many new design wins from Taiwan and China this year which will become increasingly important as we move in to this Christmas selling season and beyond. In total, we do not expect to see significant growth in our Blu-ray business this year, though we remain optimistic that we will be back on this growth trend as we move in to next year.

For the television market, we’re very excited about our strategic initiative to develop a world class line of HDTV chips. This strategy moves forward on four pillars of support: first, it leverages our existing relationships and working knowledge for demand within our current television customers; second, it takes advantage of the new VXP technology we recently acquired to bring studio quality video to consumer television; third, it utilizes our current strengths in connect or media center ready solutions; and fourth, it layers these capabilities on top of one of the most positive SOC architectures in the industry.

As an adjunct to our primary HDTV strategy, we are now in the process of penetrating the projector TV market which should begin to pay dividends early next year. Furthermore, for high end consumer video processors, our VXP line is already contributing revenues and our recently announced VXP 9452 is taking us further in to digital broadcast TV, cinema studios and home theater applications. In short, we are optimistic about the opportunities to penetrate a greater portion of this market as we exit this year.

Ultra wideband technology also continues to experience increased interest from a widening array of market segments. We continue to see the potential for various forms of cable replacement demand from retailers and manufacturers that could result in shipments beginning in the second half of this year. This includes wireless cable replacements for HDMI, remote speakers and other audio/video connections.

Meanwhile we are still actively pursuing ultra wideband solutions for future home entertainment networks in the US market. By the end of this year we expect to be receiving contributions from chips designed for each individual market segment, namely cable replacement, home entertainment networks and wireless USB.

Finally as evidenced by our most recent press release we have entered the market for the next generation cable set-top box market. This market is at a juncture as it nears the transition from the carrier specific boxes controlled by the duopoly of Motorola Scientific Atlanta to the merchant market boxes enabled by the open cable consortium as well as a second transition from the quam based digital broadcast scheme to an IPTV multicast mechanism using DOCSIS 3.0. These transitions are opening up the market to a wide array of manufacturers at all levels over the next several years.

Sigma is currently partnering with Texas Instruments to offer one of the industry’s first solutions to feature DOCSIS 3.0 in OCAP software. We’re very encouraged with our future business prospects in this segment based on the substantial interest we’ve received since this was unveiled in the first of the year.

We hope this analysis provided you with some insight about our target markets and the opportunities that lie ahead for Sigma Designs. We feel bullish about our market position, leading technologies and top tier accounts and look forward to building on this foundation.

I’d like to now pass the call to Thinh to cover our forward guidance.

Thinh Q. Tran

As Ken has indicated we are very encouraged with the fundamental demand coming from IPTV and our ability to continuous revenue flow throughout this year based on the strength in our position. The external channel inventory problem we experienced at one of our largest IPTV accounts has resulted in revenue shortfall in our first quarter and we also have a minor impact on our results for Q2. Though the overall IPTV market should continue to ramp throughout this year our at this time we appear relatively lackluster.

Additionally due to the short term issue in our Blu-ray business that we recently began to experience there will be more challenges this year in achieving the type of growth we had expected. While we are making rapid progress toward our new Blu-ray offerings it has become apparent that we could lose some market share at our Japanese Blu-ray customers, [inaudible] to capture supply of other new Japanese suppliers.

Keep in mind that most of our consumer electronic products go through an initial movement to capture suppliers then back to merchant supply as a normal part of their life cycle as occurred several years in the DVD player market. However we are starting to receive demand from the aggressive new second tier accounts coming to the market later this year and we believe that our new Blu-ray chip will enable us to retain most of our top tier accounts.

So looking ahead this is what we would expect. We expect second quarter revenue to be slightly above first quarter revenue. We expect sequential revenue growth to continue in the second half though we are reluctant to specifically quantify this growth due to a number of variables affecting demand which are outside of our control. We expect our gross margins to remain relatively stable for the next few quarters at approximately 47 +/- 200 basis points until our new generation chip begin to ship in volume.

In summary I would like to enforce that we believe our fundamentals remain strong, our target market should experience material growth this year and we remain dominantly IPTV market in that we redoubling our efforts in development to strengthen our position moving forward.

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