How Sigma Plans to Rule Your Couch

by Anders Bylund - October 14, 2009 - 0 comments

When Cisco Systems (Nasdaq: CSCO) closes a $3 billion acquisition, you know it's a big deal. But a $160 million buyout can be just as big -- when the buyer is a small cap itself.

That $160 million is how much Sigma Designs (Nasdaq: SIGM)
is paying for Israeli chip designer CopperGate today. It's a
significant price tag when you consider that Sigma's market cap is only
$360 million today, and a $160 million deal is a huge commitment for a
company that svelte.

The agreement grows in stature when you start thinking about what
Sigma is getting for the price: CopperGate is an established power in
certain kinds of home networking technologies like the HomePNA
standard. CopperGate is setting HomePNA standards alongside
heavyweights like Cisco and Motorola (NYSE: MOT).

When you combine Sigma's media processors with CopperGate's
networking chutzpah, you get highly capable networked media platforms
that should be able to compete with the best that Texas Instruments (NYSE: TXN), Broadcom (Nasdaq: BRCM), and Marvell (Nasdaq: MRVL) can produce. It's a hot market with lots of unrealized potential, and these guys are ready to change how we think about home entertainment.

Mr. Market seems a bit queasy about the acquisition -- Sigma shares
are down 6% on the day. But I’m confident this deal will provide Sigma
with enough benefits to justify the dilution and hefty cash payout.
Sigma always seems to be on the cusp of shooting off into the stratosphere, fueled by telecoms like Verizon (NYSE: VZ) and their IPTV
rollouts -- but the pop never comes. CopperGate gives Sigma a whole new
arsenal of tasty technologies that could become a growth catalyst in a
year or two; give these guys a while to roll their chips together
first. But hey, investing in Rule Breakers like Sigma has always called for a big dollop of patience.

Last edited by harsheeb on Wed, 10/14/2009 - 05:51 | Write to author: Anders Bylund |