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In a release, the company noted that revenue for the second quarter increased 2 percent to $58.2 million, compared to $56.9 million in the previous quarter and increased 37 percent compared to $42.5 million in the same period of the prior year. Net income for the second quarter increased 46 percent to $9.6 million or $0.35 per diluted share, compared to $6.6 million, or $0.22 per diluted share in the previous quarter and increased 12 percent compared to $8.6 million, or $0.32 per diluted share, in the second quarter of fiscal 2008.
"We are pleased to report improved gross margins and GAAP net income while achieving our anticipated revenue goal for the second quarter. We continue to maintain a strong presence in the IPTV market, being the market leader for both the Microsoft Mediaroom and Linux-based platforms and pushing for new wins within emerging telco deployments. We are also pushing forward with our consumer products agenda by working with a wide range of vendors for Blu-ray player designs, successfully gaining ground with manufacturers from China and Taiwan. To further these positions, we are in the midst of completing a number of new chipset products that will increase our competitiveness in the marketplace. Moving forward, we are also executing a number of strategic growth initiatives designed to result in future revenue streams. These initiatives include penetration into the HDTV market, the Ultra-wideband (UWB) connectivity market and the cable-based IPTV set-top box market, as well as the growth of our VXP video processor products," stated Thinh Tran, chairman and chief executive officer, Sigma Designs.
Revenue for the second quarter of fiscal 2009 was $58.2 million, a 2 percent increase sequentially from the first quarter and a 37 percent increase from the prior year. The sequential increase was primarily due to an increase in the IPTV market segment which largely offset the decrease in the connected media player segment. The year over year improvement was primarily related to strong growth in the IPTV market.
Gross profit during the second quarter was $29.5 million, an increase of 5 percent from the first quarter and an increase of 32 percent from the second quarter a year ago. Gross margin was 50.7 percent of revenues, compared to 49.3 percent sequentially and 52.4 percent a year ago.
Research and development expense was $10.4 million, down 4 percent from the first quarter and up 24 percent from the same quarter a year ago. Sales and marketing expense was $2.8 million, an increase of 5 percent sequentially and 3 percent from the prior year. General and administrative expense was $3.6 million, a 44 percent decrease sequentially and a 48 percent increase compared to the same quarter the prior year.
Operating expenses were $16.8 million, or 29 percent of revenue, down 22 percent from the first quarter and up 24 percent from the second quarter of 2008. The sequential decrease in operating expenses resulted primarily from the one-time, $1.6 million expense related to the value of the in-process development taken in the first quarter and the one-time stock option expense of $2.1 million in the first quarter.
The Company's income tax provision for the second quarter of $4.2 million reflects an expected annualized tax rate of 28.1 percent for fiscal 2009 and brings the year to date tax provision in line with that rate.
Net income for the second quarter was $9.6 million, up 46 percent from the first quarter and up 12 percent from the second quarter of fiscal 2008. Earnings per diluted share were $0.35, up 59 percent sequentially and up 9 percent from the second quarter of fiscal 2008.
Non-GAAP net income in the second quarter of 2009 was $12.7 million, or $0.47 per diluted share, compared to non-GAAP net income of $13.6 million, or $0.46 per diluted share for the first quarter of fiscal 2009 and $13.0 million, or $0.48 per diluted share in the second quarter of fiscal 2008. Non-GAAP adjustments for the second quarter of 2009 consisted of the exclusion of $0.4 million and $0.3 million in amortization expense for acquired intangibles related to the VXP and Blue7 acquisitions, respectively, and $2.4 million in non-cash share-based compensation expenses. The reconciliation between GAAP and non-GAAP results for all referenced periods is provided in a table immediately following the GAAP financial tables below.
Second Quarter Highlights
- Announced a joint collaboration with Monster to create advanced wireless solutions for HDMI home entertainment distribution. The first fruit of the Monster/Sigma Designs partnership will be the new "Monster Wireless Digital Express HD" system, which will use Sigma's Wireless HDAV for High-Definition (HD) A/V cable replacement as well as its UWB-over-Coax technology to offer consumers an elegant "wireless and no new wires" combination solution for enjoying HD content throughout the home.
- Announced CoAir, the first ultrawideband chipset with integrated wireless, coax and gigabit Ethernet for high speed home networking. Developed for worldwide service providers, telcos and consumer electronics manufacturers, Sigma's CoAir chipset is the only technology available in the world today that can simultaneously deliver multiple independent streams of video and data over coax cable as well as wireless.
- Announced along with Advanced Communications Co., Ltd (Adcom), that Sigma's highly integrated SMP8654 media processors will be used to power Adcom's IPv6 set-top boxes (STBs) currently being deployed by major telecom companies, cable providers, hotels, convenience stores, restaurants, and Karaoke centers throughout Japan. Furthermore, the companies have entered into a collaborative relationship to develop next-generation IPTV set-top boxes for the Japanese market based on Sigma's SMP8654 media processor and Adcom's iSense IPTV software platform solution.
- Announced, along with I-O Data, that Sigma's SMP8634LF media processors are being used in I-O Data's new, updated set-top box models, the AV-LS500L and AV-LS500UL.
- Purchased 356,000 shares of the company's common stock for an aggregate purchase price of $5.3 million under the previously announced stock repurchase program authorized by its board of directors. This brings the cumulative total purchases under the program to 4.2 million shares for an aggregate purchase price of $85.9 million, an average of $20.50 per share.
Change in Accounting Policy
Effective August 2, Sigma changed its method of accounting for valuing the portion of its raw material inventory known as tested wafers or die bank. Previously, the expense associated with yield loss from the initial testing of wafers was expensed to cost of goods sold until the wafers were moved into the next stage of production. Historically, Sigma has absorbed the value of rejected die only when the wafers were moved into work in process ("WIP"). Now, Sigma accounts for the yield loss from the initial testing by immediately absorbing the cost of the rejected die as they are tested.
In the second quarter of fiscal 2009, Sigma significantly upgraded its enterprise resource management (ERP) system, which provided better tools to more accurately track and value its die bank. In addition, in light of Sigma's rapid growth in fiscal 2008, its die bank segment of inventory had not been significant in any single period until the first quarter of fiscal 2009. As a result of this increased significance, which Sigma currently anticipates will continue, combined with an improved ERP system, the Company believed that absorbing the yield loss into its inventory consistently throughout the manufacturing process is preferable to the prior accounting method. In making this determination, the Company also considered the accounting practices of other fabless semiconductor companies and the added clarity and ease of understanding that such a change would have on its reported results for investors provided by the additional cost component.
The Company has accounted for the change in method of accounting in accordance with Statement of Financial Accounting Standards (SFAS) No. 154, "Accounting Changes and Error Corrections." SFAS 154 requires that all elective accounting changes be made on a retrospective basis. Accordingly, the accompanying unaudited condensed statement of operations for the three months ended May 3, and the unaudited consolidated balance sheet as of May 3, have been retrospectively adjusted to reflect the results of absorbing the yield loss associated with the sorted wafers in inventory and the direct tax effect of this adjustment. Prior to the first quarter of fiscal 2009, the Company did not maintain a material level of die bank within its inventory. Therefore, the Company has determined that no material retrospective adjustments were necessary for periods before fiscal 2009.
As a result of the change in accounting principles, the net inventory value of die as of May 3, has increased by $2.4 million and cost of goods sold for the quarter ended on that date has decreased by the same amount. The provision for income taxes for the first fiscal quarter has been increased by $0.5 million as a result of applying a retrospective tax rate recalculated based upon the increased gross margin and income before taxes. As a result of these retrospective adjustments, gross margin for the quarter ended May 3, improved from 45.1 percent to 49.3 percent and net income for the quarter ended May 3, increased by $1.9 million, or $0.06 per diluted share, compared to the previously reported results under the prior accounting principle. Adjustments to the balance sheet as of May 3, were an increase to inventories of $2.4 million, a $0.5 million increase to accrued liabilities for the increased income tax provision and an increase of $1.9 million to shareholders' equity.
This change in accounting method has an inconsequential impact on all periods prior to the quarter ended May 3, and thus, no further retrospective adjustments are necessary, the company noted in a release.
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