The entire Sigma Designs chip business – with the exception of its Z-Wave low power IoT network chips – seems to have evaporated since the December announcement that it was being sold to Silicon Labs. At the time, the entire business was valued at $282 million, and now the Z-Wave business on its own will actually change hands for $240 million.
That places an enterprise value on the rest of Sigma of around $42 million which, given that its last results show it has over $60 million in the bank, means that all the other designs are seen as worthless.
This week the share price fell to $7, yielding a market capitalization of $271 million. The company said that after the Z-Wave transaction it would liquidate the remaining businesses and disperse the proceeds of the sale and any remaining cash to shareholders. Last July we noted that Sigma Designs put a “for sale” sign up after poor quarterly results. Sigma said it would work with advisors to confirm its plan of liquidation and will provide additional information to shareholders as it becomes available.
Silicon Labs is a mixed signal RF CMOS specialist that has had a tradition of being able to make money out of high volume, low margin silicon. It competes with both Broadcom and MaxLinear on TV tuners and in fact won a patent infringement settlement from MaxLinear for RF tuners.
Recently it has turned to the Internet of Things and is hedging its bets. It recently acquired Finland-based Bluegiga, which makes Bluetooth Low Energy chips, which in its mesh version goes straight up against Z-Wave, and in 2015 acquired UK Telegesis, which makes Zigbee modules. It is now in a position to supply any of the contenders for low power LAN technologies.
But of late, the Z-Wave business has looked more likely to emerge as a leader in this market anyway, hence the high price, and key focus on Z-Wave in the Sigma deal. ZigBee, the long-term favorite outside of the US, delivered mixed messages when Google pushed the very similar Thread approach to low power networks and two years ago most suppliers entrusted their future to Google, which has failed to lead the market anywhere much.
In December, Sigma unveiled new Z-Wave chips, built around an ARM processor with its new 700-Series chips, with the most notable feature being a claimed ten-year battery life for devices which send up to ten messages a day, using a coin-cell battery. Previously the CPU in Z-Wave come from an older Intel design.
“We conducted an extensive and thorough review process over several months, and are pleased to have achieved what we believe is a positive outcome for our shareholders,” said Thinh Tran, CEO of Sigma Designs. “While Sigma Designs has built a strong Z-Wave business and established itself as a leader in the home automation market, it became increasingly apparent that the significant investment needed to maintain our strong position would have been challenging against much larger competitors in a consolidating semiconductor industry.”
Sigma Designs says it will explore further divestments including its Home Connectivity business (G.hn, HomePlug and HPNA), its Mobile IoT business and remaining assets of its smart TV and set top businesses.
Sigma has already cut its workforce from 416 to 120 employees to preserve its cash and says it will slowly wind down or divest its remaining businesses over the next 12 months.