Sigma Designs Living Room Standalone

Image source: Sigma Designs.

What happened

Shares of semiconductor company Sigma Designs (NASDAQ:SIGM) tumbled on Wednesday following a mixed quarterly report. Sigma beat analyst estimates for earnings but fell short on revenue, leading the stock to drop 31% by 11 a.m. EST.

So what

Sigma reported third-quarter revenue of $62.7 million, up 1.9% year over year but about $0.7 million lower than the average analyst estimate. Sigma Designs CEO Thinh Tran pointed to the company's seasonally strong Smart TV business and a rebound in its Internet of Things business as the main growth drivers.

Non-GAAP earnings per share came in at $0.09, down from $0.13 during the prior-year period but $0.01 higher than analysts expected. Earnings also declined on a GAAP basis, with EPS of $0.01 down from $0.17 during the third quarter of last year. A $7.6 million one-time gain during the prior-year period skews the comparison.

Looking down the road, Tran expects the Internet of Things to be a long-term growth driver:

We remain encouraged by our outlook for the Internet-of-Things business, which should continue to grow as consumer adoption of Z-Wave enabled products improves. For the long-term, we expect to capitalize on the multitude of new opportunities across our business to drive revenue, and combine this execution with cost reductions, in order to deliver stronger earnings.

Now what

Sigma's results don't seem to warrant a 31% drop in the stock price, at least on a relative basis. The company barely missed analyst estimates for revenue and beat on earnings. But the lack of meaningful growth may be driving investors away. Revenue has fluctuated around the same level for much of the past decade, and through the first nine months of this year, non-GAAP EPS has tumbled 88%. The market seems fed up with Sigma's inconsistent performance, walloping the stock in response to so-so results.

Timothy Green has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.