Longview

What: Shares of chipmaker Sigma Designs (NASDAQ:SIGM) sank on Wednesday following the company's third-quarter earnings report. While the results were mixed, Sigma's guidance for the fourth quarter was well short of analyst expectations. At 2:30 Wednesday EST, the stock was down about 30%.

So what: Sigma reported quarterly revenue of $61.6 million, up 5.6% year over year, but about $1 million shy of the average analyst estimate. Growth was driven by strong sales in the smart TV segment, which grew by 31% sequentially.

Non-GAAP earnings came in at $0.13 per share, up from $0.04 per share in the same period last year, and $0.02 higher than analyst expectations. Gross margin increased to 50%, up from 48.9% year over year.

Now what: While Sigma's results weren't too far off base, the company's guidance for the fourth quarter was disappointing. Sigma expects revenue between $50 million and $53 million, compared to analyst expectations of $59.2 million. During the company's conference call, CFO Elias Nader explained that this shortfall will be driven by a seasonal decline in the smart TV segment. During the previous year, the company began shipping its 4K chips during the fourth quarter, so the same seasonal effects weren't experienced.

The collapse in Sigma's stock price due to this poor guidance may be an overreaction. Through the first three quarters of the year, Sigma produced revenue growth of 32%, and its non-GAAP profitability improved dramatically. Nader stated that the company is confident that it will begin growing again during the first quarter of next year. The details don't seem to matter, though, and the stock has been driven to its lowest level in nearly a year.

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.