Motley Fool Rule Breakers members are a patient bunch, but I have to admit that Sigma Designs (NASDAQ:SIGM) would try the patience of a saint. Will tomorrow's fiscal Q2 2009 earnings report finally bring the good news we've been waiting for?

What analysts say:

  • Buy, sell, or waffle? Fourteen analysts follow Sigma Designs, giving it three buy ratings and 11 holds.
  • Revenue. On average, they're looking for sales to soar 38% to $58.7 million ...
  • Earnings. ... even as profits plunge 17% to $0.40 per share.

What management says:
"We are disappointed to begin this fiscal year on a negative note ..." So began CEO Thinh Tran's autopsy on the disaster that was Q1.

What management does:
Agreeing fully with management, fellow Fool Anders Bylund described the damage: "The income statement frankly looked terrible. Revenue [grew] 58% ... On an absolute basis, that doesn't sound like such a disaster. But in the light of recent growth rates in the 150% range, it is. Pro forma earnings per share were $0.40, just half of the $0.80 per share seen last year."

Meanwhile, from a GAAP perspective, we saw rolling profit margins decline at each of the gross, operating, and net margin levels. And yet, with the exception of Texas Instruments (NYSE:TXN), these margins stack up quite well in comparison to Sigma's rivals. None of Broadcom (NASDAQ:BRCM), ST Micro (NYSE:STM), or Conexant (NASDAQ:CNXT) even makes it out of the single digits for operating margin.

Margins

2/07

5/07

8/07

11/07

2/08

5/08

Gross

48.7%

48.8%

50.5%

51.9%

51.0%

49.8%

Operating

6.4%

11.2%

15.8%

23.3%

25.9%

23.8%

Net

6.8%

11.5%

15.8%

22.5%

31.7%

28.7%

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
As Tran explained it, the slowdown in Sigma's breakneck growth came not from any fault of its own, but rather because of "an external inventory correction." Seems customers like AT&T (NYSE:T) and Motorola (NYSE:MOT) may have bought just a few more IPTV chips than they needed right then.

Bigger picture, though, Tran assured us that Sigma retains its "strong position in the IPTV market" with products that include both "the de facto standard in the IPTV set-top box industry" and "its direct successor." Until that situation changes, and so long as that industry grows, we should see Sigma reap the benefits.

Whether we have the patience to endure the stock gyrations as we await those benefits -- now that is the question.

Fools of a feather don't always fly together. Find out whether the gang at Motley Fool Rule Breakers still has designs on Sigma Designs, when you take a free trial.

Fool contributor Rich Smith does not own shares of any company named above. Sigma Designs is a recommendation of both Motley Fool Hidden Gems Pay Dirt and Rule Breakers. The Motley Fool has a disclosure policy.