Well, at least it didn't screw up twice.

That is, sad to say, about the only nice thing I can say about Sigma Designs' (NASDAQ:SIGM) third-quarter earnings report, released Tuesday. As you may recall, SD had already prepared us for a grim report last month when it issued a sales warning, advising that it would "miss" previous guidance by about 20% as its sales fell 30% year over year. In fact, as we learned Tuesday, sales fell "only" 29% -- to $46.8 million, as opposed to the $46.5 million previously expected.

Thanks heavens for small blessings
Frightfully small, in light of the rest of the news. Gross margin eroded by nearly 700 basis points, and operating margins simply fell off a cliff, dropping from just under 34% to a mere 7.7% margin. For context, that's comparable to the kinds of margins that rivals Broadcom (NASDAQ:BRCM) and ST Micro (NYSE:STM) post, as opposed to the Texas Instruments-sized (NYSE:TXN) margins SD used to be pulling down.

Result: Earnings plunged more than 80% to land at $0.14 for the quarter.

What's management got to say for itself?
Management recited its usual litany of promises on how it will pull out of this slump, boasting of its leading position in Microsoft's (NASDAQ:MSFT) Mediaroom, the integration of it chips into Sony (NYSE:SNE) Blu-ray players, and more generally, how it is "executing a number of strategic growth initiatives designed to result in additional future revenue streams" from cable-based IPTV, home networking market, and HDTV. Those unfulfilled promises, however, are wearing thin.

Meanwhile, the buy thesis for this stock continues to rest not on its ability to grow like a weed, but rather on the simple fact that it's got a fat bank account and a cheap stock price (roughly $7.30 per diluted share in cash and short-term and long-term marketable securities, for a $9 stock).

Foolish takeaway
Unless and until SD masters the concept of "underpromise, overdeliver" (and not the other way around), this stock remains in the incongruous and unenviable position of being an extreme value play, somehow occupying a slot in the Motley Fool Rule Breakers portfolio.

Personally, I cannot fathom why Sigma Designs still occupies a place in our pantheon of hypergrowth stocks ... but at the same time, I can't  imagine it being sold at this deep a value.

Cue Clash, and sing: Will it stay or will it go (now)? Take a free trial of Motley Fool Rule Breakers and learn whether our growth stock team still thinks SD can turn things around.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.