Please ensure Javascript is enabled for purposes of website accessibility

SigmaTel Shuffles Guidance

By Tim Beyers – Updated Nov 16, 2016 at 1:27PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The niche chip supplier blames its woes on equipment problems. Don't be surprised if it's more than that.

The tech industry is a brutal, unforgiving business. There's a reason for that, of course. Information technology moves so fast that only firms with the smarts, cash, and marketing know-how win over the long term. It's survival of the fittest at its pugnacious best. And worst.

Take SigmaTel (NASDAQ:SGTL), for example. Yesterday the maker of semiconductors for portable music and entertainment devices cut its outlook for the upcoming quarter because of "equipment issues" at its test and assembly facilities. Specifically, now the company expects to earn $0.10 less per share than the low end of guidance on $74.4 million in sales for the third quarter. That's well below prior guidance of $0.30 to $0.37 a stub on $73 to $83 million in revenue. Not surprisingly, investors have run for the exits faster than a cat at a dog show, sending the stock lower by more than 13% as I write this morning.

Normally I'm not one for such panic selling, but this appears completely justified. Allow me to explain.

When Apple's (NASDAQ:AAPL) new iPod Nano was introduced -- the second of the Mac maker's music players to use Flash technology instead of a hard drive -- it was assumed that SigmaTel would provide the brains of the device, as it does for the iPod Shuffle. But researcher iSuppli took the Nano apart and found instead that rival PortalPlayer (NASDAQ:PLAY) had gotten the gig.

That's flat-out awful news for SigmaTel. And don't let "equipment problems" blind you from that fact. The rest of the digital music maker market is seriously lagging Apple. Consider the numbers. The iPod Shuffle has gone from a 0% share in January to more than 40% of the U.S. market for Flash players in September, according to NPD Group. (Go here for details.) And with the Nano, most appear to expect the Apple's march forward in Flash to continue.

Certainly, SigmaTel has been a benefactor of ravenous Pod people. Yet that now appears to be a one-time anomaly, confined to the Shuffle. So, go ahead, pick your eight-track of trouble: equipment problems or a suddenly smaller market opportunity. In either case, it's indicative of a stock that's decidedly off-key.

Tune in to related Foolishness here:

  • Guess who else has joined the pod people? Yahoo! (NASDAQ:YHOO).
  • Is this really a surprise? I mean, really, most in the portable music business have been suffering for months.
  • Even Hewlett-Packard (NYSE:HPQ) got out of the biz.
  • Don't bet on seeing a video iPod anytime soon.
  • You'd think Microsoft (NASDAQ:MSFT) would have grown a brain when it comes to digital music. Yeah, not so much.

Do you loathe the thought of pricey tech stocks? Do you go to the mall and only shop in the bargain aisle? Do garage sales actually appeal to you? If so, Motley Fool Inside Value was made for you. Learn how Philip Durell and his Foolish band of value investing analysts buy stocks on sale by taking a risk-free trial today. Your portfolio will thank you.

Fool contributor Tim Beyers visited an Apple store with his wife last week. Now, of course, she wants an iPod Nano. That'll teach him. Tim didn't own shares in any of the companies mentioned in this story at the time of publication. You can find out what's in his portfolio by checking Tim's Fool profile here. The Motley Fool has an ironclad disclosure policy.

None

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

HP Inc. Stock Quote
HP Inc.
HPQ
$25.35 (-1.40%) $0.36
Microsoft Corporation Stock Quote
Microsoft Corporation
MSFT
$237.92 (-1.27%) $-3.06
Apple Inc. Stock Quote
Apple Inc.
AAPL
$150.43 (-1.51%) $-2.31

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
339%
 
S&P 500 Returns
109%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/24/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.