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Semiconductors - Monday, October 12, 2009

Israeli IPTV Chip Maker CopperGate Bought for $200M

Sigma Designs (SIGM.O) is expected to announce the acquisition of Israeli home networking chip firm CopperGate Communications for $200M in cash in shares.

CopperGate develops chipsets for multimedia home networking using existing wiring. Sigma makes chips for the IPTV set-top box market and Blu-ray players.

Israel's Tamir Fishman Venture Capital owns 31% of CopperGate, Carmel Ventures owns 27% and Motorola owns 9%.

Despite the high price point, one analyst is skeptical: ''We think that the sale is coming from a point of weakness, as the company has been on the block for six months,'' said Daniel Amir, an analyst with Lazard Capital Markets. ''CopperGate is one of the only plays in Home PNA. CopperGate chips are designed for the HomePNA, HomePlug AV and G.hn standards for home networking. We estimate 2009 revenue of roughly $80M; 90% of which comes from AT&T, its largest customer,'' he said.

Amir continues that the deal makes sense for three reasons:

1. ''Sigma Designs' and CopperGate's chips sit next to each other on the board for AT&T set-top boxes.''

2. ''Sigma Designs is familiar with CopperGate's end customer(s) and, in the long run, this could allow Sigma Designs to corner the market for ATT set-top boxes.''

3. ''It would give Sigma Designs a significant advantage over Broadcom in integrating the two chips.''

According to the analyst, the deal does not makes sense for three reasons:

1. ''The purchase price may be too high given the risk associated with a single-customer story and lack of traction outside of ATT for its technology, plus the acquisition may be dilutive.''

2. ''The acquisition does not expand Sigma Design's TAM.''

3. ''Depending on the amount of cash used, we could see a lower floor for Sigma Designs shares.''

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