Shares of Sigma Designs Inc. (Nasdaq: SIGM) are down 20 percent midday on word that Broadcom Corp. (Nasdaq: BRCM) may have won a key IPTV deal with Motorola Inc. (NYSE: MOT).

Motorola, which accounted for 23 percent of Sigma's revenues in the fiscal year ending Feb. 2, is building prototype second-generation IPTV set-tops that use a Broadcom processor, Robert W. Baird & Co. Inc. analyst Tristan Gerra wrote in a research note this morning.

Sigma shares were down $4.26 (20.2%) at $16.77 in early afternoon trading.

The reaction might seem extreme, but some investors have been poised for any news that Broadcom or STMicroelectronics NV (NYSE: STM) might be ready to break Sigma's near-monopoly in IPTV set-top boxes. Sigma's chip has been the only processor certified for the Mediaroom, the Microsoft IPTV platform. Just yesterday, it put out an updated version, also tailored toward Mediaroom. (See Sigma Enters IPTV Round 2.)

Even a hint of Broadcom working with Microsoft was enough to drag Sigma's stock down recently. (See Sigma's Luck Goes Omega and Sigma Bounces Back.)

But Sigma isn't convinced that Motorola has made any decisions on its next generation of boxes, considering Broadcom's relatively recent entry into the market. "Decisions like that are not usually made in that way," says Ken Lowe, Sigma vice president of business development.

Even if Motorola has decided it likes Broadcom, Sigma probably wouldn't lose all its business there. "The type of position somebody like Motorola would take is that they want to offer as many options as they can," Lowe says. "As far as I'm concerned, we're in very good position with our next-generation product."

Investors do sense something's at stake, though. Broadcom's supposed arrival could affect Sigma's business with carriers, including AT&T Inc. (NYSE: T), BT Group plc (NYSE: BT; London: BTA), and KDDI Corp. , Gerra writes. But the ramifications wouldn't hit until next year.

The companies involved weren't immediately available for comment.

— Craig Matsumoto, West Coast Editor, Light Reading