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Every dark cloud has a silver lining. The bankruptcy thunderhead hanging over Trident Microsystems (Nasdaq: TRID ) could be pure silver for rival Entropic Communications (Nasdaq: ENTR ) . The latter could sure use some easily won precious metals right now.
After years of spotty sales and heavy losses, Trident appears close to calling it a day. The maker of media processors for set-top boxes and modern TV sets is filing for Chapter 11 reorganization in the U.S. and Cayman Islands, setting the stage for a quick bidding war.
Entropic kicks off the bidding as the appointed "stalking horse" bidder. For $55 million in cash, Entropic hopes to gain Trident's set-top product lines and a hefty chunk of technology patents. The Trident assets are supposed to report positive earnings for Entropic within a year.
It's not a slam-dunk win, though. Broadcom (Nasdaq: BRCM ) is a huge player in the set-top space with cash to spare, and may very well swoop in with a bigger bid. STMicroelectronics is another likely bidder, as the Trident assets would catapult STMicro into a whole new set of North American contracts.
Stalking horse bidders don't always win these bankruptcy auctions. In this particular case, though, Entropic looks like a terrific fit for Trident's assets. The two companies ship very complementary products, often side-by-side in the same home entertainment systems. It's a logical expansion of existing businesses.
Moreover, Entropic is profitable and debt-free, which should make it look like a stable bidder when the bankruptcy judge bangs the gavel. STMicro could pose a challenge if it really wants a slice of American market pie; Broadcom's already huge footprint makes it a far less likely winner.
Trident shares may end up totally worthless. If you're looking for a stock in the space that Foolish analysts love, take a peek at a few semiconductor stocks with tremendous prospects in 2012 before it's too late.