Chipset maker Entropic Communications (Nasdaq: ENTR) saw its shares plunge by 38% earlier this month even after reporting a surge in its second-quarter profits. Although both revenue and profits rose sharply, they nevertheless failed to meet analyst expectations. Let’s take a look at what happened and what lies ahead for Entropic.

A look at the quarter
Revenues for the quarter zoomed to $61.5 million from $40.7 million in the year-ago quarter -- a massive surge of 51% -- but that fell short of Street projections of $65 million. Entropic has shipped more than 50 million of its MoCA (Multimedia over Coax Alliance) enabled chipsets in the past four years, helping contribute to the rise in revenue over the previous year. But a drop in sales to Verizon Communications (NYSE: VZ), one of its major customers, affected growth.

Net income more than doubled from the year-ago period to $7.8 million. But compared to the previous quarter, income fell by almost 34% due to low shipments to Verizon, which adjusted its inventory structure after seeing weak demand for its MoCA-bearing FiOS service.

The road ahead
This quarter represents a departure for Entropic, which has typically reported sequential growth in previous quarters. The company has extended its partnership with Intel (Nasdaq: INTC) to create new designs for its set-top boxes. In addition, it has inked partnerships with Zoran (Nasdaq: ZRAN), Actiontec, Zenverge, and other companies to develop new products. The basis of these new deals is the MoCA 2.0 enabled chipset, which aims to reduce system costs and improve performance.

With such plans in the pipeline, the company should be able to take the Verizon business slowdown in its stride and move ahead.

The Foolish bottom line
After peaking at almost $14 in January, Entropic's stock has lost two-thirds of its value. However, with development plans in place, a recovery could be in sight. We need to wait and see how the plans materialize and how the next quarter unfolds.

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