Shares of Entropic Communications (NASDAQ:ENTR) haven't exactly performed well this year, with the stock down a gut-wrenching 42% year-to-date. The company has been bleeding money for the last several quarters, and although an inflection point has always been "just around the corner," it never actually seemed to come.

Well, it seems that Entropic's board of directors decided to take some pretty drastic action in order to get the company back on track. Although only time will tell whether the actions announced on Monday, November 10, 2014 will lead the company back to growth, it's worth at least trying to understand what management is doing and what it hopes to achieve.

See you later, Patrick Henry
Entropic announced that its now-former CEO Patrick Henry would resign, and that Dr. Ted Tewksbury will serve as interim President and CEO "effective immediately."

Although it remains to be seen whether Tewksbury will be able to turn around the struggling chipmaker, Entropic's stock performance since its IPO under Henry's watch has been less than inspiring. The company went public in Dec. 2007 at $6 per share, but the shares trade at just $2.68 as of this writing. At this point, the CEO transition -- in my view -- is quite welcome, and I'm almost positive most other stockholders would agree.

With new management comes layoffs and a new strategy
Entropic also announced that it would be exiting the set top box, or STB, system-on-chip market. Although management expects revenue from STB to be material over the next three years as design wins based on its current chips ramp, it no longer plans to invest in designing future products for this market.

Commensurate with that decision, the company is axing about 40% of its workforce, or "approximately 200 positions." The company expects to enjoy about $44 million in non-GAAP savings as a result of these layoffs, which should significantly lower the company's breakeven point. In fact, the company reports that it expects to be profitable on a non-GAAP basis next quarter.

Short term win, but long-term concerns loom
In the near-term this is a win for Entropic. Even though the business isn't in terribly good shape, the company reported having $107 million in cash and cash equivalents on the books and no long-term debt. Although management expects this balance to decline to about $100 million at the end of the current quarter, this is still a respectable war-chest.

If Entropic can preserve this cash-hoard as it tries to find its footing going forward, then the downside to the shares here could be limited. The question in this case becomes just how much upside Entropic shares will be able to deliver, and at this point the answer to that question is unclear.

Indeed, the longer term concern is that once Entropic is finished milking whatever STB system-on-chip designs it has already developed, can the rest of the business continue to grow profitably?

What about "strategic alternatives"?
It is telling that Dr. Tewksbury serves as interim President and CEO. This, to me, suggests that he was brought in to clean house and make Entropic as valuable as possible as a potential acquisition target. A small company like Entropic has very little chance of being all that valuable as a "jack of all trades." However, if it can focus its efforts on being best-in-class at a few things, then it could become valuable to a larger semiconductor company at the very least for its technology, if not for its revenue base.

I plan to remain long Entropic stock at least for the next few quarters to see if Tewksbury is able to get the business polished up and back on track. If he shows signs of making real progress, then I'll be comfortable holding the stock longer-term either for a much stronger stand-alone business or an acquisition. If he cannot, then I'll admit defeat and sell my shares while they still have value.

Ashraf Eassa owns shares of Entropic Communications. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.