With the up-and-down nature of the markets lately, it seems all you have to do is wait a week for the sentiment to change. And while last week saw all the major indexes advance, it culminated with the lukewarm public debut of Entropic (NASDAQ:ENTR), a fabless chip designer targeting the consumer multimedia market. It was originally slated to sell 10 million shares at a price between $9 and $11, but a soft market dropped the offering to 8 million shares at $6. Upon opening Dec. 7, however, the stock jumped 23% to end the day at $7.40 a share. Currently, the stock is trading at around $7.70.
Entropic's products are all about consumer multimedia -- the company makes the silicon that powers products receiving and sharing multimedia within the home. Started in 2001, the company's founders actually trace their roots back to an influential communications company credited with incubating much of the vast tech industry present in San Diego today -- Linkabit. The name may sound familiar, since it's the company that Irwin Jacobs and Andy Viterbi started and grew prior to founding wireless bellwether Qualcomm (NASDAQ:QCOM).
For the first nine months of 2007, Entropic reported revenues of $97.4 million and a pro forma loss of $14.4 million. The vast majority of this revenue comes from Asia, where OEM customers such as Motorola (NYSE:MOT) and Jabil Circuit are building Entropic chipsets into products.
Many of these end products come back to the United States as a basis for broadband Internet and television offerings from Verizon (NYSE:VZ) and EchoStar (NASDAQ:DISH). Incidentally, Verizon and EchoStar are also investors in Entropic, along with Time Warner, Cisco (NASDAQ:CSCO), and Intel (NASDAQ:INTC).
One major risk factor with Entropic involves revenue concentration -- Verizon's FiOS deployment and EchoStar's satellite offering account for almost all of Entropic's presence in end products. So far, Verizon's FiOS service has been growing rapidly, but any adverse changes in the relationships between Entropic and Verizon or EchoStar would have a significant impact on revenue.
As Entropic works to propagate its solutions with more end customers and thus diversify its revenue, the investment will become more attractive. But even with the lackluster IPO, investors looking for leaders in the next generation of the digital home will want to keep an eye on Entropic.
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