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Entropic Communications, Inc. (ENTR)

Q3 2012 Earnings Call

October 24, 2012; 04:30 p.m. ET


Patrick Henry - President & Chief Executive Officer

Dave Lyle - Chief Financial Officer

Debra Hart - Director of Investor Relations


Ruben Roy - Mizuho Securities

Aalok Shah - D. A. Davidson

Anthony Stoss - Craig-Hallum

Sandy Harrison - Wunderlich

Krishna Shankar - Roth Capital

Gary Mobley - The Benchmark Company

Chris (ph) - Barclays

Tore Svanberg - Stifel Nicolaus

Rajvindra Gill - Needham & Company

Alex Gauna - JMP Securities

Ryan Carver - Credit Suisse



Good afternoon ladies and gentlemen. Welcome to the third quarter 2012, Entropic Communications Incorporated earnings conference call. My name is Chris and I will be your conference moderator for today.

Presently all participants are in a listen-only mode. Later we will facilitate a question-and-answer session. (Operator Instructions).

And at this time I would now like to turn the conference over to your presenter for today, Ms. Debbie Hart. Ma’am, you may proceed.

Debra Hart

Thank you Chris and good afternoon everyone. Participating in today’s call are Patrick Henry, President and CEO; and Dave Lyle, our Chief Financial Officer. During the call, Patrick and Dave will present our third quarter results and our short-term outlook and then we’ll open it up for questions.

Throughout this call we will be discussing certain non-GAAP financial measures. Today’s earnings release and the related report on Form 8-K describe the differences between our non-GAAP and GAAP reporting and present a reconciliation between the two for the periods reported in the release. We’ve also posted a schedule on the Investor section of our website, which includes our quarterly reconciliation of our GAAP to non-GAAP gross margins, operating expenses and taxes.

During this conference call we will make forward-looking statements regarding future events and anticipated operating or financial results of the company. Actual events or results could materially differ from those projected in the forward-looking statements. Please refer to our SoC filings, including our most recent 10-K and 10-Q, which contain important factors that could cause actual results to differ materially from the forward-looking statements.

We undertake no obligation to revise or update publicly any forward-looking statement to reflect the future events or circumstances.

And now it’s my pleasure to introduce Patrick Henry.

Patrick Henry

Thank you Debbie and thanks to everyone for joining the call today. We had record quarterly revenue in Q3 of $89.8 million, up 8% sequentially, both connectivity and set-top box SoC group showed revenue growth in the quarter. We delivered upside to revenue, net income and earnings per share and we see our product cycle momentum continuing into Q4. All in all it was a solid quarter.

I’ll provide some commentary before the turning the call over to Dave, who will review the specifics of the Q3 numbers and provide guidance for the fourth quarter. Then I’ll provide some closing comments before opening the call for your questions.

From an organizational standpoint we recently made an addition to our executive team. I am pleased to welcome Vahid Manian, our new Senior Vice President of Global Operations. With the acquisition of the set-top box SoC assets, the scale of scope of our global operations function has expanded significantly. We will benefit from Vahid more than 25 years of semi-conductor experience and bringing in a broad product line of high volume, complex silicon solutions to market cost effectively.

We also extended our Board of Directors by adding Bill Bock as an independent Director and member of our audit committee. Bill has a wealth of corporate leadership and board experience that should prove invaluable for both the Entropic board and our management team. He also brings semi-conductor industry expertise, having most recently served as CFO of Silicon Labs.

Moving to the business highlights, the integration of the set-top box SoC business is going extremely well. The supply issues we faced with the set-top box product line at the time of the acquisition have now been fully resolved. Our new SVP of Sales kicked off our sales team integration efforts for sharper focus on customers; our IC systems are now all running on the Entropic network; we completed the transition from NXPs enterprise resource planning system for set-top box SoCs and we continue to rationalize and optimize our supply chain.

We’ve also made substantial progress on aligning our product plans and now have a unified product road map for our customers that include our set-top box SoCs and connectivity products. I am very pleased with our integration progress so far.

Traffic has an expanding addressable market and we are benefiting from several service provider trends that should drive additional demand for our products. First, let me address the HD penetration and upgrade trend. HD penetration continued to increase both in the US and worldwide. IMS Research shows that the number of homes in the U.S. with at least one HD set-top box is around 57 million homes today, potentially growing over 92 million homes by 2015, and consumers are also adding second and third room HD TV sets as the cost of HD TVs decline. So nearly all new HD set-top boxes shipped in the U.S. include MoCA as the standard installation model for HD TV servers. The MoCA market opportunity grows as HD penetration increases.

In addition to new HD service installs, we see pent-up demand for existing HD TV subscribers with all the HD equipment to upgrade to advanced services enabled by MoCA. Advanced services include multi-room DVR and over the top video streaming to multiple devices in the home.

Shifting to the second trend, which benefits both our connectivity and SoC businesses, we are seeing many Pay-TV service providers adding IT based video streaming services with increased in-home connectivity to their offerings. With this move from Pay-TV, operators can bring new video services to market quickly, allowing for increases in average revenue per subscriber.

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