Entropic Revenue Will Plunge in Q3 as Cable Operator Demand for HD-DTAs Slows

HD-DTA set-tops have been in field trials with Comcast and other operators for several years, but the volume ramp up for deployments has been postponed until mid-2014 as cable operators “continue to work through their nationwide” plans, Henry said. HD-DTA devices are designed to convert a standard digital signal into HD without the need for a new full-size set-top. The HD-DTAs contain a digital tuner, HDMI interface, RF outputs and can send an HD signal to multiple products within the home. Entropic developed the EN7100 and EN7120 processors for HD-DTAs and acquired the PNX8475 in buying Trident Microsystems’ set-top business last year. Entropic Q3 revenue is expected to be $55 million to $57 million, down from $70.6 million in Q2, said Chief Financial Officer David Lyle. The decline in revenue is equally tied to DirecTV and HD-DTAs, he said.

Comcast is among the largest potential deployments for HD-DTA, along with Time Warner Cable, both of which use set-tops from Arris’s Motorola set-top box unit. Other HD-DTA supplies include Pace. Entropic’s “flagship” cable operator for HD-DTAs “continue to show a delay in ramp” up, while another “major” cable company slows HD-DTA deployment plans amid “constraints” on its short-term capital budget that will “persist through the end of the year,” said Henry, not identifying either operator. The capital spending issue will be resolved in Q1 with “volume shipping” expected for the next few years, Henry said. Comcast officials weren’t available for comment.

"HD-DTAs are still a strategic imperative by nearly all of our major cable MSO end customers in North America as they move their basic cable subscribers from analog to digital TV, which frees up bandwidth,” Henry said of multiple system operators.

Entropic’s downturn in sales at DirecTV stems from the satellite operator’s move to its Genie DVR as its “predominant deployment model,” Henry said. The Genie DVRs use Broadcom’s processor that features integrated MoCA technology. While Entropic once had a dominant share of MoCA chip business, it now is “probably equally sharing it” with Broadcom, Henry said. As a result of a sharpened focus on Genie, DirecTV is “significantly reducing” deployment of Entropic’s MoCA chips in Ethernet over coax adapters, he said. The move to Genie DVRs also is reducing the rate at which DirecTV refurbishes older set-top satellite boxes, he said. DirecTV also has employed a new inventory management system to “more closely manage field inventory levels,” resulting in an overall tighter policy, Henry said. DirecTV officials weren’t available for comment.

Entropic also took a $4.8 million impairment charge on its investment in transcoder developer Zenverge, and scrapped a joint development project with the company, Henry said. Entropic has invested $10 million in Zenverge in 2011 and Henry was on the company’s board. The companies had planned to deliver samples this year to customers of a combo MoCA 2.0/transcoder chip capable of handling six HD streams simultaneously (CED April 3 p2). Entropic scored design wins in the past for bundling Zenverge’s ZN200 quad-stream transcoder with MoCA 1.0 and 1.1 chips, and was working with the company on Comcast’s reference design kit, which preloaded software that powers Tru2way, Internet Protocol and hybrid set-tops and gateways. It will continue to work with Zenverge on reference designs, Henry said. “While transcoding is important to our future initiatives, a bundling strategy allows us to service customers with a high volume solution,” enhances focus on Entropic’s “next-generation” set-top processor and saves operating expenses, Henry said.

Entropic has been working to develop a combo MoCA 2.0/set-top processor with a goal of having them in cable products in 2014, company officials have said (CED Nov 27 p1). The integrated system on a chip (SoC), to be produced by Taiwan Semiconductor Manufacturing Corp. using a 28-nanometer process, is to be among the company’s first combined ICs, building on technology it acquired in buying the Trident business. Entropic expects to ship the combo chips “later next year,” said ?Henry. Entropic forecast the Trident business becoming accretive to the company’s earnings by Q4. It has design wins that “could not only make the business accretive, but get us back into the model by the tail end of 2014,” Henry said.

The company had a $39.9 million Q2 net loss vs. a $173,000 profit a year earlier as revenue fell to $70.6 million from $83 million. The loss was partly tied to a $1.76 million restructuring charge that included cutting 66 jobs, the company said. Entropic also bought analog mixed-signal chip developer Mobius Semiconductor in Q2 for $13 million, the company said. In the deal, Entropic granted restricted stock units equal to 3.2 common shares to some Mobius employees that joined the company, Entropic said.