general body meeting 04.14.11. mutual investment club of cornell agenda announcements news updates...

General Body Meeting 04.14.11

Mutual Investment Club of Cornell

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Agenda

Announcements News Updates Tech Sector Pitch


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Announcements


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Senior Analyst Applications

Senior Analyst Application for Fall Take Charge of a Sector

Deadline: Saturday, 4/16


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News Updates


ECB Rate Hike

+ 25 bps to 1.25% starting 4/13 Rate 1% from June 2009 - Mar 2011 Target rate “below but close to” 2%

medium term Euro area CPI 2.4%, February

projected 2.8%, March PIIGS lag the rest of Europe

Bailed out: Portugal, Ireland, Greece Fed unimpressed


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Portugal

Political crisis since Socrates' resignation

Mid May deadline to agree to austerity program

Looking to receive aid before June Cross-party talks are crucial No new proposal to bailout plan in

Wednesday’s meeting with opposition


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Safe Bulkers

Secondary offering of 5mm shares at $8.40

8% dilution Stock dropped from $9.26 to $8.30 Citi lowers price target from $10 to $9 Proceeds will fund ship building costs

and general operations Book Runners: MS & BAML Co-Manager: Evercore


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Media Sector:The Walt Disney Update

On April 8th, Disney broke ground on Shanghai Disneyland Theme Park Expected to take 5 years

The theme park is part of a bigger $4.4 billion Disney resort (hotels, restaurants, retail shops, etc)

Ownership 43% to Disney 57% to a state-owned businesses (Shanghai

Shendi Group Co. Ltd) Costs and Profits divided accordingly


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Media Sector:The Walt Disney Update

Event Attended by Chinese officials and Disney

managers Attracted local media’s attention

Disney’s CEO (Robert Iger)"We'd love to develop multiple other businesses in China, certainly in television. We're growing our games presence. We're growing our retail presence. We're growing our English-language learning presence. None of it is directly connected to this development, other than we view China overall as a great market."


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Cisco

April 12: Cisco kills the Flip line of portable video recorders Cutting 550 jobs (<1% of total) Refocusing on switching business Flip previously posted <1% of total sales Originally purchased for $590M in 2009


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Cisco

Key Goal: shore up main business operations (routers and switches) “Cisco needs to choose between

protecting share or preserving margins” Typically took 70 to 80% margins,

compared to competitors (IBM, ORCL, HPQ) which take 40% margins

Beginning to lose market share to smaller competitors, margin has decreased to 64% in FY 2010


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Cisco

Consensus: Refocusing on core business is a positive Company can leverage its dominance to

counteract decreasing trend in market share

Axing the Flip business is a “drop in the bucket”

More changes are required, but more changes are expected

Uptick in IT spending in 2011 will still represent a positive factor despite losses in market share


Industrials Sector Update:Silver and Gold Prices

Nick Hosseini


Silver


Gold


Causes

Industrial growth Silver essential in many industries Growth in Asian markets

Increased investment Worry over events overseas, increased energy

prices Silver in more abundance than gold

Increased demand for silver coins


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Entropic Communications, (ENTR)

Joshua Lyons, Howard Yu,

Ryan Haid, Hyungjoo Kim


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Industry Overview


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General Industry Overview

Semiconductor – Broad Line Heavy Hitters:

Intel Texas Instruments International Business Machines


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Industry at a Glance

Market ShareIntel (32%)Texas Instruments (13%)International Business Machines (4.5%)


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Summary within US

Innovation for PCs, TVs, broadcasting/telecommunication services

Expected revenue for 2011: $59.3B Big players reliant on services that

heavily use semiconductors are expected to increasingly outsource within next 5 years


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Key External Drivers

Private investment in computers and software

Demand from electrical equipment, appliance and component manufacturing

Price of semiconductor and electric components

Research and development expenditure Trade-weighted index


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Products and Services


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Industry Costs


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Company Overview


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Company Overview

Leading fabless semiconductor company designing, developing and marketing system solutions to enable connected home entertainment

Provides next-generation silicon and software technologies to the world’s leading cable, telco and satellite service providers, OEMs and consumer electronics manufacturers

Market Cap: 685.4M Ranked 28/49 among competitors (Yahoo! Fi-

nance)


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Company Overview

Location Headquarter in San Diego, USA Worldwide Sales Locations

San Jose, USA Berkshire, UK Hong Kong Shenzhen, China Taiwan Yokohama, Japan Korea


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Company Overview

Location Headquarter in San Diego, USA Worldwide Sales Locations

San Jose, USA Berkshire, UK Hong Kong Shenzhen, China Taiwan Yokohama, Japan Korea


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MoCA

Multimedia over Coax Alliance: a global home networking consortium that sets standards for the distribution of video and other multimedia entertainment over coaxial cable

Founding member Entropic’s MoCA home networking

solutions clients: DIRECTV, Verizon FiOS, Time Warner Cable, Comcast, Cox etc.


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MoCA

Turns the coaxial cable already installed in your house into a robust, high speed whole home entertainment network

http://entropic.com/products/moca.htm


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Product Offerings

Focused on bringing connected home entertainment into and throughout the home

Product families Home Networking Digital Broadcast Satellite Solutions Broadband Access Silicon TV Tuners

Opportunity for expansion to home stereos, game consoles, Blu-ray players etc.


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Product Offerings

Home networking chipsets Chipsets based on the Multimedia over

Coax Alliance (MoCA) standard 85% of MoCA market control, and the

market is expected to grow at 35%-40% per annum

Direct broadcast satellite (DBS) services Significantly reduce the deployment costs

for DBS providers by allowing them to send multiple video streams from individual or multiple satellites into the home over a single cable


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Product Offerings

Broadband access chipsets Use the coax infrastructure to deliver “last

kilometer” connectivity for high-speed access to single-family homes and multi-dwelling units

Ethernet-over-Coax (EoC): for multiple dwelling units

Silicon TV tuners Designed for numerous digital television

applications and offer OEMs cost effective, higher performing and integrated components


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Past Acquisitions

Vativ Technologies for $43.8M (4/4/08) A provider of high-bandwidth, advanced

digital processing solutions for digital television and 10 gigabit Ethernet markets

RF Magic (7/2/ 2007) A provider of digital broadcast satellite

outdoor unit and silicon tuner solutions Arabella Software Ltd (5/1/2007)

A developer of embedded software


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Financials


Overview

Share price: 7.45 (4/13/2011) 52wk range: 4.31-13.96 Market cap: $685.4 mil YTD: -62.15%


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Industry Comparison

Ratios ENTR Industry

P/E TTM 9.1 18.3

P/B 2.6 1.3

P/S TTM 2.8 2.9

ROE TTM 40.8 1.1

Operating Margin

15.8% 20.8%

Net Margin 30.8% 1.8%

Debt/Equity 0 1.3


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Income Statement


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Net Income Bar Chart (Annual)


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Net Income Bar Chart (Quarterly)


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Revenue Drivers

Much of ENTR’s revenue comes from thriving DirectTV business, supporting Entropic’s MoCA business

DVR subscriber growth at 6% Q-Q & MRV (multi-room viewing)

33% of new subscribers took the MoCA-powered MRV capability => increasing popularity of MoCA devices

New “DirectTV Cinema” services = incremental revenue opportunity


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Balance Sheet


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Balance Sheet Bar Chart (Qrtly)


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Cash Flow Statement


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Earnings Forecast (Bloomberg)


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Risks


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Fundamental Risks

Delay in launches of multi-room DVR (Digital Video Recorder) services by satellite providers could negatively impact ENTR’s results

Rapidly growing market will attract more competitors: Broadcom is also offering MOCA (home

entertainment networking system) solutions, going head to head with Entropic

Could cause revenue erosion, a cause of investor worries


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Fundamental Risks

However, ENTR remains the product leader

ENTR is the patent holder of technology related to MOCA, entitling ENTR to royalties from Broadcom (offsets revenue loss)

Growing market size of MOCA, currently on 10% of households in market penetrated in March 2011

Size of MOCA market enough to support 2 major chip makers


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Technical Risks

Since January, ENTR’s stock price has experienced negative momentum due to CEO rejecting acquisition possibilities and perceived threat of new competition

As a result, price of ENTR highly undervalued However, fundamentals of ENTR remain sound When ENTR demonstrates further revenue and

NI growth in Q2 results, translates into trend reversal

Short squeeze effect may push price of ENTR further upwards (Short Ratio = 34.8%)


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Catalysts


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Catalyst 1/4

Semiconductor sector strength TI’s 6.5B acquisition of National

Semiconductor (April 5) may be the start of a rally

Increased demand in the tech sector Strong demand for semiconductors from

new markets Indication of improving performance for

the semiconductor ETF, increased tech investments


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Catalyst 2/4

Earnings Report (April 26) Likely to see dramatic growth in EPS and

sales Historically Entropic has beat expected

earnings and EPS in the last 6 quarters If reported numbers match expectations,

the P/E would drop as low as 8 assuming no price change

Some have forecasted 200%+ growth in EPS, 40% increase in sales


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Catalyst 3/4

Major Expansion in China Tianjin Broadcast network, and Guangzhou Digital Media,

chose Entropic technology to offer IPTV services Indicates company has a positive working relationship with

Chinese government China has exceptional potential for future consumption of

Entropic’s technology Currently under 30% internet penetration (Entropic provides

internet connectivity hardware) Currently Negligible IPTV penetration (Entropic is dominant in this

sector) China macro trend: increased imports, trade deficit 2011-2015 Five Year Plan: specific mention of plan to

increase electronic and high-tech imports to ease trade tensions with developed markets


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Catalyst 4/4

Acquisition Entropic’s rapidly growing business and international

expansion makes it a credible threat to the challenge of new entrants, such as Broadcom and Qualcomm

Potential value of the MoCA market which Entropic could take greatly exceeds its market cap

Entropic is way ahead of competitors in making huge investments to develop superior MoCA products

In January, Entropic CEO stated they prefer to be a “standalone company” Speculation that this posture has served to increase the perceived

competitive threat of Entropic Increased competitor interest in a buyout

There are two major competitors (Broadcom and Qualcomm): a bidding war? Purchase price at 15+ per share?


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Thesis

Unfairly Underpriced Low P/E (~10) Previous close at 7.45, 12-month consensus TP at 15.5

Volatility will Stabilize Relatively new company so there is investor uncertainty Entropic has consolidated and continued to build on its gains Well poised to undergo dramatic further development as an

independent company

Strong Catalysts for Price Performance Sector growth Earnings report China expansion Buyout possibility


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Proposal

Buy Stop: 230 shares @ 8.50 price level

Total value: $1955

QUESTIONS?


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Thanks for coming by!

You are given a coin that comes up heads with some probability greater than ½ and less than 1.

Can we use it to simulate an unbiased coin toss?

general body meeting 04.14.11. mutual investment club of cornell agenda announcements news updates...

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