P Rospectus S Ummary
PROSPECTUS SUMMARY This summary highlights information contained in other parts of this prospectus. Because it is only a summary, it does not contain all of the information that you should consider before investing in shares of our common stock and it is qualified in its entirety by, and should be read in conjunction with, the more detailed information appearing elsewhere in this prospectus. You should read the entire prospectus carefully, especially “Risk Factors” and the consolidated financial statements and notes to these financial statements contained in this prospectus, before deciding to buy shares of our common stock.Our Company
We are a leading fabless semiconductor company that designs, develops and markets systems solutions to enable connected home entertainment. Our technologies significantly change the way high-definition television-quality video, or HD video, and other multimedia content such as movies, music, games and photos are brought into and delivered throughout the home.
We are a pioneer of key technologies that enable connected home networking of digital entertainment over existing coaxial cables, or coax. We are a founding member of the Multimedia over Coax Alliance, or MoCA, a global home networking consortium that sets standards for the distribution of video and other multimedia entertainment over coax. Our products include:
Our products allow telecommunications carriers, or telcos, cable multiple service operators, or MSOs, and DBS service providers, which we collectively refer to as service providers, to enhance and expand their service offerings and reduce deployment costs in an increasingly competitive environment.
Our home networking solutions capitalize on the worldwide conversion of multimedia content, including video, from analog to digital. Multimedia content is now easy to store on digital video recorders, or DVRs, gaming consoles, DVD recorders and PCs. The ability to store this content on various devices has created “islands” of digital entertainment within the home. Our products bridge these islands and allow consumers to access their multimedia content throughout the home. Today, we are the only high-volume supplier of MoCA-compliant chipsets, which can be embedded in a wide variety of consumer electronic devices. Service providers can employ our solutions to offer consumer applications such as multi-room DVR, multi-room and online gaming, PC-to-TV personal content sharing, and streaming of downloaded movies stored on a PC to any TV.
We have extensive core competencies in video communications, networking algorithms and protocols, system-on-a-chip, or SoC, design, embedded software, mixed signal and radio frequency, or RF, integrated circuit design, and communications and RF systems. We use our considerable experience with service provider-based deployments to create solutions that address the complex requirements associated with delivering multiple streams of HD video into and throughout the home while seamlessly coexisting with video, voice and data services that are using the same coax infrastructure.
We generate the majority of our revenues from sales of our products to original design manufacturers, or ODMs, and original equipment manufacturers, or OEMs, that provide customer premises equipment, or CPE, to service providers. We have sold our products to more than 55 customers globally, including Actiontec Electronics, Inc., Jabil Circuit, Inc. and Motorola, Inc. We have also established relationships with leading service providers including EchoStar Satellite L.L.C., Jupiter Telecommunications Co., Ltd., or J:COM, and Verizon Communications Inc. For the three months ended March 31, 2007, Entropic and its recently acquired subsidiary, RF Magic, Inc., generated pro forma revenues of $29.2 million.
Industry Background
Intense competition among service providers seeking to maximize revenues is driving a revolution in the delivery of video and other multimedia content into and throughout the home. Service providers are making significant infrastructure investments to differentiate their offerings, increase average revenue per user, or ARPU, increase subscriber growth and reduce subscriber turnover. Several favorable trends such as the increasing availability of digital multimedia content and consumer applications and the proliferation of digital media devices within the home are contributing to the increasing revenue opportunity for service providers.
Service providers and OEMs have identified a tremendous opportunity to seamlessly network the “islands” of stored multimedia content and enable the sharing of such content across devices and between rooms throughout the home. According to iSuppli Corporation, the number of network-enabled devices is expected to increase from 321 million in 2007 to 760 million in 2011, representing a compound annual growth rate of approximately 24%. To address this opportunity, service providers are introducing new CPE and service offerings. By providing CPE, service providers are able to easily introduce new services, simplify and enhance the user experience, and provide content security and service reliability.
The stringent communications requirements associated with high-quality HD video and other multimedia content present a significant obstacle for service providers today. In response, service providers require technology solutions that enable the distribution of such content into and throughout the home while maintaining the requisite high-quality standards demanded by subscribers. For any such technology solution to succeed, we believe it must satisfy the following requirements:
Our Solutions
We provide systems solutions comprised of silicon ICs and associated software as a platform to enable delivery of multiple streams of HD video and other multimedia content into and throughout the home. Our families of products include home networking, broadband access, DBS outdoor unit and silicon TV tuner solutions.
Home Networking
Our home networking solutions target a large and rapidly growing market. According to iSuppli, the worldwide home networking silicon total available market is expected to grow from $1.1 billion in 2007 to $3.1 billion in 2011, representing a compound annual growth rate of approximately 29%. Our home networking solutions are based on the MoCA standard. MoCA-based products use existing coax to create a robust internet protocol, or IP, based network for easy sharing of HD video and other multimedia content throughout the home. We have been working on MoCA-related technology since 2001 and are presently shipping our second generation of MoCA-compliant products. Our MoCA-compliant chipsets are currently being deployed by Verizon as part of its FiOS service offering. We believe that our pioneering role in developing the MoCA standard and our success to date in providing these solutions position us well to continue to be the leading provider of MoCA-based connected home entertainment solutions. Our home networking solutions provide the following key benefits:
Broadband Access
Our broadband access solutions are designed to meet broadband access requirements in areas characterized by fiber optic networks that terminate within approximately one kilometer of a customer premises. In particular, our solutions allow cable MSOs with fiber optic deployments to offer broadband access services that are competitive with very high-speed digital subscriber line, or VDSL, services offered by telcos. According to Interactive Data Corp., or IDC, worldwide broadband service subscriptions for our current target market, which consists of cable modem and fiber-to-the-home deployments, are expected to increase from 104 million in 2007 to 160 million in 2011. Our solutions use coax infrastructure to deliver “last kilometer” connectivity for high-speed broadband access to single-family homes and multiple dwelling units, or MDUs. They incorporate the same PHY used in our home networking products and a different network-optimized media access controller, or MAC, technology and offer high performance with net throughput in excess of 100 Mbps.
DBS Outdoor Unit
Our DBS outdoor unit solutions, which consist of our band translation switch, or BTS, and channel stacking switch, or CSS, products, target the large and growing DBS market. According to IMS Research, worldwide households with digital satellite free-to-air and pay-TV are expected to increase from approximately 266 million in 2007 to 377 million in 2011. In a traditional satellite installation, each tuner usually requires a unique cable from the satellite dish to the set-top box, or STB, to receive the full channel lineup. Our DBS outdoor unit solutions can 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. This simplified cabling architecture can enable DBS providers to deploy STBs, with multiple tuner capabilities, in multiple rooms, and roll out new services without expensive installation and retrofitting while also improving aesthetics.
Silicon TV Tuner
We provide silicon TV tuner ICs for satellite, cable and terrestrial applications that conform to most of the major digital video broadcast standards. According to IMS, worldwide shipments of satellite, cable and terrestrial STB and integrated DTVs are expected to increase from approximately 186 million in 2007 to 277 million in 2011. Our tuner ICs integrate RF functions, including those performed by a surface acoustic wave filter, with other major discrete components onto a single die while maintaining the performance of traditional non-silicon can tuners. Our highly integrated solutions significantly reduce our customers’ design costs and shrink the tuner footprint in consumer electronic devices.
Our Strategy
Our goal is to be the leading provider of systems solutions for the connected home entertainment market by enabling the delivery of multiple streams of HD video and other multimedia content into and throughout the home. The key elements of our strategy are to:
Risk Factors
We are subject to a number of risks, which you should be aware of before you buy our common stock. These risks are discussed in “Risk Factors.”
Corporate Information
We were incorporated in Delaware in January 2001. Our principal executive offices are located at 9276 Scranton Road, Suite 200, San Diego, California 92121, and our telephone number is (858) 625-3200. Our corporate website address is www.entropic.com. We do not incorporate the information contained on, or accessible through, our website into this prospectus, and you should not consider it part of this prospectus.
For convenience in this prospectus, “Entropic,” “we,” “us,” and “our” refer to Entropic Communications, Inc. and its subsidiaries, taken as a whole, unless otherwise noted.
We use “Entropic,” “Entropic Communications,” “c.LINK” and “RF Magic” as registered trademarks. This prospectus also contains trademarks and tradenames of other companies, and those trademarks and tradenames are the property of their respective owners.