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General Body Meeting 04.14.11

General Body Meeting 04.14.11. Agenda. Announcements News Updates Tech Sector Pitch. Announcements. Senior Analyst Applications. Senior Analyst Application for Fall Take Charge of a Sector Deadline: Saturday, 4/16. News Updates. ECB Rate Hike. + 25 bps to 1.25% starting 4/13

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General Body Meeting 04.14.11

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  1. General Body Meeting 04.14.11

  2. Agenda • Announcements • News Updates • TechSector Pitch

  3. Announcements

  4. Senior Analyst Applications • Senior Analyst Application for Fall • Take Charge of a Sector Deadline: Saturday, 4/16

  5. News Updates

  6. 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

  7. 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

  8. 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

  9. 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

  10. 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."

  11. 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

  12. 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

  13. 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

  14. Industrials Sector Update: Silver and Gold Prices Nick Hosseini

  15. Silver

  16. Gold

  17. 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

  18. Entropic Communications, (ENTR) Joshua Lyons, Howard Yu, Ryan Haid, Hyungjoo Kim

  19. Industry Overview

  20. General Industry Overview • Semiconductor – Broad Line • Heavy Hitters: • Intel • Texas Instruments • International Business Machines

  21. Industry at a Glance Market Share Intel (32%) Texas Instruments (13%) International Business Machines (4.5%)

  22. 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

  23. 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

  24. Products and Services

  25. Industry Costs

  26. Company Overview

  27. 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! Finance)

  28. Company Overview • Location • Headquarter in San Diego, USA • Worldwide Sales Locations • San Jose, USA • Berkshire, UK • Hong Kong • Shenzhen, China • Taiwan • Yokohama, Japan • Korea

  29. Company Overview • Location • Headquarter in San Diego, USA • Worldwide Sales Locations • San Jose, USA • Berkshire, UK • Hong Kong • Shenzhen, China • Taiwan • Yokohama, Japan • Korea

  30. 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’sMoCA home networking solutions clients: DIRECTV, Verizon FiOS, Time Warner Cable, Comcast, Cox etc.

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

  32. 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.

  33. 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

  34. 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

  35. 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

  36. Financials

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

  38. Industry Comparison

  39. Income Statement

  40. Net Income Bar Chart (Annual)

  41. Net Income Bar Chart (Quarterly)

  42. Revenue Drivers • Much of ENTR’s revenue comes from thriving DirectTV business, supporting Entropic’sMoCA 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

  43. Balance Sheet

  44. Balance Sheet Bar Chart (Qrtly)

  45. Cash Flow Statement

  46. Earnings Forecast (Bloomberg)

  47. Risks

  48. 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

  49. 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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