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Semiconductor IPOs: Time for VCs to Cash In?

Got a venture-backed semiconductor company burning a hole in your portfolio? Now may be the time to take it public, judging from the success of recent IPOs, filings, and discussions about going public happening in the chip industry.

Wintegra, an Austin (Tex.)-based chip startup, last week filed to raise up to $115 million in an IPO, four years after it withdrew a similar filing.In early April, WiMAX chip company Beceem filed to raise as much as $100 million in an IPO.MaxLinear (MXL), a mixed-signal chip firm that supplies mobile television radios, raised $72 million via its public market debut in March.

There have also been reports of potential IPOs for NXP and Freescale Semiconductor within the next few quarters.

The open IPO window is welcome news for investors in chip firms, who have bet big on capital-intensive deals only to be burned as their portfolio companies were forced to close their doors. Is this really a chip renaissance, or merely a last-ditch effort to get a few capital-guzzling companies to some type of exit?

Chip Outlook

In the last few weeks, companies that had previously raised huge amounts of capital such as Calix (CALX) and Meru Networks (MERU) have gone public, while large hardware companies such as Force 10 have filed to do so. But the trend may not speak to improved prospects for chips, or even for large-scale tech investments.Last week, Telegent, a mobile television chipmaker, withdrew its IPO filing.

Drew Lanza, a managing director at Morgenthaler Ventures said via e-mail: "I don't think these IPOs will get VCs interested in doing new semi deals again… these are IPOs of real companies with real revenues and exciting products. They could just as easily have been in the systems space (e.g. Calix) as in the semi space (e.g. MaxLinear). But the underlying truth is that semis have, in general, been a debacle over the past few years."

To be fair, not everyone is as bearish on the chip opportunity as Lanza. Alex Benik, a principal with Battery Ventures, is still looking for chip deals, and said startups that tackle problems with a huge potential market can still pay off. He said that the valuations have also come down, since there's less competition for such deals today.

Tech IPO "Backlog"

However, moderation in chip investing, as in life, appears to be the key. Eric Zimits, of Granite Ventures, still invests in chips, but doesn't view the recent IPO filings and deals as evidence of a silicon renaissance. When asked about his thoughts on the future of semiconductor investing, he told me via e-mail that:

"I don't think the recent silicon IPOs is going to open the floodgate for venture investment in the space. I think there is such a large backlog of tech IPO candidates that you just happen to be seeing a flurry of successful silicon companies that are demonstrating why people invest in them at all. If they have the right product, they can ramp sales very quickly and enjoy good gross margins."

In other words, it's not that capital-intensive chip startups are on their way back, so much as that VCs are only now able to get them off their books—or so they hope. For a clue as to how the IPOs that have gone public have fared, check out the charts below from Renaissance Capital.

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