Time to Cash in on Chips?

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 exit chatter floating about the chip industry. Wintegra, an Austin, Texas-based chip startup, last week filed to raise up to $115 million in an IPO, four years after it withdrew a similar filing, and in early April, WiMAX chip company Beceem filed to raise as much as $100 million. Max Linear (s mxl), a mixed-signal chip firm that supplies mobile television radios, raised $72 million via its public market debut in March.

And the rumor mill is increasingly active, predicting potential IPOs for NXP and Freescale 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. But is this really a chip renaissance, or merely a last-ditch effort to get a few capital-guzzling companies to some type of exit?

In the last few weeks, companies that had previously raised huge amounts of capital such as Calix (s calx) and Meru Networks (s 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 chip maker like Max Linear, withdrew its IPO filing. Drew Lanza, a managing director at Morganthaler Ventures said via email to me:

I don’t think these IPOs will get VCs interested in doing new semi deals again. The truth is that 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. Just because some hearty creatures survived the volcanic eruption doesn’t mean it wasn’t an extinction level event.

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.

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 email that:

I don’t think the recent silicon IPOs is going to open the flood gate 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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This article also appeared on BusinessWeek.com