Intersil Corp. (ISIL) reported second-quarter 2014 earnings per share of 15 cents, beating the Zacks Consensus Estimate by a penny. The increasing demand for Industrial and infrastructure products and improving margins led to an overall increase in profitability.
Revenues
The company reported revenues of $147.8 million, up 2% year over year and 5.5% sequentially, and marginally beat the Zacks Consensus Estimate of $147 million. The increase was due to strong demand in the Industrial & infrastructure end markets, partially offset by relative weakness in the Consumer market.
Revenues by End Market
Industrial & infrastructure comprised 64% of Intersil’s sales in the quarter, up 8.5% sequentially and 9% from the year-ago quarter. The increase was due to strong demand for products in automotive, industrial and aerospace markets.
Intersil’s Personal computing segment generated 20% of sales, up 1% sequentially and 4.9% from the year-ago quarter. The increase was due to an improving PC market.
Intersil’s Consumer segment generated the remaining 16% of sales, flat sequentially but down 21.2% from the year-ago quarter. The decline was due to weak demand in the Gaming and display markets. Lack of a new platform ramp up was also responsible for the weakness.
Margins
Reported gross margin for the quarter was 58.1%, up 290 basis points (bps) year over year and 180 bps sequentially. Higher-than-expected volumes and an improved mix drove gross margins in the quarter.
Operating expenses, including selling, general and administrative (SG&A) and research and development (R&D) expenses, of $65.1 million were down 10.3% from $72.6 million in the year-ago quarter. As a percentage of sales, both SG&A and R&D expenses declined. As a result, reported operating margin was 14.0%, up 900 bps from the year-ago quarter margin of 5.0%.
The quarter’s GAAP net income was $13.6 million or earnings per share of 10 cents compared with $10.0 million or earnings of 8 cents in the prior quarter. Excluding special items but including stock-based compensation expenses, adjusted net income was $19.8 million or earnings per share of 15 cents compared with $18.7 million or 14 cents in the prior quarter.
Balance Sheet
The company ended the second quarter with cash and short-term investments balance of $201.2 million, up from $197.3 million in the prior quarter. Trade receivables were $59.1 million, up from $52.8 million in the prior quarter.
Cash flow from operations was $13.2 million compared with $17.9 million in the prior quarter. Capex was $2.1 million versus $0.8 million in the prior quarter. Free cash flow was $11.1 million in the quarter.
During the quarter, the company did not repurchase any shares but paid a total dividend of $16.2 million.
Guidance
For the third quarter of 2014, Intersil expects total revenue to be flat to up 3%. Gross margins are likely to be flat sequentially. The company expects GAAP operating expenses to be flat to down slightly and non-GAAP operating expenses to be flat sequentially.
GAAP earnings per share are expected in the range of 10–11 cents, while non-GAAP earnings per share are likely to be in the range of 19–20 cents. The Zacks Consensus Estimate for the upcoming quarter is pegged at 16 cents.
Conclusion
Intersil designs and manufactures high-performance analog, mixed-signal and power components, focused on power management applications. The company reported a solid quarter, with earnings surpassing the Zacks Consensus Estimate.
Also, both top-line as well as bottom-line figures were above the prior-quarter figures. Management also gave a modest third-quarter guidance, which indicates improving demand visibility and an overall improving analog market.
Additionally, we believe that the company’s new products and design wins in the quarter will likely drive demand for light sensor products, going forward. We also remain optimistic about Intersil’s long-term prospects and contend that its restructuring activities will reduce fixed cost base and operating expenses.
Currently, Intersil shares have a Zacks Rank #2 (Buy). Other stocks that have been performing well and are worth a look include Analog Devices (ADI), Agilent Technologies (A) and Fairchild Semiconductor International Inc. (FCS). All these stocks carry the same Zacks Rank as Intersil.
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