Intersil Expects Modest Growth

Intersil Corporation (ISIL) is an OEM [original equipment manufacturer] of analog and mixed signal semiconductor ICs. June quarter revenue was in-line with consensus estimates, while the EPS exceeded. Forward guidance is for a 1-3% revenue increase in the next quarter. We are maintaining our Hold rating on the shares.

Shares of Intersil are currently trading at a 14.7x multiple of our current 2008 earnings estimate (P/E). Intersil’s product breadth and increasing penetration indicate that it is relatively well positioned in the markets in which it operates. This could be a key factor in the next two years, if the recessionary trends continue. Recent acquisitions have augmented the product portfolio and increased the percentage of consumer and industrial products in the mix, which is a positive for revenue growth and margin expansion.

The management is improving the mix of products, and also implementing other initiatives to reduce costs and maintain profitability. Recent restructuring efforts are also expected to have a positive impact. The company has $2.75 in cash per share. We also analyzed the ROE [return on equity] of the company (9.1% on TTM [trailing 12-month] basis), breaking it into its three components net margin, asset turnover and equity multiplier. The net margin has held relatively steady over the last three years, although it dipped somewhat in 2005.

The asset turnover has been increasing from quarter to quarter during the same time period. This indicates that the company is managing assets efficiently, and converting them to revenue at an accelerated rate. The equity multiplier has also held relatively steady. This ratio, at over 100%, is a big positive, considering the company’s debt free balance sheet. We are reiterating our $30 price target, which corresponds to a P/E multiple of 18.3x.

Sejuti Banerjea contributed to the report.

Posted in Categories: Contributor, External Research, Stocks, Technology.

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