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Intersil Corp. (ISIL - Snapshot Report) reported first-quarter 2013 earnings per share of 5 cents, comprehensively beating the Zacks Consensus Estimate of 8 cents loss per share.

Revenues

The company reported revenues of $131.7 million, down 15.6% year over year and 4.2% sequentially and at the lower end of management’s guidance of $131–$138 million. The sequential decrease was due to seasonality and weak demand in the consumer end market, partially offset by relative strength in computing.

Revenues by End Market

Industrial & infrastructure comprised 59% of Intersil’s sales in the last quarter, down 1.4% sequentially and 10.8% from the year-ago quarter. The first quarter marked a continuation of the soft trends noticed in the past quarters as a result of broad-based weakness and seasonality.

Intersil’s Personal computing segment generated 23% of its sales, up 8.0% sequentially but down 21.6% from the year-ago quarter. The sequential increase was due to strength in notebook computer units.

Intersil’s Consumer segment generated the remaining 18% of its sales, down 23.1% sequentially and 21.5% from the year-ago quarter due to weakness in the gaming and display markets.

Margins

Reported gross margin for the quarter was 53.8%, down 80 basis points (bps) year over year and 20 bps sequentially. Lower volumes impacted gross margins in the quarter.

Operating expenses (SG&A and R&D) of $67.7 million were down 13.9% from $78.6 million in the year-ago quarter. The reported operating margin was (15.4%), down significantly from the year-ago quarter margin of (7.1%). Selling, general and administrative (SG&A) expenses increased as a percentage of sales, while research and development (R&D) expenses declined.

The quarter’s GAAP net income was $2.5 million or earnings per share of 2 cents compared with a net loss of $3.3 million or loss of 3 cents in the comparable quarter last year. Excluding special items but including stock-based compensation expenses, adjusted net income was $6.3 million or earnings per share of 5 cents compared with $3.8 million or 3 cents a share in the year-ago quarter.

Balance Sheet

The company ended the first quarter with cash and short-term investments balance of $161.2 million, down from $163.6 million in the prior quarter. Trade receivables were $52.4 million, down from $54.7 million in the prior quarter.

Cash flow from operations was $16.2 million, down from $21.9 million in the year-ago quarter. Capex was $5.3 million versus $1.5 million in the year-ago quarter. Free cash flow was $10.9 million versus $20.4 million in the year-ago quarter.

During the quarter, the company did not repurchase any shares but paid a total dividend of $15.3 million.

Guidance

For the second quarter of 2013, Intersil expects total revenue in the range of $135–$142 million, representing a sequential increase of 3.0% at the mid-point. Gross margins are likely to be flat to up 50 basis points. The company expects GAAP operating expenses of $75 million and non-GAAP operating expenses of $60 million.

GAAP (loss)/earnings per share are expected to be in the range of (3 cents) to (2 cents), while non-GAAP earnings per share are likely to be in the range of 7 cents to 10 cents.

Conclusion

Intersil Corp designs and manufactures high-performance analog, mixed-signal and power components, focused on power management applications. Though the earnings exceeded the Zacks Consensus Estimate, the company reported an overall disappointing quarter.

In the quarter, the company performed poorly with both its revenues and gross margins decreasing from the prior as well as year-ago quarters. However, management gave a modest second 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 thus reduce operating expenses.

Currently, Intersil has a Zacks Rank #2 (Buy). Investors should look out for some other stocks with a positive Zacks Rank and Expected Surprise Prediction or ESP (Read: Zacks Earnings ESP: A Better Method).

Applied Materials, Inc. (AMAT - Analyst Report), Earnings ESP of +7.69% and Zacks Rank #2 (Buy).

Fiserv Inc. (FISV - Analyst Report), with an ESP of +3.03% and a Zacks Rank #2 (Buy).

Amazon.com. (AMZN - Analyst Report), with an ESP of +14.3% and a Zacks Rank #3 (Hold).

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