Intersil Corp. (ISIL) reported second-quarter 2013 earnings per share of 10 cents, comprehensively beating the Zacks Consensus Estimate of 2 cents loss per share.

Revenues

The company reported revenues of $144.8 million, down 11.2% year over year but up 9.9% sequentially and above management’s guidance of $135–$142 million. The sequential increase was due to strong demand in Industrial & infrastructure as well as consumer end markets, partially offset by relative weakness in computing.

Revenues by End Market

Industrial & infrastructure comprised 60% of Intersil’s sales in the quarter, up 12.3% sequentially but down 9.2% from the year-ago quarter. The sequential increase was due to strong demand for products in automotive, industrial and aerospace markets.

Intersil’s Personal computing segment generated 20% of its sales, down 7.4% sequentially and 28.5% from the year-ago quarter. The decrease was due to a weak PC market.

Intersil’s Consumer segment generated the remaining 20% of its sales, up 25.3% sequentially and 7.4% from the year-ago quarter. The increase was due to improved demand in the gaming and display markets.

Margins

Reported gross margin for the quarter was 55.2%, up 70 basis points (bps) year over year and 140 bps sequentially. Higher-than-expected volumes and an improved mix drove gross margins in the quarter.

Operating expenses (SG&A and R&D) of $63.4 million were down 23.2% from $82.6 million in the year-ago quarter. The reported operating margin was 5.0%, up significantly from the year-ago quarter margin of (5.7%). Both selling, general and administrative (SG&A) expenses as well as research and development (R&D) expenses increased as a percentage of sales.

The quarter’s GAAP net income was $1.0 million or earnings per share of 1 cent compared with $2.5 million or earnings of 2 cents in the prior quarter. Excluding special items but including stock-based compensation expenses, adjusted net income was $12.8 million or earnings per share of 10 cents compared with $6.3 million or 5 cents a share in the prior quarter.

Balance Sheet

The company ended the second quarter with cash and short-term investments balance of $161.7 million, up from $161.2 million in the prior quarter. Trade receivables were $49.4 million, down from $52.4 million in the prior quarter.

Cash flow from operations was $24.7 million compared to ($32.1) million in the year-ago quarter. Capex was $7.0 million versus $3.1 million in the year-ago quarter. Free cash flow was $17.7 million versus ($35.2) million in the year-ago quarter.

During the quarter, the company did not repurchase any shares but paid a total dividend of $15.9 million.

Guidance

For the third quarter of 2013, Intersil expects total revenue in the range of $146–$152 million, representing a sequential increase of 2.9% at the mid-point. Gross margins are likely to be flat sequentially. The company expects GAAP operating expenses of $74-$81 million and non-GAAP operating expenses of $55-$57 million.

GAAP (loss)/earnings per share are expected to be in the range of (3 cents) to 1 cent, while non-GAAP earnings per share are likely to be in the range of 15 cents to 18 cents.

Conclusion

Intersil Corp designs and manufactures high-performance analog, mixed-signal and power components, focused on power management applications. The company reported a solid quarter, with earnings exceeding 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). Investors can also consider some other stocks with a positive Zacks Rank and an expected surprise prediction or ESP (Read: Zacks Earnings ESP: A Better Method).

InvenSense Inc. (INVN), Earnings ESP of +8.33% and a Zacks Rank #2 (Buy)

Gartner Inc. (IT), Earnings ESP of +1.96% and a Zacks Rank #2 (Buy)

Scientific Games Corporation (SGMS), with an ESP of +100.0% and a Zacks Rank #3 (Hold)

Read the Full Research Report on SGMS

Read the Full Research Report on ISIL

Read the Full Research Report on IT

Read the Full Research Report on INVN

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