Photo Credit: Windell Oskay (Flickr)
Check out this week’s Danger Zone interview with Chuck Jaffe of Money Life and MarketWatch.com.
The semiconductor industry continues to grow rapidly and there are new uses emerging for these products on an almost daily basis. But not all semiconductor stocks are the same. This week we’re focusing on a company that is struggling to survive in this competitive industry: Intersil Corporation (ISIL: $14/share)
Intersil designs and develops power management and precision analog integrated circuits. The company offers power integrated circuit chips for battery management, processor power management, and display power management. Intersil’s products can be divided into industrial and infrastructure products (64% of revenue), consumer products (16% of revenue), and computing products (21% of revenue).
Growth is Long Gone
Intersil, which went public in early 2000, is a tech bubble company still struggling to find its way. It should be noted that the company grew after-tax cash flow (NOPAT) from -$34 million to $141 million and return on invested capital (ROIC) from -6% to 8% from 2001 to 2006 — certainly an impressive feat. Since 2006, however, the company has entered a downward spiral, and the stock, while down 45% since 2006, still has a lot of room to fall.
Since 2006, NOPAT has declined by 30% compounded annually while ROIC has fallen from the aforementioned 8% to just 0% in 2014.
Figure 1 shows Intersil’s long-term downward trend in profitability:
Figure 1: No Growth, No Profitability
Sources: New Constructs, LLC and company filings.
We think the main reason for the past decline in Intersil’s profitability is its fluctuating strategy. In 2003, the company divested its wireless business and switched its focus to becoming a high performance analog and mixed signal company by acquiring Elantec in 2002. Since then, Intersil has acquired eight other businesses in the segment, each with the aim of strengthening the new core business. This reckless acquisition strategy led to Intersil having over 60 different product lines meeting any number of clients’ needs.
