Incorporated: 1999
NAIC: 334413 Semiconductor and Related Device Manufacturing
SIC: 3674 Semiconductors & Related Devices
Intersil Corporation is a leading designer and manufacturer of high-performance, analog semiconductors. The company's products are used in flat-panel displays, optical storage devices, and in power management applications. Intersil sells its products to original equipment manufacturers (OEMs), contract manufacturers, distributors, and value-added resellers. The company generates 36 percent of its sales from China, 22 percent from the United States, and 11 percent from South Korea. Intersil's manufacturing facility is located in Palm Bay, Florida.
Origins
Intersil emerged as an independent company in 1999, but the history of its assets stretches back decades earlier, to its days as a component of Harris Corporation. Harris was formed in 1895 as the Harris Automatic Press Company, the entrepreneurial effort of brothers Alfred and Charles Harris. From its inception as the developer of an innovative automatic sheet feeder for printing presses, the company gradually diversified into the communications sector, becoming a pioneer of sophisticated technology developed by forward-thinking engineers. Harris's products and expertise were used in the first manned space flight, in weather satellites, and in advanced military applications for the Minuteman, Atlas, and Polaris missile systems.
Much of Harris's technological expertise stemmed from an acquisition the company made, one that greatly influenced Intersil's development. In 1967, Harris acquired Radiation Incorporated, a manufacturer of space and military electronics based south of Cape Canaveral in Melbourne, Florida. (A decade later, Harris acknowledged the importance of the Radiation acquisition by moving its headquarters from Cleveland, Ohio, to Melbourne.) Radiation meant much to Harris, supplying technology that, among other applications, was instrumental to the Apollo mission to the moon. For the legacy of Intersil, Radiation meant much as well: The Melbourne company entered the microelectronics business early, developing its first working semiconductor for use in digital communications equipment four years before it was acquired by Harris.
Radiation's involvement in the nascent semiconductor sector formed the foundation of Harris's semiconductor business, which became known as Harris Semiconductor. Harris Semiconductor, the predecessor to Intersil, gained a substantial boost to its stature from another acquisition, the purchase of General Electric Co.'s semiconductor operations in 1988. The acquisition more than doubled the size of Harris Semiconductor's operations, making Intersil indebted to the contributions of General Electric for much of what it inherited in 1999.
Independence in 1999
By the mid-1990s, Harris was in the midst of its centennial celebrations. The company, with 27,000 employees stationed throughout the world, was generating $3.5 billion in sales from four major businesses: electronic systems, semiconductors, communications, and office systems marketed under the name "Lanier." Profound changes were soon afoot, however. Harris would begin its second century with a much narrower focus. The company decided to concentrate its energies on the global communications equipment market, specifically on the digital communications equipment used in digital television broadcast. The change in strategy became apparent to the public in 1999. Lanier Worldwide, Harris's office systems subsidiary, was spun off as a tax-free dividend to Harris shareholders. Also included in the divestitures made during the year was Harris Semiconductor, which the company announced in June 1999 it intended to sell to Sterling Holding Co. LLC for approximately $700 million.
As Harris prepared for a new era to begin, the company made several significant changes to its semiconductor operations. Much like its parent company, the division became leaner, concentrating its energies in two directions: analog products and wireless networking products. Harris Semiconductor's logic business was pared away, sold to Texas Instruments Inc. The division's operating costs were trimmed by $40 million as it consolidated its fabrication facilities by closing three plants and moving some manufacturing offshore. The division's product catalog was overhauled entirely, reduced from 25,000 separate items to 4,500 separate items.
A Wireless Networking Leader Taking Shape
In the years preceding the sale of Harris Semiconductor, divestments and streamlining efforts were coupled with investments. The division's parent company spent heavily on building up Harris Semiconductor's capabilities in the wireless networking market, a market generating considerable interest at the close of the 20th century. For four years, the years immediately preceding the sale of Harris Semiconductor, Harris directed considerable resources toward developing the type of wireless semiconductors that enabled laptop computers and other mobile electronic devices to connect to the Internet without a telephone line. As a result, by the time Sterling Holding agreed to acquire the division, Harris Semiconductor held sway as a leader in the emerging market for wireless, local area networking, or WLAN, chips.
For Sterling Holding, the combination of Harris Semiconductor's WLAN and analog businesses represented an attractive package, one well worth the $700 million price tag. Sterling Holding was a Citicorp Venture Capital investment-portfolio company intent on recouping its investment by selling Harris Semiconductor on Wall Street. To lead the company and navigate it toward its initial public offering (IPO) of stock, Sterling Holding picked Harris Semiconductor's leader at the time of the sale, 46-year-old Gregory L. Williams. Williams was appointed Harris Semiconductor's president in October 1998, joining the division after a stint as a senior executive at Phoenix-based Motorola Semiconductor.
IPO in 2000
Harris Semiconductor officially began operating as Intersil Corporation in August 1999. "We're ecstatic," Williams said in an August 23, 1999, interview with Electronic News. "Out of the chute, revenues are around $530 million." The company's IPO, which Williams told Electronic News was "years away," occurred six months later, when the investing public was given the chance to evaluate Intersil's potential. Investors were presented with a company reliant on analog and mixed-signal products for the power and wireless data networking markets.
Intersil Leads the WLAN Market
Although Intersil derived half of its revenues from power semiconductor sales, the company's dominant position in the WLAN sector garnered much of the business press's attention. The industry was abuzz with excitement about the potential of wireless products. Intersil ranked as the market leader in wireless chip sales, enjoying a commanding lead thanks largely to Harris's investments in the sector during the second half of the 1990s. In 2002, Intersil's wireless chip sales jumped 125 percent to $239 million, which accounted for 51 percent of all wireless chip sales. Looking ahead, there were predictions of robust growth in the market, which put Intersil in the enviable position of capturing the lion's share of escalating demand for so-called Wi-Fi chips. "It's a hot market," an analyst remarked in an April 7, 2003, interview with Investor's Business Daily. "We forecast 49 percent revenue growth at a compound annual rate through 2006." According to the analyst's estimate, the wireless chip market was on a path to eclipse $1 billion in sales, a volume that would more than double Intersil's revenues from the WLAN market.
As Intersil entered 2003, the company faced a critical period in its existence. In the technological race for dominance in the WLAN market, the company enjoyed a commanding lead, but there were ample reasons for concern. Competition was intense, ratcheted up by a host of new entrants in the sector and by the redoubled efforts of Intersil's closest rivals, namely Broadcom Corp. and the world's largest chipmaker, Intel Corp. Intel had been slow to enter the wireless segment of the market, but the March 2003 release of its Centrino line for mobile devices signaled its intent to launch a full-scale attack on the WLAN market. The arrival of Intel, a company with annual sales exceeding $25 billion, represented a formidable threat to Intersil's leadership position, but mounting competition was not the only challenge the company faced.
"Plain and simple," an analyst said in a June 2, 2003, interview with EBN, "prices are falling faster than units are growing." The menacing presence of Intel and other competitors was exacerbated by declining prices for wireless chips, crimping profit margins severely. The price of 802.11b chipsets, which composed much of the WLAN market, plunged from an average of $16.06 in early 2002 to $6.61 in early 2003. Intersil's sales from its wireless networking business reflected the drop in prices, falling from a high of nearly $75 million in the third quarter of 2002 to $51 million in the first quarter of 2003.
Intersil Cashes Out in 2003
Falling prices and increased competition forced Intersil's management to make a difficult decision. In July 2003, the company revealed it was exiting the business entirely, bowing out while it still ranked as the largest wireless chipmaker. Midway through the month, Intersil agreed to sell its Wireless Networking Product Group to GlobespanVirata Inc., a Red Bank, New Jersey-based manufacturer of semiconductors for digital-subscriber-line (DSL) modems and other broadband equipment. The deal, a cash-and-stock transaction, was valued at $365 million.
The news of Intersil's departure from the wireless market came as a shock to some industry observers, but within a short time the decision drew applause from nearly every pundit. "From a business strategy standpoint, it was a good move for Intersil to get out even though it was the market leader in Wi-Fi," an analyst explained in the July 17, 2003, edition of the Orange County Register, typifying the reaction to the deal brokered with GlobespanVirata. "It (Intersil) was a smaller company, especially compared to companies like Broadcom, Texas Instruments, and Agere. With Intel looming to join the fray, it was a strategic move to get out while they could."
The divestiture, by itself, would not have elicited praise if Intersil did not maintain a solid position in the analog semiconductor market. The sale of the Wireless Networking Product Group earned nods of approval because it was perceived to be a drag on the company's financial performance in a much larger, more robust market. Analog chips represented a $30-billion-per-year business comprising fast-growing markets, particularly the market for power management chips. The chips helped regulate the amount of electricity a device used, which became more important as designers put more advanced capabilities on chips. Increased capabilities meant more power, and more power meant more heat, causing a host of problems, including system failure, system malfunction, and the shortened life span of batteries.
A Future in Analog
When industry observers looked at Intersil stripped of its wireless business, they liked what they saw. Since its inception, the company had possessed a strong analog business (its inheritance from Harris) but Intersil had expanded greatly on the operations it took from its former parent company. In 2002, Intersil paid $1.4 billion for Elantec Semiconductor Inc., a specialist in the analog arena. The acquisition was defining, making analog-related sales greater than wireless-related sales and giving the company a new leader. Rich Beyer, president and chief executive officer of Elantec, became president and chief executive officer of Intersil following the acquisition. It was Beyer who presided over the sale of the Wireless Networking Product Group and steered the company toward its focused assault on analog chip sales.
Intersil's Rich Beyer
Beyer was an industry veteran. A former officer in the U.S. Marine Corps, Beyer earned undergraduate and graduate degrees in Russian from Georgetown University and graduate degrees in marketing and international business from Columbia University before beginning his career in the telecommunications and computer industries. Beyer held a number of senior executive positions with telecommunications and computer companies before joining National Semiconductor Corporation in 1993. At National Semiconductor, Beyer rose to the posts of executive vice-president and chief operating officer, leaving in 1996 to serve as president and chief operating officer of VLSI Technology, Inc. He joined Elantec in 2000, leading the company for the two years preceding its purchase by Intersil. Once at the helm of Intersil, his plans for shaping the company into an analog specialist took form.
Acquisitions in 2004
Once Beyer had shed Intersil's wireless business, he focused on three areas of growth: power management, optical storage drivers, and flat-panel-display drivers. He strengthened the company's position through internal means--one-third of Intersil's payroll was comprised of engineers, providing a steady supply of new products--and by completing acquisitions. Beyer orchestrated two acquisitions in the wake of the wireless divestiture, targeting two companies that bolstered Intersil's analog business. In March 2004, Intersil announced it had agreed to buy a smaller rival, Xicor Corp., in a cash and stock deal valued at $529 million. The purchase strengthened Intersil's capabilities to make chips for cellular telephones, laptop batteries, and high-end, liquid-crystal-display (LCD) screens. Next, in May 2004, Beyer announced plans to buy BitBlitz Communications Inc., a developer of high-speed serializer-deserializers, retimers, and transponders that expanded Intersil's presence in the market for high-performance analog communications.
By 2007, eight years of independence had seen significant changes in the assets spun off by Harris. Intersil transformed itself during its first decade of business, setting its sights exclusively on the analog chip business. Financially, the decision to shed its wireless business and to focus on analog sales proved to be successful in the years immediately following the restructuring. Revenues increased from $535.8 million in 2004 to $740.6 million in 2006. Perhaps more impressive, the company's profits increased substantially during the period, jumping from $40.7 million in 2004 to $151.9 million in 2006. Beyer and his management team needed no further validation that their strategy was working, ensuring that Intersil would continue to expand its presence in the analog sector in the years ahead.
Principal Subsidiaries
Intersil Communications, Inc.; Elantec Semiconductor, Inc.; Intersil Americas Inc.; Intersil Investment Company; Xicor LLC; Poweready, Inc.; Analog Integration Partners, LLC; Xicor, Inc. Integration Holding Company; Sapphire Worldwide Investments Inc. (British Virgin Islands); Elantec Semiconductor Malaysia Sdn. Bhd.; Intersil China Limited; Intersil K.K. (Japan); Intersil YH (Korea); Intersil Advanced Technology (Labuan) Ltd.; Intersil Services Company Sdn. Bhd. (Malaysia); Intersil Pte. Ltd. (Singapore); Intersil Ltd. (Taiwan); Xicor Hong Kong Limited; Intersil Analog Services Pvt. Ltd.; Intersil S.A. (Belgium); Intersil Sarl (France); Intersil GmbH (Germany); Intersil Srl (Italy); Intersil Holding GmbH (Switzerland); Intersil Europe Sarl (Switzerland); Intersil Wireless B.V. (Netherlands); Intersil Limited (U.K.); Xicor, GmbH (Germany); Xicor Limited (U.K.); Intersil Luxembourg Participations Sarl; Elantec Semiconductor U.K. Limited; Intersil Swiss Holding Sarl (Switzerland).
Principal Competitors
Analog Devices, Inc.; Texas Instruments Incorporated; Maxim Integrated Products, Inc.
Further Reading
Chuang, Tamara, "Milpitas, Calif.-based Firm Exits Wireless Networking Business," Orange County Register, July 17, 2003.
Detar, James, "Firms Look to Juice Up Devices," Investor's Business Daily, August 18, 2003, p. A6.
------, "Intersil's Obstacles: Intel and Broadcom," Investor's Business Daily, April 7, 2003, p. A5.
Dunn, Darrell, "Big Promise, Big Risks Define WLAN Market," EBN, June 2, 2003, p. 1.
------, "Harris Semiconductor to Become Intersil Corp.," Electronic Buyers' News, July 19, 1999, p. 8.
"DVDINSIDER: Intersil Corporation Acquires BitBlitz Communications," DVD News, May 25, 2004.
"Everything Old Is New Again," Electronic News (1991), July 19, 1999, p. 4.
"Harris Semi Becomes Intersil," Electronic News (1991), August 23, 1999, p. 10.
"Harris Semiconductor Breaks," Semiconductor Industry & Business Survey, August 2, 1999.
"Intersil Cashes in Wireless Chips," Daily Deal, July 17, 2003.
Shinkle, Kirk, "Intersil's Xicor Acquisition Intended to Accelerate Its Analog Push," Investor's Business Daily, March 18, 2004, p. A6.
Souza, Crista, "Intersil Demanding Place at Analog Table," EBN, May 19, 2003, p. 8.
------, "Intersil Shakes Up WLAN Community with Divestiture," EBN, July 21, 2003, p. 3.
— Jeffrey L. Covell
