What to do with more than a half-billion dollars,that’s the enviable question facing Irvine chipmaker Intersil Corp.
After Intersil sold its discrete semiconductor division to Fairchild Semiconductor International Inc. earlier this year for $338 million, the company doubled its cash on hand to $606 million as of March 31.
Intersil’s cash is nearly equal to that of Conexant Systems Inc. and Broadcom Corp.,Orange County’s first and second largest chipmakers,combined.
And that’s not all. With no long-term debt and two cash-producing businesses, Intersil has one of the strongest balance sheets among OC technology companies. Not bad for a 1999 spinoff from 109-year-old Harris Corp. that moved cross country to set up shop in the Irvine Spectrum last year. Intersil’s war chest is enough of a weapon to inspire bold plans from soft-spoken Chief Executive Greg Williams: “Our vision of the company is to enable personal freedom with wireless at the center,” he said.
With a cash reserve that trumps the annual revenue and market value of several chipmakers, Intersil and its executives are looking to expand,including through a planned acquisition push.
Intersil counts just 30 of its 2,500 employees in OC but ranks third among local chipmakers by yearly sales, after Conexant and Broadcom. As of last week, Intersil counted a market value of more than $3 billion.
The company makes analog communications chips that help cars, computers and networking devices handle a variety of functions, including managing power effectively.
About 72% of Intersil’s revenue comes from sales of its analog chips. Chips for wireless networking devices and what are known as wireless local-area networks make up the rest. And 21-year tech industry veteran Williams,whose resume lists Motorola Inc. and General Electric Co.,is focusing the company on the smaller, emerging part of Intersil’s business.
Williams last year decided to get rid of the slowing discrete components business to further focus the rank-and-file on wireless. Moreover, he’s slowly winding down an expensive manufacturing operation in Findlay, Ohio, which will result in about 170 layoffs.
According to Williams, the analog and wireless businesses were left alone for a specific reason: balance.
“I think that the company benefits with the balance of wireless and high performance analog,” Williams said. Because the analog chip business uses what Williams calls “lagging edge” technology, the company contracts out much of the production to Taiwan Semiconductor Manufacturing Co. and IBM Corp. By shifting the company’s resources away from production, the analog business helps to fund the wireless chip side, which Williams said is just starting to grow.
“The wireless business is really just embryonic right now. But we’re really in a strong position to grow,” Williams said.
With wireless sales up 62% in the first quarter, the company isn’t worried about exiting some markets and putting all of its eggs in one or two baskets. To prove it, Intersil bumped research and development spending to 21% of first-quarter sales vs. 12% in the same quarter last year. Williams said the company plans to maintain research and development spending at around 18% of sales.
The ultimate vision: making a world where information can be accessed anywhere, wirelessly. Business travelers walking into an airport or office building could have instant access to data through a handheld device. The minute they walk in the door, their device starts talking to a networking base station planted in the building.
“Instead of plugging in a wire, you’ll plug in an antenna,” Williams said.
But the most vexing issue facing Williams and his research staff is a familiar one for tech companies,what standard should Intersil’s wireless products comply with.
In wireless technology, several different standards for how devices should communicate with each other have competed for dominance, muddling the landscape. Intersil placed its early bet on a standard called 802.11b, or Wireless Fidelity, also known as Wi-Fi,a technique that allows devices to communicate up to 300 feet away from a base station.
But there are other standards being backed by different companies. Bluetooth, another popular standard, allows for wireless communication up to 30 feet away. HomeRF, which is a bit slower than Wi-Fi, supports multimedia access.
For Intersil, the solution was obvious,you have to go with more than one of them. The company is working with customers such as Dell Computer Corp., Compaq Computer Corp., Nokia Corp., Siemens AG and Cisco Systems Inc. to develop chips that comply with more than one standard.
Whatever the outcome of the standards issue, investors have lauded Intersil’s efforts so far. After leading what the Industry Standard dubbed the largest initial public offering in the history of the U.S. semiconductor industry, Intersil has been able to hold its own in the market downturn.
While Wall Street sacked Intersil shares in the first few months of this year,dropping the price some 70%,the company has come back in recent weeks, climbing some 92% since April. The company’s increased market valuation is a key factor in its expansion bid, according to Williams.
“We have an attractive market cap. We’re certainly looking to make acquisitions,” he said.
Specifically, Intersil is looking for companies that could instantly add revenue to its slowing analog business, which was down 4% from the same quarter last year.
“We want to add revenues there in the immediate term,” Williams said.
As for wireless, Intersil hopes to acquire companies that could add revenue in the medium-term but give the company a technology advantage now.
Intersil’s eye toward acquisitions played no small part in William’s decision to move the company from Palm Bay, Fla., to OC.
“Once we became a public company, we looked at the Bay area and San Diego,” Williams said. “The cost of living here is less than the Bay area and it’s commutable to LAX. We’re also within striking distance of San Diego’s wireless activity.”
But while Intersil’s move to OC might give the company a more strategic location, it makes the company largely decentralized. Williams only had to relocate three people to OC, leaving 1,100 other employees in Florida. The rest of Intersil’s workforce is in Mountaintop, Penn., North Branch, N.J., Research Triangle Park, N.C., San Antonio, Texas, the Netherlands and Malaysia.
Williams said he probably won’t grow his OC staff more until the market turns around. And he is quick to dismiss any idea that a far-flung company is at a disadvantage.
“We use video conferencing and Web conferencing. I also commute to Florida about a week a month,” Williams said. n
