Intersil Corp. (ISIL) plans to eliminate 18% of its workforce in order to reduce operational costs. This layoff is an attempt to optimize the cost structure, concentrate on the company's sales and development efforts, improve cash flow and thereby improve the company’s overall financial performance.
The headcount reduction is scheduled to be completed during the first quarter of 2013 and the layoffs are expected to reduce annual operating expenses by approximately $30 million. Currently, the company expects a restructuring charge of approximately $15 million for severance-related benefits during the first quarter of 2013.
Management is looking to save costs by reducing its workforce and revamping its product portfolio. Intersil has been suffering from the slowdown in the Flat Panel Display (:FPD) and global PC markets. We believe that the weak computer market, strong competition and the company’s failure to deliver strong results have forced it to refine its cost structure.
According to the latest NPD Display Search report, spending on manufacturing equipment for Flat Panel Displays (FPDs) is expected to rise 121% from $3.8 billion in 2012 to $8.3 billion in 2013. The growth is expected to be driven primarily by the widespread use of FPD displays in various electronic gadgets such as TVs, notebook computers, personal computers, mobile phones and public display systems.
We believe that the company’s focus on the development of new products and design wins will likely improve the demand for its products. The leaner cost structure will also boost margins and earnings growth in the near future.
This is not the first time that the company has resorted to restructuring actions. The company had reduced its workforce by 9% in 2008 and then again by 11% in May 2012.
Intersil Corp makes power management chips used in flat panel displays and DVD players. The restructuring announcement came a few days after Intersil reported its fourth-quarter 2012 earnings.
Though its earnings of 2 cents beat the Zacks Consensus Estimate, the company reported an overall disappointing fourth quarter. Sales of $137.5 million were down sequentially as well as from the year-ago quarter due to the combined effect of weak demand across industrial, consumer and computing end markets.
Currently, Intersil has a Zacks Rank #2 (Buy). Other stocks that have been performing well and are worth looking into include Interdigital Inc. (IDCC), Autodesk Inc. (ADSK) and Netflix Inc. (NFLX), all carrying a Zacks Rank #2 (Buy).
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