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Intersil (NASDAQ:ISIL)

Q2 2013 Earnings Call

July 30, 2013 4:45 pm ET

Executives

Shannon Pleasant

Necip Sayiner - Chief Executive Officer, President and Director

Mercedes Johnson - Interim Chief Financial Officer, Independent Director, Member of Audit Committee and Member of Compensation Committee

Analysts

Ross Seymore - Deutsche Bank AG, Research Division

Craig A. Ellis - B. Riley Caris, Research Division

Tore Svanberg - Stifel, Nicolaus & Co., Inc., Research Division

Christopher Caso - Susquehanna Financial Group, LLLP, Research Division

James Schneider - Goldman Sachs Group Inc., Research Division

Harsh N. Kumar - Stephens Inc., Research Division

Christopher B. Danely - JP Morgan Chase & Co, Research Division

Patrick Wang - Evercore Partners Inc., Research Division

Operator

Ladies and gentlemen, welcome to Intersil Corporation Second Quarter 2013 Earnings Conference Call. I will be your coordinator for today. I would now like to turn the call over to Shannon Pleasant, Intersil's Vice President, Corporate Communications.

Shannon Pleasant

Good afternoon, and thank you for joining us today. I'm here with Necip Sayiner, Intersil's President and Chief Executive Officer; and Mercedes Johnson, Interim Chief Financial Officer.

We will discuss our second quarter financial performance and provide a summary of our third quarter outlook. After our prepared comments, we will have a question-and-answer session.

Our earnings press release and the accompanying financial tables are available on the Investor Relations section of our website at ir.intersil.com.

This call is also being webcasted and a replay will be available through August 14.

Please note that the comments made during this conference call may contain forward-looking statements subject to risk and uncertainties that could cause our actual results to vary. These risk factors are discussed in detail in our filings with the Securities and Exchange Commission.

Also, the non-GAAP financial measurements that are discussed today are not intended to replace the presentation of Intersil's GAAP financial results. We are providing this information because it may enable investors to perform meaningful comparisons of operating results and more clearly highlight the results of our core ongoing operation.

I will now turn the call over to Intersil President and CEO, Necip Sayiner.

Necip Sayiner

Thank you, Shannon, and hello, everyone. I'm pleased to report a very solid quarter on both the top and bottom lines, higher-than-expected revenue, better gross margin and improved operating income allowed us to report $0.01 of profit on a GAAP basis and more than doubled our non-GAAP earnings sequentially to $0.14.

The industrial and infrastructure market represented 60% of revenue in Q2 and was up sequentially by 12%.

Strength in the quarter came primarily from 3 areas: growth in digital power for cloud infrastructure, increases in automotive infotainment revenue and a healthy quarter for the high-reliability products sold into aerospace applications.

We're also seeing a slightly improved demand environment in the industrial markets, driving growth in our signal path and industrial power products.

For the third quarter, we're expecting industrial and infrastructure revenue to be down slightly on an absolute basis, but up slightly on a run-rate basis, adjusting for the 14-week period in the second fiscal quarter.

Our consumer business recovered in Q2, growing 25% sequentially and representing 20% of revenue. The primary drivers behind our performance was strong demand for our products sold into handsets, tablets and gaming consoles.

Third quarter consumer revenue will also be up significantly, driven by new sensor display and power design wins. We will be ramping in a prominent gaming console, a leading smartphone platform and a new tablet design win this quarter.

Along with favorable seasonal trends, these new wins are expected to drive double-digit sequential growth again in the third quarter for the consumer business.

Computing was down, as expected, by 8% sequentially and represented the remaining 20% of revenue. This business continues to be challenged by unfavorable PC trends and reduced market share in the next-generation Intel platforms. We expect revenue declines to continue over the next several quarters, with the business ultimately reaching a run rate closer to $20 million per quarter.

I'm now going to turn the call over to Mercedes to review the quarter financials. We will then discuss the longer-term strategic changes we're making and our guidance for third quarter. Mercedes?

Mercedes Johnson

Thank you, Necip. It is my pleasure today to share with you the financial results of our second fiscal quarter.

As you probably remember, this period included 1 extra week from the typical quarter, so the numbers are a bit different to our normal run rate.

Throughout the review, I will provide some color as to the impact these extra days had in the reported results.

During our April conference call, we alluded to relative bookings strength during the first few weeks of Q2. This early positive momentum continued throughout the quarter, driving sales levels to exceed even the high end of our expectations.

Revenue of $144.8 million for the quarter represented a 10% sequential increase, as Necip just described. We estimate that approximately $10 million could be attributed to the extra week in the quarter.

Benefiting from an improved mix and higher-than-anticipated volumes, gross margin as a percentage of sales expanded to 55.2%, our best performance during recent quarters and ahead of our outlook entering the period.

If we exclude stock compensation expenses, gross margin reached 55.4%, the highest since fourth quarter 2011.

Overall expenses for the company includes savings from our February downsizing actions of approximately $6 million, counter balanced by the cost of the extra week in the quarter estimated at $0.5 million in gross margin and $2 million in operating expenses. When compared to the previous quarter, the decline is noticeable and exceeded our expectations.

On a GAAP basis, R&D expenses were $34.4 million during Q2. Excluding stock compensation, they run at $32.3 million, an 8% sequential decline in both cases. The reduction can be attributed mainly to our first quarter restructuring actions.

Meaningful savings were also achieved in SG&A, where spending dropped to $28.9 million or a 5% decline from the first quarter. Excluding stock compensation expenses of $3 million, these costs showed improvement quarter-over-quarter of more than 6%.

As we continued to execute our restructuring activities according to the plan developed during Q1, a $2.8 million expense was recorded during the quarter.

Substantially, all of this charge is noncash and stems from asset impairments associated with our February restructuring plan.

Driven by higher revenues, improved margins and lower expenses, operating results reversed recent trends and swung to a profit of $7.3 million or 5% of sales, supporting the achievement of $1 million in net income and $0.01 per share.

On a non-GAAP basis, our results were even more encouraging. Let's review first how we calculate non-GAAP measurements. We exclude stock compensation expenses, restructuring charges, amortization of intangibles and the tax impact of these elements. To facilitate the understanding of how we compute non-GAAP results, we provided a detailed reconciliation on Pages 6 and 7 of today's press release.

With gross margin climbing to 55.4% and operating expenses falling to $58.2 million, income from operations rose to $22.1 million or 15% of sales, our best performance since late 2011.

After income tax expenses, non-GAAP net income was $18.4 million or $0.14 per share.

To conclude, I have a few comments on our ending balance sheet and certain asset management metrics for the quarter.

Cash and short-term investment stand at over $161 million and were essentially unchanged from Q1.

Included in this total, we had approximately $55 million in the U.S. And as we have said before, the remainder could be brought from overseas without incurring additional tax expenses.

Cash generation from operating activities accelerated to almost $25 million, which was largely offset by our normal dividend payments of $16 million and capital expenditures of $7 million.

During the quarter, we paid approximately $5 million of severance obligations related to the Q1 restructuring plan.

Accounts receivables days of sales outstanding shrunk to 34 days, driven by better linearity of shipments.

Inventories were up slightly to $74.4 million at the end of the period as we geared up for growing revenues in the coming quarter.

Total current liabilities increased slightly, reflecting the tax obligation associated with our return to profitability.

Having reviewed our recent past performance, it is time now to focus on the future. For that, Necip will elaborate on the new strategic direction he's leading the company towards. Necip?

Necip Sayiner

Thank you, Mercedes. As I discussed with you last quarter, Intersil has the ingredients of a successful company, but my assessment of the business surfaced 3 fundamental issues.

First was a dilution of focus. This resulted from an attempt to absorb numerous acquisitions and develop a broad line analog portfolio, while simultaneously attempting to maintain a meaningful presence in competitive consumer and computing markets. This led to the second issue, an unsatisfactory return in R&D investment as resources were spread across many unrelated non-synergistic projects. This was compounded by the third issue, an imbalance between development and other resources, fundamentally limiting the company's competitiveness and ability to effectively execute.

We have now established a strategic framework that I believe will address these issues, allowing for a course correction that takes into account a strong sense of urgency and the need to stabilize and sustain our revenue as we transform the business. The right strategy for any business has to be built upon the core competency and primary technology assets. For our company, that is straightforward to recognize. Intersil is first and foremost a power management company.

The analog market has always been an attractive one for those with the unique capabilities and scale required to service this very diverse space. The $10 billion power management opportunity is one of the most complex and valuable segments of the analog IT market.

Intersil has a unique combination of core technologies in this area, multi-phase modulation, buck-boost regulation, better recharging, fixed steel tower and precision analog.

By applying these capabilities towards high-value integrated solutions, we have the ability to create truly market-leading products. We are not a broad line analog component company, and we have changed both the organization and the composition of our investments to reflect that fact.

Going forward, we're leveraging our technology and strong heritage in computing to establish a meaningful presence with high-value mobile power solutions for Ultrabooks, tablets and smartphones. The trends in power management for these smaller form factors will increasingly favor the IP and know-how we've developed historically.

The company has already started taking steps in this direction, and we will accelerate these initiatives by applying appropriate resources and focus. The transformation of this part of our business will happen over time, and I'm very confident in our technology prowess and ability to establish leadership in mobile power, a large and growing market.

We will also continue to expand our footprint in power management applications for the infrastructure and industrial markets, another growing opportunity characterized by longer life cycles and quality margins. We'll be continuum to invest in digital power and power modules, for example, where we have market-leading technology today and good momentum with infrastructure equipment suppliers. Intersil possesses valuable IP and capability in these areas and will be applying more horsepower to fully take advantage of the favorable competitive dynamics.

We will maintain our investment in precision signal path technologies that support the industrial power systems we're targeting, as well as the differentiated display light and motion sensing products that are synergistic with our sales efforts in mobile power.

And finally, we will shore up our leadership position in key target markets in automotive infotainment, in aerospace, where our brand, capability and portfolio create a significant barrier to entry and drive sustained value.

With this direction established, we will no longer fund the development of portfolio-filling broad line analog products. We will no longer develop products for applications where our differentiation is not sufficient to command a high market share or premium value. We will no longer invest in new products for commoditizing markets or for emerging opportunities unlikely to materialize. Development resources engaged in these categories are being redeployed to our key areas of focus previously described.

The next step was to create the structure to enable successful execution. We have aligned the products into most streamlined business units and removed a layer of management. We have put in place a process to review potential R&D projects with a high level of rigor at the CEO staff level.

This allows us to invest in the very best product ideas across the company and ensure that they're aligned with our strategic imperatives. And we have gone through the difficult but necessary process of rebalancing our resources to become fit to fight and win in our selected markets.

In order to adequately fill our innovation engine and improve product development execution while living within our means, we have scaled down our manufacturing and sales operations, as well as our administrative functions to align with our size and make room to bolster the development teams. We have opened a significant number of new positions for design talent and expect this infusion of new blood to help drive momentum behind our strategic projects.

The company continues to face near-term headwinds from both mature products and the declining PC market that we will need to contend with. However, we believe improving margins and an appropriate operating expense structure will allow us to better weather these headwinds and establish a stronger recovery as our strategic initiatives take hold.

Near term, we're benefiting from the seasonal lift I described before, as well as the ramp in several new customer platforms that will enable our consumer business to be up double digits again in Q3.

We, therefore, expect third quarter revenue to be in the $146 million to $152 million range, representing a solid sequential increase particularly when normalizing Q2, which was a 14-week quarter.

Positive mix will allow us to maintain gross margins at the current levels and operating expenses are expected to decline further, primarily in SG&A, to $55 million to $57 million, reflecting the recent actions.

We anticipate a GAAP loss of $0.01 to $0.03 per share due to the restructuring charges associated with the rebalancing initiative. Earnings per share on a non-GAAP basis are expected to increase to $0.15 to $0.18.

With that, I would now like to open the call to questions.

Shannon Pleasant

Thank you, Necip. We'd now like to open the call for your questions. Operator, please review the Q&A instructions with the call participants.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Ross Seymore from Deutsche Bank.

Ross Seymore - Deutsche Bank AG, Research Division

A couple of questions. The first one for Necip. In the focus areas that you're talking about, how should we think about what the company looks like coming out the other side as far as either business mix, margin targets and generally the time to get to what you envision Intersil to look like?

Necip Sayiner

That's a very good question, Ross. Let me start with the complexion of the business. I think, as we see the declines in computing markets as I described, the percent of revenues we'll see from the segment will decline as a percent of our revenues. And I expect the consumer revenue, as well as industrial and infrastructure to increase in absolute terms, in mobile power specifically, which is a shorter product cycle segment we are focusing on. As you know, the development cycle for new products and design wins and ramp would be in the 4 to 6 quarters range at a minimum. And in infrastructure, industrial markets, we would generally look at a cycle of 2 to 3 years. On the gross margin front, I can answer your question in 2 pieces. With the existing business we have today, the trends are such that the computing revenue will continue to decline and that has a positive impact on the overall gross margins, but we are also losing some mature revenue that tends to have above our corporate gross margins. I think the balance of this, given the rate at which the computing revenue's expected to decline, should be modest to positive. And more importantly, as we move forward with our new investments, the areas that we would like to focus on and the type of products that we would like to design would be higher value, more highly differentiated products in general, and those would tend to have higher gross margins in general than the business enjoys today.

Ross Seymore - Deutsche Bank AG, Research Division

Great. And, I guess, as my one follow-up, this one for Mercedes. On the restructuring actions that you announced last Friday, I believe it was, with a 150-people cut, how do we think about that fold in from a cost-savings perspective in the near term? And then how did it back fill up as you fill some of those reqs in the design side of the equation?

Mercedes Johnson

Yes. Well, as we elaborated earlier, the rebalancing effort is a gradual effort upon which gradually our SG&A resources will be exiting the company. We just had a restructuring event in February, so this one is going to be more paused. In other words, it will take -- it's not going to get immediate savings because some people are going to be transitioning responsibilities to others. So there will be a gradual decline in SG&A. And as Necip alluded in the guidance, you can see operating expenses declining in the third quarter of our guide. But gradually, the new reqs for development engineering talent are going to continue to get filled. So we have said before that our envelope of operating expenses is somewhere between $55 million to $60 million. That's the envelope that we will operate throughout the next few quarters. So you can see that the bottom end of that envelope is what we are likely to achieve in the coming quarter, in the third quarter that we're in. And then as those engineering resources continue to be added to the company, you will see a gradual return to the $60 million range that we have put ourselves as the ceiling.

Operator

The next question comes from the line of Craig Ellis from B. Riley & Co.

Craig A. Ellis - B. Riley Caris, Research Division

Just following up on the response from Mercedes to Ross' second question. What are the triggers that you're looking for to start to increase development spending? And where specifically among the focus areas that you've identified, Necip, do you expect to allocate resources most immediately?

Necip Sayiner

A substantial amount of new design reqs have been opened and we are starting immediately to recruit against those reqs. We will, of course, be diligent in bringing high-caliber talent to the organization. So I expect we would consume those large number of reqs over the next 6 to 8 months. And we have a road map identified, a product road map identified in each of the focus areas I listed, and we will be deploying existing resources as far as the new hires immediately to developing those product road maps. Already, we have made some changes in the organization inside the development groups to deploy people from some of the areas we're deemphasizing to the areas of focus, and we'll be able to augment those efforts as we successfully recruit to the reqs.

Craig A. Ellis - B. Riley Caris, Research Division

That's helpful. And as a follow-up, but on the top line, you mentioned that there'll be a gradual PC headwind as the business moves towards $20 million. Is that an intermediate term run rate that you think the business can stabilize at? Or do you think it stabilizes there longer term? And somewhat related to that, given the change in focus, are there any other product areas where we should be thinking about incremental revenue headwinds, whether it be in the third quarter or later this year? And can you quantify how significant those would be?

Necip Sayiner

We haven't really impacted any existing customer commitments, therefore, there are no any substantial headwinds we're dealing with other than the mature products that most every business has. I think, getting to the expected $20 million run rate will take a number of quarters, and that's largely dependent on the uptake rate of Haswell. As I mentioned last call, we have lost share on that platform. And as the ratio of PCs shipped with Haswell products increase, our revenue will decline. So I would expect this revenue run rate to be achieved some time in 2014, but it's very difficult to project when.

Craig A. Ellis - B. Riley Caris, Research Division

And then lastly for me. In the very near term, you mentioned that consumer will be led by gaming, smartphones and tablet, sequentially, in the third quarter. Were those in order? And if not, what is the order in terms of what the biggest drivers will be for consumers as we look ahead?

Necip Sayiner

I think the majority of the revenue increase we're seeing in Q3 over Q2 is seasonal. Those design wins I alluded to certainly help us specifically. We have started ramping at the very end of the June quarter into a new tablet, and that will continue throughout Q3. Same thing can be said about the gaming console, and we do have a new design win that we've achieved in the past 90 days that will start ramping on a brand new smartphone platform in middle of this quarter. So all of these I think add up with a favorable seasonality to give us a very good increase in consumer.

Operator

The next question comes from the line of Tore Svanberg from Stifel.

Tore Svanberg - Stifel, Nicolaus & Co., Inc., Research Division

First question is on the near-term visibility. Mercedes, you said bookings started off really well last quarter and sort of continued throughout the quarter. I was hoping you could comment on how you're seeing things so far this quarter.

Necip Sayiner

I can provide some data, Tore. The bookings on a monthly basis were very strong, April, May, June and across the board, really. July month-to-date is also keeping up with June level of bookings. So our book to bill is comfortably above 1, and we're entering the quarter with a healthy level of backlog coverage.

Tore Svanberg - Stifel, Nicolaus & Co., Inc., Research Division

Very good. And you mentioned out of the 150 people involved in the restructuring that some of those are coming out of manufacturing. I'm just sort of thinking about longer term using in-house versus outside manufacturing. Is there a certain level that you're trying to get to, meaning certain percentage, in-house versus outsourced?

Necip Sayiner

I should be more explicit about what we mean by manufacturing operations. These are people who have worked in our supply chain, our quality and reliability organizations, as well as product and test engineering. Not specifically referring to the people who are working in our internal foundry, but manufacturing operations personnel. The changes in this area, as well as sales operations and administrative functions, are also going hand-in-hand with a large number of changes we're making in our business processes that we have embarked on in the last 60 days. And that process will continue over the next several months, and hence, the transitions of these personnel that Mercedes alluded to.

Tore Svanberg - Stifel, Nicolaus & Co., Inc., Research Division

Very well. Last question, you talked about digital power ramping in the June quarter in cloud computing. I was hoping you could elaborate a little bit more on that. Is this sort of the beginning of a more extensive ramp? Is it with one customer, multiple customers? Help us understand how that business will ramp going forward.

Necip Sayiner

Sure. These are still relatively small number in the grand scheme of things, very healthy growth rates, but revenue numbers are still small. I think we are approaching, if not, at an inflection point for the digital power technology. And Intersil participates in that as one of the leaders. The growth that we've seen spans multiple customers, so it's not just one. But it does have a concentration on the infrastructure equipment suppliers.

Operator

The next question comes from the line of Chris Caso from Susquehanna Financial Group.

Christopher Caso - Susquehanna Financial Group, LLLP, Research Division

I'm just wondering if -- and I guess you gave some description of this within your PC segment. But in general, as you change the strategic focus, are there any products that will need to be rendered [ph] end-of-life as you more actively exit as opposed to just defocus the business? And if you can describe how you may manage that.

Necip Sayiner

At this juncture, we have no such plans to end-of-life any of our products. This is really mostly about where we focus our investment dollars going forward on building new product road maps.

Christopher Caso - Susquehanna Financial Group, LLLP, Research Division

Okay, great. As a follow-up to that, if perhaps you could talk a little bit about your feelings toward the dividend now that you've been around for a little while now and what you think about the uses of cash going forward.

Necip Sayiner

Dividend is going to be the primary use of our cash. As we've talked about at the last call, we have no plans for any type of acquisitions in the near to medium future. And as the domestic cash numbers Mercedes cited would prove, we continue to be very comfortable with the stability of our dividend going forward as we transform the business.

Operator

The next question comes from the line of Jim Schneider from Goldman Sachs.

James Schneider - Goldman Sachs Group Inc., Research Division

I was wondering if you could address the consumer business and what you expect going into the fourth quarter in terms of seasonality. Maybe you can put walk through the different moving parts in terms of gaming, handsets, tablets and anything else that might kind of drive consumer to be up, down or flat from what you can see into Q4.

Necip Sayiner

I think that our consumer business and, along with that, our overall revenues are likely to be seasonally down in fourth quarter. I think this is the way the consumer business in general for the industry has been evolving, and we're not going to be an exception to that in spite of the company-specific positives I listed. Part of that has to do with the inventory control that many of our large customers would have in the fourth quarter. So we will certainly see some seasonality going into Q4. And as you know, Q1 is going to be another cyclically down quarter, and then Q2 and Q3 would be up seasonally. So that's how I see with our portfolio. A typical, if there is such a thing anymore, seasonality for the business.

James Schneider - Goldman Sachs Group Inc., Research Division

That's very helpful color. And then maybe as a follow-up on OpEx. I think you talked about $55 million to $60 million being the right envelope for OpEx in the next few quarters, but if you look longer term, where do you think R&D could go, I guess, as a peak level over the next year to 1.5 years as that increases on the focus areas?

Necip Sayiner

I think our first goal is to attain some level of stability in our top line. The company has gone through multiple years of year-over-year comparisons that looked unfavorable. So our first goal is to reverse that trend and stabilize revenues. And I think through that phase, we would be comfortable in staying in the envelope of $55 million to $60 million per quarter. As our strategic initiatives take hold, then we start seeing revenue structurally moving up, then our R&D levels will commensurately increase above that range.

Mercedes Johnson

And let me just add. Just one last comment on that venue. The $55 million to $60 million range that we are talking about are on a non-GAAP basis, so they exclude equity compensation expenses.

Operator

The next question comes from the line of Harsh Kumar from Stephens Inc.

Harsh N. Kumar - Stephens Inc., Research Division

Wondered if you could give us an update on CFO search? And also I think you alluded to this with the previous answer, would that also be the time that we can expect an operating model from an ongoing standpoint?

Necip Sayiner

Sure. Well, the search for the CFO is ongoing. I am enjoying and have the benefit of a very strong interim CFO in Mercedes, which allows us to be very diligent in our search and -- in order to identify the best possible candidate to partner with me and the rest of the management team. In terms of specific business model targets, we do have some that we've been debating internally, but I am not yet prepared to disclose this. But in the near future, we will have an opportunity to do so.

Harsh N. Kumar - Stephens Inc., Research Division

That's fair. And then as a follow-up, Necip, you talked about focusing on mobile power solution. I was wondering if you could be a little bit more specific on what kind of products we're talking about. Particularly when you mentioned 4 to 6 weeks development time, I think those products would be pretty easily -- easy for somebody else to emulate, maybe copy. So therefore, I wanted some more color if possible to the extent you're willing to provide.

Necip Sayiner

Well, if I said weeks I certainly misspoke. I thought I said quarters.

Harsh N. Kumar - Stephens Inc., Research Division

Oh, sorry, then my bad.

Necip Sayiner

But I will answer your original question. As I said at a high level, I can't really give product details because that would be harmful competitively. But we are viewing Ultrabooks, tablets and smartphone as a continuum. And I think the core competency that we have developed in the computing space is going to be increasingly relevant for smaller form factors. Ultimately, that translates to a longer battery life, and that's immensely valuable. The capabilities Intersil has developed over the years in terms of modulation schemes to allow longer battery life, for example, are going to become more and more part of the requirements, especially for platforms that are not controlled by a standard as today's PCs are. So I think those overall trends would favor us. And of course, we're now dealing with or looking at a much larger market size when you look at the market in its totality, combining Ultrabooks, tablets and smartphones than just PCs.

Operator

The next question comes from the line of Chris Danely from JPMorgan.

Christopher B. Danely - JP Morgan Chase & Co, Research Division

Just a quick clarification on the gross margin targets. You gave some puts and takes. Do you think it can eventually get to the high 50s? Should we be looking at like a 57%, 58%, 59% target? Can you give us a little more color there?

Necip Sayiner

Well, I am not going to be able to give precise numbers, but I think the targets and where we place our investment dollars in totality are going to enable us to make some improvements in gross margins. But I am not going to be able to give specific numbers today, Chris.

Christopher B. Danely - JP Morgan Chase & Co, Research Division

No, that's helpful. And then maybe can you talk about the profitability of the 3 different product lines today, maybe just in terms of up margins and then where you expect to see the most improvement?

Necip Sayiner

Yes. I'm not going to be able to provide a profit margin per end market, but I think you do know that in computing and consumer businesses are lower gross margin than what we enjoy in industrial and infrastructure, that goes without saying. But even in size, these particular end markets and the businesses that support these end markets, I think as we focus our R&D dollars to key on differentiation that we can sustain long term, and we can bring that capability into those sockets. Even in markets with lower gross margin averages, we'll be able to effect over a long time period improvement in gross margins.

Christopher B. Danely - JP Morgan Chase & Co, Research Division

Okay. I mean, maybe just one more follow-up. Can you tell us what your most profitable end market is right now in terms of operating margin? And do you expect that to change over the next couple of years?

Necip Sayiner

No. I'm not going to be able to give you that.

Operator

The final question comes from the line of Tore Svanberg. I'm sorry we seemed to have lost Tore.

We do have a final question from the line of Patrick Wang.

Patrick Wang - Evercore Partners Inc., Research Division

Necip, based on the turnaround today, I was wondering if you could talk about where you would expect to see the first traction on your new initiatives? I mean, I understand that most of the good news may show up 2 or 3 years down the road, but is there anything you're expecting in the next 4 to 6 quarters?

Necip Sayiner

Well, I think the first step is some stability in top line as I mentioned. And what will go along with, I think, is you're going to start seeing the emergence of the earnings power of Intersil. So I think these are going to be the first things that you can see on the income statement. In terms of product delivery, just because of the end market requirements, I think you'll see the first moves in our mobile power segment, that being the shortest product cycle end market for us.

Patrick Wang - Evercore Partners Inc., Research Division

Okay, great. And that leads me into my second one. I guess power management for mobile devices is a fairly competitive market. I was wondering if you could give us some perspective on where you see the greatest opportunity, I guess where you can leverage your existing work in IP. And then I think you alluded to this earlier, but when we look at your compute segment, I was wondering if it makes sense for Intersil to then refocus on competing perhaps on the Broadwell cycle from Intel as -- really as they move towards SoCs. I guess I could see some synergies of the work you've done in tablets and are planning in mobile power.

Necip Sayiner

Yes. These are very good questions, Patrick, but none I could answer, because all that would do is to give information to our competitors about how we're going to go after that market. So excellent questions, but I'm not going to be able to answer that.

Patrick Wang - Evercore Partners Inc., Research Division

Alright, let me try one more, last one. Is there any more restructuring you had? I guess, are there any other businesses that are still under consideration?

Necip Sayiner

I think we've done a comprehensive rebalancing here with this last set of actions. As you might see, we are not going to be spending all the cost savings that we are realizing from these actions over the next 2, 3 quarters, which means we are going to have a bit more room to direct more R&D investments into this business to get to the upper end of that range Mercedes framed. So I think we've gone past the strategy assessment redirecting the business. We are now really moving on to the execution phase here.

Operator

The final question comes from the line of Tore Svanberg.

Tore Svanberg - Stifel, Nicolaus & Co., Inc., Research Division

Yes. A follow-up for Mercedes. What tax rate should we use going forward both from a non-GAAP and GAAP perspective, please?

Mercedes Johnson

The non-GAAP tax rate remains pretty much what we have been using in the past, so just in the mid-teens. The GAAP rate, it hasn't changed meaningfully from what I guided in the previous phone call.

Tore Svanberg - Stifel, Nicolaus & Co., Inc., Research Division

Okay, very good. Just one last question. With the recent initiatives now, is it safe to say that the cash flow breakeven point is significantly south of where you are right now, maybe as low as $100 million per quarter?

Mercedes Johnson

We are managing -- I'm not sure I understood your question, but we are managing the business in a way that we can, at worst, maintain an even keel in the cash level for the company and on a good quarter generate a little bit of cash.

Operator

Ladies and gentlemen, that is all the time that we have for questions. I would now like to turn the call back over to Shannon Pleasant for some closing remarks.

Shannon Pleasant

Thank you for joining us today and for your interest in Intersil. This now concludes today's call.

Operator

Thank you, ladies and gentlemen, for participating in today's conference. This concludes the presentation. You may now disconnect. Have a good day.

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Source: Intersil Management Discusses Q2 2013 Results - Earnings Call Transcript
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