Intersil's (ISIL) CEO Necip Sayiner on Q2 2016 Results - Earnings Call Transcript

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Intersil Corporation (NASDAQ:ISIL)

Q2 2016 Earnings Conference Call

July 28, 2016, 5:00 PM ET

Executives

Shannon Pleasant - Vice President of Corporate Communications

Necip Sayiner - President, Chief Executive Officer and Director

Rick Crowley - Senior Vice President, Chief Financial Officer and Treasurer

Analysts

Matt Diamond - Deutsche Bank

Cody Acree - Drexel Hamilton

Craig Ellis - B. Riley & Company

Tore Svanberg - Stifel

Ian Ing - MKM Partners

John Pitzer - Credit Suisse

Chris Caso - CLSA

Operator

Good day, ladies and gentlemen, and welcome to the Intersil Corporation's Second Quarter 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this call may be recorded.

I would now like to introduce your host for today's conference, Shannon Pleasant, Vice President of Corporate Communications. Please go ahead, ma'am.

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 Rick Crowley, Intersil's Chief Financial Officer. We will discuss our financial performance and provide a summary of our 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 11.

Please note that the comments made during this conference call may contain forward-looking statements subject to risks 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 core ongoing operations. Non-GAAP financial measures referenced during today's call can be found in the reconciliation of GAAP to non-GAAP results provided in today's earnings press release.

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

Necip Sayiner

Thanks, Shannon, and hello, everyone. Second quarter results reflect a major turning point for our business. With revenue of $134 million in Q2, we grew year-over-year and both C&C and I&I were up year-over-year for the first time in five years. Strong gross margin, lower OpEx compared to a year ago and improved operating margin are creating even greater leverage, a trend we expect to continue.

With the business in better health and on a growth path, we are staying focused on executing to our strategy of dominating key markets with our power management technology. Throughout the turnaround we’ve been buffeted by end market ups and downs.

Our largest end market, industrials, is slowly, yet steadily, recovering from the weakness in the second half of 2015, while automotive continues to be a bright spot. Those two end markets comprised about half of our revenue today so the improved outlook is encouraging. There are still things out of our control that can impact the pace of our recovery. In a multi-speed demand environment like this, the key to success for us continues to be product-cycle-driven market share gain.

The recent strength in our business reflects ramps of new products as we enjoy the first of three anticipated growth rate. With Q2 bookings and Q3's starting backlog at the highest we have seen in the last eight quarters, we are set up to deliver a growth year in 2016. And, importantly, we are continuing to make real progress towards achieving our target model with gross margin forecasted to be at 60% and operating margins improving again in Q3.

I will provide more detail on the specifics of our business after Rick reviews the financial results. Rick?

Rick Crowley

Thank you, Necip. Second quarter GAAP results include $10 million for impairment of fixed assets and $3.5 million in restructuring and related charges associated with the plan announced last month to shutdown the 200-millimeter line at our fab in Florida. The investment in the 200-millimeter line was undertaken to extend the production life for certain products manufactured at IBM when the supply commitments were set to expire at the end of 2014.

In July 2015, Global Foundries acquired the IBM fabs and recently decided to continue long-term manufacturing support for our products. To avoid future capital investment to maintain our 200-millimeter line, we determined it would be beneficial to our long-term cost structure to source manufacturing for these products from Global Foundries. We will continue to support our 4-inch and 6-inch manufacturing lines at our internal fab, which provides about 15% of our total wafer requirements.

Now for the remainder of the GAAP results. GAAP gross margin for the second quarter was up again to 59.4%, a 60 basis point sequential increase. Total second quarter operating expenses increased on a sequential basis to $77.1 million, with R&D investment of $34.2 million, SG&A expense of $25.2 million, and other charges of $17.6 million.

GAAP operating income declined sequentially to $2.5 million or 2% of revenue. Q2 GAAP net income was $1.4 million, resulting in earnings per share of $0.01. For the third quarter, we anticipate the production transfer will result in an additional restructuring charge to GAAP results of approximately $1 million to $2 million.

On a non-GAAP basis, second quarter gross margin improved once again, rising to 59.6%. This improvement was driven by an increased mix of I&I revenue and within I&I, particular strength of our aerospace products. We expect Q3 gross margin will increase again as we benefit from higher revenue and a favorable mix of new products within C&C. The decommissioning of our internal 200-millimeter line will also provide a modest near-term benefit to gross margin and we expect a further 25 basis points to 50 basis points benefit in the long run from the reduction in fixed costs.

Q2 operating expenses were up sequentially by $1 million to $51.6 million, but were below year-ago levels. R&D investment was $30.4 million and SG&A expense was $21.2 million. We expect operating expenses to be down sequentially in Q3 as we benefit from cost reduction efforts and the absence of non-recurring expenses in Q2 related to technology development and sales training.

We believe the changes we've made to the Company's overall cost structure will result in significant earnings leverage and prove to be an inflection point in the trajectory to achieving our non-GAAP financial model of 60% gross margin and 25% operating margin. Q2 non-GAAP operating income increased sequentially and year over year to $28.3 million.

Operating margin was 21.1% in the second quarter, an improvement of 110 basis points sequentially and 80 basis points year-over-year. The second quarter non-GAAP effective tax rate was 15.3%. Non-GAAP net income increased 11% sequentially and 7% year over year to $23.6 million in Q2, resulting in non-GAAP earnings per share of $0.17. In Q3, we expect our non-GAAP tax rate will be in the range of 16% to 17%.

Turning now to the balance sheet. Quarter ending cash and cash equivalents increased to $257 million. Accounts receivable balances increased by about $5 million sequentially although days sales outstanding were consistent with historical averages at 36 days. On-hand inventory levels increased, ending at $69 million or 116 days.

This increase resulted from a buffer inventory build related to the manufacturing transition we talked about. Excluding the approximately $6 million buffer build; our inventory would have been down sequentially. We do expect our inventory will begin declining again. Q2 free cash flow remained solid and we returned $18.9 million to shareholders through our high-yielding dividend.

I'm encouraged by the strong results in Q2 and believe, based on our current outlook, that we can make significant progress toward achieving our long-term gross and operating margin targets in the second half of this year. Necip?

Necip Sayiner

Thank you, Rick. Let's start with our C&C business, which exceeds year-over-year growth for the third consecutive quarter. C&C represented 34% of Company revenue and was down 3.6% sequentially due to anticipated weakness in our consumer business. You'll remember that last quarter we talked about new tablet brands resulting in [indiscernible] in Q2, which is consistent with how the quarter played out.

While our customers' innovative new platforms have been successful, the forecast has moderated recently, but we expect that, as those platforms become dominant within their sales mix, we will continue to benefit. Partially offsetting Q3 tablet demand is strong adoption in new platforms at leading smartphone customers like Huawei where we are expanding our footprint into more models.

Computing revenue was down slightly sequentially and up about 10% year-over-year. Skylake adoption has been steadily increasing, which is reflected in the year-over-year improvement. We should see some acceleration into Q3, which will allow the computing business to grow sequentially. Combined, we expect the C&C business to be up mid single-digits sequentially in Q3. I&I revenue grew a strong 8% sequentially in Q2 and represented 66% of company revenue. I&I also increased modestly year-over-year as a result of strength across the various product lines.

I'll start with industrial analog, which represented 21% of Company revenue and was up sequentially by 5%. This business was the hardest hit last year when the industrial market slowed and Q2 revenue was still behind by more than 10% compared to the same quarter last year. However, bookings are slowly but consistently improving and we expect to close the gap further as we go into Q3.

Automotive remained near record levels, representing 13% of revenue. Demand is robust across both power and video applications where expanding content is providing a strong growth opportunity. We continue to win with power products in the cabin, managing power in the infotainment console, for example. We're also anticipating increasing share under the hood in hybrid and electric vehicles.

In Q2, we introduced a very competitive battery pack monitor that in combination with our battery manager, allows customers to achieve the highest safety integrity level. We have also been investing in technologies to intersect the trends in automotive display. Laser heads-up displays are the latest innovation in the advanced driver assistance systems.

They project speed, warning signals, and other vehicle and navigation information on the windshield directly in the driver's line of sight. We recently introduced a device for heads-up display systems that pulses four high-intensity lasers to project full HD color video onto the windshield. Our higher current and faster switching speed enables high resolution displays for next-generation vehicles and adds to our content opportunity in automotive.

Aerospace revenue was at record levels as well in Q2, representing 13% of revenue. The increase in the quarter was a result of a large order from a long-standing aerospace customer. We also continue to expand the portfolio to increase our content. Our latest new product offers the industry's highest signal-processing performance for data critical to communications satellites. This is a lumpy but very high margin business and while we expect it to decline from this level sequentially in Q3, customer engagement remains high.

I&I power, which was 19% of Company revenue, was up again sequentially. Power modules continue to be a strong area for us as we penetrate both large OEMs and expand our presence in this channel. We added to the portfolio again in Q2 with 5-amp and 3-amp power modules that offer industry-leading metrics on both density and efficiency for battery-powered applications.

Growth trends are favorable again as we go into Q3 with power modules expected to make a sizeable step up in revenue. With good dynamics across the Board in our I&I business, we expect revenue to be slightly up sequentially in Q3. Taking a balanced view of end market demand in Q3, we are expecting total revenue in the range of $135 million to $140 million.

At the midpoint of the guidance, this represents about a 7% year-over-year increase with similar percentage growth in both C&C and I&I. We believe gross margin will be up 50 basis points, achieving our 60% target. Non-GAAP operating expenses are expected to decrease and be in the range of $49 million to $51 million. We anticipate GAAP earnings of $0.11 to $0.13 per share. Earnings per share on a non-GAAP basis, excluding amortization, restructuring, and stock compensation, are expected to be $0.18 to $0.20.

With that, we'll take your questions.

Shannon Pleasant

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

Question-and-Answer Session

Operator

Thank you. [Operator Instructions]. Our first question comes from the line of Ross Seymore of Deutsche Bank. Your line is open.

Matt Diamond

Hey. Good afternoon, guys. This is actually Matt Diamond on Ross' behalf. The first question I have is that we knew that there are 25 basis points to 50 basis points of expansion from the Palm Bay shuttering. Could you give us sort of a timeframe when you expect that to happen? Is there an inflection point or a hockey stick? Or is it just literally a step up from quarter to quarter from here?

Rick Crowley

It's a, we said, long-term benefit. We meant that it probably is going to be realized in 12 months to 18 months, that additional 25 basis points to 30 basis points.

Matt Diamond

Okay. And the C&C, sort of the longer-term outlook, beyond 3Q. Is there anything to call out beyond normal seasonality there?

Necip Sayiner

I think that the demand we are seeing in our consumer business for Q3 is certainly sub-seasonal, in my judgement. I think we will start seeing some return to normal patterns in that business as well as adding the new layer of design wins in consumer that we've been talking about heading into 2017. The computing side of C&C, as I remarked, is showing continued improvement as the percentage of Skylake platforms are steadily increasing and we expect that to continue well into 2017.

Matt Diamond

Okay, excellent. And, last one; the same question in auto. Any directional impact for the second half of the year?

Necip Sayiner

We are expecting yet another record quarter in Q3 in our automotive business. I think it's a little too early to call out Q4, but we don't see anything in the horizon that will shake the strength in that business. It's going very, very strong for us at the moment.

Matt Diamond

All right. Excellent. Thanks so much guys and congrats again.

Necip Sayiner

Thank you.

Operator

Thank you. Our next question is from Cody Acree of Drexel Hamilton. Your line is open.

Cody Acree

Thanks, guys, for taking my questions and congratulations on the year-over-year growth. Necip, maybe if we can start there and just your level of visibility. You mentioned that some of the consumer programs that you had expected to start to ramp, you were digesting some inventory, that maybe that demand hadn't come in quite as strong as you'd expected. Can you just talk about what's happening there and maybe what gives you confidence that that starts to pick up maybe later in the year?

Necip Sayiner

Yes. We have the platform with the products that we got on tablet platforms. We have 100% share on new platforms. So, the demand for our products is really a function of the adoption rate of the newer platforms and the customer sales mix.

As far as the smartphone side of things are concerned, we are quite pleased with the continuing proliferation of our products, especially in our leading customer into more models. They continue adopting our products. And so, there are some puts and takes. We would have expected, perhaps, the consumer revenue overall to be higher than what we're guiding to.

But I think the important thing is that, in spite of that sub-seasonal trend, every other end market that we are addressing is quite strong. So we were able to show the revenue growth year-over-year and earnings leverage.

Cody Acree

And then, Necip, can you talk about the funnel, I guess, on the consumer side? Knowing that these things take quarters to ramp into and I know that you've been working to broaden beyond the current design win set. So, as we look into 2017, are we looking just a broader portfolio mix within the current OEMs? Or how broad a net can you cast so that it doesn't quite depend so much as to one platform or one OEM's success and you can kind of grow as the market continues to transition?

Necip Sayiner

Yes, that's the great question. I think there are two elements. One is increase of content on the platforms that we have won as we move into their next-generation platforms in the next 12 months to 18 months. So, there is going to be a content increase in what we bring to those platforms.

And, secondly, we have brought to market some real innovative products earlier this year and we have some major design-ins for 2017 platforms, particularly on the handset side. But I think I am going to, for now, leave it at that and leave the color for subsequent calls.

Cody Acree

But is that an expansion of the OEM base or is that within current customers?

Necip Sayiner

On the smartphone side, it's an expansion of the customer base as well as a higher content.

Cody Acree

Perfect. And then, lastly, just if we look, maybe, beyond Skylake, and you just look at the computing side of this business as a whole knowing that you're working architectures in the future for Intel and maybe the reduction of the competitive landscape, the number of competitors. Do you think that the computing market, long term, for you can be a growth market? Or, once we get through the Skylake transition, do you have to suffer the secular declines that maybe we're seeing in PCs as a whole?

Necip Sayiner

You know we're not viewing the PC side of our business necessarily as a big growth engine. The units will continue to decline. On the VCORE side, we have the ASP increase with Skylake and the follow-on two generations also maintain that kind of content.

The growth for us really comes, in computing, from battery chargers. Irrespective of the decline in overall units for our VCORE offering, the growth later this year and into 2017 and 2018 coming at the heels of adoption of our battery charger offerings where we did not have a very significant share to start with and that's changing positively for us. So, I would say for the next two, three years, the dynamics are reasonably good. But, long term, we view it as a declining unit market.

Cody Acree

Good. And then, I'm sorry, lastly, Rick, not to ignore you, obviously. Could you just talk about your OpEx expectations given all the programs that you've got to manage and pay for?

Rick Crowley

Yes. I think that, as we're guiding here, we've done, I think, a very good job of managing OpEx and resetting our OpEx to a new level here, which we expect to sustain. And that's going to put us on a trajectory to obtain our target model on the op margin basis of 25% more quickly than I think anyone, including ourselves, had been planning to get to. And we're looking to contain OpEx as we grow the top line and provide good fall-through and leverage as we move forward.

Cody Acree

Perfect. Thank you, guys. Congrats and thanks for the questions.

Operator

Thank you. Our next question is from Craig Ellis of B. Riley. Your line is open.

Craig Ellis

Thanks for taking the question and congratulations on the second quarter. I wanted to follow up on Cody's question a little bit and a comment that you made, Necip, regarding the Phase I, Phase II, Phase III of growth. It seems like we're progressing through phase one pretty nicely here as you're getting sustained year-on-year growth. And, as you look ahead to the second phase of growth as that broadens out and accelerates, can you help convey to us where you've got more visibility and more confidence in the growth that's coming as part of that second phase?

Necip Sayiner

So, there is a 1.2 I alluded to with respect to C&C. We are equally, if not more, excited about phase two in infrastructure. We have been talking about design wins for our digital multi-phase product, power-stage product for next-generation data center infrastructure. So, that is the [indiscernible] generation based on Skylake architecture, just around the corner. And we're starting to now get forecasts from our early-adopter customers. We'll start shipping in earnest in the very beginning of 2017, it appears. That's a significant step up for us because of the content we bring into that generation of data centers.

And automotive has been a very bright spot for us this year. At this point, we're looking at somewhere north of 20% year-on-year growth in that business. But there is an inflection yet to come with 2018 and beyond models. So, that's the phase three. We've got good visibility into those programs, design wins very intact with our customers. So, we're excited about that potential.

Craig Ellis

That's helpful. Thank you. And then, moving over to Rick. Rick, can you just go through some of the dynamics behind the decision on Palm Bay? I think it's understandable why you made the 200-millimeter line change. One, why does it make more sense for you just to stick with the 4-inch and 6-inch? And, as you make the move on 200-millimeter, is there any ancillary benefit to OpEx that you get or is that purely a COG savings that accrues?

Rick Crowley

Yes, Craig. Good question on the 4-inch and 6-inch line. The processes we're running on these lines are generally proprietary and they produce our very high margin mil/aero and analog products. So, when you look at the economics or we look at the economics of it, it makes sense to continue where we are with the know-how and the cost structure because the cost benefit of moving it outside really doesn't play out; number one.

And, with respect to the second part of your question, yes there's some modest impacts to OpEx from the reductions and the actions we've taken. And that's baked into our guide here for Q3.

Craig Ellis

And then, the follow-up to that, Rick, would be that as we look back over the last couple years it seems like you continue to pull a rabbit out of the hat in terms of incremental cost savings that you're able to find. As you assess the opportunities to further streamline the cost structure, whether it's on the manufacturing side or on the OpEx side, how much wiggle room is left? Is there any low or mid-hanging fruit or are we fairly well optimized with this manufacturing move?

Rick Crowley

Well, I think the mindset we use is always tried to look for improved efficiencies and to try to get costs out. That said, I think we've gotten the larger items. We're certainly looking to sustain the investment that it takes to get our new products out and not compromise that. So, I think that's the main points that we want to get out in response to your question.

Necip Sayiner

I would also add that I think, over the last two, three years, we have managed to become more efficient with the use of our R&D dollars and how the projects are executed on and the amount of IT re-use that we can bring to bear. So, we are actually able to do more with a fixed amount of R&D dollars compared to, say, three years ago.

Craig Ellis

Got it. Thanks, guys.

Operator

Thank you. Our next question is from Tore Svanberg of Stifel. Your line is open.

Tore Svanberg

Yes. Thank you. Nice quarter. Maybe I can ask the OpEx question a bit differently. So, with all the merger mania going on in the analog space and now that you're growing your top line again, and it does sounds like you have a pretty good funnel as well, why actually not go out and hire some experienced engineers instead of just keeping the OpEx flat?

Necip Sayiner

Well, we didn't say we were going to keep the OpEx flat going forward. I think our desire is to continue to grow our R&D commensurate with revenue growth. I think we have certainly more room to do that in the next 12 months to 24 months than we've had thus far in the turnaround. And, yes, there are, I think, very capable engineers not far from us who are available. Maybe we can be successful in recruiting them.

So, the desire here is certainly not to continue to plant on OpEx. We're going to squeeze all the inefficiency we find in the organization. But we want to be in a position to continue investing and growing our product investment.

Tore Svanberg

That's fair. And maybe moving to a more near-term question. So, I know 90 days ago you had pretty strong bookings momentum. I'm just wondering where that stands today. I think you did mention bookings were up in the quarter, but sort of more from the linearity perspective, how are orders trending?

Necip Sayiner

Yes. As I mentioned, it was the highest order in two years, Q2. And that was pretty linear. I mean we had - different companies have different schedules on how they book orders, et cetera. So that can change. But, for us, it's been steady throughout Q2. We didn't see any particular difference in terms of linearity. It has been, I think, nicely broad and predictable, I would say, in terms of weekly bookings rate.

Tore Svanberg

Very good. And, Necip, on the industrial business, you were talking about a recovery there and closing the gap on the year-over-year performance. Is that a reflection of the end market or is it actually some Intersil-specific products that are going into production?

Necip Sayiner

I think that on the margins we might be – let me take it one at a time. On analog and power business, which is almost all of industrial, we have seen a trough in Q4 of last year. I think we called that one correctly. And both businesses improved in Q1 and Q2. And Q3 is also looking to be flat to up. So, I would say that's largely end market driven. We, in the margins, have been able to gain some share, particularly with our power modules that drove the improvement over those few quarters. But I'm going attribute most of the improvement from Q4 trough to where we are to improving end market demand.

Tore Svanberg

Very good. Great job, guys. Thank you.

Necip Sayiner

Thank you.

Operator

Thank you. Our next question is from Ian Ing of MKM Partners. Your line is open.

Ian Ing

Yes. Thank you. First of all, Rick, a clarification. The Palm Bay shutdown having a modest near-term benefit to gross margins, how much is that influencing the guidance of 50 basis points? And I'm assuming it's building buffer inventory and running the factories hot right now.

Rick Crowley

Ian, no, actually it's not. We're actually beginning the ramp down immediately. It's already begun. So, it's really the taking cost out as quickly as we can this quarter. And it's very modest. It's a fairly small portion of the 50 basis point improvement.

Ian Ing

Okay, that's helpful. And, Necip, as you look at your server design wins, could you talk a bit about the competitive landscape and your sense of server power? You know Maxim on recent calls also pretty vocal about their data center opportunity, 12 volts, and then leading into 48 volts into next year. Thanks.

Necip Sayiner

Yes. The content we bring with next generation are both controllers based on our digital power technology as well as our smart power stage offering. Our controllers are capable of supporting both 12-volt and 48-volt topology and the design wins that we have are from both flavors. I think we have done a decent job, I would say, in garnering share for our first-generation digital power technology for servers. There is certainly growing interest, having established ourselves as a player for the refresh and follow-on generations. But, we feel pretty good about the level of performance that we can bring to the table in terms of efficiency and transient performance.

Ian Ing

Great. And then a question for both of you. You have a bit of a high-class problem here. As your fundamentals improve, your free cash flow return to shareholders is declining. I'm getting 65% now on a trailing 12 month basis. So my question is; is there some sort of minimum threshold where you need to perhaps revisit? Are you going to look at share buybacks or dividend increases? Is there some threshold that you're looking at or a place where you'd start looking at having that conversation?

Rick Crowley

Well, we evaluate on an ongoing basis with the board. And we do look at dividend yield and the payout ratio. We still have a very high dividend yield. And so far, through the first half of the year, we've paid out 87% of our free cash flow in the form of a dividend. So that's still a pretty high payout ratio. I think we're probably one of the better in the industries. So at this stage, there's no immediate plans to change the dividend or we don't have a buyback authorization approved. But at the same time, we think that our dividend is certainly a very efficient and effective return of capital to shareholders.

Ian Ing

Okay. If I could squeeze one more in. Do you see builds right now? Do you have a sense of maybe the ratio of Skylake versus Haswell and Broadwell? I know, at one point you said Skylake was still only less than half of the builds.

Necip Sayiner

I think at this point they have just crossed the 50% mark with Skylake.

Ian Ing

Okay. Thank you very much.

Necip Sayiner

Thank you.

Rick Crowley

You're welcome.

Operator

Thank you. Our next question is from John Pitzer of Credit Suisse. Your line is open.

John Pitzer

Hey. Good afternoon, guys. Thanks for letting me ask the question. Let me add my congratulations on return to year-over-year growth. Necip, a lot of my questions have been answered, but I'm just kind of curious, with all the repositioning that you guys have gone through over the last 12 months to 18 months, you mentioned earlier that you thought your Q3 guide was below seasonal for some specific factors. Can you just help to level-set us all on the call, given where your portfolio is today, how you view normal seasonal for Q3 and Q4 on a sequential basis?

Necip Sayiner

That's a good question. So my remark was based on what we would expect Q3 to mean for our consumer platform. Having won new platforms, I would have expected to see a higher sequential growth for us. But compared to Q3 of the previous two years, it looks, of course, favorable. The last two years, C&C was down sequentially in Q3, but that is not what I expect from a business that is enjoying product cycles and leading platforms and customers. So I think C&C should be viewed as a bit of a subpar sequentially in Q3.

In terms of I&I, there is a lot to be pleased about what we're seeing in that business today. The headwinds in industrial, particularly analog, have subsided. Automotive is doing very well. Mil/aero is contributing. So there is a lot of momentum in general. I think we're staying flat to slightly up sequentially, but that's mostly because we had a stellar quarter in mil/aero in Q2.

John Pitzer

That's helpful. And then, Necip, just that same sort of line of reasoning around a calendar Q4. Again, with the repositioning, what would you expect normal seasonal? And if C&C is below seasonal for Q3, does that mean you should buck normal seasonal trends in Q4 or how should we think about that?

Necip Sayiner

Yes. That's a good question. The forecast seems to be moving around more than we'd like, in some cases. So I am going to have to not give a straight answer on Q4 C&C because I don't believe we have very good visibility to whether this could be counter-seasonal. The I&I business, though, in Q4 generally is down, particularly for mil/aero. That happens to be the case. So if typical seasonal patterns hold again, I would expect I&I to be lower in Q4, sequentially.

John Pitzer

And, Necip, my last question is; you guys are well through kind of the turnaround story, repositioning story. As we get into the third phase of growth, what do you think sort of the right organic growth rate for Intersil given your product portfolio? And I guess, more importantly, given some of the news we saw earlier in the week of consolidation in the analog space, which has never really been a strategic imperative, we saw a pretty big deal announced earlier in the week, how do you think about consolidation in this space and maybe trying to drive more shareholder value through inorganic growth either as an acquirer or an acquire?

Necip Sayiner

So I'll answer the organic piece. I think the target model we set out 18 months ago to grow the top line at a rate of 10% is looking more and more concrete to us at this juncture, with all the new product rollouts and the design wins that we have been able to garner. So, I think, collectively, we have higher confidence in achieving and sustaining that kind of growth. And I think our board also shares that confidence.

And with respect to M&A, as I said earlier, many times it is a fact of life in our industry. I think the pace continues to be strong in M&A. And in a few years time it is difficult to imagine Intersil in its current form. We'll either scale up further inorganically by acquiring an attractive business that is strategic to us or we will be under a larger umbrella. That's the more likely outcome. That is what I said last year and the year before and I continue to believe in that.

John Pitzer

That's helpful. Thanks, guys.

Operator

Thank you. Our last question is from Chris Caso of CLSA. Your line is open.

Chris Caso

Yes. Thank you. You guys have discussed a lot of different product areas and product initiatives. As we look into 2017, what would you consider to be the most significant areas that we should be watching in terms of what drives the revenue growth as we move into 2017?

Necip Sayiner

I think we are going to continue to see improvements in C&C, a continuation of Skylake adoption and proliferation of our products into more platforms in consumer. We will see a significant improvement in the infrastructure power business with the rollout of a further generation in 2017. That's quite significant in terms of dollars for us given the content. And, thirdly, automotive continues to be a strong driver of growth for us. I don't see that one slowing at all. As a matter of fact, at this point, we are setting our sights on a $100 million run rate in that business over the next 24 months.

Chris Caso

If I could drill down on the automotive just a little bit more, and I know you had previously talked about, I believe it was model year 2018, design wins on that. Could you give us a little perhaps an idea of when we might start seeing an acceleration in growth in automotive? I mean would that be kind of toward the end of next year or we'd have to wait into the calendar 2018 to see that accelerate more or aggressively?

Necip Sayiner

So, there are a few vectors. One has to do with the regulation in North America for all vehicles to have backup cameras. That's a 2018 requirement. So those models who have not yet obliged will need to adopt it and that will start going in our revenues in second half of 2017. With our video products, I think the even larger delta comes from some of the new products that we have developed and been able to gain some design wins with large OEMs. That will start in earnest in year 2018.

And thirdly, our power business has been continuing to grow from a small base over the last two, three years. It's now in the 20%, 25% of our overall revenues for automotive. And that continues to grow because we've been investing in that space and creating a lot of new products. So I continue to think that this is going to keep layering on. So this is where we get the confidence for setting a goal like this.

Chris Caso

Great. Okay, great color. Thank you very much.

Necip Sayiner

You're welcome.

End of Q&A

Operator

Thank you. And that concludes our Q&A session for today. I would now like to turn the call back over to Shannon Pleasant for any further remarks.

Shannon Pleasant

Thank you very much and thank you for joining us. This now concludes today's call.

Operator

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program. You may all disconnect. Everyone, have a great day.

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