Intersil Corporation (ISIL)
May 08, 2012 12:00 pm ET
David B. Bell - Chief Executive Officer, President and Director
Susan J. Hardman - Senior Vice President of Analog & Mixed Signal Products Group
Andrew M. Cowell - Senior Vice President of Consumer Products
Jonathan A. Kennedy - Chief Financial Officer, Senior Vice President and Principal Accounting Officer
Vernon P. Essi - Needham & Company, LLC, Research Division
Ross Seymore - Deutsche Bank AG, Research Division
Terence R. Whalen - Citigroup Inc, Research Division
JoAnne Feeney - Longbow Research LLC
Doug Freedman - RBC Capital Markets, LLC, Research Division
Jonathan Steven Smigie - Raymond James & Associates, Inc., Research Division
Alex Gauna - JMP Securities LLC, Research Division
David B. Bell
Ready? Everybody's prompt in the room right at 9:00. That’s great. Welcome to Intersil's 2012 Investor and Analyst Day. My name is Dave Bell. I'm the President and CEO of Intersil.
Let me say that even though things are looking a little bit bleak on the street today, I guess due to worries over Europe, over France and Greece, it's a beautiful day outside, and I guarantee it's going to be an even more beautiful day inside this room as we go through our presentation this morning.
Before we get going, though, let me say that if you need Wi-Fi access, it's available in the room under network name ISIL, and there's no password needed. So just go to the wireless network ISIL.
Okay, I think I'm also supposed to say something about tweets. Is that right, my next slide perhaps? I actually have to turn on my clicker. All sorts of technical difficulties already. Okay, there we go.
Well, we before we begin, I'd like to remind you that during the course of this presentation, we will make forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those suggested here. You should read more about these risks in our most recent SEC filings. These documents contain and identify important factors that could cause results to differ materially from those contained in any forward-looking statements made later today.
With that fun legal requirement out of the way, let's get on with the program, and here's my information about tweeting. If anybody is tweeting from today's presentation, please join the conversation using #ISIL, our stock symbol.
On the screens in front of you, you see a photo of the executives present here today or at least most of them are present here today. They are Intersil leadership team, what we simply call the ILT, and you'll see many of them here today, most of them gathered in the back row of the room here, but feel free to approach them during the breaks or later during lunch if you have any questions you'd like.
Let me talk briefly about the agenda today. I'm going to start out the presentation. I'll talk for about 30 minutes and do an introduction and an overview of Intersil; where we've been, where we are today and where we're going. We'll then go into end market presentations. We'll begin with our industrial and infrastructure market. Susan Hardman and I will talk about the products that are going into that market. We'll then take a brief 10-minute break, then Andy Cowell and Susan Hardman will come back up on the stage, and they will talk about our consumer market. And then finally, I'll wrap up and talk about our personal computing market.
After that, we'll switch gears, and Jonathan Kennedy will give you an overview from a finance perspective. We'll do kind of conclusion remarks and open it up for Q&A, and I should mention as well that while we do have a final Q&A for everyone, there's going to be Q&A at the end of each end market presentation as well. So you're free to ask questions in either place. We'll provide lunch for all of you, and there are more demos. If you didn't have the opportunity to see our demos we had set up yesterday during our cocktail hour, please feel free to see those demos. I think there's at least one demo set up out here and perhaps they're all going to be moving out here a little bit later on. So please take a chance and look at some of the interesting technology we're demoing today.
Back in July of last year, I introduced a new concept, and that is our top 10 growth drivers. And I did that because I wanted to provide some clarity to the investment community, to those of you in the room here today, about just what are the things we're counting on to drive our growth. Jonathan and Brendan and I would talk frequently about how we're so confident that our investments are going to result in large growth going forward, but the questions frequently came back, "Well, exactly are you counting on?"
So we introduced the top 10 growth drivers to answer that question and said, "These are the top 10 things within the company that we're counting on to grow." So I think that worked out pretty well. It provided some real clarity to the investment community, but it also did something else, and it created a real focus within Intersil. It galvanized all of us internally at Intersil to realize that these are the top priorities that we need to invest in within Intersil to drive our growth as well. So that's something that we've really been focusing on during the last almost a year is to focus on these top 10 growth drivers.
Now we've grouped these growth drivers into now 3 markets. I'll touch a little bit more in a few minutes on how we reconfigured our end markets at the beginning of this year, but the first 5 growth drivers that you see there are included in the industrial and infrastructure market category.
The next 4 are grouped within the consumer end market category. And finally, PC power management, obviously, is included in our personal computing end market. And we'll go through each one of those in sequence during the rest of this presentation this morning.
I'm going to address 3 topics in my introductory presentation this morning. First of all, I'm going to talk about Intersil's accomplishments during the last 2 years. I stood up in front of you roughly 2 years ago, and it's been -- a lot of stuff has happened certainly during that intervening [ph] 2 years so we'll talk about just what has happened during the last 2 years.
Secondly, I will talk about where Intersil is positioned today relative to the market, and then finally, I'm going to talk about the next 2 years probably will be the period until our next Analyst Day and why we expect that exceptional revenue and EPS growth will occur during the next 2 years.
So let me emphasize what I hope is the core message that each one of you take away from today's presentations today, and that is that by focusing on our top 10 growth drivers, Intersil will deliver exceptional EPS growth. Again, we're very focused as a team on these top priorities increasingly so as time goes on. And we firmly believe, and I hope you'll leave this room persuaded yourselves that by focusing on those top 10 growth drivers, we are going to deliver exceptional EPS growth. You'll hear that same theme built upon time and time and time again this morning as we go through each one of those top 10 growth drivers and show you why we're so confident in that statement.
Let me talk about the last 2 years, what's happened since the last time I stood up in front of you at an Analyst Day. The picture you see on the right-hand side of the screens there is the cover of our recently published 2011 annual report, and it shows a picture of a gleaming new building, this nearly finished in construction. And I think that's a pretty good visual metaphor for what we're doing at Intersil. We've been toiling away for the last years to build something great, and we're nearly done. The crane's still in place, but clearly, the building is almost finished. And we're about to enter the next phase, and we'll talk to you what that next phase entails.
You will also see up there a quote from the first line of the shareholders' letter that's within that annual report. It says, "Our passion is to build a great company where our employees are inspired to create innovative products." That's absolutely true. We are passionate, and we are committed, not just to grow earnings in the next quarter, but to build a great and enduring company.
David Packard many years ago once said, "Build a great company, and the stock price will follow." I firmly believe that, and our Intersil leadership team firmly believes that as well. Our mission is to build a great and enduring company, and we're completing a transformation phase, and the stock price will follow because of those efforts and those investments. It requires a lot of determination and patience.
In fact, one of the challenges we face is that in order to transform a company and build a truly great company, I believe really takes something on the order of 4 to 5 years. Unfortunately, all of you were painfully aware that the market does not have that kind of patience today. But we are committed. We are determined to build a great and enduring company. We've been working on it for many years now, and you're about to see the fruits of our efforts.
One thing that we have done is we've maintained steady investment during these turbulent times. We have refrained from the pressure to slash R&D simply to boost near-term EPS because we need to sustain our investment. We know we need to sustain our investment to build our truly great company.
It's been a challenging 2 years since our last Analyst Day. In fact, it's been a challenging 4 years. If you go back to 2007, and you look at Intersil's growth from 2007 to 2011, our revenues have been nearly flat during that period. Now there are a number of reasons for that. One is that the economic environment certainly has not been favorable, but we've also been transforming the company.
Interestingly, if you look at our chief rival, Texas Instruments, and you compare their revenues from 2007 to 2011, they're almost exactly flat as well. In fact, they're slightly down from 2007 to 2011. So while it's been a challenging 2 years and a challenging 4 years, we have not been alone. We've been building and transforming our company during that period of time.
If you look at the left-hand graph on the screens, you can see a plot of Intersil's revenue during the last 2 years since our last Analyst Day. The red line is the Intersil. The blue line is the average of our peer companies, and what you can see is that our revenues have fluctuated greatly, in fact, more than our peers have. But it's characteristic of Intersil that when there's a downturn, we tend to go down earlier and deeper, and when there's an upturn, we tend to come back quicker and stronger.
But regardless, as you can see, the 2 curves are very similar in shape just ours is higher in amplitude during the last 2 years. More importantly, though, if you look at the right-hand graph there, you can see our R&D investment as a percent of revenue, and our peers, as you can see, have averaged around a 14% of revenue investment in R&D. We've been much higher than that. That absolutely has had a negative impact on our EPS in the near term. But it absolutely as well has gone into investments we know is going to drive our growth in the coming quarters and years.
Another thing that I'm very proud of, and I think is especially important to build a great company, is creating an exceptional team. Jim Collins, the author of the popular book, “Good to Great” says, "Job number one is get the right people on the bus," and I agree completely. Jack Welch, the legendary CEO of GE, once said, "The team with the best players wins."
We've done some pruning during the last couple of years, but we've also added some extraordinary talent to our team during the last few years. A few examples are with us here today. Andy Cowell, he'll be speaking a little bit later on this morning, joined our team, an outstanding executive joining our ranks. Gerry Edwards last fall joined us as our new Senior Vice President Worldwide Operations and Technology. Many other Vice President and Director level people we've added to our team. So we have absolutely improved the caliber of our team during the last 2 years.
It's interesting that with the acquisition of National by TI that I oftentimes get asked by many of you people in the room, "Dave, did the acquisition of National impact Intersil?" And of course, you're expecting me to kind of look down at the floor and say, "Yes, yes, it's really been bad on Intersil." You know what? It has had a big impact in Intersil, but it's been a hugely positive impact on Intersil. And the reason is because we've been able to pick up some truly great talent out of National, people that did not want to join TI, and Gerry Edwards is one example of that.
On the screen now you see a sand chart, something that I've shown before after our quarter-end earnings conference calls. And it kind of depicts how we've transformed our business during the last 4 or 5 years here. Let me say one thing, though, before I get going here, and I'm sure a lot of you are staring at this because we do show the later quarters in 2012, we go all the way to the end of 2012. And I want to caution you that what you're seeing there is not a forecast. Let me repeat. We only give a forecast for the current quarter, so that is not a forecast, but it is perhaps an expectation of where we think our revenues could go in the second half of the year with the upswing in the semiconductor cycle.
But let me point out a few things about this chart. The red band at the bottom are deteriorating businesses, and you can see if you go back to 2007 and 2008 how big that revenue was and how small it is today. Those deteriorating businesses really comprised of 4 businesses accounted for $144 million per year in lost revenue. We've had to replace that revenue with other businesses.
The next band up, the light blue band there is PC power. PC power has reduced as a percentage of our sales, but we expect that to stay fairly stable in terms of dollars. But just take a look at that chart. If you go back to the middle of 2008 how big the combination of those deteriorating businesses in PC were as a percentage of our revenue and now how much smaller they are here today.
So we've made a big change in the composition of our business during the last 4 years or so. The blue band, the dark blue band there, is our stable and growing businesses. A lot of that comprised of what we call our horizontal business. But most important is the green band at the top. The green band at the top are our new businesses. And in fact, most of the top 10 growth drivers that we're counting on to propel our growth are included in that green band. And not surprisingly, that's where you see us predicting we'll grow throughout the end of this year and grow in the coming years as well.
During the last 4 years or so, we've made a concerted effort to expand the breadth of our horizontal product portfolio. Now again, horizontal products are things that go into the broad market, largely the industrial customer base; very stable, very high profit margins. So we made it a concerted effort to develop a lot of new products to expand our portfolio that is aimed at that horizontal market.
In fact, you can see there a Pareto chart that shows 727 new products that have been introduced since 2008 that are aimed at the horizontal market. Those products provide a good foundation and a stable base for us to build the rest of the company on. But there is one problem with the horizontal market, and that is that it grows very slowly. It's a stable business. Many of those parts get designed in and get purchased for decades by the same customer. But it inherently is a fairly slowing business, and that is not going to drive enough growth to please those of you in the audience.
But it has done one other thing for us. Through the creation of those horizontal products, we've created an enormous portfolio of intellectual property. And in fact, most of that intellectual property that went into those horizontal products is on a single proprietary process. We call it VIS25. It is a modular, quarter micron, BCD process that we can use to build a broad array of products. Power management products, signal conditioning, data converters, interface, so forth. So through curating all of those horizontal products, we've amassed an enormous portfolio of intellectual property with various product functions on this one common process.
You can see a chart here of how that portfolio has grown here in new VIS25 products. Starting in 2008 with essentially 0, now we predict that we're going to end 2012 with approximately 380 products built on this one common proprietary process, VIS25. That creates an enormous portfolio of IP.
So as I mentioned earlier, we expect that our horizontal business will continue growing due to the large expansion in our portfolio, but it's going to be a gradual steady growth. We estimate maybe a CAGR of around 3% or so, but we're going to leverage that huge IP portfolio to create a lot of application-specific products that are aimed at vertical markets. So we can very easily create these new application-specific products from this portfolio. Right now, about 80% of our R&D resources are focused on our top 10 growth drivers, and most of those top 10 products -- or products within the top 10 are being built using our VIS25 process.
Let me shift gears now and talk a little bit about Intersil today. Today, as you know, we're very focused on our top 10 growth drivers. But sometimes I get asked a question, "Okay, that's great, Dave, but how did you pick the top 10? How did you choose the areas where you're going to put all your resources?" And it was based on 3 criteria. Number one, we selected them based on alignment with global macro trends. If we can do that it's like having the wind at our backs if we can align ourselves with these global macro trends that are destined to grow or as one author puts it, they're called hard trends. What are some of those trends? Well, probably the most important one is that Internet traffic is growing exponentially, and it most certainly is going to continue doing that for many years to come.
Number two, handheld devices are increasing in capability. We all have smartphones or tablets, notebook computers. We see how their capability grows year-after-year.
Number three, electric and hybrid vehicles are growing exponentially starting from a fairly small base today, we know that electric and hybrid vehicles are destined to continue growing in the coming years. And finally, increasing attention to security and safety around the globe. I just heard this morning on the news about a new terror attack with a new type of bomb. They didn't reveal a whole lot about it, but events like that just simply drive more and more concern around the globe about security and surveillance. And it's not going to stop, unfortunately.
Number two, we need to pick areas where we have the talent, the intellectual property and the customer relationships to beat larger rivals. So we've carefully chosen these areas, our top 10, in places where we know, despite the fact we're much smaller than some of the companies we compete against, but areas where we know we've got the talent, we've got the IP, we've got the customer relationships to beat those larger guys.
And third, we want to make sure that these areas are big enough that they can actually move the needle for Intersil, particularly in the coming year or so. So those are the 3 criteria that we use when we select our top 10 that we're focusing our efforts on.
Let me talk a little bit about our new market segmentation. Beginning this year, we introduced a slightly different market segmentation. In past years, we broke our markets into 4 different categories. We had industrial, communications, computing and consumer. Beginning in Q1, we recombined those into 3 market categories. We combined our industrial with what we used to call communication, but we now call, infrastructure and made our I&I market, the industrial and infrastructure market. We also moved servers out of computing and into I&I because the characteristics of servers really are much more like the other infrastructure equipment.
Why did we do this? We did this for a couple of reasons. One is it groups in I&I products with similar market characteristics. Secondly, it better aligns the market comparisons between several of our largest competitors. The personal computing market still remains PCs, but again as I just mentioned we moved servers out of personal computing into infrastructure. So you continue to have notebooks and desktops within the PC market. And finally, the consumer market, really no change there, consumer products that all of us own today.
Let me now talk about the next 2 years. This is probably most important to all of you here, that's why you showed up today. Where are we heading as a company? Well, we're entering the next phase beginning today with Intersil.
Let me play back the tape a little bit though, first. If you go back to the time before 2007, it's a phase of our growth, of our history that I call unsustainable growth. The company during that period of time prior to 2007 had very good growth, but it was really based on just a very limited number of product families. You see them listed here. PC power, the company had growing market share in PC power, that leadership technology that was powering a lot of our growth. That product area remains today, and I'll talk more about it later on this morning.
However, the other 4 categories that I list are kind of those deteriorating businesses that I've referred to earlier. Remember, the red band in the sand chart. Those are those businesses. They were red laser diode drivers going into DVD writers. That was a large business. That was probably a $50 million per year business. That's gone. That doesn't exist anymore.
It was cell phone chargers going to Korean cell phone makers, linear cell phone chargers. That business is gone. It was DSL line drivers. We had a leadership position in DSL line drivers, and we believe we actually still do have a leadership position. It's simply that the ASPs are about 1/3 of where they were back in 2007. And finally, military encryption ICs. That was a very good, very profitable business, but it was destined to go away as it became replaced with newer, digital-based technologies.
So back in February of 2008, I became CEO and the former CEO, Rich Beyer, left to go to Freescale. And unfortunately, I was blessed with a market collapse several months after I took over as CEO. Now we're on the same boat. So I can't complain too much. Everybody suffered the same market collapse, but it certainly was difficult timing for me. But because of that and because of these deteriorating businesses, we embarked on a transformation of our business. Just about the time the market collapsed, I reorganized the company, and we started determining what areas we wanted to get out of, some we had no choice like deteriorating businesses and what new areas we were going to invest in. So we exited those dying businesses. During the process, during the transformation we completed 6 acquisitions. We had very heavy R&D spending going into a number of chosen areas. As I mentioned earlier, we created a very large IP portfolio, most of that on one proprietary process. And we got the right people on the bus, and we got some of the wrong people off the bus.
In July of last year, as I mentioned earlier, we introduced our top 10 growth drivers for the first time. And then here today, we're entering a new phase, the strong EPS growth phase. And why am I confident that that's the case? Well, today we've updated our top 10 growth drivers. I think that's something that's appropriate to do from time to time. The original ones were out there for about a year, we made some minor changes to it. Today, I'm announcing that we're going to make in the coming weeks some deep operating expense cuts. Those are being done in order to achieve an updated financial model. I'll talk about that in just a moment. Jonathan will talk more about it in his presentation.
A couple of weeks ago, we announced our Pico projector solution. We're very excited about that, and you can see that demonstrated later on. Susan Hardman will talk more about that. And we also just yesterday announced our Thunderbolt system solution. Susan as well, will talk about that during her presentation. And then finally, just about a week ago, a little over a week ago, we deployed a revolutionary new website.
So there's a lot of changes that are going on here, some major new product announcements. Perhaps many of you don't understand fully the significance of some of these new product announcements. We hope to explain that to you later on. One thing I do know that you understand, though, is the significance of achieving a new operating model that we're announcing here today.
So as I mentioned, we're updating our near-term financial model. Many of you in the room have heard me talk about the $250 million goal that we have. In fact, I'll tell you a little anecdote. I know Jonathan and Brendan, they always start worrying when Dave wanders off script and starts telling stories, but I'll do it anyhow.
So I stood up in front of you just about 2 years ago. I remember it distinctly. I remember partly because it was my birthday, and doing an Analyst Day is actually not what you'd normally choose to do on your birthday, but I didn't have any choice. But I was up on stage, and it was during a quarter where we would finish at $220 million in sales, Q2 2010. So we had nice growth going, and it looked like we might actually achieve our $1 billion run rate, $250 million quarter by the end of the year, and I said so. I said I can't promise it, but I think if things keep going the way they are, we might be able to achieve that $250 million quarter.
So I got off the stage, and we had a break. And during that break, David Loftus, our Senior Vice President of Worldwide Sales, he came up to me, and he said, "Dave, I've got bad news. We're getting huge cancellations out of Taiwan in notebook computers,” and the timing couldn't have been worse. But that was the beginning of the next downward cycle. And obviously, we were unable to achieve that $0.25 billion quarter or $250 million quarter at the end of last year, and it's been elusive for the last 2 years, largely because of the economic conditions.
So what we're doing is revising the level we're shooting for. We will get to that $1 billion run rate, absolutely. I can't tell you exactly when. I'm not going to be so foolish as to tell you a date like I did 2 years ago. We absolutely will get there, but what we are doing is we're setting our sights a little bit lower and making sure that we can deliver excellent profitability at a lower revenue number.
So our new target revenue that we're announcing today $200 million per quarter instead of the $250 million. Again, we're going to get to $250 million, but we're going to become profitable at $200 million. 57% gross margins. There are a number of things that can drive us to that 57% number. If you go back less than a year ago, we were above 58%.
Utilization improvements, driving down our cost of goods sold, Gerry Edwards is very focused on driving down our manufacturing costs and product mix changes. We feel very confident at the $200 million level, we can achieve 57% gross margins. And what will that result in? That will result in a 24% non-GAAP operating margin. All of you, if you haven't done so already, you can plug that into your Excel models, and you can figure out what that probably means in terms of EPS. Again, Jonathan will spend a little bit more time on this during his presentation later on this morning.
One other thing that we are doing as part of this change is that whereas in the past, during the last year or so, about 80% of our revenues have been focused on our top 10 growth drivers. Going forward, nearly 100% of our resources are going to be focused on our top 10 growth drivers. So we're all in. We're putting all the chips on 10 numbers because we've carefully chosen those areas where we know we can win and where we know they will drive growth for us.
So in the next phase, your investments are beginning to pay off. We have no deteriorating product families, no significant ones at least to backfill. Our horizontal products are stable and gradually growing, estimating something like a 3% CAGR for that. It will go up and down with the economic cycles, of course, but we expect an average around 3% CAGR. And that forms now, a stable base, a stable foundation on which the company can grow.
As I've just mentioned, manufacturing cost reductions, utilization improvements and mix improvements will drive gross margin. And what we expect is that our top 10 growth drivers will drive strong revenue growth. Some of those will begin to drive some revenue growth in the second half of 2012, but many more will drive significant growth in 2013.
Again if you look back to July of last year, I talked about the fact that we were going to deliver $700 million in additional revenue growth in the next 5 years. So I was counting on those top 10 for that additional $700 million, and we're still doing that. We've made slight revisions to our top 10, but we are still expecting that this top 10 will deliver an additional $700 million by 2016. And I'm not moving the finish line when I said that in July of last year, 5 years from the middle of 2011 is the middle of 2016. So it's roughly 4 years from now, we expect that these top 10 growth drivers will accumulate $700 million in additional revenue.
Now when you get to the end there, I'm sure that some will not do quite as well as we expected, but some will do far better. And you can total up the numbers as we go through the presentation and talk about each one of those top 10 growth drivers.
One of the things, though, that I'm very comfortable with, though, is the fact that we've got 10 different things, 10 different bets we're making to drive our growth. I sometimes find it frustrating myself when I look at other companies, a couple of companies stand out in particular, that are smaller in revenues than Intersil but have larger market caps than Intersil. And the 2 companies I'm thinking of have roughly 75% of their business in one product category sold to one customer. That is thin ice. That can break apart before you know it. I don't want to build that kind of company, and our ILT doesn't either. We want to build our company where we've got multiple pillars in our foundation, and for us, it is 10 areas that we're counting on to support our growth. And if 1 or 2 don't do as well as we think, it's not a tragedy because I'm willing to bet that more than 1 or 2 are going to do far better than we're estimating.
So let me reiterate today's core message, and you're going to hear inputs to support this message from every presenter later on today. And that is by focusing on our top 10 growth drivers, Intersil will deliver exceptional EPS growth. We're passionate about that, and we have absolute conviction about that.
Let me touch on one final topic, and that is our sales model because having the right sales model is critical for success as well. Now we don't have the largest sales force in the world, so we have to utilize our sales resources carefully. And we divide our sales model into these 4 different categories. The top category are worldwide major accounts and regional targets. For those, we directly cover them with our own sales people, and those customers directly place orders on us. So it's a 100% direct coverage model.
For the next tier down, the B category there, in that category, our own sales people again are interacting with the customers. But the sales is done through our distributors. So the fulfillment, the bookings and the orders go through our distributors.
The next category down, the C category there, is where we rely on our distributors both to do the customer engagement and take the order. So our sales people directly do not engage with those people. And the bottom category, the D category, is where we rely on what we call unassisted design wins. They're customers and probably close to 20,000 of them around the world that buy our products, they buy through distribution but neither our sales people or our distribution people directly interact with them. So we need to have a system whereby we can have very effective unassisted design wins.
People somehow find the part they need, design it in and buy it from a distributor. And how does that happen? Well, it happens through our website. A little over a week ago, we introduced a revolutionary new website. Now I know all of you are probably thinking, what can be revolutionary about a website? Well, I think there are some very important things. We're increasing and focusing on getting those unassisted design wins, making it very easy so a customer can go to our website, can identify the application that he's working on, say it be automotive or if it's computing or whatever, he can find the parts that are appropriate for that application. He can simulate his design based on those parts, and he can order the parts even right through our website if he wants to. You really simplify that process.
So it's consistent with our theme of simply smarter, making it very simple for customers to find what they need through our website, and it underscores Intersil's image as a technology leader. So we're very proud of this. This has been a big development effort, dozens of people within Intersil working for more than a year to create this website, and we're confident that it not only promotes our image, but it's also going to have a big impact in growing unassisted design wins for that large space of horizontal customers.
So what I'd like to do in closing, is I'd like to show you a brief video that we prepared to introduce our new website. And after that is done, then Susan Hardman will come up and start talking about our industrial and infrastructure market. So please watch the video.
Susan J. Hardman
Good morning. Wow, that's pretty awesome. If you guys haven't had the opportunity to go out and take a look at our new website, I would certainly encourage you to do that, but maybe not while I'm talking, okay? All right.
So I'd like to go ahead and start the next segment, the market segments. So talking about the industrial and the infrastructure. As you've heard us talk about, we've combined these 2 segments together from a reporting and an analysis perspective, and that's because there are significant similarities and synergies between these in terms of customer needs, in terms of go-to-market strategies and the products that we need for these diverse markets.
As Dave highlighted, we have over 700 new products to cover this market, this is a very broad market area. With that 700 new products, it enables us to develop solutions for this very vast, very vast market segment. So we're excited about being able to put this diversification of solutions together. We're leveraging in each of these areas. So if you'll look, we've got a new family of precision op amps that we introduce for the industrial market. We've taken that from the industrial market, we've repackaged it and characterized it, and now we've got a whole line of precision op amps that we're targeting to the rad-hard market very specifically for the satellite. So in this segment, we're going to talk about the security business, the automotive, the cloud infrastructure, the dense power conversion and then lastly, the rad-hard space.
Now when you look at the unified strategy with this particular segment, we're leveraging our sales efforts and our development efforts. We're doing -- we've done the hard things over the last 4 years in developing this very broad portfolio and we're able to bring together complete system designs. If look at our customers, the customer base, it's pretty tough for any given customer to be an expert in one of these areas, let alone in both of these areas. So our ability to offer complete system solutions will help simplify our customers' design and give them the opportunity to take their products to market more quickly.
If you look at what we're talking about today in each one of these segments as we talk about complete solutions, we're talking about platforms that have BOMs associated with them that are ranging from $6 up to $50. And some of our BOMs, if you look at our rad-hard space business, are much larger than that, when a platform in that area could be up to $1 million. In this segment, there are market leaders, and we want to have direct touch on those market leaders so, continuing to build our relationships, looking at opportunities to meet their requirements across the many platforms that they do and grow to be a very relied-upon supplier with these Tier 1 manufacturers.
That said, in this space, there are thousands of customers and even thousand more potential customers. We talked about the use of the website and the tools that are on that to enable unassisted design wins. We're also partnered with channel partners to drive this long tail in our new -- in this business segment as well.
So with that, let me start on the first segment and talk about the security surveillance. Techwell, now Intersil, maintains over 70% market share of the video decoders targeted to the surveillance applications. We are expanding our SAM to include more silicon content and DVRs and in cameras. This business today is over a $50 million business, and with the expansion, we anticipate that we will expand this business to well over $100 million by 2015.
There are 2 key takeaways from this part of the presentation. The first is that Intersil is providing very innovative, cost-effective solutions that address some key industry needs. The second is that Techwell's acquisition that we were actually just talking with you about when we did this last in 2010, this acquisition has been successful and this business continues to flourish.
It seems that every few days, you hear another tragic story being covered by the press emphasizing the continuing need for better security and surveillance. Governments, cities, businesses and schools are continuing to install video surveillance systems to protect their constituents. Grainy images that are characteristic of the many installed systems today no longer deter criminals because they know it's almost impossible to get a positive ID.
With over 400 million cameras installed on a global basis, it is cost-prohibitive to think that all of that infrastructure could be ripped out and replaced. Enterprises are looking for opportunities to upgrade their existing system to achieve better image quality. They're looking to provide -- they're looking for people like us to provide an upgrade path to higher resolution and IP capability.
Intersil is addressing these needs. I'm going to highlight that through the presentation. So through our innovation, we're addressing many of these challenges.
We view our opportunities in terms of 3 segments: the DVR, the camera and the link between the 2. Our -- starting first with the DVR, where we already have a significant presence, our solutions offer very flexible partitioning to service the varying configurations and minimize cost. Let me give you a few examples. Our video decoders come in 4 and 8 channel instantiations. This is to provide the maximum flexibility of a DVR that's required to support the number of cameras. It's the most cost-effective approach.
When a video signal is converted into a digital format, there's a number of things that can be done. It can be sent on to a storage element. It can be sent for live viewing or it could be sent over a network to a central location. Each one of these options requires a different type of function. So, for example, if it's going to be viewed realtime, it's got to go through a display processor. DVRs can be configured to support any one or a number of these particular options.
Our solutions offer different levels of integration in terms of channel count and functionality to provide an optimized BOM cost. Now we're continuing to expand our footprint. In the diagram shown here, this is the silicon blocks that we were known for as the 2 companies came together. We continue to expand our offering in these areas and also expand the functionality. So we've recently added a codec, several codec solutions into our lineup. These codecs integrate the MUX, the display processor, the audio capability and in some cases, we've integrated the video decoders as well. In other cases, we have not, and that's again to provide the most flexibility and drive as much cost out of the DVR platform itself.
Now if you look at the BOM historically here, you can see in the upper corner that the BOM historically has been from $4 to $10. With this expanded content, the BOM is going from $30 to $50. That's a pretty big expansion in the BOM in this space. So we're pretty excited about the opportunity.
Looking next at the camera. If you look at any installed surveillance system, it has multiple cameras: 4, 8, 16. The number of cameras depends upon the area that needs to be monitored. Quite frequently, there's -- in the coverage area, there's blind spots even if you have pan-tilt and zoom cameras. Fisheye coverage can be used with a wider viewing angle, and a single camera can replace what used to take 4 cameras to do.
Historically, fisheye cameras have not been used because of the large bandwidth to send a signal over the coax and then software was -- correction was required in the microprocessor. We've launched a chip that resides in the camera. So it's doing the correction on the camera end, so our device sits next to the CMOS sensor, we can support up to 8 megapixels, and our solution is adaptable to any fisheye lens. Our solution is very versatile. It supports both high-definition IP cameras, as well as standard-definition analog cameras.
Next, I've highlighted how enterprises are looking for that upgrade path. IP systems, Internet Protocol systems, do have drawbacks in terms of latency with live viewing and pan-tilt and zoom capability. Intersil has developed an approach that allows both IP and analog signals to be sent over the same coax cable. The solution, SLOC, and that’s security link over coax cable, is fundamentally a modem technology with the transmitter on the camera side and a receiver on the DVR side. This allows a seamless migration path for a system to be upgraded.
In order to launch this technology into the industry, we've partnered with Sony. Sony's SLOC IP cameras recently won the new product showcase award at ISC West, a major security trade show. Sony's SLOC-enabled cameras will be available commercially next month.
In order to drive this as an industry standard, we're forming an alliance to ensure interoperability and to drive the technology roadmap. The hybrid security alliance will be launched in the end [ph] of the fall, in conjunction with a major trade show in China.
I want to show you the flexibility of this solution. Imagine a large office building, let's say the Transamerica building up in San Francisco. This building has been in existence for a long time and, thus, wired with coax cable. The video security surveillance system using analog cameras has made extensive use of this infrastructure. But now let's say you've got a problem area. You know what, that grainy image isn't going to cut it anymore. So you've got to upgrade that particular camera to an IP camera.
If you take a look around, and you know what, your Ethernet cabling isn't anywhere as close to that camera. What do you do? You've got a problem, right? So you could look to run that Ethernet cable. You could find a way to get that cable up to that camera, but you'd better be careful because the one thing about the IP distance is it only runs 100 meters versus analog over coax runs about 500 meters. So in addition to doing that cabling, you're probably going to have to put in a repeater in there as well. So your costs are going up pretty significantly, right? So you've now got your cable installation. You've got a repeater in there. It's becoming quite a challenge.
This is the problem that SLOC solves. So if you have a SLOC-enabled camera and a SLOC-enabled DVR, you can replace pieces of your system one camera at a time as your budget allows. So eventually, at your own pace, you can get the entire system upgraded. So SLOC, it's an innovation solution that solves a significant industry challenge.
So Techwell focused on the security market in its very early stages when it was a startup. And at the same time, many of the DVR manufacturers, especially across Asia, were also startups. So relationships were built at very senior levels, as well as engineering levels over many years with these companies. This community recognizes Intersil, Techwell, as the leader in the video decoder solutions. We are able to take varying nonstandard analog video so when signals are sent over coax cable, the quality of that signal is not the same. It's very reliant upon the cables that are being used. So we're able to take nonstandard analog video signals and convert them into a digital format. That's what's differentiating about us.
Many of our customers today that started with DVRs have added cameras to their lineup. As this market is shifting, they are looking to us to support their needs, both in terms of the different types of inputs or in the different system configurations. They are looking for us to provide a very, very stable hardware platform with software and firmware, and then they can focus on what they do best, and that's through differentiation on the application layer.
So the key to our success in this market has been very deep domain knowledge. It's providing very flexible, cost-effective solutions, and it's providing local support. So we've got design teams located very close to our customers that can spin a board, modify software and be working in a customer lab to accelerate their time to market.
Now let's translate what this means to dollars and cents. You'll see these bar graphs in each one of our presentations. The bar graph is aligned with the numbers on the left. That is showing the number of DVR channels shipped each year. Now keep in mind any single DVR is going to support multiple channels, typically in increments of 4 to 8. The number of channels typically grows from 8 to 10 per year.
The red line is aligned with the axis on your right, that's our revenue projections in this area. So leveraging our vast domain knowledge and expanding our SAM, we are continuing to capture more silicon content in the DVRs, the cameras and the interface between the 2.
So now I'd like to shift gears and talk about our automotive business. We have a good-sized automotive business today. It's focused in the infotainment, specifically in the LCD display area. As we expand our SAM to include hybrid and electric vehicles and our content increases in each of these areas, we expect to grow this business very steadily towards the $100 million mark.
There are 2 key takeaways in this portion of my presentation. The first is that there are 4 megatrends that are driving significant increases in silicon content per vehicle.
The second is Intersil, a leader today in the display LCDs, is positioned to capture a significant portion of this increasing silicon content in multicell balancing, infotainment and safety applications.
There are many trends that are going on in the automotive industry today and they can be grouped into these 4 megatrends. So safety, connectivity, efficiency and affordability. Let's start first with safety. There is a push to eliminate accidents. That's not lower the number of accidents, that's to completely eliminate accidents.
That's a pretty lofty goal from an industry perspective. Both passive and active systems are being deployed to achieve this goal. Features such as parking assist, early lane departure detection and high-performance braking are just some examples of the types of features that are being built into cars.
Next, in the area of connectivity. Improvements are being made between the link between the driver and the surrounding infrastructure in terms of navigation, heads-up displays, infotainment, as well as hands-free communication.
Next, in the area of efficiency. Combining the impacts of high fuel prices with the negative impact of emissions on the environment is driving an increase in demand for hybrid vehicles. In order to accelerate this adoption, improvements to both vehicle efficiency, as well as the supporting infrastructure must be made.
And lastly, in terms of affordability. Very simple, basic cars at very, very low price points are driving growth in countries such as India and China. As a result of these megatrends, the silicon content per vehicle is increasing from 275 to approximately 425. And Intersil is positioned to capitalize on this expansion.
So as the slide suggests, we participate in many different systems within the automobile. Now the great characteristic about the automotive business is that it's very stable, right? The stocks are very sticky. Now it does grow slowly, but it's stable over many, many years.
As I previously highlighted, we have a significant presence today in the infotainment, very specifically in the LCD display area that was built upon the display processor from Techwell and it's complemented by Intersil's solutions in both power management and the analog signal path. Because of these capabilities, we're getting opportunities in other areas such as lighting and driver assistance, such as the rearview camera display, which I'll talk about more.
A new area for us will be -- in terms of revenue will be for products for hybrid and electric vehicles. We're gaining traction today with the cell balancing solution that we are engaged with manufacturers. I'm going to start there and talk about that portion of our business first and share other growth opportunities associated with it.
So looking at hybrid and electric vehicles. Obviously, it uses both electric and petroleum fuels to drive the engine. The electric engine capability is based on lithium-ion batteries in the form of cells. These cells cycle through being charged and discharged on a regular basis, while the vehicle is being operated.
The battery management system controls this process and that's what's referred to as cell balancing. There are 2 critical aspects associated with cell balancing and that's efficiency and safety, the volt -- battery packs operate at very high voltage, up to 450 volts, therefore protection is required.
The other important aspect is being able to take very precise measurements in the terms of measurement accuracy in millivolts. I'll talk more about why that's important.
Next, there's a need as well to have DC-to-DC conversion. We talked about the high-voltage of the battery packs interfacing with the 12-volt domain, which most of the systems operate in the car. Working with a Tier 1 manufacturer, we have a reference design for that DC-to-DC conversion that uses 18 Intersil components and delivers 95% efficiency. The customer has already dropped this into their solution, so we've saved that customer a significant amount of time and money, and now we've made derivatives of this available to other automotive customers.
Hybrid electric vehicles have a start-stop function that operates off the main battery, not off of the lithium-ion battery pack. So the gas engine shuts off when the vehicle drops below 10 miles an hour and then restarts on demand. It is estimated that this functionality saves approximately 10% in fuel savings.
Now this does pose problems. It places a very high load on the battery, which causes the voltage to drop. That voltage drop can have an impact on other systems in the car that are related to safety, as well as things that are related to engine control, lighting and infotainment.
We have a Buck-Boost solution, our 78200 that maintains a constant output voltage irregardless of what that input voltage is doing. So we can prevent symptoms associated with that drop in voltage, things like flickering lights, by using our 78200.
Now it takes many cells to operate a car, and I'll share just how many in a couple of minutes. But let's understand what cell balancing is and why it is important. Cells have -- battery cells have characteristics that cause the charge level to vary. So minor changes or differences in chemistry, age and temperature just to name a few. The objective of cell balancing is to keep all of those cells at a constant level.
The discharge curve that you can think of in terms of the state of charge is a very, very flat line and then it suddenly plunges. So determining where you're at on that line is extremely challenging, hence the need to be able to take very precise measurements and have an accuracy of plus or minus 2.5 millivolts. So you can detect small changes where you’re -- to try to determine where you're at on that line.
The other critical aspect in this measurement is also the sampling rate. So you've got to be able to take samples quickly, right? And determine -- to determine where you're at. So if this is done well, so precision measuring at fast sampling rates, then they can extend the range of the battery or it can extend the driving range and as well as extend the battery life.
Now this is just a couple of cells that you're trying to maintain at this constant level at. If you look at the medium-sized car, up to 96 cells can be required. So that's 96 cells that are being monitored and balanced continuously. I think you're beginning to understand the complexities of this system.
So Intersil today is shipping a cell balancing solution and a complementary monitoring IC that supports this functionality. Our device supports up to 12 cells. So in this configuration, it would only take 8 multicells -- 8 devices to support all 96 cells. If redundant diagnostics are also needed, then you can add the cell monitoring as well.
You can see from the top corner here that the BOM associated with this is significant, it's $30 to $38.
As I highlighted earlier, DC/DC conversion is also needed in this platform, and that's to convert the high voltage to the low voltage. Our drop in replacement, depending upon the number of components that are be implemented, the BOM ranges from $6 to $16. So if you combine that with the BOM of the multicell balancing and you can see that on any given hybrid vehicle, we have significant content in each one.
So the reason we're winning is because of what our solution delivers in terms of accuracy, safety and costs. You've heard me talk about how we are taking very precise measurements so that state of charge, understanding exactly where you're at on that line, being able to provide precision measurements at a very fast sampling rate, this results in that longer driving range.
Our solution also meets a very, very difficult safety standard called the Automotive Safety Integrity Level C, that's quite a mouthful. That's what the what the ansell [ph] C stands for there. We have gone through extensive EMI testing in order to meet these requirements. We've built in redundant circuitry to have maximum full coverage. We also have built-in default detection to sense conditions that might arise, things like open wire, over and under voltage, hot plugging and over-temperature faults.
Lastly, in terms of being a cost-effective solution, as I highlighted, one of our devices supports up to 12 cells, only 8 would be needed for a midsized auto. Our devices also allow them to be daisy chained together to provide a robust communication link, both inside that storage domain, as well as interfacing to the battery management unit and the 12-volt domain.
This capability saves $8 to $16 per platform, that's a pretty significant saving for our customers. As I've highlighted, we have been engaged with a recognized test expert by the Auto -- the European Auto Manufacturers and that's what university called the iBEE. So this independent university did extensive testing on our solution in terms of EMI and EMC, and we were successful in meeting all of their requirements.
Recently, a U.S. manufacturer noted that it takes at least a year of experience to meet this 2.5 millivolts, as well as meet the EMI and EMC and the hot plugging requirements. So he indicated to us that we've gone through a lot of pain to get our solution to be this robust and that we're significantly ahead of the competition.
Now in this area, a number of these features are patented or patent pending, so this is a differentiation that we will be able to continue to maintain.
So now going back to the cell basics. So we've talked about the importance of efficiency in driving and expanding the driving range, as well as the battery life. We've talked about the critical need for safety because we're dealing with very, very high voltages. So when this is not done well, it can lead to a condition that's known as rapid disintegration. Now I don't know about you guys, but I don't want to be driving a car that does this in the middle of the road.
Okay. Within this environment, we have an ecosystem that we work with in order to be successful. It's not just working with the Tier 1 system, it's also working with the automotive manufacturers. So if you look at our relationships, it spans the geographies. It spans North America, Europe, as well as Asia. On any given platform, we are often working with one system provider and one geography and an automotive manufacturer in another. It's by combining the capability and doing the interfacing that we're able to win in this area.
So there's a number of forces that are driving the move towards hybrid and electric vehicles. We've talked about some of those, the cost and availability of fossil fuels, the negative impact that emissions have on the environment. As Dave highlighted, the number of ATV vehicles today is still relatively small but it's a fast-growing and becoming a larger percentage of the overall car market.
We are positioned extremely well, that as manufacturers start to move to these lithium ion-based platforms, we're positioned to capture a significant portion of that silicon content. We anticipate to be driving over 50% compounded annual growth rate through 2016, with an average BOM content of about $45. That's why we're excited about this portion of the market.
So next, I'd like to shift gears once again, and I'd like to talk about the infotainment part of our business. When I opened this segment, I talked about 4 megatrends and those trends included connectivity and safety. LCD displays address both of these megatrends. How many of you own a vehicle that has at least one display? Okay. How many of you own a vehicle that has more than one display? All right.
Today, over 40% of vehicles have at least one display. And as you saw here, if you turned around, many of you indicated that you have more than one display in your car. So displays are being used for a very wide array of applications within the car, from instrumentation clusters to navigation, headsets, to mirrors.
All of these displays are an opportunity for us. At the heart of any display is the display processor. We have leveraged [ph] our Techwell expertise in this area. Techwell has a very broad portfolio of display processors. They had initially targeted the aftermarket. Since the acquisition, we have continued to expand that portfolio, as well as engage with OEMs. Intersil, who's a leader in the power management and signal path products for LCD TVs has repurposed a number of products from that segment into the automotive displays. It includes things like the integrated power supply, as well as the backlight [ph] driver and programmable gamma buffer shown in this diagram.
The silicon content in each one of these displays range from $2 to $4 -- or $2 to $6 per display. Now some of you may be wondering what a display -- a display processor is and what exactly does it does. So this gives you an example of what the capabilities of a display processor are. It can be used to display the navigation map in the background. You can use the on-screen graphics engine to add buttons. Many of our devices have touch screen control capability so the buttons can actually be interactive.
You can have a display of the rear camera in a pop-up picture and picture-type of capability. These are just a few examples of what the display processor does.
Now in this market, especially the aftermarket, one size does not fit all. So we have a very wide offering within the portfolio to trade off costs and features. Now I've highlighted that the display processor is what enables the outstanding image quality and create that user experience. I want to also highlight that it integrates a lot of functionality within that device.
It includes things like a video decoder, high-speed data converters, a scaler, I talked about the touch screen controller. And also some of our products have a microcontroller in it as well. So if you put all of this together, if that's what's needed, this level of integration can significantly decreased the BOM costs.
Techwell, now Intersil, is known for their video decoder solutions, it's what creates that great image quality. And again, in this segment, it's about providing the local technical design support, being able to sit down in our customer's lab and working very closely with them to accelerate their time to market. This is what's helping us win in this area.
Now I'd like to highlight a specific application where displays are being used that's being mandated by safety. A new law has been passed, the KT Safety Act that's expected to go into effect in 2015. This new act is going to require every vehicle shipped in the U.S., so approximately 16 million units per year, to have a rearview camera display to assist the driver in hopes of avoiding running over a child.
The display, the image itself, has to be transmitted within 2 seconds. That's not very long, right? 2 seconds. How many of you already have a vehicle that has this capability? Okay. So tell me where is that, where is that display? Is it in the center stack? For most of you, in the center stack? Yes. Mine's in the center stack as well, and I can tell you it took me months to look there because my eye is naturally going up to the mirror, right? Much more natural to move in that direction.
There are 2 companies that are providing that display in the mirror itself that are shipping in production. We are engaged with both of those manufacturers, and in fact, on our display processor, we maintain a sole-source position with the leader who owns 85% of that market.
In that mirror display, we also have additional content. We have ambient light sensors, so we have the only ambient light sensor that's rated at 105 degrees on the market. We also have SerDes that are used within the mirror as well.
Now if you look at our display processor, it boots up in less than 200 milliseconds. Graphic engines or a navigation processor can take up to 8 seconds. Now if my husband was behind the wheel of the car, he would be out the driveway and halfway down the block by the time 8 seconds had transpired. Eight seconds seems like an eternity. And it certainly isn't useful when trying to avoid the potential tragic accident of backing up over a child.
So if you look, I've highlighted how our display processor can be used in mirrors, but we're agnostic. If the display is in the center stack, our display processor can be used there as well. It's designed to work in conjunction with either the navigation engine or the graphics processor. And while those systems are booting up, our system is already on and displaying that image.
Again, this part of our business has a similar ecosystem to what I've talked about in the multi-cell balancing. The one key difference that you'll note here is that it includes panel manufacturers. So we're engaged with the panel manufacturers, the system manufacturers, as well as the end customer, the automotive manufacturers.
Now I suspect if you were to look at that middle area here with the system manufacturers, that there's probably some names on there that are familiar to you. I suspect that there's a number on there that you've never heard of. This is driven by our aftermarket business. This business is very broad, very, very broad customer base. And the key message here is that we're engaged with each player, with players in each part of the ecosystem in order to drive and grow our business.
Again, looking at the charts here. The bars indicate the number of vehicles with an LCD display. So even though this bar chart shows some nice compounded annual growth associated with it, it somewhat under-scopes what the potential is because any vehicle that had 8 displays counted as one, right? So as you saw by just the number of hands that were being raised, if a car -- if a vehicle has more than one display, it's not counted as a second display. So I think the opportunity for us is actually larger than this.
And with the silicon content, I talked about the $2 to $6 per display, this is why we're very excited about the growth potential in this part of our business. So now looking at the automotive in summary -- looking at both. So this chart combines the vehicles, that's the green chart, the bars that go, again, to your left. The number of vehicles with LCDs, bar to your left. And then the combined revenue of both segments, the multicell balancing, as well as the display part of our business. You can see that we're positioned to drive this business. So as hybrids continue to grow, as we continue to see more and more displays being used in the cars, especially with safety legislation being passed, we anticipate the ability to steadily grow and drive this business to $100 million.
With that, I'd like to turn it over Dave to talk about our power business.
David B. Bell
Thank you, Susan. To the cloud. Everybody knows what the cloud is today, and that this a trend where the applications and data storage we used to keep in our own handheld devices or in open computers is now going into infrastructure that is located somewhere else.
So that's driving a lot of growth with some of the largest electronics companies in the world. Companies like Cisco, Huawei and many others are taking advantage of that because the computing that used to run on the processors in our hands now is running on servers located at some distant location. The data storage is being handled remotely. And as well what that is doing is it’s driving an exponentially growing amount of traffic between our own personal devices and where the computing and data storage is actually occurring.
So it's driving that exponential growth in Internet traffic.
Another important thing to realize is that manufacturers of infrastructure equipment that runs the cloud are extremely reliability and availability conscious, for no surprising reason, when we want to access something or use an application we expect it to be there. So what they call five 9s reliability, 99.999% availability is something that infrastructure equipment manufacturers are striving for. So reliability and maintainability is very, very important in the cloud infrastructure market.
What kind of product categories are represented by the cloud? Well they're all things you already know about but there's servers. In fact, server growth is one of the reasons that Intel has been doing it so well. Really, during the last year or so when the notebook market has not been growing very much, their sales are going up because there are more and more servers that are being built to support the cloud.
Wireless infrastructure, 3G and 4G base stations. Wired infrastructure, routers, switches, long-haul systems, storage systems and firewalls, those are all the kinds of equipment that are in the cloud. And again, a lot of the biggest electronics makers in the world are seeing growth because of the growth in infrastructure equipment in the cloud.
So this is the slide that I plagiarized from Intel, because I think it's really interesting and it kind of illustrates that exponential growth in Internet traffic here. So I'm not going to go over all of it, but it's kind of a fun thing to look at but I'll talk about a few of the key data points.
One of the things that jumps out is that there is 640,000 gigabytes of Internet data that is transferred for every minute. So 640,000 gigabytes, that's a lot of data. 1,300 new mobile users, that's 22 new mobile users per second. That's pretty unbelievable. 22 per second being signed up around the world.
20 million photo views per second. 1.3 million video views per second. We all know video takes a lot of bandwidth. And maybe one of the most interesting facts is kind of buried down here in the lower left where it talks about today, there's basically one network device per human being in the world. And by 2015, it's going to be 2x that number.
Two network devices for every human being in the world. So it's good to be an arms merchant to the cloud, whether you're an equipment maker, like Cisco, Huawei or Intel, or a provider of ICs like us.
So what kind of products do we actually sell into the cloud? Well the bulk of our sales today is in the power management area, and I expect it to stay that way going forward. So Digital Power, it's now being adopted after many, many years of people saying it's almost here, it's almost here. It finally is here. I'll talk a little bit more about that in a few more slides, and it's being adopted rapidly in the infrastructure for several reasons. What we call telemetry, enhancing reliability and providing the ability to look at the system performance. Point-and-click configuration capability, reducing design time and costs that are now getting low enough that it's approaching parity with analog solutions in some cases.
Processor Power, what we call VCORE power is another big market for us. We expect that to grow in servers and other equipment. Point-of-Load converters, if you look at the DC-to-DC converters that are on a board, say a server or a network switch or whatever, power kind of divides in a few categories. One is the VCORE power, the supply that is supplying the power to usually the Intel or AMD processor. Then there's what called Point-of-Load power, which is a lot of the other general-purpose power. And then the third category that I list here is also high-efficiency isolated DC-to-DC converters, usually running off a 48 volt bus. So those are the kinds of products that we're selling today and we expect to grow in the future as a result of the growth in the cloud infrastructure.
We do sell some mixed-signal products, things like DSL interface parts, both ADSL and higher bandwidth VDSL parts. In fact, we still have leadership in that area and we're introducing new parts based on the Class-G architecture that reduces the power consumption. When you look at the total number of DSL lines that are connected around the world, and how many DSL line drivers they like to put on a single board, reducing the power with each line driver can become very, very important.
Active cables and backplanes. We acquired Quellan several years ago and they were leaders in active cables and there's growth in that area. You heard us talk earlier if you were around at the cocktail hour last night about Thunderbolt. Susan will talk more about that as an example of active cables. So we expect that to continue growing, and as well down the road even higher bandwidth interconnections, both on cables and through the backplane.
So some mixed-signal product opportunities as well.
But again, the bulk of our business that we sell into the cloud, which we expect to grow, is in the power management area, really what we would call the dense power management area. And for that reason, we chose not to breakout the revenue for cloud separately, but basically include that power management business. It's going into the cloud, as well as other areas in the next category, which we called dense power conversion.
Almost any electronic device needs voltage regulators. The power supplied off the wall, off batteries, whatever, it's just not sufficiently regulated and accurate enough to power electronics today. So that's why the power management business is continually growing. There's more and more need for regulation, and in fact products just had more and more supply rails. There's more and more regulators that are needed just to generate these supply rails. So density, efficiency and the accuracy of regulation that continues to go up and up and up.
So that is driving a lot of the performance improvements you see in dense power conversion. We also offer, as company, 3 different levels of integration. The first level of integration is controllers. A DC-to-DC controller would usually be connected to external discrete power FETs from another vendor, and that would form our power supply. The next level of integration are integrated FET regulators where we include the controller plus the power FETs in one package so it integrates. But the highest level of integration in modules incorporates all of the electronics. And I'll talk more about that in a few moments.
So let me talk about our power conversion strategy for a while. Number one, Intersil has a very long history of power management leadership. We plan to leverage that leadership in producing the highest efficiency, DC-to-DC converters, the best-in-class power density and the fastest transient response. Now efficiency is really important for a number of reasons. If you're making a handheld product or a battery-powered product in general, the efficiency determines your battery life. So efficiency is important there. But if you're making infrastructure equipment, it's important as well because it determines how much heat is generated. And with these systems getting very dense, just reducing the heat generated is important. Not even to mention the cost of ownership with those systems being powered 24/7.
Best-in-class power density is important in both of those categories again. If you have a smartphone or you have on Ultrabook or something like that, having very, very tiny electronics is critical, obviously. But it's also critical in infrastructure equipment because they try and jam as many channels onto a single board as they can. So having very high density of power is important to them.
And then fast transient response. Modern electronics, particularly processors, draw their current, very irregularly -- these big bursts when the processors are running, it ramps up quickly, it drives a lot of current and then drops back down again. In order to maintain a constant voltage to that processor, the power supply has to have very fast transient response to regulate the output. So fast transient response, especially in dCore applications is critical.
So that's our strategy to leverage our leadership there. Next, as I talked about earlier, provide different levels of integration. Different customers demand different levels, some want controllers, some want integrated FET parts, others want full modules. We plan to offer all 3.
And finally, we plan to increasingly leverage the Zilker Labs Digital Power technology. Several years ago, we acquired a company called Zilker Labs because of their leadership in digital power technology long before most people even thought digital power was really going to take off. Well it is, and we're leveraging their expertise in digital power.
Let me talk a little bit more about digital power. As I mentioned earlier, after many years of waiting, it finally has reached the tipping point with infrastructure customers, and we're seeing infrastructure customers rapidly embrace digital power. The reasons are: number one, telemetry, like I talked about. So It's kind of a funny term, but what it means is the ability, for instance, for, say, a Cisco engineer halfway around the world to actually communicate with a regulator and a board and a switch somewhere and measure the temperature, how much output current is delivering, the output voltage. If necessary, even reconfigure it and modify that, do that all remotely. And in fact, even improve reliability and maintainability because if they see certain parameters starting to drift over time, they can predict that a failure will occur before it actually does. So telemetry is very important.
It's also important because digital regulators can be adaptive. They have enough intelligence within them so that they can adapt for component tolerance variations, and even components that drift over time and still provide accurate regulation.
Another thing that's happening is that software tools are now becoming easier to use in even analog approaches. We're demonstrating out in the hallway earlier this morning are what we call our Power Navigator system. Basically your virtual instrument on the PC, makes it very easy to design and configure these digital power regulators.
And finally, digital power regulators have had a price premium in the past. They still do but their price premium is dropping, and it's dropped to the level where infrastructure customers are willing to pay that small premium to get the features that it brings.
So clearly, digital power is ramping very quickly in infrastructure, and eventually will happen in other markets as well. Let me talk about power modules here for a minute. The top level of integration for us is a power module. And power module is basically a black box in which all of the components to make a DC-to-DC converter are put. Our controller is in there, the power MOSFETs are in there, the power inductor is in there and all of the other discrete components, resistors, capacitors and so forth are all contained in basically an IC-like package.
Why is this important to infrastructure customers? Well, it's for a couple of reasons. It offers very high performance, high density, but it also is very low risk. Because it's all self-contained, it is not going to end up being the critical path item for them to get some very expensive new system to market. So it's a very low risk solution. There is a price premium, but again, if you're an infrastructure customer making a board that goes into a piece of infrastructure equipment you're going to sell for $20,000, putting a few hundred dollars’ worth of power modules on that to ensure that it’s reliable and high-end performance that's a good bet for those guys.
We are, today, offering both analog and digital solutions and modules. I'll talk about that more in just a moment. But nearly all future modules are going to be digital-based, based on our technology from Zilker Labs. Let me talk about some of the reasons we win. One of the reasons is our high-module power density. Power density has been increasing with every module generation we've released. As you can see in the graph here, the density started down at about 10 watts per square centimeter of board area. But shortly, we're going to be up at the 50 watt per square centimeter level, so our module density continues to increase.
In front of you, you should see a couple of modules that we placed at every seat there. Hopefully all of you have those. There are 2 different modules. The thinner one, the ZL9117 is a 17-amp fully digital module. So it provides a telemetry performance, and that part and a slightly higher current version of that part, had been designed in by one infrastructure customer that is going to drive $15 million a year worth of sales. In fact, it's going up and up because as the product development continues, they find more and more uses for modules.
So with one infrastructure customer, right now, we're shipping this quarter, $250,000 worth of those modules just for prototype systems and that will impact 2013 sales, ultimately reaching $15 million per year in sales for that one customer.
And they like it because of its telemetry features, because of its reliability and because of its density. The other module you see there is a little bit thicker version, is a dual output analog mode you. It has 2 channels, 15 amps each for a total of 30 amps of output current in that module. If you run the numbers on that thing, it's capable of, for instance, in some applications supplying a 5-volt output at 30 amps, that's 150 watts of output power from that complete module right there. A little bit thicker because the inductors are larger inside, but extremely good power density.
So feel free to take those home with you. Some of them might even work, but no promises. The ones we ship to customers work, the ones we give to you might not. So go on and take those home with you if you want.
Another reason we're winning is the best thermal performance, getting the heat out of the module in a tightly packed system. So let me give you a little tutorial. Our primary competitor in the module business has a construction that looks like this. It has a thin printed circuit board here, and all the heat that’s generated by the components within the module need to be conducted down to the board through these little thin copper vias [ph] .
So it doesn't conduct heat very well through that system. So at high power levels, the components inside the module basically cook themselves to death. If you look at our construction, it's built on a thick copper lead frame. And that thick copper lead frame allows the heat generated by the internal components to easily be conducted to the printed circuit board below and reducing dramatically the temperature of the components inside. So what does that mean in an actual application? Well what it means is if you're using a competitors' device and, and let's say, you're operating at an ambient temperature of 80 degrees centigrade, their 10-amp rated operated device is only capable of delivering a little over 2 amps of upper current to avoid the components from burning up inside. Our module, at 80 degrees C, you're still capable of delivering a full 10 amps of current. It's a huge difference.
So power density and the key performance is really, really important. I am going to step back because I realized I forgot to mention one other thing that I think is really important about our module construction. And that is if you look at our competitors' construction as well, they use what's called a Land Grid Array package. And what that means with an LGA packages is because the solder connections are beneath the module, you can't visually inspect them. So the makers of infrastructure equipment have to x-ray their boards to verify that the solder connections underneath the module are in fact in solder connections. We used this QFN package, and it has leads around outside. And you can see those and those modules in front of you on your desks there. And you can visually inspect the solder, not needing x-ray. So obviously, a much lower cost. So I think that we've got some major advantages in the module marketplace. We expect that module uptake, especially by infrastructure and industrial customers grow very rapidly.
Okay, wrapping up on my dense power conversion top 10 area, the blue bars that you see there are kind of what I think is a proxy for the basic overall power market is total power semiconductors worldwide in billions of dollars. So again, it's kind of used as a proxy for what the overall power market is growing there.
But because we're leveraging Intersil's power leadership, because we're focused on providing the kind of performance the customers want in high density, high efficiency, because we're focusing on digital, utilizing our world leading technology in our Zilker Labs product line, we expect that our sales are going to increase more rapidly than the overall TAM.
Now they are going down a little bit in 2012 with the overall market, but from there we expect very rapid growth, probably up to something in the range of $180 million, $200 million by 2016. A lot of that is going to be driven by digital products, a lot of that is going to be driven by dense module products like you have in front of you.
Okay, I'd like to shift topics and talk about Rad-Hard for a few minutes now. So there are probably some of you in the audience who are wondering what in the heck is Rad-Hard and why is it needed. Well Rad-Hard is short for Radiation-Hardened. In our case Radiation-Hardened Integrated Circuits. The reason you need Radiation-Hardened ICs is because in satellite or deep space applications, applications that are outside the protection of the atmosphere in the Earth, you have constant radiation. And radiation, over time, degrades the performance of semiconductor devices.
So for applications like satellites, you have to have Radiation-Hardened ICs. Now the automotive business, as Susan Hardman was talking about earlier, is known for being a very reliability-conscious market. Really tough customers to deal with, especially the Japanese. There's one market that is even tougher when it comes to reliability and that is the satellite market. When you're putting $0.5 billion bird up in the sky, you cannot afford ICs to fail and cause it to be nonfunctional, and you certainly can't get out there and replace it or repair it very easily.
So reliability is extremely important for satellite customers and they're willing to pay dearly for it. So it's a very high gross margin business that is mostly dependent on satellite customers. But as well, like I say, some other applications like deep space probes and some applications in nuclear power and the like.
So let me give you a little bit more of our Rad-Hard primer here. So how do you characterize radiation? Well it's characterized typically in 3 ways. The first is in high-dose rate radiation. So more intense radiation, how does the IC perform that kind of environment? The next case, or a way you measure it, is extremely (sic) [enhanced] low dose radiation, what we call ELDRS. And it turns out kind of ironically, it's not intuitive, but low dose radiation, over a long period of time, actually damages semiconductors more than high-dose radiation. So for satellite customers, that more closely represents the kind of real environment they see in space, and it actually causes more damage than high-dose radiation.
Then finally, single event effect. Single high energy particles that are present in space can cause ICs to misbehave or in some cases even become destroyed, so measuring their performance there as well is important.
So most of our Rad-Hard ICs are manufactured on specialized fab processes specifically designed for radiation tolerance. We make most of these ICs at our own wafer fab in Palm Bay, Florida today for these Rad-Hard applications.
They're also in different packages. All of us are used to seeing the black epoxy chips and boards. Well the packages that go up into space tend to be very high reliability hermetic metal and ceramic packages. So the kind that you see here with usually gold plating are metal and ceramic, very costly packages. However, satellite customers are willing to pay dearly for that, especially when they know that they're radiation tolerant and they have assured reliability. For instance, a switching regulator that might sell for less than $1 into a consumer or commercial application, we can sell for $7,000 to a satellite customer, so very, very profitable.
Intersil has a long-standing history of radiation leadership here. In fact, our proprietary Rad-Hard IC processes distinguish us for many of our competitors, but also just the history that we have. In fact, a company called Radiation Inc. that was founded in the early 1950s became part of Intersil way back in the 1960s. So in fact, our experience with radiation hardening and semiconductors actually predates the U.S. space program. We've been on almost every space mission and many, many satellites out there. I just read yesterday that the Mars Explorer that is still operating, in fact, beginning its ninth year of operation on Mars, it’s still operating, in part, because of many Intersil Radiation-Hardened ICs that are on the Mars Opportunity Rover.
We also have leadership in radiation assurance, quality assurance of these products. I'll speak more about that in just a minute. And we're a preferred vendor at all Tier 1 and Tier 2 satellite customers.
So let me talk about quality assurance here. I'll give you a little slideshow, a little slide gallery here. We are the only IC maker in the world that has in-house high-dose rate radiation sensitivity testing and extremely (sic) [enhanced] low dose rate sensitivity testing or what we call ELDRS. In fact, a couple of years ago, we built our own ELDRS test facility, and that's what you see here. So the building there with the red band on it, obviously from the outside, in our Palm Bay facility, and the picture on the left there is when it was being constructed, those are 4-foot thick walls of concrete. So if a category 5 hurricane goes through Palm Bay, this is where you want to be is inside this, or World War III, for that matter.
Now hopefully when you're in there, though, the cobalt 60 radiation source is deep in the hole that goes way underground in the pipe. We kind of see that there in the middle there where the radiation source comes up out of this tube. You’d want that down in there, but we bring that up and then we have the ICs that we want to test in these various racks around there. So we're the only IC maker that in-house can offer wafer by wafer-level ELDRS testing, and we get a good premium for that from our consumers.
So not that we qualify the product early on and say, "Hey, we think that the stuff we're making now is probably about the same." On a wafer by wafer-level basis, we can do that and shift customers product that we know the radiation performance. So that's one of our value propositions. Here's another value proposition we have. Not only can we charge 20% premium on these ELDRS guaranteed ICs, class D space-rated ICs, which is the highest level. But because of our proprietary processes, our ICs actually don't drift as much. They're not as impacted by radiation. The case that you're seeing here is the case of an amplifier, and we're measuring the input offset voltage drift under radiation -- under low dose rate radiation. The blue curve is a competitor's op amp. And you can see as you go up to about 200 Krads total dose, it has a significant shift in its offset voltage.
Our op amp made on our own in-house PR40 process that we fabricate in Palm Bay has virtually no input offset voltage drift. Satellite customers will pay dearly for that kind of performance and assurance.
Okay, so how do we grow our business? There's about 90 satellites plus or minus put up into space every year around the world. So the number of satellites going up really doesn't increase all that much. The way we're going to do that is by increasing the dollar content that goes into satellites. So in the past, these are the kind of products we've had in Rad-Hard form, switching regulators, MOSFET drivers and so forth. You can see the list there. Today, in fact we've been investing heavily in this area during the last 4 years. When I took over as CEO, we were investing 0 in our Rad-Hard business. So our most profitable business, we're investing 0. That's one other place that we've been investing heavily during the last 4 years. So today, you look, we've got a whole bunch more different products. Today there are some satellites going up, got over $1 million of content per satellite. And because of the investments we've made during the last 4 years and future investments, products that are already in the pipeline due to come out, we're increasing our SAM by increasing our dollar content that we can put into satellites.
So we expect our revenues to continue steadily growing in this area. So in summary, if you look at the Rad-Hard market here, clearly Intersil holds a leadership position, even predating U.S. space program. We're expanding our portfolio, increase our SAM, and even though the satellite launches, those are the bars that you see there, are bouncing around between maybe 90 to 100 satellites per year, as we increase our dollar content in those satellites, we expect a nice steadily growing revenue. And it's a very, very profitable business. In many cases, greater than 90% gross margin.
So that wraps up our top 10 -- 5 of our top 10 areas that are in the industrial and infrastructure market. And prior to our break that we'll be taking in just a few minutes, I will invite Susan to come on up on the stage with me and we'd be happy to answer any questions you might have about the products we have covered so far.
Vernon P. Essi - Needham & Company, LLC, Research Division
Vernon Essi with Needham & Company. I don't know if you want to get it in to this right now, maybe it's for Jonathan's area but in your initial couple of slides, you went over the incremental opportunity for $700 million in revenue. Obviously it looks like you're going to be scaling back some SG&A costs. Wondering if you could articulate what areas might be deemphasized or particularly, possibly declining? [indiscernible]
David B. Bell
Well, from an OpEx standpoint in particular, Vernon, is that...
Vernon P. Essi - Needham & Company, LLC, Research Division
From OpEx and also just in a revenue prospective. I mean, obviously, you showed that parade of [ph] slide, you can't -- I mean, the question is are you going to service the horizontal market in the same fashion going forward, or will we see things sort of be retreaded?
David B. Bell
Sure. Well, let me answer the last part of your question first. Are we going to service the horizontal market? Absolutely. We've dramatically expanded our horizontal portfolio during the last 4 years or so. You saw that's 727 products introduced in the last few years. So that's given us a very robust, very broad portfolio, and we absolutely will continue to service our horizontal customers. What we are doing, however, is we're pulling back a new product development and focusing almost 100% of our resources going forward, the R&D resources on our top 10 growth drivers. We think we've got a very robust broad horizontal portfolio that will continue to drive steady growth, but our energy now is focused on our top 10 growth drivers. Jonathan will talk a little bit more about our plans going forward, but the kind of OpEx cuts that we're talking about happening in the very near future will be broad-based. It will be in SG&A, it will also be in R&D as we focus those resources. As I said earlier in my presentation, right now we still have about 80% of our resources in R&D, focused on the top 10. That's going to become closer to 100% going forward.
Can you talk about the 10 products? We only touched on 3 of those 10 revenue drivers. But it says, “Large enough to drive significant growth for Intersil.” Sounds like a minimum target is about $50 million a year by calendar '16. Is that the order of magnitude that -- to make that top 10, you expect a minimum of $50 million contribution?
David B. Bell
Well, no. Going back again to last year in July after Q2 was finished, that's when I introduced the top 10. And I said at that point I expected that to contribute an incremental $700 million within 5 years. So almost 1 year has passed, so from now going forward 4 years, I expect the sum of our top 10 growth drivers to represent still that $700 million incremental. That is divided amongst our top 10. At the end of each section -- the only exception being cloud computing, but at the end of every other section that you've seen so for and we'll see later on this morning, we give you kind of a rough estimate on where our revenues are today and where we think that they're going. And if you total all those up, and Jonathan will show a total of all those in his presentation, you'll see that, that gets to $700 million. So one thing that you can do is you can scrutinize that yourself. You can look at each one of those summary pages in top 10 and say, "Do we believe you guys? Do we believe the SAM numbers you're showing? Do we believe that based on the product plans that we've talked to you about today, that we can actually achieve those kind of revenue numbers?" I think we can.
Our whole leadership team thinks we can. But, be critical yourselves too, and make sure on judgments about that. Yes?
When we look at your new personal computing as opposed to your computing segment from before, I guess the difference will be the server. And when we look at the server, that which is what you're categorizing as cloud computing, it looks to be declining year-to-year. Can you give us a sense of how you look at this market? What's your strategy that's giving you confidence that you can grow from here?
David B. Bell
Well, you're right. In the last year so, our server business, the revenues have actually gone down. But because of our new products we're bringing to market, and a lot of those, going to be relying on digital power going forward, we think that we can turn that around. So the server is actually a fairly small part. Back when it was part of computing, it was a fairly small part of our revenue, and it has declined. But we're confident, as I showed you, that we can grow that as we utilize higher performance, new parts that we're bringing to market, build customer relationships to those server customers, and down the road, have price that are based on digital technology. Next, Ross.
You’ll get to Ross next. On your Pareto chart, one of the biggest category seems to be in precision amplifiers. I was hoping you could talk a little bit more about the opportunity there. I guess one question is, it sounds like it's going to the satellites. So what's the competitive environment for those products and satellites? But more generally, you have a lot of products there, but it seems like it's the horizontal products probably take a long time. So are we going to see any meaningful revenue from all those new product introductions in the next [indiscernible]?
David B. Bell
Steve, so it's like specifically about our Rad-Hard or broadly about the overall horizontal market?
I'm talking broadly about precision amplifiers?
Susan J. Hardman
So if you look at that portfolio, we've introduced over -- well over 100 new precision amplifiers over the last several years. We are gaining traction in those, both in the broad horizontal market, but the opportunities are small. They're $75,000, $100,000 type of opportunities. In addition to that, we're also seeing some leverage with some of the larger verticals, right. We've got a few vertical wins, so we'll start driving revenue in that segment as well. Again, being able to take products like that though, and being able to repurpose it into other areas, so being able to repurpose amplifiers into automotive, being able to repurpose the amplifiers into the satellite; the satellite is relatively new. We've just gone through that qualification. So it will be a while before we start to see revenue associated with that segment of the market. So we're again, this is what we're saying with the large market portfolio that we have. We want to focus on the selling. So hence, the new website, the cooperation with channel partners to continue to leverage that portfolio into these broader markets, but our R&D dollars are going to be spent more on ASSP types of business, using those IP as building blocks for those ASSPs.
David B. Bell
Ross, you had a question?
Ross Seymore - Deutsche Bank AG, Research Division
Over the last few years, you've done this transformation of the company. You've talked about how that's impacted the total growth of the company, but you're coming out of it now. When should we, as investors, expect to see Intersil's revenue growth actually start growing at a superior rate to the peer group? How do you measure whether the growth is actually what you're looking for versus those pure rate? Give us some benchmarks of how you view success or failure? And what really -- when you do the cuts that you're talking about as a final part, are you assuming in that growth that's going to start up again? That there's going be some of your legacy business? Maybe not the deteriorating part, but in the stable portion that actually might fall off of it as you're putting your investments elsewhere.
David B. Bell
Okay. Well, there are really three questions in one there, I think. First off, with our OpEx cuts that we are talking about here, I think we're going to form basically a lean and mean profit-generating machine. As we drive towards that $200 million number, you can see 24% operating margin. I'm not going to promise when we get to $200 million, you can make your own estimates, but I think we're going to blow through that and go through the $1 billion run rate and be very, very profitable at that point. When does that really kick in, is your question. I think we're going to start seeing some of that happen later on this year, second half of 2012. There's a few areas where I think we're going to start seeing the beginnings of that happening. But 2013, I think, is where we start seeing many more of these growth drivers really start contributing revenue. You've seen some of them today. They can start contributing, and I think Susan and the consumer market, she's going to be talking about, after our break, we'll talk about a few more of those. You can really start driving some significant, above-average growth in 2013. Now as far as kind of the base business is concerned, we do not have any major deteriorating businesses, as you point out. And I think that the broad portfolio that we've got is going into, right now, about 20,000 different customers and hopefully growing there. Our model is, as soon as that continues to grow, at something like a 3% CAGR. We do not expect it to go down, with a caveat that, of course, with the cycles in the semiconductor industry, we're still going to ride those cycles up and down. But overall, we're expecting that base business largely comprised of horizontal customers. We'll have some slow and steady growth. Yes, I think way over here, and he's got a mic.
Terence R. Whalen - Citigroup Inc, Research Division
Terence Whalen of Citigroup. I think at the introduction of your discussion, you talked some of the businesses that had fallen off over the past 3 to 4 years, red laser, diode drivers, cellphone chargers, DSL line drivers and some of the military products. What have you learned from those experiences? And what analysis looking back at those products do you implement when you decide what programs to focus on growing going forward? And I asked that question because it's sort of analog nature that a portion of the portfolio is always in sunset. And so I just want make sure that we're realistically assessing that there's no future liabilities in some of, even the growth drivers that you're outlining here.
David B. Bell
Sure. Well, it's a good question, Terence, because there's always things coming and going in different product areas. It's going to be this natural evolution, but I think some of the mistakes that, perhaps were made in the past is not really thinking as strategically and planning for the future. In some cases, there were product areas that were just destined to go away. And I think that you need to plan for that, like the military encryption ICs. We were getting great revenue when that was going, but it was very clear that eventually, that was going to go away. We had a plan to replace that. If you look at other areas, you need to plan for subsequent generations, red laser diode drivers as being integrated. So that was going to go away, perhaps we thought with blue lasers and the Blu-ray, but that really didn't materialize there. In other product areas, I think you just have to invest R&D continuously. So you've got the next-generation and generation after that. So if it is an area that we plan to continue with, one example that I mentioned earlier was Rad-Hard ICs. It's a very profitable business. When I took over as CEO, we're investing 0 in Rad-Hard. We're investing 0 in automotive, in the business that Susan's counting on. So you can't just party while the sun is shining and not worry about what comes next. You have to plan and have a strategy that goes out multiple years in what you're putting in the pipeline with those kind of products. And we're doing that. And then one other thing I would point out is you need to develop technology that allows you to compete. In the linear lithium ion chargers that once represented about $60 million a year, there was an effort to try and replace that with PMICs. But back then, when that was being attempted, we clearly did not have the expertise nor the IP portfolio to do that. Now we do. So I think that's a bunch of different things, but a lot of it is just planning for the future, making sure we understand what's happening. So when one generation of products falls off, we have other generations that will take its place. Susan, I don't know if you want to add anything more to it?
Susan J. Hardman
No, I think that's very well said. I think the one thing that we are continuing to do is leverage some of the IP that we've developed. So I'm going to be talking about Pico Projectors in the next segment, the laser diode driver capability that we have from the red and blue days is a fundamental technology that's enabled us in this new market as well. So it's taking technology and leveraging it in as new markets emerge.
David B. Bell
One other technology in that same vein, our ambient light sensors, originally developed for the DVD writer market again. And that formed the genesis of our whole optical sensors business you'll hear about later on, too. Yes, JoAnne?
JoAnne Feeney - Longbow Research LLC
JoAnne Feeney with Longbow. So a question about your sales strategy at least on the industrial side. You have a very large competitor who's been talking quite a lot about how many feet they have on the ground. How are you trying to combat this? What are the dynamics on the industrial side and in particular, these top, among the top 10 drivers of your future growth? And then sort of second part, on the R&D side, you plan to move from 80% of R&D focused on new products to 100%. Is that going to come because you're going to drop some R&D lines? Or do you have protection in for the same level of R&D in absolute dollars that you're just going to move to those new product lines?
David B. Bell
Okay. Yes, so two questions. Well, our primary way to win business against our larger rivals that are very entrenched in the industrial market is to come out with better products. We, I think, in recent years, have been very disciplined that we are not going to invest our precious R&D dollars come out with products. We're only going to invest R&D dollars when we know we can come out with a superior product. So we've been doing that. And the portfolio of products, many of them in Susan's area, are superior products. And that's one way that we win. And again, we are not going to stop selling that broad portfolio. We'll continue to do that with these industrial customers. Now as far as the resources that have historically gone into those industrial products, we are going to do a combination of things. But clearly, we are going to pull back on our total OpEx, and it will include many of those horizontal product areas. And in some cases, those resources will be redeployed to some of the top 10 areas. So it's going to be a combination, but the net result is going to be a combination of overall OpEx reduction for the company and an increased focus on the top 10 growth drivers. Those are the areas we very carefully chosen that are going to drive growth and drive it within a reasonably short period of time. I love the business of my former employer, Linear Tech. I love the business of analog devices. But analog devices, built that business up over 4 decades and Linear Tech over 3 decades. And we will gradually build our business too, but it just happens at too slow a rate to really move the needle as quickly as you and I would like to see. Maybe a few more questions. Yes, Doug?
Doug Freedman - RBC Capital Markets, LLC, Research Division
Doug Freedman, RBC Capital Markets. If I look at your OpEx spending, it looks like your target number takes you back to a spend rate of about March 10. How do I think about the cost per head to keep your employee base? And what is your headcount going to look like compared to that level? I mean, how do we grow comfortable, this isn't cutting too deep and that in fact you have the resources necessary to execute your plan?
David B. Bell
Well, I know you'd love me to give you a very specific answer. You can plug it into this spreadsheet, Doug. But truth be known, we're still in a process of working through the details of our plan. Obviously, you can figure out, with your own models what it takes, in terms of OpEx reduction, to achieve the 24% non-GAAP at a $200 million revenue level, so they're fairly sizable. But we are still in the process of developing that detailed plan. So I'm not prepared to tell you the exact numbers or even dollar amounts at this point, although you can kind of figure out the dollar amounts on your own. Now the other part of your question, are we cutting too deeply? Are we going to impact our top 10? Obviously, that's part of what we've considered in formulating what we're going to do, is that we are, right now, have about 80% of our resources on the top 10. When we're done, nearly 100% would be there. So in R&D, there will certainly be both focusing effort, as I mentioned earlier and some OpEx reduction broadly throughout the rest of the company. And SG&A, there will also be OpEx reductions.
Sameer Kalucha [ph] JPMorgan, I work with Chris Danely. Just to simplify the top 10 drivers and the operating margin story here. If you were to look at your top 10, you're investing in them right now. You're cutting OpEx. But if you look at it from an operating margin perspective, how do you see that unfolding over the next maybe couple of years? How would you rank order the markets that way?
David B. Bell
Well, it's difficult to rank order. They're very different in nature. Some of them are going to contribute quickly if you look at category we'll talking about here after the break, handheld devices. You can design a device, release it and see revenue within a quarter or 2, in some case on a handheld device. Unfortunately, in the automotive area that Susan talked about, or in the Rad-Hard area, you're talking many years before you get return on your investment. So it's really hard to put them all on the same bucket there. But suffice it to say that we've gone through the process during the last 4 years of creating a lot of new product areas internally, organically. We've gone through process of doing 6 acquisitions, brought those in. And we are now at the point where we're kind of saying, okay, we know what we've got. We're picking our winners and our losers. We're picking which horses are we going to ride here. And we've agonized over that. I've looked at them very carefully. Some deliver more quickly than others, but these are the top 10 that we feel very comfortable, where we've got the talent, the IP, the customer relationships to win against larger rivals. Jonathan, I don't know how we're doing on time, or Brendan, the neither one. Should we cut off questions here at this point? Yes, okay, I'm getting there. I'm getting it cut. That's fine here. So we will open up again for questions specifically after the next two market categories as well as at the very end of the meeting today. So please try and hold it to about a 10-minute break, if you can, and we'll be back in here and talk about our consumer market next.
Susan J. Hardman
And certainly, if you have a few minutes, go look at our demo room.
Andrew M. Cowell
Okay. Have we got everybody in the room, Brendan? Are you all ready to go? All right. Well, everybody, welcome to the consumer section. My name's Andy Cowell, I'm the Senior Vice President of the Consumer Division. And Dave, thank you for the -- getting me on the bus. Now I'm going to host your consumer session with Susan. So hopefully, you've drunk all the coffee because we are the high-energy session. So without further ado, let's just move on. And let's look at the overall strategy of consumer, just to ground everybody.
We focus on high growth vertical markets. But what's the characteristic of a high growth vertical market? Customers need products quickly. In order to get products quickly, you need to have the IP ready so you can assemble the products. And Dave's already talked about this as well as Susan. We have a very rich portfolio of IP already assembled, and that allows us to meet the timescales of the consumer customers.
We also partner with technology providers to make sure the customers have a system solution. This may be software. This might be other vendors. So that when we present the solution to the customers, here's the complete solution to make it easy.
Now what I'd like to do is move on to one specific area, handheld devices. Now where are we focusing on handheld? Well, really, smartphones and tablets are main focus. Within those devices, which applications, high-efficiency power solutions and predominantly to do with the high-definition display and the system power management ICs. So really, power-centric smartphones and tablets is what we're focusing.
So let's just take a look at a handheld device and give you an idea of the coverage map of Intersil. So right now, in 2012, we have a potential ISP of around about $1.50. In the red, we have entrenched coverage, good products. In the pink, we're just entering. So you can see, we're strong in the battery charges, in the display PMICs. We're quite strong. We're just moving in and putting capability for larger scale PMICs. As we move to 2013, you see the ASP starts to increase to around about that $2.50. That's where we put more capability in PMICs. By 2014, we will have full SoC PMIC capability. And then, you start to see in the kind of $4 to $5 range ASPs per phone. You'll also see that there was some emerging technologies that Susan's going to talk about that start to come in, such as Pico Projectors, and they will drive the ASPs even higher.
So now let's just focus on a particular area, the backlight. So why is the backlight so important? Well, the backlight right now in your cellphone consumes around 40% of the battery. And it's pretty incredible when you think of all the other things it's doing, all the processing and everything else. Now why is that? There's two things driving that. One is the HD displays actually require more light to give the same user experience. So they need more power. But actually, the prime reason why your backlight is now consuming more is because the usage model has changed. Now people don't just use their phones to just make the calls. I mean, fundamentally, you're using the phone all the time. You're texting. You're sending e-mails. You're browsing the web. You have things. You're watching movies. And the younger you are, the more you're using your screen. So it's not getting any better. It's getting worse for the backlight.
So this kind of phrase just sums it up here. The highest efficiency solution backlight really, it means longer battery life, which basically means you win the soccer. So we were challenged by a customer late last year. And they said, Intersil, we know you've got the technology. We like you to make a product for us. We are now sampling, and we rose to that challenge. We are now sampling the world's smallest and most efficient backlight product, the smartphones. Now it's kind of a short statement, but it's a very powerful one because we've just gone over the reason why that's important. This is garnering a lot of interest with many customers, and it's going to be a very lucrative IP for us and product.
And just to give you an need idea what this does, well, it gives you kind of about 20% extra battery life over a normal solution. That's pretty amazing when you think of all you're really doing is illuminating the display. So very important.
Now let's move on to another category, PMICs. So why does the Intersil think it can now be successful in PMICs? And Dave alluded to this earlier. Fundamentally, we've got all the ingredients to do PMICs. Now one of the biggest ingredients to do PMICs is you have the IP in the same process already developed. You can't do large-scale PMICs and try and develop the IP at the same time. The customer cycles won't allow you to do that. When a customer comes in and asks for product, within only a few months, he expects a very large piece of silicon to be working in his system. The only way you can do that is if you already have the IP in place. We already have the IP in place on the same process, and it's a very good process with great IP. And fundamentally, we have links with these consumer customers, smartphone and tablet customers, while Gnome, [ph] Intersil's qualified vendor, and we have good relationships with their engineering people. So we have all the ingredients to do this. Now it's just execution.
I mean, let's just take a little look at the IP that we have, and I'm really not going to go over all of this. But these are some of the building blocks that are criteria for you to enter this game. So many people can say they're going to do PMICs. But really unless you got all the stuff already developed and proven, that's not going to happen. So you've got battery management, power functions, mixed signal functions and housekeeping, other analog blocks. All of which we have. And this has allowed us to start some engagements in this field, and we're working on some of these products right now that are going to generate a lot of revenue for Intersil.
So I know I'm moving through this quickly, but I'm kind of -- I'm trying to slow down. We tend to move fast in consumer, so you can ask me questions at the end. I'm going to now move on to HD portable displays, but not the smaller ones, the bigger ones, the 7-inch and above. Things you find in tablets, sub-notepads, Ultrabooks, high-resolution displays in that kind of 7- to 13-inch type area. So this is one of our targets. Now why do we think we can be very successful here? Well, fundamentally, Intersil has a rich IP already developed for high-resolution displays from its TV business. So we have migrated that and developed that to focus on this market. So let's just take a little look at this market. Well, today, it's about an ASP content of about $1. Typically, a PMIC and a gamma chip, adjusting the gamma of the display. As we move to next year, the ASPs increase a little bit. The display becomes a little more complex, and you have to start to add some other functions, high-voltage in nature. Now right now, these are discrete chips. They're individual chips. These are going into portable devices. The customer really does not want that in any way, shape or form. The customer really wants an all-in-one solution.
Now this is extremely complicated to do. Before that, let's just review why they want an all-in-one solution. And I think it's relatively obvious on the size. But also, maybe not so obvious when you integrate something all-in-one, you can get some power efficiencies as well. So you can make it lower power solution. But it's very challenging to do that. All these functions have to be on the same process, but all these functions have vastly different characteristics. Some have high dense digital. Some have high-voltage power. Some have very high voltage level shifting. All of this has to be on the same process. Very few customers -- sorry, very few suppliers have this. Lots of customers are requiring this. So Intersil will be releasing the world's first all-in-one chip later this year. We've got some very excited customers lined up for it. And it's again, it's going to be a nice driver for us. And it's another example of how we've taken our IP, put it together and pushed into a vertical market quickly.
So let me go on to the -- just the summary. Now you'll find an error on your printed sheets here. That was a little Microsoft translation error. I'm blaming it on Microsoft actually. I think it might've been the fact that I was putting the slides together at night when after I've had a couple of glasses of wine, but we'll blame Microsoft. This is kind of the correct one. So we're really driving to roundabout in 2016 to $200 million revenue, very achievable in this market. Smartphones, tablets, both expanding. Primary focus is on the power side high efficiency, and then the high-efficiency displays.
So I'm now going to switch gears to the optical sensors. So let's just review optical sensors. There's light sensors, fundamentally for measuring the surrounding, ambient light conditions and then doing something with it. Proximity sensors measuring the distance to objects. The one that is obvious that you know for a proximity sensor is when you put your phone to your ear, your display turns off. That's a proximity sensor, and there's other advanced things you can do the proximity sensors as they become more accurate. And then there's emerging technologies where you've got gesture recognition, your simple gesture and touchscreen combinations on mobile devices. And also, we're enabling long-range proximity detection, and I'll go into that and how that's very interesting for the consumer market as we go through.
So let's just really review why we win. Why is Intersil so well known in this market. Well, fundamentally, we are a market leader, and we are known as a market leader in smartphones and tablets. With a lot of manufacturers, we continue to expand our footprint there. We continue to innovate in this market, not only innovate from technology standpoint, but also innovation in terms of cost. We drive our cost structures down so we can expand this market. We also have superior technology, optically, electrically and packaging. All very advanced. The customers know us for this. This is a complex product. It may sounds simple, but it's dealing with light, electricity and mechanical design, all in the same -- wrapped up in the same bundle for the customer, and that's quite difficult to get working. One of the things that we offer is full opto-mechanical turnkey design support. The customer comes in. We design everything, including all the optical modeling, help them with the mechanics and everything. So we get a lot of traction because of that.
And also, we enable new applications for the customer. So we show them what we can do with our technology. And then that drives not only that business in the emerging applications, but it also has a pull-through effect, because people always want to work with the market leader. So let's have a look at some of those. Let's start with gesture. Now gesture's been around for a while. People have been talking about gesture. But really, gesture in a mobile device is not so easy. Gesture in a mobile device has some challenges. Gesture on TV is easy. I've got gobs of processing power. My size, the power, it doesn't matter. I can make all that work. Nobody really cares about the efficiency. In a cellphone, if I try to do that, maybe the conventional gesture approach, where I use the camera. I turn the camera on. I start doing processing power and looking at hand images. I can make all that work. I'm going to consume half of the processing power of the phone, and I'm going to have 10 minutes battery life. So really, it doesn't work so well. So Intersil have released and is working on low-power solutions, the lowest power solutions. Very simple to implement, extremely processor-light, noninvasive in the system and small size. So you'll see, as a demonstration outside if you haven't already seen it, some of the prototypes that we work with customers. And you'll see this as a revenue stream as we move forward, as customers start to really drive this technology.
Now the other one we're enabling is long-range proximity. And here, we're really looking at accurate -- we call it presence detection, but it's really distance measurement. You can just accurately measure in that kind of 2 centimeters to 2-meter range. So why would you want that? Why would you do want to accurately measure something there? Well, in mobile devices, one of the simplest solutions that you might look at is something simple like this where you're at your laptop. Maybe you're watching movie. I know you're watching a movie. I can accurately detect you're there. Not inaccurately, I can accurately detect you there. You move away. I can still detect if you're in range seeing the movie, move away to get a drink, what have you, I can pause it automatically. Come back, it will start again. I can do other subtler things. I can now measure the distance. I can change the contrast and gamma, depending on how far you are away and then making it always look like it's a really beautiful display. And you're not quite sure why, but it always looks beautiful. Well, that's why. So you can do all sorts of subtle things when you can accurately measure distance.
Now again, this is a mobile device. You fundamentally can't implement this with any power. You can't sit there and turn the CCD camera on and make this thing work. You have to make a battery friendly, 0 processor noninvasive product. And that's what we're doing. And again, this is a little further out so you probably this is the kind of 2013 type revenue that we'll be sampling at this year. But you'll start to see this is a very enabling technology for sensors.
So where do we think all of this can take us? By 2016, in the $100 million range. Primarily we’re focusing on smartphones, penetrating more of the smartphone. Sensors are moving into the tablets and notebooks. We're present on virtually every SoC reference design. All the big chipset manufacturers use Intersil as their reference. Good customer traction and really enabling technologies for the customer to differentiate themselves in the market, such as gesture recognition and long-range proximity.
So with that optical side over, I'm now going to hand over to my partner in crime, Susan, who's going to do some more optical magic with her Pico Projectors.
Susan J. Hardman
Okay. Onto Pico Projectors. So today, I'm going to talk about our vast social networks and how we interface with family, friends, colleagues and others in our community. I'm going to talk about how our sharing experiences today are constrained by those small little devices that we use, and how Pico Projectors can transform this sharing experience. I'll share how Intersil, working with strategic partners, is developing and offering complete system solutions to accelerate the growth of this exciting new market segment.
There are two key messages in this part of my presentation. The first is that there is a killer application for Pico Projectors. The second is that we are the only company that's got a complete suite of components that we've brought together in a reference kit to target LCOS Pico Projectors systems. This reference kit will dramatically accelerate the time to market of our customers, as well as save them dollars.
So if you look at our universe today, we have access to a tremendous amounts of information, and it's almost instantaneous, right? Our handheld devices enable us to post, download and share information. Basically, as we've highlighted through several of these discussions, right, our cellphones and tablets have become the center of our universe. Take a look around any room that you walk into today and I bet that a very significant portion of people in that room are going to be focused on their handheld devices. I see many of you smiling. How many of you have sat at the dinner table with your teenagers and not a single word's being spoken, but they're text messaging the friend that they just left to come join you at the dinner table? I'm not sure I'm not the only one that has had this type of experience. So people are either posting or viewing text messages, pictures and videos. They're talking about it, but everybody's focused on their own individual display, which works great for that individual person. Maybe you can share it with one other person. But when it comes to trying to share it with a group, this really hinders our sharing experience.
Now you may be thinking, well, so what, Susan, it's really not that big of a deal. But let me talk about a few different situations where a small screen could pose a very significant challenge, right. Think about a coach that wants to quickly share a critical play during an intermission in the locker room with his team. Pretty difficult to do on a cellphone. Or how about a salesman that's trying to show an interactive datasheet at a potential client. Or last, imagine even a troop commander in the middle of a battlefield displaying a map. When it comes to individuals, a small screen is fine. But when it comes to group sharing, bigger is better. That's what Pico Projectors enable. And what's -- this particular technology is paving the way for us to transform that sharing experience. So from how we conduct meetings and training to gaming and coaching and finally, to what is that killer app, teenagers; it’s being able to spontaneously share their pictures, their YouTube videos in a group environment.
Now everybody enjoys instant entertainment. Let's hope that this won't lead to too much oversharing. Okay, I've highlighted a couple of ways that Pico Projectors can be used. In reality, this technology has got very broad potential. It could be used to project directions in a heads-up display. In fact, one of our partners, MicroVision, is already demonstrating this capability and is implementing this with an auto manufacture, preparing to deploy it in about 1.5 years. Combining this with additional features, features like Andy was talking about which gesture recognition, it could be used as a keyboard. So imagine being seated at a restaurant, and you're waiting and waiting and waiting for your server to join you. Now if you have a Pico Projector, you could make your selection on you order instantaneously as soon as you are ready. Your order comes up, you needed just the server to serve the food. You could -- the restaurant owner could potentially save money because they need less servers and you could potentially save time. So just one example of how it could be used. Perhaps many of you spend your Saturdays out on the soccer field watching your child play. If your child were to sustain an unfortunate injury and you found yourself in the emergency room, a doctor could use a Pico Projector to actually display the skeletal system on your arm and they could show you exactly where a fracture occurred. So I encourage you to think of the possibilities of this technology. It's pretty broad.
Today, there are three architectural approaches that are being deployed in the market, and there's two critical things that need to happen in order to make Pico Projectors ubiquitous. That's power and cost. The lower of both of these, the better. So looking at the architectures, there's three. There's DLP, LCOS and MEMS. While we believe that these solutions are going to coexist in the market, we believe it's the MEMS' architecture that's needed to achieve the right power consumption and the lowest cost structure for deeply embedded types of applications. If you look at Pico Projectors today, most of those available on the market are standalone, and they're based on the DLP technology using LEDs as a light source. LED LCOS-based solutions are also available in production. The last architectural approach here, the MEMS, so the laser-based scanning MEMS, we expect this architecture to start ramping in the second half of the year as native green lasers become more widely available. If you look at the DLP architecture, that architecture is very mature, right? It's been used for a very long time in projection systems and thus, it was a natural fit for the first generation of the larger format Pico Projectors. There are disadvantages of this architecture in comparison to the other two, mainly in terms of the engine size, which is pretty large and the power efficiency, so pretty important parameters when you talk about deeply embedded applications.
LCOS systems can use either LEDs or lasers as their light source. If it's an LED-based architecture, it does require an optical lens, which makes manufacturing more difficult and more costly. An LED is always on, which increases the power consumption. And perhaps the most annoying or challenging part of this architecture is that it requires manual focus. So every time either the user or the surface has moved the projector itself, the image needs to be manually adjusted.
In comparison, the MEMS has significant advantage. It has automatic focus. It's got a smaller engine size associated with it. It's got better optical efficiency and much lower power consumption. Again, as I emphasized, we do believe that there's a need for all of these to coexist in the market. Today, in the demo room, we are showing an L-based -- we're showing an LED-based LCOS system. We do already have a laser-based system, and we're working with a partner to develop full references around the MEMS.
As I've emphasized in several of my talks today, it is about forming an ecosystem in each one of these businesses and working with partners. So in the Pico Projector arena, we are working with experts in the light sources that provide either LEDs or lasers. We're working with experts in imaging technology; companies such as MicroVision and Micron. And then we're working with those who are bringing that imaging technology together in a module that it tends to be the manufacturers, and that's a company like -- companies like Asia Optical. By working with this ecosystem, that's what enabled us to bring together a complete system solution. So Andy mentioned before, the challenges when you have optical electrical systems, and where making those interfaces work can be quite a challenge. The same is true here with Pico Projectors. So making the optical module work and being able to interface it with the electronics board is a challenge. That's why the partnerships in this arena are so important.
So working in conjunction with partners, we have developed this complete system design. So you heard Dave talk about it in his opening. This is a product. It's a reference kit. It's a full kit. And we launched this about 2 weeks ago at a global press conference. So this kit has everything that you need. It's got the PCB and you can see here, it's a very small form factor, right? 1.7 inches by 2 inches, and then we partnered with Micron for the optical module. That optical module is 5.5 cubic centimeters, so it's pretty small. So again, this is everything from a form factor that fits into a Pico Projector. So we're providing the reference design associated with this. So the hardware, the BOM list, the design layout and customizable design files, so that all of the manufacturer has to do is wrap their software around it and introduce it to the market. Now this platform is highly efficient. We're able to play a 2-hour video off of a single charge. So extremely important in mobile types of applications.
This reference design has 6 different components on it. It ranges from a battery charger, a boost regulator, an optical sensor, an LED driver and a video processor. Now the video processor is at the heart, and it supports a lot of different video inputs as well as many features such as the on-screen display. This is what allows a customer to differentiate their products. So it allows them to splash their logo, for example, or to provide a menu image overlay over the video itself. The high-efficiency buck boost LED driver combines the best of our power management expertise with our system-level knowledge to drive a very targeted solution for this application.
This buck boost delivers 92% efficiency. So again, when you talk about being able to display a video for 2 hours, it's because of the device like this that enables that length of play time. In addition to the buck boost, we've integrated 4 LED drivers there so we can drive LED modules, are either red, green and blue or with many today, are putting in two greens. So it's red, green, green and blue LED modules. In this application, we have patents that are patented, our dual green drive functionality, as well as our dramatic headroom controls to improve the overall power efficiency of the device. The LED driver works seamlessly with the optical sensors. So again, going back to what Andy was talking about with our sensing capability. So this optical sensor is used for white balance control, and it's used to compensate for LED mismatches, aging, as well as thermal efficiency loss. So in a standalone type of application, we've got $9 to $10 of content. That's pretty significant. As Andy mentioned, as Pico Projectors become embedded into cellphones, and there's an integration path that occurs here, the silicon content will come down to about the $5 price point when you talk about deeply embedded applications and pretty significant volumes. So this is a pretty significant opportunity for us.
Now as I mentioned, we've been working with partners. So partners like Micron. So Micron is the partner of us, both in the optical module space, and then they've also launched a Pico Projector. So that's what this is sitting here at the bottom, it's a Pico Projectors sleeve that you put your phone on. And what I'd like to do is share with you a video that talks about what this Pico Projector is and what it's all about. So if you can go ahead and play the video?
Susan J. Hardman
Pretty cool, huh? Now Micron is very specifically targeting social sharing, right. This is about the 20-somethings being able to share their YouTube videos with their friends. This solution is being offered on the market for $99. $99. All right. So how many of you, for $99, would go out and buy yourself one? Okay, so how many of you are already on the website, thepopvideo.com, and getting yours ordered today? So Micron just launched this product. They put -- the website went up about 2 weeks ago. They're anticipating shipping their first units in the middle of May, so we've been working back and forth with them. They've had over 100,000 hits on their website since they've launched it just a couple of weeks ago. So we're pretty excited about this launch of their product and our solution that's encompassed within it.
So in this space, why are we winning? We're winning because we're taking a system-level approach, right. So over the last several years, we've developed an in-depth understanding of the Pico Projector architectures and what it's going to take to enable commercialization of this product area. Our knowledge has enabled us to develop that full suite of products that's very tailored to this particular segment. And it's by combining and driving costs down that we believe we'll be able to leverage this into embedded, deeply embedded applications. And lastly, it is about working with partners. Now we're not in the Pico Projector business. We are not going to sell these things. We sell components. We enable people to manufacture these and get these out very quickly to market.
So as Dave highlighted in his opening, when he talked about the mega trends, the video traffic is not slowing down, right. More and more video is shared, and this potentially opens up a whole new avenue on how that information can be shared. Now you'll notice that the bar graph actually shows the volumes. They're pretty low here as a standalone incarnations. But let's just take a look at the PoP Video. So the PoP Video is designed to be compatible with iPhones and iTouches, right. So there's 155 million iPhone 4 and 4S' in the market today, about another 89 million iTouches in the market today. Even if the attach rate was only 10%, that would be about 25 million Pico Projectors of just this type of application, right. So I believe that this market is going to grow at a much more accelerated rate than what this chart would suggest, but this is what the industry is currently projecting. I think this is a pretty exciting new area. And if you look, the two key points that I was making. One, with the killer app, I do think the killer app is social sharing. I think there's many other ways Pico Projectors can be used, but I think the social sharing is going to drive the demand. And I want to emphasize that we've taken a system-level approach in being able to offer a complete system solution, being able to offer a kit to accelerate people's time-to-market in this space. So that's why we're pretty excited about Pico Projectors.
Now I'm going to transition to our last segment in the consumer space, and that's talking about active cables. So over the past year, Thunderbolt has emerged as the most promising new technology for high-speed interfacing to computer peripherals. This new technology could dramatically change the way consumers visualize, render and interact with huge amounts of information in realtime. So Thunderbolt uses active cable. What do we mean by active cables? It means that chips are embedded in the connectors at either ends. And that's how it achieves its fast performance and ensures that interoperability with many different devices. To date, the first round of Thunderbolt-enabled devices have been impacted by the cable interconnects. It's the gating factor driving cost. Those barriers have been shattered by Intersil's new generation of integrated ICs using advanced 40-nanometer CMOS processing technologies. Yes, I said what 40-nanometer technology. So while Dave emphasized that many of our product lines are leveraging VIS25, and we have a lot of IP developed there, we are doing things in other technology nodes. And this is a great example of that. So we have done our first 40 nanometers solution.
So if you look at the solution that we're driving, we are able to take an active cable cost and reduce the cost by as much as 50%. That means that retailers will be able to substantially reduce the price of the cable. We are very strongly positioned to capitalize on this and to grow incremental revenue associated with this business of $100 million. So unlike some of the other businesses that we've talked about, where we have a large existing base, this is a new area for us. So this would all be incremental revenue.
Now as most of you know, Thunderbolt was developed by Intel, and it was brought to market with the technical collaboration from Apple. It was first introduced commercially on Apple's updated MacBook Pro line back in February of 2011. And it uses that same connector as the Mini DisplayPort.
So because Thunderbolt supports both PCI Express and DisplayPort protocols, it reduces the number of connectors needed to attach to peripherals, so the number of connectors on the side of your computer. So users can connect both data and display devices with a thin cable, right, and they can connect up to 6 devices, can be daisy chained together.
So Intel has announced plans to integrate Thunderbolt support into their Ivy Bridge chipset. We believe that this is going to further expand adoption into the market. So if you look at PC manufacturers such as Acer, Asus, HP and Lenovo, all of those have announced plans to include Thunderbolt in their offerings. Numerous storage and peripheral companies have also announced their plans to announce -- to include Thunderbolt in their offerings. So Intel is indicating that they expect over 100 different devices to be Thunderbolt-enabled by the end of 2012.
Now the Thunderbolt technology tunnels PCI Express and display proof -- DisplayPort through a unified serial interface. And it enables that signal to be carried over long copper cables. Now the advantage of these in copper over fiber is that it also enables power to be carried. So that the peripherals that you daisy changed together do not all require a separate power source.
Now as the data rate in cables reaches 10 gig and beyond, the physical properties associated with those thin cables cause significant signal impairments as shown here in the diagram on your left. You can barely see any signal there at all. So it is with the use of high-speed transceivers that are implemented at the end in the connectors at each end that enable the signal integrity to be restored, basically getting your signal through your iDiagram. The Thunderbolt is the first consumer example of how active cables are being used, and we expect this trend to become more prevalent for high-speed interconnections over the coming years.
Now to enable through consumerization, Thunderbolt implementations must overcome the major hurdle, and that's cost. So as I highlighted in my opening on this segment, the cable interconnect is the gating cost factor today. So lack of efficiency in the interface design can have a direct impact on the ability of that cable to carry signals and power and potentially require more expensive cables to be used.
The current generation of Thunderbolt devices are implemented in silicon germanium, and it's necessary to achieve the performance levels. However, this limits the amount of integration. If you look at solutions today, they have a separate chip for the transmitter, the receiver, as well as the microcontroller, so basically 3 chips. Requiring up to 550 milliwatts per chip, the silicon germanium cables use 2 to 3 watts of power, 2 to 3 watts of power. So this high power demand reduces the interface's ability to send -- to power those peripherals, and it can also heavily impact the battery life of your laptop if it's connected to a Thunderbolt cable.
Also inherent inefficiencies in multi-chip designs, it makes them run hotter, thus typically requiring heat sinks, and it may also necessitate the need for premium copper cable to be used instead of standard bulk cable. All of these factors that I've talked add up to drive up the cost associated with Thunderbolt active cables.
Currently, the market price of a Thunderbolt cable is hovering around the $99 -- I'm sorry, not the $99, but $49, that would be really bad, $99. It's hovering around the $49 price point. This is hindering Thunderbolt adoption. Consumers aren't willing to pay that type of a premium for the cable and peripheral makers aren't able to cost-effectively bundle that solution and ship it with their offerings. While the introduction of our new device, fully [ph] integrated 40-nanometer technology is radically going to shift this landscape. It's dramatically cutting cost and simultaneously improving performance.
By using 40-nanometer technology, we've been able to shrink the die size by 33% or to 33%. We were able to shrink that die size to 33%. That's a significant reduction in the die size and what this has enabled us to do is basically combine the transmit and receive and the embedded controller all into a single die. So instead of having 3 die now, in that connector, we have 1 die doing that same level of functionality.
So our solution uses less than 450 milliwatts and it's only one chip, right? So 450 milliwatts, only 1 chip. So our active cable solution is only 1 watt of power. That's substantially less than a silicon germanium active cable. So basically, our active cable solution minimizes the power or the percentage being used of the total power budget, so that when you talk about being able to power those peripherals on the bus, our solution enables that to be done.
Now in addition to that dramatic die size reduction, we've also developed a custom power management device to go with our transceiver. So the combination of these 2 devices basically reduce power and cost and then streamline the interface of that design. If you look at the on-chip automatic test functions on the transceiver itself, we're able to reduce post-assembly testing by as much as 80%. That's a pretty significant reduction in that cost. We also have built-in impairment correction that provides better signal integrity, enabling that full 10 gigabit throughput by using standard bulk cable. Using standard bulk cable, it improves yield by 40%, again, a pretty significant amount. So these features, in addition to driving the cost down, are also enabling manufacturers to offer longer cable lengths as well. So we can offer -- our solution will drive up to 3 meters of cable length versus the 2 that's being currently offered today.
So the bottom line is our new Thunderbolt transceiver design is potentially cutting the overall active cable manufacturing costs by as much as 50%. This savings will make it possible to dramatically reduce the retail price of the cables themselves.
So as with previous active cabling standards such as DisplayPort, SAS and InfiniBand, Intersil has been instrumental in creating integrated solutions that reduce cost and streamline the interface of those designs. Working closely with industry leaders in the systems, cable and peripheral areas, we are now leading the way again with this new generation of Thunderbolt devices. The 40-nanometer technology fundamentally changed the landscape. By enabling 50% cost savings, the new cable price will enable peripheral manufacturers to include the cables in with their offerings, and it will also fuel a more pervasive use of Thunderbolt in a wide array of applications.
For end-users, the expanding availability of high-performance Thunderbolt capabilities means a giant leap forward in resolution, speed and simplicity is destined to usher in a whole new wave of creativity and productivity. So this is another segment that we're extremely excited about. With the widespread adoption of Thunderbolt, in part, enabled by our capabilities, by our innovation, we expect this growth in this space to exceed $100 million by 2015.
Okay, I'd like to ask Andy to join me back up here, and we'll open it up for questions and answers on the consumer section.
Thanks, Andy. A question for you on the handheld side of things. It looked like from 2012 to 2013, you had quite a hockey stick built into that. Can you discuss a little bit about the revenue growth you had on that chart? It looked like from about $25 million a year to $125 million.
Andrew M. Cowell
Now are you looking at the printed copy with the arrow? So there is still a hockey stick. It's not just quite as hockey as that printed sheet would imply. But right now, we've been working with quite a few customers, on some design wins and a lot of them as kind of the areas that I presented. They tend to drive very fast revenues. So once you get both designed and they work, I mean, you're going to get revenue the next few quarters. So that's the fundamental hockey stick.
And then I guess for more of the technology side of things and talking about the PMIC that you bring into that market. Okay, your bigger competitors has tended to do incredibly well in that business. What's your differentiation in coming into that market, Intersil had tried to attack that market in the past and how is it going to change this time?
Andrew M. Cowell
Fundamentally, there's a big difference. One is, we have a war chest of IP now. And it's a very good IP, which is actually superior to our competitors. And some of the engagements we have now are actually because we had superior IP. Often, customers, when you're going into these engagements and they're picking suppliers, they fundamentally go, what IP do you have? What IP do you have? What IP do you have? Because they already know that when you're assembling a big PMIC, if you didn't develop anything, you're kind of dead in the water. You're not going to meet their timeframes and the risks are high. So a lot of our engagements have happened because we've had that IP. And I'd say, our differentiation from our competitor who is a very worthy competitor, is we have some superior IP. Now we don't have all the infrastructure put in place yet, but we will.
Jonathan Steven Smigie - Raymond James & Associates, Inc., Research Division
I was hoping you could talk a little bit about -- sorry, Steve Smigie from Raymond James. I was hoping you could talk a little bit about the gross margin you expect to get in that Pico Projector piece, as well as the Thunderbolt. Obviously, you're talking about cost coming down over time. I'm sure it'll change, but if you can talk a little bit about the margins?
Susan J. Hardman
Right. So if you look at those businesses with them being emerging, as you would expect to see, when you're in the market early, you can command a premium on the margin. So I would say they're above the corporate average. But as with typical with any consumer type of business, you would expect to see a curve associated with that. So when I say we make some of deeply embedded, it would be in the low-50s, but the rest would start much higher than that.
Andrew M. Cowell
Okay. Anymore questions? All right. John [ph] ?
Susan J. Hardman
John [ph] ?
So one of the challenges of bringing the laser generated Pico Projector to life, I've talked to Microvision in the past, has been the green lasers. So what progress has occurred over the last couple of years that gives you confidence that those are actually going to be ready next year, we've been hearing next year for quite a while.
Susan J. Hardman
Actually we're already starting to see the production volume associated with that from 2 manufacturers. And we think you need to have a couple of manufacturers in order to be -- to make that price competitive in the marketplace. So we've already seen green lasers samples, we've already got samples on how so we're working with. So it is real. It is ramping. We've got a number of data points from system manufacturers that are planning to ramp solutions toward the latter half of this year based on the green lasers becoming available. So significant progress has been made in the last, I'd say, the last 18 months.
Andy, just a quick follow-up question here on the handset front. I think you made a statement about sampling the smallest and most efficient backlight product. What specifically gives you that positioning? It's a pretty mature market I would think, what are your thoughts on that?
Andrew M. Cowell
Well, it's a mature market in terms of backlight function, you're correct. But with the advent of the HD display and the usage model changing, now the efficiency of the backlight has become paramount of importance to the cell phone manufacturers because it's eating all their battery. So traditional technology is you're correct, been around for a long time, very mature, nothing really to do in terms of advancement. There's a couple of things that we've done, and we have an IP advantage. One, we've got some patented IP we've used that basically gives us higher efficiency, but also on the process front, we've got a very, very optimized high efficiency process that other vendors do not have that is very targeted to this exact application. So it's a combination of process and IP that we've blended together to solve this problem. And it's a very hard problem to solve, but our engineers did it, and that's paying dividends.
Susan J. Hardman
Okay, if there's no other questions, I want to encourage you over the lunch break, we've got demos from a lot of these products in the consumer section, so with the optical storage, we've got gesture recognition. We do have the PoP video itself on display as well, as well as our Thunderbolt technology. So please make sure you stop by during the lunch hour to take a look at that.
And with that, I'd like to turn it over to Dave to talk about the PC business.
David B. Bell
Thank you. All right. I'd like to talk about our last end-market category, the personal computing market and our last top 10 category, which is PC power. So PC power has long been a strength of Intersil. As you saw early on that even before I became CEO is a real driver of growth, and it remains an area of great expertise for Intersil to this day. So it includes power management ICs for the notebook, for the desktop and now the new emerging Ultrabook market. As far as functions are concerned, it involves a number of things there. It, of course, includes what we call VCORE power, the power for the main processor, typically made by Intel or AMD. But it also can include system and peripheral power, DDR memory power and also battery charging.
It's a very competitive market, even more so than it was back some years ago. There's a limited number of suppliers. It's very much spec-driven, most of the specs driven, obviously, by Intel and AMD. So while it's a very large market, it is a very, very competitive market. And the market that has our lowest gross margins overall.
However, Ultrabooks are creating a new opportunity. Ultrabooks demand much higher performance and they're going to provide much more opportunity for differentiation unlike the standard notebooks today. So let me talk briefly about our personal computing strategy. Our strategy is to maintain the leadership and market share in the traditional notebook VCORE power and participate in select desktop applications.
Secondly, we plan to leverage our power management expertise to increase our content in the new emerging Ultrabook market. And I'll talk about why that's so exciting in just a few minutes.
And then finally, we want to continue to stay in this market to drive accretive operating margin that is used to fund the other top 10 areas. It's a large market, although I did say that it was our lowest gross margin of the markets. However, it's also very efficient from an R&D standpoint. So while it has a much lower than our corporate average gross margin, it still puts a decent amount of money to the bottom line. And that's one of the key reasons that we continue to stay in the PC power management market.
As I mentioned, we've long had a leadership position in notebook computer power and VCORE power in particular. The red line you see there is our market share with Intel-powered notebooks. And it's grown from about 40% in 2007, up to about 70% in the current Sandy Bridge generation. As we mentioned, with Ivy Bridge, we're getting good design win traction there as well. Those are just now about to go into production. We think that our market share will be a little bit less, probably in the 60% range. When it comes to AMD notebooks, you can see the blue line there. We've had a fairly steady dominance, about 80% market share for VCORE power with AMD.
Reasons behind that are numerous. You can see in the left-hand side. We've got the highest power or the highest performance, I should say, power management circuits. We provide the best customer support, customers require a lot of handholding to get these products to market. And through thick and through thin, we provided the best delivery performance for our customers. They know they can get our parts.
We're seeing a new product category come on the market, the Ultrabook. And we believe, as do other industry experts, that Ultrabooks are rapidly going to take share away from full-sized notebooks. I think it's actually going to happen even faster than is predicted here by Longbow Research and iSuppli. The reason that I believe that is that in the commercial market, if you think about yourselves, your own usage models. I certainly hope to get an Ultrabook as soon as I can because it's thin, it's light, it's easier to carry around, and it gets much better battery life. So I think that the commercial market is very rapidly going to embrace Ultrabooks.
The consumer market, probably a little bit slower, but I think consumers as well, certainly high-end consumers, are going to rapidly adapt to Ultrabooks. So personally, I think that the red bars that are shown here are conservative, and we're going to see a very rapid uptake in notebooks or Ultrabooks.
One other thing that I just read this morning is that there's, I guess, at least a rumor that Apple may introduce their new MacBook Air at a $799 price point. I think that's going to grow sales in their products. It's going to accelerate growth in competing products as well.
So what's different between a standard full-size notebook and an Ultrabook? Well here on the screen you can see a profile of a standard notebook and the motherboard that goes inside that notebook computer. The motherboard is rather large because the notebook is thick enough that the motherboard can go underneath the keyboard, can go underneath the hard disk drive and can go underneath the DVD writer as well. So lots of printed circuit board area.
On the other hand, when you go to an Ultrabook, the low profile means that the printed circuit board, the motherboard, can no longer fit underneath the keyboard, so we have a dramatic reduction in the amount of printed circuit board area. So density becomes very, very critical and keeping power low just to get the heat out becomes very critical as well. So it's a very different design for an Ultrabook.
If you look at what our content is with a full-size notebook, today, it typically is just the VCORE power. The controller or controllers that power the AMD or Intel processor. However, when you look at the motherboard today, we, today, have the world's best full power solution for Ultrabooks, aimed at VR12.6 Ultrabook solutions. We have the system power. We have the VCORE power, the battery charger, the peripheral power and the DDR memory power all in one solution and, in fact, that we're sampling customers with today. This provides Intersil a total bond cost of over $3 within an Ultrabook, more than 3x what we would get in a typical full-size notebook. So that's another reason that we're excited about the rapid uptake of Ultrabooks.
Let me talk briefly about desktops. Desktops are flat, the sales in units, as you can see, flat and predicted to probably stay that way. So it is a market we remain in. It's actually ironically less competitive. Used to be not many years ago, the margins in the desktop market were lower than they are in notebooks, but today, the situation's reversed. Notebooks are far more competitive. So it's a more stable environment, less competition and in the next-generation Intel processor platform, the Haswell platform, there's going to be a shared architecture between notebooks and desktops. So we can easily leverage the development of work that we do on notebooks and supply that to desktop customers as well. We also have the opportunity to participate in peripherals via PMICs that we would aim at the desktop all-in-one market.
So in summary, for our PC power management area, we are very excited about the rapid growth of Ultrabooks and believe it will grow even faster than most of the pundits are showing. We have to date, the best solution for Ultrabook system power, and we think that, that's going to help drive a lot of dollar growth as well. We believe that the Ultrabook SAM, as shown here, will surpass notebooks by 2014 because of a higher dollar content. However, because of the competitive nature of the notebook and PC market, although our sales were down in 2012, they're going to rebound up in 2013, but we're predicting a roughly flat market here. The scale is kind of expanded, so it shows growth there, but a roughly flat market, probably in the range of $200 million per year. So as the rest of the company grows, the overall PC power management becomes a smaller percentage of our business going forward.
All right. I will be happy to entertain briefly any questions regarding the PC power management top 10 growth driver.
David B. Bell
Yes, hold on just one second, we’ll get you a mic.
Can you, on the Haswell platform, the desktop and notebook blend, is that a function of Windows 8, where you have touchscreen features and a lot of the desktop has moved to these all-in-one desktop units, the touchscreen 20-inch and negligible keyboard?
David B. Bell
Well for desktop, I don't think it really is dependent on touchscreen features of Win 8. You're referring to our flat sales, you were talking about there. I think it's just the desktops, frankly, are less and less important. We're going to see flat unit sales. I think that we're going to have the VCORE power, probably a similar share to what we have today. But that's really not going to be the growth driver. The growth driver for us is going to be the Ultrabooks, the much higher dollar content in Ultrabooks. And I think Ultrabooks in the overall PC market will kind of get a boost when Win 8 comes out later on this year. Any other questions?
All right. Well, let me wrap up. There will be a final Q&A session after Jonathan's section on finance. And I will turn it over to Jonathan. Good thing you started in advance, Jonathan.
Jonathan A. Kennedy
Thanks. I know what you guy are thinking. But don't worry, I still got to get back down.
David B. Bell
This is what happens when you miss consensus, by the way.
Jonathan A. Kennedy
Thank you, Dave. All right. Almost done. All right, so just a few wrap up points here on finance, and then we'll go into Q&A. First, I want to talk about how the company has progressed in balancing our revenue mix. We saw a lot of opportunity presented by Dave, Susan and Andy today about the top 10, and I'll summarize the revenue opportunities there. And I'll talk a bit about gross margin and our operating expense structure and how that provides earnings leverage.
Okay, so this chart shows by our new end markets. You've heard us talk about revenue diversification over the past few years, so I thought it might be worthwhile to take a look at how we've done and what that's meant for our gross margin stability. As you can tell by the chart, the real mix change has been in consumer. Our consumer business has declined over the last few years, offset by industrial and infrastructure. And believe it or not, despite that PC has actually grown and been somewhat flat. I mean, we had a peak up in 2008 that everyone seems to remember. But if you look at it over time, the PC business has actually been a fairly stable business. And the margin in that business have been relatively stable.
In the chart, you can see the blue shadow behind the charts that show the gross margin range, and there's typically a mix in each end market. But this should give you some insight on the new end markets on how the profitability varies among the 3 categories.
If you recall, we talked about balancing our revenue mix. The primary reason for that is to balance the gross margin. I mean, we want to diversify product portfolio to mitigate market volatility, but also to balance our gross margin. And from the 2007 to 2011 timeframe, gross margins have been very stable. In fact, it's up-ticked slightly from those 2 time periods.
All right. So the chart that undoubtedly all of you have already compiled over the course of this and no doubt many of you have probably already gotten your rulers out and worked ahead and figured out the exact numbers here.
So as Dave said, in July 2011, we introduced our top 10 growth drivers and told you they represented an incremental revenue of $700 million. So what this chart shows is a sum of those opportunities, with the base business at the bottom.
So like I said, you could go through and get your ruler and figure out the exact dollar amounts that are embedded in this chart, but that's not the point. The point is that we have 10 very meaningful opportunities that combined, should drive exceptional revenue growth and flow through to EPS.
The key with the revenue growth is it drives operating income and operating income leverage. Here's a chart over the last 3 years showing what's happened with revenue, free cash flow, gross margin and our operating margin. You can see today, we introduced this new model that gets us to a 24% operating income at a $200 million revenue rate, with gross margins staying in our ballpark 57%, 58% range target.
One other thing I'd point out from this chart, too, is the free cash flow. The company generates significant free cash flow and over this period of time, 17% of revenue has cumulatively, 17% of revenue has been in free cash flow, 17%.
In his opening remarks, Dave introduced our new operating model. And by now, most of you have probably already determined the precise amount of OpEx reductions required by quarter to achieve the model. So I can't predict to you with certainty exactly when we'll achieve it. I can help you with the timing and the range of operating expense changes. Note, on this model as well, I've put in -- at the lower revenue where we would expect operating margin to come in at and then at higher revenue where it would come in at, the midpoint being this $200 million and 24%.
So as you can tell, we're now very focused on the programs we discussed today. Funding for the success and these programs will continue. But there will be companywide reductions in OpEx. They'll be broad-based, affecting R&D and SG&A and will primarily impact in the third quarter, in other words, the benefit of these we will begin to see in third quarter. The amount of reductions will be such that we achieve the operating model in the very near term. And we would expect to take a restructuring charge in the second quarter for severance and other related cost. And we'll provide more specific details and more specific guidance as we complete the restructuring, so watch for those announcements.
Lastly, I'd like to point out is Intersil's balance sheet and our commitment to dividend. We have a very strong balance sheet, and I mentioned before, we generate significant cash flow and our dividend yield stands out among our peers at over 4%. I frequently get asked about our intent regarding the dividend, and I can assure you that maintaining the dividend at its current level has been the #1 priority for use of cash. And again, this chart shows free cash flow in the red bars versus the dividend payment in the blue bars. And you can see the free cash flow well covers the dividend.
Next item on the list will be debt reduction. As of the second -- as of the end of the first quarter, we had $175 million drawn on the $325 million credit line with about 4 years remaining life. We can expect to continue to reduce the amount of debt outstanding over the coming quarters.
And the majority of our cash balance is available for future dividends. What that means is that it's available domestically without further taxation. Again, towards the story on the dividend, we have plenty of cash in the bank to continue to pay the dividend and our ongoing operations fund the dividend as well.
So that wraps up the last bit of finance. I can only guess that you guys have some question specifically about the operating model, and I'll take those questions now.
I guess to spare the suspense. I guess, I'm calculating about a quarterly OpEx reduction of $20 million to $25 million and all-in OpEx coming down about 25% [ph] on that target model. I know earlier, Dave had said that some was going to come from R&D, can you give us the proportions between SG&A and R&D? And actually, one other question, amortization I assume is not part of that OpEx, correct or the op margin?
Jonathan A. Kennedy
That's correct. So all of this is on a non-GAAP basis. It excludes amortization, it excludes equity compensation. So for the way we report non-GAAP, that's the 24%. The cuts will be broad-based, as I said. It will impact R&D, as well as SG&A. I cannot tell you exactly right now, which is -- what (sic) [when] it's going to hit each bucket. It doesn't really matter from the operating income model, but we will give that information as we progress through the plan. And it won't be months, it will be weeks before that information comes out.
David B. Bell
This is our final Q&A before lunch, so feel free to ask questions to Jonathan regarding finance issues or broadly any issues we have covered so far today.
I did go through with the ruler on the slide that looked through the -- I didn't have my ruler with me. But it looked like that for 2013, a large portion of the incremental growth you're looking at is in the handheld section. Maybe you can talk a little bit about that, about the type of visibility that you've got into 2013, what's driving that aside from just obviously the smartphone growth? And as a follow-on to that, with what you talked about on the PC segment, you talked about -- and I guess the strategy there is that the gross margins are below the average, but it's more efficient from an operating margin standpoint. Given the cost reductions that you're going to implement, the PCs, are they still accretive to overall Intersil operating margins after you dial-in this new cost structure?
Jonathan A. Kennedy
So I'll answer the accretion about PC and then I'll let you talk about handheld. The PC business, by far, is accretive to Intersil. It's a very good business. It's a very small team of people inside the company that operate the business. It's a handful of customers, with or without OpEx cut, PC is accretive.
Is it the operating margins in that business 24% or better?
Jonathan A. Kennedy
We don't breakout the operating margin by business, but it is a very accretive business. Yes. You want to know the operating margin, we just don't break it out to that level.
David B. Bell
And essentially 0 tax rate, too.
Jonathan A. Kennedy
Yes, maybe take the low to mid-40s gross margin, it's a $200 million business. It's, like I said, it's a handful of people in Taiwan that manage the customers. There's a team in North Carolina that does the R&D. And it's 0 tax rate. So from a net income perspective, it's very accretive. It would be above the 24% range.
David B. Bell
Okay, the first part of your question about handheld driving a lot of the revenue growth in 2013, that's correct. As Andy talked about during his presentation, one of the great things about the handheld market is that when a customer comes along and says they want a PMIC, you have to deliver it very quickly. So probably at a range of 3 months or so until you get a working silicon in the hands of a customer. And from that point, then it can ramp very quickly as well into production. So yes, design wins and designs that we're working on right now can contribute to 2013 revenue. Now in terms of naming specific customers, of course, I'm not going to do that. But a lot of that revenue as you might anticipate is going to go into things like smartphones and tablets. We've got a question over here.
Alex Gauna - JMP Securities LLC, Research Division
Alex Gauna, JMP Securities. I was wondering Quantum's numbers came out last night for the month of April, they didn't look very good. I was wondering if you could help us understand what might be going on in the PC segment, the notebook segment near term? And then maybe help me understand the transition, we've got Sandy Bridge going to Ivy Bridge, and we've also got notebooks going to Ultrabooks, both Sandy Bridge and Ivy Bridge. Can you help us understand both the macro and these product transitions and how we should expect you to fair through those?
David B. Bell
Sure. I'll do the best I can if we need more details, standing right behind me is Majid Kafi, and he can maybe give you a little bit more color during lunch or something about the specifics in the PC market. But there's several things going on here. We still are recovering from a downturn, and I think that that's taken longer than people had anticipated, certainly longer than we had anticipated. There is the delay in the ramp of Ivy Bridge from Sandy Bridge, so I think that's delayed stuff a little bit, and I think there's some pent-up demand, people are waiting for Win 8 to come out as well. So a number of factors that is going in there. Broadly though, I think that there is the expectation that the second half of this year should show nice growth in the PC market. If you had gone back maybe a quarter or so ago, I think people are counting a little bit more growth in Q2. There will be growth I believe, but some of that has been kicked down the road to the second half.
Alex Gauna - JMP Securities LLC, Research Division
Do you expect your market share in Ultrabooks to map what it currently is in notebooks today? Does it look it's going up? I know the ASP opportunity is going up for you, but the share opportunity, how does that look?
David B. Bell
Really hard to tell. There's a lot of Ultrabooks that are being designed right now, so it's too early to count our chickens. What we do know is, as I pointed out during my presentation is we've got, by far, the best complete power solution for Ultrabooks to date. It's a very efficient, very cost-effective, very dense solution, which is important to these guys. And we think that Ultrabooks, beginning with the second half of the year, are going to start growing rapidly. And again, that whole system solution represents over $3 in total bond cost. So we've got a much better leverage ratio than the average dollars that we've got in a traditional full-size notebook. Terence?
Terence R. Whalen - Citigroup Inc, Research Division
Another question. Terence Whalen at Citigroup. Another question on handset, if I could. It seems like some of your progressions in terms of the components that you're doing are working from more basic building blocks to more sophisticated components. Can you just give us an understanding how that's tied into your reuse of IP? For example, on a handset product right now, how much reuse of the IP is used in the design process? And exactly how quickly are customers requesting product, what's your product spend time? How has that evolved to give you confidence in the growth projection in handset?
David B. Bell
Sure. I'll answer the last part first. As I mentioned just a few minutes ago, sometimes a customer can come along, give us a spec, and they want to see parts in something like 3 months’ time. So you've got a very short period of time to do the design, to do the validation, to get it into fab and get the parts out. So very, very rapid there. So as Andy pointed out, if you have to create much IP at all, you just can't do that. You can't do it. For 2 reasons. One is, that there just isn't the time to create that IP, that functional block. And then secondly, the risks associated with a brand-new untested piece of IP can be much higher than something that obviously comes out of a portfolio, has been in a product already. So when you look at some of the products that Andy's working on right now, very high percentage of the functional blocks are existing already. I would say in the range of like 80% to 100% of the IP blocks already exist. And the 20%, it's modifying something. It's not completely brand-new IP. Again, there's just no way you can keep pace in this market and reliably deliver working for silicon in something like 3 months, unless that's the time. And it's hard to underemphasize the value of our VIS25 process for that. That it's a perfect technology for what we're doing here in these PMICs. And against any other rivals in the industry, as Andy was talking about, kind of this all-in-one display part, we're the only guys who can do that. We're the only guys that have all the different elements, the gamma buffer, the level shifter, the power, the Dcom [ph] driver. All that stuff on one process in existing IP that we can put together. So like I say, it's hard to under or overestimate, I should say, the amount of value that having that IP brings to us even in competition with our biggest competitors.
Terence R. Whalen - Citigroup Inc, Research Division
Okay, terrific. And my follow up was, if I look at all of the 10 areas where you're expecting to grow, specifically for 2013, what are the 2 areas where you're most confident you'll generate sort of the lion's share of growth in 2013?
David B. Bell
Well, I'm not going to pick favorites. We already did that by picking our top 10. As you know, we've had a lot of programs going on. We're narrowing it down. It's the end of spring training here. We picked our team. Those are the top 10. What I will say is that some are going to have traction earlier than others. The handheld power like we talked about just a few minutes ago. That, I think, has the opportunity to generate substantial revenue in 2013 because it ramps so quickly. I think the Pico Projector that Susan talked about. I think Thunderbolt as that uptake comes along. Those are things that I think we could start seeing some nice growth in 2013. But then if you compare it to other things, like for instance automotive. Automotive is a great market. Very high-margin market, but it takes a long time from the time you begin designing a product, get design wins until you see substantial revenue. So I don't want to pick favorites, but there are clearly some that are likely to ramp earlier than others.
Jonathan A. Kennedy
And the summary sand chart answers that question pretty specifically. If we flip back to that, Terence, so you can see it. This is our best guess on the ramp and our expectations. Clearly, the things that happen sooner are a little bit certain, handheld, for example, things that have a ramp that starts in later years would be a little lesser. So you can see the Pico Projector, which I'm sorry, I'm just going to pick the top. The top is consumer, you can see it picking up and getting pretty wide early on. Take the active cables, for example, in the second layer of sand in the blue purple-y color, it doesn't get fatter until the 2014 timeframe. So you can kind of take this chart, put a straight edge to it, if you want to, but it will give an idea where we think things are going to grow and how fast they're going to grow.
David B. Bell
And I encourage all of you to kind of do your own sanity checking on this stuff, too. Take Thunderbolt, for instance. If you look at the computing numbers that I showed, I think by 2016, there's predicted to be something like 700 million total computing devices per year sold between notebooks, Ultrabooks and desktops, and that doesn't even include the handheld devices like tablets. Then you start just running these numbers. Okay, 700 million units per year, do you have on average one cable per device, what's our dollar content per cable? What's our likely market share? Run your own analysis. Do your own on fact checking on us. And I think you'll answer the question that I've been asked already several times today, which is, Dave, do you really think that 4 years from now, you can generate $700 million in additional incremental revenue by 2016? Absolutely. Absolutely, I believe that. And hopefully, you can prove that to yourselves as well.
I would like to ask if you could add some color to your $700 million incremental revenue estimate. In terms of how much of competitive response, conservatism or margin or even price erosion in certain areas that you built into this forecast?
David B. Bell
I would say that there's a good deal of conservatism in those numbers. Again, just take the Thunderbolt example again. Okay, if you kind of do the back of the envelope on that, the numbers you see represented there in the active cable band, what we're showing probably something like $100 million Susan in 2016? I can't see, Susan. There she is, way back there. About $100 million? So run your own back-of-the-envelope calculation. $700 million devices, may be one cable per device, $3 per cable, what kind of market you need to get to that number?
In terms of the competitive response, have you seen or heard other, any of your peers also targeting these markets and...
David B. Bell
Yes, in every one of these markets, we've got competitors. It's rare when we see a big growth opportunity that somebody is not in it. Now some of these areas though is a pretty rarefied field. Again, using the Thunderbolt example, you have to have really high performance signal processing capability at 10 gigabits per second. There aren't many companies that have that. But other areas, there's a lot more competitors. But again, we picked these areas, we picked these top 10 in places where we think we have what it takes to win. We don't want to spend our precious R&D resources that have impacted our EPS dramatically in recent years and pick areas where we're not confident we can win. And part of this process that we're going through right now is to reduce our OpEx, drive up our operating profit margin, but it's also deciding, it's also deciding that guys, these are the top 10 areas that we know, that are aligned with macro trends, that are areas where we believe we've got the technology to win and are big enough to drive our revenue and allow us to conservatively get to $700 million of incremental revenue.
In terms of your R&D, how you spend that, could you give us an idea of how looking forward, how much of that will be invested in developing new IPs versus putting together custom solutions?
David B. Bell
No, I can't do that. Obviously, when it comes to something like PMICs that we've talked about, a lot of that is leveraging IP that's been developed in other general-purpose products, things like that. But no, I can't give you that kind of breakdown. Obviously, it's a blend between reusing IP and generating brand-new IP though.
My last question for you is, what kind of road do you think acquisition will play in your growth going forward?
David B. Bell
Well, during the last 4 years, we've done 6 acquisitions. Some of those are contributing very nicely to our future growth. You've heard me mention some names. You've heard me mention Zilker Labs or digital power. You've heard us talk about Quellan, you've heard us talk about Techwell and so forth. Some of them have not performed as well as we would like. But right now, I think we've got a full plate of 10 top growth areas that we think we've got the talent and the resources to fully exploit those. So neither Jonathan nor I would be willing to raise our hand and say, we're absolutely never going to do another acquisition because we're always looking, I think that's healthy. Let's us know what's going on in the marketplace, and there could be something that would come along that is just a deal that we couldn't turn down. But I think on the other hand, it's fair to say that we've done this acquisition process to build out our portfolio, and I think it's fairly unlikely that you would see acquisitions in the near future. Got one way in the back over here.
So if I use some ruler analysis into the 2016 timeframe, looks like most of the drivers for your revenue growth is going to be in consumer applications where you're going to see a lot of price pressure going on time. So I guess, looking at sort of that compared to the gross margin plan of increasing it sort of 300 bps out in time, I mean, are you going to be dedicating R&D towards developing innovative products that allow you to maintain margin, while being able to grow in a consumer space? I mean, can you maybe sort of walk through some of the gross margin drivers that are going to allow you to grow in a consumer space that's traditionally been very price competitive?
David B. Bell
Yes. Well, let me start and maybe Jonathan can add some color, if he wants. But there's some rationale between our historical gross margin goal of 58%. Some people might say well, why isn't it 65% or 70%? Well, the reason is, and by the way, I spent many years at a company that just year-after-year, strive to drive gross margins up. I think the right place to be to maximize EPS, which is what we're really after is somewhere in the 58% range. Because you can counterbalance, you have a distribution, we've got some very high gross margin business like our Rad-Hard business, 90-percent plus, we're growing in there. Our automotive business will be higher-margin and our base horizontal industrial business, we continue to see growth with going forward, and that's above average. That allows us though with that average of 58% to take some sub-average margin business, things like consumer products, things like the PC business. But the other thing that I would add is as we become more selective about the use of our R&D, refusing to invest in products that are me-too where it's all about price competing in the marketplace and only choosing to invest in areas where we think we've got intellectual property and performance edge, that actually drives up the average margins in some of these historically low spaces like consumer and PC.
Jonathan A. Kennedy
Yes. A lot of these consumer markets are very fast. The handheld market that Andy talked about is more about customer delivery and IP performance. The market turns so quickly that ASP erosion isn't the same as say, in computing where it's very marginal incremental progression of IP. In the consumer space, it's you either win it and you get a nice solid margin or you don't win at all.
David B. Bell
Let me take a couple more questions, but we're all going to be around during lunch. Hopefully, you'll all join us with that, and we'd be happy to answer more questions. A couple more? Everybody wants lunch.
Okay, great. Well, let me thank all of you for spending your morning and part of your afternoon with us. We're pretty excited about this transition to a new phase within Intersil. From a transformation phase that we've been in during the last 4 years, into a high EPS growth phase. And there's several components to that. One of them that I think probably is the most interesting to many of you is the fact that we're introducing a new business model. We're planning some significant OpEx cuts in the very near future and going to reach at an operating model that will allow us to achieve profitability at a much lower revenue rate. That doesn't mean that our sights are set lower, but we're just going to achieve our profitability goals much faster than we otherwise would have.
You've also seen our top 10 growth drivers. We've gone through a process of selecting, of picking the best that we're making that are going to drive our growth. You're going to see some of those deliver some growth by the end of 2012, but you're going to see a whole lot more of those deliver strong growth, we're convinced in 2013. And I believe very confidently, deliver that $700 million in incremental revenue by 2016.
So with that, I'll let you all adjourn to lunch, and again, Jonathan, myself and Andy, the other ILT members here would be happy to answer your questions during lunch. And please check out some of the demos as well.
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