Business model of Intersil

Customer Segments

Intersil operates within the semiconductor industry, focusing primarily on the power management and high-performance analogue integrated circuit sector of the industry.

The Company’s customers predominantly comprise distributors, original equipment manufacturers and contract manufacturers operating in the following industries:

• Industrial and Infrastructure, including industrial manufacturers and communications and data centre network operators;
• Computing and Electronics, including producers of computing hardware, electronics products, and mobile devices; and
• Automotive and Aerospace, with the Company in particular experiencing growth in video and power applications targeted at the automotive market.

Intersil’s largest customer is distributor Avnet, which represented 20.7%, 18.4% and 17.0% of the Company’s annual revenue in 2015, 2014 and 2013 respectively. It also includes high-profile companies such as Samsung, Cisco, Huawei, Lenovo, Apple, and Microsoft, Google and Boeing among its customers.

Geographically, Intersil primarily targets markets across Asia, Europe and the US. The Company’s largest single market is China, which represented around 47.1% of its business in 2015, followed by the US, which represented 17.4%.

Value Propositions

Intersil provides value to its customers in the following ways:

• Its manufacturing efficiency, with the Company’s facilities and expertise allowing for efficient completion of the design, development, manufacturing and assembly processes;
• Its technology, with the Company using a range of proprietary technologies and intellectual properties in its development process;
• Its commitment to innovation, with the Company devoting a substantial portion of its revenue to research and development activities each year;
• The expertise of its personnel, with the Company committed to employing specialist staff across its business units; and
• Its brand reputation, with the Company being one of the most well-regarded companies operating in its industry, with the quality and reliability of its products demonstrated by its longstanding relationships with high-profile customers.

Channels

Intersil operates a website at www.intersil.com, through which customers are able to find information on the Company’s products and services. The Company also makes a number of its products available for purchase through its website, as well as providing links and contact details for third-party distributors.

Intersil primarily sells its products through its direct geographical sales force, which focuses largely on the Company’s major accounts. The Company’s direct sales force operates across the North America, Europe, Japan and Asia Pacific markets, with sales offices strategically located close to major original equipment manufacturers, or and contract manufacturers. Intersil’s technical applications organisation is also placed alongside the Company’s direct sales teams, with a view to retaining some focus on its applications business.

Intersil’s direct sales force is supported by a range of international customer service and logistics organisations, as well as a network of distributors, value- added resellers and manufacturers’ representatives.

Customer Relationships

A selection of Intersil’s products are available to customers on a self-service basis. Customers are able to browse products and make purchases through the Company’s website without interacting directly with members of Intersil’s sales team.

The majority of Intersil’s sales, however, are made through the Company’s direct sales force, with customers able to consult directly with sales representatives and receive bespoke design and production service. The Company aims to establish long-standing relationships with its customers, in many cases utilising multi-year contract agreements.

Intersil provides a wide range of online support resources, including training, tutorials and webinars, technical documentation, reliability reports and packaging information. Customers can also access personalised sales and technical support over the phone.

Customers are also able to interact directly with Intersil through its various social media accounts, including with Facebook, Twitter, LinkedIn, YouTube, as well as through China-focused networks WeChat and Sina Weibo.

Key Activities

Intersil is engaged in the design, development, manufacture and assembly of power management and precision analog integrated circuit products.

Its operations are largely divided into two market categories: industrial and infrastructure, and computing and consumer. It primarily provides products and applications to customers operating within the infrastructure, industrial, automotive, military, aerospace, computing, and consumer markets.

The Company’s power integrated circuit solutions cover battery management, processor power management and display power management, including power regulators, converters and controllers, as well as integrated power modules.

Its portfolio of precision analog component products includes amplifiers and buffers, proximity and light sensors, data converters, optoelectronics, video decoders and interface products. Intersil also produces radiation-hardened devices to the military and aerospace industries.

Key Partners

Intersil collaborates with a network of partner companies throughout the production process from design to packaging. These partners primarily include:

• Supplier Partners, comprising companies that provide resources, consumables and tools, and services during the production process;
• Manufacturing Partners, largely comprising foundry partners to which manufacturing processes can be outsourced and assembly partners;
• Packaging and Testing Partners, comprising independent subcontractors based primarily in Malaysia, Taiwan, China and the Philippines that perform packaging and testing services;
• Channel Partners, comprising distributors, resellers, and independent sales agents that help to extend Intersil’s own marketing and sales reach, primarily in jurisdictions where it has no direct presence; and
• Alliance Partners, with which the Company collaborates on joint venture projects and shares resources.

In recent years, Intersil has launched partnerships with Rutronik Elektronische Bauelemente for distribution across Europe, with RTG to design and develop custom integrated circuits, and with MicroVision to develop application specific integrated chipsets.

Key Resources

Intersil’s key resources are its technology and intellectual properties, its research, design and manufacturing facilities, its distribution and sales channels, its partnerships and alliances, and its personnel.

Intersil owns a number of rights in trademarks, trade secrets, and patents that are materially important to its business. The Company has a number of patents in place, with expiration dates ranging from 2016 to 2034.

Searches of records published by the US Patent and Trademark Office identified a number of patent applications filed in Intersil’s name, including applications entitled Current synthesizer correction’, ‘Injection locked phasing for a peak-valley multiphase regulator’ and ‘Wafer Level optoelectronic device packages and methods for making the same’.

Cost Structure

Intersil incurs costs in relation to the design and manufacture – including assembly and packaging – of its products, the storage and distribution of its products, the management of its partnerships, and the retention of its personnel – particularly in 445 research and development staff.

Intersil commits a substantial portion of its revenue to its ongoing research and development operations. In 2015 these costs amounted to $126.4 million, representing 24.2%of its total revenue for the year. The Company also accrues substantial general and administrative costs, covering the salaries and benefits of its employees and fees, such as rent and utilities, associated with its network of offices.

Revenue Streams

All of Intersil’s revenue is derived from the production and sale of unique and custom semiconductor products, principally power management and precision analog integrated circuits. The Company divides its product portfolio into two market categories:

• Industrial and Infrastructure, including revenue derived from primarily from products targeted at power, automotive, aerospace, and broad-line industrial applications; and
• Consumer and Computing, including revenue generated through the Company’s sale of products utilised in consumer electronics.

In 2015 Intersil generated $521.62 million in annual revenue, down on the $562.56 million recorded by the Company in 2014. Of its total annual revenue in 2015, the Company’s Industrial and Infrastructure business accounted for 65.6%, with its Computing and Consumer business accounting for the remaining 34.4%.