Bullish Technology Stock Forms Double Bottom; Will It Break Out?

The semiconductor industry has not performed well in 2012, with the broader index trading flat year-over-year. That said, there is hope for a brighter 2013.

According to the World Semiconductor Trade Statistics, produced along with the Semiconductor Industry Association, the market is set to advance just 0.4% in 2012 to $301 billion. (Source: Finnegan, M., “Semi industry to see flat growth this year, hopes pinned on 2013,” TechEye.net, June 6, 2012, last accessed December 6, 2012.)

The New Year could prove to be more prosperous for the semiconductor industry, as it is expected to grow by 7.2% in 2013 to $322 billion, and climb 4.4% in 2014, hitting $336 billion.

Intersil Corporation (NASDAQ/ISIL) is a leading provider of integrated circuits. Its products are used in industrial (automotive, medical imaging), consumer (GPS systems, tablet PCs), communications (satellite and switching equipment), and computing (peripheral devices and battery chargers) applications. The technology stock’s power management chips are widely used by Original Equipment Manufacturers such as Dell and IBM.

The company has a market cap of $933 million, $321.8 million in cash, $153.6 million in debt, and levered free cash flow of $88.2 million. The technology stock also provides an annual dividend payment of 6.8%.

On October 24, Intersil announced that third-quarter revenue slipped 7.1% over the second quarter to $151.4 million. Net income for the third quarter of 2012 was $2.0 million, or $0.02 per diluted share, compared with a net loss of $14.5 million, or $0.11 per share, in the second quarter of 2012.

“We anticipated weakness in the semiconductor market, and substantially reduced our operating expenses as we entered the third quarter,” said Dave Bell, President and CEO. “This restructuring helped our profitability in the third quarter; however, the surprisingly sharp decline in the personal computing market led to lower overall revenue.”

Chart courtesy of www.StockCharts.com

In early October, the technology stock’s share price dropped on preliminary third-quarter revenue. It rebounded on October 25 when the company announced that quarter-over-quarter income increased to $2.0 million, or $0.02 per diluted share, from a net loss of $14.5 million, or $0.11 per share, in the second quarter of 2012.

Since then, Intersil’s chart has formed a double-bottom. While the technology stock’s share price remains bullish, having recently crossed above its 50-day moving average, it will need to break through a key resistance level near $7.50 for a full-blown reversal to be confirmed.

While the technology stock expects fourth-quarter revenue growth to be soft, going forward, it believes several of its top 10 growth drivers will materially contribute to revenue in early 2013. The technology stock also expects some drivers to begin ramping up by the end of this year. Speculation aside, Intersil remains a solid penny stock with strong fundamentals, restructured operations, and an encouraging long-term outlook.