Friday, October 27, 2006

Calls of Note Part 2

Several firms are commenting on Intersil (NASDAQ:ISIL) after the co last night announced the immediate departure of President and COO Lou DiNardo.

- CIBC notes that given the high regard with which DiNardo is held both within the analog (HPA) industry and on Wall Street, they expect ISIL shares to see some softness today.

The firm is surprised by DiNardo's hasty departure as he was considered by many (including CIBC) to be current CEO Rich Beyer's heir apparent. ISIL continues to have a solid management bench and bright prospects, but, in their opinion, DiNardo will be missed.

As a core member of one of the industry's premier mgmt teams, DiNardo was, in firm's view, a key driver behind ISIL's strong fundamental performance over the past two years. He helped successfully expand ISIL's presence in the critical handset and notebook end markets, among others.

Despite the departure of his two top lieutenants over the past 12 months-- current SMTC CEO Mohan Maheswaran and now DiNardo--we expect CEO Beyer to push forward with his current (successful) game plan of taking market share while growing ISIL's served addressable market.

- Merrill Lynch notes the departure yesterday of President and Chief Operating Officer Lou DiNardo is both surprising and disappointing. Firm's checks following the announcement suggest that the departure was driven by a disagreement between Mr. DiNardo on one hand, and CEO Rich Beyer and the board of directors on the other, regarding Mr. DiNardo's operating management of Intersil since ascending to the COO job ten months ago. Mr. DiNardo has been an important and visible contributor to Intersil's success since joining the company in 2004.

The resulting challenges are several. First, Rich Beyer must step back into a day-to-day management roll, something that he'd ceded to Mr. DiNardo and claimed to be interested in moving away from. Picking up where Mr. DiNardo left off could be tough. Secondly, Mr. DiNardo is well regarded within the analog IC business, and minimizing the hit to morale within Intersil will be important.

In fairness, the firm believes Rich Beyer is the architect of Intersil as it looks now, and all of the big decisions - selling WiFi, buying Xicor - were his. ML thinks he's capable of meeting the challenge that he's created by dismissing Mr. DiNardo, and on that basis they maintain their positive recommendation on the stock. However, they can't deny that much of Intersil's recent operational excellence is attributable to the efforts of Lou DiNardo. Getting someone else into place with similar talent and energy is we believe now job 1 for Intersil's management.

Notablecalls: Expect to see weakness in ISIL. The stock was down 2% in after hrs trading and I suspect there will be more weakness today and in the next couple of days.

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