You should read the following discussion in conjunction with our unaudited condensed consolidated financial statements, including the notes thereto. Except for historical information, the discussions in this section contain forward-looking statements that involve risks and uncertainties. Actual results could differ materially from those discussed below.

Forward Looking Statements

This Quarterly Report on Form 10-Q contains statements relating to expected future results and business trends of Intersil Corporation ("Intersil") that are based upon our current estimates, expectations, assumptions and projections about our industry, as well as upon certain views and beliefs held by management, that are "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995, as amended. Forward-looking statements generally can be identified by words such as "anticipates," "believes," "estimates," "expects," "intends," "plans," "predicts," "projects," "will be," "will continue," "will likely result," and similar expressions. In addition, any statements that refer to expectations, projections, or other characterizations of future events or circumstances, including any underlying assumptions, are "forward-looking statements." These forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties, which could cause our actual results to differ materially from those reflected in the forward-looking statements. These factors include, but are not limited to:

• industry and global economic and market conditions, such as the cyclical nature of the semiconductor industry and the markets addressed by our and our customers' products;

• global economic weakness, including insufficient credit available for our customers to purchase our products;

• successful development of new products;

• the timing of new product introductions and new product performance and quality;

• manufacturing difficulties, such as the availability, cost and extent of utilization of manufacturing capacity and raw materials;

• the failure of our suppliers or outsource providers to perform their obligations in a manner consistent with our expectations;

• pricing pressures and other competitive factors, such as competitors' new products;

• changes in product mix;

• product obsolescence;

• legal challenges to our products and technology, such as intellectual property infringement and misappropriation claims;

• customer service;

• the need for additional capital;

• legislative, tax, accounting, or regulatory changes or changes in their interpretation;

• the ability to develop and implement new technologies and to obtain protection of the related intellectual property;

• the successful integration of acquisitions;

• demand for, and market acceptance of, new and existing products;

• the extent and timing that customers order and use our products and services in their production or business;

• competitors with significantly greater financial, technical, manufacturing and marketing resources;

• fluctuations in manufacturing yields;

• procurement shortage;

• transportation, communication, demand, information technology or supply disruptions based on factors outside our control such as natural disasters, wars, and terrorist activities;

• changes in import export regulations; and

• exchange rate fluctuations.

These "forward-looking statements" are made only as of the date hereof, and we undertake no obligation to update or revise the "forward-looking statements," whether as a result of new information, future events or otherwise.

Overview

We design, develop, manufacture and market high-performance analog, mixed-signal and power integrated circuits ("ICs"). We believe our product portfolio addresses some of the fastest growing applications within the Industrial & Infrastructure, Consumer, and Personal Computing markets.

Critical Accounting Policies

You should refer to the disclosures regarding critical accounting policies in Management's Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended December 30, 2011.

Results of Operations

Statement of operations data and percentage of revenue for the periods (% of
revenue):



                                                  Quarter ended                                 Two quarters ended
                                       June 29, 2012           July 1, 2011            June 29, 2012           July 1, 2011
Revenue                                         100.0 %                100.0 %                  100.0 %                100.0 %
Cost of revenue                                  45.5 %                 41.8 %                   45.5 %                 41.9 %

Gross profit                                     54.5 %                 58.2 %                   54.5 %                 58.1 %
Operating costs and expenses:
Research and development                         28.4 %                 22.9 %                   28.4 %                 23.9 %
Selling, general and
administrative                                   22.3 %                 17.3 %                   22.1 %                 17.5 %
Amortization of purchased
intangibles                                       4.4 %                  3.2 %                    4.5 %                  3.3 %
Restructuring and related costs                   5.1 %                   -                       3.1 %                  0.6 %
Acquisition-related costs                          -                      -                        -                     0.1 %

Operating (loss) income                          (5.7 )%                14.8 %                   (3.6 )%                12.7 %
Interest income                                   0.1 %                  0.3 %                    0.1 %                  0.4 %
Interest expense and fees                        (1.1 )%                (2.0 )%                  (1.2 )%                (2.1 )%
(Loss) gain on deferred
compensation investments, net                    (0.3 )%                  -                       0.1 %                   -
(Loss) income before income
taxes                                            (7.0 )%                13.1 %                   (4.6 )%                11.0 %

Income tax expense                                1.9 %                  2.7 %                    1.0 %                  2.2 %

Net (loss) income                                (8.9 )%                10.4 %                   (5.6 )%                 8.8 %

Note: Totals and percentages may not add or calculate precisely due to rounding. We have modified end market data below in the quarter(s) ended July 1, 2011 to conform to the presentation in the quarter(s) ended June 29, 2012, which we feel better reflects the different characteristics of our end markets. Historical data of revenues in each of these end markets is included with our Current Report on Form 8-K, furnished on April 25, 2012.

Revenue and Gross Profit

Revenue for the quarter ended June 29, 2012 decreased $46.1 million or 22.0% to $163.0 million from $209.1 million during the quarter ended July 1, 2011. The decrease in sales was broad-based in each of our end markets. Sales into the consumer market decreased 41.7% compared to the quarter ended July 1, 2011, while sales into the personal computing market decreased 23.1% and sales into the industrial and infrastructure market decreased 13.3%.

Revenues by end market were as follows ($ in millions):

                                                      Quarter ended
                                      June 29, 2012                    July 1, 2011
                                Revenue      % of Revenue       Revenue      % of Revenue
  Industrial & Infrastructure   $   95.8              58.8 %    $  110.5              52.8 %
  Personal Computing                40.0              24.6 %        52.1              24.9 %
  Consumer                          27.2              16.6 %        46.5              22.3 %

  Total                         $  163.0             100.0 %    $  209.1             100.0 %

In aggregate, a 20.8% decrease in unit shipments decreased net revenue from second quarter of 2011 levels by $43.5 million and average selling prices ("ASPs") decreased 1.6%, decreasing revenues by $2.6 million. Declining sales prices at the product level have occurred within the semiconductor industry for much of its existence. While individual products generally experience ASP declines over time, we endeavor to continually introduce new products which typically enter the market at prices higher than existing products. Fluctuations in ASPs are expected to continue into the future.

Revenue for the two quarters ended June 29, 2012 decreased $88.9 million or 21.8% to $319.0 million from $407.9 million during the two quarters ended July 1, 2011. The decrease in sales was broad-based in each of our end markets. Sales into the consumer market decreased 35.3% compared to the two quarters ended July 1, 2011, while sales into the personal computing market decreased 23.7% and sales into the industrial and infrastructure market decreased 15.4%.

Revenues by end market were as follows ($ in millions):

                                                    Two quarters ended
                                      June 29, 2012                    July 1, 2011
                                Revenue      % of Revenue       Revenue      % of Revenue
  Industrial & Infrastructure   $  182.7              57.3 %    $  215.9              52.9 %
  Personal Computing                79.4              24.9 %       104.1              25.5 %
  Consumer                          56.9              17.8 %        87.9              21.6 %

  Total                         $  319.0             100.0 %    $  407.9             100.0 %

In aggregate, a 21.0% decrease in unit shipments decreased net revenue from year-to-date 2011 levels by $85.7 million and ASP's decreased 1.0%, decreasing revenues by $3.2 million.

Geographically, year-to-date revenues were derived from the Asia/Pacific, North America and Europe regions as follows ($ in millions):

                                               Two quarters ended
                                 June 29, 2012                    July 1, 2011
                          Revenue       % of Revenue       Revenue       % of Revenue
       Asia/Pacific       $  249.3               78.1 %    $  315.0               77.2 %
       North America          47.2               14.8 %        58.5               14.3 %
       Europe and other       22.5                7.1 %        34.4                8.5 %

       Total              $  319.0                100 %    $  407.9                100 %

We anticipate that our revenue from Asia/Pacific region customers will continue to grow in percentage terms as that region leads in the manufacture of the finished goods in which our products are used. End market demand for those products is global and therefore dependent on aggregate global economic metrics and conditions such as personal incomes and business activity, and not necessarily on Asian and Pacific Rim regional economic factors.

We sell our products to customers in many countries including, in descending order by revenue dollars for our top ten countries, China (including Hong Kong), the United States, South Korea, Germany, Japan, Taiwan, Singapore, Thailand, Malaysia, and Mexico. Sales to customers in China (including Hong Kong) comprised approximately 55.7% of revenue, followed by the United States (14.0%) and South Korea (8.2%) during the two quarters ended June 29, 2012. Two distributors that support a wide range of customers around the world accounted for 14.7% and 13.7% of our revenues in the two quarters ended June 29, 2012. Two original design manufacturers accounted for 8.5% and 7.6% of our revenues for the two quarters ended June 29, 2012.

Cost of Revenue and Gross Profit

Cost of revenue consists primarily of purchased materials and services, labor, overhead and depreciation associated with manufacturing pertaining to products sold. During the quarter ended June 29, 2012, gross profit decreased $33.0 million or 27.1% to $88.8 million from $121.8 million during the quarter ended July 1, 2011. As a percentage of sales, gross margin was 54.5% during the quarter ended June 29, 2012 compared to 58.2% during the quarter ended July 1, 2011. The decrease in gross margin was primarily due to lower internal utilization and product sales mix changes at the product family level.

During the two quarters ended June 29, 2012, gross profit decreased $62.8 million or 26.5% to $174.0 million from $236.8 million during the two quarters ended July 1, 2011. As a percentage of sales, gross margin was 54.5% during the two quarters ended June 29, 2012 compared to 58.1% during the two quarters ended July 1, 2011. The decrease in gross margin was primarily due to lower internal utilization and product sales mix changes at the product family level.

Generally, our personal computing and consumer products have lower gross margins than our industrial and infrastructure products. We strive to improve gross margins from their present levels by emphasizing new high-margin products and cost saving opportunities in our manufacturing chain. However, recent declines in sales have affected our internal utilization and therefore our per unit cost, exerting significant downward pressure on margins.

Operating Costs and Expenses

Research and Development ("R&D")

R&D expenses consist primarily of salaries and expenses of employees engaged in product/process research, design and development activities, as well as related subcontracting activities, prototype development, cost of design tools and technology license agreement expenses.

R&D expenses decreased $1.6 million or 3.3% to $46.2 million during the quarter ended June 29, 2012 from $47.8 million during the quarter ended July 1, 2011. We reduced our R&D spending primarily through lower incentive compensation due to lower operating income and cost reduction initiatives.

R&D expenses decreased $6.9 million or 7.1% to $90.6 million during the two quarters ended June 29, 2012 from $97.5 million during the two quarters ended July 1, 2011. We reduced our R&D spending primarily through lower incentive compensation due to lower operating income and cost reduction initiatives.

Selling, General and Administrative ("SG&A")

SG&A expenses consist primarily of salaries and expenses of employees engaged in selling and marketing our products as well as the salaries and expenses required to perform our human resources, finance, information systems, legal, executive and other administrative functions.

SG&A costs increased by $0.1 million or 0.4% to $36.4 million during the quarter ended June 29, 2012 from $36.2 million during the quarter ended July 1, 2011. The increase was driven primarily by increased legal and other professional fees, offset by cost reduction initiatives and lower incentive compensation due to lower operating income.

SG&A costs decreased by $0.6 million or 0.9% to $70.6 million during the two quarters ended June 29, 2012 from $71.2 million during the two quarters ended July 1, 2011. The decrease was driven by decreased sales incentives, compensation expense and other incentive compensation offset by increased legal and other professional fees.

Amortization of Purchased Intangible Assets

Amortization of purchased intangible assets increased $0.5 million or 7.2% to $7.2 million in the quarter ended June 29, 2012 from $6.7 million in the quarter ended July 1, 2011. Amortization of purchased intangible assets increased $0.8 million or 6.1% to $14.4 million in the two quarters ended June 29, 2012 from $13.6 million in the two quarters ended July 1, 2011. The increase related to additional amortization on in-process research and development projects acquired from Techwell, Inc. and completed during the quarter ended March 30, 2012.

Restructuring

Restructuring costs were $8.3 million in the quarter ended June 29, 2012 and $0.1 million in the quarter ended July 1, 2011. Restructuring costs were $9.8 million in the two quarters ended June 29, 2012 and $2.4 million in the two quarters ended July 1, 2011. The restructurings were part of our ongoing efforts to optimize operations. It included a workforce reduction of approximately 11% and an ongoing reduction in annual operating expenses of approximately $40.0 million.

Other Income and Expenses

Interest Income

Interest income decreased to $0.1 million during the quarter ended June 29, 2012 from $0.7 million during the quarter ended July 1, 2011. Interest income decreased to $0.3 million during the two quarters ended June 29, 2012 from $1.5 million during the two quarters ended July 1, 2011. The decrease was due primarily to the sale of our remaining auction rate securities in the fourth quarter of 2011.

Interest Expense and Fees

Interest expense and fees decreased to $1.8 million during the quarter ended June 29, 2012 from $4.2 million during the quarter ended July 1, 2011. Interest expense decreased to $3.8 million during the two quarters ended June 29, 2012 from $8.7 million during the two quarters ended July 1, 2011. The decrease was due to the replacement of our previous long-term debt agreement with a new revolving loan facility with a lower interest rate and repayments of our debt.

(Loss) Gain on Deferred Compensation Investments, Net

We have a liability for a non-qualified deferred compensation plan. We maintain a portfolio of approximately $11.0 million in mutual fund investments and corporate owned life insurance under the plan. Changes in the fair value of the asset are recorded as a gain or loss on deferred compensation investments and changes in the fair value of the liability are recorded as a component of compensation expense. In general, the compensation expense or benefit is substantially offset by the gains and losses on the investment. During the quarter ended June 29, 2012, we recorded a loss of $0.5 million on deferred compensation investments and a decrease in compensation expense of $0.5 million. During the two quarters ended June 29, 2012, we recorded a gain on deferred compensation investments of $0.2 million and a $0.3 million increase in compensation expense.

Income Tax Expense

Income tax expense for the quarter ended June 29, 2012 was $3.1 million compared with $5.7 million for the quarter ended July 1, 2011. The quarter ended June 29, 2012 included $8.6 million of income tax benefit offset by an $11.7 million discrete tax charge related to a tax election on transfer pricing in connection with the resolution of the IRS audit of tax years 2005-2007. Excluding discrete items, the effective tax rate for the quarter ended June 29, 2012 was higher than the same quarter last year due to a greater portion of income in higher tax jurisdictions and the expiration of the research and development credit.

Income tax expense for the two quarters ended June 29, 2012 was $3.1 million compared with $8.8 million for the two quarters ended July 1, 2011. The effective tax rate for the two quarters ended June 29, 2012, excluding discrete items, was higher than the prior year due to a greater portion of income in higher tax jurisdictions and the expiration of the research and development credit.

In determining net income, we estimate and exercise judgment in the determination of tax expense and tax liabilities and in assessing the recoverability of deferred tax assets that arise from temporary differences between the tax and financial statement recognition of assets and liabilities.

In the ordinary course of business, the ultimate tax outcome of many transactions and calculations is uncertain, as the calculation of tax liabilities involves the application of complex tax laws in the United States and other jurisdictions. We recognize liabilities for additional taxes that may be due on tax audit issues based on an estimate of the ultimate resolution of those issues. Although we believe the estimates are reasonable, the final outcome may be different than amounts we estimate. Such determinations could have a material impact on the income tax provision, effective tax rate and operating results in the period they occur. In addition, the effective tax rate reflected in our forward-looking statements is based on current enacted tax law. Significant changes in enacted tax law could materially affect our estimates.

Backlog

Our sales are made pursuant to purchase orders that are generally booked up to six months in advance of delivery. Our standard terms and conditions of sale provide that these orders may not be cancelled or rescheduled thirty days prior to the most current customer request date ("CRD") for standard products and ninety days prior to the CRD for semi-custom and custom products. Backlog is influenced by several factors, including end market demand, pricing and customer order patterns in reaction to product lead times. Additionally, we believe backlog can decline faster than consumption rates in periods of weak end market demand since production lead times can be shorter. Conversely, we believe backlog can grow faster than consumption in periods of strong end market demand as production and delivery times increase and some customers may increase orders in excess of their current consumption to reduce their own risk of production disruptions.

Our six-month backlog was $127.4 million as of June 29, 2012 compared to $134.8 million as of December 30, 2011 and $174.8 million as of July 1, 2011. Although not always the case, we believe backlog can be an indicator of performance in the near future.

Business Outlook

In our second quarter 2012 earnings release, furnished as an exhibit to the Form 8-K we filed with the Securities and Exchange Commission ("SEC") on July 25, 2012, we announced anticipated revenues for the third quarter of 2012 to be in the range of $156 million to $163 million. Based on this outlook, we stated that we expect third quarter 2012 earnings per diluted share to be between $0.02 and $0.04.

Contractual Obligations and Off-Balance Sheet Arrangements

Our contractual obligations and off-balance sheet arrangements have not changed significantly from December 30, 2011. As of June 29, 2012, we had $24.4 million of open purchase orders for inventory from suppliers.

Liquidity and Capital Resources

Our capital requirements depend on a variety of factors, including but not limited to, the rate of increase or decrease in our existing business base; the success, timing and amount of investment required to bring new products to market; revenue growth or decline; and potential acquisitions. As of June 29, 2012, our total shareholders' equity was $1,046.2 million and we had $314.1 million in cash and cash equivalents. We had $2.0 million in short-term investments and $2.8 million in long-term investments, consisting of bank time deposits, as of June 29, 2012. In addition, as of June 29, 2012, we had $150.0 million in long-term debt outstanding (see Note 9 in the accompanying consolidated financial statements).

As of June 29, 2012, approximately $291.0 million of our cash and cash equivalents and short-term investments was held by our foreign subsidiaries. In connection with the settlement of the IRS audit for tax years 2005-2007, based on the agreed upon transfer pricing adjustments, approximately $162 million of cash in our foreign subsidiaries will be repatriated in our third quarter of 2012 without further taxation. The remaining funds would be subject to federal and state taxation at approximately 37.5% upon repatriation, net of any foreign tax credits that might be available. We currently do not intend nor foresee a need to repatriate any additional funds. As of June 29, 2012, all of our long-term investments were held domestically.

We expect existing domestic cash and cash equivalents and cash flows from operations to continue to be sufficient to fund our domestic operating activities and cash commitments for investing and financing activities, such as regular quarterly dividends, debt repayment schedules, and material capital expenditures, for at least the next 12 months and thereafter for the foreseeable future. In addition, we expect existing foreign cash and cash equivalents, short-term investments, and cash flows from operations to continue to be sufficient to fund our foreign operating activities and cash commitments for investing activities, such as material capital expenditures, for at least the next 12 months and thereafter for the foreseeable future.

Our primary sources and uses of cash during the two quarters ended June 29, 2012 and July 1, 2011 were as follows (in millions):