However, unlike prior cycles, the industrial and communications infrastructure market softened quickly, almost in concert with the drop of the computing and consumer markets. This unusual behavior contributed to the surprisingly rapid drop in the third quarter.
We reported third quarter revenues of $186.8 million, an 11% decrease from the second quarter, and a 15% decrease from the third quarter of 2010. The combination of seasonal shifts in product mix and lower manufacturing utilization resulted in our gross margin dropping by 120 basis points to 57%.
In reaction to the downturn, Intersil’s management team reacted swiftly to reduce our operating expenses by 7% compared to our third quarter guidance. This prompt response to the downturn significantly reduced the drop in our earnings, and I have every expectation that we will see further reductions in the coming quarter.
During the quarter, we refinanced our long term debt. This reduced our already low interest expense even further, which will improve EPS by a penny in future quarters. However, as Jonathan will detail, there were approximately $8.4 million in expenses associated with the early retirement of our prior debt, which will negatively impact our GAAP net income and EPS for the third quarter.As a result, we reported net income of $7.2 million, or $0.06 per diluted share. Our non-GAAP net income and EPS for the third quarter was $25.8 million or $0.20 per diluted share. We generated approximately $24.8 million in free cash flow during the third quarter, and as a result our board of directors has authorized a quarterly dividend of $0.12 per share of common stock. During last quarter’s conference call, I introduced a top 10 list of growth drivers that we expect will result in an estimated $700 million of additional annual revenue within five years. I’m not going to review this entire list every quarter, but you will see this list as a recurring theme in our strategy, and we will occasionally update you on our progress in those key product areas. The power of 10 is a simple but powerful concept, which has resonated with the investment community and helped focus our resources internally as well.