Vishay Intertechnology Q3 2024 Earnings Call Transcript

Quartr
Provided by Quartr
November 6, 2024

There are 5 speakers on the call.

Operator

Good day, and thank you for standing by. Welcome to the Vishay Intertechnology Q3 2024 Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. Call.

Operator

Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Peter Henrici. Please go ahead.

Speaker 1

Thank you, Felicia. Good morning, and welcome to Vishay Intertechnology's 3rd quarter 2024 earnings conference call. I am joined today by Joel Smekal, our President and Chief Executive Officer and by Dave McConnell, our Chief Financial Officer. This morning, we reported results for our Q3. A copy of our earnings release is available in the Investor Relations section of our website at ir.vishay.com.

Speaker 1

This call is being broadcast live over the web and can be accessed through our website. In addition, today's call is being recorded and will be available via replay on our website. During the call, we will be referring to a slide presentation, which we also posted at ir.vishay.com. You should be aware that in today's conference call, we will be making certain forward looking statements that discuss future events and performance. These statements are subject to risks and uncertainties that could cause actual results to differ from the forward looking statements.

Speaker 1

For a discussion of factors that could cause results to differ, please see today's press release and Vishay's Form 10 ks and Form 10 Q filing with the Securities and Exchange Commission. We are including information in our press release and on this conference call on various GAAP and non GAAP measures. We have included a full GAAP to non GAAP reconciliation in our press release as well as in the presentation posted on ir.fichet.com, which we believe you will find useful when comparing our GAAP and non GAAP results. We use non GAAP measures because we believe they provide useful information about the operating performance of our businesses and should be considered by investors in conjunction with GAAP measures. Now, I turn the call over to President and Chief Executive Officer, Joel Smicoff.

Speaker 2

Thank you, Peter. Good morning, everyone. Thank you for joining our Q3 2024 conference call. I'll start my remarks with a review of our revenue for the Q3 by end market, channel and region. Then Dave will take you through a review of the Q3 financial results and our guidance for the Q4.

Speaker 2

After that, I'll give you a progress report on the 2024 initiatives supporting our 5 year strategic plan, and then we'll be happy to answer any of your questions. For the Q3 this year, revenue has held fairly constant, reflecting a prolonged period of inventory destocking as the pace of consumption by industrial customers remains slow. Backlogs are pushed out and macroeconomic conditions in Europe worsen. Automotive customers continue to adjust their forecast to sluggish demand in Europe, while order rates appear to be under control in the Americas. Despite reported revenue of $735,400,000 for the 3rd quarter that was flat with the 2nd quarter, bookings for smart grid infrastructure, military and high voltage DC applications continue to improve and we saw increasing demand related to AI servers.

Speaker 2

While the electronics industry remains in a down cycle, we are making the necessary adjustments to manage costs. Under Vishay 3.0, we are preparing to participate more fully in the next industry upcycle and we are putting the foundation in place to capitalize on the long term demand of e mobility and sustainability. In previous down cycles, the company became unable to support customer demand and to scale because the focus was on conserving cash flow, which shelf plans to prepare for the next ups. The customers want more from Vishay, so we are taking a fresh new approach. Under Vishay 3.0, we are intelligently pressing forward with a sense of urgency, putting the customer first, working on our list of growth initiatives under our 5 year strategic plan to restore confidence and win back customers, to develop new customer relationships, expand capacity and our product portfolio to ensure we are ready to scale with our customers as demand returns, implementing our silicon carbide strategy and becoming a more business minded organization focused on driving profitability and enhancing returns on capital.

Speaker 2

Let's take a closer look at Q3 revenue related to the 2nd quarter, starting with a review of revenue by end market on Slide 3. Automotive revenue increased 4.3% versus the 2nd quarter, although OEM and Tier 1 customers in Europe and in the Americas continued to pull below their schedule agreements and EV demand weakened in the Americas and Europe. Government policy in China, however, is boosting demand for EVs and hybrids, which drove strong demand for our Opto products, particularly our rain sensors. Design activity remains focused on battery management, traction inverters and onboard chargers. Discussions around ADAS for all vehicles and leveraging AI chipsets for driver assist and autonomous applications are advancing and resulting in many new design starts.

Speaker 2

As for industrial end markets, revenue decreased $18,500,000 from the 2nd quarter, of which the Newport legacy products accounted for $8,500,000 of that. Distributors continued to adjust inventory in response to ongoing weak demand from industrial customers, more so in Europe. In addition, in Europe, we saw the normal seasonal holidays within the quarter. Also in Europe, government funding for EVs and consumer incentives for solar and heat pumps is uncertain for the foreseeable future. As a result, design activity has shifted to industrial automation along with smart grid infrastructure, renewable energy generation and energy storage.

Speaker 2

As evident from the large orders we are receiving, we see smart grid infrastructure is a key growth driver for Vishay. For this reason, we announced this morning that we are acquiring Birkelbach, a manufacturer of metallized technical films and a very important supplier to Vishay. We're acquiring this business to ensure supply of metallized film materials that is used in the high voltage, high power film capacitors for smart grid infrastructure projects. In Aerospace and Defense, revenue was flat versus the 2nd quarter and 20.2% higher than last year's Q3. Demand from OEMs in the Americas remained strong with the book to bill running over 1 for most products, supporting radar systems, munition and replenishment, smart soldier electronic gear and unmanned flight system.

Speaker 2

Demand for space programs is driving new opportunities for high reliability and specialty products such as custom magnetics. In Europe, commercial aerospace ongoing supply chain issues are there, caused which caused orders to be pushed out. Medical revenue declined 6.2%, but was 7.4% higher than the Q3 of 2023, primarily due to delay in orders from one of our larger inductor customers in the Americas. The medical design activity for remote patient monitoring equipment presents a significant upside for Vishay in the Americas to sell our entire product portfolio. We also continue to work on designs for implantable devices.

Speaker 2

Revenue from other segments including telecom, computing and consumer was up 3.2% quarter over quarter, but down 32% versus the Q3 last year. There were a lot of puts and takes this quarter, but what stands out is increasing demand for AI servers and server power in Asia. We're seeing a surge in spot orders related to AI servers from CMs who are coming directly to suppliers for quick delivery. They're not finding the part numbers in stock in the distributor inventory. Under Vishay 3.0, our ambition is to quickly fulfill these orders and support the quarters.

Speaker 2

AI server power, power conversion, power management of the AI chipset for laptops and notebooks. Storage networks continue to dominate design activity in the other segment category. We continue to design more of the Vishay portfolio to put it in place a greater percentage of components on the board and to gain with bill of materials as key chip makers are designing in the emerging AI market. Let's go to Slide 4. In terms of channel sales, as shown on Slide 4, you see that OEM and EMS revenue was essentially flat with the 2nd quarter.

Speaker 2

Distribution revenue decreased 1.2% quarter over quarter and 7.2% year over year reflecting the drag in Europe. While customers in the Americas and Asia are returning to normal order patterns, customers in Europe are tapping the brakes. I met with many new of these customers in September and they told me that uncertainties about future demand trends related to geopolitical developments is clouding end market demand. This becomes evident from our POS numbers for the quarter. Worldwide POS decreased 4.7%, weighed down by lower POS in Europe, again, somewhat seasonally impacted.

Speaker 2

Distribution inventory worldwide was essentially flat. Inventory inched up by 1 week to 27 weeks. Let's go to Slide 5. Turning to Slide 5, you can see that revenue in Europe declined 3.3%, reflecting the weakening macroeconomic environment and seasonality, which I've been mentioning. Revenue in the Americas down slightly on lower medical volume, while revenue in Asia increased 2.1% on a pickup in automotive volume along with the lift from AI.

Speaker 2

Before turning the call over to Dave, I'd like to acknowledge the contributions made by Vishay employees and their commitment to our business minded approach to increasing customer focus in everything we do. It's great to see new ideas bubbling up from the empowered employees to improve profitability and operational efficiencies as decision making is being pushed down into the organization. And it's also great to see greater collaboration, forward thinking and a willingness to take calculated risk more so than in the past. I very much appreciate the organization and how it's embracing the changes which are taking place as Vishay 3.0. These efforts keep us together on our path to achieving our 20 28 financial targets.

Speaker 2

I'll now pass the call over to Dave for a review of our financial results for Q3.

Speaker 3

Thank you, Joel. Good morning, everyone. Let's start our review of the Q3 results with the highlights on Slide 6. 3rd quarter revenues were $735,400,000 including $8,000,000 attributed to our Newport acquisition and within the range of our guidance. Revenues decreased 0.8% compared to the 2nd quarter, reflecting a 1.0% reduction in ASPs and a 0.8% reduction in volume.

Speaker 3

By reportable business segment, the $6,000,000 decrease in revenues was mainly attributable to an $8,000,000 decrease in MOSFETs, reflecting primarily legacy Newport volume, a $4,000,000 decrease in inductors and a $5,000,000 decrease in capacitors. These declines were partially offset by a $10,000,000 increase in our Opto business segment. Compared to the Q3 last year, revenues were down 13.9%, reflecting a volume decrease net of Newport of 10% and a 4.7% reduction in ASPs. Book to bill for the quarter was 0.88 comprised of 0.79 for semis and 0.97 for passage. Backlog decreased to 4.4 months compared to 4.6 months at the end of Q2.

Speaker 3

By product category, backlog for semis decreased to 3.8 months from 4.4 percent and for passives was at 5 months versus 4.9%. Moving to the next slide, presenting the income statement highlights. Gross profit was $150,900,000 resulting in a gross margin of 20.5 percent and included a negative impact from Newport of approximately 150 basis points. Compared to the 2nd quarter, gross margin was 150 basis points lower, primarily due to lower volume, lower average selling prices and increased depreciation expense. SG and A expenses were $128,500,000 in line with our guidance for the quarter, compared to $125,000,000 for the 2nd quarter, reflecting higher R and D expenses and higher stock compensation expense, which was partially offset by lower bonus accruals.

Speaker 3

Depreciation expense was $51,000,000 slightly under our guidance for the quarter, up from $49,000,000 in quarter 2 and reflects the additional equipment that has come online. During the quarter, we recorded restructuring charges of $40,600,000 designed to optimize the company's manufacturing footprint and streamline business decision making as we execute our Vishay 3.0 growth strategy. Inclusive of the restructuring charge, GAAP operating margin was a minus 2.5% compared to 5.1% in the 2nd quarter and 13.5% in the Q3 of 2023. Adjusted operating margin decreased to 3% in line with the decrease in gross margin and reflecting the increase in SG and A expenses that was included in our guidance. EBITDA for the quarter was $30,900,000 for an EBITDA margin of 4.2%.

Speaker 3

Adjusted EBITDA for the quarter was $71,500,000 for an EBITDA margin of 9.7%, down from 11.9% in the 2nd quarter. Our GAAP effective tax rate for the year to date period was approximately 36%. Due to the GAAP net loss for the quarter, the effective tax rate for the quarter was approximately 21%. Our normalized effective tax rate for the year to date period was approximately 31%, which yields an effective tax rate of approximately 32% for the quarter. GAAP loss per share was $0.14 compared to earnings of $0.17 per share in the Q2 and $0.47 per share for the Q3 of 2023.

Speaker 3

Adjusted EPS was $0.08 per share compared to $0.17 per share for the Q2 and $0.60 per share for the Q3 of 2023. Proceeding to Slide 8. For ease of reference, the presentation includes a table illustrating the revenue, gross margin and book to bill ratios for each of our reportable business segments. Of note, for the Q3, the results for Newport are reported substantially all in the MOSFETs business segment, weighing on that segment's gross margin approximately 700 basis points. Turning to Slide 9 and our cash conversion cycle metrics.

Speaker 3

Our DSO was 53 days, up from 51 days and our DPO was 32 days, up from 31 days. Inventory was slightly was up slightly to 687,000,000 dollars resulting in an inventory days outstanding of 106 days, up from 105 days in Q2. Total cash conversion cycle for the Q3 was 127 days. Continuing to Slide 10. You can see we generated $51,000,000 in operating cash for the 3rd quarter.

Speaker 3

Total CapEx for the quarter was $60,000,000 including $40,000,000 designated for capacity expansion projects. On a trailing 12 month basis, capital intensity was 10.7% compared to 9.7% for the same period last year. Due to the investments in capacity expansion projects, free cash flow for the quarter was a negative $9,000,000 compared to a negative $87,000,000 in the 2nd quarter, which included sizable tax payments. On a year to date basis, free cash flow was a negative $68,000,000 Stockholder returns for the Q3 amounted to $26,300,000 consisting of $13,600,000 for our quarterly dividend and $12,600,000 for our share repurchases. We repurchased 600,000 shares during the quarter at an average price of $21.87 per share.

Speaker 3

For 2024, we still expect to return at least $100,000,000 to stockholders. Cash and short term investments decreased to $657,000,000 at quarter end as we continue to deploy cash to fund our strategic plans. At the end of the quarter, we have approximately $25,000,000 of cash on hand in the U. S. As previously noted, we are required to fund cash dividends, share repurchases and principal and interest payments using our cash on hand in the U.

Speaker 3

S. And we are using our U. S. Based liquidity to fund our Newport expansion and other strategic investments. As a reminder, based on our planned investments and expected payments under our stockholder return policy, we expect to be free cash negative for the year and to draw on our revolver to fill the gap.

Speaker 3

The revolver also provides us with adequate liquidity to fund operations in the U. S. The remaining cash and short term investments are held in our subsidiaries around the world outside to repatriate accumulated earnings from these subsidiaries, we must pay foreign withholding taxes and we have accrued for an estimated tax liability based on our expected timing of future repatriations from certain countries, most significantly Israel and Germany. At the end of quarter 3, we have approximately $83,000,000 of cash in Israel and $110,000,000 of cash in Germany. Our strategic plan requires significant local liquidity for expansion projects in Germany.

Speaker 3

The remaining $439,000,000 of cash and short term investments are held in subsidiaries that are located in countries with restrictive regulations and high tax rates for repatriating cash. We're evaluating opportunities to deploy some of this cash for our expansion projects in Germany. We have not accrued taxes to repatriate those earnings because we have deemed them indefinitely reinvested. Okay, moving on to Slide 11. The restructuring programs we announced in the Q3 will result in a 6% reduction in our SGA workforce, the closure of 3 manufacturing facilities, which will reduce our manufacturing workforce by 2% and various other changes in manufacturing operations and production transfers.

Speaker 3

We recorded restructuring expenses of $40,600,000 during the quarter related to expected cash severance costs. When the programs are fully implemented by the end of 2026, we expect to realize annual cost savings of $23,000,000 including $12,000,000 of SG and A expense. We expect to realize immediate annualized cost savings of approximately $9,000,000 including $2,000,000 in the 4th quarter. Cash payments related to the restructuring program are estimated to be $24,000,000 by the end of 2025 with the balance due in 2026. Turning to Slide 12 for our guidance.

Speaker 3

For the Q4 of 2024, revenues are expected to be $720,000,000 plus or minus 20,000,000 dollars Gross margin is expected to be in the range of 20.0 percent plus or minus 50 basis points. Newport is expected to have an approximately 175 to 200 basis points drag on the gross margin in quarter 4. Depreciation expense is expected to be approximately $53,000,000 for the Q4 $200,000,000 for the full year. SG and A expenses are expected to be $126,000,000 plus or minus $2,000,000 for the quarter or $507,000,000 for the full year. Included in full year SG and A guidance is the addition of approximately $15,000,000 related to Newport, which is offset by the favorable benefit of our restructuring programs and our continued cost containment focus.

Speaker 3

For 2024, we expect a normalized effective tax rate of approximately 31%. I'll now turn the call back to Joel.

Speaker 2

All right. Thank you, Dave. Please turn to Slide 13. I mentioned earlier that even though the industry is contending with an extended down cycle, at Vishay, we are pressing forward with our ambitious 5 year strategic plan and remain committed to our 2028 financial goals, including spending $2,600,000,000 in CapEx between 2023 2028. For the year 2024, we still plan to invest between $360,000,000 $390,000,000 in CapEx.

Speaker 2

As a reminder and displayed on this slide, we are pulling 8 growth levers to meet our commitments to scale capacity for our customers, accelerate revenue growth and drive greater returns through the expansion of our markets and our product portfolio. We are ready for the next upcycle to support the megatrends and sustainability. Let's turn to Slide 13

Speaker 1

for our

Speaker 2

progress on these levers. As a reminder, in 2024, we are focusing primarily on expanding capacity both internally and externally and on innovation. Starting with semiconductor capacity expansion projects. At Newport, we are on target to complete the transfers of 3 silicon MOSFET structures now in Q4 and another one in the Q1 of 2025. We remain on schedule to begin production of the industrial technologies in the Q1 of 2025 and to complete the component qualifications of automotive grade components in the Q2 of 2025.

Speaker 2

At SK Key Foundry, our partner in Korea, we are on track to qualify 7 product families by the end of the Q1 of 2025, 3 of which are automotive MOSFETs and 4 are commercial MOSFETs. We currently have engineering samples available of 4 product families and plan to have the other 3 available in early 2025. Through this partnership, we will be able to increase annualized capacity for MOSFETs by 12% in 2025 compared to 2024. In Taipei, Taiwan, we have internally qualified commercial and automotive diodes and are now shipping some volumes of commercial diodes. We expect to increase annualized capacity by 4.7 percent in 2024 and to expand capacity of constrained lines by 25% to 40% depending on the product type.

Speaker 2

Now for passive components. At La Laguna Mexico, we remain on track to complete the automotive qualifications for inductors before the end of the year and continue to expect annualized capacity to increase by approximately 15% in 2024. During the quarter, we've received government approval to start production of our Amatherm product line and expect 1st shipments of sensor products in this quarter. The AMOTHERM line includes products that support inrush current limiting and temperature sensing applications. At our Mexico facility in Juarez, we're shipping commercially qualified current sense resistors and some automotive products.

Speaker 2

Our subcontractor initiative going extremely well as business leaders within the organization embrace the Vishay 3.0 business minded approach to drive profitability. We're using subcontractors to increase our capacity of lower margin commodity products and to add products to our portfolio to best serve customer demand. We added 3 subcontractors during the Q3, one for diodes, one for resistors and one for inductors. And we added another 6 17 part numbers to our portfolio, bringing the year to date total to nearly 9,000 part number additions. In 2024, we are meeting the year to date goals to set for the use of external capacity on our path to achieving our 20 28 financial targets.

Speaker 2

For our goal of generating more than 4% revenue from out sourced passives, we are at 4.2%. We have met our goal of utilizing outsource wafer fabs at 33% of semiconductor production. Finally, we set a goal of utilizing outside assembly for more than 20% of our semiconductor production and on a year to date basis we have also met that goal. As for innovation and our silicon carbide strategy, our plans to commercialize the 1200 volt planner technology in 2024 is advancing well. We released 2 products in the 3rd quarter and plan to release 7 more products in the 4th quarter.

Speaker 2

We made substantial progress with our plans to commercialize our 1200 volt trench technology, the 1700 volt planner and the 6 50 volt planner during the quarter. We now have first engineering samples at customers for test. Our plan is to release the 1200 volt trench MOSFET in the Q1 of 2025, the 1700 volt planner MOSFET in the Q2 of 2025 and the 6 50 volt planer MOSFET in the Q3 of 2025. These silicon carbide MOSFET components support traction inverter projects and onboard charging, which open doors for us with the automotive OEMs. We continue to hold technical meetings with automotive OEM customers about their silicon carbide roadmaps.

Speaker 2

We have also started to receive silicon carbide equipment at our Newport facility and are on schedule to meet our production plan in early 2026. Finally, at Elektronika this year, we will release 9 reference designs, which showcase Vishay content on greater than 80% of the components on the board. For automotive, there is a high voltage intelligent battery shut sensor, an 800 volt 22 kilowatt bidirectional onboard charger, an 800 volt 48 volt DC to DC converter, a power distribution unit with Vishay silicon carbide on it. In other market segments like industrial and telecom customers, will have a reference design for auxiliary power slide converter for solar, which uses our 1200 volt and 1700 volt silicon carbide and a Vishay transformer. A 3.2 kilowatt DC to AC inverter featuring our Gen 5 silicon MOSFETs, a 1.2 kilowatt DC to DC converter for telecom.

Speaker 2

This is a 72 volt, 48 volt, 12 volt DC to DC converter. Also an energy harvester, which is using our super capacitors and our photo diodes. And finally, a design for AI, a multi phase power board that incorporates smart stage power ICs, vertical mount inductors and polymer tantalum capacitors. These designs are examples of how Vishay can support a customer's total application using reference designs as solution selling. We are making progress on these 2024 specific initiatives, but we're also executing dozens of other initiatives behind the scenes to shape the organization towards supporting Vishay 3.0, enabling the organization to outperform historical results in the next industry upcycle and putting us on firm footing to execute our strategic plan and achieve our 20 28 financial targets.

Speaker 2

We are broadening our portfolio to participate in markets we previously did not serve and to increase our share of our customer bill of materials supported by the incremental capacity that has landed over the past 2 years. With our distributors, we have stepped up engagement to meet their needs and position Vishay to win an increased share of their turns business. Since this program began, we have added nearly 28,000 additional SKUs to our distributors. We've added products to our portfolio through acquisitions like Amatherm, creating new business opportunities for inrush current and temperature sensing in automotive and industrial markets. We continue to add products through our partnerships with subcontractors and resellers.

Speaker 2

We are positioning Vishay to be a supplier with even a broader product portfolio. We're leveraging our broadening portfolio through our intense focus on customer engagements. In medical markets, for example, many customers are using Vishay for only one product. Our medical leader now is increasing our alignment with customers and may not which may not have viewed Vishay as a strategic supplier, discovering opportunities for us to supply even more products of our portfolio. We're increasing our field engineering resources that engage customers about their technology and product roadmaps.

Speaker 2

We're creating design opportunities that increase our share of the customer bill of materials, and we're ensuring that we're ready to meet their future demands. As a result, we're positioning Vishay to participate even greater in the emerging AI market, along with other next generation demand drivers. While we are intensifying customer engagement, we are also re staffing about 1 third of our customer facing position and adding experienced talent to ensure the organization is driving in the same direction toward our strategic and financial goals. In terms of enhancing operational efficiency, we're optimizing our manufacturing footprint with our decision to close 3 manufacturing facilities, which Dave mentioned. 1 is in the United States, 1 is in Germany and 1 is in China.

Speaker 2

Cementing Vishay 3.0 through the execution of these initiatives is progressing according to the timeline we outlined last April at the Investor Day. Although we're still in the early innings of implementing our strategic plan, customers, partners and employees already recognize 3.0 is becoming a vastly different organization. The feedback we hear from our stakeholders aligns with our conviction that we are on the right path to assure customers reliable supplier, working with them to meet their needs over time and to enhance our financial profile. We are moving forward with determination and we are confident in our ability to drive faster revenue growth, improve profitability and expand return on invested capital. I look forward to reviewing our 2024 progress on our Q4 call next February and sharing with you our goals for 2025 as we continue to execute our strategic plan.

Speaker 2

Felicia, let's take the first question.

Operator

Thank you. At this time, we will conduct the question and answer session. The first question comes from the line of Ruplu Bhattacharya of Bank of America. Ruplu, please go ahead.

Speaker 4

Hi. Thank you for taking my questions. Joel, I wanted to start by asking you how do you see the inventory of Vishay products at distribution? What innings are we in terms of your outreach to distribution and expanding the line card of Vishay products at distribution? And when do you think when do you expect distribution to start pulling product and growing inventory again?

Speaker 2

Hi, Ruplu. Thanks for the question. The inventory distribution is nearing a normalized position for passives. I think we're very close on passives. The semiconductors in the channel overall is going to take a little more time.

Speaker 2

It's not necessarily the over inventory of Vishay. It's the over inventory of our competitors who have stuffed some of the distributors' shelves. The Asia inventory, we're running at about 18 weeks. The Europe inventory, we're at 22 weeks. The Americas is longer.

Speaker 2

It's in the low 50 week range, but part of that is catalog distribution. So we see that we're positioning this inventory. I mentioned we're at 27 weeks. It's because of those additional SKUs that I talked about. We're broadening our portfolio.

Speaker 2

So the inventory dollar looks larger, but it's covering more part numbers. An interesting comment that's happening in the environment now, Ruplu, is customer visibility is quite low and we're seeing orders in Asia where 50% to 60% of the orders are for quick delivery. And the Centimeters is not finding the product in stock at the distributor. So we're seeing different partners come into play. So I think overall to kind of sum it up, normalization of passives is in the moments we're in now in this quarter and semiconductors will be into Q1.

Speaker 4

Okay. Thanks for all the details there. Let me ask you another question. As we look into 2025, what areas of growth do you see for Vishay? Meaning, which product lines do you think grow the fastest?

Speaker 4

Which product lines grow slower? And how should we think about the regional mix of revenues over the next few quarters?

Speaker 2

I've shared on the past two quarterly calls that we're now seeing the smart grid infrastructure programs accelerating. We've received additional large orders to support programs in Saudi Arabia. We mentioned in the last call about smart grid for Europe, and we've talked previously about China. So the smart grid infrastructure is now moving at a faster pace and we're expanding. This is the large ESTA capacitor to mention that product line.

Speaker 2

There's also other resistors that are involved in these applications. So the industrial grid is good. That's positive. AI, we're seeing these opportunities in AI. We have reference design position on chipsets that are coming from the large microprocessor design companies.

Speaker 2

We're following that into Asia. It can be AI for servers. It can also be AI for automotive. We're seeing that pickup. And that covers MOSFETs, that covers power inductors, current sense resistors, polymer tantalum.

Speaker 2

So there's quite a few Vishay products that are designed in. Also one of our ICs. So we are following that. Naturally, there's multiple competitors on the design, but we're fighting to gain our share. Military, for sure, aerospace, military defense, the book to bill stays positive.

Speaker 2

We continue to see orders for replenishment. We also see orders for new military programs. That will be positive in 2025. Space, space exploration, space programs with low earth orbit satellites continues to show positive signs for us. We like high technology products in those environments.

Speaker 2

Automotive, when we look at automotive, we're now in the negotiation season for 2025, negotiating the contract. The LOI quantities we see for 2025 are increasing over 2024. So that's a positive and that covers many of the Vishay divisions. Those are the positives, Ruplu, going into 2025.

Speaker 4

Okay. Okay, great. Thanks for all the details there. Let me ask you one quick question and then I'll have one for Dave as well. Can you talk about the pricing environment and looking at Slide 17 where you have the mix of commodity products versus custom products, Do you think that mix shifts as we go into next year and the year beyond?

Speaker 4

Do you think that the mix of commodity products can decline over time based on your strategic focus on changing the mix and adding different product categories. So if you can just talk about the current pricing environment, do you see any opportunity to raise prices or lower prices? And how do you see the mix of products trending?

Speaker 2

The current pricing environment is consistent with what we spoke about in the last call or 2. There is spot opportunities out there where there's higher volume where it requires us to be a little more aggressive on pricing. So we take those opportunities to win that share. We're in the quarterly negotiation season now for our large strategic accounts. Pricing in that is consistent with what we've seen in past negotiations, significantly different from prior years as far as ASP down for productivity in exchange for higher volume.

Speaker 2

So nothing dramatic there. Regarding the product mix, by adding these subcontractors, we're expanding our commodity portfolio. So I want to be clear that we're going to see growth in commodities as well as in the specialty products. It's important that we are viewed as a full service supplier with all of the products. So I wouldn't say you're going to see commodities go down.

Speaker 2

I think you're going to see both of these increase as the overall revenue increases in Boucher.

Speaker 4

Okay. Okay. Thanks for the details there. Dave, can I ask you one question on priorities for use of cash? As you think over the next 12 months, how would you prioritize acquisitions versus maybe a dividend increase versus more buybacks versus doing anything with the capital structure?

Speaker 4

So just if you can give us your thoughts on the best use of cash?

Speaker 1

Thank you so much.

Speaker 3

Sure. I was expecting that question from you, Ruplu. So yes, no, seriously so we've done several small acquisitions in the last year and Newport, right? We continue to return $100,000,000 to our shareholders and we're committed to that already. This year we'll reach that target easily this year.

Speaker 3

So I think the important focus for us at the moment is the strategic plan and making sure we meet the objectives we set for the strategic plan. And to do that, we're going to need capital. The Newport as I in my speech, as I said, Newport is funded mostly from the U. S. So we'll be borrowing to do that.

Speaker 3

So I don't think we want to jeopardize the 5 year plan, the strategic plan. So we're going to stick that being the main focus.

Speaker 1

Okay.

Speaker 4

Thank you for all the details. Appreciate it.

Speaker 2

Thank you,

Operator

Okay. It looks like I am showing no further questions at this time. I would now like to turn it back over to management for closing remarks.

Speaker 2

All right. Felicia, thank you very much. Thank you again for attending our Q3 earnings call. We are very excited about what we are doing in Vishay to set Vishay on a new course for growth. And as you've seen in the statements today, we are accomplishing the initiatives that we put forward.

Speaker 2

So thank you again and we'll see you on the next earnings call in 3 months.

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Key Takeaways

  • Third-quarter revenue was $735.4 million, flat vs. Q2 amid industrial destocking, with automotive up 4.3% while Europe weakened, and pockets of strength in AI servers, smart grid, and defense bookings.
  • Gross profit margin fell to 20.5%, GAAP operating margin was −2.5% (including $40.6 million of restructuring charges), adjusted operating margin was 3%, and Q4 revenue is guided at $720 million ± $20 million with a ~20% gross margin.
  • Under the Vishay 3.0 strategic plan, the company is investing $360–390 million in 2024 CapEx (toward $2.6 billion by 2028), expanding semiconductor and passive capacity via acquisitions (e.g., Birkelbach), partnerships, and subcontractors.
  • A restructuring program closing three manufacturing sites and reducing headcount (6% SG&A, 2% production) is expected to generate $23 million in annualized cost savings by end of 2026.
  • Management is focused on long-term growth in e-mobility, sustainability, AI, smart grid infrastructure, and aerospace/defense through new SiC product launches, over 28,000 distributor SKU additions, and intensified customer engagement.
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Earnings Conference Call
Vishay Intertechnology Q3 2024
00:00 / 00:00