Vishay Intertechnology Q4 2024 Earnings Call Transcript

Quartr
Provided by Quartr
February 5, 2025

Key Takeaways

  • Positive Sentiment: Fourth quarter book-to-bill ratio exceeded 1.0 for the first time in nine quarters, signaling end-customer and distributor inventory normalization.
  • Negative Sentiment: Q4 revenue declined 2.8% sequentially to $715 million, driven by a 1.6% volume drop, a 0.6% ASP reduction and a 0.6% foreign-currency headwind.
  • Neutral Sentiment: Gross margin was 19.9%, including a ~190 basis-point drag from legacy Newport operations, with management targeting margin neutrality by year-end.
  • Positive Sentiment: Under Vishay 3.0, the company has achieved a 23% increase in capacity since 2023 and advanced key silicon carbide and MOSFET production milestones.
  • Neutral Sentiment: Q1 2025 guidance forecasts $710 million ± $20 million in revenue, ~19% gross margin, $300–350 million in CapEx and continued negative free cash flow alongside its dividend policy.
AI Generated. May Contain Errors.
Earnings Conference Call
Vishay Intertechnology Q4 2024
00:00 / 00:00

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Operator

Hello, and welcome to the Shea Intertechnology Q4 twenty twenty four 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. To ask the question during the session, you will need to press 11 on your telephone. You would then hear automated message advising your hand is raised.

Operator

To withdraw your question, please press 11 again. I would now like to turn the call over to Mr. Peter Hirenzi, Investor Relations. You may begin.

Peter Henrici
Peter Henrici
Executive VP of Corporate Development & Corporate Secretary at Vishay Intertechnology

Thank you, Towanda. Good morning, and welcome to Vishay Intertechnologies' fourth quarter and year twenty twenty four earnings conference call. Joel Smekal, our President and Chief Executive Officer and Dave McConnell, our Chief Financial Officer, will join me today. This morning, we reported results for our fourth quarter and year twenty twenty four. A copy of our earnings release is available in the Investor Relations section of our website at ir.nichai.com.

Peter Henrici
Peter Henrici
Executive VP of Corporate Development & Corporate Secretary at Vishay Intertechnology

This call is 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. We will be referring to a slide presentation during the call, which we also posted at ir.vichae.com. You should be aware that in today's conference call, we will make forward looking statements discussing future events and performance. These statements are subject to risks and uncertainties that could cause actual results to differ from the forward looking statements.

Peter Henrici
Peter Henrici
Executive VP of Corporate Development & Corporate Secretary at Vishay Intertechnology

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 on various GAAP and non GAAP measures in our press release and on this conference call. We have included a full GAAP and non GAAP reconciliation in our press release and in the presentation posted on irviche.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 Smekal.

Joel Smejkal
Joel Smejkal
President & CEO at Vishay Intertechnology

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

Joel Smejkal
Joel Smejkal
President & CEO at Vishay Intertechnology

After that, I'll give you a summary of our actions during 2024 to implement Vishay three point zero and the key initiatives we plan to focus on in 2025 as we continue to execute our five year strategic plan and then after we'll be happy to answer any of your questions. Revenue for the fourth quarter was down slightly versus Q3 at $714,700,000 for a full year revenue of $2,900,000,000 that was below 2023. As we've talked about all year, the industry has endured a prolonged period of inventory digestion by customers worldwide, compounded by weak macroeconomic conditions in Europe. But after nine straight quarters of inventory consumption, the longest inventory correction cycle we've seen, inventory levels at the end customers and in the distribution channel appear to be normalizing, particularly for semiconductors serving automotive and industrial end markets in Asia and The Americas. As a result, book to bill at quarter end was 1.01 compared to 0.88 in Q3 with most of the improvement coming from semiconductors which reported a book to bill of near one versus 0.79 in Q3 and a passive book to bill that moved into positive territory at 1.03 versus 0.97 last quarter.

Joel Smejkal
Joel Smejkal
President & CEO at Vishay Intertechnology

We're watching book to bill data closely in Q1, especially now coming out of the Chinese New Year holiday to see how this trend continues. Bookings continued to improve particularly for products related to smart grid infrastructure project, AI server power and military defense. Even though revenue was more or less in a holding pattern most of the year, at Vishay, we have not been standing still. We have been pressing ahead and building momentum. The organization has a shared sense of purpose and commitment to make Vishay three point zero a success, preparing to take full advantage of the megatrends of e mobility and sustainability, Setting the foundation to transform everyone's thinking to be business minded is positioning us to accelerate revenue, improving profitability and enhancing returns.

Joel Smejkal
Joel Smejkal
President & CEO at Vishay Intertechnology

These are top priorities across Vishay. As employees across the globe have adopted a customer first and a business minded approach in everything we do, a cultural shift has been taking hold within the company. There's a different vibe now as employees collaborate, exchange ideas, cooperate and make decisions to improve profitability and everyone is looking ahead to seeing the initiatives they are working on this year pay off in the next industry upturn. I want to express my gratitude to the Boucher employees for their willingness to embrace continued change this year and for working together to achieve our five year strategic plan and financial goals. Let's now take a closer look at the fourth quarter revenue relative to the third quarter, starting with the review of revenue by end markets on Slide three.

Joel Smejkal
Joel Smejkal
President & CEO at Vishay Intertechnology

Automotive revenue decreased 6% versus the third quarter. Most customers hold below their schedule agreements, which was also at lower rates than the third quarter. While in Europe, production volume decreased along with lower forecast later in the quarter. At year end, due to the holidays, some automotive plant shutdowns push their scheduled demand out into the first half of twenty twenty five. New programs however using AI chipsets for driver assist and autonomous driving programs were started with customers during the quarter.

Joel Smejkal
Joel Smejkal
President & CEO at Vishay Intertechnology

In The Americas Automotive, customers pulled at normal rates through the first eleven weeks of the quarter on strong demand. In the last two weeks of the quarter, poles were very light. In China Automotive, demand came from EV production and growing electronic content. Global and China automotive Tier one suppliers continue to buy and assemble using Vishay products for China automotive OEMs. Each product division works to design in and sell technology differentiated products to China Automotive.

Joel Smejkal
Joel Smejkal
President & CEO at Vishay Intertechnology

We completed the contract negotiations with large OEMs during the quarter, which resulted in a typical ASV decline in the low to mid single digits along with volume and share gains. Renewed schedule agreements show improving demand for the first half of twenty twenty five, but still limited visibility in the second half of the year. Design activity around EVs continued during the fourth quarter even though there is an acceleration to design towards hybrid powertrain. Design activity is focused on high performance computing, safety, autonomous driving, infotainment, smart cockpit applications and in cabin monitoring. Revenue from industrial end markets decreased $5,000,000 or 2% for the quarter.

Joel Smejkal
Joel Smejkal
President & CEO at Vishay Intertechnology

Order intake for smart grid infrastructure projects continues to be quite positive during the quarter. We won another China program during the quarter and order intake was also strong for grid management products, power supplies, power tools and industrial inverters. Customers in The Americas and Asia continued to consume semiconductor inventory throughout the quarter improving the balance between inventories and lead times. Customers in Europe on the other hand continue to contend with weak business conditions impaired by seasonality and high component inventory which is planned for Q1 twenty twenty five consumption. New design activity in industrial was focused on automation including connectivity, robots, agriculture, remote monitoring and HVDC for smart grid infrastructure as well as renewables and power supplies.

Joel Smejkal
Joel Smejkal
President & CEO at Vishay Intertechnology

In Aerospace Defense, with order flow similar to prior quarters this year, revenue was slightly below the third quarter. Distributors continue to place orders at a booking rate above one to support U. S. Military demand as we increased our backlog of orders also related to low earth orbit satellite program. In Europe, revenue was flattish for this segment on normal year end seasonality, while commercial aerospace demand faces some supply chain challenges with mechanical products.

Joel Smejkal
Joel Smejkal
President & CEO at Vishay Intertechnology

Our Vishay products are in the queue once the mechanical supply chain issue is improved. We are preferred supplier and continue designing work on new programs for all U. S. Department of Defense OEMs. Some projects include munition replenishment, missile design programs, hypersonic ballistic tracking space sensors, next generation interceptors and commercial and military low earth orbit satellites.

Joel Smejkal
Joel Smejkal
President & CEO at Vishay Intertechnology

We have multiple products supporting this design activity in the defense and space program. As a reminder, Vishay's passives have the broadest military established reliability certification. We sell the medical end markets mostly in The Americas. This quarter medical revenue was flat with the third quarter with strong demand for some customers based on forecast in 2025. We did have softer orders from one large customer for inductors however.

Joel Smejkal
Joel Smejkal
President & CEO at Vishay Intertechnology

Design activity for patient monitoring, surgical assist robots and glucose monitoring continues to create new business opportunities for Vishay to sell our entire portfolio of products. Implantable devices continues to offer us high dollar content opportunity. Revenue from the other market segments including computing, consumer and telecom end markets was up 3% quarter over quarter with strong order intake in Asia related to heightened demand for AI servers and server power projects. We are designing in and supplying a wide variety of products to AI, which supports the unique position of Vishay. These products are MOSFETs, polymer tantalum capacitors, resistors, voltage suppressors, diodes and inductors.

Joel Smejkal
Joel Smejkal
President & CEO at Vishay Intertechnology

Also for IC products, we're designing in eFuses, driver MOS and PowerStage. This list further demonstrates the breadth of our portfolio which populates a high percentage of components on a board in power application. AI at this point remains a quick turns business. We see unscheduled orders from CMs looking for quick delivery to support AI power management modules. Spot orders are running around 60% of total orders in Asia, still low visibility.

Joel Smejkal
Joel Smejkal
President & CEO at Vishay Intertechnology

Design activity stayed focused on AI server power, power conversion and power management of the AI chipsets along with notebooks and designs aimed at companies who integrate AI chipsets into their program. Turning to Slide four, which displays revenue mix by channel, you can see that the distribution revenue declined versus the third quarter, while OEM and EMS revenue increased slightly. This is an encouraging sign around consumption. Revenue from OEM and EMS customers grew for the first time since the fourth quarter of twenty twenty three. Automotive and industrial OEMs are normalizing inventory levels and demand related to smart grid infrastructure projects was strong.

Joel Smejkal
Joel Smejkal
President & CEO at Vishay Intertechnology

EMS customers are starting to buy to direct demand, although regional EMS in Europe are still holding high inventory coupled with soft end customer demand. Most of the EMS in Europe did shut down in the last two weeks of the year. Sales to distribution declined 7% on fewer shipment days during the quarter versus Q3 and a prolonged weak demand in Europe's industrial end markets particularly for renewable. Asia and The Americas distributors manage their year end inventories and manage their financial P and L. Worldwide POS decreased 3% once again pulled down by reducing POS in Europe.

Joel Smejkal
Joel Smejkal
President & CEO at Vishay Intertechnology

The holidays fell mid week in late December many distributors stopped accepting shipments after eleven weeks into the quarter. Our distribution inventory remains stable at twenty seven weeks. Let's go to Slide five. In terms of the geographical mix, Europe is the lagging region, softening revenues for Shea as a whole and declining 8% as macroeconomic conditions continue to weaken. Distributors are still working through inventory and customers stopped accepting shipments after week eleven into the quarter.

Joel Smejkal
Joel Smejkal
President & CEO at Vishay Intertechnology

This weakness masked the growth in Europe related to smart grid infrastructure projects. Asia was a bright spot with revenue benefiting from shipments to smart grid infrastructure programs and spot orders related to AI servers and some early signals for industrial. I'll now turn the call over to Dave where he will review the financial results of Q4.

David McConnell
David McConnell
Executive VP & CFO at Vishay Intertechnology

Thank you, Joel, and good morning, everyone. Let's start our review of the fourth quarter results with the highlights on Slide six. Fourth quarter revenues were $715,000,000 including $3,000,000 attributable to the legacy Newport products and within the range of our guidance. Revenues decreased 2.8% compared to the third quarter reflecting a 1.6% reduction in volume, a 0.6% reduction in ASPs and a 0.6% negative foreign currency impact related mostly to the euro. By reportable business segment, the $21,000,000 decrease in revenues was mainly attributable to a $16,000,000 decrease in opto and a $7,000,000 decrease in inductors.

David McConnell
David McConnell
Executive VP & CFO at Vishay Intertechnology

MOSFETs, diodes and resistors had more modest decreases. These declines were partially offset by an $11,000,000 increase in our Capacitors segment. Compared to the fourth quarter last year, revenues were down 9% reflecting a volume decrease net of Newport of 4.7% and a 4.6% reduction in ASPs. Book to bill for the quarter was 1.01 comprised of 0.99 for semis and 1.03 for passives, the first book to bill over one in nine quarters. Backlog was stable at 4.4 months with semis and passes both flat versus Q3, semis at 3.9, passes at 4.9.

David McConnell
David McConnell
Executive VP & CFO at Vishay Intertechnology

Moving on to the next slide presenting the income statement highlights. Gross profit was $142,000,000 resulting in a gross margin of 19.9% and included a negative impact from Newport of approximately 190 basis points. Compared to the third quarter, gross margin was 60 basis points lower, primarily due to lower average selling prices, a slight increase in depreciation and a higher negative impact from Newport. Depreciation expense was $52,000,000 slightly under our guidance for the quarter, up from $51,000,000 in quarter three and reflects the additional equipment that's come online. SG and A expenses were $132,000,000 compared to $129,000,000 for the third quarter.

David McConnell
David McConnell
Executive VP & CFO at Vishay Intertechnology

This is higher than our guidance for the quarter and reflects higher R and D expenses incurred in Newport and some unanticipated legal and professional fees. During the quarter, we recorded a $66,000,000 non cash goodwill impairment charge to reflect the reduction in fair value of our MOSFETs reporting unit. The impairment charge does not affect our liquidity, cash flows from operating activities or debt covenants. We remain committed to our MOSFET expansion plans. Inclusive of the impairment charge, GAAP operating margin was minus 7.9% compared to minus 2.5% in the third quarter and 9.9% in the fourth quarter of twenty twenty three.

David McConnell
David McConnell
Executive VP & CFO at Vishay Intertechnology

Adjusted operating margin decreased to 1.4 in line with the decrease in margins in gross margin and reflecting the increase in G and A expenses. Adjusted EBITDA for the quarter was $66,000,000 for an adjusted EBITDA margin of 9.3% down from 9.7% in the third quarter. Our GAAP effective tax rate for the full year is not meaningful at the low levels of pre tax loss. Due to the GAAP net loss for the quarter, the effective tax rate for the quarter was approximately minus 12.3%. Our normalized effective tax rate for the full year was approximately 36%, which yields a not meaningful quarterly effective tax rate.

David McConnell
David McConnell
Executive VP & CFO at Vishay Intertechnology

GAAP loss per share was $0.49 compared to a loss of $0.14 per share in quarter three and $0.37 per share in quarter four twenty twenty three. Adjusted EPS was breakeven per share compared to $0.08 per share in third quarter and $0.37 per share in the fourth quarter of twenty twenty three. Proceeding to Slide eight, three 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 fourth quarter, the results of Newport continue to be reported substantially all in the Masaheds business segment, weighing on that segment's gross margin approximately 900 basis points. Turning to Slide nine and our cash conversion cycle metrics.

David McConnell
David McConnell
Executive VP & CFO at Vishay Intertechnology

Our DSO was stable at fifty three days. DPO was up to thirty four days from thirty two. Inventory was up slightly due to the Brukelbach acquisition up to $689,000,000 resulting in an inventory days outstanding of one hundred and nine days up from one hundred and six days in the third quarter. Total cash conversion cycle for the fourth quarter is one hundred and twenty eight days. Continuing to Slide 10, you can see we generated $68,000,000 in operating cash for the fourth quarter.

David McConnell
David McConnell
Executive VP & CFO at Vishay Intertechnology

Total CapEx for the quarter was $145,000,000 including $103,000,000 designated for capacity expansion projects and $320,000,000 for the year, which fell below our guidance of between $360,000,000 and $390,000,000 as delivery of some equipment was delayed to quarter one. This brings the total CapEx for the period 2022 through 2024 to over $1,000,000,000 as we invest in Vishay three point zero. On a trailing twelve month basis, capital intensity was 10.9% 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 $76,000,000 compared to negative $9,000,000 in the third quarter. For For the full year, free cash flow was a negative $143,000,000 Stockholder returns for the fourth quarter amounted to $26,200,000 consisting of $13,600,000 for our quarterly dividend and $12,600,000 for share repurchases.

David McConnell
David McConnell
Executive VP & CFO at Vishay Intertechnology

We repurchased 700,000.0 shares during the quarter at an average price of $18.02 per share. For 2024, we returned $105,000,000 to stockholders. Cash and short term investments decreased to $6.00 $6,000,000 at quarter end as we continue to deploy cash to fund our strategic plan. At the end of the quarter, we are in a net borrowing position in The U. S.

David McConnell
David McConnell
Executive VP & CFO at Vishay Intertechnology

With $136,000,000 outstanding on our revolver. 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. S. And we're using our U. S.

David McConnell
David McConnell
Executive VP & CFO at Vishay Intertechnology

Based liquidity to fund the Newport expansion as well as other strategic investments. We have $467,000,000 assessable on our revolver at the current EBITDA levels. We expect to continue to draw on our revolver to fund our U. S. Cash needs.

David McConnell
David McConnell
Executive VP & CFO at Vishay Intertechnology

Turning to Slide 11 for our guidance. For the first quarter twenty twenty five, revenues are expected to be $710,000,000 plus or minus $20,000,000 Gross margin is expected to be in the range of 19% plus or minus 50 basis points. Newport is expected to continue to have an approximate drag of 175 to 200 basis points on the gross margin in the first quarter. Depreciation expense is expected to be approximately $53,000,000 for the first quarter and $214,000,000 for the full year 2025. SGA expenses are expected to be $137,000,000 plus or minus $2,000,000 for the quarter.

David McConnell
David McConnell
Executive VP & CFO at Vishay Intertechnology

The increase versus quarter four is primarily due to the accrual of assumed incentive compensation for 2025 versus a very low level of incentive comp in 2024. SG and A expenses for the full year are expected to be between $530,000,000 and $560,000,000 In addition to the incentive compensation accruals, we're assuming continued investment in R and D, increasing spending, enhancing technology tools and typical inflationary impacts. For 2025, we expect the normalized effective tax rate to be between 3032%. And finally, our stockholder return policy calls for us to return at least 70% of our free cash to stockholders in the form of dividends and stock repurchases. For 2025, we once again expect negative free cash flow due to our capacity expansion plans.

David McConnell
David McConnell
Executive VP & CFO at Vishay Intertechnology

Despite negative free cash flow in 2024, we still returned over $100,000,000 to stockholders. For 2025, we expect to maintain our dividend and opportunistically repurchase shares. I'll now turn the call back to Joel.

Joel Smejkal
Joel Smejkal
President & CEO at Vishay Intertechnology

All right. Thank you, Dave. Let's turn to Slide 12. As a reminder, we are pulling eight growth levers to meet our commitment to scale capacity to our customers. To accelerate revenue growth, to position Vishay to be a much more reliable supplier, to drive greater returns through expansion of our product portfolio, and to expand our participation in our addressable markets.

Joel Smejkal
Joel Smejkal
President & CEO at Vishay Intertechnology

During 2024, we continued our focus on expanding capacity both internally and externally and on innovation. I'll recap our activities from Q4 starting with semiconductor capacity expansion projects. First at Newport, we completed on schedule the transfers of three silicon MOSFET structures in Q4 and are on track to complete another six by the end of the first quarter of twenty twenty five. We started production of commercial and automotive technologies in late Q4 and are building inventory in anticipation of customer approvals later this year after which we will start shipping. We expect to complete qualification of the automotive grade components during Q1 and Q2 thereafter customers will schedule their site audits.

Joel Smejkal
Joel Smejkal
President & CEO at Vishay Intertechnology

During the fourth quarter, we continue to receive delivery of silicon carbide equipment at Newport and remain on schedule to meet our plan of production in early twenty twenty six. At SK Key Foundry, our partner in Korea, we released one automotive MOSFET and have ramped up wafers to be delivered in Q1. We also plan to release another automotive MOSFET in the first quarter and an additional five technologies in the second quarter, '1 automotive, three commercial and one IC. Through this partnership, we will be able to increase annualized capacity for MOSFETs by 12% in 2025 compared to 2024, but more importantly, we will be able to increase annualized capacity for our advanced split gate MOSFET by 25% to support new automotive and commercial opportunities. In Taiwan in Q4, we started to ramp volume of commercial diodes.

Joel Smejkal
Joel Smejkal
President & CEO at Vishay Intertechnology

Automotive qualifications are still pending. For 2024, as expected, we increased capacity of constrained lines of high runners between 25% to 40% for an annualized increase overall diode capacity of 4.7%. In Turin, Italy, we have received environmental approval from the government and now plan to ship commercially qualified diodes in Q2. We expect to complete qualification of the 1,200 volt technology in Q2 and the six fifty volt technology in Q3, both to be released to production in the second half of the year. Now for passives, at La Laguna, Mexico during Q4, we worked directly with automotive customers on part number qualifications and stayed on track to qualify the facility for automotive inductors.

Joel Smejkal
Joel Smejkal
President & CEO at Vishay Intertechnology

We also began shipping Amitherm sensor products during the quarter. As a reminder, the Amitherm line includes products that support inrush current limiting and temperature sensing applications. For the year, we increased annual capacity for the large size low volume inductors, but decided to pull back on adding capacity on the small size high volume to align with end market demand in favor of using external capacity. At our facility in Juarez, Mexico, where we're shipping commercially qualified Current Sense resistors and other automotive products, we have increased annualized capacity by 18% in 2024 versus 2023. In addition to increasing our capacity of lower margin commodity products and to expand our product portfolio to widen our market participation, we continued to qualify subcontractors this year.

Joel Smejkal
Joel Smejkal
President & CEO at Vishay Intertechnology

During the fourth quarter, we completed qualifications for two new subcontractors for resistor technology. Across all subcontractors during the quarter, we added over 1,400 part numbers to Vishay, bringing the total for the year to greater than 10,400 part numbers. We exceeded our external capacity goals we set for the year on our path to achieving our 2028 financial targets. Specifically, against our goal of more than 4% of revenue from outsourced passives, we generated 5%. We set a goal of utilizing outsourced wafer fabs for 33% of semiconductor production.

Joel Smejkal
Joel Smejkal
President & CEO at Vishay Intertechnology

For the year, the rate of production for outsourced fabs on wafers was 34%. Finally, against our goal of utilizing outside assembly for back end, the goal was 20% for semiconductor production and our outsourced assembly represented 21% of revenue for 2024. As for innovation in our silicon carbide strategy, starting with our plans to commercialize the 1,200 volt planner technology, we released two products during the fourth quarter for a total of three products in 2024 and released another three products in January and plan to release another three products yet in the first quarter. In addition, we are on schedule with our plan to commercialize the 1,700 volt planter MOSFETs in the second quarter of twenty twenty five and the six fifty volt planter MOSFETs in the third quarter of twenty twenty five. As a reminder, these silicon carbide MOSFET components support traction inverter projects and modules for onboard charging, which opened more doors for us with automotive OEM.

Joel Smejkal
Joel Smejkal
President & CEO at Vishay Intertechnology

During the quarter, we completed the reliability testing of the Gen three trench technology and we are now working towards optimization. We currently have given samples to one automotive OEM and mid year we will expand sample availability selectively with full market release of this product in the second half of the year. For silicon carbide diodes, we released an industry first smallest package using our Gen III diodes six fifty volt and 1,200 volt products. We are also on track to release the automotive version in Q1. We completed the reliability testing of our Gen four six fifty volt automotive power pack to be released in Q1.

Joel Smejkal
Joel Smejkal
President & CEO at Vishay Intertechnology

We also will release the Gen four twelve hundred volt automotive diode in Q2. Finally, in Electronica twenty twenty four, we showcased nine reference designs across automotive, industrial and telecom applications, some of which demonstrated our silicon carbide capabilities, plus Vishay's ability to populate 80% of the components on a circuit board in power applications. Sample boards were available for customers to take for quick evaluation. We plan to release some of these reference designs into catalog distribution throughout 2025. For OEMs utilizing AI, we also displayed a multi phase power board that incorporates smart stage smart power stage ICs, vertical mount inductors and polymer tantalum capacitors, which is another example of our solution selling strategy.

Joel Smejkal
Joel Smejkal
President & CEO at Vishay Intertechnology

To wrap up 2024, the extended inventory correction took longer than we expected. This did give us some breathing room to expand capacity and our product portfolio, so we're ready to scale with our customers as demand returns. We bolstered our engagements with OEMs, so we're ready to support their product roadmaps and with channel partners, so we're ready to gain share. Also EV programs were pushed out during the quarter, which gives us more time to advance our silicon carbide strategy. We also expanded our product portfolio through the subcontractor strategy and made two technology acquisitions, Amatherm and Birkelbach.

Joel Smejkal
Joel Smejkal
President & CEO at Vishay Intertechnology

And we also acquired Newport, which advances our silicon carbide strategy and our campus concept. Now as we enter into 2025, we see many promising indicators including a positive book to bill for the first time in nine quarters, strong order intake for the smart grid infrastructure projects and initial shipments for AI. All of our strategic levers will be in play as we continue to execute our five year plan to position Vishay to take advantage of the megatrends of e mobility and sustainability. We remain committed to our long term plan of increasing Vishay's capacity between 2023 and 2028 to assure our customers of reliable volume as they scale. As a reminder, at our Investor Day in April 2024, we presented a plan of investing $2,600,000,000 in CapEx between 2023 and 2028.

Joel Smejkal
Joel Smejkal
President & CEO at Vishay Intertechnology

While we plan to continue to advance our capacity expansions, we have and will continue to modulate the spending in response to order flow and the timing of customer demand and qualifications. Also the lead time of equipment and continued approval of subcontractor capacity are variables we include to throttle down our capacity spending. For 2025, we plan to spend between $300,000,000 to $350,000,000 at least 70% of which will be invested in capacity expansion projects for our high growth product lines, including our wafer fab expansions. Under Vishay three point zero, we are business minded. We are connected to the customers and we gather and utilize market intelligence.

Joel Smejkal
Joel Smejkal
President & CEO at Vishay Intertechnology

This allows us among other things to make informed business decisions to throttle CapEx up or down if and when necessary. At the same time, we are taking a closer look at our global footprint keeping in mind our customers' regional supply needs and also to optimize our global footprint to a lower cost base and to enhance our returns. For example, in 2024, we started shifting towards campus structures that serve multiple product lines La Laguna, Mexico and the Newport facility in South Wales, UK plus adding subcontractors to produce commodities. Because of our strong execution of our strategic levers in 2024, we're well positioned in 2025 to support a market upturn. We have the capacity and we have the print position.

Joel Smejkal
Joel Smejkal
President & CEO at Vishay Intertechnology

Since the beginning of 2023, we have landed an incremental 23% capacity to ensure we are a reliable supplier ready to scale and meet our customers' needs over time. We're ready to capture share gains as we continue to increase our SKU count on distributor shelves and our inventory is well positioned to quickly grow POS. We're ready to support prior year design wins as they turn into future start of production. By adding FAEs during 2024, we have engaged with more customers about their product and technology roadmaps. We also opened an e mobility lab in Italy, which has strengthened our design position and reference design solution selling capabilities.

Joel Smejkal
Joel Smejkal
President & CEO at Vishay Intertechnology

We're creating design opportunities that increase our share of the customer bill of materials and our capacity investments ensure we're ready to support their future demand. We are now better aligned with future growth segments like AI Server Power Management, Smart Grid Infrastructure Project, Aerospace Defense, Industrial Robotics and Hybrid for Automotive and EV programs. We are doing the work to implement Vishay three point zero and the customers see a different Vishay, a business minded organization. Feedback is that Vishay is engaged early in the design pipeline, partnering with customers and preparing to scale in line with their roadmaps. We are actively in conversations with customer for more visibility to be able to support their market upturn in a timely way.

Joel Smejkal
Joel Smejkal
President & CEO at Vishay Intertechnology

I now turn the call back to the operator to Wanda. Let's open the call to questions.

Operator

Thank Our first question comes from the line of Peter Ping with JPMorgan. Your line is open.

Peter Peng
Equity Research Analyst at JP Morgan Chase & Co

Hey guys, good morning. Thanks for taking my question. I just want to zoom in on the AI server power side and maybe if you can just level set us on how you're thinking about AI related revenue this year and maybe how I think investors should think about your average content per system or per board, maybe we'll start there.

Joel Smejkal
Joel Smejkal
President & CEO at Vishay Intertechnology

Thanks, Peter. AI in the fourth quarter, we saw the initial volumes. It was very small in the fourth quarter. A number of CMs are lining up to participate with the NVIDIA chipset. The demand, we're working hard to try and understand the demand, the schedule.

Joel Smejkal
Joel Smejkal
President & CEO at Vishay Intertechnology

And as we talk to CMs, they say they're going to have some volume. It's going to be better than Q4, but they're not able to tell us the timing of the delivery of the NVIDIA chipset. So we're preparing on our own. We're being proactive to make sure that the MOSFETs are in position to be able to support plus the other components that I talked about, polymer channel and others. So our design position is good.

Joel Smejkal
Joel Smejkal
President & CEO at Vishay Intertechnology

To put content on it, we've seen content in the $30 to $40 range per tray. We try and gather how many trays are in Iraq. We've heard in the order of $600 But again, it's what is our share going to be. I'd like to provide you more, but we're working hard to get more visibility. I think as we get past Chinese New Year now, we'll be able to get more intelligence.

Joel Smejkal
Joel Smejkal
President & CEO at Vishay Intertechnology

But at this point, that's about the content we know.

Peter Peng
Equity Research Analyst at JP Morgan Chase & Co

And maybe just on a follow on that. I think outside of the GPU ecosystem, the custom ASIC is also ramping up pretty aggressively. And our forecast is that sometimes over next few years that it could be a fifty-fifty split between custom ASIC deployments versus more GPU. Maybe talk about your position on the non NVIDIA side.

Joel Smejkal
Joel Smejkal
President & CEO at Vishay Intertechnology

Okay. We are designing with others. Other computer companies, EMS companies are getting into server power designs. So we've positioned our FAEs to reach out FAEs whether they're Vishay FAEs or our reps. They're at the design locations of computer companies.

Joel Smejkal
Joel Smejkal
President & CEO at Vishay Intertechnology

They're at the design locations of EMS who are doing server power. So we are in a good position to design the technologies across Vishay again, introducing them to be able to support 80 plus percent of the components on the board. So I would say at this point, our design activity, we're in a positive spot.

Peter Peng
Equity Research Analyst at JP Morgan Chase & Co

Okay. One more if I may before I go back into the queue. Typically your second quarter is a seasonally stronger period. I didn't hear you guys call a bottom, but would it be in first based on some of the positive book to bill, also pretty normalized inventory that we should be tracking to say more of a positive growth quarter just given some of the positive seasonal trends in your June?

Joel Smejkal
Joel Smejkal
President & CEO at Vishay Intertechnology

Okay. The book to bill in Q4 was positive. The book to bill in Q1 is also attractive. We're now looking at the Chinese New Year. You always watch Chinese New Year before and after.

Joel Smejkal
Joel Smejkal
President & CEO at Vishay Intertechnology

How will the bookings look once the people are back to work? So the next couple of weeks will be a signal if it's sustainable. Automotive, the schedule agreements I mentioned, they're showing us better volumes in the first half of the year, quarter on quarter. So we're optimistic about that as well. The guide of seven ten that we put in the quarter, Dave mentioned there's the annual ASP reductions that have come from our contract negotiations.

Joel Smejkal
Joel Smejkal
President & CEO at Vishay Intertechnology

So that all lands in January. We do have volume growth. So we'll get past the first quarter, get those ASPs in place and then work to grow volume. We like how the book to bill is setting up at this point.

Peter Peng
Equity Research Analyst at JP Morgan Chase & Co

Great. Thank you guys.

Joel Smejkal
Joel Smejkal
President & CEO at Vishay Intertechnology

Thanks, Peter.

Operator

Thank you. I'm showing no further questions in the queue. I would now like to turn the call. One moment, we do have a question that came up. Please stand by for our next question.

Operator

Our next question comes from the line of Reclu Bhattachar with Bank of America. Your line is open.

Ruplu Bhattacharya
Ruplu Bhattacharya
Director at Bank of America

Hi. Thank you for taking my questions. Joel, to start I want to ask you about your outreach to distributors. Does Vishay now have the proper amount of inventory in the channel or do you see any excess inventory at distribution? And with that, can you also comment on pricing in both passes and actives?

Ruplu Bhattacharya
Ruplu Bhattacharya
Director at Bank of America

Is there any scope for Vishay to raise prices in either segment?

Joel Smejkal
Joel Smejkal
President & CEO at Vishay Intertechnology

Okay. Hi, Ruplu. Thanks for the question. Our work with distribution began right away with Boucher three point zero January of twenty twenty three and we've been adding SKUs quarter on quarter. We've added nearly 50,000 SKUs now after the period of two years.

Joel Smejkal
Joel Smejkal
President & CEO at Vishay Intertechnology

Those were part numbers that Vishay did not have on the shelf. Our inventory distribution I said is relatively stable worth twenty seven weeks. The inventory I'll say is fresh. Items that are non moving or idle would be very, very small, very small. So you see the inventory twenty seven weeks.

Joel Smejkal
Joel Smejkal
President & CEO at Vishay Intertechnology

If we look at Asia versus Europe versus The Americas, Asia inventory in Q1 of twenty twenty four was twenty weeks. Asia inventory of Q4 twenty twenty four is eighteen point five weeks. America's inventory in Q1 of twenty twenty four is forty seven weeks. America's inventory in Q4 twenty twenty four is fifty one point five weeks. A lot of catalog plus other part number adds.

Joel Smejkal
Joel Smejkal
President & CEO at Vishay Intertechnology

Europe inventory, we talked about it. We've got to get through this inventory in Q1. The Q1 twenty twenty four inventory was 18.7 and the inventory at the end of Q4 was twenty three point four. So we talk about Europe, we got to get through that inventory in Q1. But as far as the inventory itself, it's the right inventory.

Joel Smejkal
Joel Smejkal
President & CEO at Vishay Intertechnology

We've added inventory because of the SKUs we've added. Regarding your question about pricing, pricing for distribution, we made adjustments to our VPA or published pricing in 2024. So we did take price protection. We believe on the screen for many of our products we're competitive. So decisions can be made using the screen price.

Joel Smejkal
Joel Smejkal
President & CEO at Vishay Intertechnology

There will always be opportunities where a distributor brings in large volumes, million piece opportunities plus, where they'll ask us to be a little more aggressive and we'll take those into considerations. But overall, Ruffalo, I think what we've done in distribution is well positioning us. We'll continue to work with distributor by distributor to better position Vishay and gain POS.

Ruplu Bhattacharya
Ruplu Bhattacharya
Director at Bank of America

Okay. Thank you for the details there. Can I ask you a question on CapEx? So you're guiding for $300,000,000 to $350,000,000 of CapEx spend in $2,025,000,000 dollars You gave a lot of details, but I missed this. How much total new capacity is coming online in fiscal twenty twenty five?

Ruplu Bhattacharya
Ruplu Bhattacharya
Director at Bank of America

I know you have Newport coming online and then maybe there are other sites. And how has your total expectation for the three year CapEx spend changed since the Analyst Day? So can you give us some details in terms of that $300,000,000 to $350,000,000 where is that spend becoming online? How much of it like total capacity coming online? And has your three year expectation changed?

Joel Smejkal
Joel Smejkal
President & CEO at Vishay Intertechnology

Okay. The $300,000,000 to $350,000,000 we first look at the fabs. We look at the Newport fab, getting the silicon products up and running. We talked about the dates that we have there releasing these structures as well as landing the silicon carbide equipment that's there, putting the process in place. So continuing to get this fab turned on to Vishay products is where CapEx will be.

Joel Smejkal
Joel Smejkal
President & CEO at Vishay Intertechnology

The other fab is in Itzhoh, Germany. That's the 12 inches fab. We've got the building and now equipment is part of that next step in the fab. So CapEx continues as a majority of that $300,000,000 3 50 million dollars million dollars is for the fabs. After that, we look into the individual product lines.

Joel Smejkal
Joel Smejkal
President & CEO at Vishay Intertechnology

We've done well to add capacity in 2024. I mentioned we've increased capacity for the company 23% since Vishay three point zero began. That's good. We're in a good position. Now we look at line by line and modulate what is the delivery time of equipment.

Joel Smejkal
Joel Smejkal
President & CEO at Vishay Intertechnology

It's no longer two years. It's no longer a year and a half. It's less. In our plan, we had spending based on what we knew about the delivery of equipment. We've also increased our subcontractor qualifications.

Joel Smejkal
Joel Smejkal
President & CEO at Vishay Intertechnology

This is great because we're able to take the Boucher recipe and have a subcontractor build the products without our own CapEx investment. So this is why we say modulate. We're going to make adjustments throughout the year. We're going to watch the order flow by these products. We might throttle back on some product lines because we've got subcontractor capacity coming.

Joel Smejkal
Joel Smejkal
President & CEO at Vishay Intertechnology

We might throttle up on spending because we're seeing the market move to a particular product where we think we're not we might be at risk of underserving. So that's how we're managing it. We're excited about what we landed. 2025, there will be CapEx coming to put a percent on 2025 yet. I don't think we're ready to do that because of the modulation we're doing with subcontractors.

Ruplu Bhattacharya
Ruplu Bhattacharya
Director at Bank of America

Okay. Okay. I appreciate the details there. Can I ask one question to David? Can you update us on your capital allocation priorities?

Ruplu Bhattacharya
Ruplu Bhattacharya
Director at Bank of America

And you mentioned free cash flow would be negative in fiscal twenty twenty five. So is it reasonable for investors to expect the same level of $100,000,000 of return on capital that you had to shareholders in fiscal twenty twenty four? Should we expect the same amount in fiscal twenty twenty five?

David McConnell
David McConnell
Executive VP & CFO at Vishay Intertechnology

Hi, Rubel. That's a good question. So first and foremost, I think to reset the bar, our policy is to return 70% of free cash to the shareholder, okay. And even though in 2024, we had negative free cash, we chose to shoot higher and we returned at the end $105,000,000 okay in 2024. In 2025, we're committed to the dividend as I noted in the remarks and we're going to make opportunistic share repurchases during the year, but we're not going to commit to a specific number yet.

Ruplu Bhattacharya
Ruplu Bhattacharya
Director at Bank of America

Okay, got it. If I can sneak one more in. Joel, Europe is weak and Asia is strong. How do you see the regional mix changing in fiscal 1Q? And will your playbook be any different across these regions?

Ruplu Bhattacharya
Ruplu Bhattacharya
Director at Bank of America

Meaning, are you hiring more in Asia because it's stronger? So how do you plan to deal with the mix of macro across these different regions in 1Q? Thank you for taking my question.

Joel Smejkal
Joel Smejkal
President & CEO at Vishay Intertechnology

You bet. When we look at our FAE placement and our sales, the commercial salespeople, we're always moving these in the proper place too to be engaged with customers. So Asia is high concentration for sure of positioning the people in the right spot. We've got a great Asia team. They're well in tune with Boucher three point zero and they get close to customers and they bring back a lot of good intelligence.

Joel Smejkal
Joel Smejkal
President & CEO at Vishay Intertechnology

So Asia is still a main focus and they're doing very well. Europe, we've adjust the European sales team in some ways to be closer to the customer. This is happening in Q4 and Q1. We're excited about the team of people we have. The customers are trying to get an understanding of what's going to happen with their governments.

Joel Smejkal
Joel Smejkal
President & CEO at Vishay Intertechnology

There's an election coming in Germany in February. This election is important because colleagues that I speak with hope to see some direction by the government. First and foremost, people want to feel that the economies can move, the government has a direction and they're sponsoring programs to make the business move. We're going to go through inventory digestion in Q1 in Europe, but I'll say the same thing about distributor position. We're going after better position.

Joel Smejkal
Joel Smejkal
President & CEO at Vishay Intertechnology

Our distributor team in Europe is working for that. We want to gain share. So even if the economy is soft or flat, we want to gain share of business we may have lost, regain it or gain share of what's there. So we continue to concentrate. We're focused on each region.

Joel Smejkal
Joel Smejkal
President & CEO at Vishay Intertechnology

They are different dynamics, but our intention is to grow in each. Asia seems to be out front at the moment. Okay. Thank you for all the details. Thank you, Rupert.

Operator

Thank you. Please stand by for our next question. We have a follow-up question from the line of Peter Pang with JPMorgan. Your line is open.

Peter Peng
Equity Research Analyst at JP Morgan Chase & Co

Hey guys, thanks for the follow-up question. I have a question on the gross margin front. And so there's a few puts and takes. So with the new quarter, it should be I would imagine that it should be a tailwind as we kind of move through 2025. But then I think there's also additional depreciation expense that we should account for.

Peter Peng
Equity Research Analyst at JP Morgan Chase & Co

So just taking to those factors, how should we think about your gross margins as we kind of move through the year?

David McConnell
David McConnell
Executive VP & CFO at Vishay Intertechnology

That's a great question. So and you hit on the some of the puts and takes upfront already, but obviously what drives our margin is volume, right? And based on Joel's comments and input from customers, we're expecting volumes to improve through the year. In terms of the Q1 guidance, we already have the ASP declines baked into that margin for the annual contract renewal, the OEMs. We're doing the usual cost downs, cost reductions, efficiency gains, automation.

David McConnell
David McConnell
Executive VP & CFO at Vishay Intertechnology

You noted the higher depreciation. Newport, your comment's a good one. We hope to be margin neutral towards the end of the year. So when we enter '26, we're profitable, okay? Then that will step down that drag as we go through the year.

David McConnell
David McConnell
Executive VP & CFO at Vishay Intertechnology

And that's about I think all we but the focus this year on the Newport is obviously the technology transfer and the qualifications and the customer approval, not necessarily the profitability. So I think that's about all we can say on the margin. It's volume driven, right? Volume is the swing.

Joel Smejkal
Joel Smejkal
President & CEO at Vishay Intertechnology

Peter, as we release these structures quarter by quarter, if it's a commercial product, industrial, we sent out a PCN to notify our distributor partners that this is a new location. There's a timeframe that they get thirty to ninety days to sign off the PCN. Once we have that signed off, then we can start loading volume. So you're going to see a stair stepping of volume towards greater capacity utilization in Newport throughout the year. We qualify a structure, we get the PCNs approved commercially first.

Joel Smejkal
Joel Smejkal
President & CEO at Vishay Intertechnology

You'll see more utilization. Automotive, we got to get the automotive customer in for audits. We want to do this in parallel to component qualification. We got good people at Newport. They understand the technology very well.

Joel Smejkal
Joel Smejkal
President & CEO at Vishay Intertechnology

They're doing a great job of turning this from one owner to another. And I think our pace is quite good. We're expecting the tailwind as you said in 2025 to help us out on that margin.

Peter Peng
Equity Research Analyst at JP Morgan Chase & Co

Got it. So the new core from being 150 to 200 basis points of impact to being margin neutral, so that would itself would be almost that would be like a almost a 175 basis points step up through the year. Is that right?

Joel Smejkal
Joel Smejkal
President & CEO at Vishay Intertechnology

We're going to see improvement quarter by quarter. Dave, the target is year end?

David McConnell
David McConnell
Executive VP & CFO at Vishay Intertechnology

But exit the year end to be neutral. Certainly, in the first quarter twenty six, we're planning on profitability.

Peter Peng
Equity Research Analyst at JP Morgan Chase & Co

Perfect. Great. Thank you, guys.

Joel Smejkal
Joel Smejkal
President & CEO at Vishay Intertechnology

Thank you, Peter.

Operator

Thank you. I'm showing no further questions in the queue. I would now like to turn the call back to Joel for closing remarks.

Joel Smejkal
Joel Smejkal
President & CEO at Vishay Intertechnology

All right. Thank you, Towanda. Thank you again everyone for attending our year end twenty twenty four earnings call. As you've heard today, we are moving forward implementing Boucher three point zero with speed and determination. We are ready to support our customers when the market turns up and we're quite positive on what we've achieved so far.

Joel Smejkal
Joel Smejkal
President & CEO at Vishay Intertechnology

Thank you again. We'll see you at our next earnings call in May. Have a good day.

Operator

Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.

Executives
    • Peter Henrici
      Peter Henrici
      Executive VP of Corporate Development & Corporate Secretary
    • Joel Smejkal
      Joel Smejkal
      President & CEO
    • David McConnell
      David McConnell
      Executive VP & CFO
Analysts
    • Peter Peng
      Equity Research Analyst at JP Morgan Chase & Co
    • Ruplu Bhattacharya
      Director at Bank of America
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