Q4 2019 Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the shape fourth quarter 2019 earnings Conference call. At this time all participants are in listen only mode. After the speaker presentation, there will be a question and answer session.
Ask a question during this session he will need to press star one on your telephone. Please be advised that today's conference is being recorded it could require any further this is Dan. Please press star Zero I would now like Dan the coverage over to your speaker today Peter Henrici. Please go ahead Sir.
Thank you Regina good morning, and welcome to Vishay into technologies fourth quarter, and <unk> 2019 conference call.
With me today are Dr., Gerald Paul Vishays, President and Chief Executive Officer, and Lori Lipcaman, Our executive Vice President and Chief Financial Officer.
As usual, we'll start today's call with the CFO, who will review Vishays fourth quarter and here 2019 financial results.
Dr. Gerald Paul will then give an overview of our business and to Scott's operational performance as well as segment results in more detail.
Finally, we reserve time for questions and answers.
This call is being webcast from the Investor Relations section on our website at <unk> I, our dogs Vishay Dot com.
The replay for this call will be publicly available for approximately 30 days.
You should be aware that in today's conference call, we won't be making certain forward looking statements that discussed future events and performance.
These statements are subject to risks and uncertainties that could cause actual results to differ from the forward looking statements.
For a discussion of factors that could cause results to differ.
Please see todays press release, and Vishays form 10-K, and form 10-Q filings with the Securities and Exchange Commission.
In addition, during this call we may refer to adjusted financial measures that I'm not prepared according to generally accepted accounting principles.
We use non-GAAP measures because we believe they provide useful information about the operating performance our businesses.
And should be considered by investors in conjunction with GAAP measures that we also provide.
This morning, we filed a form 8-K that outlines the variance variables.
It impacted diluted earnings per share computation.
On the Investor Relations section of our website you can find a presentation off the fourth quarter 2019 financial information containing some off the operational metrics Dr. Paul will be discussing.
No I turn the call over to Chief Financial Officer, Lori that's coming.
Thank you Peter good morning, everyone.
I'm sure that most of you have had a chance to review our earnings press release.
We'll focus on some highlights and key metrics.
Vichy reported revenues for Q4 610 million.
He P.S. was 10 cents for the quarter.
Adjusted D. P. S was 13 cents for the quarter.
During the quarter, we recorded restructuring charges of $17 million related to the cost reduction program, we announced in July.
Also during the quarter, we repurchased 3.95 million principal amount, our convertible debentures and recognized a U.S. GAAP loss on extinguishment.
I will elaborate on these transactions in a few moments.
Revenues in the quarter were 610 million down by 3% from previous quarter and down by 21.4 per cent compared to prior year.
Gross margin was 22.2%.
Operating margin was 4.0% adjusted operating margin was 6.7%.
S was 10 cents adjusted EPS was 13 cents.
EBITDA was 60 million or 9.9%.
Adjusted EBITDA was 78 million or 12.8%.
Revenues in the year 2.688 billion.
Down by 12.1 per cent compared to prior year.
Gross margin was 25.2%.
Operating margin was 9.8%.
Adjusted operating margin was 10.7%.
S was $1.13 cents.
Adjusted Dps was $1.26 cents.
EBITDA was 416 million or 15.6%.
Adjusted EBITDA was 442 million or 16.6%.
[noise] reconciling versus prior quarter.
Adjusted operating income quarter for 2019 compared to adjusted operating income for prior quarter.
Based on 19 million lower sales or 17 million, excluding exchange rate impacts.
Adjusted operating income decreased by 17 million.
To 41 million in Q4 2019.
From 58 million in Q3 2019.
The main elements where.
Average selling prices had a negative impact of 5 million, representing its 0.8% U.S.P. to decrease.
Volume decreased with the negative impact of 6 million.
Within 21.8% decrease in volume, including a negative mix shift.
Fixed cost increased for the negative impact of 4 million as expected due to individually material items.
[noise] versus prior year adjusted operating income for 2019 compared to adjusted operating income in quarter four 2018.
Based on 166 million lower sales were 160 million lower excluding exchange rate impacts.
Adjusted operating income decreased by 79 million.
To 41 million in Q4, 2019 from 120 million in Q4 2018.
The main elements, where average selling prices had a negative impact of 19 million <unk>.
Representing 3% ASP decline.
Volume decrease the negative impact of 64 million, representing an 18.6% decrease.
For the full year adjusted operating income was the your 2019 compared to adjusted operating income for the year 2018.
Based on 366 million lower sales were 318 million lower excluding exchange rate impacts.
Adjusted operating income decreased by 199 million.
To 287 million in 2019 from 485 million in 2018.
The main elements where.
Average selling prices had a negative impact of 29 million, representing 1.1% U.S.P. decrease which includes U.S. tariffs pass through to customers.
Volume decrease for the negative impact of 124 million, representing a 9.7% decrease.
Variable cost increase for the negative impact of 31 million.
Primarily due to manufacturing inefficiencies U.S. tariffs and higher metal prices.
Great, which wage and other variable cost inflation compensated by cost reduction.
Inventory FX had a negative impact of 13 million.
[noise] selling general and administrative expenses for the quarter were 95 million.
Sequentially sequentially higher by 2 million due to individually immaterial items, it's slightly lower than expected, primarily due to general but belt tightening measures.
For the year, selling general and administrative expenses were 385 million versus 403 million in 2018.
2.1% lower excluding exchange rate impacts, primarily due to incentive compensation expenses general belt tightening measures.
For Q1 2020, our expectations are approximately 102 million <unk> expenses.
And approximately 400 million for the full here at constant exchange rates.
The company ended up repatriate any additional cash the U.S. during Q4.
But as you know we did repatriate approximately 189 million net of taxes during the earlier periods of 2019.
And 724 million net of taxes during 2018.
Substantially all of these amounts have been utilized to pay downs revolver to settle certain intercompany debt.
The finest capital expansion projects and to pay for the tax reform transition decks.
Recall that well such amounts are no longer subject to federal taxes due to U.S. tax reform, that's subject to foreign withholding and other Texas and some state income tax.
There was approximately $100 million some additional earnings available for repatriation with Texas a crude.
We are still evaluating the timing of such repatriation.
We had total liquidity 1.6 billion at quarter end.
Cash and short term investments comprised 803 million no amounts outstanding on a revolving credit facility.
During the quarter, we were able to repurchased 3.95 million principal amount of our outstanding convertible debt instruments.
This is part of the programs we have undertaken over the past two years to refine retired the convertible debentures, which have certain tax attributes, which we're no longer efficient after U.S. tax reform.
Of the principal five prime minus 75.
Amount of the convertible debentures that was outstanding at the beginning of 2018, only 17 million or 3% remain outstanding at the end up 2019.
We continue to be authorized by our board of directors to repurchase additional convertible debt instruments and open market repurchases or through privately negotiated transactions subject to market in business conviction legal requirements and other factors.
[noise] our debt at yearend is comprised of the convertible notes due 2025 and the remaining convertible debentures due in 2040 2041.
The principal amount or face value the converts total 617 million.
600 million <unk> related to the notes issued in 2018, and 17 million related to the remaining debentures.
The carrying value 499 million is net of unamortized discount and debt issuance costs.
As I said there are no amounts outstanding under revolving credit facility at the end of quarter for.
No principal payments are due until 2025.
And the revolving credit facility expires in June 2024.
I can give you an overview of the cost reduction program.
As announced in July we are implementing global cost reduction programs intended to lower cost by approximately $15 million annually when fully implemented into provide management rejuvenation.
Our strategy strategy has been to seek volunteers to accept a voluntary separation early retirement offer which has been generally success.
During Q4, we recorded restructuring expenses of 17 million.
Bringing the total expense for the program to 24 million inline with expectations.
The expense was recognized when individuals accepted the offer.
Due to a pick will transition periods, we will not fully achieved the cost savings until the end of December 2020.
The full your effective tax rate on a GAAP basis was 27%.
Our GAAP tax rate includes adjustments to be measured deferred taxes related to the repatriation program, such as foreign currency effects and to consider certain corporate reorganization activities that impact repatriation.
These adjustments for a benefit of 11.6 million for Q4, and 9.6 million for the full year 2019.
Our full year GAAP tax rate also includes adjustments to uncertain tax provisions recorded in Q4, approximately 3.8 million.
The unusual tax benefit related to the settlement of some of the convertible debentures.
And the tax expense on a tax basis foreign exchange gain resulting from the payment of an intercompany loan prepas he deemed permanent in Q2.
Because of the unusual tax items.
The U.S. GAAP effective tax rate for Q4 this negative.
Tax benefit on pre tax income.
Our normalized tax rate excludes these unusual tax items as well as the tax effects the restructuring an early debt extinguishment.
The normalized tax rate for the full year was approximately 27%.
Versus the 26% year to date Q3.
Mathematically this feels a normalized tax rate of 36% for Q4.
Impacted by the cumulative catch up and no pre tax earnings in Q4.
We expect our normalized effective tax rate for 2020 to be approximately 26% to 27%.
We continue to evaluate the provisions of the U.S. tax law.
Particularly aspects the guilty and be taxes.
Our consolidated effective tax rate is based on an assumed level in mix of income among our various taxing jurisdictions.
Shifting income could result in significantly different for yourself.
Total shares outstanding you ran for 144 million.
The expected share count for MPS purposes for the first quarter 2020 is approximately 145 million.
For full explanation of our <unk> share count and variables that impact the calculation.
Please refer to the 8-K, we filed this morning.
In our annual report on form 10-K, we will change or U.S. got to segment reporting to separately disclose inductors investors.
These two segments for previously combined.
Prior period data presented in the annual report, we recast to reflect this new alignment.
He can be found this morning also includes a summary, this recast prior period that.
Dr. Paul's comments on the quarter and your 2019, a few moments, but also separately discuss conductors and ministers.
Cash from operations for the quarter was 84 million.
Capital expenditures for the quarter were 56 million.
Free cash for the quarter was 28 million.
For the year cash from operations was 296 million.
Capital expenditures were 157 million.
Split approximately four expansion 96 million.
For cost reduction 16 million.
For maintenance of business 45 million.
Free cash generation for the year was 140 million.
The year includes 53 million cash taxes paid related to cash repatriation 38 million and U.S. tax reform 15 million.
The she has consistently generated an excess 100 million cash flows from operation in each of the past now 25 years and greater than 200 million for the last now 18 years.
Backlog at the end of the quarter was.
At the end of quarter, four was 911 million or 4.5 months of sales.
Hi, compared to our historical average approximately three months.
Inventories decreased quarter over quarter by 17 million excuse me in exchange rate impacts.
Days of inventory outstanding 84 days.
Days sales outstanding for the quarter were 49 days.
These are payables outstanding for the quarter were 30 days.
Resulting in cash conversion cycle of 103 days.
Now I'll turn the call over to our Chief Executive Officer, Dr. Gerald Paul.
<unk>.
Oh, Thank you Laurie and good morning, everybody.
2019 for Vishay is for the business these electronic components in general.
It's been a year of correction [noise].
While yumes dropped sharply he said he has a strong years 2017 and in particular 2018 as a consequence, often require the reduction of inflated inventory levels in the supply chain.
Furthermore, quite drastically reduce manufacturing volumes has a strong negative impact on our profitability.
Additionally, the temporary inefficiencies coming from the adaptation of manufacturing capacities bound with quickly and messy free.
Vishay in 2019 achieved the gross margin of 25% of sales this was 29% in 2018.
GAAP operating margin of 10% of seals vis a 16% of sales in 2018, and adjusted operating margin of 11% of sales versus 16% in Florida Yeah.
GAAP earnings per share of $1.13 versus $2 24 last year and adjusted earnings per share of $1.26 versus $2 trails in 2018.
The generation of free cash also in 2019 remains on the quite excellent level.
We in 2019 generated free cash of 140 million, which includes Texas paid for casualty Pip creation of 38 million.
Quota for.
Really has been disappointing.
The impact of an unfavorable product mix into various negative singularities in variable costs led to a lower than normal come to produce much in.
Furthermore, other income was lower than anticipated due to exchange rates.
And our normalized tax rate for 2019 was higher than expected impacting also of quota.
Vishay in the fourth quarter, chief the gross margin of 22% of sales.
GAAP operating margin of 4% of sales.
Adjusted operating margin of 7% sales.
Net earnings per share of point $10 and adjusted earnings per share of putting 13th Atlas.
[noise], let me talk about the economic environments, the economic conditions for our industry and of course of 2019 deteriorated very substantially different by the normalization of lead times and the subsequent major inventory reduction to supply chain.
This for the most pod concerned distribution, but also Oems reduced inventories.
The worldwide slow down in automotive and ongoing political turbulence is developed into an additional burden and of course of last year.
Back looks substantially inflated in due course of 2017 in 2018 continue to normalize we spoke to be lower issue as much below one.
Recently, we do see a recovery afford us.
Selling prices for commodity products here for you started to decline.
Considering the strong slow down or order cancellations in the fourth quarter.
Another substantial reduction of inventories seem to supply chain during the quarter.
And increasing orders also from distribution, we believe that the fourth quarter represented the low point of this phase of correction.
Let me talk about that each month.
After a strong viewed the American market softened in the fourth quarter.
Sales to Oems as well as Pos so if distributions are concerned.
Automotive in commercial aviation, a weakening where its military spending remains robust and industrial markets remain stable overall.
Inventories being burnt off by our distributors.
The European business continues to be burdened by two high inventories into supply chain.
It's really this by a weakening of the automotive in particular have to diesel market.
Despite the continued de stocking in Asia, we see signs of improvement in automotive and the stabilization or industrial and Im is six months.
Asia in fact is expected to the tune to more normal business levels first.
Setting aside any impacts of evolving corlanor crisis of course.
Talking about distribution.
POS of global distribution ended the year 2019 weaker than expected. It declined by 7%. This is probably a quota and was 13% below prior year.
POS for the full year 2019 was down this is 2018 by 10%.
POS in the fourth quarter was weak versus Q3 in all geographic regions found in Europe by 6%.
Found in Asia, but 5% didn't down in the Americas by 11%.
Nevertheless distribution inventories during the fourth quarter came down again in a noticeably way by 37 medium.
We expect this trend to continue maybe to a lesser extent also into first quarter.
There was no further decline of inventory turns into distribution into first quarter trends remained at 2.4 is compared to 2.9 in prior year.
The Americas showed 1.4 turns after 1.5 turns into third quarter and 1.9 prior year.
Asia Asian distribution showed 3.3 turns after also three points returns in Q3 and 3.7 turns in prior year.
Europe had 2.9 tons of the also 2.9 turns in Q3 and 3.3 turns in prior year.
Well just from distribution into fourth quarter picked up in all regions substantially which naturally give some got confidence.
Let me comment on industry segments.
Dave continued weakness in vehicle production real divide in particular in Europe.
And this political resistance to the diesel technologies. Nevertheless, we expect improvements into first quarter in automotive carried by traditional cars.
The industrial segment continues to show growth.
With high inventories in the supply chain that remain to be a problem for one or two quarters.
Basically positive developments existing industrial automation poets since mission robotics oil and gas.
And in smart metering.
In consumer White goods sends a strong quarter driven by air conditioning devices, and also 2000 twentys expected to be positive.
Gaming should be strong due to the launch often usone plays a station in the course of this year.
There's ongoing strength of the military and medical sake. This computing is expected to see a better you in 2020 driven by growth in service.
Five Ci continues to be a major opportunity for strong growth starting in 2003 D.
Let me talk about Vishays business development.
Quarter for fields.
Excluding exchange rate impact came in slightly above the midpoint of our guidance.
We achieved sales of 610 million.
Well. This is 628 billion in prior quarter end versus 776 million in prior year.
Excluding exchange rate effects sales in Q4 growth down by 17 billion was 3% versus prior quarter and down versus prior year by 160 million or by 21%.
Sales into year 2019, right at 2 billion seek 68.
This is 3 billion almost 35 in 2018, a decrease of 11% excluding exchange rate effects.
Book to Bill into force quota recovered to point 94 from point 72 into third quarter, mainly driven by distribution.
Some detail 0.9 to four four distribution of the poor in 55 into third quarter.
<unk> 95 foot Williams after putting 90.
Point 95 book to Bill for the excess after putting six.
In Q3 point 94 for the passive stuff to point 83 in Q3.
1.3 book to bills with the Americas after putting 76 in the third quarter.
Point 96 for Asia after putting 64.
Point 88 in Europe after putting 78.
Backlog in the fourth quarter was stable at 4.5 month, which relates to equities and to passives.
Cancellations were substantially reduced into work in the now have a quite normal level.
The price decline is back to historical rates.
We had minus 8.8% versus play a quota and minus 3% versus prior year.
If there's a same on couldn't semiconductors or with a higher share of commodities said also stronger price decline is to be expected to minus 1.2% versus prior quarter and minus 5.9% versus prior years yeah.
The passives to be the highest Shia of specialty products.
At minus 0.3% price decline versus prior quarter in minus 0.2% price decline versus prior year.
Some comments on operations.
In the year, 2019 view, but not completely able to offset the noble negative impact so on the country for this margin by cost reduction and by innovation.
In particular temporary plant inefficiencies due to capacity adaptation spirit and the via to it because.
As she any costs in Q4 came in at 94 million slightly below expectations, when excluding actually defects.
As she and they cost for the year 2019 with 385 million.
90 million or 2% below prior year at constant exchange rates, mainly due to lower incentive compensation.
Manufacturing fixed cost in the fourth quarter came in at 126 million slightly above, namely 1 billion above our expectations.
Manufacturing fixed costs for the year 2019 were 509.010 billion or 2% above prior year at constant exchange rates impact to impact it naturally by higher depreciation.
Total employment at the end of 2019 was 22400.
Seven person down from prior year, which we haven't been be that 24115 or this of course, the consequence of abroad to capacity reduction.
Excluding exchange it impacts inventories in the quarter were reduced by 17 million raw materials by 4 million and Vipin finished goods by 13 million.
Inventory turns into fourth quarter slightly improved to 4.3 from 4.1 in prior quota.
In the year 2019 inventories decreased by 45 million raw materials by 29 million and Vipin finished goods by 16 million.
Inventory turns for the entire year 2019, where they're good levels of 4.3 slightly down from 4.5 in 2018, excluding again exchange rates.
Capital spending in the year 2019 was 157 million.
This is 230 million in prior year close to our expectations.
We spent 96 million for expansion 16 million for cost reduction and 45 million for maintenance of business.
For the current year, we expect Capex of approximately 140 million quite in accordance with the requirements of our Mark.
We in 2019 generated cash from operations of 296 million.
Including 38 billion cash taxes for cash repatriation compared to 259 billion cash from operations in 2018, including 157 billion cash taxes for casualty pit creation.
Generated last year 2009 in 2019 free cash of 140 billion, including 38 million of cash taxes for cash repatriation.
Compared to a free cash generation of 84 million in 2018, including 157 billion cash, Texas for cash repatriation.
I think we can say and I'm proud to say that every time that we show also in economically softer yes. His lift up again to its reputation as an excellent and reliable producer of free cash.
Now I come to the product lines and is Louie indicated they are going to report separately resistors and inductors from now on and let's start with resistance.
We say its traditional then since many years steadily growing business continues to be highly profitable.
Despite having been impacted negatively in 2019 by lower volume due to inventory corrections into supply chain.
With resistance, we enjoy a very strong position the auto industrial meal and medical market segments.
And feed to offer virtually all of this is the technologies.
Sales in Q4 over a 146 million.
Down by 6 million or by 4% versus prior quarter.
In down by 37 billion work by 20% versus prior year, excluding exchange it impacts.
Sales in 2019.
Oh 648 million were down by 44 million well by 6% versus prior year again, excluding exchange it impacts.
The book to pay the reassuring quota for was point 95 of the point 82 in prior quarter backlog increased slightly from 4.72 full point from 4.5 excuse me to 4.7 month.
Gross margin in the quarter came in at 24% of sales after 27% in prior quarter, no volume and inefficiencies.
Q2 capacity at the patients, but burdening the results temporarily.
Gross margin for the year 2019 was it a fairly good level of 28% of sales.
Down from 33% of sales in 2018, which on the other hands was a record year supported by an inventory built into supply chain.
Inventory turns into fourth quarter over at 4.1.
Inventory turns for the full year right at the satisfactory level of 4.1 also.
After price increases in 2018.
The development of his piece returned to normal trends, we have seen for to assist us minus 1% versus prior quarter and also minus 1% versus prior year.
Every the inventory correction being over in a very foreseeable future, we expect the business to return to traditional profitability levels.
Coming to inductors.
The business with inductors consists of power inductors entering it Ics.
Oh, a fast growing business. This inductors represents one of the greater success stories so fishy.
Exploiting the growing needs for inductors in general we should developed some years ago, a platform of robust and efficient power inductors and leads the market technically.
It's the mechanics.
Very well positioned in specialty businesses, demonstrating steady growth since years.
Sales of inductors in quarter, four was 77 million.
Up by 3 million will 4% versus prior quarter and flat versus prior year, excluding exchange rate impacts.
Year over year sales of 299 million was virtually flat versus prior year. Despite all economic headwinds in 2019, again I comment without exchange it impacts.
Book to Bill in Q4 was 1.25 after point 95 in prior quarter.
Backlog for inductors was at 4.7 month same as into third quarter.
Gross margin in the quota was it quite excellent, 34%, though sales up from prior quarter, which were at 32% of sales.
Gross margin for the year 2019 was that again quite excellent 32% of sales virtually on the same level as prior year.
Inventory turns into quarter over at 4.8 as compared to 4.64 to hold Ya.
The is only modest price pressure I didn't talk this minus 0.3%.
Versus prior quarter, and minus 1.8% versus prior year.
We continue sleep and we'll do source in the future expand our manufacturing capacities in particular for power inductors.
Coming to capacitors.
Our business with capacity. This is based on a broad range of technologies with a strong position in American and European market niches.
We enjoy increasing opportunities into fields of power transmission and of E commerce, namely in Asia, China.
In particular sales into fourth quarter, we're at 95 million, 4% below prior quota and 27% below prior year, excluding exchange it effects.
Year over year capacitor sales decreased from 466 million.
In 2018 to 423 million in 2019 or by 7%.
When excluding exchange it impacts.
Book to Bill issue in the fourth quarter for capacitors suppose point 84, after putting 76 in previous quarter.
Backlog remains for capacitors at the high level of 4.1 month.
The gross margin in the quarter decreased to 18% of sales after 22% in prior quarter.
Lower volume and an unfavorable product mix burden to results temporarily.
The gross margin for the year 2019 was a 22% of sales down from 23% in 2018.
Inventory turns into a quota increased to 3.7 is compared to 3.5 for the whole idea.
For capacity as we had price increases 0.7% versus prior quarter in cost 2.5%.
Versus prior year.
I come to our Upto nine.
Wishes business with products with Opto products consists of infrared emitters receivers census, and accomplices spelled S of any these for automotive applications.
Sales in the quarter over 51 million.
1% above prior quarter, but 21% below prior year, which again excludes exchange it impacts.
Year over year sales with opto products went down from 290 million to 223 million.
Down by 22% you over here without exchange rate impacts.
October was heavily burdened by inventory reductions into supply chain.
Book to Bill in the fourth quarter was one point 11 after point 86 in prior quarter, indicating we believe a turnaround of the business.
Backlog set a very high level of 4.7 month after 4.4 month this quarter.
Gross margin for opt into quarter was at 20% of sales after 22%.
In the third quarter.
Gross margin for the year 2019 came in at 24% of sales as compared to 35 forgetting the rate cuts per cent intra year as I said that really could put the split their thing.
Yeah, very high inventory turns of 6.0 into fourth quarter as compared to 5.4 in the whole year.
In October we have relatively stable prices to be savi prior quarter, there for a price increases of 2.3% misery prior year.
There was a price reduction of 1.7%.
We remain to be confident for this line growing steadily and also profitably.
Mainly in the segment of sensors.
Coming to diodes.
Diodes for Vishay represents a broad commodity business, we have yeah, the largest supplier worldwide.
Fishery office virtually all technologies as well as the most complete product portfolio.
The business has a very strong position in the automotive and industrial market segments and keeps growing steadily and profitably since she is.
After two record years the volume in diodes in 2019 suffered the most of all divisions from the inventory reduction into supply chain.
Sales in the quarter were 123 million on the level of prior quarter, but 30% below prior year, which excludes exchange rate effects.
Year over year sales. This diodes decreased from 713 million to 557 billion the decline of 21% without exchange it impacts.
[noise] the book to Bill the ratio of <unk> point 88 in the quarter. It wasn't a definite improvement are off to put in 57, which we have seen in quarter three.
The first appears to be behind us.
The backlogs are reduced slightly to a still high level of 4.7 month from 4.9 month in prior quarter.
The gross margin in the quarter came in at 16% of sales as compared to 17% in the third quarter.
The gross margin into year 2019 was at 20% of sales down from 28% in prior year.
The quite enormous throw portfolio mean combination be some manufacturing inefficiencies and a strong is p. decline, especially in the fourth quarter over the reason.
Inventory turns remained at the very satisfactory level of 4.4 on the level of the whole yet.
The ASP decline for diodes has accelerated in the fourth quarter.
No, we have seen minus 1.4% versus prior quarter and minus 7.3% versus prior year.
We are confident that this important business for vishay.
Really come back to historical volumes and also profit abilities.
Whenever the inventories in the supply chain views have reached normal levels and this will be you know foreseeable future.
[noise] coming finally to Mosfets.
Vishay continues to be one off the market leader in Mosfets transistors, most fits well with the last year's developed a strong and growing position in automotive, which is expected to provide the success for future for this product line.
Also mosfets currently see some impact or de stocking activity spilled right, but in a milder form than other commodity products.
Sales in the quarter, a 116 million.
8% below prior quarter, and 16% below prior year without exchange it impacts.
Year over year sales with most fits decreased from 548 million two pfeifle 9 billion by 6% without exchange rates.
Book to Bill ratio in quarter four was point 94 of the point 54 in Q3, apparently the business is on the way back to normal.
Backlogs continue to be on a high level.
4.2 month as compared to 4.2 month into third quarter.
Gross margin in the quarter was that 24% of sales no change from prior quarter.
The gross margin into year 2019 gave me the 25% of sales a slight reduction from 27% in 2018.
Due to lower volume.
Inventory turns in the quarter over 3.7 as compared to 4.1 for the entire yet.
I see trend for most fits has accelerated.
Minus 2.5% versus prior quarter in minus 6.1% versus prior year.
We are confident to be we have continued to be confident for the future of this line of most fits in particular driven by automotive applications and we continue to expand internal in foundry capacities.
[noise], let me summarize.
After a record year 2018.
Our business in 2019 has entered a phase of massive correction, which principally was not a complete surprise given to cyclical nature of electronics.
Now they are clear signs that the downtrend waterson sales is behind us and we believe that Q4 has been the low point for our business.
The inventory at distribution is still relatively high and really motivates the afford the expected recovery for another quarter, where another quarter or too.
We ask the automotive market segment globally still will need some time to get back to historical strength, we see other fields that are encouraging.
For the mid and long term, there's no reason to tout the growth potential of electronics Vishay is a very well established product line supplier will benefit from all moves towards electrification going forward.
Our increased machine capacities will enable us to participate in that makes the upturn to the full extent.
We are implementing our announced restructuring and retrieving nation program and expect an annual reduction of personnel fixed costs by 15 million.
When it will be fully implemented by the first quarter. After your 2021.
For the first quarter, we guide to a sales range of six to five to 645 million at the gross margin of 24 percentage of sales at the midpoint.
The guidance excludes potential impacts from the rapidly evolving koruna vitesse classes.
Thank you very much.
Thank you Dr., Paul we now open the call two questions Regina. Please take the first question.
Our first question will come from the line of Shawn Harrison with Longbow Research.
This is.
There looks like.
Which is good but how are they looking in January.
Oh, well approximately one approximately one it's really a relatively early in the year, but all the trends couldn't have recovery seem to continue.
I think we really have seen the best in quarter four.
Okay, Great and then its estimate about how much inventory will come out in the March quarter.
Do you see any need for restocking occurring even if it's beyond the March quarter.
Ironically, yes distribution, despite having relatively high inventories I would guess 70 80 million to high still procom proximity.
Which will be book down in the cause of the year no question, but obviously a distribution needs for that because this was very interesting to see that the orders from distribution. Despite these relatively high inventories increased sharply in the fourth quarter interest continues.
And then just the last one from me most margin was particularly weak in capacitors and die and I think it took another step down actually in diet, how quickly do does come back.
2020, any color would be appreciated thank you.
Yeah, we're quite confident to get back to historical levels for sure just by getting the volume for open behind us and beyond the way and secondly that for the quarter for US I tried to save was really burdened by some similarities which will not repeat themselves for instance, not in quarter one.
Great. Thank you.
Your next question what kind of on the line at replay by to carry out with bank of America.
Hi, Good morning. Thank you for taking my questions are Dr., Paul your guidance for gross margins for the first quarter.
Has the range, which is a slightly higher than what you typically guide instead of 100 basis I think it's like 140, but if you said there were some onetime items that impacted gross margins in the fourth quarter or some of those continuing in the first quarter wise. There what are what are some of the things that are causing that higher range of gross margins.
First of all I think it's the same range. We have you always have plus minus 20 billion in sales and both are restarted in 24% gross margin. So its I don't see a deviation from from previous quarters, maybe so but again, yes, the fourth quarter was burdened with singularities and most of them.
Absolutely most of them really go away.
First quarter very confident.
Repeat itself was very very specific so we can pinpoint what is happening quite a number of these cases and via really confident that is for no type, but getting into fiscal <unk>.
Okay. Thanks, Thanks for that my comment on the range was on the gross margins because I think you're saying, 24% plus minus 70 basis points versus like you typically you guide for 100 basis points range, but anyway. I mean, that's that's fine one thing you mentioned on on the diodes, you said that he S.P.
These were pressured in the fourth quarter.
You know do you see if he is improving you know in in that segment as well as overall.
Do you think that the first quarter U.S. piece will be better.
I think the 7% is not typically for diodes than the normal price decline historically for diodes is more like 3% free enough person, but we enjoy it two years of practically no price decline into a very little price decline and this is all in the face so for east that kind of I believe diodes food has no question for me.
The dispute into into the same historical range of 3% per year price decline, which we always are able to offset by cost reduction in innovation.
And the last one from me if you can just a given the environment the economic environment or what are your thoughts on your priorities for use of cash.
Versus a in terms of buybacks versus paying down debt versus.
Any acquisitions, a if you can give us your thoughts on on that as well. Thank you. Yes. It's a matter of fact, we have raised dividend substantially last year.
And we at the moment, a substantially was 12% I believe at 12% up and on the other hand via continuously looking for acquisitions and we may be successful doing so so to speak. So this this is to the center of our interest at the moment.
Okay.
Thank you.
Your next question comes from a line of Karl Ackerman with Cowen.
Hey.
Thanks, Thanks, Dr., Paul and Lori I appreciate the question two if I may.
First question, just on covenant or the competitive environment. So I think you know some of your capacitor appears or in the process of being consolidated.
Do you view consolidation as a good thing for the industry with regard to pricing or do you view it as a bad thing.
Given the Taiwanese and U.S. provider combined would seem to be com a bit more formidable competitor a in industrial capacitors resistors and inductors I've a follow up.
Could imagine that for the purchasing departments of the customers. This is not a good development, but for us for Vishay, it's absolutely hamlets, because especially in capacitors via practically exclusively in niche businesses and this has absolutely no impact. These these concentration in this case BB not in other cases I think it.
Yes. It is in particular this has absolutely no consequence wealth business.
Appreciate that.
With regard to pricing you know it seems pricing declines are more in line with historical rates. However.
Does your March where outlook imply an improvement in pricing from passive components.
Following the volcano in the Philippines had a perceived to have an impact on a global electronic supply chain.
No I think on past is to be up back to normal was always very low price decline historically because of the high share of specialty products in all our pets is really not only get pass it does but in order passes more critical of course is commodity products in this predominantly east diodes, and Mosfets and in this case, it's really too.
I've seen quite heavy price decline into fourth quarter, which I believe is the studying effect of things getting noma I believe this there's no reason why this would not end up in a trend, which we have seen since she is which is about 3% for diodes and say, 5% five per cent for the most of its I'm quite confident that this.
Come to that point, whether this will be exactly in quarter, one or a little later, but we have cost reduction anyway. We have cost reduction efforts ongoing early so we can cope with that but long term I do believe that the old trend, which is as I said approximately 3% for diodes say, 5%, maybe a little more for most of it.
I would come back.
Appreciate the color. Thank you.
Okay.
Your next question comes from a line of Matt Sheerin with Stifel.
Yes, Thank you and good morning.
Just a question Dr., Paul I look at looking past, our Q1 and it sounds like as you said, we certainly are at the bottom of the cycle here in starting to turn and obviously a how end demand plays out is a big question, but as you look.
To be ended the year, particularly across your end markets do you think it's possible that the vishay be able to grow revenue year over year in calendar 20.
Hard to predict but I believe it depends really to me I say that directly to which extends the Chinese development, which we currently see really really hitting that economic recovery.
Nobody knows that so and I also don't know we believe in a in a good year 2000.
And 20, because via bringing down manufacturing you know what it means you can never be perfect. Then we had additional costs into yeah, which by nature in a growing economy will not be will not reoccur. So I'm confident whether we can be better in sales depends of course on the environment, which is hard to see.
He had to one with the forecast.
Yeah, and I appreciate that you don't have a lot of granularity in terms of impact from the other corona virus on your business or the supply chain, but could you talk about <unk> your China manufacturing or what percentage of your revenue is derived from that and have you seen in.
Your own production facilities extended shutdowns I'm, just what you're doing or two to respond to that.
First of all the is to see a nice share really it's for the most pad and the semiconductors. They also some lines like especially doctors the passive side, but that but the bulk of the business that because it comes from Chinese factories. In this is in the semiconductors in diodes, but in particular also in the most.
Fits so this is a high Shia in both cases that come out of China.
Concerning to shutdown C. S. A it'd be the cut the plans currently at shutdown, but there is a prediction and be can believe it I think this is our our assumption that dispute beauty opened a next week.
But again via I'd hints of course of the officials no question about it.
And if there's a issues is extended I know you've gotten MOSFET.
Facilities in Europe is that something that the other facilities will be able to pick up that's like if if indeed, the shutdowns or extended.
Well, we don't have to say, we had beauty lists our capacity relative I didn't or cases to a large extent some mitigation can happen through the plans, especially in Taiwan.
But not to the full extent.
But I believe that at least this is what I know nobody knows exactly that China.
There are many signed step back to the on on the way to normal.
Okay, and just a question regarding the that incremental $15 million in in cost that you expect to take out beginning next year, a lori is that.
An opex or as she in a item or is that a in cogs or a mix.
So it's about 50 50 between the cost of goods sold and the operating expenses.
And again and I remind you we anticipate a full ambac full impact only in Q1 of 2021, because many of the volunteer sleep quite need India.
Got it okay. Thanks very much.
As a reminder to ask a question. Please press star followed by the number one on your telephone keypad. Your next question will come from the line that David O'connor with Exane BNP Paribas Huh.
Great. Good morning, Thanks for taking my question, maybe two from my side Dr., Paul first the M. No Q4 appears to be the bottom would or an orders into January a book one would you still talk about 70 80 million to come old inventory just wondering I can we get back to from Q1 on where can we get back to normal.
Type of seasonality. That's my first question and then maybe a question on the topic side of things for L'oreal. The 2020 Capex can you can split that out I will tell you intend to spend that or if there are and what areas within the the capacity expansion that you're investing in thanks.
Well looking at the in the future into inventory story I think we do not have to change what we said last quarter, we expected things to get Norma ER and after the middle of the here maybe even in the course of the second quarter, but at the time be said it of course, it depends really on the Chinese.
Development must say that I don't want to hide behind that but I think I want to to reconfirm. What we have said last quarter, we expect things to be Norma from an inventory standpoint in the pipeline by mid 50, yeah.
ER or says okay, yeah, yeah, yeah, okay.
Okay and from a standpoint of the one that split me I see that fall away a though the one for the cap is the Capex for next year will be split approximately like this year.
Excuse me like hopeful.
I'm sorry.
Understood. Thank you.
And at this time, we have no further questions.
Thank you.
This concludes our fourth quarter conference call. Thank you for your interest in Vishay Intertechnology.
Ladies and gentlemen that does conclude today's call. Thank you all for joining and you may now disconnect.
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