Q1 2021 Vishay Intertechnology Inc Earnings Call
Okay.
Okay.
Ladies and gentlemen, and thank you for standing by and.
Welcome to the Q1, 2021 and earnings conference call.
At this time all participants are in a listen only mode. After the Speakers' remarks, there will be a question and answer session. The ask a question. During the session you will need to press star one on your telephone if people would like to withdraw your question press the pound key.
For today's conference is being recorded if you require further assistance. Please press star zero and I would now like to hand, the conference over to your speaker today, Peter <unk> head of Investor Relations. Thank you and you may begin.
Thank you Dorothy.
Good morning, and welcome to Vishay Intertechnology first quarter 2021 conference calls.
With me today are Dr. Gerald Paul <unk>, President and Chief Executive Officer, and Lori Lipka him and her executive Vice President and Chief Financial Officer.
As usual, we'll start today's call with the CFO, who will review Vishay is first quarter 2021 financial results.
Dr. Gerald Paul will then give an overview of our of business and discuss operational performance as well as segment results and more detail.
Finally, we'll reserve time for questions and answers.
This call is being webcast from the Investor Relations section of our website at IR Dot Vishay Dot com the.
The replay for this call will be publicly available for approximately 30 days.
You should be aware of that in today's conference call, we will be making certain forward looking statements that discuss the future events and performance the.
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 today's press release entry shapes and form 10-K, and form 10-Q filings with the Securities and Exchange Commission.
In addition, during this call we may refer to adjusted or other financial measures that are not prepared according to generally.
The accounting principles.
And we use non-GAAP measures because we believe they provide useful information about the operating performance of our of businesses and should be considered by investors and conjunction with GAAP measures that we also provide.
On the Investor Relations section of our website you can find the presentation of the first quarter 2021, and financial information containing some of the operational metrics top of Paul will be discussing.
Now I turn the call over to Chief Financial Officer, Lori the come in.
Thank you Peter good morning, everyone.
I am sure and that most of you have had a chance to review our earnings press release.
I will focus on some highlights and key metrics.
Okay.
Vishay reported revenues for Q1 and $765 million.
EPS was <unk> 49 cents for the quarter.
Adjusted EPS was 46 cents for the quarter.
The only reconciling items between GAAP EPS and adjusted EPS are tax related.
And there were no reconciling items impacting the gross or operating margins.
Yes.
Revenues in the quarter were 765 million of price.
14, 6% from previous quarter and up.
The $24 eight per cent compared to prior quarter.
The prior year.
Gross margin was $26 five per cent.
Operating margin was $12 seven per cent.
There were no reconciling items to arrive at adjusted operating margin.
EPS was <unk> 49 cents.
Adjusted EPS was 46 cents.
EBITDA was 133 million or $17 four per cent.
There were no reconciling items to arrive at adjusted EBITDA.
Reconciling versus prior quarter operating income Q1, 2021 compared to adjusted operating income for the prior quarter.
Based on $97 million higher sales or 94 million higher excluding ex rate impacts adjusted operating income increased by 38 million.
And 297 million and Q1 2021 from $60 million and Q4 2020.
The main elements were.
Average selling prices had a negative impact of 4 million net.
Presenting is 0.5% ASP decline.
Volume increased with the positive impact of 44 million equivalent to a 14, 7% increase and volume.
Variable costs decreased with the positive impact of $12 million.
Primarily due to volume related increased manufacturing efficiencies and cost reduction efforts.
And with more than offset annual wage increases and higher metal prices.
Yeah.
Fixed costs increased for the negative impact of $17 million.
Primarily due to higher personnel cost related to uneven attribution of the stock compensation expense.
Higher bonus accruals and more.
The working days in Q1 and wage increases.
The offset by our restructuring programs.
Inventory impacts had a positive effect of $5 million.
Reconciling versus prior year.
Operating income for Q1, and 2021 compared to adjusted operating income and Q1 2020 based.
Based on 152 million higher sales.
Or $131 million, excluding the exchange rate impacts.
Adjusted operating income increased by $46 million.
297 million and Q1 2021 from $51 million and Q1 2020.
The main elements were.
Average selling prices had a negative impact of $11 million, representing a $1 four per cent ESP decline.
Volume increased with the positive impact of $60 million, representing a 22 eight per cent increase.
Variable cost decreased for the positive impact of 7 million primarily.
Primarily due to volume related increased manufacturing efficiencies and cost reduction efforts, which more than offset higher metal prices annual wage increases as well as higher freight costs.
Fixed cost increase for the negative impact of 6 million, primarily due to annual wage increases and higher incentive compensation, partially offset by our restructuring programs.
Exchange rates had a negative effect of $4 million.
Selling general and admin and administrative expenses for the quarter for 106 million slightly above our expectations when adjusted for exchange rates.
Due to higher incentive compensation accruals, given the favorable 2021 outlook.
The.
Based on our cycle, our SG&A expenses are at the highest quarterly level in Q1.
Primarily due to uneven attribution of stock compensation expense.
And.
Directly attributable costs of the pandemic.
And now part of the new normal operating state.
Accordingly, the are considered in our normal operating costs.
For Q2, 2021, and our expectations are approximately $104 million of SG&A expenses.
For the full year expectations of approximately 420 million and the exchange rates of Q1.
Slightly above our previous guidance due to higher incentive compensation.
We early adopted the new accounting standards for convertible debt effective January one 2020 of them.
Christian to the new standard our convertible debt is no longer bifurcated into debt and equity components and go.
And no longer required to amortize the related debt discount as noncash interest expense.
This means that our reported debt balance has increased to approximately the face value of the convertible notes.
It also means that our GAAP interest expense has decreased to approximately the cash coupon on the convertible notes plus the costs under the revolving credit facility.
We expect interest expense for Q2 to be approximately $4 4 million.
As described in our annual report on form 10-K, we took actions to amend the indenture for the convertible notes due 2025 to minimize the EPS dilution of the notes under the new standard.
This results in a similar impact and the diluted EPS share count to that which was achieved under the old standard when assuming net share settlement.
The debt shown on the face of the balance sheet at quarter and is comprised of the convertible notes due 2025 net of debt issuance costs.
There were no amounts outstanding on our revolving credit facility at the end of the quarter.
However, we did used to be involved with from time to time during Q1 to meet some short term financing needs and expect to continue to do so and the future.
No payments are due until 2025.
And the revolving credit facility expires in June 2024.
We did not repurchase any of our convertible notes due 2025 during Q1, but.
But we continue to be authorized by our board of directors to repurchase up to an additional 65 million of convertible notes due 2025.
Two market and business conditions legal requirements and other factors.
We had total liquidity of $1 5 billion at quarter end.
Cash and short term investments comprised of $781 million.
And there are no milestone standing on our $750 million credit facility.
Total shares outstanding at quarter end of for $145 million.
The expected share count for EPS purposes for the second quarter 2021 is approximately $145 5 million.
Our convertible debt repurchase activity over the past few years together with the adoption of the new convertible debt standard significantly reduces the variability of our EPS share count.
Yeah.
Our U S GAAP tax rate for Q1 was approximately 18%.
During Q1, we recorded the benefit of $4 4 million due to a change and tax regulation.
Our normalized effective tax rate, which excludes unusual tax items most of them.
Approximately <unk> 23 per cent for the quarter.
We expect our normalized effective tax rate for full year 2021 to be between 22 and 24 per cent.
Our consolidated effective tax rate based on the assumed level and mix of income among our various taxing jurisdictions.
A shift in income could result in significantly different results.
Also a significant change and U S tax laws or regulations could result in significantly different results.
Okay.
Cash from operations for the quarter was $57 million.
Capital expenditures was the quarter were $29 million.
Free cash for the quarter was $29 million.
For the trailing 12 months cash from operations was $338 million.
Capital expenditures for $128 million.
Split approximately for expansion $85 million.
For cost reduction 8 million.
For maintenance of business $35 million.
Free cash generation for the trailing 12 months period was $211 million.
The trailing 12 months period includes $16 million cash taxes paid related to cash repatriation.
$15 million cash taxes paid for the 2020 installments of the U S tax reform transition tax.
Each has consistently generated in excess of 100 million cash flow from operations each of the past 26 years and greater than 200 million for the past 19 years.
Yeah.
Backlog at the end of quarter, one was at $1.731 billion.
We're six eight months of sales.
Inventories increased quarter over quarter by $32 million, excluding exchange rate index.
Days of inventory outstanding were 75 days.
These days of sales outstanding for the quarter of 43 days.
Days of payables outstanding for the quarter.
33 days, resulting in a cash conversion cycle of 85 days.
None of them I would like to turn the call over to our Chief Executive Officer, Dr. Gerald Paul.
Thank you Lori and good morning, everybody.
And the first quarter, the steep upturn of our business visible since October of last year accelerated even further.
The shop and the effective ramp up of critical manufacturing capacities and allowed <unk> to exceed the expected sales for the quarter.
Quite excellent plant efficiencies and that.
Our traditional discipline and fixed costs and combination with high sales led to good financial results.
Vishay in the first quarter achieved a gross margin of 26, 5% of sales of.
Operating margin of 12, 7% of sales.
Earnings per share of <unk> 49 cents and the adjusted earnings per share of 46 cents.
We in Q1 generated 29 billion of free cash, which I believe is a good start into another solid year of cash generation.
Let me talk about the economic environment, the economic environment for the electronics business continues to be exceptional with sales orders and backlog at the historical high.
Virtually all market side, and excellent shape and supply chains have become rather depleted.
Despite all efforts to expand manufacturing capacity of these quickly lead.
Lead times for many product lines have stretched out to rapidly and Mississippi.
We like our competitors try to keep up delivery service to the best we can but shortages continue to growth.
By the nature price pressure place of these fairly low and further reducing.
Sales in the second quarter vary of the will be limited mainly by the available manufacturing capacities.
All the regions enjoyed substantial growth and the quarter.
The abuse and all of the hemispheres is extremely hungry for product.
The Asa continued strong performance in Asia, and general automotive and computing sections.
Driving the demand.
The shortage is low for premium pricing opportunities.
There's a fill the accelerating business and Europe, driven by automotive, but also by a sharp improvement of the industrial sector.
We see a rebound of the business in the Americas, despite ongoing weakness of oil and gas and commercial avionics.
Global distribution and currency gets overwhelmed with orders for.
It's a record high since I would say, it's 15 years.
Global distribution of expects really and excellent year.
And the first quarter was 23% over prior quarter and 21% over prior year.
Distribution continues extremely strong and Asia, plus 19% quarter over quarter.
Quarter over quarter.
It started to heat up also in Europe with 36%.
Quarter over quarter ended the Americas, plus 16% quarter.
<unk>.
Global distribution inventory came down by another $34 million after the reduction of 24 million into fourth quarter.
Distribution inventories, especially in Asia approach critically low levels.
Inventory turns of global distribution increased sharply to four point and one form of 3.1 and prior quarter.
In the Americas, one nine turns of the one six and quarter four and one eight and prior year.
In Asia the market for six seven turns off the five point O Inc.
Quarter, four and three eight and proud of here.
And Europe for point for turns after three two.
In the Q4 and three six and prior year.
Automotive remains remarkably strong globally with Oems and continuing to struggle for replenishing vehicle inventory.
The increase of the electronic content clearly accelerates.
Electric vehicle charging program start to become very tangible.
We see also exceptional growth of the industrial sectors, which indicates a broad global recovery for.
Factory automation and the accelerated residential development governmental investments and power generation and transmission systems and spend this alternative energy systems, that's driving the demand.
Markets for a computer and a parity.
<unk> for the equipment.
<unk> per barrel.
We see no signs of the slowdown of purchases for work study or shop from home.
Yes.
Five G.
Base station equipment continues to show strong growth and telecom.
Better opportunities now for risks and equipment manufacturers as a consequence of political frictions.
Military defense spending continues reasonably strong.
Commercial avionics remains weak the.
The medical sector continues on the steady growth trend.
Consumer market sectors showed solid growth in the quarter.
Driven by higher rates of home construction traditional TV and gaming.
Talking the business development of Vishay.
Due to high orders and the rapid increase of our manufacturing capacities.
Q1 sales excluding exchange rate impacts came in substantially above the upper end of our guidance.
We achieved sales of $765 million.
Vs 667 billion in prior quarter, and <unk> 13 million and prior year.
Excluding exchange rate effects sales in Q1 were up by 94 million were up by 14% versus prior year quarter.
And up by 131 million for 21% versus prior year.
Book to Bill ratio in the first quarter accelerated further to 167 from 144 and prior quarter and from <unk> 99 in the third quarter of last year.
We have seen $1 89 for distribution.
The $1 89 in the fourth quarter same number 141 for Oems After <unk> 96, and the first and the fourth quarter.
$1 86 for semiconductors theft of 161.
1.50 for Passives after 127.
142 for the Americas after 125 in Q4.
186 for Asia after 175.
And $1 62 for Europe after 127.
Backlog in the first quarter climbed to another high of six to eight months after five six months in the fourth quarter.
Seven seven months in semis after six months and the fourth quarter and five nine months and passives after five two months.
We see a further decreasing price pressure and Chengdu.
And this 0.5% versus prior quarter and minus one 4% versus prior year of.
Of course, we start to see the impact of selective price increases.
Semi and semi is you have you see minus 1% versus prior quarter minus two 1% versus prior year and the passives.
And practically price stability minus point of one two.
And the price decline versus prior quarter and buying this 0.7% versus prior year.
Thanks to.
Excellent plant efficiencies.
And despite still hydrants per patient and Middle class Israel is continuing continued unfavorable exchange rates.
Contributive margin and the first quarter improved substantially from the fourth quarter.
Practically returning to traditional levels.
SG&A costs in Q1 came in at one of those 6 million 2 million above expectations, when excluding exchange rate effects, mainly due to higher bonus accruals.
Manufacturing fixed costs in Q1, the came in at one and 40 million.
Slightly higher than expectations, when excluding ex rate effects, mostly true to the maximization of the production output.
Total employment at the end of Q1 was 22062% up from prior quarter.
Excluding exchange rate impacts inventories and the quarter increased by $32 million.
8 million in the raw materials and $24 million in width and finished goods of course, the consequence of the capacity ramp up.
Inventory turns in the first for the increased to $4 eight from 4.6 and prior quarter.
Capital spending in Q1 was $29 million versus 24 million and prior year 21 million for the expansion 1 billion for cost reduction and 7 million for the maintenance of business.
In view of the extremely high market demand, we will accelerate and mid term expansion programs noticeably we expect for the year 'twenty, one capex of approximately $225 million.
The required in particular also for the preparation for anticipated higher growth rates of the business and the future.
Yes.
We generated in the first quarter cash from operations of 338 million on the trailing 12 months basis.
This includes 16 billion cash taxes paid for cash repatriation.
And we generated and the first quarter free cash of 211 billion on the trailing 12 months basis, again, including $16 million cash taxes paid for the cash repatriation.
Despite increased Capex and we also for the current year expect a solid generation of free cash quite in line with our tradition.
And I go through the product lines and the start as always with the resistance.
Resistance, we enjoy a very strong position and the auto industrial Mil and medical market segments.
The offer virtually all resistor technologies and the globally known as a reliable high quality supplier of the broadest product range.
Vishay has traditionally and historically growing business has recovered completely from our second quarter 2020, low and now starts to exceed the pre pandemic levels.
Sales in the quarter of 187 million.
Up by 24 million with 15% versus prior quarter.
And up by $20 million or 12% versus prior year all of this excluding exchange rate impacts.
Book to Bill in Q1 and for the system was really strong 1.50.
The $1 24 in prior quarter.
The backlog increased sharply from four nine to five six months.
Due to higher volume and quite excellent deficiencies and the plants.
Gross margin in the quarter increased to 29% of sales from 25% and prior quarter.
Inventory turns and the first quarter.
Very high level of 5.1 of the $4 eight and.
And the prior quarter.
Selling prices have fairly stabilized minus <unk>, 4% versus prior quarter.
And minus one 3% versus prior year.
We will increase critical manufacturing capacities for the assist of chips and for power of Y O y and substantially and.
And we also plan to open a new production site in China.
The integration of the acquisition of ATP Progressive Essent re do we expect the very successful year for the system and total.
Coming to and doctors.
The business consists of power inductors and ethics.
Since he is our fast growing business with inductors sort of presents one of the greatest success stories of Vishay.
Exploiting the growing need for inductors and general Vishay developed a platform of robust and efficient power inductors and leads the market technically.
And with Magnetics, we are very well positioned and specialty businesses demonstrating steady growth there.
Sales of inductors in Q1 were $84 million.
Up by $8 million or 11% versus prior quarter and up by 9 billion with 12% versus prior year, excluding exchange rate impacts.
Book to Bill in the and Q1 was 113 of the one point or three and prior quarter. The backlog is it for five months after for six in the fourth quarter.
Mainly due to higher volume gross margin in the core the increase to excellent 33 per cent of sales from prior quarter at 30% of sales.
Inventory turns in the quarter remained at the very high level of $5, one as compared to 5.0 and prior quarter.
Also for inductors, we see reduced price pressure.
In fact, the prices went up by point and 7% versus prior quarter and became down by two 4% versus prior year.
We will accelerate the next steps of capacity expansion for power inductors in order to get the hit of the demand curve.
Coming to capacitors.
Our business with capacitors is based on a broad range of technologies with the strong position in America and the European market, we are mostly acting initiatives.
We enjoy increasing opportunities in the fields of power transmission and of electric cars, namely in Asia and China in particular.
Sales in the first quarter of of at one of 6 million, 15% above prior quarter and 9% above prior year.
Which again excludes the exchange rate effects.
Book to Bill ratio in Q1 was $1 73, which represents another acceleration from the high level of 154 in the fourth quarter.
They are excellent business and there is an excellent business environment for virtually all capacity the lines.
And all of this has led to a broad and steep increase of orders.
Backlog increased again to a record level of seven four months from six two months and the fourth quarter.
Gross margin in the quarter increased sharply to 23% of sales up from 18% and prior quarter substantially higher volume and combination with pet of plant efficiencies and some inventory build.
And what's the reason.
Inventory turns in the quarter increased to three nine virtually on the level of the prior quarter.
Prices for stable to up.
Low price change vis vis prior quarter, and plus one 7% price versus prior year.
We expect the Goodyear also for capacitors driven by large governmental projects in China.
The solid mill business and the very friendly business environment in general.
Opto.
Vishay is business with auto products consists of infrared emitters receivers sensors and couplers.
The business in 2020 experienced a significant recovery from a disappointing year before.
Currently we experienced the strong acceleration of demand and sales in the quarter were $78 million, 13% above prior quarter.
And 37% above prior year, which excludes exchange rate impacts.
Book to Bill and the first quarter increased further to 166 from one point and 46 and prior quarter.
Backlog grew to an extreme high of seven months of the five nine months and quarter four.
Gross margin in Q1 came in at 33 per cent of sales day.
And lastly, remarkably up from 28% in prior quarter.
Higher volume spate of plant efficiencies and some inventory build supported this positive development.
I think I can say that opt to expect on its historical profitability levels.
High inventory turns at opto of $6 for the quarter as compared to six point or in the fourth quarter.
Selling prices have stabilized minus one 3% versus the prior quarter and minus <unk>, 2% versus prior year.
As I mentioned before we are in process to modernize and to expand our wafer fab and hydrocodone and Germany.
Our confidence and a good future of the optic product line and apparently has been justified the belief that opto going forward will contribute noticeably to our growth.
Diodes.
Diodes for Vishay represents a broad commodity business, where we are the largest supplier of real debate vishay offers 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 years.
Diodes. After a few difficult quarters is in midst of an ex quite extreme strong and broad recovery that currently even accelerates sales in the quarter of 157 billion.
Up by 17 million or 13% versus prior quarter and up by 38 million of 32% versus prior year again without the exchange rate effects.
Extremely high book to Bill ratio of 185, and diodes in the quarter up from $1 65 in the fourth quarter.
Backlog climbed to an extreme high of seven nine months from $6 two months and prior quarter.
Mainly due to higher volume gross margin in the quarter went up substantially to 22% of sales as compared to 18% in quarter four.
Inventory turns for flat at $4 eight.
We see further reduced price pressure of minus <unk>, 4% versus prior quarter and minus <unk>, 7% versus prior year.
And we decided for the substantial expansion of our in house hip in Taipei, introducing at the same time the eight inch take note of the Chi which is relevant for cost reduction.
As expected diodes with a return to more normal volumes start approaching more historical profitability levels.
Last but really not least the most of its.
Ricci Vishay is one of the market leaders and MOSFET transistors with most of its been Choi of strong and growing market positioning and automotive.
In view of and increasing use of most fits automotive and automotive will provide the successful future.
The demand has reached extreme levels and increases further.
Sales in the quarter of 153 million, which is the highest level since 2016.
The 16% above prior quarter, and 29% above prior year, excluding exchange rate impacts.
Book to Bill the ratio.
Jumped to $1 97, and the quarter after 164 in the fourth quarter.
Backlogs and climbed two and extreme high of seven eight months as compared to 5.7 months in Q4.
Gross margin and the quarter improved to 24 per cent of sales up from 22% in prior quarter.
Inventory turns in the quarter were $4 seven as compared to four three and quarter four.
And also for most of its VC decreasing price decline minus one 4% versus prior quarter and minus four 5% versus prior year and we do expect prices to stabilize further.
Most of it.
The main key for Vishay is growth going forward.
May I summarize no question that our industry and in particular, we see COVID-19 evolves through the pandemic the.
Still has the strong impact on very many economies and on very many personal lives.
There is on the unstoppable global trend towards electronic application it makes our future promising even exciting.
We currently experience and the extremely steep increase of demand for which we at we say first of all of C. As an opportunity that we really exploit for the best we can.
Beyond this we feel that the challenges of the last year have helped to accelerate electronic vacation and built by its fairly massively from electro cash two five G.
We will prepare ourselves in terms of available machine capacities and will provide the capital required.
We will advance the existing and Debelle thought through programs for our most successful product clients cash paybacks of short and the risks of such investments of very low.
While enjoying higher gross and we will definitely keep our feet on the ground in terms of fixed costs is for you, obviously, it and the past and we.
We will do our utmost to remain the same fear and service oriented supplier of close to our customers and we are known for.
I am convinced that this is the best and most solid basis for future growth and success.
For the second quarter results are very promising to be guide to a sales range between 790 and $830 million.
Gross margin of <unk>.
27, 3% plus or minus 60 basis points.
Thank you Peter and I give you the.
Back to you.
Thank you Dr. Paul we'll now open the call to questions. Dorothy Please take the first question.
At this time of you would like to ask a question. Please press Star then the number one on your telephone keypad.
And then comes from the line of the body.
From Bank of America.
Hi, Thank you for taking my questions.
Paul of the book to Bill remains pretty high and the backlog is increasing can.
Can you, let us know what steps you're taking to mitigate any double ordering how do you filter that out and what steps are you taking the contract.
Honestly.
And I've said this before and situations like that there is practically no way to filter out double ordering but on the other hand, given the situation of today with this high backlog. The problem of debt is very low we have to accept it the tablets and honestly, there's not much to be done.
Unfortunately, okay. Okay.
Okay, No that's fine.
Can I ask you on the Capex I think you've raised your guidance for this year's Capex to $225 million can you give us some details on which regions and which product claims for adding capacity and when do you think that will be fully utilized.
Mhm the soldiers the same line and really it's going to the most fits to the diodes to the power inductors to resist the chips.
Two power of I O bounce and we invest continue to invest and the opto fab.
And also in the eastern powered it means and power film capacitors.
As a matter of fact this will be available in steps of course fully implemented.
I would say by the end of next year.
Okay, and a little of it also of the delivery times of day equivalents.
Okay got it and then lastly can I ask you about the priorities for cash in this environment.
You see any opportunities for inorganic growth either on the passive site or of the active side and then how should we think about buybacks and any of the dividend increases. So just your thoughts on prioritizing the use of cash. Thank you.
As a matter of fact.
Looking for acquisition of service with just the class a specialty company. You noted ATP. We are looking for further opportunities and of course speak concretely look at further opportunities also.
And of course, I can say and I think of reconfirm that that we have considerations here for.
For our programs, which you named ease of dividend or cash for stock.
Stockpile buyback free we consider that and our board.
The evaluates all possibilities at this point.
Okay. Thanks for all of the details thank you.
Your next question comes from the line of Karl Ackerman with Cowen.
Hi, good morning, Thanks for taking my question.
I guess first question Dr. Paul.
And given the record bookings and your outlook for June fully booked today all of the June quarter require a turns business and I was hoping you could provide your view on which end markets are seeing the most extended lead times at distribution.
Well first of all of them I don't take it but on the daily basis, but don't don't prefer it theres always some turns business required but for the backlog. The short term backlog is quite overwhelming what really is important in quarter. Two is how much we can manufacture that is.
The the emphasis will be on manufacturing and the challenge so I'm not concerned and that it's really manufacturing whenever we can produce.
We can practically standard at this point and time is it didn't slow piece of it but nevertheless, it's really not the mid of the backlog for you have enough there's no no issue.
And concerning the lead times, it's very broad.
And that since our service and like all of our contracts service of our competitors is not so good and most fits and diodes and and doctors. It's in many places our lead times are very long and tend to.
Get longer these days still book to Bill continues to be also in April continued to be substantially above one it was at one five and April.
I don't know, where the eye Institute of Christian and I Hope.
That's helpful. Maybe as a follow up Dr. Paul I'd like to hear your perspective on where you think we are and the semi cycle.
And your outlook for June implies a record level of sales distributor inventories are low pricing pressure is easing.
And at the same time, you know we are increasing capex by 10%. This year. So I guess given the fact given these factors what are your thoughts on the sustainability of the demand in the second half do you think second half demand could be as strong as the first half. Thank you.
We have no reason to doubt that talking to our to our customers' ongoing optimism ongoing optimism and of course that the quarters type of certain of the history of some quarters are not do not pay for as many working days as others, but principally speaking I see at this point and time no change of the trend.
Which at the point and time is it overseas, it's a cyclical business.
Of course comfort at this point and time I think we are early still and the sanction.
Thank you.
Your next question comes from the line of Matt Sheerin with Stifel.
Yes, Thank you and good morning, and Dr. Paul I wanted to ask about the the strong distribution point of sales of our sell through that you talked about up 23%.
Quarter on quarter or are you getting a sense.
Well number one is that the traditional distribution customer are you starting to see your OEM and the inverse of customers, who traditionally buy more director also using distribution.
And are you getting a sense that the distribution customers are trying to or are building inventory and at some point, we see a correction there.
Well.
He has since a long time sooner or later they will be again, the pipeline will be filled but disappointed and time the street tangible effects that inventories go up and the supply chain I'm not aware of any of course, we don't know everything and you can ask with the Oems for instance, built some inventory, which you can never complete.
The exclude but overall I would safe to pipeline the supply chain is really.
The relatively empty people are extremely hungry for for product.
So I cannot see at this piece of Swire said before I think it's still early in the cycle.
And I believe the of supply chain is relatively empty met what was the second part of your question excuse me.
Yeah. It was just in terms of are you starting to see your direct customers and maybe can't get part of they going and are using distribution more than normal what you've seen in prior cycles and I cannot exclude it but this is not the driving thing I believe I don't see it. So it can happen of course and these these times speak it can help especially and such tie.
But I don't see a momentum of yeah.
Okay and then in the.
The release. This morning, you talked about the long term drivers of content growth for vishay, including five G.
E V and other could you be it may be more specific about in terms of the content growth what the content of.
Opportunity is and in EV versus traditional combustible and Jason and then five G and other examples that we can get comfortable with that capacity adds that you're talking about.
Yes.
Especially on the vs. I I have a number you've already the normally we are the electric electric of content electronic content in the normal car is about $200 opportunity for us.
And in the electro vehicles. This is $700 according to what the beat.
And this does not include the charging stations. So just to give you that the example of we are quite excited about it of course, and I and the share of electronic of electric cost increases. Obviously, so this is a major opportunity and for five for five cheese for Chi. This is a really broad.
And for a broad line of it's a nice opportunity for us so well we have analyzed.
The needs going forward and we are quite convinced that our capacity expansions the right decision.
Yeah.
Okay, and then just lastly, and in terms of the guidance for up sequentially does that contemplate some inventory build at distribution and does that also factory.
ASP increases.
Both the will there be some at the inventory at distribution is slow, especially in Asia. So we would I would expect some increases of of.
The inventory at distribution, which could be healthy at this point and time also some first impact of price increases I include it.
Okay, Alright, and thank you very much.
Thank you.
As a reminder, if you would like to ask the question Press Star then the number one of the telephone keypad. Your next question comes from the line of Harlan sur with JP Morgan.
Good morning, and congratulation and the strong results and execution of Dr. Paul on the teams the outlook for higher growth rates over the next few years.
Rising dollar content and electrification.
How should we think about the targeted growth rate relative to your prior view of crude of 6% revenue growth and 10% to 20% net income growth.
Where do we take the 6% from six.
6% is the.
Market itself grows by about 2% to 3% historically, we indeed believe now and it is.
Can be thought of that is true.
That is true double double of the prior target growth rate, yes, the ICL yeah.
The as I said lots of opportunities that are ahead of us about the head of this industry of electronic components. I think we can be very confident for it for the future.
And concerning our theater of the EPS growth for let's say.
The operating margin growth you you'll see.
All of them very up and match it and our Contributive margin is around 45 per cent and you see the impact of such increase it's relatively constant and fixed costs relative for you of course, you have for inflation.
See you can calculate immediately what this means for our results.
Yes exactly.
And on that topic of contribution margins.
And I asked this question last quarter or two but the team is still below the 46% level of it.
You guys were driving back in 2018, and you are pretty close to 45% of it feels like and Q1 and Q2, but still slightly below that so given the continued pricing improvements would you anticipate contribution margins moving more towards 45% or better as you move through the second half of the year.
I believe what we are going to see is the impact of some price increases I E.
Can hardly speculate on logistics costs, which holds the spec at this point and time not only US also others you would assume that with improving situation of the pandemic there will be more flights and the interest.
Freight rates will go down again, so there are some positive aspects for it and for the.
For the variable margin of the second half I cannot deny that true.
Okay and then maybe just my last question given the strong backlog and I'm, assuming the times are still extending so it feels like you guys sort of very good visibility for the second half and I assume the given the demand environment. The second half is shaping up to grow over the first half number one is that fair and given your of man.
The fashion and capacity expansion plans can the team support you know revenues at or above $815 million per quarter and the second half.
And is principally it can but you may remember last session when I called our machine capacity of the the Mexico paucity of three two.
And.
At the moment and process to add but.
But of course for me.
The faster be it the more sales we can bring home the question at least during such a period like today.
And we will do our best but we depend also on the equipment manufacturers as you can imagine.
Okay. Thank you.
Thank you.
At this time I'll turn the call back over to our speakers for closing remarks.
Yeah.
Hello.
At this time I'll turn the call back over to our speakers for closing remarks. Please go ahead.
Are there any closing remarks.
Peter.
I'm, sorry, I was muted and thank you for joining us on today's call and for your interest and Vishay Intertechnology.
Thank you, ladies and gentlemen that does conclude today's conference call. Thank you for your participation and ask that you. Please disconnect your line.
Thanks, Paul.
Okay.
And.
Okay.
Yes.
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Paul.
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