Q2 2022 Vishay Intertechnology Inc Earnings Call
Greetings and welcome to Vishay is second quarter 2022 earnings call.
At this time all participants are in a listen only mode.
A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad. Please note. This conference is being recorded.
Now I'll turn the conference over to Peter Henry Qi Senior Vice President Corporate Communications. Thank you you may begin.
Thank you Sherry good morning, and welcome to Vishay Intertechnology second quarter 2022 conference call.
With me today are Dr. Gerald Paul Fischer, President and Chief Executive Officer.
And Laurie lip coming our executive Vice President and Chief Financial Officer.
As usual, we'll start today's call with the CFO , who will review Vishay second quarter 2022 financial results.
Dr. Gerald Paul will then give an overview of our business and discuss operational performance as well as segment results in 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 replay for this call will be publicly available for approximately 30 days.
You should be aware that in today's conference call, we'll be making certain forward looking statements that discuss future events and performance.
These statements are subject to risks and uncertainties that could cause actual results to differ from the forward looking statements.
For a discussion of factors that could cause results to differ please see today's press release, and reshape 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 accepted accounting principles.
We use non-GAAP measures because we believe they provide useful information about the operating performance of our businesses and.
And should be considered by investors in conjunction with GAAP measures that we also provide.
On the Investor Relations section of our website you can find a presentation of the second quarter 2020 to financial information.
Turning some of the operational metrics stuck up Paul will be discussing.
Now I turn the call over to Chief Financial Officer, Laurie, let's come in.
Yeah.
Thank you Peter good morning, everyone.
I am sure that most of you have had a chance to review our earnings press release.
I will focus on some highlights and key metrics.
Vishay reported revenues for Q2 of 864 million a quarterly record. Despite a temporary closure of two key facilities in Shanghai, China for over two months.
EPS was <unk> 78 cents for the quarter.
Adjusted EPS was <unk> 82 cents for the quarter.
We've identified certain charges for the Covid related shutdowns of our facilities in China during Q2.
The cost of these government mandated shutdowns in China are incremental to and separable from normal operations.
These items impacted cost of goods sold by $6 7 million and selling general and administrative expenses by zero point $5 million and are added back net of tax when calculating our non-GAAP adjusted EPS.
We do not include in this amount indirect costs depend on Nick which are normal cost of doing business in 2022.
Yeah.
During the quarter, we repatriated cash from Israel as part of a program we initiated in response to a change in Israeli tax law.
We repatriated 81 million to the United States.
Net of paid withholding and foreign taxes of $13 million.
We also paid Israeli claw back tax of $12 million.
These taxes had been accrued in Q4 2021, when the new tax law was enacted.
The payment of these taxes is reflected as an operating cash flow on the statement of cash flows.
The repatriated cash is used to fund our stockholder return policy.
Yeah.
Yeah.
As we announced in February Vcs adopted a stockholder return policy, which calls for us to return at least 70% of annual free cash to stockholders directly in the form of dividends or indirectly in the form of stock repurchases.
For 2022, we intend to return at least 100 million.
During Q2, we repurchased one 4 million shares of common stock for approximately $26 3 million.
We paid $14 3 million for a quarterly dividends for a total stockholder return of $40 6 million.
Year to date, we repurchased one 9 million shares of common stock for approximately $36 $2 million and paid $28 8 million in dividends for a total stockholder return of 65 million.
Yeah.
Yeah.
Revenues in the quarter were $864 million.
One 1% from previous quarter.
And up by five 4% compared to prior year.
Gross margin was 33%.
Adjusted gross margin was 31.0%.
Operating margin was 17, 5%.
Adjusted operating margin was 18, 3%.
EPS was <unk> 78 cents.
Adjusted EPS was <unk> 82 cents.
EBITDA was 192 million or 22, 2%.
Adjusted EBITDA was $199 million a ton.
Three points or 1%.
Yeah.
Reconciling versus prior quarter.
Adjusted operating income Q2, 2022 compared to operating income for prior quarter.
Based on 10 million higher sales or 24 million higher sales, excluding ex rate impacts.
Adjusted operating income increased by 12 million.
Two 158 million in Q2 2022.
From 146 million in Q1 2022.
The main elements were <unk>.
Average selling prices had a positive impact of 24 million right.
Representing a 2.9% S P increase.
Volume decreased with a negative impact of 1 million equivalent to a 0.1% decreased primarily due to the COVID-19 related plant shutdowns in Shanghai.
The Elba costs increased with a negative impact of 15 million.
Primarily due to higher metals and material prices.
Yeah.
Fixed costs were flat quarter over quarter.
Inventory impacts had a negative impact of $1 million.
Exchange rates had a positive effect of 4 million.
Yeah.
Reconciling versus prior year.
Adjusted operating income Q2, 2022 compared to operating income in Q2 2021.
Based on 44 million higher sales were 78 million higher excluding <unk>.
Exchange rate impacts adjusted operating income increased by $33 million.
Two $158 million in Q2 2022.
From $125 million in Q2 2021.
The main elements were.
Average selling prices had a positive impact of $64 million, representing an eight 1% E. S. P N piece.
Volume increased for the positive impact of $14 million.
Presenting at one 6% increase.
Yeah.
Variable costs increased with a negative impact of 30 million.
Primarily due to increases in cost of materials and services later, silicon metals and logistics not completely offset by manufacturing efficiencies and cost reduction efforts.
Yeah.
Fixed cost increase for the negative impact of $17 million, primarily due to annual wage increases as well as general inflation.
Inventory impacts had a positive impact of $4 million.
Exchange rates had a negative effect of $3 million.
Yeah.
Selling general and administrative expenses for the quarter for $110 million.
Slightly less than expectations due to foreign exchange effects.
For Q3 2022, our expectations are approximately $107 million of SG&A expenses at current exchange rates.
For the full year 2022, our expectations are 440 million of SG&A expenses.
The debt shown on the face of our balance sheet at quarter end is comprised of the convertible notes due 2025 net of debt issuance costs and 6 million outstanding on our revolving credit facility at the end of the quarter.
No principal payments are due until the expiration of the revolving credit facility in June 2024.
We had total liquidity of $1 6 billion at quarter end.
Cash and short term investments comprised 847 million and.
$744 million available on our credit facility.
Total shares outstanding at quarter end 143 million.
The expected share count for EPS purposes for the third quarter 2022, it's approximately $143 million.
Excluding any impact of share repurchases.
Yeah.
Yeah.
U S GAAP tax rate for the quarter and year to date was approximately 24%.
Our normalized effective tax rate, which excludes the tax effect of the COVID-19 costs in China was also approximately 24% for the quarter and year to date periods.
We expect our normalized effective tax rate for full year 2022 to be between 23 and 24%.
Our consolidated effective tax rate is based on an 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 in U S tax laws or regulations could result in significantly different rates.
Yes.
Yeah.
Cash from operations for the quarter was 75 million.
Capital expenditures for the quarter were $60 million.
Free cash for the quarter was 15 million.
For the trailing 12 months cash from operations was 391 million.
Capital expenditures were 253 million split approximately for expansion $161 million.
For cost reduction 16 million for maintenance of business $76 million.
Free cash generation for the trailing 12 month period was $139 million.
The trailing 12 month period includes 15 million cash taxes paid for the 2022 installment of the U S tax reform transition tax.
In 21 $25 million cash taxes paid pursuant to our Israeli repatriation program.
Does she has consistently generated in excess of 100 million cash flows from operations in each of the past 27 years and greater than 200 million for the past 20 years.
Yeah.
Backlog at the end of quarter, two Oh, what's that.
2.425 billion or 8.4 months of sales.
Inventories increased quarter over quarter by $46 million, excluding exchange rate impacts.
Days of inventory outstanding were 95 days.
Days sales outstanding for the quarter were 45 days.
Days of payables outstanding for the quarter were 37 days, resulting in a cash conversion cycle of 103 days.
Now I will turn the call over to our Chief Executive Officer, Dr. Gerald Paul.
Yeah.
Thank you Lori and good morning, everybody.
Despite the pandemic and are further accelerating rate of inflation globally.
The second quarter for Vishay has been even more successful than Q1 that had been one of our best quarters ever.
Following the increasing market demand, we steadily expand critical manufacturing capacities.
In Q2, we achieved quite excellent results in the quarter in Q2 gross margin of 33%.
On the level of Q1.
The gross margin of 31 point or percent versus 33% in Q1 operating margin of 17, 5% of sales versus 17, 1% in Q1.
Adjusted operating margin of 18, 3% versus 17.1%.
Earnings per share of 78 cents versus 71 cents in Q1 and adjusted earnings per share of 82 cents versus 71 cents in Q1.
Due to some temporary increase of receivables and inventory is in the context of the Shanghai shutdown free cash generation in the quarter still has been modest $15 million for the entire year, we again expect a solid performance considering the free cash.
Vishay continues to operate on the extraordinarily good economic conditions orders and backlogs are at historically high levels.
All regions remained principally strong with a currently not transparent situation of the Chinese market.
Most of the market six months to via email whereby there is an exception computers.
Smartphones major shortages of supply continue to exist for many product lines.
In view of increased inflationary pressures on the cost of manufacturer as the market continues to accept price increases.
Global distribution overall remains in good shape, there midterm business outlook continues to be strong.
P O S. In the quarter was 13% below Q1 did clearly represented the spike.
And 2% below prior year.
P O S. In all regions declined from a quite extreme first quarter.
Global inventories in the second quarter increased by 54 million or about 10% versus Q1 and drove 28% above prior year that had been characterized do you remember.
The extreme shortages.
There is an impact of price increases, indicating a lower increase in terms of pieces in particular versus prior year.
Yeah.
Inventory turns of global distribution in the second quarter.
A good level of 3.6.
Noticeably down from four point in two in the first quarter and down from 4.4 in prior year.
The Americas showed two one turns after two three in quarter, one and 2.1 and prior year.
Asia four six tons after five six in Q1 and 7.4 in prior year.
Europe footprint three turns after four nine in Q1 and 4.6 in prior year.
Summarizing the extremely lean supply chain of prior quarters is in process to normalize.
Coming to the industry segments automotive customers in general continue to be impacted by shortages of components.
Except as <unk> expect the strong demand in the segment.
It's the customers will start to work down their high vehicles backlog based on an improving supply situation.
Growth in the automotive market is expected to remain strong midterm with electronic vehicles, gaining market share and due to a further growing electronic content in general.
Furthermore, significant investment is still to be made in charging infrastructure.
Industrial market sector expected to show continued growth in.
In view of an accelerated move to clean energy Smart home automation systems factory automation and growing investments also in traditional power infrastructure projects.
As I said demand for notebooks is declining but growth is expected to continue in server and storage hardware.
Five G continues to provide growth opportunities, but some slowdown this apparent due to supply chain issues.
Business with smartphones presses is declining.
Extraordinary class B C in military hardware, which can be expected to continue and we also realized an ongoing recovery of commercial aviation markets.
The medical business remains on a steady growth trend returning to a more traditional segmentation.
The markets for air conditioning, and smart Tvs presently are in decline, but increasing application Sofia in white goods for control and communication.
We ended up with electronic products and Internet of things applications continue to drive growth.
The second quarter sales of you say, excluding exchange rate impacts came in above the midpoint of our guidance, we were able to master quite severe pandemic related issues in China, especially in Shanghai and of course better than expected.
We achieved sales of 864 million.
Versus $854 million in prior quarter and $819 million in prior year.
Excluding exchange rate effects sales in the second quarter were up by 24 million or 3% versus prior quarter.
And up by 78 million or 10% versus prior year.
Despite historically high backlogs book to Bill in the quarter was one point or seven after 1.14 in prior quarter.
1.5 foot distribution.
The 1.16 in the first quarter.
One point 11 for Oems after one point 13.
One point or seven four semi soft at 114 in Q1.
One point or seven also for passives after 1.15 in Q1.
One point or two for the Americas After 124 in the first quarter.
<unk> 88 for Asia.
The one point or two.
One point 35 for Europe after 123.
Backlogs in the second quarter remained on a record level of 8.4 months close to prior quarter, which had been at 8.5 months 9.5 months in semi softer 9.3 in Q1 7.3 months in passives after seven six.
Quite broad price increases continued to be implemented plus two 9% versus prior quarter.
And plus eight 1% versus prior year, which includes a positive effect coming from an unusually high fluctuation of distribution incentive semis.
Send me, it's themselves plus 4.7% versus prior quarter, and plus <unk>, 9% versus prior year pass.
Passives prices came up by 1.1% versus prior quarter and by three 7% versus prior year.
Despite heightened flotation costs high material prices and despite further accelerating chenard inflation rates worldwide Vishay was able to defend its traditional level of variable margin percent fair.
Further price increases and good plant efficiencies helped.
SG&A costs in the second quarter came in at 110 million manufacturing fixed costs in the quarter came in at 139 billion.
Fixed costs in total.
Both together SG&A manufacturing fixed costs for according to expectations, when excluding exchange rate impacts.
Total employment at the end of the second quarter increased to 23781, 5% up from prior quarter.
Excluding exchange rate impacts inventories in the quarter increased by 46 million 10 million and raw materials and 36 million in trip finished goods.
Inventory increases in drip and finished goods were caused mainly by interruptions of the supply chains and for factory shutdowns in Shanghai.
Inventories will normalize for the most part in the course of the year.
Due to the temporary inventory built inventory turns in Q2 decreased to 3.8.
As compared to 4.2 in prior quarter.
Capital spending in the second quarter was $60 million.
Versus 32 million in prior year 38 million for expansion 4 million for cost reduction and 18 million for the maintenance of business.
We continue to prepare ourselves for further accelerating growth rates.
For 2022, we continue to expect Capex of about $325 million.
We generated in Q2 cash from operations of $391 million on a trailing 12 months basis, which includes 25 million taxes paid 40, Pitsea Asian of cash.
And we generated in the second quarter free cash of 139 billion on a trailing 12 months basis again, including 25 million, Texas paid for the repatriation of cash.
Despite the increased Capex and some inventory and receivables increases we also for the current year expect a solid free cash generation.
Coming to assist us.
With resistors, we enjoy a very strong position in the auto industrial Mil and medical market segments.
The offer virtually all resistor technologies send that globally known as a reliable high quality supplier of the broadest product range.
Species traditional than historically growing business runs at record levels sales.
Sales in the quarter Rose $213 million, which includes 3 million from our new acquisition Barry industries.
Up by 11 billion or by 5% from previous quarter and up by 30 million or 16%. He said he prior year. All this excludes exchange rate impacts.
Book to Bill ratio 40 assist us in the second quarter was one point or five after 124 in prior quarter.
Backlog is at 7.6 months quite on the level.
The first quarter, which had been at seven eight months.
Gross margin in the quarter improved to 33% of sales up from 31% of sales in the first quarter.
Inventory turns in the second quarter a 4.0.
Down from prior quarter at 4.4, there was some temporary increase of raw materials safety stocks.
Selling prices continued to increase.
Plus one 3% versus prior quarter, and plus 3.2% versus prior year.
We are continuously raising critical manufacturing capacities, mainly 40 assist the chips and shunts.
And we continue to broaden our business is specialties resistance by targeted acquisitions like ATP and recently.
Barry industries.
Coming to inductors.
The business consists of power inductors and magnetics exploiting the continuously growing need for inductors in general Vishay developed a platform of robust and efficient power inductors and leads the market technically.
With Magnetics, we are very well positioned in many of the specialty business is demonstrating also in this field steady growth.
Sales of inductors in Q2 about $90 million.
Up by 8 million ore by 9% versus prior year quarter.
And up by 6 million or by 7% versus prior year, excluding exchange rate effects.
Book to Bill in the second quarter was <unk> 97 after 114 in the first quarter.
Backlog for inductors has decreased to five six months from six three months in prior quarter.
Gross margin in the second quarter increased to 33% of sales.
As compared to prior quarter, it's 30% of sales.
Inventory turns at a good level of 4.7 slightly up from 4.6.
In prior quarter.
Well the price increases now also become a parent for inductors.
Plus 1.1% versus prior quarter, and plus one 9% versus prior year.
We continuously expand our manufacturing capacities for power inductors and remain open for acquisitions in particular in the field of magnetics.
<unk>.
Particularly I would like to mention that we are establishing a plan for power inductors in Mexico.
Coming to capacitors.
Our business with capacitors is based on a broad range of technologies.
Our strong position in American and European market niches.
We also enjoy increasing opportunities in the fields of power transmission and of electric cars, namely in Asia China.
Sales in the second quarter at 132 million.
7 million or 6% above prior quarter.
And $19 billion and $19 billion or 17% above prior year without exchange rate impacts.
Book to Bill ratio in the second quarter was one point 17, after one point or two in prior quarter.
The backlog.
Remained at a very high level of 8.1 month.
Gross margin for capacitors in the quarter remained at 25% of sales.
Inventory turns in the quarter at 3.2 on the level of prior quarter.
Also for capacitors, we see continued price increases, 0.9% up versus prior quarter, and five 8% up versus prior year.
We are confident for capacitors also in the light of growing global efforts and Green energy in.
In view of a growing wheel business and the recovery of the oil and gas sector.
Opto products.
Vishay <unk> business with Opto products consists of infrared emitters receivers sensors and couplers sale.
Sales in the quarter were 78 million.
$1 million or 2% below prior quarter, but up by $6 million or print or 9% excuse me, 9% versus prior year, which excludes exchange impacts.
Book to Bill in the second quarter was eight point 86 after <unk> 78 in prior quarter.
Backlog is still at a fairly extreme level of 9.1 months after 9.4 months in the first quarter.
Gross margin for opto products in the quarter normalized to an excellent level of 34% of sales down from 40% of sales in prior quarter, which represented clearly a spike.
We continue to raise selling prices also for opto products, plus two 5% versus prior quarter and plus 8% versus prior year.
Opto products continued to be very relevant element of vicious performance.
Coming to diodes diodes.
For Vishay represents a broad commodity business, where your largest supplier worldwide.
She offers virtually all technologies as well as the most complete product portfolio.
The business in choice, a very strong position in the automotive and industrial market segments and keeps growing steadily and profitably since years.
Sales in the quarter were 192 million.
Up by $13 million or 7% versus prior quarter.
And up by 24 million or 14%.
The prior year.
Again without the exchange rate effects.
The book to Bill ratio in the second quarter, where it was at one point 10 after 116 in prior quarter.
The backlog decreased to 9.3 months from nine seven months in prior quarter, which represented a record.
Gross margin in the quarter improved further to 28% of sales as compared to 25% in the first quarter positively impacted by better asp's piece of higher volume and some inventory build.
Inventory turns in the second quarter at 4.0 close to prior quarter at four point too.
We continue to raise asps substantially.
Five 2% versus prior quarter, and plus 13% versus prior year.
Our lodge and profitably growing business with diodes is the most relevant part of visa's volume basis.
Finally, the MOSFET.
Vishay is one of the market leaders in most first that's in existence.
It's most fats, we enjoy a strong and growing market position in particular in automotive, which in view of an increasing use of most fits really provide the very successful future for this line.
Demand over the years has reached extreme levels and is expected to increase rapidly and they used to come.
In the quarter, we had sales of 158 million 13 million or 8% below prior quarter, and 6 million or 4% below prior year without exchange rate impacts.
Naturally severely impacted by an extended COVID-19 related plant and via out how was shut down in Shanghai.
Book to Bill ratio in the quarter was at 1.14 after 128 in the first quarter.
Backlog increased to another record of 10.1 month from nine point all months in prior quarter.
Gross margin in the quarter increased further to 35% of sales after 34% of sales in Q1 also supported by some inventory build.
Inventory turns in the quarter dropped to 3.4 as compared to 4.4 in prior quarter.
A substantial part temporarily increase of width and finished goods was there as a consequence of the Shanghai shutdowns.
We continued to implement price increases in a substantial way plus five 3% versus prior quarter, and plus 15, 3% versus prior year, which includes the major part of the previously mentioned effect on distribution incentives.
Most fats remain key for vicious growth going forward.
And we intend to keep appropriate balance between in house manufacturing of wafers and purchases from foundries.
Let me summarize.
Despite substantially growing political instabilities.
Ah strongly accelerating rate of inflation and ongoing disturbances still caused by the pandemic. We continue to enjoy a very high market demand.
Backlogs and lead times remained at record levels.
And our industry clearly benefits from an acceleration of the electrification and most in most of our market segments.
The move to electric vehicles is one of the drivers but to a similar extent they'll move to clean energy and the accelerating automation of factories.
We expect this trend to continue long term.
Vishay is well positioned and competitive in terms of product range and costs and we keep investing in new processes and manufacturing capacities.
We are confident also for the third quarter and guide to a sales range between 860 and 900 million.
Gross margin of 29.1% plus or minus 50 basis points.
Thank you very much Peter.
Peter Please.
Yeah.
Thank you Dr. Paul.
We will now open the call to questions Sherry. Please take the first question.
Thank you.
To ask a question. Please press star one on your telephone keypad.
Confirmation tone will indicate your line is in the question queue. You May Press Star two if you will they trade move your question from the queue and for participants using speaker equipment and may be necessary to pick up your handset before pressing the star he is.
Our first question is from Royal Blue Bhattacharya with Bank of America. Please proceed.
Hi, Good morning, Thank you for taking my questions.
Hi, Dr. Paul I wanted to ask first on gross margins, obviously, they came in better than your guidance and you talked a little bit about the inventory build I was wondering of the 70 basis point sequential improvement between <unk> and <unk>, how much of that was related to the inventory.
Filled.
And I. If you can just talk a little bit more about what this inventory build was is it all in distribution and how long do you think <unk>.
And how soon do you think that.
Normalizes and then when we look at the third quarter, you're guiding to 'twenty two.
So, 29% which is lower.
Lower than the 31% you reported but that's on a $20 million higher revenues. So just just what are the dynamics playing between the gross margins between <unk> and <unk>.
Yes, the inventory build.
Not only but by far for the most part did most fits because this was the placement of our plant was shut down for eight weeks during the quarter and you can imagine the primary is in the western hemisphere. They produced and if we're not able have you been able to package for to a large extent. So this increase happened.
Most of it's not the distribution in house really in our house, because our supply chain internal supply chain had been distorted we are going to work to start of course, but the quarter of course benefited from financially from this inventory built to the extent of $8 million approximately.
In the third quarter, the opposite will happen by nature. So we are going to start working inventory down with objective fleet and the negative effect of the same magnitude on the on the on the results. This is these are the dynamics.
So sorry, just just a 200 basis points of.
Gross margin compression.
So how much of that is because of the inventory work down and how much of that is because of other factors. That's calculated the impact quarter over quarter is 10 million. If you compare the two quarters 10 million divided by a 900 million sales approximately two years.
0.22 points right.
Okay. Okay understood and then maybe can I ask on diode you know the margins on the gross margins on the diodes.
It had been trending higher and they were 28%, which seems very high can you just elaborate what is driving the higher margins and is this level sustainable going forward because we typically don't give diodes is commodity products, but but just your thoughts on that.
It was first before we had better prices. This is number one reason in diodes are better prices and we had higher volume also so all this together, including some good efficiencies, which behead gave the 28%, which I agree for a commodity product is not bad.
Ah I see if if volume.
And prices remained this of course can be defended into which it is supposed to know spike, but we will see but a 28%. Indeed was a good result through.
Understood and then just for my last question.
You repatriated 81 million from Israel, what is the plan for that cash I mean do you.
Should we expect anymore increased buybacks or is there any thought for a dividend increase are increased M&A. So you share thoughts on how you plan to use that $81 million.
Yes. This is speaking.
So we identified that we would fund our stockholder return program using this repatriate cash from Israel and as we announced we plan to return 70% of free cash or a minimum of $100 million in either case.
And.
We will continue along that same route.
Okay, Alright, Lori thanks. Thank you Dr. Paul Thanks for all the details appreciate it.
Yeah.
Our next question is from Joshua <unk> with Cowen and company. Please proceed.
Thanks for taking my questions.
I thought pretty stellar set of results in a tough macro backdrop and navigating China issues.
My first question you guys had previously.
It's got six aggregation to grow roughly 5% this year and even with FX headwinds given the printing guide I think that implies a pretty sharp disallows sequential growth in the fourth quarter.
Any particular reason why we should be expecting that given the scale strong environment and I guess any changes to that growth expectation for the year. Thank you.
If I understood you right you are that would take the outlook of the fourth quarter and asked whether there could be the danger, if a downturn if I understood you right.
Well it was more what's the assumption baked in and should be felt.
Yeah.
As I made I think the V. The belief that the year will really pull through very nicely into the deepest reason is so first of all of our responses from customers, but also if you look at the backlog the backlog is still sky high and we have all reasons to believe that this will become a very good year record sales.
For Vishay.
Understood. Thank you.
And then I E.
You've maintained that $325 million of Capex expectations.
Which also implies that choice.
I recall from the <unk> 35.
Yeah, So I guess.
It implies some higher spending in the second half have you had any troubles in the first half.
No I don't think we do have a cycle, we do have a cycle that capital spending in Vichy is always by far higher than the second half than in the first half and dispute and not be a difference to our to our normal to normal procedure. So to speak if they say no.
V V b to have.
I think we can confirm the 325 capex.
Got it and then you.
Given what you're still saying is its very strong demand, particularly for your MOSFET I would imagine.
So should we still expect you to have elevated spending in 2023 compared to prior years, just with that yes.
At the moment is not the only MOSFET its brought up but most of it for sure is the hottest demand at the moment of all of our products. So we still have this demand.
And what we hear from the market is a further acceleration of the requirements for most of its what they used to come.
Hmm mm.
It's like that then we are going to prepare ourselves you know going forward, we are going to build.
In addition, the.
And it's in Germany in order to follow the Eaton to keep pellets between own production and she says from found that you believe you need to keep a pellet Stan N.
And we are going into it.
So capex it they used to come from Christian, but we see strong cash flow was also strong.
That all makes sense, thanks, and congrats again.
Thank you.
Sure.
As a reminder, the star one on your telephone keypad, if he would like to ask a question. Our next question is from Matt Sheerin with Stifel. Please proceed.
Yes. Thank you good morning.
Dr. Paul I wanted to just double check some of the numbers that you gave initially on the distribution P. O. S. I think you said it was down year over year and quarter on quarter could you give me those numbers again.
Just the sic codes.
I don't know them by heart obviously.
Uh huh.
It takes another two minutes.
Yeah and the question there is.
It sounds like the POS was down inventories were up a little bit but the book to Bill was still we're still significantly positive yes.
Yes so.
Uh Huh My papers, you are talking U S. Yeah.
Okay I have it.
The purpose for this book to build what I see here.
Oh I see.
Yes.
Yeah, we go okay.
Yes.
Yeah, I I have your inventory turns.
I thought you gave a P O S number.
At the beginning.
It is worth it nowhere I have it wasn't the Texas P O S. In the quarter was 13% below the first quarter.
But the first quarter represented a spike.
And it was 2% below prior year.
So 13% below the first quarter.
And 2% below prior year Youll see this was much closer to prior year, the first quarter was abnormal.
Just wondering why the book to Bill was positive if it sounds like the demand from the distributors.
Stabilized or where it was even down.
But book to Bill book.
Book to Bill was for distribution one O five was one Oh, yeah. That's right Yeah got it I'm trying to figure the disconnect there between the positive book to Bill in the negative.
Sell out.
There are two different comparisons one compares for the same quarter book to Bill and the other one would be the quarter before.
Okay. So in other words youre not seeing any signs of weakness from distribution in terms of orders and backlog.
Well, it's a matter of fact, our distribution is one O 1.05, but it's true that Asia at the moment show some some weakness, but this can be attributed to an extraordinarily strong first quarter.
And I understand that there were many put in really in.
In the first quarter out of certain uncertainties to hit so altogether, we expect for the third quarter forever.
P O S in Asia.
An increase vis vis the second quarter, so an increase into the expected.
Got it Okay, and then on the pricing, which obviously is benefiting you.
Or are you done yet there is still a.
S P increases that.
You are putting through our in any of your areas.
Yeah, well V. We expect some further price increases, but at a slower rate, but it's also true if inflation accelerated we will increase also our price increases again, but there will be price increases also in the third quarter at a lower rate than if you hit them in the second quarter.
Okay.
Wanted to get back to a previous question just about outlook for the December quarter, or typically Europe , and North America are down well and.
There was some seasonality obviously in Asia.
Are you looking ahead, obviously, you've got very strong backlog. Your lead times are 50 weeks out. So do you have visibility into the December quarter, and do you expect it to be more or less seasonal.
Is it no it's better than seasonal opiate slipped a backdrop will make it non seasonal this is how our conviction we tuna T assigns from any customer that.
They want to slow down or doing it or shipments are they won't don't want to slow down everybody ever be b in our main we're talking automotive in reality in VC and we're talking industrial D. These are the two major areas and we do know T. S ounce of any signs of weakness in fact automotive insist on their high.
Forecast, so I N V of adding capacity. So the backlog is there capacity will be even higher in the fourth quarter and no signs from the customer I expect a strong fourth quarter.
Okay, and then just on gross margin you talked about why it would be down.
It still sounds conservative as you look forward and given your expectation for further growth.
Can you get back to that 30% plus gross margin.
Number sustainably prints.
Principally yes, its a matter of volume and we are investing in capacity. It is a matter of volume.
Raising fixed fee on our famous for racing fixed costs dramatically. So if the volume comes up you automatically get to better gross margins, but the 30%, which we have shown a 31% even in quarter. Before this was of course favorite by inventory built and now we see the opposite because we keep our eye on inventory levels. So we can reduce them. So it has to.
The chest and quarter over quarter this effect.
Okay and then just lastly for me Dr. Paul I know, there's a major management transition going on in.
In the next couple of quarters.
As you pass the baton on and I'm, just wondering if you could give us any.
Any idea of in terms of.
Our planning there are any expectation for any significant change in the company's strategy.
Our use of capital or anything else.
Hi.
I know all the all the new people so to speak very well since many years and have full trust in all of them I do not expect it reshaping change it's Fedex what.
What we are going to do before they even more emphasis on growth going forward and I believe the markets, which we mainly deliver tool makes us very can make us optimistic that we are not wrong and this expectation that I guess.
I expect guesses to literally I am sure that the expansion of capacities, we have become a major subject even more than they have been in recent years going forward.
This is synthetics, but principally speaking we are.
We will follow to take no question.
Okay. Thank you very much.
Okay.
We have reached the end of <unk>.
And answer session I would like to turn the conference back over to management for closing comments.
Thank you for joining us on today's call and for your interest in Vishay technology.
Thank you. This does conclude today's conference you may disconnect. Your lines at this time and thank you for your participation.
Okay.
[music].