Q3 2022 Vishay Intertechnology Inc Earnings Call
Speaker 1: greater than 200 million for the past 20 years. Backlog at the end of quarter three was at 2,261,000,000 or 7.3 months of sales. Inventories decreased quarter over quarter by 3 million, excluding extra impacts. Days of inventory outstanding were 90 days. Days of sales outstanding for the quarter were 42 days. Days of payables outstanding for the quarter were 33 days, resulting in a cash conversion cycle of 98 days. Now I will turn the call over to our Chief Executive Officer, Dr. Gerald Paul. Thank you, Laurie, and good morning, everyone. Before I will start talking about the quarter, please allow me a personal remark. After 25 years and approximately 100 quarterly earnings calls, today will be the last time I represent Viché. Let me take the opportunity to thank you for your interest in Viché and for your fairness along the way. It always has been an honor and a pleasure for me to explain the development of our business. I will step down from my CEO position at the end of this year and I wish my successor continued success in running this exciting enterprise. Now let me turn to Viché. Despite ongoing demanding challenges of various kinds globally, the third quarter for Viché represented another record in terms of sales and profits. Actually, the quarter has been our most successful one since at least 20 years ago.
Speaker 1: to see a strong business environment.
Speaker 1: POS in Quarter 3 was 5% above Q2 and 3% above prior year and except for Q1, 22 has reached an all-time record.
Speaker 1: Concerning POS, all regions did better than in the second quarter.
Speaker 1: Global inventories in the third quarter increased substantially by 92 million or by 16% versus Q2 and were 40% above prior year. That on the other hand you will remember had been characterized by rather extreme shortages.
Speaker 1: There is also an impact of price increases year over year indicating a lower increase of inventories in terms of pieces.
Speaker 1: Inventory returns of global distribution were at 3.2, noticeably down from prior quarter at 3.6, but historically still at an acceptable level.
Speaker 1: The Americas at 1.9 turns in Q3 versus 2.1 in Q2 and 2.2 in prior year.
Speaker 1: In Asia we have seen 3.9 turns after 4.6 in Q2 and 6.1 in prior year. And in Europe there were 4.2 turns after 4.3 in Q2 and 4.5 in prior year.
Speaker 1: Automotive manufacturers start to see some easing of their delivery problems on ICs leading to an increasing usage of discrete and passives.
Speaker 1: Growth in the automotive market is expected to remain strong long term.
Speaker 1: The move to electric vehicles accelerates the use of electronic components.
Speaker 1: Significant investments are to be expected also in the charging infrastructure.
Speaker 1: The industrial segment continues to do well.
Speaker 1: Drivers for growth continue to be the move to electric energy programs and systems.
Speaker 1: Smart home automation systems.
Speaker 1: the upgrade of industrial manufacturing capacities, the recovery of the oil gas sector and an increasing demand for electrical power infrastructure globally.
Speaker 1: Demand for consumer notebooks and desktops are currently in the face of decline.
Speaker 1: 5G continues to provide growth opportunities for the future in fixed telecom.
Speaker 1: When it comes to military equipment, manufacturers remain strong and in view of growing political instabilities globally, we expect this trend to continue.
Speaker 1: Commercial aviation holds up strong.
Speaker 1: We see a solid business in the medical sector, in particular in implantables and diagnostic equipment.
Speaker 1: We also see steady business in gaming systems, smart TVs, air conditioning and white goods.
Speaker 1: Let me comment now on Vichay's business development in the third quarter.
Speaker 1: In the third quarter, sales excluding exchange sheet impacts came in substantially above the midpoint of our guidance.
Speaker 1: This was due to special efforts of our Asian semiconductor plants to make up for the Q2 shutdowns you will remember.
Speaker 1: We achieved sales of 925 million versus 864 million in prior quarter and 814 million in prior year.
Speaker 1: Excluding exchange defects, sales in Q3 were up by 76 million or by 9% versus prior quarter.
Speaker 1: and up by 155 million or by 20% versus prior year.
Speaker 1: The book to build in the quarter was 0.88 after 1.07 in prior quarter.
Speaker 1: 0.77 for distribution after 1.05 in Q2.
Speaker 1: 1.03 in OEMs after 1.11 in Q2.
Speaker 1: 0.76 in semis after 1.07 in prior quarter.
Speaker 1: 1.03 for passives after 1.07 in prior quarter.
Speaker 1: 0.90 for the Americas after 1.02 in Q2.
Speaker 1: 0.64 for Asia after 0.88 in Q2.
Speaker 1: 1.15 for Europe after 1.35 in Q2.
Speaker 1: Backlogs in Q3 are still on a quite extreme level of 7.3 months, down from 8.4 months in prior quarter.
Speaker 1: 7.4 months in semis after 9.5 in Q2.
Speaker 1: 7.6 months in passives after 7.3.
Speaker 1: For semis there has been a catch-up in sales, as I mentioned before, in the quarter.
Speaker 1: There were stable selling prices quarter over quarter but substantial price increases versus prior year.
Speaker 1: Prices were stable for all the products versus prior quarter and plus 8% versus prior year.
Speaker 1: For semis, very slightly down by 0.1% versus prior quarter and up by 10% versus prior year. On passives, stability versus prior quarter and plus 5.8% versus prior year.
Speaker 1: Some highlights of operations.
Speaker 1: Despite further accelerating rates of general inflation worldwide
Speaker 1: V-Shane, the third quarter, raised its variable margin percent over traditional levels.
Speaker 1: fully loaded plants and good manufacturing efficiencies helped.
Speaker 1: SG&A costs in the third quarter came in at $106 million. Manufacturing fixed costs in the quarter came in at $140 million.
Speaker 1: Fixed costs in total.
Speaker 1: were according to our expectations when excluding exchange rate impacts.
Speaker 1: Total employment at the end of the third quarter increased to 23,930, 1.0% up from prior quarter.
Speaker 1: Excluding exchange rate impacts, inventories in the quarter decreased by 3 million, raw materials increased by 6 million, and whip and finish goods on the other hand decreased by 9 million.
Speaker 1: We do expect further inventory reductions going forward.
Speaker 1: Due to higher volume, inventory returns in the third quarter increased to 4.1 as compared to 3.8 in prior quarter.
Speaker 1: Capital spending in Q3 was 76 million versus 57 million in prior year.
Speaker 1: 51 billion for expansion.
Speaker 1: 3 million for cost reduction and 22 million for the maintenance of business.
Speaker 1: We continue to prepare ourselves for further growth.
Speaker 1: And for 22, we continue to expect capex of approximately 325 million.
Speaker 1: We generated in the third quarter cash from operations of 464 million on a trailing 12-month basis.
Speaker 1: which includes 25 million taxes paid for repatriation of cash.
Speaker 1: We generate it in the third quarter free cash of 193 million again on a trailing 12 month basis.
Speaker 1: which also includes the 25 million taxes paid for the repatriation of cash.
Speaker 1: Despite increased capex and some increases in inventories and receivables, we also for the current year expect a solid generation of free cash.
Speaker 1: Let me come to the product lines and I will start as always with resistors.
Speaker 1: With resistance, we enjoy a very strong position in the auto, industrial, military and medical market segments.
Speaker 1: We offer virtually all resistor technologies and are globally known as a reliable high-quality supplier of the broadest product range in resistors.
Speaker 1: And V2 constantly expands this portfolio by new specialties.
Speaker 1: VJ's traditional and historically growing business runs at record levels. Sales in the quarter were $207 billion.
Speaker 1: down by 1 million or by 0.5% from previous quarter, but up by 40 million or 24% versus prior year. All this excludes exchange rates.
Speaker 1: Book to bill ratio in the third quarter was 1.08 after 1.05 in prior quarter backlog.
Speaker 1: for his sisters were at 7.8 months, which compared to 7.6 months in prior quarter.
Speaker 1: Gross margin in the quarter remained at an excellent level of 33% of sales.
Speaker 1: Inventory returns in the third quarter were at 3.5.
Speaker 1: down from higher quarter at 4.0 due to increasing raw material safety stocks.
Speaker 1: Selling prices and resistors continue to increase, plus 0.8% versus prior quarter and plus 7.7% versus prior year.
Speaker 1: For resistors, we are continuously raising critical manufacturing capacities, in particular for thick and thin film chips and for shunts.
Speaker 1: We continue to broaden our business with specialty resistors by targeted acquisitions like recently with Barrie Industries.
Speaker 2: Thank you.
Speaker 1: for D
Speaker 1: Our business of inductors consists of power inductors and magnetics.
Speaker 1: We exploit the continuously growing need for inductors in general. Viché in this context developed a platform of robust and efficient power inductors and leads the market technically.
Speaker 1: With Magnetics, we are very well positioned in many specialty businesses, demonstrating also in this field steady growth.
Speaker 1: Sales of inductors in the third quarter were 84 million, down by 5 million or by 6% versus prior quarter and up by 1 million or 1% versus prior year, excluding exchange rate effects.
Speaker 1: Booked to bill in the quarter, in quarter 3, was at 1.02 after 0.97 in the second quarter.
Speaker 1: We expect a substantial increase of demand with automotive gaining speed.
Speaker 1: Backlog in the quarter increased to 6 months from 5.6 months in prior quarter.
Speaker 1: Gross margin in the quarter decreased to a still excellent level of 31% of sales as compared to prior quarter at 33% of sales.
Speaker 1: Inventory returns in Q3 increased to 5.0 up from 4.7 in prior quarter.
Speaker 1: For inductors, we have seen stable selling prices quarter over quarter and plus 1.6% increase versus prior year.
Speaker 1: We continuously expand our manufacturing capacities for power inductors and remain open for acquisitions in particular in the field of Magnetics.
Speaker 1: We are in process of establishing a plant for power inductors in Mexico.
Speaker 1: Coming to capacitors. Our business with capacitors is based on a broad range of technologies with a strong position in American and European market niches.
Speaker 1: We also enjoy increasing opportunities in the field of power transmission and of e-cars, namely in Asia.
Speaker 1: Sales in the third quarter were at 126 million, 3 million or 3% below prior quarter, but 19 million was 17% above prior year, which again excludes exchange rate impacts.
Speaker 1: Book to bill ratio in the third quarter was 0.95 after 1.17 in prior quarter.
Speaker 1: The backlog level of capacitors remained at a quite extreme level of 8.1 months.
Speaker 1: Cross margin in the quarter.
Speaker 1: was 24% of sales, slightly down from 25% in the second quarter.
Speaker 1: Inventory turns in the quarter were at 3.2 on the level of Q2.
Speaker 1: Some price reduction versus prior quarter was visible, but price increases happened substantially versus prior year. We have seen a price reduction of 1.2% versus prior quarter, but an increase, price increase versus prior year of 5.5%.
Speaker 1: We are confident for capacitors also in light of growing global efforts in green energy in view of a growing mill business and the recovery of oil and gas.
Speaker 3: Opto products.
Speaker 1: Fishe's business with Opto products consists of infrared emitters, receivers, sensors and couplers.
Speaker 1: In particular, OptoSensors present one of FISCH?s important product segments for future growth.
Speaker 1: Sales in a quarter were 73 million, 3 million or 4% below prior quarter, but up by 7 million were 11% versus prior year, which excludes exchange rate impacts.
Speaker 1: Booked a bill in the third quarter dropped noticeably to 0.57, impacted by the present slowdown of the consumer market segment.
Speaker 1: Backlook is still at a very high level of 8.1 months, after an extreme 9.1 months in the second quarter.
Speaker 1: Gross margin in the quarter increased to an excellent level of 35% of sales, up from 34% of sales in prior quarter.
Speaker 1: Inventory returns in the quarter were 4.6, slightly down from prior quarter of 4.8.
Speaker 1: There were fairly stable selling prices versus prior quarter but substantial price increases versus prior year.
Speaker 1: Minus 0.5% price development versus prior quarter and plus 5.7% versus prior year.
Speaker 1: Opto products continue to be a very relevant element of V-Shay's performance going forward.
Speaker 1: There are numerous promising projects predominantly in the auto and industrial market segments.
Speaker 1: Coming to dials.
Speaker 1: Diodes Fauvigé represents a broad commodity business where we are the largest supplier built by it.
Speaker 1: Vechay offers virtually all technologies as well as the most complete product portfolio.
Speaker 1: The business enjoys a very strong position in the automotive and industrial market segments.
Speaker 1: and keeps growing steadily and profitably since years.
Speaker 1: Sales in the quarter were strong at 209 million, up by 20 million or 11% versus prior quarter, and up by 33 million or 19% versus prior year, again without exchange rate effects.
Speaker 1: Book to bill in Q3 was at 0.79 after 1.10 in prior quarter.
Speaker 1: Backlog decreased from extremely high 9.3 months to a still very high level of 7.7 months.
Speaker 1: The gross margin in the quarter was at a very good level of 27% of sales, slightly down from 28% of sales in prior quarter, mainly due to the impact of some inventory reduction.
Speaker 1: Inventory turns in Q3 were at 4.3 and increase from 4.0 in the second quarter.
Speaker 1: Selling prices were stable vis-a-vis prior quarter but substantially up versus prior year by 10.7%.
Speaker 1: Our large and profitably growing business.
Speaker 1: The styles is the most relevant part of VJ's volume basis.
Speaker 1: Last but surely not least the MOSFETs.
Speaker 1: VJ is one of the market leaders in MOSFET transistors. With MOSFETs we enjoy a strong and growing market position, in particular in automotive.
Speaker 1: which in view of the rapidly increasing use of MOSFETs provides a very successful future in particular for this line.
Speaker 1: Demand over recent years has reached quite extreme levels and will further increase dramatically in the years to come.
Speaker 1: Sales in the quarter raised sharply to 225 million by 69 million or by 44% above prior quarter and by 56 million or 33% above prior year, all excluding exchange rate impacts.
Speaker 1: As mentioned, sales in Q2 had been impacted severely by plant and warehouse shutdowns in Shanghai and Q3 had presented a catch up.
Speaker 1: The book to bill ratio in the quarter was at 0.78 after 1.14 in the second quarter.
Speaker 1: Backlog decreased to 6.3 months from an increased level of 10.1 months in prior quarter due to the COVID shutdown.
Speaker 1: Cross margin in the quarter increased further to 37% of sales after 35% in the second quarter.
Speaker 1: Inventory turns in the quarter recovered sharply to 4.7 as compared to 3.4 in prior quarter, which had been burdened by the substantial inventory built as a consequence of the Shanghai shutdown.
Speaker 1: Stable selling prices quarter over quarter, but strong price increases versus prior year, selling prices went up by 10.9%.
Speaker 1: MOSFETs represent the most important product family for future growth.
Speaker 1: As you will know, we are in process of a massive expansion of our in-house wafer capacities.
Speaker 1: Additionally, we with the acquisition of MAXPOWER have closed a gap in our product portfolio concerning silicon carbide.
Speaker 1: which will support high-voltage and high-temperature electrification in auto and industrial segments.
Speaker 1: We plan to offer a silithium carbide MOSFET at 650 volts, 1200 volts and 1700 volts using Planar as well as Trench technology.
Speaker 3: Let me summarize.
Speaker 1: Despite political instabilities,
Speaker 1: despite an accelerating rate of inflation.
Speaker 1: and despite the impact of higher interest rates
Speaker 1: as well as disturbances still caused by the pandemic, we continue to enjoy.
Speaker 1: a very high market demand achieving records in terms of sales and profits.
Speaker 1: BCHE, like our industry in general, clearly benefits from the acceleration of electronification in virtually all market segments.
Speaker 1: The move to electro vehicles is one of the drivers, but to a similar extent the move to clean energy and the accelerating automation of factories.
Speaker 1: Most importantly, I think we expect the strength to continue long term and we will keep investing in an accelerated way in new processes and manufacturing capacities.
Speaker 1: V-Shay is well positioned and competitive in terms of products and costs.
Speaker 1: and financially strong enough to cope with all challenges.
Speaker 1: I am convinced we will have an excellent future.
Speaker 1: For the fourth quarter we guide to a sales range between 860 and 900 million and a gross margin of 30.0% plus minus 50 basis points. Thank you.
Speaker 4: Thank you. Peter. Thank you, Dr. Paul. We will now open the call to questions. Michelle, please take the first question.
Speaker 5: Thank you. We'll now be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Speaker 5: Our first question comes from the line of Joshua Buchalter with Cowen. Please proceed with your question.
Speaker 6: Hey guys, thanks for taking my question and congrats on the results and more importantly congrats Dr. Paul on an incredible run 44 years at one company that he...
Speaker 6: Something we can all appreciate. I wanted to start by asking about the MOSFET supply chain issue in China that we saw in the second quarter. Is there a way to sort of isolate the impact in the third quarter and in particular, what would overall book to bill have been for the company if it were not for the MOSFET issue and any way to sort of isolate the organic growth underneath the packaging delay? Thank you.
Speaker 1: Okay, listen, basically we caught up whatever we lost in the second quarter already in quarter three. This was somewhat earlier than we expected ourselves to see it frankly. And if you take all that quarter two, three and also the guidance for quarter four up virtually on the same level for the whole company. So this takes out the whole. This was an impact which was a very, very temporary effect which was taking out.
Speaker 6: Okay, got it. Thank you. And then I did want to ask about pricing. It was sort of the first order in a while that it flattened out. Are you seeing any material changes in your customer behavior related to macro slowing? We've heard a number of companies in the semiconductor industry call out expanding weakness from consumer to pockets of industrial. I know you guys are heavily exposed there and were just wondering if...
Speaker 1: if there have been any material changes at your customers that you're seeing. Thank you and congratulations again. Well, lead times are still high for many parts which we sell and the behavior of the customers has not changed dramatically. But price decline, price increases, sorry, have slowed down to a degree and also they will continue in a way but they will slow down further as we expected. But principally speaking, shortages continue to exist for quite a few product lines.
Speaker 2: Thank you.
Speaker 5: Thank you. Our next question comes from the line of David Williams with Benchmark. Please proceed with your question.
Speaker 6: Hey good morning thanks for letting me ask the question. Dr. Paul congrats on a tremendous run and we will certainly miss hearing your voice every every—
Speaker 1: Thank you.
Speaker 6: So I guess as I kind of think about the book to build, it looked like they had come down across the majority of the business. Just kind of curious how you are thinking about maybe the next few quarters relative to the macro, and how you think Vaché will perform in a less growthy environment.
Speaker 1: I mean, when judging the book to bill, you must of course take into account the situation concerning the backlog. A backlog of altogether seven, eight months is more than twice as much as this business has shown for decades, so to speak. So it's an abnormally high backlog level and you would expect some kind of book to bill close to one or below one to normalize.
Speaker 1: So I wouldn't shout fire, so to speak, seeing that. This was to be expected. We believe, looking for instance at the POS of our distributors, which continues to be very strong, that the business per se continues very strong. And of course you never know what the future brings, but I think for electronics.
Speaker 1: you can hardly be pessimistic. The electronification in the industrial world, in of course also automotive, continues to push us, which is much more than I have as an experience for my long time. This is a new era for growth.
Speaker 7: Agreed. Thanks. And then maybe just in terms of behavior, I know you touched on this earlier, but have you noticed anything changing in terms of order push outs, or maybe decreasing expedites, or just anything there that is kind of shifting around, and maybe more from a specific end market or a specific category of end market that you have seen that would be helpful? Thank you. As you can imagine, we watched it carefully.
Speaker 1: And I watch in particular the Shippable Backlog. We have for rolling 13 weeks Shippable Backlog. And this went up even in October . This went up. So as a matter of fact, I do not see, despite some book to build for the whole thing, which is below one or close to one, I do not see a change of the climate at this point in time. And we do see shortages for key parts which we deliver to the market, continued shortages and long lead times.
Speaker 1: especially in the automotive field.
Speaker 3: Thanks so much.
Speaker 1: Our next question comes from the line of Ruplu Bhattacharya with Bank of America. Please proceed with your question. Good morning. Thank you for taking my questions and let me echo Dr. Paul. We will miss you. Congrats on a very successful career. My question is on the acquisition that you did on May 1st. Thanks again for the questions.
Speaker 1: foundries. But what we really acquired is the potential to participate in the silicon carbide business mid-term, which I believe everybody agrees is a winner going forward and will accelerate our expected growth in silicon, in normal MOSFETs, in silicon-based MOSFETs substantially. We felt that we had to close this gap because Vichay up to now had nothing to offer in this field. And now we are in the position of know-how and of patents.
Speaker 1: and we can build on that. This business has to be built, no question about it. But we have decided to do so and I see excellent chances to do so because what we acquired, people know what they do in simple terms.
Speaker 1: Okay, thank you for that. Can I ask a question on MOSFED margins? Gross margin came in at 37%. This is a level that we didn't see even in 2010. I mean, this is probably the highest margins you've had in that segment. I mean, I'm struggling to think if this is sustainable and if it is, what are the factors that would drive this either higher or lower?
Speaker 1: As I somehow said before, it's a volume game. It's first of all a volume game. And of course, we had record sales, as you will see. It was a spike in a way, but we are on the way up to a sales point, which will continuously increase our manufacturing capacity. And as it stays strong, which we expect, you will see better cross margins. But if you compare now one quarter with the next or the one before, predominantly what you see is a reflection of the volume.
Speaker 1: Can you talk about your capital allocation priorities now? You have done the 50 million acquisition that you talked about, but can you talk about how much cash you now have in the US versus outside, and your propensity for buybacks, dividend increases, and further M&A. Thank you.
Speaker 8: So I'd like to confirm our shareholder return policy, first of all. We announced that we would...
Speaker 8: We turned to shareholders a minimum of 70% and we're on track to do that and we would continue to do that. We had set a minimum of 100 million. You see that we've already returned 98, but we plan to return the announced minimum of 70% for 2023. So it will be higher than the 100 million that we had stated as a minimum.
Speaker 1: Okay, thank you for all the details.
Speaker 5: Thank you. Thank you. We have reached the end of our question and answer session. I would like to turn the call back over to Mr. Henrissi for any closing remarks.
Speaker 4: Thank you for joining us on today's call and for your interest in Viché Intertechnology.
Speaker 5: Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.