Q4 2022 Vishay Intertechnology Inc Earnings Call
Greetings and welcome to the Vishay Intertechnology fourth quarter 2022 earnings call. At this time, all participants are in a listen only mode.
<unk> 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.
As a reminder, this conference is being recorded I would now like to turn the conference over to your host Mr. Peter and we see Investor Relations for D. C and your technologies. Thank you you may begin.
Thank you Melissa.
Good morning, and welcome to Vishay Intertechnology fourth quarter 2022 earnings Conference call.
I'm joined today by Joseph Manko, our President and Chief Executive Officer, and Laurie <unk>, our Chief Financial Officer.
<unk> Dot com.
Call is being broadcast live over the web and can be accessed through our website.
In addition, today's call is being recorded and will be available via replay on our website.
During the call, we will be referring to the slide presentation, which we also posted at IR Doc Vishay Dot com.
You should be aware that in today's conference call, we won't be making certain forward looking statements.
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 V shaped Form 10-K, and Form 10-Q filings with the Securities and Exchange Commission.
We are including information in our press release and on this conference call on various GAAP and non-GAAP measures.
We have included a full GAAP to non-GAAP reconciliation in our press release as well as in the presentation posted on I R adopt vishay dot com.
Which we believe you will find useful when comparing our GAAP and non-GAAP results we.
We use non-GAAP measures because we believe they provide useful information about the operating performance of our businesses.
And should be considered by investors in conjunction with GAAP measures.
Now I turn the call over to President and Chief Executive Officer, Joe It's Michael.
Thank you Peter.
Good morning, everyone I'm.
Joel its Michael and it is my pleasure to be speaking with you today on my inaugural call as <unk>, New Chief Executive Officer.
On today's call I'm going to open with some brief remarks about my background and my assessment of the company today.
Then I will turn the call over to our CFO Lori lift Kanan, who will go over our financial results for the fourth quarter.
And then the first quarter guidance after that I'll share with you our ambitions for the company in the future and our plans for 2023.
Let's begin with slide number three.
Over the course of my career at Vishay.
In my physicians in engineering marketing sales operation and business development.
I have worked with colleagues throughout the organization to.
To identify new business opportunities.
Develop next generation products and to broaden vishay is participation across its market segments and business channels.
Always with the mindset to enable our customers to be successful.
From my engineering marketing and operational roles I have work inside the Vishay organization and gained an understanding of the internal dynamics of the company.
And my sales and business development roles I.
I have seen Michelle <unk> from the outside in I.
I have seen v-shaped from the eyes of the customer.
Behind the scenes I have been working to guide has shifted Ms shaped towards growth.
Two inflated to influence and increase in capacity.
To push us forward in our product innovation.
The investment in Silicon carbide.
And to broaden our attention to serving new customers.
As such I have a unique background to lead vishay in my new position as CEO .
Just see with a clear view, where we have missed opportunities.
Where we've underperformed.
What we need to do to unleash the potential of vishay.
The customers clearly expect more from vishay.
What else do I see.
Vishay is a financially strong company with a broad product portfolio of discrete semiconductors and passive components.
She has strong operational discipline.
And the terrific hardworking and smart workforce.
We have a pristine balance sheet that gives us stability, but also the capability to grow at greater rates.
We have a global manufacturing footprint.
With multiple manufacturing locations for a number of product lines that positions us to meet our customers' need for supply in the region of consumption.
And we are a supplier to all market segments with strong technology positions and Automotives.
Real military avionics and medical.
Supporting the Mega trends of electrification data storage and wireless communications are critical to our future success.
In automotive, where EV and electronic content and new sensing features are rapidly growing.
And industrial where factory automation renewable energy collection in energy transmission are propelling greater electronic component demand.
And military where governments are increasing the funding on defense programs and customers are developing more advanced radar systems and missile guidance systems.
To commercial aerospace.
We're $1 are flowing into satellite communications and flight systems.
And in medical technology, where companies all right.
Innovating, new medical Diana agnostic equipment.
Instruments and implantable devices.
One might say that vishay as a sleeping giant often capacity constrained with long lead times.
We have undervest, either invested in Capex and technical resources.
We have to change and reshape the company to drive growth in.
And optimize returns and shareholder value.
Under my leadership, we're going to reorient to vishay.
We're going to reorient from mine operations focused company to a customer and market focused company.
From a cash flow managed business to a P&L driven company, while upholding our capital return policy.
From a company that fulfill customer orders to one that anticipated customer need and is ready to support.
From a company focused on the present.
The one that is forward looking.
And from a proficient organization.
To win that's dynamic and rewards risk taking.
In the months, leading up to my taking control as the CEO .
I spent a great deal of time with machines, new leadership team.
We could collectively hit the ground running on January one.
It is critical that we start immediately.
Externally I have met with key customers, both distributors and Oems.
To dig deeper into their needs and share where vishay will be going in this new era.
Internally I have met with nearly 70 senior leaders one on one.
To hear their views on our opportunities to grow.
And the operational gaps that we must close.
I have been injecting new ideas and changes to our business processes.
Using multiple employee communications to start creating a business minded organization.
I've stressed that in order to propel our growth and meet the increasing demand for our products, we must shift our mindset to customer first in everything we do.
I'll provide more detail about what we have planned for the future. After Lori has completed her review of the financial results. Laurie. Please proceed.
Thank you Joe good morning, everyone.
I'll start by reviewing our fourth quarter results on slide four.
Revenues for the fourth quarter were $855 million.
Slightly below the low end of our guidance, reflecting in part the impact of Covid related absences at our plants in China and in part lower the next exit sales to distribution, reflecting the start of an inventory correction.
This sufficient inventory at quarter end was 19 weeks compared to <unk> for the third quarter.
Revenues decreased seven 5% versus the third quarter.
Reflecting stable relatively stable pricing and 8% decline in volume.
As expected volumes came down from the spike in the third quarter.
Catching up on MOSFET shipments after the shutdown in Shanghai during the second quarter.
Revenues for one 5% higher than fourth quarter last year.
Pricing offset by flat volumes.
Okay.
EPS was <unk> 51 per share.
Compared to 98 cents per share <unk> 93 per share respectively for the third quarter.
Adjusted earnings for these two quarters reflect differences in tax expense.
He will elaborate further on these items in a few moments.
Book to Bill for consolidated Vishay Zero 94.
Backlog at quarter end was seven eight months.
Capex for the year increased 106 9 million or 40.
49% versus 2021.
$325 3 million in line with our expectation of spending $345 million.
Nearly all of the increased 22 capacity expansion outside of China.
We returned a total of $142 million to shareholders.
Well above the target of 70% of free cash flow and well above the $100 million that we anticipated at the time, we announced our new stockholder return policy last February .
Okay.
Slide five presents a breakdown of revenues by sales channel.
Yes.
I'd like to call your attention to a few data points.
Sales to distribution decreased 12, 4% from the third quarter.
As mentioned earlier, we have started to see indications of an inventory correction.
For our two largest markets revenues revenues from the automotive market decreased six 4% versus the third quarter.
Primarily reflecting the third quarter catch up and MOSFET volume and if our Shanghai facility.
In addition, automotive Oems for less inventory and stay focused on consuming inventory by year end.
Compared to the fourth quarter of 2021 automotive revenues were up seven 1%.
Revenues from industrial customers decreased 10, 7% versus the third quarter, along with a decrease in distribution badness.
On slide six you can see the revenue breakdown for the fourth quarter by business segment and by region.
Although revenue in Asia declined by 12, 8%.
Pos in the region declined modestly.
Please turn to slide 10.
Gross profit was $229 $1 million.
Of 29, 1% compared to 31, 3% for the third quarter, reflecting lower volume.
Compared to our guidance of 30% plus or minus 50 basis points gross profit margin was impacted by lower lower than expected volumes and some input cost inflation.
Operating expenses were $113 8 million.
Above quarter operating expenditures.
$6 4 million.
Maryland, reflecting the addition of backstop.
As a result of the reduction in gross profit.
Higher operating expenses operating income decreased by $47 $8 million to $135 3 million versus the third quarter.
Okay.
Operating income increased $13 7 million or 11, 2% over <unk> 2021.
Operating margin was 15, 8%.
Third to 19, 8% for the third quarter and.
In 2014, 4% for the fourth quarter of 2021.
EBITDA was 171 zero million.
EBITDA margin of 27%.
During <unk>, we made the determination that substantially all unremitted earnings in Germany.
And no longer indefinitely reinvested.
As a result, we recorded additional tax expense of $60 million.
Changing the indefinite reinvestment assertion will provide greater access to the companys offshore cash balances.
And enable us to sustainably fund our growth plan and our stockholder return policy.
With the change in assertion while.
While the change in assertion provides access to these foreign cash balances.
This allowance will be repatriated only ethanol.
Also during <unk>.
<unk> is a tax benefit of $34 million and the release of the valuation allowance.
Our U S GAAP tax rate for the year includes these unusual items and was approximately 28%.
Which mathematically yields a rate of 46% for <unk>.
Our normalized effective tax rate, which excludes these unusual items.
And for full year 2022 excludes the tax effects of the Covid costs and China into Q was approximately 23% for the quarter and 24% for the year.
The change in indefinite reinvestment assertion also impacts our assertion on future earnings.
Our consolidated effective tax rate is based on an assumed level and mix of income among our various taxing jurisdictions.
We expect our normalized effective tax rate for full year 2023 at approximately 30%.
On slide eight we present cash conversion cycle metrics.
Dsos were 45 days compared to 42 days for the third quarter.
As we received payments from several of our customers in Asia shortly after quarter end.
Yes.
Inventory was $618 9 million at quarter end.
Essentially flat versus third quarter, primarily due to exchange rate impacts.
Inventory days outstanding were 93 days compared to 90 days for the service plan.
Details were 31 days compared to 73 days for the third quarter.
The cash conversion cycle for the fourth quarter to 107 days.
Yeah.
Turning to slide nine you can see that Vcs continued its track record of strong cash flow generation.
Cash from operations for the quarter was $165 $5 million.
Capex was $153 1 million for the quarter.
With <unk> with $101 5 million invested in capacity expansion primarily in Mexico.
And bringing the total capex for expansion in 2022.
$214 6 million, an increase of 52% compared to 2021.
Full year total Capex was nine 3% of revenues compared to six 7% for 2021.
Free cash flow for the quarter was $14 1 million and for the full year was $162 million.
Under our stockholder return policy, we are committed to return at least 70% of annual free cash flow to stockholders directly in the form of dividends or indirectly in the form of stock repurchases.
We announced a policy.
In February 2022.
We set an expectation to return at least $100 million in 2022.
Yes.
For the fourth quarter, our second little bit churn amounted to $42 4 million.
Consisting of $14 1 million for our quarterly dividend and $28 3 million for share repurchases.
We purchased a total of $4 2 million shares an average price of $19 57 during the year.
This brings the total stockholder returns what 2022.
$140 2 million or <unk> 87, 5% of annual free cash flow.
Total liquidity at quarter end was $1 6 billion, including cash and short term investments of $916 1 million and.
$707 1 million availability on our revolving.
Credit facility.
As mentioned on past earnings calls, we use the revolver from time to time to meet short term financing financing needs.
Turning to slide 10 for our guidance.
For the first quarter of 2023 revenues are expected to be between $825 million and $865 million, reflecting ongoing inventory correction Steve.
Stable pricing.
Gross profit margin is expected to be in the range of 23, 1% plus or minus 50 basis points.
Operating expenses are expected to be between $116 million and $119 million for the quarter.
And between $475 million and funded $85 million for the full year at current exchange rates.
For 2023 as mentioned earlier, we expect our normalized effective tax rate.
Currently 30%.
Consistent with our stockholder return policy, we plan to distribute at least 70% of our free cash flow to shareholders in the form of dividends and stock repurchases for.
For 2023, we expect to return at least $100 million.
I'll now turn the call back to Joe.
Thank you Laurie, let's please turn to slide 11.
While we work through.
What we expect will be a narrow inventory correction with our distributor customers during the first quarter and likely into the second quarter.
We embarked on a new era at Vishay.
I shared with you earlier my ideas about what vishay has been and what it has the potential to become.
To drive growth and margin expansion over the next three years, we're committed to investing around $1 2 billion in capex and investing to enhance our operational capabilities.
Our strong liquidity means that we can invest more heavily over the next couple of years to position vishay for greater growth without sacrificing our stockholder return policy and with free cash flow expected to stay around its historical average.
Yeah.
2023 is our first year to drive change at Vishay and stage the company for the future.
We know that we need to become a company that anticipates customer need.
Supports increasing customer demand.
Delivering revenue growth and expanding margins.
We are already implementing a number of initiatives in 2023.
In 2024.
Well advanced many of these initiatives and begin to have increased manufacturing capacity available.
Beginning late 2024 and into 2025 will be in better shape to capture the next steps of the growing demand for electrification in our key end markets.
Let's take a look at slide 12.
Slide 12, I've laid out our near term initiatives.
First we have many great products across our semi conductor and passive component technologies.
We have identified 30 key product lines for growth.
Across each business segment.
Most of these product lines serve multiple market segments application and business channels.
These products are in high demand today, and our customers are telling us they want more.
We are developing go to market strategies for each one of these product lines concentrating our resources on improving the technical performance of non commodity of custom products to.
To better position vishay to support the mega trends towards electrification and data communication.
Second.
We're expanding capacity internally and externally.
In 2019 and 2020.
Somewhat slowed capacity investment and it is imperative that.
We make up for past underinvestment to be able to reduce our lead times and drive growth.
We're not only planning to spend more but we're going to spend judiciously on those 30 identified growth product lines.
In 2023, we expect to increase capex to approximately $385 million.
Mostly on capacity expansion projects outside of China.
These include our new power inductors site in Mexico.
A resistor expansion also in Mexico.
Diode manufacturing in Taiwan.
The new MOSFET 12 inch fab and it's a whole Germany.
Today much of our capacity is committed.
MOSFET and resistors have lead times that extend over one year.
Our goal is to continue to grow with established customers. Thank you.
You also have capacity to sell four new any merchant customers.
To achieve that objective and create room for growth.
Identifying opportunities to subcontract production of commodity products and expect to have resources.
Qualified throughout the year.
We're also identifying additional foundries.
To alleviate the most constrained semiconductor product lines.
This way, we will have incremental capacity to allocate to serve more customers and end markets.
Third.
Third we're shifting our thinking about channel management today must shade places a priority on strategic accounts.
By growing our capacity and capabilities.
We're going to enhance our ability to support all of the business channels of OEM distribution MFS, while maximizing the profitability of each one through a focus on high margin customers.
Sure.
Increasing our technical resources that face customers and also filling gaps internally and market segment coverage and intensifying our activities in R&D.
We will see an increase in operating expenses over the next couple of years as we add these engineering talents fill gaps in our technology and become a preferred supplier to more customers and more broadly sell our portfolio.
The acquisition of <unk> power in our Silicon Carbide technology last October is an illustration of this increased investment.
Yes.
We're moving toward solution selling.
Customer engineers look for suppliers, who can provide solutions to advance their technologies.
Vishay semiconductor passives can populate greater than 80% of the components on a circuit board in many applications.
We need to be sure we're technically speaking to customer engineers about applications.
And the performance improvement that vishay components can bring.
From the full array of our portfolio.
We recently started introducing Boucher solutions at electronica last November in Munich, Germany, We showed six automotive reference design applications.
These were a mix of onboard Chargers inverters intelligent battery management systems, and DC to DC converters.
We promoted online for engineers to test and observe the performance of Vishay components in these high demand solutions.
Sixth.
We're implementing organizational and structural change at vishay.
Vishay has operated in separate silos between sales and marketing.
To become a more responsive company that maneuvers and reacts favorably to customer request.
We're fostering collaboration internally and externally, particularly.
Particularly in the functions connected to customer program.
As part of this effort we are flattening the organizational structure.
And redefining some leadership roles.
We decided in <unk>.
Favre of empowering the regional sales leader.
And our strategic account leaders to drive business growth in their area of responsibility.
Other than filling the position of executive Vice President Global sales.
We have combined the sales and marketing functions by region under regional sales leaders.
Bringing together the commercial technical and strategic resources to meet our customers' needs.
These regional sales heads will report directly to me.
Our Chief Technical Officer Roy Shani.
He is taking on a broader mandate.
To Reenergize our product innovation.
Grow our preferred supplier status and developed closely connected to our customers cto's and understand the direction of their technology.
Reenergizing, our product innovation to align with our customer technology Roadmaps.
Will involve both internal R&D investments and acquisitions, depending on which Avenue is most suitable.
Finally, our chief operating Officer, Jeff Webster.
New position at <unk> now drive the operations of both passive and semiconductors under one responsibility.
This change is designed to break down barriers between passive in semis.
Under Jeff's expertise and leadership, we are determined to drive operational excellence.
Cost reductions capacity expansions subcontractor qualifications.
All resulting in a greater service <unk> to our customers.
We're pushing down decision, making into the organization to empower our leaders and to facilitate timely action.
We will create more speed within vishay.
We're going to reward collaboration.
Enable forward looking behaviour and empower risk taking.
And we're going to build accountability, both individual and shared within the organization.
Aligning incentive compensation to personal and company growth and profitability initiatives.
These are significant changes for vishay.
The six initiatives I laid out for you are the foundation for our ambitions to unleash the potential at Vishay.
Realizing the full value of our broad product portfolio.
Customer first service company.
And for our goals of driving topline growth and expanding margins.
Let's go to slide 13.
Slide 13 drills down into our goals for 2023.
By the end of 2023, we intend to have qualified and signed agreements with a number of sub contractors.
And completed an evaluation of where to build the chaise next manufacturing factories as we continued to deemphasize China in favor of other low cost locations.
Designed and implementing our go to market strategies for each of the 30 key product lines by region and end market to put more horsepower behind them.
Third the Max power acquisition is progressing well samples of 600 volt and 1200 bulk planner tech.
Technology, MOSFET <unk> will be available to customers in Q3 of 2023.
We target to release both of these voltages and movement to production in the first quarter of 2024.
Our development of the 1200 volt trench technology.
Also moves forward as we continue to engineer and evaluate this product's targeted high competitive performance.
Our design in activities into 200 volt automotive and industrial applications continue.
And finally.
We will develop a three year business plan.
Which we look forward to sharing with you early in 2024.
In closing.
The electrification of our world and the need to communicate more data brings exciting growth opportunities for appreciate it.
We have the right products are well established and expanding manufacturing footprint.
And the right people to do more for our customers.
We're aligning the organization toward faster growth.
Greater profitability.
With a new management team in place, we're setting the stage for substantial growth starting in 2025.
And I am excited to be leading Boucher drew this changes ahead and into the future.
Melissa we're ready to begin the question and answer session.
Thank you if you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue.
You May press star two 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.
The interest of time, we ask that you each keep to one question and one follow up.
Our first question comes from the line of Joshua <unk> with Cowen and company. Please proceed with your question.
Taking my questions.
Congratulations on the first earnings call as CEO .
I wanted to start with a shorter term question.
Can you walk us through some of the confidence and the assumptions behind the timing of the inventory digestion and wrapping up in the first half of 2023 year. There is there any particular end.
End markets that you have assumptions for improvement in the shorter term and it would just be helpful to hear what you're seeing by end market given some divergent trends, we're hearing across the mixed signal space in.
Several of your markets. Thank you.
Okay Joshua Thanks for the question.
End markets automotive anything EV vehicle production or design in E beam related.
More charging stations. This continues to be very strong our design activity is strong and also the demand that's pulled through the distributors will help deplete that inventory in the first quarter.
Industrial overall is a strong segment for us as you know the industrial design and factory automation robotics.
As things towards electrification continue so that will help pull through some of our inventory.
If we get into industrial where we talk about power tools and things like that I think theres going to be some slowness there.
Military defense content.
Used to be stable to growing.
And medical as well I've met with a couple of medical customers.
<unk> for growth are strong.
And this will help us move that inventory. This is why we feel in the first and second quarter.
It should move rather quickly we feel we have a good position in our core market segments.
And we also feel because vishay has had long lead times.
At the.
The amount of stock is not so excessive.
Thanks for all the color there and then I guess longer term. Thanks for the details on the capacity expansion plan I guess I was trying to square away. It sounds like they're going to outsource more of the commoditized parts, how should we think about what level, you're investing in and what's your expected total capacity increases over the next few.
<unk>.
Given you're planning to outsource an increased portion of your.
Products.
Is any of that is predicated on fabs some of your smaller fabs closing and while investing in the larger ones. Thank you.
Well, we have we have a couple of approaches here since for semiconductors and also passives talk about passives first there is a number of product lines, which are come out equally of commodity products non commodity products and customers in each of our portfolios.
When you look at the commodities and we want to qualify subcontractors to help US there. We can qualify sub contractors in 2023, we'll be able to use that capacity to support customer demand on commodities.
Use our internal capacity on the non commodity and custom products to also improve the delivery of those products.
We've got a number of sub cards that were in process of qualifying now so we see this as a <unk>.
Intermediate improvement into our ability to supply products in 2023.
On the semiconductor side Youre right its about foundries, it's about getting wafer capacity, we have spoken to a number of wafer fabs were aligning capacity and starting some qualification steps.
As far as investments, we haven't had to make a significant investment there is capacity that we found available.
And this as well will help us with the front end of semiconductors 2023.
Thank you if I could squeeze one last one in there were reports of.
It was a fire at one of your sub contractors.
<unk> happening.
Earlier this year was that did that play at all into the guidance I just wanted to confirm if there's anything.
Baked in for <unk> for the subcontractor issue. Thank you.
There was a fire at a <unk> facility in China.
The name as well new.
We have through Jeff's efforts, leading our operation. This is one example of Jeff being responsible for the semiconductors passives that complete organization, we have internal planning capacity that we found and what are the diodes facilities.
This plating line with supporting MOSFET, So Jeff was able to move the production to the plating lines in vishay.
And we feel that in the first quarter, we will be able to overcome this issue and yes. It is included in our guidance. We believe by the end of Q1 will help overcome that proper.
Got it thank you and congrats on the first earnings call again, thanks Joshua.
Thank you.
Our next question comes from the line of Matt Sheerin with Stifel. Please proceed with your question.
Yes, thank you very much and good morning.
Just.
Just wanted to get a sense of how you see margins playing out this year you talked about the inventory correction, obviously youre weighing on volumes and you've also got some investments it sounds like.
Some opex pruning as well I mean, you're guiding.
Margins down several hundred basis points year over year on gross margin.
Does it bottom here at 28% or or or should it go lower particularly if Q Q2 was down how should we think about margins.
Sorry go ahead.
Well, okay. So we guided to is that 28% plus or minus 50 basis points, we believe margins will be relatively stable throughout the year.
And potentially.
Essentially slight increase towards the end.
<unk>.
Relatively flat.
I can add more to that.
We have a year of staging Boucher theres some operational expenses as you've talked about that are going to be required and you compared it to prior year. So we've got a year of 2023 to stage V shape.
And the Opex is required to better position the company through some of those operational gaps that I talked about after meeting with 70 employees.
We see pressure always on.
Input cost, we see pressure on inflation, we see pressure on wages.
So with materials seem to be relatively stable.
Our gross margins at this point.
Seem to be flat or stable through the rest of the year because of the activities internally and also be able to maintain our price level, we see the pricing will be stable throughout the year.
If we have excessive increases in our input costs that we're going to have to raise prices as well, but there was quite a large price increase that was done in 2022.
So I think overall as Lori said, we will see margins to be stable through.
Forward quarters of this year.
Okay. Thanks for that and then on the Capex increase.
Could you give us an idea of the revenue generated from that Capex.
As it.
Is it one to one in terms of revenue what what what.
What kind of capacity are we talking about in terms of volumes.
It'll be better than one to one.
Dr expansion that we're putting in Mexico.
We expect to double our capacity.
Doctors.
Resistor expansion in Mexico pushes as well almost doubling and thats.
One of our metal strip technologies.
So.
These capacity increases are going to be quite significant when we talk about $1 $2 billion over three years is significant compared to prior history in vishay of $160 million per year.
So youre going to see the shape positioning ourselves for substantially greater growth.
Is there a concern that there may be too much supply, particularly if we're in a tough.
Tough macro environment for the next couple of years and it sounds like you said some of this capacity is already accounted for in terms of customers who are have you been working with customers to ensure that youre going to youre going to be able to ship to orders.
Yes, with our backlog now at eight months.
That's eight months backlog with the customer base that we call strategic accounts at our distributor partners. We're meeting with a lot of customers beyond that and they have greater demand purpose shaped products. When we talked about these 30 focused products. These are exciting products and boucher that support multiple segments in <unk>.
<unk> applications. So it's our responsibility to position to shape to grow and these products are in high demand.
Shifting we're not concerned about it at the moment, because we have a lot of customer demand is developing in our design activities were strong.
It's really positioning this company for greater growth there'll be bumps in the road, it's a cyclical business that we're in.
<unk> has a great potential to grow significantly in the future.
Okay sounds good thanks very much.
Thanks, Matt.
Yes.
Thank you as a reminder, if you'd like to join the question queue. Please press star one on your telephone keypad. Our next question comes from the line.
How does Sharia with bank of America. Please proceed with your question.
Hi, Thank you for taking my questions and congrats on the new roles Joel I just have you on board.
In your slide on near term initiatives, you talked about two things you talked about enhanced 10, enhancing the channel management and you talked about solution selling so I was wondering if you can elaborate more on that what do you think needs to change in terms of channel management and can you give us a sense of like when you say solution selling what is what is that.
Bring what is that exactly and how what is the margin differential between what you sell as individual products versus solutions.
Okay. The enhanced channel management as mentioned, we had our priorities on the strategic accounts. Many of them were a small set of automotive customers are industrial customers could be telecom as well.
Distribution is a large part of our business as you know it's nearly 60%.
We have had long lead times and we were not supporting the channel of distribution to the level. We could have based on the opportunities that were in front of us.
EMS segment.
The meeting with a number of the EMS, the leading EMS companies they have.
Significant demand for Vishay Vishay is well positioned on bill of materials. They tried to buy vishay is one of their first sources, but if our lead times are long and we're not able to support them. They have to shift they have to look at other suppliers or go back to the OEM and ask for another source to be qualified.
So we've not been able to support that business, we have the opportunity to do it our design in activities at SGA and OEM are strong but.
But we need to be able to support those design wins through the channel of distribution as well, it's not direct to customer and also through the EMS. So it's really supporting all business channels, OEM distribution and EMS at a greater rate, having the capacity to enjoy our design wins.
Your second question was about solution selling.
Sure.
A quite unique company by having semiconductors through passives as.
As we go to engineers at our customer and we speak about one technology.
We can actually sell many technologies that design in many products to support their solution.
In the past, maybe we sold based on a data sheet, a particular product in the future, we're going to talk about applications and solutions.
Silicon carbide. This acquisition is going to be very helpful for vishay.
Silicon carbide is an enabling technology, it's a technology that's in the first discussion with the customer as they talk about 400 volt or 800 volt inverter designs.
I think vishay offering silicon carbide puts us in those first discussions with customers and then it allows us to bring in our discrete semiconductor portfolio.
In the passives in that same conversation.
We feel we're uniquely positioned as one of the few suppliers that can do this.
Okay. Thanks for the details there.
Maybe I can ask one for Lori.
On Slide 15, you are talking about the company changed its indefinite reinvestment assertion does that impact your thoughts on share buybacks and how you repatriate cash and can you just remind us on the priorities for your capital allocation and how should we think about the pace of buybacks.
Okay. So it absolutely does enable us to bring back in a sustainable manner.
Cash to the U S.
So that we can.
Our commitment to the shareholder return policy.
Okay and.
Maybe I'll ask one more for Joe So you've laid out of $1 2 billion Capex plan for the next three years.
Beyond.
What you've stated for fiscal 'twenty, three I think 380 something million should we assume an equal amount in each of the older. Two years 24, and 25 and can you give us some more details on what specifically you're investing in like what are some of the areas, where which product lines are you investing in capex and how should we think about these facilities coming online.
How quickly does supply come online based.
Based on your investments.
Okay. The capital as we said this year is $385 million.
When we get into 2024, and 2025, it will be $400 million or greater in.
In each of those two years.
Looking across our products that goes to these 30 focus part numbers, there's a resistor products that require more investment the inductors, we spoke about expanding with a new facility in Mexico.
Facility is built and we're starting to stage the new lines in it now, but there is production space available in the building so.
Over the next two to three years debt capacity will continue to grow and feel that our inductor facility.
Custom magnetics is another part of inductors of our Dr portfolio.
We sell heavily to medical and military, but we need to expand that portfolio, because we have more have more opportunities in automotive.
And in industrial and burgers.
Capacitors, we look at the polymer tantalum and Vishay has a technology that we need to.
Enhance the ability to supply we go polymer is growing to over $1 billion Tam.
Tam and we need to be bitter bigger player in capacitors with the polymer tantalum, we move over to Optocoupler sensing and automotive and industrial we've got proximity sensors, we've got.
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Sensors for <unk>.
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<unk> sensors, we've got a number of products for automotive that require us to enhance our offering increased our capacity on the subsea products.
With Silicon carbide diodes, Ed mentioned Silicon carbide MOSFET, we have to invest there as well. So these 30 products as we put our go to market strategies together at the dollars attached to it that's where you're going to see the products, it's really quite broad across Boucher and this investment.
Thank you for all the details appreciate it.
Thank you. Thank you.
Thank you, ladies and gentlemen that concludes our question and answer session I'll turn the floor back to Mr. <unk> for any final comments.
Okay.
Yes.
Yes.
Okay.
Thank you Melissa.
And thank you for everyone for joining our call today.
I look forward to meeting and talking with you over the coming weeks.
And also to speaking with you again in early May when we report our first quarter 2023 financial results. Thank.
Thank you very much.
Thank you. This concludes today's conference call you may disconnect. Your lines at this time. Thank you for your participation.