Q1 2024 Vishay Intertechnology Inc Earnings Call
Operator: Good morning, and thank you for standing by. Welcome to Vishay Intertechnology's first quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 1 on your telephone. You will then hear an automatic message advising that your hand is raised. Please note that today's conference is being recorded. I will now hand the conference over to your speaker host, Peter Henrici, Head of Investor Relations. Please go ahead.
Good morning, and thank you for standing by.
Peter G. Henrici: To Vishay Intertechnology first quarter 'twenty 'twenty four earnings conference call.
Operator: At this time all participants are in a listen only mode.
Peter G. Henrici: After the speaker's presentation, there will be a question and answer session.
Operator: A question during the session.
Operator: One on your telephone you will then have an automated message advising you in this way.
Operator: Please note that today's conference is being recorded.
Peter G. Henrici: I want to clarify is I'll, let you speak of house you don't.
Peter G. Henrici: Candidacy head of Investor Relations. Please go ahead.
Peter G. Henrici: Thank you, Livia. Good morning, and welcome to Vishay Intertechnology's first quarter 2024 earnings call. I am joined today by Joel Smejkal, our President and Chief Executive Officer, and by Dave McConnell, our Chief Financial Officer. This morning, we reported results for our first quarter. A copy of our earnings release is available in the investor relations section of our website at ir.vishay.com. This 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.
Peter G. Henrici: Thank you yeah, good morning, and welcome to Vishay Intertechnology first quarter 'twenty 'twenty four earnings call.
Peter G. Henrici: I'm joined today by Joe Smith, our President and Chief Executive Officer, and David Macdonald, Our Chief Financial Officer.
Peter G. Henrici: This morning, we reported results for our first quarter a copy of our earnings release is available in the Investor Relations section of our website.
Peter G. Henrici: I R Chop Vishay dotcom.
Peter G. Henrici: This call is being broadcast live over the web and can be accessed through our website.
Peter G. Henrici: In addition, today's call is being recorded and will be available via replay on our website.
Peter G. Henrici: During the call, we will be referring to a slide presentation, which we have also posted at ir.vishay.com. You should be aware that in today's conference call, we will 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 those in the forward-looking statements.
Peter G. Henrici: During the call well be referring to a slide presentation, which we also posted at IR dot.
Peter G. Henrici: Dot com.
Peter G. Henrici: You should be aware that in today's conference call, we will be making certain forward looking statements that discuss future events and performance.
Peter G. Henrici: These statements are subject to risks and uncertainties that could cause actual results to differ from the forward looking statements.
Peter G. Henrici: For a discussion of factors that could cause results to differ please see today's press release and fish shapes Form 10-K, and Form 10-Q filings with the Securities and Exchange Commission.
Peter G. Henrici: 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 <unk> dot is shaped outcome, which we believe.
Peter G. Henrici: For a discussion of factors that could cause results to differ, please see today's press release and Vishay's 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 gap and non-gap measures. We have included a full gap to non-gap reconciliation in our press release, as well as in the presentation posted on ir.vishay.com, which we believe you will find useful when comparing our GAP and non-GAP results.
Peter G. Henrici: You will find useful when comparing our GAAP and non-GAAP results, 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.
Peter G. Henrici: 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, Joel Smejkal.
Peter G. Henrici: Now I'll turn the call over to President and Chief Executive Officer, Joe Smith.
Joel Smejkal: Thank you, Peter. Good morning, everyone.
Joel Smejkal: Thank you Peter good morning, everyone.
Joel Smejkal: Thank you for joining our first quarter. 2024 Earnings Goal I'll start my remarks on slide three with a review of the demand trends for the first quarter by end market, channel, and region. Then Dave will take us through the highlights of our financial results and guidance for the second quarter of 2024. After that, I'll wrap up with a review of our initiatives and goals for 2024, and then we'll be happy to answer any of your questions.
Joel Smejkal: Thank you for joining our first quarter.
Joel Smejkal: 2024 earnings call.
Joel Smejkal: I'll start my remarks on slide three with a review of the demand trends for the first quarter by end market channel and region.
Joel Smejkal: And Dave will take us through the highlights of our financial results and guidance for the second quarter of 2024.
Joel Smejkal: After that I'll wrap up with a review of our initiatives and goals for 2024, and then we'll be happy to answer any of your questions.
Joel Smejkal: For the first quarter, we are reporting revenue of $746.3 million, slightly above the midpoint of our guidance range, $715 million to $775 million. However, inventory digestion that began to impact our demand last quarter extended into the first quarter, and our revenue fell 5% sequentially. A greater proportion of this oversupply inventory is for semiconductor products compared to the past. However, as I mentioned last February, we expect some end markets to improve, notably Aerospace and Defense.
Joel Smejkal: For the first quarter, we are reporting revenue of $746 $3 million slightly above the midpoint of our guidance range of $715 million to $775 million.
Joel Smejkal: The inventory digestion that began to impact our demand last quarter.
Joel Smejkal: Standard into the first quarter and our revenue fell 5% sequentially.
Joel Smejkal: A greater proportion of this oversupply inventory is for semiconductor products compared to passive.
Joel Smejkal: However, as I mentioned last February we expect some end markets to improve sooner.
Joel Smejkal: Notably aerospace and defense.
Joel Smejkal: And that is, in fact, what happened with growth both year over year and quarter over quarter. Let's now look in more detail at the revenue by market segment on the left side of slide three. Automotive, which is still the largest contributor of total revenue, declined slightly by 0.7% due to an adjustment and also due to the beginning of new annual contracts with OEMs in Tier 1, that went into effect in January. Demand for EV programs weakened in most regions, while orders for hybrids and internal combustion engines are steady to increase, regardless of our customer's powertrain mix. Vishay is well positioned to supply their needs.
Joel Smejkal: And that is in fact, what happened with growth both year over year.
Joel Smejkal: Quarter over quarter.
Joel Smejkal: Let's now look in more detail at the revenue by market segment on the left slide on the left side of slide three.
Joel Smejkal: Automotive, which is still the largest contributor of total revenue.
Joel Smejkal: Klein slightly by the point of it let's see.
Joel Smejkal: Do you mean, Jeff.
Joel Smejkal: Kevin and Youll tracks with Oems and tier ones that went into effect on January one.
Joel Smejkal: Demand from EV programs weekend in most regions, while orders for hybrids and internal combustion engines are steady to increasing.
Joel Smejkal: Regardless of our customer's powertrain mix vishay is well positioned to supply their needs.
Joel Smejkal: Compared to the first quarter of last year, our automotive revenue was up 1%. Design activity and design wins in the automotive sector continued to increase and remained focused on ADAS and e-mobility, including battery management systems, traction inverters, and onboard chargers. While current and near-term demand for EVs has somewhat moderated, automotive, OEMs, and Tier Ones are engaging with us more closely for design and technology capability discussions for their next generation EV projects.
Joel Smejkal: Compared to the first quarter of last year, our automotive revenue was up 1%.
Joel Smejkal: Design activity and design wins in automotive continued to increase and remained focused on Adas and E mobility include.
Joel Smejkal: Including battery management systems traction Inverters and onboard Chargers.
Joel Smejkal: While current and near term demand for EV has somewhat moderated.
Joel Smejkal: Automotive Oems and tier ones are engaging with us more closely for design.
Joel Smejkal: Technology capability discussions for their next generation EV projects.
Joel Smejkal: We had an 8% increase year over year in new design engagements with OEMs, plus multiple silicon carbide design discussions with potential new OEMs. Revenue from industrial customers, our second largest revenue contributor, declined 6.2% from the fourth quarter and 23.9% versus last year's first quarter, also due to continued inventory digestion, primarily in semiconductors. Demand remained weak in Asia, influenced by the ongoing economic uncertainties in China. Europe and the Americas remain s
Joel Smejkal: We have an 8% increase year over year in new design engagements with Oems.
Joel Smejkal: Multiple silicon carbide design discussions.
Joel Smejkal: With potential new Oems.
Joel Smejkal: Revenue from industrial customers, our second largest revenue contributor declined six 2% from the fourth quarter and 23, 9% versus last year's first quarter also due to continued inventory digestion primarily in semiconductors.
Joel Smejkal: Demand remained weak in Asia influenced by the ongoing economic uncertainties in China.
Joel Smejkal: Europe and the Americas remains sluggish customers continue to digest inventory.
Joel Smejkal: Customers continue to digest inventory. Although revenue was soft in the quarter, we saw improvement in infrastructure projects and renewable projects where Vishay has a high passive component count and some sole source position. It should be noted that in the first quarter, we received a sizable order from a European industrial customer for the grid. The order in the first quarter for one of our large capacitors was $77 million.
Joel Smejkal: Although revenue was soft in the quarter.
Joel Smejkal: We saw improvement in infrastructure projects.
Joel Smejkal: Renewable projects, where vishay has high passive component count and some sole source position.
Joel Smejkal: It should be noted in the first quarter, we received a sizable order from a European industrial customer.
Joel Smejkal: For the grid the order in the first quarter for one of our large capacitors was $77 million.
Joel Smejkal: This is a multi-year program with this customer, the commitment at this point is $145 million. The project will support their demands from 2024 through 2027, and they do offer some upside. Design activity for industrial customers continues to be strong, growing 22% over the first quarter last year. With smart grid infrastructure, redesign, and industrial automation remaining the major focus for our customers in all regions across, along with renewable energy generation and energy storage.
Joel Smejkal: This is a multi year program with this customer.
Joel Smejkal: Commitment at this point is $145 million.
Joel Smejkal: The project will support their demands 2024 through 2027, and they do offer some upside.
Joel Smejkal: Design activity for industrial customers continues to be strong.
Joel Smejkal: Growing 22% over the first quarter last year.
Joel Smejkal: With smart grid infrastructure redesign in industrial automation remaining is the major focus for our customers in all regions across along with the knowable renewable energy generation and energy storage.
Joel Smejkal: In aerospace and defense, our revenue increased 13.6% versus the fourth quarter and 34.2% versus last year due to continued strong demand in commercial aviation and from weapons system contractors in the Americas and Europe, where munitions are being replenished, and production of new weapons systems and communication systems is ramping up. Vishay's presence on the United States Department of Defense Qualified Parts list puts us in an excellent position for continued growth in this market, as OEM and EMS companies require those products for their military-qualified builds.
Joel Smejkal: In aerospace and defense, our revenue increased 13, 6% versus the fourth quarter.
Joel Smejkal: And 34, 2% versus last year.
Joel Smejkal: Continued strong demand in commercial aviation and from weapons system contractors in the Americas and Europe.
Joel Smejkal: We're munitions are being replenished and production of new weapons systems and communication systems is ramping up.
Joel Smejkal: Ashish presence on the United States Department of Defense qualified parts list puts us in an excellent position for continued growth in this market.
Joel Smejkal: As OEM and EMS companies required those products for their military qualified builds.
Joel Smejkal: With a book-to-bill greater than one at quarter end and customers placing expedited delivery requests, we expect demand in this market segment to strengthen throughout 2024. However, revenue from medical customers decreased 4.3% compared to the fourth quarter and 18.3% compared to last year as demand returns to more normalized levels. While design activity remains strong in the areas of remote monitoring equipment and implantable devices, revenue from our other market segments, computing, telecom, and consumer, declined both sequentially and year over year, by 21.9% and 40.5%, respectively, reflecting ongoing semiconductor inventory digestion and some pricing pressure.
Joel Smejkal: With a book to bill greater than one at quarter end and customers, placing expedited delivery request, we expect demand in this market segment to strengthen throughout 2024.
Joel Smejkal: Revenue from medical customers decreased four 3% compared to the fourth quarter.
Joel Smejkal: 18, 3% compared to last year.
Joel Smejkal: As demand returns to more normalized levels.
Joel Smejkal: Design activity remained strong in the areas of remote monitoring equipment and implantable devices.
Joel Smejkal: Revenue from our other market segments computing telecom and consumer.
Joel Smejkal: Declined both sequentially and year over year.
Joel Smejkal: 21, 9% and 45% respectively.
Joel Smejkal: Reflecting ongoing semiconductor inventory digestion.
Joel Smejkal: And some pricing pressure.
Joel Smejkal: While telecom and consumer remain soft, computing improved in Asia on demand for AI servers and notebooks, as the next computer upgrade cycle begins. Design activity and computing are up 21% year over year, driven by demand for AI servers, targeting high-speed data transmission, accelerator cards, power management system, and also for standard data center servers.
Joel Smejkal: While telecom and consumer remained soft computing improved in Asia on demand for AI servers and notebooks as the next computer upgrade cycle begins.
Joel Smejkal: Design activity in computing is up 21% year over year.
Joel Smejkal: Driven by demand for AI servers targeting the high speed data transmission.
Joel Smejkal: Accelerator cards power management systems.
Joel Smejkal: And also for standard data center servers.
Joel Smejkal: Turning to our channel sales, OEM revenue declined 6% compared to the fourth quarter and was 7.8% lower than last year's first quarter. First quarter demand, like the fourth quarter, saw some automotive and industrial OEMs further digesting inventory, and new pricing came into effect on annual contract customers. Customers are indicating that they have inventory to consume for some products, and short lead times reduce their need to place long-term orders. EMS revenue increased 2.1% sequentially and declined 16.5% year over year.
Joel Smejkal: Turning to our channel sales.
Joel Smejkal: OEM revenue declined 6% compared to the fourth quarter.
Joel Smejkal: And was seven 8% lower than last year's first quarter.
Joel Smejkal: First quarter demand like the fourth quarter saw some automotive and industrial.
Joel Smejkal: Oems further digesting inventory and new pricing came into effect on annual contract customers.
Joel Smejkal: Customers are indicating that they have inventory to consume for some products.
Joel Smejkal: Short lead times reduced their need to place long term orders.
Joel Smejkal: As those EMS customers serving aerospace and defense and automotive markets saw increases, while for some customers, the need to replenish inventory is low, given manageable lead times in all regions. Distribution revenue for the first quarter fell 4.9% from the fourth quarter and was 18.8% below last year, as customers in all regions continue to digest semiconductor inventory. Distribution inventory worldwide was flat quarter over quarter at 26 weeks. POS Worldwide was also flat.
Joel Smejkal: Ams revenue increased two 1% sequentially and declined 16, 5% year over year.
Joel Smejkal: As those EMS customers, serving aerospace and defense and automotive markets saw in pieces.
Joel Smejkal: While for some customers that need to replenish inventory is low given manageable lead times in all regions.
Joel Smejkal: Distribution revenue for the first quarter fell four 9% from the fourth quarter and was 18, 8% below last year as customers in all regions continued to digest semiconductor inventory.
Joel Smejkal: Distribution inventory worldwide was flat quarter over quarter at 26 weeks.
Joel Smejkal: However, this flat POS worldwide masks the 3.9% increase in America, reflecting strong sell-through of passives to aerospace and defense customers. We still expect the inventory correction to extend through the second quarter, with the recovery in the second half of the year led by PASC. The bill for the passive lines is moving into positive territory, most prominently those serving aerospace defense and marketing. Bookings are also improving in some industrial end markets and computing. Semiconductor booked bill, continued to lag passives, and the recovery is likely to extend into the third quarter.
Joel Smejkal: POS worldwide was also flat.
Joel Smejkal: However, this flat Pos worldwide mass the three 9% increase in the Americas.
Joel Smejkal: Reflecting strong sell through of passive to aerospace and defense customers.
Joel Smejkal: Based on input from our customers.
Joel Smejkal: We still expect the inventory correction to extend through the second quarter.
Joel Smejkal: With the recovery in the second half of the year led by passage.
Joel Smejkal: Thank you Bill for the passive lines is moving into the positive territory.
Joel Smejkal: Prominently those serving aerospace and defense end markets.
Joel Smejkal: Bookings are also impacting in some industrial end markets and computing.
Joel Smejkal: Semiconductor book to Bill continued to lag passives and the recovery is likely to extend into the third quarter.
Joel Smejkal: Finally, during the quarter, we continue to advance our initiative to deepen engagement with our distributors now and to ensure that our capacity expansions will allow us to reliably supply their needs in all market cycles. Our business unit leaders have traveled to meet with our distributors. Some were initial meetings; others were follow-up meetings to strengthen and improve Vishay's position on the distributor's shelves by adding SKUs. All meetings were enlightening and came with many action items. Before turning the call over to Dave, I want to express my deep appreciation to all employees of Vishay for their continued excitement and enthusiasm to embrace the changes taking place at our company and for their commitment to turning our future potential into a reality and for collectively creating the Vishay 3.0. Now, I'll turn the call over to Dave for a review of our financials.
Joel Smejkal: Finally during the quarter, we continued to advance our initiative to deepen engagement with our distributors now and.
Dave: That our capacity expansions will allow us to reliably supply their needs in all market cycles.
Dave: Our business unit leaders have traveled to the distributors.
Dave: Some were initial meetings others were follow up meetings to strengthen and improve the <unk> position on the distributor shelves by adding skus.
Dave: All meetings are enlightening.
Dave: And come with many action items.
Joel Smejkal: Before turning the call to Dave I want to express my deep appreciation to all employees of Vishay for.
Dave: Their continued excitement and enthusiasm to embrace the changes taking place at our company.
Dave: And for their commitment to turning our future potential into a reality.
Dave: And for collectively creating the vishay three point out.
Joel Smejkal: And now I'll turn the call over to Dave for a review of our financials.
David E. McConnell: Thank you, Joel. Good morning, everyone.
Dave: Thank you Joe good morning, everyone.
David E. McConnell: Let's start our review of the first quarter results with the highlights on slide four. First quarter revenues were $746.3 million, including $3 million attributed to our recently completed Newport acquisition and within the range of our guidance. Revenues decreased 5% compared to the fourth quarter, reflecting a 3% decrease in volume and a 2.5% reduction in ASPs. Most of the volume in ASP reduction occurred in our semiconductor business segments, reflecting ongoing soft demand in industrial end markets and continued pricing pressure in distribution and EMS channels.
Dave: Let's start our review of the first quarter results with the highlights on slide four.
David E. McConnell: First quarter revenues were $746 3 million, including $3 million attributed to our recently completed Newport acquisition and within the range of our guidance.
David E. McConnell: Revenues decreased 5% compared to the fourth quarter, reflecting a 3% decrease in volume and a two 5% reduction in asps.
David E. McConnell: Most of the volume and ASP reduction occurred in our semiconductor business segments, reflecting ongoing soft demand in industrial end markets and continued pricing pressure in distribution and EMS channels.
David E. McConnell: By reportable business segment, the $49 million decrease in revenues was mainly attributable to MOSFETs and diodes, each of which decreased sequentially by approximately 9%, followed by Opto and resistors, which declined 9% and 5%, respectively. However, these declines were slightly offset by increases in the revenues of inductors.
David E. McConnell: By reportable business segment.
David E. McConnell: No I meant that our decrease in revenues was mainly attributable to MOSFET and diode each of which decreased sequentially by approximately 9%.
David E. McConnell: By auto and resistors, which declined 9% and 5% respectively.
David E. McConnell: These declines were slightly offset by increases in our revenues of inductors and capacitors.
David E. McConnell: Compared to the first quarter of last year, revenues were down 14.3%, reflecting a volume decrease of 11.8% and a 3.6% reduction in ASPU. At quarter end, book-to-bill for Vishay was 0.82, comprised of 0.73 for semis and 0.91 for passes. Backlog for total Vishay was 5.0 months compared to 5.3 months at the end of the prior quarter. Looking at the backlog quarter over quarter comparison by product category, backlog for semis was 5.0 months compared to 5.3 months, and backlog for passives was 5.1 months compared to 5.4 months.
David E. McConnell: Compared to the first quarter of last year.
David E. McConnell: Revenues were down 14, 3%.
David E. McConnell: Reflecting a volume decrease of 11, 8% and a three 6% reduction in Asps.
David E. McConnell: At quarter end book to Bill for Vishay was eight two comprised of <unk> 73 for <unk> and <unk> 91 for passes.
David E. McConnell: Backlog for total vishay with five points here months compared to $5 three months at the end of the prior quarter.
David E. McConnell: Looking at the backlog quarter over quarter comparison by product category backlog for Sammy's with 5.0 months compared to $5 three months and.
David E. McConnell: And backlog for Passives was $5 one months compared to five four months.
David E. McConnell: Moving on to the next slide presenting the income statement highlights, gross profit, which includes the impact of the Newport acquisition, was $170.4 million. Gross margin was 22.8% and included the negative impact of 74 basis points related to Newport. The depreciation expense included in the gross profit for the quarter was $43.8 million. Compared to the fourth quarter, gross margin decreased primarily due to the previously mentioned impact of lower volumes and ASPs, particularly for MOSFETs, as well as the negative margin impact of Newport. SGA expenses were $127.7 million compared to $122.8 million for the fourth quarter.
David E. McConnell: Moving on to the next slide presenting the income statement highlights.
David E. McConnell: Gross profit, which includes the impact of the Newport acquisition was $74 million.
David E. McConnell: Gross margin was 22, 8% and included the negative impact of 74 basis points related to Newport.
David E. McConnell: The depreciation expense included in the gross profit for the quarter was $43 8 million.
David E. McConnell: Compared to the fourth quarter gross margin decreased primarily due to the previously mentioned impact.
David E. McConnell: Lower volumes and Asps.
David E. McConnell: Particularly for MOSFET as well as the negative margin impact of Newport.
David E. McConnell: SG&A expenses were $127 7 million compared to a $122 8 million for the fourth quarter.
David E. McConnell: Operating income decreased $35.2 million versus the fourth quarter on lower gross profit. Compared to the prior year first quarter, operating income decreased $115.9 million, driven by lower sales volumes and, to a lesser extent, higher SG&A. Operating margin was 5.7% compared to 9.9% for the fourth quarter and 18.2% for the first quarter of 2023. EBITDA for the quarter was $91.2 million, for an EBITDA margin of $12.2%. Our normalized effective tax rate for the quarter was 29%.
David E. McConnell: Operating income decreased $35 2 million versus the fourth quarter on lower gross profit.
David E. McConnell: Compared to prior year first quarter operating income decreased to $115 9 million driven by lower sales volumes and to a lesser extent higher SG&A expenses.
David E. McConnell: Operating margin was five 7% compared to nine 9% for the fourth quarter and 18, 2% first quarter of 2023.
David E. McConnell: EBITDA for the quarter was $91 2 million for an EBITDA margin of 12, 2%.
David E. McConnell: Our normalized effective tax rate for the quarter was 29%.
David E. McConnell: EPS was $0.22 per share. This compares to EPS of $0.37 per share for the fourth quarter and $0.79 per share for the first quarter of 2023. Proceeding to slide six, for ease of reference, the presentation includes a table illustrating the revenue, gross margin, and book to bill ratios for each of our reportable business segments. Turning to slide seven, we present our cash conversion cycle metrics. DSO was 51 days, one day higher than the fourth quarter, while DPO remained flat at 31 days.
David E. McConnell: EPS was <unk> 22 per share. This compares to EPS of <unk> 37 per share for the fourth quarter and 79 per share for the first quarter of 2023.
David E. McConnell: Proceeding to slide six for ease of reference the presentation includes a table illustrating the revenue gross margin and book to Bill ratios for each of our reportable business segments.
David E. McConnell: Inventory was $665.8 million at the end of the quarter, including about $11 million of inventory related to Newport. Inventory days outstanding were 104 days compared to 101 days for the fourth quarter, resulting in a cash conversion cycle for the first quarter of 124 days on Friday. You can see that the cash flow from operations amounted to $80.2 million for the first quarter. As a reminder, the fourth quarter was unusually low due to the payment of withholding taxes on cash repatriation transactions.
David E. McConnell: Turning to slide seven we present, our cash conversion cycle metrics.
David E. McConnell: DSO was 51 days, one day higher than the fourth quarter, while the DPA remained flat at 31 days.
David E. McConnell: Inventory was $665 8 million at the end of the quarter.
David E. McConnell: Including about $11 million of inventory related to Newport.
David E. McConnell: Inventory days outstanding were 104 days compared to 101 days for the fourth quarter.
David E. McConnell: Resulting in a cash conversion cycle for the first quarter of 124 days.
David E. McConnell: On slide eight.
David E. McConnell: You can see that the cash flow from operations amounted to $80 2 million for the first quarter.
David E. McConnell: As a reminder, the fourth quarter was unusually low find the payment of withholding taxes on cash repatriation transactions.
David E. McConnell: Compared to the first quarter of 2023, cash flow from operations was lower largely due to the reduction in earnings. Total CapEx was $53.1 million for the quarter, with $41.5 million of that total invested in capacity expansion projects. On a trailing 12-month basis, capital intensity was 10.3% compared to 9.5% for the same period last year.
David E. McConnell: Compared to the first quarter 2023 cash flow from operations is lower largely due to the reduction in earnings.
David E. McConnell: Total capex was $53 1 million for the quarter with $41 $5 million of that total invested in capacity expansion projects.
David E. McConnell: On a trailing 12 month basis capital intensity was 10, 3% compared to nine 5% for the same period last year.
David E. McConnell: Free cash flow for the quarter was $27.9 million, compared to a significant use of free cash in the fourth quarter related to high levels of capex and taxes paid for cash repatriation. Stockholder returns for the first quarter amounted to $26.3 million, consisting of $13.8 million from our quarterly dividend and $12.5 million of share repurchase. The number of shares repurchased during the quarter was 0.6 million shares at an average price of $22.17 per share.
David E. McConnell: Free cash flow for the quarter was $27 9 million compared to a significant use of free cash in the fourth quarter related to high levels of Capex and taxes paid for cash repatriation.
David E. McConnell: Stockholder returns for the first quarter amounted to $26 3 million.
David E. McConnell: Consisting of $13 8 million from our quarterly dividend and $12 5 million of share repurchases.
David E. McConnell: The number of shares repurchased during the quarter was <unk> 6 million shares at an average price of $22 17 per share.
David E. McConnell: For 2024, we still expect to return at least $100 million to shareholders. Cash and short-term investments decreased to $833 million at the end of the quarter after we utilized $168.6 million of cash on hand to fund the Newport acquisition. At the end of the quarter, we had approximately $82 million of cash on hand in the U.S. Turning to slide nine for our guidance.
David E. McConnell: For 2024, we still expect to return at least $100 million to shareholders.
David E. McConnell: Yes.
David E. McConnell: Cash and short term investments decreased to $833 million at the end of the quarter. After we utilized $168 $6 million of cash on hand to fund the Newport acquisition.
David E. McConnell: At the end of the quarter, we have approximately $82 million of cash on hand in the U S.
David E. McConnell: For the second quarter of 2024, revenues are expected to be $750 million, plus or minus $20 million. Gross margin is expected to be in the range of 21.7% plus or minus 50 basis points. The Newport acquisition has an approximately 160 basis point drag on the gross margin. SG&A expenses are expected to be $150 million, plus or minus $2 million for the quarter and $527 million, plus or minus $5 million for the full year.
David E. McConnell: Turning to slide nine for our guidance.
David E. McConnell: For the second quarter of 2024 revenues are expected to be $750 million, plus or minus $20 million.
David E. McConnell: Gross.
David E. McConnell: Margin is expected to be in the range of 21, 7% plus or minus 50 basis points.
David E. McConnell: The Newport acquisition has an approximately 160 basis point drag on the gross margin.
David E. McConnell: Yeah.
David E. McConnell: SG&A expenses are expected to be $130 million, plus or minus $2 million for the quarter and $527 million plus or minus $5 million for the full year.
David E. McConnell: Included in our year SGA guidance is the addition of approximately 8.7 million related to Newport, which is offset by adjustments to our planned 2024 spending, including lower headcount, freezes on hiring and salary increases, as well as nondiscretionary travel. For 2024, we expect a normalized effective tax rate of approximately $29 to $31 billion. Okay, I'll turn the call back over to Joel.
David E. McConnell: Included in our year SG&A guidance is the addition of approximately $8 7 million related to Newport.
David E. McConnell: Which is offset by adjustments to our planned 2020 for spending.
David E. McConnell: Including lower head count freezes on hiring and salary increases as well as non discretionary travel.
Joel Smejkal: For 2024, we expect a normalized effective tax rate of approximately 29% to 31%.
Joel Smejkal: Now I'll turn the call back over to Joe.
Joel Smejkal: Thank you Dave.
Joel Smejkal: At the Investor Day we held on April 2, we talked about our need to scale our capacity, to be a reliable supplier to more and more customers and also to attract new customers. From our travels and communication with customers, they clearly want more from Vishay.
Joel Smejkal: At the Investor Day, we held on April 2nd we talked about our need to scale our capacity.
Joel Smejkal: To be a reliable supplier to more and more customers and also to attract new customers.
Joel Smejkal: From our travels in communication with customers. They clearly want more from V shape.
Joel Smejkal: As we deepen our engagements with customers, our capacity expansions are one component for us to scale and support their growth. The second is our commitment to innovate and to supply products that support their technological direction in the megatrends of e-mobility and sustainability. To meet the commitments we are making to our customers to accelerate revenue growth and drive greater return, and to more broadly serve our addressable market and expand our product portfolio. We are executing a five-year strategic plan, pulling the eight levers displayed on slide 10.
Joel Smejkal: As we deepen our engagements with customers our capacity expansions are one component for us to scale and support their growth.
Joel Smejkal: Second is our commitment to innovate and to supply products, which support their technology direction and the Megatrends of E mobility and sustainability.
Joel Smejkal: To meet the commitments, we are making to our customers to accelerate revenue growth and drive greater returns.
Joel Smejkal: And to more broadly serve our addressable market.
Joel Smejkal: And expand our product portfolio we.
Joel Smejkal: We are executing a five year strategic plan pulling the levers displayed on slide 10.
Joel Smejkal: Expanding capacity is one cornerstone of our growth plan. During the first earnings conference call in February 2023, I shared that we are planning to invest $1.2 billion in CapEx over three years, 70% of which is earmarked for internal capacity expansion with the Newport Fab acquisition for March 2024. We added $200 million to our three-year CapEx plan. Then is Jeff Webster, our COO. Excuse me, then is Jeff Webster, our CO
Joel Smejkal: Expanding capacity is one cornerstone of our growth plan.
Joel Smejkal: During the first earnings conference call in February 2023.
Joel Smejkal: As shared that we are planning to invest $1 2 billion of Capex over three years.
Joel Smejkal: 70% of which is earmarked for internal capacity expansion.
Joel Smejkal: With the new part Fab acquisition for March 2024.
Joel Smejkal: We added $200 million to our three year Capex plan.
Joel Smejkal: Dan its Jeff Webster our COO.
Jeff Webster: Excuse me, Dennis Jeff Webster, our COO.
Joel Smejkal: Detailed at Investor Day, our five-year strategic growth plan includes investing a total of $2.6 billion between 2023 and 2028. In 2024, we plan to invest $435 million in CAPEX, of which around 7% will be spent on expansion projects, which are expected to come online in 2025. The investments we made in capacity expansion in 2022 and 2023 have paid off, and we are in qualification. I'd like to now share with you our progress on five of our expansion projects. The first is around internal capacity expansion in La Laguna, Mexico. We commercially qualified inductors and began to ship products in Q1-24. Automotive qualification is underway.
Joel Smejkal: Detailed at the Investor day, our five year strategic growth plan includes investing a total of $2 $6 billion between 2023 and 2028.
Joel Smejkal: In 2024, we plan to invest $435 million in capex of which around 7% will be spent on expansion projects.
Joel Smejkal: Which are expected to come online in 2025.
Joel Smejkal: The investments we made in capacity expansion in 2022, and 2023 have landed and are in qualification.
Joel Smejkal: I'd like to now share with you our progress on five of our expansion projects.
Joel Smejkal: The first is around internal capacity expansion allow Laguna Mexico.
Joel Smejkal: We commercially qualified inductors and began to ship products in Q1 24.
Joel Smejkal: Automotive qualification is underway.
Joel Smejkal: And to be completed the second half of 2024, we have customers coming in and scheduling audits.
Joel Smejkal: And to be completed in the second half of 2024, we have customers coming in and scheduling audits. This slide, you may remember, is the doubling of our capacity for the inductor portfolio, the power inductors. We expect the capacity increase in 2024 to be 15%. Juarez, Mexico.
Joel Smejkal: You May remember is doubling of our capacity for the <unk> portfolio.
Joel Smejkal: Power inductors.
Joel Smejkal: We expect capacity increase in 2024 to be 15%.
Joel Smejkal: Whereas Mexico.
Joel Smejkal: We commercially qualified the resistors, the current sense resistors, and shipped product in the first quarter. We're shipping some automotive-qualified products now, and there will continue to be a schedule of customer audits coming through. Doubling our capacity is also happening with this expansion. We expect the annualized capacity to increase in 2024 by 15%. Taipei, Taiwan; We're commercially qualifying our diodes and expect to begin shipments in Q3-24, while we also continue to advance automotive qualifications there. We expect annualized capacity to increase by 5.5% in 2024. However, there will be larger capacity expansions on select key products in the range of 32%. Turin, Italy.
Joel Smejkal: We commercially qualified the resistors the current sensor resistors.
Joel Smejkal: And shipped product in the first quarter.
Joel Smejkal: We're shipping some automotive qualified products now.
Joel Smejkal: And there will continue to be a schedule of customer audits coming through.
Joel Smejkal: Doubling our capacity, it's also happening with this expansion.
Joel Smejkal: We expect the annualized capacity to increase in 2024.
Joel Smejkal: By 15%.
Joel Smejkal: Taipei, Taiwan.
Joel Smejkal: We're a commercially qualifying our diodes and expect to begin shipments in Q3 dollars 24.
Joel Smejkal: While we also continued to advance automotive qualifications there.
Joel Smejkal: We expect annualized capacity to increase in 2024 or five 5%.
Joel Smejkal: However, there will be larger capacity expansions on select key products in the range of 32%.
Joel Smejkal: Churn in Italy.
Joel Smejkal: Due to a delay in the environmental approval by the government, we now expect to ship commercially qualified diodes and complete the automotive qualification early in 2025. Finally, the fifth is Newport. The FAB, we took control of the FAB on March 6th. We are now doing five technology transfers. Three for MOSFETs, one for opto, and one for resistors.
Joel Smejkal: Due to a delay in the environmental approval by the government.
Joel Smejkal: We now expect to ship commercially qualified diodes and placed the automotive qualification early in 2025.
Joel Smejkal: Finally, the fifth is Newport.
Joel Smejkal: The fab, we took control of the Fab March 6th.
Joel Smejkal: We are now doing five technology transfers three for MOSFET, one for opto and one for resistors.
Joel Smejkal: 80% of the tools were ordered in December, and the rest of the tools needed will be ordered this month in May. The product transfers will be qualifying beginning in the fourth quarter and extending into the first half of 2025. If we shift to external capacity expansion, KeyFoundries Korea.
Joel Smejkal: 80% of the tools were ordered in December.
Joel Smejkal: And the rest of the tools needed will be ordered this month in may.
Joel Smejkal: The product transfers will be qualifying beginning in the fourth quarter and extending into the first half of 2025.
Joel Smejkal: If we shift to external capacity expansion.
Joel Smejkal: Key foundries Korea.
Joel Smejkal: In 2024, we are planning to complete six technology transfers of MOSFETs and ICs. Two technologies are automotive products, while four are commercial transfers. We expect to have engineering samples available on these six technologies in Q3-24 and Q4-24. We expect to complete manufacturing qualification in Q4-24 and Q1-25 and begin shipping volumes in Q2-25. Our goal is to increase annualized capacity for MOSFETs by 11% in 2025 compared to 2024, with an 18% capacity increase for the split gate products, charge balance products that we have underserved the market. As a reminder, this key foundry fab is an intermediate step of increasing our capacity as we complete the 12-inch Fab Edition, which is in Itzehoe, Germany, scheduled for 2026 and early 2027.
Joel Smejkal: In 2024, we are planning to complete six technology transfers of MOSFET and Ics.
Joel Smejkal: Two technologies are automotive products, while for our commercial transfers.
Joel Smejkal: We expect to have engineering samples available on these six technologies in Q3 24 in Q4 dollars 24.
Joel Smejkal: We expect to complete manufacturing qualification Q4 dollars 24 in Q1 dollars 25 and begin shipping volume in Q2 up 25.
Joel Smejkal: Our goal is to increase annualized capacity for MOSFET by 11% in 2025 compared to 2024.
Joel Smejkal: With an 18% capacity increase for this split gate products charge balanced products that we have underserved market.
Joel Smejkal: As a reminder.
Joel Smejkal: This key foundry fab is an intermediate step.
Joel Smejkal: Increasing our capacity as we complete the 12 inch Fab addition, which is and it's a whole Germany.
Joel Smejkal: Scheduled for 2026 and early 2007.
Joel Smejkal: Also, regarding external capacity, during the first quarter, we added three subcontractors for passives and one for semiconductors, in addition to expanding capacity for some of our commodity products. We're also adding new products to our portfolio supplied by these subcontractors. For 2024, we set goals for the use of external capacity on our path to achieving our 2028 target. We expect to generate 3% revenue from outsourced passives in 2024 as we continue to qualify suppliers. We expect 41.5% of semiconductor production from outsourced wafer fabs in 2024, and we expect 27.4% of semiconductor production from outside assembly. 2024.
Joel Smejkal: Also around external capacity during the first quarter, we added three sub contractors for passive and one for semiconductors.
Joel Smejkal: In addition to expanding capacity for some of our commodity products were also adding new products to our portfolio supplied by these subcontractors.
Joel Smejkal: For 2024, we set goals for use of external capacity on our path to achieving our 2028 targets.
Joel Smejkal: We expect to generate 3% revenue from outsourced passives in 2024, as we continue to qualify suppliers.
Joel Smejkal: We expect 41, 5% semi conductor production.
Joel Smejkal: Outsourced wafer fabs in 2024.
Joel Smejkal: We expect 27, 4% semiconductor production from outside Assembly.
Joel Smejkal: In 2024.
Joel Smejkal: If we shift now to innovation and talk about silicon carbide, the 1200 volt planner technology, we are on track. We provided samples in the first half of last year to customers. And now we'll have the silicon carbide package types for three different resistance and current capabilities available in the next couple of weeks. They'll show up on our website and be released.
Joel Smejkal: If we shift now to innovation and talk about silicon carbide.
Joel Smejkal: The 200 volt planner technology, we are on track we provided samples in the first half of last year to customers and now will have the silicon carbide package types for three different resistance and current capabilities available in the next couple of weeks they will show up on our web.
Joel Smejkal: It can be released.
Joel Smejkal: The development of the 1200-volt trench technology, the 1700-volt planter, and the 650-volt planter technology is taking a bit longer than we would like, as our foundry partner is currently heavy loaded with silicon carbide demand. This stresses the importance and why we're looking forward to moving the development of these technologies to Newport, the site itself, in 2025 and 2026.
Joel Smejkal: The development of the 200 volt trench technology, the 1700 volt planner and the 650 volt planner technology.
Joel Smejkal: Is taking a bit longer than we would like as our foundry partner is currently heavy loaded with silicon carbide demand.
Joel Smejkal: This is stresses the importance and why we're looking forward.
Joel Smejkal: To moving the developments of these technologies to Newport.
Joel Smejkal: In 2025 and 2026.
Joel Smejkal: If we talk about Newport the site itself.
Joel Smejkal: Activities are beginning this quarter due to the given priorities first of qualifying and transferring the silicon technologies so we can begin activities. The tools we've talked about were ordered, and with a delivery time of late Q4-24 and early Q1-25, the tools were to begin the silicon carbide, qualifications, and process development. So when you look at all of these initiatives, the internal capacity, the external capacity, the subcontractor, the innovation with silicon carbide, and expanding Newport, these are all under way in 2024. And we are intending to position these to help us support the scaling of the customer. This is the strategy with 3.0.
Joel Smejkal: <unk> activities are beginning this quarter.
Joel Smejkal: Two due to the given priorities first of qualifying and transferring the silicon.
Joel Smejkal: Technology, So we can begin activities.
Joel Smejkal: The tools, we've talked about were ordered.
Joel Smejkal: With the delivery time of late Q4 dollars 24 in early 'twenty Q1, 'twenty five the tools to begin the silicon carbide.
Joel Smejkal: <unk> the process development.
Joel Smejkal: So when you look at all of these initiatives.
Joel Smejkal: The internal capacity the external capacity the subcontractor, the innovation with silicon carbide and expanding Newport.
Joel Smejkal: These are all under way in 2024.
Joel Smejkal: And we are intending to position these two.
Joel Smejkal: To help us support the scaling of the customer.
Joel Smejkal: This is the strategy with three point out.
Joel Smejkal: So in closing, we're excited about the progress we are making with Vishay 3.0. The factory expansion, customer engagement, part number increases, innovation initiatives, they're all moving in the right direction. We're taking advantage of this sideways market to invest in catch-up capacity and polish our reputation as a reliable supplier, so we are fully prepared for an upturn in demand boosted by the trends in e-mobility and sustainability.
Joel Smejkal: So in closing we're excited about the progress we are making with <unk> 3.0 <unk>.
Joel Smejkal: The factory expansion.
Joel Smejkal: Customer engagement.
Joel Smejkal: Number increases.
Joel Smejkal: Innovation initiatives, they're all moving in the right direction.
Joel Smejkal: We're taking advantage of this sideways market to invest in catch up capacity and.
Joel Smejkal: And polishing our reputation as a reliable supplier. So we are fully prepared for an upturn in demand boosted by the trends in E mobility and sustainability.
Joel Smejkal: That completes our prepared remarks. Now we'd be happy to answer any of your questions. Olivia, let's take the first question.
Speaker Change: That completes our prepared remarks.
Olivia: Now we'd be happy to answer any of your questions.
Olivia: Libya, let's take the first question.
Operator: Thank you. Ladies and gentlemen, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, simply press star 11 again. Please stand by while we compile the Q&A list. Now, the first question coming from the line-up, Matt Sheerin with Stiefel, your line is open.
Olivia: Ladies and.
Operator: To ask a question you will need to press star one on your telephone and Winkler name to be announced withdraw your question simply press Star. One line again, please standby, while we compile the Q&A roster.
Operator: First question coming from the line of Matt Sheerin with Stifel. Your line is now open.
Matthew John Sheerin: Yes, thank you. Good morning, everyone.
Matthew John Sheerin: Yes. Thank you good morning, everyone.
Matthew John Sheerin: First question just regarding the gross margin guidance and how we should think about that.
Matthew John Sheerin: A first question just regarding gross margin guidance and how we should think about that as we get through the year and you start to see some sequential growth as the cycle recovers. You're typically, you know, at roughly 45% incremental margin contribution on volume growth, but you do have the headwinds of Newport and then also I'm thinking incremental capacity and more depreciation. So how should we think about gross margins as we get through the next few quarters?
Matthew John Sheerin: As we get through the year and you start to see some sequential growth.
Matthew John Sheerin: As the cycle recovers youre typically.
Matthew John Sheerin: At roughly 45% incremental margin contribution on volume, but you do have the headwinds.
Matthew John Sheerin: Newport and then also.
Matthew John Sheerin: I'm thinking incremental capacity.
Matthew John Sheerin: And more depreciation so how should we think about gross margins as we get through the next few quarters.
Ajay Dev: I'm Ajay Dev. I think we expect the second half to be better than the first half, driven primarily by our demand for increased demand from aerospace, defense, and automotive. We expect APs to be fairly stable the rest of the year since the OEM contracts already in place in quarter one. The issue is with everybody else is that we have limited visibility on volume.
Speaker Change: Hi, Matt Dave So.
Ajay Dev: I think we expect the second half to be better than the first half driven primarily from our demand for the increased demand from aerospace defense and automotive.
Ajay Dev: We expect <unk> to be fairly stable the rest of the year since the.
Ajay Dev: OEM contracts already in place in quarter one.
Ajay Dev: The issue is with everybody else's, we have limited visibility on volume.
Ajay Dev: At the moment.
Matthew John Sheerin: Okay, but the volume in terms of incremental other impacts like Newport, anything else there? Or is it really just now, it's just a matter of volumes coming back?
Speaker Change: Okay, but.
Matthew John Sheerin: The volume in terms of incremental.
Matthew John Sheerin: The other impacts like Newport anything else there or is it really just now it's just a matter of volumes coming back.
Unknown Executive: Yep, just volume.
Speaker Change: Yes, just volume.
Matthew John Sheerin: Okay. And then on the ASPs, it looked like ASP erosion was more significant this quarter. Could you be more specific about the MOSFETs and semis versus passives and what the expectation is? Sounds like you're saying things are stable, but it looks like we're seeing more pricing pressure.
Unknown Executive: Okay and then.
Matthew John Sheerin: Okay on the <unk>.
Matthew John Sheerin: It looks like Asps.
Matthew John Sheerin: Erosion.
Matthew John Sheerin: It was more significant this quarter.
Matthew John Sheerin: Could you be more specific about the MOSFET and semi versus passives and.
Matthew John Sheerin: And what the expectation it sounds like you are saying things are stable, but it looks like we're seeing more and more pricing pressure.
Unknown Executive: Pricing pressure, yes, the inventory that's out in the channel, whether it's the distributor, the EMS, or the OEM, people are trying to move that inventory. Capacity utilization at ourselves and our peers is in the mid 50%, 60% from what we've seen. So there is a push to move inventory; there is some price pressure with ship and debits to move the inventory through; we do see that. The ASPs in the first quarter were around the contract, the annual agreements that we have with many of our strategic accounts. That also impacted the first quarter, but most of it was the price pressure on semiconductors for MOSFETs.
Matthew John Sheerin: Pricing pressure, yes, the inventory that's out in the channel whether it's the distributor the MF or the OEM people are trying to move that inventory.
Unknown Executive: Capacity utilization at ourselves and our peers is.
Unknown Executive: In the mid <unk>.
Unknown Executive: 50%, 60% from what we've seen.
Unknown Executive: So there is a push to move inventory there is some price pressure with shipping debits to move the inventory through we do see that.
Unknown Executive: The asps in the first quarter were around the contract the annual agreements that we have with many of our strategic accounts that also impacted the first quarter, but most of it.
Unknown Executive: Was the price pressure on the semi conducting assemblies on MOSFET and diode.
Matthew John Sheerin: Okay, then why are you getting a sense that it's stable here? Is that based on the contracts that you're seeing from customers or the government? Their annual agreements are in place, so those are in place. Don't expect anything to be adjusted further based on those large accounts that have annual agreements. The ship and debit activity could continue a bit, more so for semiconductors, much less for passives, because the inventory in the channels for passives is not accessible. So the path is quite stable. There will be some spot pressures on the semis, but we don't see it as excessive.
Speaker Change: Okay. Then why are you getting a sense that it's stable here is that based on the contracts that youre seeing from customers.
Matthew John Sheerin: Contract there.
Matthew John Sheerin: Their annual agreements, though so those are in place.
Matthew John Sheerin: Don't expect anything to be adjusted further based on those large accounts that have annual agreements the.
Matthew John Sheerin: The ship and debit activity.
Matthew John Sheerin: Could continue a bit more so for semiconductors much less for passives the inventory in the channel for patent gives us access.
Matthew John Sheerin: So in the past is quite stable.
Matthew John Sheerin: There will be some spot.
Matthew John Sheerin: Semis.
Matthew John Sheerin: But if we don't see an excessive.
Matthew John Sheerin: Okay. All right. That's it for me. Thank you.
Speaker Change: Okay, Alright, that's it from me. Thank you. Thanks.
Speaker Change: Thanks, Matt Thanks, Craig.
Operator: And our next question comes from the line of Ruplu Bhattacharya with Bank of America. Your line is open.
Speaker Change: Thank you.
Matthew John Sheerin: And our next question coming from the line of Mr that Todd <unk> with Bank of America. Your line is open.
Ruplu Bhattacharya: Thank you for taking my questions. Joel, inventory at distribution was at 26 weeks. What do you think is the new normal for inventory weeks at distribution? I know you were trying to increase some of your product lines at distribution. And the second part of that question is, how many more quarters of inventory correction do you expect? I think you said that you expected some improvement in the second half, but is that more of a 4Q expectation? I mean, do you think it's only another quarter of inventory correction, or could it be extending into 3Q as well?
Ruplu Bhattacharya: Hi, Thank you for taking my questions.
Ruplu Bhattacharya: Joel inventory at distribution was at 26 weeks, what do you think is the new normal for inventory weeks at distribution. I know you were trying to increase some of your product lines add distribution.
Ruplu Bhattacharya: And the second part of that question is.
Ruplu Bhattacharya: How many more quarters of inventory correction do you expect I think you said that you expect some improvement in the second half, but is that more of a for Q.
Ruplu Bhattacharya: Expectation I mean, do you think it's only another quarter of inventory correction or could it be extending into <unk> as well.
Joel Smejkal: Okay, 26 weeks is about where we see it. You may remember on previous calls we were growing the inventory intentionally, we were adding SKUs, and we continued to do that. We kind of said we'd be around 26 weeks as a high, and that's where we sit. The distributors have adjusted their order rates, so the backlog is more of a just-in-time type of supply versus stocking. We are still adding SKUs.
Ruplu Bhattacharya: Okay.
Joel Smejkal: 26 weeks is about where we see it if you may remember in the past calls we were.
Joel Smejkal: Growing the inventory intentionally we were adding skus and we continue to do that.
Joel Smejkal: <unk> kind of said we'd be at around the 26 weeks as a high and Thats, where we sit.
Joel Smejkal: The distributors have adjusted their order rates. So the backlog is more of a just in time type of supply versus stocking.
Joel Smejkal: So I would say at this point, 26 weeks is where we should be. As the POS increases, there is some concern that inventory is going to be depleted quickly. The quarters of inventory correcting passives, I think we feel quite good. It's going to go through Q2, and then the second half of the year will be trending to be more normalized. However, we, I expect POS to increase. On the semis, I think that'll go beyond Q2. It'll go into Q3. And then we feel that Q4 can be that quarter where the semi inventory is digested, and we're more in par with the consensus at the OEM, and this inventory digestion is done.
Joel Smejkal: We are still adding skus. So I would say at this point. The 26 weeks is where we should be as the POS increases. There is some concern that quickly the inventory is going to be plenish depleted.
Joel Smejkal: The quarters of inventory correcting passives I think we feel quite good it's going to go through Q2, and then the second half of the year passes we will be trending to be more normalized however, we are.
Joel Smejkal: <unk> pass through increase.
Joel Smejkal: On the semis I think that'll go beyond.
Joel Smejkal: Beyond Q2, it will go into Q3.
Joel Smejkal: And then we feel that Q4 can be that quarter, where this semi inventory is digested.
Joel Smejkal: And we're more in par with.
Joel Smejkal: And as at the Oems.
Joel Smejkal: And this inventory digestion is done.
Joel Smejkal: Thanks for the details there. Let me ask Dave a couple of questions. Dave, nice to speak with you on the call. You mentioned an industrial win of $77 million. How should we think about the time frame for revenues coming in for that project?
Speaker Change: Okay. Thanks for that.
Joel Smejkal: For the details there, but let me ask Dave a couple of questions David Nice to speak with you on the call.
Joel Smejkal: Yes.
Dave: You mentioned in industrial win $77 million, how should we think about the timeframe for revenues coming in for that project.
Joel Smejkal: I can comment on that. These are orders that we've now received in Q1. There are heavy materials here. The volume of business that we expect in 2024 is around €18 million to €20 million as their program begins. The peak years will be 2025 and 2026. We're quite excited about this project. This is an industrial smart grid design that we've been working on for a number of years, and now it's getting into production. So it's a good sign. We've all been waiting for the industrial sector to start to move. And here's a very large industrial leader that has given us the purchase orders, and we're starting to plan to support them.
Speaker Change: So when you were talking about actually I can comment on that.
Joel Smejkal: These are orders that we have now received in Q1.
Joel Smejkal: Heavy materials here the volume of business that we expect in 2024 is around $18 million at $20 million Euro.
Joel Smejkal: As the program begins.
Joel Smejkal: Peak years will be 2025 and 2026.
Joel Smejkal: Quite excited about this project this is a.
Joel Smejkal: Industrial smart grid design that we've been working on for a number of years and now it's getting into production. So it's a good sign we've all been waiting for industrial to start to move in.
Joel Smejkal: And here's a very large industrial leader.
Joel Smejkal: As given us the purchase orders and we're starting to plan to support them.
Ruplu Bhattacharya: Okay, thanks for that. In terms of the cash conversion cycle, how should we think about that and free cash flow, both for the June quarter and the subsequent quarters? How do you see that trending?
Speaker Change: Okay. Thanks for that.
Ruplu Bhattacharya: The cash conversion cycle, how should we think about that and free cash flow both for the June quarter and the subsequent quarters, how do you see that trending.
David E. McConnell: So I wouldn't expect any material changes to our cash conversion cycle. The inventory is fairly flat quarter-on-quarter already, and Newport's added already to the first quarter. [inaudible] In terms of free cash generation, I think at our Investor Day Ruplu, we presented a chart that had an indicated, slightly negative number this year, and I think that's still our guidance.
Ruplu Bhattacharya: So I wouldn't expect any material changes to our cash conversion cycle.
David E. McConnell: The inventories fairly flat quarter on quarter already in Newports added already to the quarter one.
David E. McConnell: Quarter, one number.
David E. McConnell: Terms of the free cash generation I think at our Investor Day, We presented a chart that had.
David E. McConnell: Indicated.
David E. McConnell: Slightly negative number this year and I think that's stored so our guidance.
Ruplu Bhattacharya: Okay, got it. Okay, maybe my last question, Joel, is one of the strategic growth levers you're showing on slide 10 is increasing the technical headcount. Can you talk about, like, are you done with that?
Speaker Change: Okay, that's great.
Speaker Change: Okay got it Okay and maybe my last question Joel is one of the strategic growth levers you were showing on slide 10 is increasing the technical head count can you talk about like are you done with that or is there more head count that you would like and if so which specific areas or geographies do you think.
Ruplu Bhattacharya: Or is there more headcount that you would like? And if so, which specific areas or geographies do you think that you would need to increase? And how would that impact SG&A?
Speaker Change: That you would need to increase that and how would that impact SG&A. Thank you okay.
Speaker Change: Thank you.
Joel Smejkal: Engineering technical head count will continue.
Ruplu Bhattacharya: Through our customer engagements the customers are asking for closer technical assistance from V shape, it could be the Oems it could be tier ones and it could also be EMS.
Ruplu Bhattacharya: We mentioned in one of the last calls we've been given early access to Jay.
Ruplu Bhattacharya: <unk> design engineers.
Ruplu Bhattacharya: Flex as well, we're working with their technology teams. This is new for US, there's three EMS customers, which we've met and their offering for us to come in and help their design teams move projects forward.
Ruplu Bhattacharya: Going back looking at the maps by Americas in Europe, and Asia, and we're starting to put the next steps in place.
Ruplu Bhattacharya: Further engineering talent in the field.
Ruplu Bhattacharya: This will be coming in the second half of the year.
Ruplu Bhattacharya: We'll be some increase in the SG&A expense, but I think the value of the engagement with the customer and driving their projects forward is going to pay off for us as these opportunities, which previously did not have.
Ruplu Bhattacharya: And I think the customer highlights this quite <unk>.
Ruplu Bhattacharya: Clearly vishay, because you're investing to scale.
Ruplu Bhattacharya: Youre investing to scale now, we see it beneficial alright, Christy closer together.
Ruplu Bhattacharya: <unk>.
Ruplu Bhattacharya: Can be there when the volume production.
Ruplu Bhattacharya: Increases and you can afford it.
Speaker Change: Thank you I appreciate all the details.
Speaker Change: Thank you Robert.
Speaker Change: Thank you.
Ruplu Bhattacharya: Our next question coming from the line of Joshua <unk> with TD Colin Your line is open.
Speaker Change: Hi, guys. Thanks for taking my question and let me Echo <unk> welcome to Dave to the earnings call Fund.
Ruplu Bhattacharya: Okay.
Ruplu Bhattacharya: Could you maybe provide some guidance on how long or the shape of the Newport gross margin headwinds is there sort of a revenue level that we need to get to to have that start to abate or is it sort of fixed from here because of the foundry arrangement at least over the next couple of years. Thank you.
Joel Smejkal: Could start off with it and then Dave can echo.
Ruplu Bhattacharya: We have now a fab, which is partially full and when I say, it's partially for the previous owner is exiting their volume that they committed to us will be declining quarter on quarter.
Ruplu Bhattacharya: The volume in the second quarter.
Ruplu Bhattacharya: In place and we're building towards that we start to see their volumes diminishing in Q3 and Q4.
Ruplu Bhattacharya: This is going to impact the.
Ruplu Bhattacharya: Margins.
Ruplu Bhattacharya: As we see lower production volumes and in parallel were.
Ruplu Bhattacharya: Expediting, our technology transfers, which we mentioned we will start to be qualified in Q4.
Ruplu Bhattacharya: And then production will begin in the first half of 2025, so we're trying to offset an exit of the previous owner.
Ruplu Bhattacharya: Diminishing business there within vishay stepping in so we're going to see second half impact Dave you want to comment at all yeah sure Josh So.
Ruplu Bhattacharya: For the second quarter, we're guiding at 160 basis points impact on the margin for Newport, that's $115 million approximately sales.
Ruplu Bhattacharya: Q3, and Q4 that sales number is going to drop again took roughly $5 million. So it's negligible revenue. So the total impact on the margin. We think Q3 and Q4 is closer to 170 basis points.
Ruplu Bhattacharya: Okay.
Moderator: Thank you and I'm showing no further questions in the queue. At this time I will now turn the call back over to Mr. Joseph <unk> for any closing.
Ruplu Bhattacharya: Thank you.
Joel Smejkal: Thank you, Ruplu. The Engineering Technical Headcount will continue. Through our customer engagements, customers are asking for closer technical assistance from Vishay. It could be the OEMs, it could be tier ones, and it could also be EMS. We mentioned on one of the last calls that we've been given early access to Jables Design Engineers and Flex as well. We're working with their technology teams. This is new for us.
Joel Smejkal: Thank you Olivia.
Joel Smejkal: There are other EMS customers that we've met, and they're offering for us to come in and help their design teams move projects forward. So we're going back, looking at the maps by America in Europe and Asia, and we're starting to put the next steps in place, and further engineering talent in the field. This will be coming in the second half of the year, and there will be some increase in SG&A expenses, but I think the value of the engagement with the customer and driving their projects forward is going to pay off for us.
Joel Smejkal: These opportunities which they previously did not have. And I think the customer highlights this quite clearly, Vishay, because you're investing to scale. Now we see it beneficial for us to get closer together, so we can be there when volume production, https://www.kenhub.com
Speaker Change: Again, thank you everyone for joining us this morning and for a review of our first quarter performance.
Ruplu Bhattacharya: Thank you. I appreciate all the details.
Operator: Thank you, and our next question comes from the line of Josh Buchalter with TDK One. Your line is open.
Joshua Louis Buchalter: Hi guys, thanks for taking my question. And let me echo the welcome to Dave to the earnings call fund. To start, could you maybe provide some guidance on how long or the shape of the Newport gross margin headwinds are, and is there sort of a revenue level that we need to get to to have that start to abate? Or is it sort of fixed from here because of the foundry arrangement, at least for the next couple years?
Joel Smejkal: Thank
David E. McConnell: I can start off with it, and then Dave can echo it. We now have a fab which is partially full, and when I say it's partially full, the previous owner is exiting. Their volume that they committed to us will be declining quarter on quarter. The volume for the second quarter is in place, and we're building towards that. We start to see their volumes diminishing in Q3 and Q4. This is going to impact the margins as we see lower production volumes, and in parallel, we're expediting our technology transfers, which we mentioned will start to be qualified in Q4.
Joshua Louis Buchalter: We look forward to talking to you in early August and we will then report our second quarter results.
David E. McConnell: And then production will begin in the first half of 2025. So we're trying to offset the exit of the previous owner. Diminishing business there with then Vishay stepping in. So we're going to see the second half impact. Dave, do you want to comment at all? Yeah, sure, Joshua. So. For the second quarter, we're guiding, you know, the 160 basis points impact on the margin for Newport. That's when we made $15 million in sales. In Q3 and Q4, that sales number is going to drop again to roughly $5 million, so it's negligible revenue. So the total impact on the margin, we think Q3 and Q4 is closer to $170,000.
Joshua Louis Buchalter: Thank you. And I'm showing no further questions in the queue at this time. I will now turn the call back over to Mr. Joel Smejkal for any closing remarks.
Joel Smejkal: Olivia. Again, thank you everyone for joining us this morning and for a review of our first quarter performance. We look forward to talking to you in early August, and we will then report our second quarter results. Thank you again. Have a good day.
Joel Smejkal: Thank you again have a good day.
Joel Smejkal: Sure.
Operator: Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation, and you may now disconnect.
Speaker Change: Ladies and gentlemen that does conclude our conference for today. Thank you for your participation and you may now disconnect.
Operator: Okay.
Operator: [music].
Operator: Okay.
Operator: Okay.
Operator: Yes.
Operator: Okay.
Operator: Uh huh.
Operator: Yes.
Operator: Okay.
Operator: Okay.
Operator: Okay.
Operator: Okay.
Operator: [music].
Operator: Yeah.
Operator: Okay.
Operator: [music].
Operator: Okay.
Operator: Okay.
Operator: Yes.