Q2 2024 Vishay Intertechnology IncEarnings Call
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Speaker Change: At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session.
Speaker Change: To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising that your hand is raised.
Speaker Change: Joel Smejkal, our President and Chief Executive Officer, and Dave McConnell, our Chief Financial Officer, will join me today.
Speaker Change: This morning we reported results for our second quarter. A copy of our earnings release is available in the investor relations section of our website at ir.vishay.com.
Speaker Change: 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.
Unknown Executive: 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 Vishay's Form 10-K and Form 10-Q filings with the Securities and Exchange Commission.
Speaker Change: These statements are subject to risks and uncertainties that could cause actual results to differ from the forward-looking statements.
Speaker Change: We are including information on various GAP and non- GAAP measures in our press release and on this conference call.
Speaker Change: We have included a full GAP to non-GAP reconciliation in our press release and in the presentation posted on ir.vishay.com, which we believe you will find useful when comparing our GAP and non-GAP results.
Speaker Change: 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.
Speaker Change: Now I turn the call over to President and Chief Executive Officer Joel Smejkal.
Joel Smejkal: Thank you, Peter. Good morning, everyone.
Joel Smejkal: Thank you for joining our second quarter 2024 conference call. I'll start my remarks with the review of our revenue for the second quarter by end market, channel, and region.
Joel Smejkal: Then Dave will take you through a review of the second quarter financial results and our guidance for the third quarter.
Unknown Executive: For the second quarter, we are reporting results in line with our revenue, gross profit margin, and SG&A guidance. Nevertheless, we're starting to see indications of inventory rebalancing, and bookings are steadily improving, particularly from automotive and industrial customers. Based on input from our customers in Europe and the Americas, even though sales were lower, including Battery Management Systems, ADOS, and with the increasing discussion around AI chipsets, of both the planter and the trench silicon carbide technology, keeps getting pushed out, and a directive also from the Turkish government to not receive products made in Israel, setting us up for an increased share of new contracts in Q4 and in 2025. We delivered an all-time high of Custa Magnetic, while design activity remained focused on implantable devices and remote monitoring equipment. We also see activity in home patient monitoring and diagnostics.
Dave McConnell: to answer any of your questions.
Dave McConnell: Thank you.
Dave McConnell: As we expected, the inventory digestion continued into the second quarter.
Dave McConnell: Some of the customers are still carrying a high level of semiconductor inventory from some of their suppliers.
Speaker Change: Automotive revenue declined 6.7 percent from the first quarter and 13.6 percent compared to last year's second quarter as Tier 1 automotive customers pulled below their schedule agreement plans primarily in Europe.
Speaker Change: We're seeing flat automotive demand tied to persistent high interest rates, driving consumers to look towards purchasing less expensive compact cars containing less electronic content.
Speaker Change: We also stepped up our engagement with automotive OEMs and Tier Ones.
Speaker Change: Because we are investing in capacity expansion, an automotive OEM signed an important first-time silicon MOSFET supply agreement with us.
Speaker Change: These customer programs are planned for 2026 and 2027 launches.
Speaker Change: Our action item is to provide customer engineers with samples of both the planner and the trench silicon carbide technologies.
Speaker Change: as we now move towards commercializing these products.
Speaker Change: Excluding Newport, industrial revenue was essentially flat quarter over quarter.
Speaker Change: We also receive sizable follow-on orders for high-voltage capacitors under a smart grid supply agreement with a European customer.
Speaker Change: and a directive also from the Turkish government to not receive products made in Israel.
Speaker Change: Orders for applications around missile guidance systems and combat aircraft remain strong. Demand from OEMs in the Americas.
Speaker Change: This is a direct result of our customer re-engagement initiative.
Speaker Change: We are also supplying military materials to EMS.
Speaker Change: to satisfy their contracts with Aerospace and Defense OEMs.
Speaker Change: Setting us up for increased share of new contracts in Q4 and in 2025.
Speaker Change: We deliver an all-time high of Custa Magnetics to our largest medical customer.
Speaker Change: We have hired a medical segment leader, a newly created role at Vishay, who is focused on deepening our engagement with existing customers and developing relationships with new customers.
Speaker Change: more fully leveraging the breadth of our product portfolio.
Speaker Change: similar to the steps we're taking with the Distributor Re-Engagement Initiative.
Speaker Change: We also see activity in home patient monitoring and diagnostics as these applications have taken hold
Speaker Change: along with the adoption of telemedicine that started during the pandemic.
Unknown Executive: Revenue from the other categories, including telecom, computing, and consumer end markets, was down 2.3% quarter over quarter and 37.3% versus the second quarter last year. However, we continue to see pockets of growth like orders for AI servers and server power projects, as key manufacturers in China and Taiwan now launch initial production. While we have a good initial position on AI reference designs, mainly with MOSFETs and diodes, we turn to channel sales on slide four.
Speaker Change: While we have a good initial position on AI reference designs, mainly with MOSFETs and diodes.
Speaker Change: We are designing in more of the Vishay portfolio to gain a greater percentage of Vishay components on the materials at key chipset makers in the emerging AI market.
Speaker Change: This is another example of the benefits of our Vishay 3.0 initiatives as we've increased our field application engineering resources and extended capacity. We're now positioning Vishay to fully participate in the AI market growth.
Speaker Change: EMS revenue increased 1% versus Q1, 15.9% below prior year, with increasing order flow tied to improving customer demand and higher demand related to AI servers, particularly in China and Taiwan.
Unknown Executive: In the Americas, EMS revenue, excluding military, was lower as end customers reduced forecasts and lead times remained short. Distribution revenue increased 7.6% versus the first quarter and was down 15.5% versus last year. Our initiative to deepen engagement with our distribution customers is beginning to pay off. These positions help to position Vishay and win an increased share of Terran's business. Revenue in the Americas, excuse me, was slightly higher, up 1% on distribution and medical, while Asia revenue was at, with some bright spots developing on industrial and AI. Before turning the call over to Dave, I'd like to express my appreciation to all Vishay employees for their continued dedication and commitment.
Speaker Change: In the Americas, EMS revenue, excluding military, was lower as end customers reduced forecasts and lead times remained short.
Speaker Change: Our EMS customers, which are focused on military and markets, are performing well and have positive outlooks.
Speaker Change: Distribution revenue increased 7.6% versus the first quarter and was down 15.5% versus last year.
Speaker Change: Our initiative to deepen engagement with our distribution customers is beginning to pay off.
Speaker Change: Part number and pricing reviews have resulted in increased skew count.
Speaker Change: on the distributor shelves.
Speaker Change: In Q2-24, we've increased our SKU count at distribution by over 10,000 part numbers quarter over quarter.
Speaker Change: At the same time, we continue to meet with the distributors to expand our local coverage, particularly in Asia.
Speaker Change: Thank you.
Speaker Change: Distribution inventory worldwide declined by 22.8 million dollars while we added approximately 14 million dollars of inventory on the new SKUs.
Speaker Change: Inventory held steady quarter over quarter at 26 weeks.
Speaker Change: with Weakness in Europe and Some Softness in the Americas.
Speaker Change: Finally, let's turn to slide five for a look at the revenue by region.
Speaker Change: while Asia Revenue was with some bright spots developing on industrial and AI.
Speaker Change: Europe revenues were lower as its macroeconomic challenges continued to weaken demand.
Speaker Change: They're focused to deepen our customer engagement, to drive internal cost controls, and to become business-minded in everything we do.
Speaker Change: aligns all of us to faster decision-making.
Speaker Change: as well as driving towards greater financial outcomes.
Speaker Change: Second quarter revenues were $741.2 million including $16 million attributed to our Newport acquisition and within the range of our guidance.
Speaker Change: Revenues decreased 0.7% compared to the first quarter, reflecting a 0.7% reduction in ASPs and a 1.1% decrease in volume, partially offset by an increase in Newport revenues.
Speaker Change: The slight decrease in volume reflects primarily rebalancing of inventory by automotive tier 1s, and the slight reduction in ASPs reflects price alignments in distribution channels primarily for passives.
Unknown Executive: by Reportable Business Segment. A $5 million decrease in revenues was mainly attributable to an $8.7 million decrease in resistors.
Speaker Change: by reportable business segment
Speaker Change: These declines were partially offset by a 5.4 million dollar increase in inductors and a 3.8 million dollar increase in opto.
Speaker Change: Mosfet's revenue was flat when including the 13 million dollar increase of the Newport revenue.
Speaker Change: Thank you. Thank you. Thank you.
Speaker Change: and a 3.9% reduction in ASPs.
Unknown Executive: By product category, backlog for semis decreased to 4.4 months from 5.0, and backlog for passes decreased to 4.9 months from 5.1. Compared to the first quarter, gross margin was 80 basis points lower, primarily due to the inclusion of Newport for the entire quarter. EPS.
Speaker Change: By product category, backlog for semis decreased to 4.4 months from 5.0 and backlog for passes decreased to 4.9 months from 5.1.
Speaker Change: Gross margin was 22.0% and included a negative impact from Newport of approximately 170 basis points.
Speaker Change: Compared to the first quarter, gross margin was 80 basis points lower primarily due to the inclusion of Newport for the entire quarter.
Speaker Change: reflecting cost containment measures and lower than our guidance due primarily to lower bonus accruals.
Speaker Change: to 5.1% from 5.7% in the first quarter and 15.1% in the second quarter of 2023.
Speaker Change: EBITDA for the quarter was $88.4 million for an EBITDA margin of 11.9% down slightly from the 12.2% in the first quarter.
Speaker Change: EPS
Speaker Change: with $0.17 per share compared to $0.22 per share in the first quarter and $0.68 per share for the second quarter of 2023.
Unknown Executive: For the second quarter, the results for Newport are reported entirely in the MOSFETs business segment, weighting on that segment's gross margin by approximately 780 bases. Turning to slide nine, our DSO and DPO were flat at 51 and 31 days, respectively.
Speaker Change: Our DSO and DPO were flat at 51 and 31 days, respectively.
Unknown Executive: The total cash conversion cycle for the second quarter was 125 days. Total CapEx for the quarter was $63 million, including $43 million designated for capacity expansion projects and $12.6 million for share repurchase. Cash and short-term investments decreased to $688 million at quarter end as we continue to deploy cash to fund our strategic plan. At the end of the quarter, we have approximately $72 million of cash on hand in the U.S. The remaining cash and short-term investments are held in our subsidiaries around the world outside the U.S. To repatriate accumulated earnings from these subsidiaries, we must pay foreign withholding taxes. Thus, Newport has an approximate 175 to 200 basis point drag on that gross margin. In 2024, we still expect a normalized effective tax rate of approximately 31%.
Speaker Change: The quarter included 53 million dollars of tax payments related to cash repatriation and the latest installment of the US transition tax.
Speaker Change: On a trailing 12-month basis, capital intensity was 10.5% compared to 9.8% for the same period last year.
Speaker Change: Stockholder returns for the second quarter amounted to $26.3 million, consisting of $13.7 million for our quarterly dividend.
Speaker Change: Cash and short-term investments decreased to $688 million at quarter end as we continue to deploy cash to fund our strategic plan.
Speaker Change: At the end of the quarter, we have approximately $72 million of cash on hand in the U.S.
Speaker Change: To that end, during the quarter, we repatriated $105 million of accumulated earnings, net of taxes, from Israel to the U.S., primarily to fund the Amethyrm acquisition and the Newport expansion.
Speaker Change: As a reminder, based on our planned investments at Newport and expected payments under our stockholder return policy, we expect to be free cash negative for the year and to draw on our revolver to fill the gap.
Speaker Change: The remaining $471 million of cash in short-term investments are held in subsidiaries that are located in countries with restrictive regulations and high tax rates for repatriating cash. We have not accrued taxes to repatriate those earnings because we have deemed them indefinitely reinvested.
Speaker Change: Turning to slide 11 for our guidance.
Speaker Change: SG&A expenses are expected to be $127 million, plus or minus $2 million for the quarter, and $507 million, plus or minus $5 million for the full year.
Speaker Change: Included in the SG&A guidance is the addition of approximately 13 million related to Newport
Speaker Change: For 2024, we still expect a normalized effective tax rate of approximately 31 percent.
Speaker Change: Please turn to slide 11, which displays the eight growth levers we are pulling to execute our five-year strategic plan.
Speaker Change: Best position, Vishay, for the megatrends of e-mobility and sustainability.
Unknown Executive: and drive greater returns through the expansion of our addressable markets. This adjustment does not alter our commitment to spending a total of $2.6 billion between 2023 and 2028 because we now have intermediate capacity from the qualification of SK Key Foundries in Korea and the recent acquisition of the Newport Wafer Fab in South Wales, UK, on these levers. First with Newport.
Speaker Change: Accelerate revenue growth
Speaker Change: and drive greater returns through expansion of our addressable markets.
Speaker Change: In 2024, we are focusing primarily on expanding capacity, both internally and externally, and on innovation.
Speaker Change: We had originally planned to spend $435 million in CapEx in 2024. However, at the mid-year point of this year, the industry recovery is slower than we expected.
Speaker Change: This adjustment does not alter our commitment to spending a total of $2.6 billion between 2023 and 2028.
Speaker Change: We can do this and still meet our customer commitments.
Speaker Change: because we now have intermediate capacity from the qualification of SK Key Foundries in Korea and the recent acquisition of the Newport Wafer Fab in South Wales UK.
Speaker Change: Let's turn to slide 12 for a progress report.
Speaker Change: on these levers.
Speaker Change: First with Newport, we are currently on target to complete qualification of four of the technology transfers by the end of the year.
Speaker Change: and with the fifth technology transfer on schedule to complete qualification in the first quarter of 2025.
Speaker Change: We're also on schedule to ramp up production of the industrial technologies in the first quarter of 2025 and the qualification of automotive grade technologies in the second quarter of 2025.
Speaker Change: The Newport colleagues are doing a great job with process optimization to qualify the new technologies with high yield.
Unknown Executive: With SK Key Foundries, our partner in Korea, we are planning to transfer seven product families by the end of the first quarter of 2025, and continue with semiconductor products in Taipei, Taiwan. We have internally qualified commercial and automotive diodes and expect to ship some volume of these products in the fourth quarter. We have added just under 2,000 part numbers for diodes. As a result, we have broadened our portfolio, positioning us to participate in markets we previously did not serve.
Speaker Change: I thank them for the transition they are aggressively managing.
Speaker Change: With SK Key Foundries, our partner in Korea, we are planning to transfer seven product families by the end of the first quarter of 2025.
Speaker Change: three of which are automotive MOSFETs, four are commercial MOSFETs.
Speaker Change: We are planning to have engineering samples available in the fourth quarter and to complete qualification in the first quarter of 2025.
Speaker Change: A schedule of automotive customer audits is being developed.
Speaker Change: We expect to increase annualized capacity for MOSFETs by 12% in 2025 compared to 2024.
Speaker Change: In Itsehoe, our building of a 12-inch wafer fab is progressing well.
Speaker Change: In Q2, we had the rough closing ceremony.
Speaker Change: The Itseco colleagues have done very well to manage the output of more automotive MOSFETs in our current 8-inch fab and have collaborated very positively with the Newport colleagues in joint MOSFET process developments.
Speaker Change: Thank you also to our colleagues in Itzaho and to our entire MOSFET team for executing this extremely large and aggressive number of technology transfers.
Speaker Change: Continue with semiconductor products in Taipei, Taiwan. We are internally qualified commercial and automotive diodes and expect to ship some volume of these products in the fourth quarter.
Speaker Change: We expect to increase annualized capacity by 5.5% in 2024 and to expand capacity of the constrained lines by 25% to 40%.
Speaker Change: The status of our expansion project in Turin, Italy has not changed. We still expect to ship commercially qualified diodes and to be completing automotive product qualification in early 2025.
Speaker Change: Now, for passive components, at La Laguna, Mexico, we shipped commercially qualified inductors in Q2.
Speaker Change: This location provides customers with a non-tariff supply location when looking at the competitive environment of this product technology.
Speaker Change: We are also on track to complete the automotive qualification in the second half of 2024. Automotive customers thereafter will visit the facility to qualify the site.
Speaker Change: We continue to expect annualized capacity to increase by approximately 15%.
Speaker Change: at our facility in Juarez, Mexico.
Speaker Change: We're shipping commercially qualified resistors and some automotive products.
Speaker Change: Volume for the first half, we're small.
Speaker Change: We continue to expand annualized capacity to increase capacity here by also 15% in 2024.
Speaker Change: We also continue to add subcontractors to outsource manufacturing on some of our commodity products.
Speaker Change: We have added just under 2,000 part numbers for diodes.
Speaker Change: and over 1,100 part numbers for inductors.
Speaker Change: In 2024, we set goals for use of external capacity on our path to achieving our 2028 targets.
Unknown Executive: We expect greater than 20% semiconductor production. Amethyrm is a small company that has products that can support the current market need for 800 volt DC in electric vehicles, an example of our campus strategy. We are on track with our plans to commercialize the 1200 volt planter technology and Current Capability. Our current plan is to have the first 1200 volt trench samples available for customers to test by the end of Q3-24, with product released in Q1 of 25, in order to meet our plans for production in late 2025, improve profitability, and expand return.
Speaker Change: We expect greater than 20% semiconductor production.
Speaker Change: from outside assembly in 2024.
Speaker Change: To further expand our portfolio, during the quarter, we acquired Inrush Current Protection and Thermistor Company named Ametherm.
Speaker Change: Amethyrm is a small company which has products that can support the current market need for 800 volt DC in electric vehicles.
Speaker Change: and in the future where the applications are even higher voltages 1500 volt DC for EVs in the pre-charged circuits.
Speaker Change: Also, Amethyrm has products which support the current and future battery management system needs for temperature monitoring.
Speaker Change: Amethyrm has the smallest inrush current limiter for the inverters needed to convert solar energy into electricity.
Speaker Change: in charging stations, as well as for home use and EV chargers.
Speaker Change: Amethyrm operates a facility located in Carson City, Nevada.
Speaker Change: Thank you very much.
Speaker Change: Three silicon carbide package types for each of the three different resistance and current capabilities.
Speaker Change: The development cycle time of the 1200 volt trench technology, the 1700 volt planner, and the 650 volt planner continues to be challenged by the capacity constraints of our foundry partners.
Speaker Change: The Foundry Partner is loaded, is fully loaded, and new product development cycle time has become extremely long.
Speaker Change: Our current plan is to have the first 1,200 volt trench samples available for customers to test by the end of Q3-24.
Speaker Change: with product released in Q1 of 25.
Speaker Change: We're reshaping Vishay's corporate culture and how we run the company.
Unknown Executive: Some of our OEM customers are discussing master supply agreements with us. We're delivering on the promise we made to our stockholders on our very first call with you. In the second half of 2024, we will continue to work on the list of initiatives. Jill, let's start with the question and answer session.
Speaker Change: And in medical, we have hired a segment leader who is tasked with expanding Vishay from being a narrow technology supplier to one that delivers the full portfolio of Vishay's technologies.
Unknown Executive: Yeah.
Speaker Change: I'm very pleased with the progress Vishay has made since I became CEO .
Speaker Change: We're delivering on the promise we made to our stockholders on our very first call with you.
Speaker Change: gaining traction and stepping up our game.
Speaker Change: In the second half of 2024, we will continue to work the list of initiatives, expanding capacity, driving greater customer engagement, and advancing our silicon carbide strategy while adapting to market conditions.
Speaker Change: Jill, let's start with the question and answer session.
Jill: Please stand by while we compile the Q&A roster.
Jill: Yes, thank you. Good morning, everyone.
Speaker Change: First question, Joel, just regarding the capacity expansion.
Unknown Executive: For MOSFETs specifically, it's 79% today. 79% capacity utilization. Rebalancing of the polls in Q2 by the automotive customer. They give us schedule agreements, and in Q2, they rebalanced some things and pulled less than what they had intended originally on the schedule agreement, continued softness in the sideways market for another quarter or two longer than we expected. We decided to make just a slight delay.
Speaker Change: continued softness sideways market for another quarter or two longer than we expected. We decided to make just a slight delay.
Speaker Change: with the It's a Hole.
Speaker Change: Capital. Just a slight delay.
Joel Smejkal: Got it. Okay, so thanks for that. And your commentary on auto weakness...
Speaker Change: Obviously, you're not the only supplier that's been seeing that. But it sounds like you're starting to see at least some green shoots in terms of orders. You're guiding the overall company flat revenue sequentially. Do you expect auto to be flat or will that be down again?
Unknown Executive: We have decided to guide it flat. We saw what happened in Q2. We had Q2 with a positive move from automakers in their schedule agreements, and they readjusted. We decided to go flat, even though the signals from the auto customers are a bit up.
Speaker Change: We have decided to guide it flat.
Speaker Change: Even though we see scheduling agreements with increasing demand in Q3,
Speaker Change: We saw what happened in Q2. We had Q2 with a positive move from auto in their schedule agreements and they readjusted.
Speaker Change: So the...
Speaker Change: Week-by-week demand polls that are forecasted would show a positive Q3 over Q2 for auto, but at this point we've decided to guide it flat. Fewer workdays in Q3, seasonal holidays in Europe .
Speaker Change: Seeing automotive car count declining a bit.
Speaker Change: We decided to go flat even though the signals from the auto customers are a bit up
Speaker Change: Okay, thanks. And just lastly, you had some positive commentary about the data center and AI opportunity. I know that's a relatively small percentage of your revenue, but it sounds like it's growing. So could you give us maybe some metrics around the content opportunity in AI servers versus traditional servers and your share opportunity and where you're going there?
Speaker Change: Yeah, we have position on some initial reference designs, the NVIDIA Blackwell, we have MOSFETs on those designs. Also, we see current sense resistor opportunities.
Speaker Change: per AI server. So we're excited about what we've seen as a first look. We're designing closely with many companies in Taiwan and China to make sure more of the Vishay product is on the bill of materials.
Unknown Executive: We're designing closely with many companies in Taiwan and China to make sure more of the Vishay product is on the bill of materials.
Speaker Change: You're right, the overall quantities of servers is small and the PCs is small, but we're positioning hard. Our Asia team is working very hard to make sure we're attached to the right chipset reference designs, both in the...
Operator: Our next question comes from Joshua Buchalter from TD Cowan. Your line is open.
Speaker Change: Semis Theres still some inventory to digest I wont necessarily say, it's vishay inventory, we didn't have the ability to stuff last year, we didn't have short lead times and excess capacity, we were on allocation with our auto MOSFET.
Unknown Executive: Last year, we didn't have short lead times and excess capacity. We were on allocation with our Auto MOSFET.
Speaker Change: So this is where I've said in past calls we've got a work around our competitors' inventory and gain more share for vishay.
Speaker Change: This is a.
Speaker Change: Top initiative for our sales team to get us positioned and not have to wait for the digestion of our peers.
Unknown Executive: Thank you for the color there, Joel. In the follow-up, distribution grew meaningfully more than the total company. I know that's been an area of focus with the skew count expansion and representing Vishay more broadly at distributors. Can you, I apologize if I missed it, but can you share where your distribution inventory levels are right now? And then comfort with them, given, in particular, it's been an area of volatility across the semiconductors and, to a lesser extent, the passive space this quarter. Thank you. Yeah, the.
Speaker Change: Alright, Thank you perfect color there Joel.
Speaker Change: Follow up.
Speaker Change: Distributions through you really create more than the total company I know that's been an area of focus with the SKU count expansion and representing Vishay more broadly at distributors.
Speaker Change: I apologize if I missed it but can you share where your distribution inventory levels are right now and then.
Speaker Change: With them given in particular, it's been an area of volatility across the semiconductors and to a lesser extent passive space in particular this quarter. Thank you.
Speaker Change: Yeah.
Speaker Change: Inventory.
Speaker Change: By weeks and this is based on current Pos in Q2, POS we are at 26 weeks of inventory worldwide. We were at 26 weeks in Q1.
Speaker Change: In Asia.
Speaker Change: We had 20 weeks of inventory in Q1 were down to $18 six the Asia Pos is starting to pick up. So we're glad we have the product in the channels. So we can react to the customer.
Speaker Change: In the Americas.
Speaker Change: In Q2, the inventory was at 47 weeks catalog distributors, a big part of that if you remember in Q Q1 was 47 weeks of Q2 was 48.
Speaker Change: And in Europe.
Unknown Executive: with softer POS there. In Q1, the inventory was 18.7 weeks. In Q2, it was 20.7 weeks.
Speaker Change: With softer pass here in Q1, the inventory was $18 seven weeks in Q2 'twenty seven.
Speaker Change: Softer Pos but also adding skus.
Speaker Change: In the Americas and in Europe. So you see the number of weeks of inventory going up a little bit in the Americas and Europe. That's the SKU count adds we talked about.
Speaker Change: In part because we're really positioning two participated part numbers that we previously didn't even have in the distributors computer system.
Speaker Change: It wasn't recognized partner by Vishay.
So we're really widening our ability to compete and participate and gained market share.
Speaker Change: And those levels, particularly in Americas, and Europe, I mean are those levels that youre comfortable with and you are trying to grow them further or are you trying to bring them down right now thank you.
Speaker Change: We're we're trying to bring them down Pos is going to help us, but as we continue to add more part numbers.
Speaker Change: The Pos is going to consume the inventory we have but then division by division business units that go to the distributors. They do their pricing reviews for alignment. They do their part number comparisons we will continue to add part numbers quarter on quarter. So we'll have a consumption level of inventory and then we will have the vishay.
Speaker Change: Positioning.
Speaker Change: Additional inventory that's at it so I think youre going to see in the next two quarters inventory is going to be about where it's at from a top level view.
Speaker Change: As we participated more Pos and add further part numbers.
Speaker Change: Got it thank you Joe Thanks.
Josh: Thanks, Josh.
Speaker Change: Thank you.
Operator: Our next question is from Ruplu Bhattacharya, my apologies if I mispronounced that, from Bank of America. Your line is open.
Speaker Change: Our next question is from Oslo.
Speaker Change: Got it sorry my apologies.
Speaker Change: From Bank of America. Your line is open.
Speaker Change: Hi, Thanks for taking my questions.
Speaker Change: My first question is on the guidance for fiscal <unk>.
Speaker Change: It looks like on relatively flat revenues sequentially. The guidance for 100 bps, Florida gross margin and then looking into that I felt the Newport fab.
Headwind was expected to be 170 bps in <unk>, but now it.
Speaker Change:
Joel Smejkal: 175 to 200 bps. So can you just double click on that what's driving the higher impact and Joel. If you can also leaving any expectation for the pricing environment, how is that trending and any other impacts that or any other factors that are impacting gross margins sequentially between <unk> and <unk>.
Speaker Change: Okay great.
Joel Smejkal: So.
Speaker Change: <unk> portion of the 'twenty two to 'twenty. One is we have a couple of components. There's a couple of puts and takes but the significant part is pricing on the semi side, we have 2% asps is built into that forecast okay.
Unknown Executive: The Newport impact is a little higher in Q3, an additional 20 basis points from the 20 to the 21.
Speaker Change: The Newport impact is a little higher in Q3 and additional another 20 basis points from the 20 to 21 okay.
Speaker Change: So.
Speaker Change: The sales of Newport.
Speaker Change: Worse.
Speaker Change: Approximately 15 to 16 million this quarter and next quarter going down to the $5 million to $8 million range. So when you ask about the increase in Newport Imp.
Speaker Change: Impact that part of the reason because of volumes decrease of the sales.
Speaker Change: Of the legacy product.
Speaker Change: Yes.
Speaker Change: And.
Speaker Change: Go ahead.
Speaker Change: No I was just going to ask on the overall pricing environment in terms of lastly, like pricing. If you can comment on that.
Unknown Executive: Pricing, there was some ASP decline in the quarter. But when we look at the contractual agreements, those prices are fixed for the calendar year, so it wasn't there. It wasn't with the big automotive guys.
Speaker Change: Yeah pricing are there was some ASP declined in the quarter when.
Speaker Change: When we look at.
Speaker Change: The contractual agreements those prices are fixed for the calendar year. So it wasn't there it wasn't with the big automotive guys.
Speaker Change: Where we see the pricing down as we're doing these alignments at the distributor.
Speaker Change: If our book pricing was high end the actual Pos.
Speaker Change: Net price was lower on.
Unknown Executive: On paper, we're reducing that, and there is some price protection that we have to give to the distributors, which is an ASP impact. So these are pricing alignment moves in part with the price pressure that we're seeing. And as always, when there's large opportunities, people do request a quotation. So on large spot opportunities, we have to be aggressive. Because suppliers have lower capacity utilization, we said ours is 79%, other suppliers are lower, 50-60% utilization. They've become more aggressive here and there. So we've had to make some adjustments in price, not significant, but we've had to continue to maintain our position.
Speaker Change: On paper, we're reducing that and there is some price protection that we have to give to the distributors, which has an ASP impact. So these are pricing alignment moves in part with the price pressure that we're seeing.
Speaker Change: And as always there when there's large opportunities people do request for quotation. So on large spot opportunities we have to be aggressive I would say for passives the pricing environment is generally stable.
MOSFET.
Speaker Change: Because suppliers have lower capacity utilization, we said ours is 79% other suppliers are lower 50%, 60% utilization they become more aggressive here and there.
Speaker Change: So we've had to we've had to make some adjustments in price that's significant but we've had to continue to maintain our position.
Speaker Change: With the capacity coming on board, we got to make sure. We're present at these customers that give us growth opportunities. So there is some spot price pressure here and there.
Speaker Change: Got it.
Dave McConnell: For my next question, maybe I'll ask you Dave can you.
Dave McConnell: Remind us of your capital allocation priorities and if capex spend is less this fiscal year.
Dave McConnell: Afford more opportunity for potential M&A or more buybacks and how should we think about the possibility of a dividend.
Speaker Change: And also if you can weave in your expectation for free cash flow in fiscal 'twenty. Four we say has always had pretty good free cash flow even in down years, but how should we think about that in fiscal 'twenty four.
Unknown Executive: So I think for the free cash, let's start with the free cash.
Speaker Change: I think for the free cash flow started to free cash flow well below I think investor.
Speaker Change: Investor Day, we showed it.
Speaker Change: A fairly substantial minus number for 2024 on the graph so will be negative.
Speaker Change: Hey.
Speaker Change: Maybe not so much more.
Speaker Change: We are today.
Unknown Executive: In terms of the dividend that the capital allocation, I'm sorry, the capital allocation strategy. So I think we got to go back to Joel's comments about the reason, one of the reasons we're pushing out, or not pushing us right where we're going to push us right where a couple quarters are spending for it. The recovery hasn't happened as quickly, and our free cash is impacted by the recovery. OK, so I think those go hand in hand. We've already had two acquisitions this year. We've already had Newport, and we've already had Amethyr.
Speaker Change:
Speaker Change: In terms of the AR.
Speaker Change: The dividend that the capital allocation I'm, sorry, the capital allocation strategy. So I think we got to go back to Joe's comments about the reason one of the reasons, we're pushing out or pushing out the right word but.
Speaker Change: We have pushed out a couple of quarters, our spending for it so is it causes.
Speaker Change: The recovery hasn't happened as quick in our free cash is impacted by the recovery. Okay. So I think those go hand in hand, we already have had two acquisitions. This year, we've already had Newport and we've already had Amazon.
Speaker Change: So.
Speaker Change: Continuing to pursue the M&A strategy, we're continuing to spend Capex 360, and we're continuing to return up to $100 million to the shareholders.
Speaker Change: But given the existing free cash I think that's fair.
Operator: Okay, thanks for the details there. Maybe for the last question, Joel, again, I'll ask you a higher level question.
Speaker Change: That's the plan.
Speaker Change: Okay. Thanks for all the details there maybe for the last question you all again I'll ask you a higher level question. So overall when you look at.
Unknown Executive: So, overall, when you look at the operating environment, with respect to inventory correction or destocking that's happening in the channel, how many more quarters of that do you think it'll take to flush out any excess inventory there is? And then, just piggybacking on a prior question, you know, you've been working with the distributors, and you've been increasing the skew count. What innings are we in with respect to that effort? And can your share gains be a meaningful driver of growth and or continue to be a meaningful driver of revenue growth at distribution?
Speaker Change: The operating environment.
Speaker Change: With respect to inventory correction are destocking thats happening in the channel how many more quarters of that do you think it'll take to flush out any excess inventory there is.
Speaker Change: And then you know.
Speaker Change: It's piggybacking on a prior question you know you've been working with the distributors and you've been increasing SKU count what innings are we in with respect to that effort and Ken Ken your share gains be a meaningful driver for growth in <unk>.
Unknown Executive: Thanks. Thanks. Thanks, Ruplu.
Ken: To be a meaningful driver for revenue growth.
Ken: Distribution.
Rob: Thanks, Rob Thanks.
Thanks, Jerry Blue.
Speaker Change: How many quarters on inventory, it's a b in part passive discussion as semi CDR, So let's start with passives first.
Speaker Change: The passive inventory was really never stuffed it wasn't over extended so the passives are becoming more normalized quickly alright.
Speaker Change: We're already seeing it in Q2, the orders that we're seeing in late Q2.
Speaker Change: Our near parity.
Unknown Executive: and customers are saying, Here's my demand, getting a little better visibility on passive. So into Q3, I think one more quarter of passing, and we'll be at a normalized level.
Speaker Change: And customers are saying, here's my demand getting a little better visibility on passives. So into Q3, I think one more quarter of passives and will be at a normalized level.
Speaker Change: Semiconductors is a little different and it also depends on the market segments, but semis overall as I talked to our distributors as I talked to MFS, they're still looking at to the end of the year.
Unknown Executive: It's going to take two quarters and maybe a touch into Q1 of next year. So we have to get ahead of this and the intelligence about our business. We don't have a product that's fitting a large size of the market. So those things will take a little time. But as far as the product we have technology and creating part numbers.
Operator: This does conclude our program. You may now disconnect.
Speaker Change: It's going to take two quarters, and maybe a touch into Q1 of next year.
Speaker Change: For digestion of inventory that's out there and again I'll say the vishay inventory days are not to the level of others. So we have to get ahead of this and can't sit and wait.
Speaker Change: So inventory end of this year is what we see on semis the next quarter.
Speaker Change: On passives.
Speaker Change: What inning are we in with distribution.
Speaker Change: Say, we're in the early middle innings, we've had our divisions or business units travelling to the distributors. They had initial meetings last year. Many of the divisions have had second meetings and the.
Speaker Change: <unk> about our business where are we were underperforming is moving forward really well.
Speaker Change: Sometimes we walk away from that distributor meeting learning that we need to develop a product.
Speaker Change: We don't have a product thats fitting a large size of the market. So those things will take a little time.
Speaker Change: But as far as product that we have technology and creating part numbers that shorter time, So I will say, we're in the middle innings.
Speaker Change: P. O S is expected to increase in 2025, we think we're going to enjoy a greater percent of Pos going forward because we are adding these part numbers.
Speaker Change: He's part numbers just aren't at the large distributors. It's also a catalog where we're populating more print position.
Speaker Change: So we're looking forward to 2025 when the market. Finally makes its move we feel vishay is going to be better positioned at the distributors with the part numbers upfront to participated more the capacity that we're adding to support the distributors P O S and be seen as a reliable supplier where in the past we didn't have the capacity.
Speaker Change: To support the upturn.
Speaker Change: Okay. Thank you Ravi because I appreciate it.
Pablo: Thanks Pablo.
Speaker Change: And we are showing no further questions at this time, so I would like to turn it back to Michael for closing remarks.
Michael: Great. Thank you. Thank you for everyone in joining our Q2 earnings call. We'll see you again in November. Thank you again for your questions and your interest in Vishay.
Michael: Have a good day.
Speaker Change: It does conclude our program you may now disconnect.
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