Q3 2024 Vishay Intertechnology Inc Earnings Call
Welcome to the Vishay Intertechnology Q3, 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 the question during the session, you will need to press star 1-1 on your cell phone. You will then hear an automated message advising that your hand is ready.
to withdraw your question. Please press star one one again.
Speaker Change: Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today. Peter Henrici, please go ahead.
Peter Henrici: Thank you, Felicia. Good morning and welcome to the Shay Integrity Cert Quarter, 2024 earnings conference call.
I am joined today by Joel Smejkal, our President and Chief Executive Officer, and by Dave McConnell, our Chief Financial Officer.
Peter Henrici: This morning we reported results for our third quarter. A copy of our earnings release is available in the investor relations section of our website at ir.bichet.com
Peter Henrici: This call is being broadcast live over the web and can be accessed through our website.
Peter Henrici: In addition, today's call is being recorded and will be available via replay on our website.
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 the forward-looking statement.
Peter Henrici: We are including information in our press release and on this conference call on various gap and non-gap measures.
Peter Henrici: We have included a full gap to non-gap reconciliation in our press release as well as in the presentation posted on ir.fische.com which we believe you will find useful when comparing our gap and non-gap results.
Peter Henrici: We use non-gap measures because we believe they provide useful information about the operating performance of our businesses and should be considered by investors in conjunction with gap measures.
Peter Henrici: Now, I turn the call over to President and Chief Executive Officer Joel Smejkal.
Peter Henrici: Thank you for watching. We appreciate it.
Joel Smejkal: Thank you, Peter. Good morning, everyone.
Joel Smejkal: Thank you for joining our third quarter 2024 conference call.
Joel Smejkal: I'll start my remarks with a review of our revenue for the third quarter by end market.
Joel Smejkal: channel and region. Then Dave will take you through a review of the third quarter financial results and our guidance for the fourth quarter.
Joel Smejkal: After that, I'll give you a progress report on the 2024 initiatives supporting our five-year strategic plan. And then we'll be happy to answer any of your questions.
Joel Smejkal: For the third quarter this year, revenue has held fairly constant, reflecting a prolonged period of inventory destocking.
Joel Smejkal: as the pace of consumption by industrial customers remains slow.
Joel Smejkal: Backlogs are pushed out and macroeconomic conditions in Europe worsen.
Joel Smejkal: Automotive customers continue to adjust their forecast to sluggish demand in Europe, while order rates appear to be under control in the Americas.
Joel Smejkal: that was flat with the second quarter. Bookings for smart grid infrastructure, military, and high voltage DC applications continue to improve.
Joel Smejkal: and we saw increasing demand related to AI servers.
Joel Smejkal: While the electronics industry remains in a down cycle, we are making the necessary adjustments to manage costs.
Joel Smejkal: Under Vishay 3.0, we are preparing to participate more fully in the next industry upcycle, and we are putting the foundation in place to capitalize on the long-term demand of e-mobility and sustainability.
Joel Smejkal: In previous down cycles, the company became unable to support customer demand and to scale because the focus was on conserving cash flow, which shelved plans to prepare for the next ups...
Joel Smejkal: The customers want more from Vishay, so we are taking a fresh, new approach.
Joel Smejkal: Under Bechet 3.0, we are intelligently pressing forward with a sense of urgency, putting the customer first.
Joel Smejkal: working on our list of growth initiatives under our five-year strategic plan.
Joel Smejkal: to restore confidence and win back customers.
Joel Smejkal: to develop new customer relationships.
Joel Smejkal: expand capacity and our product portfolio to ensure we are ready to scale with our customers as demand returns.
Joel Smejkal: Implementing our silicon carbide strategy.
Joel Smejkal: and becoming a more business-minded organization.
Joel Smejkal: focused on driving profitability and enhancing returns on capital.
Joel Smejkal: Let's take a closer look at third quarter revenue related to the second quarter starting with a review of revenue by end market on slide three.
Joel Smejkal: Automotive revenue increased 4.3% versus the second quarter, although OEM and Tier 1 customers in Europe and in the Americas continued to pull below their schedule agreements.
Speaker Change: For more information, visit www.FEMA.gov
Speaker Change: and EV demand weakened in the Americas and Europe.
Speaker Change: Government policy in China, however, is boosting demand for EVs and hybrids.
Speaker Change: which drove strong demand for our Opto products, particularly our rain sensors.
Speaker Change: Design activity remains focused on battery management, traction inverters, and onboard chargers.
Speaker Change: Discussions around ADAS for all vehicles and leveraging AI chipsets for driver assist and autonomous applications are advancing and resulting in many new design starts.
Speaker Change: As for industrial end markets, revenue decreased $18.5 million from the second quarter, of which the Newport Legacy products accounted for $8.5 million of that.
Speaker Change: Distributors continued to adjust inventory in response to ongoing weak demand from industrial customers, more so in Europe.
Speaker Change: In addition, in Europe, we saw the normal seasonal holidays within the quarter.
Speaker Change: Thank you for watching. Be safe out there.
Speaker Change: Also in Europe, government funding for EVs and consumer incentives for solar and heat pumps is uncertain for the foreseeable future.
Speaker Change: As a result, design activity has shifted to industrial automation, along with smart grid infrastructure, renewable energy generation, and energy storage.
Speaker Change: As evident from the large orders we are receiving, we see smart grid infrastructure as a key growth driver for Vishay.
Speaker Change: For this reason, we announced this morning that we are acquiring Birkelbach.
Speaker Change: a manufacturer of metallized technical films
Speaker Change: and a very important supplier to Gachet.
Speaker Change: We're acquiring this business to ensure supply of metallized film materials that is used in the high voltage, high power film capacitors for smart grid infrastructure projects.
Speaker Change: Thank you very much.
Speaker Change: In aerospace and defense, revenue was flat versus the second quarter, and 20.2% higher than last year's third quarter.
Speaker Change: Demand from OEMs in the Americas remains strong with the book-to-bill running over one for most products.
Speaker Change: Supporting radar systems, munition replenishment, smart soldier electronic gear, and unmanned flight systems.
Speaker Change: Demand for space programs is driving new opportunities for high reliability and specialty products such as custom magnetics.
Speaker Change: In Europe, commercial aerospace, ongoing supply chain issues are there, which caused orders to be pushed out.
Speaker Change: medical medical revenue declined 6.2% but was 7.4% higher than the third quarter of 2023.
Speaker Change: primarily due to delay in orders from one of our larger inductor customers in the Americas.
Speaker Change: The medical design activity for remote patient monitoring equipment presents a significant upside for Vishay in the Americas to sell our entire product portfolio.
Speaker Change: We also continue to work on designs for implantable devices.
Speaker Change: Revenue from other segments including telecom, computing, and consumer was up 3.2% quarter over quarter but down 32% versus the third quarter last year.
Speaker Change: There were a lot of puts and takes this quarter, but what stands out is increasing demand for AI servers and server power in Asia.
Speaker Change: We're seeing a surge in spot orders related to AI servers from CMs who are coming directly to suppliers for quick delivery.
Speaker Change: They're not finding the part numbers in stock in the distributor inventory.
Speaker Change: Under Bechet 3.0, our ambition is to quickly fulfill these orders.
Speaker Change: and Support the Quarters.
Speaker Change: AI Server Power, Power Conversion, Power Management of the AI Chipset for Laptops and Notebooks
Speaker Change: Storage networks continue to dominate design activity in the other segment category.
Speaker Change: We continue to design more of the Vishay portfolio.
Speaker Change: To put it in place, a greater percentage of the components on the board and to gain bill of materials as key chip makers are designing in the emerging AI market.
Speaker Change: Let's go to slide four.
Speaker Change: In terms of channel sales, as shown on slide 4, you see that OEM and EMS revenue was essentially flat with the second quarter.
Speaker Change: Distribution revenue decreased 1.2 percent quarter-over-quarter and 7.2 percent year-over-year reflecting the drag in Europe.
Speaker Change: While customers in the Americas and Asia are returning to normal order patterns, customers in Europe are tapping the brakes.
Speaker Change: I met with many new of these customers in September.
Speaker Change: And they told me that uncertainties about future demand trends related to geopolitical developments is clouding end market demand.
Speaker Change: weighed down by lower POS in Europe, again somewhat seasonally impacted.
Speaker Change: Distribution inventory worldwide was essentially flat. Inventory inched up by one week to 27 weeks.
Speaker Change: Let's go to slide five.
Speaker Change: Turning to slide five, you can see that revenue in Europe declined 3.3%, reflecting the weakening macroeconomic environment and season allergy, which I've been mentioning.
Speaker Change: Revenue in the Americas down slightly on lower medical volume while revenue in Asia increased 2.1% on a pickup in automotive volume along with the lift from AI.
Speaker Change: Before turning the call over to Dave, I'd like to acknowledge the contributions made by Vishay employees and their commitment to our business minded approach to increasing customer focus in everything we do.
Speaker Change: It's great to see new ideas bubbling up from the empowered employees to improve profitability and operational efficiencies as decision-making is being pushed out into the organization.
Speaker Change: Thank you.
Speaker Change: And it's also great to see greater collaboration, forward thinking, and a willingness to take calculated risk more so than in the past.
Speaker Change: I very much appreciate the organization and how it's embracing the changes which are taking place as BeShea 3.0.
Speaker Change: These efforts keep us together on our path to achieving our 2028 financial targets.
Speaker Change: I'll now pass the call over to Dave for review of our financial results for Q3.
Speaker Change: Thank you very much.
Dave McConnell: Thank you, Joel. Good morning, everyone. Let's start our review of the third quarter results with the highlights on slide six.
Dave McConnell: Third quarter revenues were $735.4 million, including $8 million attributed to our Newport acquisition and within the range of our guidance.
Dave McConnell: Thank you very much.
Speaker Change: Revenues decreased 0.8% compared to the second quarter reflecting a 1.0% reduction in ASPs and a 0.8% reduction in volume.
Speaker Change: By a reportable business segment, the $6 million decrease in revenues was mainly attributable to an $8 million decrease in MOSFETs, reflecting primarily legacy Newport volume.
Speaker Change: A $4 million decrease in inductors and a $5 million decrease in capacitors.
Speaker Change: These declines were partially offset by a $10 million increase in our opto business segment.
Speaker Change: Thank you.
Speaker Change: Compared to the third quarter last year, revenues were down 13.9%, reflecting a volume decrease, net of Newport, of 10% and a 4.7% reduction in ASPs.
Speaker Change: Thank you. Bye.
Speaker Change: Book-to-bill for the quarter was 0.88, comprised of 0.79 for semis and 0.97 for passes.
Speaker Change: Backlog decreased to 4.4 months compared to 4.6 months at the end of Q2.
Speaker Change: By product category, backlog for semis decreased to 3.8 months from 4.4.
Speaker Change: And for passives, we had five months versus 4.9.
Speaker Change: Moving to the next slide, presenting the income statement highlights.
Speaker Change: Gross profit was $150.9 million, resulting in a gross margin of 20.5%, and included a negative impact from Newport of approximately 150 basis points.
Speaker Change: Compared to the second quarter, gross margin was 150 basis points lower, primarily due to lower volume, lower average selling prices, and increased depreciation expense.
Speaker Change: Matthew Sheerin, David McConnell
Speaker Change: SG&A expenses were $128.5 million in line with our guidance for the quarter.
Speaker Change: compared to 125 million for the second quarter.
Speaker Change: reflecting higher R&D expenses and higher stock compensation expense which is partially offset by lower bonus accruals.
Speaker Change: For more information, visit www.fema.gov
Speaker Change: Depreciation expense was 51 million, slightly under our guidance for the quarter, up from 49 million in quarter two, and reflects the additional equipment that has come online.
Speaker Change: During the quarter, we recorded restructuring charges of $40.6 million.
Speaker Change: designed to optimize the company's manufacturing footprint and streamline business decision-making as we execute our Vishay 3.0 growth strategy.
Speaker Change: Inclusive of the restructuring charge, GAP operating margin was a minus 2.5%.
Speaker Change: compared to 5.1% in the second quarter and 13.5% in the third quarter of 2023.
Speaker Change: Adjusted operating margin decreased to 3%, in line with the decrease in gross margin and reflecting the increase in SG&A expenses that was included in our guidance.
Speaker Change: EBITDA for the quarter was $30.9 million for an EBITDA margin of 4.2%.
Speaker Change: Adjusted EBITDA for the quarter was $71.5 million for an EBITDA margin of 9.7% down from 11.9% in the second quarter.
Speaker Change: and Peter Henrici.
Speaker Change: Our GAAP effective tax rate for the year-to-date period was approximately 36%.
Speaker Change: Due to the gap net loss for the quarter, the effective tax rate for the quarter was approximately 21%.
Speaker Change: Our normalized effective tax rate for the year-to-date period was approximately 31%.
Speaker Change: which yields an effective tax rate of approximately 32% for the quarter.
Speaker Change: Staff loss per share was 14 cents compared to earnings of 17 cents per share in the second quarter and 47 cents per share for the third quarter of 23.
Speaker Change: Adjusted EPS was $0.08 per share compared to $0.17 per share for the second quarter and $0.60 per share for the third quarter of 2013.
Speaker Change: Proceeding to slide 8.
Speaker Change: 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.
Speaker Change: Of note, for the third quarter...
Speaker Change: The results for Newport are reported substantially all in the MOSFETs business segment, weighing on that segment's gross margin approximately 700 basis points.
Speaker Change: Turning to slide 9 and our cash
Speaker Change: Our DSO was 53 days, up from 51 days, and our DPO was 32 days, up from 31 days.
Speaker Change: Inventory was up slightly to $687 million, resulting in an inventory days outstanding of 106 days, up from 105 days in Q2.
Speaker Change: Total cash conversion cycle to the third quarter was 127 days.
Speaker Change: Continuing to slide 10.
Speaker Change: You can see we generated 51 million in operating cash for the third quarter.
Speaker Change: Total CapEx for the quarter was $60 million, including $40 million designated for capacity expansion projects.
Speaker Change: On a trailing 12-month basis, capital intensity was 10.7%, compared to 9.7% for the same period last year.
Speaker Change: Due to the investments in capacity expansion projects, free cash flow for the quarter was a negative $9 million, compared to a negative $87 million in the second quarter, which included sizable tax payments.
Speaker Change: On a year-to-date basis, free cash flow was a negative $68 million.
Speaker Change: Stockholder returns for the third quarter amounted to $26.3 million, consisting of $13.6 million for our quarterly dividend and $12.6 million for our share repurchases.
Speaker Change: for SHARE.
Speaker Change: For 2024, we still expect to return at least $100 million to stockholders.
Speaker Change: Cash and short-term investments decreased to $657 million at quarter-end as we continue to deploy cash to fund our strategic plans.
Speaker Change: Yeah.
Speaker Change: At the end of the quarter, we have approximately $25 million of cash on hand in the U.S.
Speaker Change: As previously noted, we are required to fund cash dividends, share repurchases, and principal and interest payments using our cash on hand in the U.S., and we are using our U.S.-based liquidity to fund our Newport expansion and other strategic investments.
Speaker Change: Thank you for watching. Please subscribe to my channel.
Speaker Change: As a reminder, based on our planned investments 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 revolver also provides us with adequate liquidity to fund operations in the U.S.
Speaker Change: The remaining cash and short-term investments are held in our subsidiaries around the world,
Speaker Change: To repatriate accumulated earnings from these subsidiaries, we must pay foreign withholding taxes, and we have accrued for an estimated tax liability based on our expected timing of future repatriations from certain countries, most significantly Israel and Germany.
Speaker Change: At the end of quarter three, we have approximately $83 million of cash in Israel and $110 million of cash in Germany.
Speaker Change: Our strategic plan requires significant local liquidity for expansion projects in Germany.
Speaker Change: Thank you for watching. I hope you enjoyed the video. If you did, please click the like button. And if you're new here, please subscribe to the channel.
Speaker Change: The remaining $439 million of cash and short-term investments are held in subsidiaries that are located in countries with restrictive regulations and high tax rates for repatriating cash.
Speaker Change: We are evaluating opportunities to deploy some of this cash for our expansion projects in Germany.
Speaker Change: We have not accrued taxes to repatriate those earnings because we have deemed them indefinitely reinvested.
Speaker Change: Okay, moving on to slide 11.
Speaker Change: The restructuring programs we announced in the third quarter.
Speaker Change: will result in a 6% reduction in our SGA workforce.
Speaker Change: The closure of three manufacturing facilities which will reduce our manufacturing workforce by 2% and various other changes in manufacturing operations and production transfers.
Speaker Change: We recorded restructuring expenses of $40.6 million during the quarter related to expected cash severance costs.
Speaker Change: When the programs are fully implemented by the end of 2026, we expect to realize annual cost savings of $23 million, including $12 million of SG&A expenses.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: We expect to realize immediate annualized cost savings of approximately $9 million, including $2 million in the fourth quarter.
Speaker Change: Cash payments related to the restructuring program are estimated to be 24 million by the end of 2025 with a balance due in 2026.
Speaker Change: Thank you. Thank you.
Speaker Change: Turning to slide 12 for our guidance.
Speaker Change: For the fourth quarter of 2024, revenues are expected to be $720 million, plus or minus $20 million.
Speaker Change: Gross margin is expected to be in the range of 20.0% plus or minus 50 basis points.
Speaker Change: Thank you. Thank you.
Speaker Change: Newport is expected to have an approximately 175 to 200 basis points dragged on the gross margin in quarter four.
Speaker Change: Appreciation expense is expected to be approximately 53 million for the fourth quarter and 200 million for the full year.
Speaker Change: SG&A expenses are expected to be $126 million plus or minus $2 million for the quarter or $507 million for the full year.
Speaker Change: Included in full year SG&A guidance is the addition of approximately 15 million related to Newport, which is all set by the favorable benefit of our restructuring programs and our continued cost containment focus.
Speaker Change: Thank you.
Speaker Change: 2024
Speaker Change: We expect a normalized effective tax rate of approximately 31%.
Speaker Change: I'll now turn the call back to Joel.
Joel Smejkal: Thank you, Dave.
Joel Smejkal: Please turn to slide 13.
Joel Smejkal: I mentioned earlier that even though the industry is contending with an extended down cycle, at Vishay, we are pressing forward with our ambitious five-year strategic plan.
Speaker Change: and remain committed to our 2028 financial goals, including spending 2.6 billion in CapEx between 2023 and 2028.
Speaker Change: For the year 2024, we still plan to invest between $360 million and $390 million in CapEx.
Speaker Change: Wow.
Speaker Change: As a reminder, and displayed on this slide, we are pulling eight growth levers to meet our commitments to scale capacity for our customers.
Speaker Change: accelerate revenue growth and drive greater returns through the expansion of our markets and our product portfolio.
Speaker Change: Thank you for watching. We'll see you next time.
Speaker Change: We are ready for the next upcycle.
Speaker Change: Thank you, love, and appreciate it. Bye-bye. I appreciate it. Thanks for having me. HRSA website, HRSA.gov. All right. It's contract- No problem. Sign it.
Speaker Change: Let's start by just turning to slide 13 for our progress report on the AP's levers.
Speaker Change: As a reminder, in 2024, we are focusing primarily on expanding capacity, both internally and externally, and on innovation.
Speaker Change: starting with semiconductor capacity expansion projects at Newport
Speaker Change: We're on target to complete the transfers of three Silicon MOSFET structures now in Q4 and another one in the first quarter of 2025.
Speaker Change: We remain on schedule to begin production of the industrial technologies in the first quarter of 2025.
Speaker Change: and to complete the component qualifications of automotive grade components in the second quarter of 2025.
Speaker Change: At SK Key Foundry, our partner in Korea, we are on track to qualify seven product families by the end of the first quarter of 25.
Speaker Change: three of which are automotive MOSFETs and four are commercial MOSFETs.
Speaker Change: Thank you for watching. Please like, comment, and subscribe. See you next time.
Speaker Change: We currently have engineering samples available of four product families and plan to have the other three available in early 2025.
Speaker Change: Bye.
Speaker Change: In Taipei, Taiwan, we have internally qualified commercial and automotive diodes and are now shipping some volumes of commercial diodes.
Speaker Change: We expect to increase annualized capacity by 4.7% in 2024, and to expand capacity of constrained lines by 25% to 40%, depending on the product type.
Speaker Change: Now for passive components.
Speaker Change: At La Laguna, Mexico, we remain on track to complete the automotive qualifications for inductors before the end of the year, and continue to expect annualized capacity to increase by approximately 15% in 2024.
Speaker Change: For more information visit www.FEMA.gov
Speaker Change: During the quarter, we've received government approval to start production of our Amethyrm product line and expect first shipments of sensor products in this quarter.
Speaker Change: The Ametherm line includes products that support in-rush current limiting and temperature sensing applications.
Speaker Change: at our Mexico facility in Juarez,
Speaker Change: were shipping commercially qualified current sense resistors and some automotive products.
Speaker Change: Our subcontractor initiative is going extremely well as business leaders within the organization embrace the Vishay 3.0 business-minded approach to drive profitability.
Speaker Change: We're using subcontractors to increase our capacity of lower margin commodity products and to add products to our portfolio to best serve customer demand.
Speaker Change: We added three subcontractors during the third quarter, one for diodes.
Speaker Change: one for resistors and one for inductors
Speaker Change: and we added another 617 part numbers to our portfolio.
Speaker Change: bringing the year-to-date total to nearly 9,000 part number additions.
Speaker Change: In 2024, we are meeting
Speaker Change: the year to date goals to set for the use of external capacity on our path to achieving our 2028 financial targets.
Speaker Change: For our goal of generating more than 4% revenue from outsourced passives,
Speaker Change: We are at 4.2%.
Speaker Change: We have met our goal of utilizing outsourced wafer fabs at 33% of semiconductor production.
Speaker Change: Finally, we set a goal of utilizing outside assembly for more than 20% of our semiconductor production and on a year-to-date basis we have also met that goal.
Speaker Change: Thank you.
Speaker Change: As for innovation and our silicon carbide strategy, our plans to commercialize the 1,200-volt planter technology.
Speaker Change: in 2024 is advancing well.
Speaker Change: We release two products in the third quarter and plan to release seven more products in the fourth quarter.
Speaker Change: We made substantial progress with our plans to commercialize our 1200 volt trench technology.
Speaker Change: the 1700-volt planter and the 650-volt planter during the quarter.
Speaker Change: We now have first engineering samples at Customers for Test.
Speaker Change: Our plan is to release the 1200 volt trench MOSFET in the first quarter of 2025.
Speaker Change: the 1700-volt planter MOSFET in the second quarter of 2025 and the 650-volt planter MOSFET in the third quarter of 2025.
Speaker Change: Thank you. Thank you.
Speaker Change: These silicon carbide MOSFET components support traction inverter projects.
Speaker Change: and onboard charging which open doors for us with the automotive OEMs.
Speaker Change: We continue to hold technical meetings with automotive OEM customers.
Speaker Change: about their silicon carbide roadmaps.
Speaker Change: We have also started to receive silicon carbide equipment at our Newport facility and are on schedule to meet our production plan in early 2026.
Speaker Change: Thank you very much.
Speaker Change: Finally, at Electronica this year, we will release nine reference designs which showcase Béchet content on greater than 80% of the components on the board.
Speaker Change: For automotive, there is a high-voltage intelligent battery shunt sensor.
Speaker Change: an 800 volt, 22 kilowatt bi-directional onboard charger.
Speaker Change: Thank you.
Speaker Change: and 800 volt 48 volt DC to DC converter
Speaker Change: A power distribution unit with the Shea silicon carbide on it.
Speaker Change: and other market segments like industrial and telecom customers.
Speaker Change: We'll have a reference design for auxiliary power slide converter for solar, which uses our 1,200 volt and 1,700 volt silicon carbide and a Bechet transformer.
Speaker Change: A 3.2 kilowatt DC to AC inverter featuring our Gen 5 silicon MOSFETs.
Speaker Change: a 1.2 kilovolt DC to DC converter for telecom
Speaker Change: This is a 72-volt, 48-volt, 12-volt DC-to-DC converter.
Speaker Change: also an energy harvester which is using our super capacitors and our photodiodes
Speaker Change: And finally, a design for AI, a multi-phase power board that incorporates smart stage
Speaker Change: Power ICs
Speaker Change: vertical mount inductors, and polymer tantalum capacitors.
Speaker Change: These designs are examples of how Vishay can support a customer's total application.
Speaker Change: using reference designs as solution selling.
Speaker Change: We are making progress on these 2024 specific initiatives, but we're also executing dozens of other initiatives behind the scenes.
Speaker Change: to shape the organization towards supporting Beshear 3.0
Speaker Change: enabling the organization to outperform outperform historical results
Speaker Change: in the next industry upcycle and putting us on firm footing to execute our strategic plan and achieve our 2028 financial targets.
Speaker Change: We are broadening our portfolio to participate in markets we previously did not serve, and to increase our share of our customer bill of materials, supported by the incremental capacity that has landed over the past two years.
Speaker Change: With our distributors, we have stepped up engagement.
Speaker Change: to meet their needs and position Bechet to win an increased share of their turns business.
Speaker Change: Since this program began, we have added nearly 28,000 additional SKUs to our distributors.
Speaker Change: Thank you.
Speaker Change: We've added products to our portfolio through acquisitions like Ametherm, creating new business opportunities for inrush current and temperature sensing in automotive and industrial markets.
Speaker Change: We continue to add products through our partnerships with subcontractors and resellers.
Speaker Change: We are positioning Bechet to be a supplier with even a broader product portfolio.
Speaker Change: We're leveraging our broadening portfolio through our intense focus on customer engagement.
Speaker Change: In medical markets, for example, many customers are using Vishay for only one product.
Speaker Change: Our medical leader now is increasing our alignment with customers, which may not have viewed Bechet as a strategic supplier.
Speaker Change: Discovering opportunities for us to supply even more products of our portfolio.
Speaker Change: We're increasing our field engineering resources that engage customers about their technology and product roadmaps.
Speaker Change: We're creating design opportunities that increase our share of the customer bill of materials.
Speaker Change: and we're ensuring that we're ready to meet their future demands.
Speaker Change: As a result, we're positioning Vishay to participate.
Speaker Change: even greater in the emerging AI market, along with other next-generation demand drivers.
Speaker Change: While we are intensifying customer engagement, we are also restaffing about one-third of our customer-facing positions.
Speaker Change: in terms of enhancing operational efficiency.
Speaker Change: We're optimizing our manufacturing footprint with our decision to close three manufacturing facilities, which Dave mentioned. One is in the United States, one is in Germany, and one is in China.
Speaker Change: Thank you.
Speaker Change: Cementing Bechet 3.0 through the execution of these initiatives is progressing according to the timeline we outlined last April at the Investor Day.
Speaker Change: Although we're still in the early innings of implementing our strategic plan, customers, partners, and employees already recognize 3.0 is becoming a vastly different organization.
Speaker Change: Thank you for tuning in.
Speaker Change: The feedback we hear from our stakeholders aligns with our conviction that we are on the right path to assure customers
Speaker Change: reliable supplier, working with them to meet their needs over time, and to enhance our financial profile.
Speaker Change: We are moving forward with determination and we are confident in our ability to drive faster revenue growth, improve profitability,
Speaker Change: and expand return on invested capital.
Speaker Change: I look forward to reviewing our 2024 progress on our fourth quarter call next February and sharing with you our goals for 2025 as we continue to execute our strategic plan.
Speaker Change: Felicia, let's take the first question.
Felicia Shay: Thank you. At this time, we will conduct the question and answer session. As a reminder, 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, please press star 11 again. Please stand by while we compile the Q&A roster.
Speaker Change: The first question comes from the line of Ruplu Bhattacharya of Bank of America. Ruplu, please go ahead.
Ruplu Bhattacharya: Hi, thank you for taking my questions. Joel, I wanted to start by asking you, how do you see the inventory of Vishay products at distribution? What innings are...
Speaker Change: in terms of your outreach to distribution and expanding the line card of WeShare products at distribution.
Speaker Change: When do you think, when do you expect distribution to start pulling product and growing inventory again?
Speaker Change: Hi, Rupu. Thanks for the question.
Joel Smejkal: The inventory at distribution is nearing a normalized position for passives. I think we're very close on passives.
Speaker Change: the semiconductors
Speaker Change: In the channel overall, it's going to take a little more time. It's not necessarily the over-inventory of Vishay It's the over-inventory of our competitors who have stuffed some of the distributors shelves
Speaker Change: Thank you.
Speaker Change: The Asia inventory, we're running at about 18 weeks.
Speaker Change: The Europe inventory, we're at 22 weeks. The Americas is longer. It's in the low 50, 50 week range, but part of that is catalog distribution.
Speaker Change: So we see that we're positioning this inventory. I mentioned we're at 27 weeks. It's because of those additional SKUs that I talked about. We're broadening our portfolio so the inventory dollar looks larger but it's covering more part numbers.
Speaker Change: where 50 to 60% of the orders are for quick delivery. And the...
Speaker Change: CM is not finding the product in stock at the distributor so we're seeing different partners come into play.
Speaker Change: So I think overall, to kind of sum it up, normalization of passives is in the moments we're in now, in this quarter, and semiconductors will be into Q1.
Speaker Change: Okay, thanks for all the details there. Let me ask you another question. As we look into 2025, what areas of growth do you see for Vishay, meaning which product lines do you think grow the fastest, which product lines grow slower, and how should we think about the regional mix of revenues over the next few quarters?
Speaker Change: I've shared on the past two quarterly calls that we're now seeing the smart grid infrastructure programs accelerating.
Speaker Change: We've received additional large orders to support programs in Saudi Arabia.
Speaker Change: We mentioned in the last call about smart grid for Europe, and we've talked previously about China.
Speaker Change: So the smart grid infrastructure is now moving at a faster pace, and we're expanding. This is the large ESDA capacitor.
Speaker Change: to mention that product line. There's also other resistors that are involved in these applications.
Speaker Change: So the industrial grid is good, that's positive. AI.
Speaker Change: We're seeing these opportunities in AI. We have reference design position on chipsets that are coming from the large microprocessor design companies. We're following that into Asia. It can be AI for servers. It can also be AI for automotive.
Speaker Change: We're seeing that pick up, and that covers MOSFETs.
Speaker Change: That covers power inductors
Speaker Change: CurrentSense resistors
Speaker Change: Polymer Tantalum. So there's quite a few Vache products that are designed in. Also one of our ICs. So we are following that. Naturally, there's multiple competitors on the design, but we're fighting to gain our share.
Speaker Change: Military, for sure, aerospace, military defense.
Speaker Change: The book-to-bill stays positive. We continue to see orders for replenishment. We also see orders for new military programs.
Speaker Change: Space exploration, space programs with low Earth orbit satellites continues to show positive signs for us. We like high technology products in those environments.
Speaker Change: Automotive
Speaker Change: When we look at automotive, we're now in the negotiation season for 2025, negotiating the contract. The LOI quantities we see for 2025 are increasing over 2024. So that's a positive and that covers many of the Shea divisions.
Speaker Change: Those are the positives, roof loop, going into 2025.
Speaker Change: Thank you. Thank you. Thank you.
Speaker Change: Okay, okay, great. Thanks for all the details there. Let me ask you one quick question and then I'll have one for Dave as well.
Speaker Change: Can you talk about the pricing environment? And looking at slide 17, where you have the mix of commodity products versus custom products, do you think that mix shifts as we go into next year and the year beyond? Do you think that the mix of commodity products can decline over time based on your strategic focus on changing the mix and adding different product categories? So if you can just talk about the current pricing environment. Do you see any opportunity to raise prices or lower prices? And how do you see the mix of products trending?
Speaker Change: The current pricing environment is...
Speaker Change: consistent with what we spoke about in the last call or two.
Speaker Change: There's spot opportunities out there where there's higher volume where
Speaker Change: It requires us to be a little more aggressive on pricing, so we take those opportunities to win that share.
Speaker Change: We're in the quarterly negotiation season now for our large strategic accounts.
Speaker Change: Pricing in that is consistent with what we've seen in past negotiations significantly different from prior years
Speaker Change: So nothing dramatic there
Speaker Change: Regarding the product mix, by adding these subcontractors,
Speaker Change: We're expanding our commodity portfolio so I want to be clear that we're going to see growth in commodities as well as in the
Speaker Change: specialty products.
Speaker Change: It's important that we are viewed as a full-service supplier with all of the products.
Speaker Change: So I wouldn't say you're going to see commodities go down I think you're going to see both of these increase as the overall revenue increases in fiché
Speaker Change: Okay, okay. Thanks for the details there. Dave, can I ask you one question on priorities for use of cash? As you think of over the next 12 months, how would you prioritize, you know, acquisitions versus, you know, maybe a dividend increase versus more buybacks versus you doing anything with the capital structure? So just if you can give us your thoughts on the best use of cash. Thank you so much. I was expecting that question from you, Rupert, so.
Dave McConnell: Yeah, no, seriously, so we've done several small acquisitions in the last year, and Newport.
Speaker Change: All right.
Speaker Change: We continue to return $100 million to our shareholders, and we're committed to that already this year. We'll reach that target easily this year.
Speaker Change: So, I think the important focus for us at the moment is the strategic plan and making sure we meet the objectives we set for the strategic plan.
Speaker Change: and to do that we're going to need capital. The Newport, as in my speech as I said, Newport's funded mostly from the U.S. so we'll be borrowing to do that.
Speaker Change: So I don't think we want to jeopardize the five-year plan, the strategic plan, so we're going to stick that being the main focus.
Speaker Change: Okay.
Speaker Change: Okay, thank you for all the details. Appreciate it.
Speaker Change: Thank you, Ripley.
Speaker Change: As a reminder, in order to ask a question, please press star 1-1 on your mobile phone.
Speaker Change: Okay, it looks like I am showing no further questions at this time. I would now like to turn it back over to management for closing remarks.
Speaker Change: All right, Felicia, thank you very much.
Speaker Change: Thank you again for attending our Q3 earnings call.
Speaker Change: Thank you for watching. I hope you enjoyed the video. If you did, please subscribe to my channel. I post weekly. I also post weekly videos on YouTube. If you want to watch more videos like this, you can click the link in the description. I hope to see you again soon.
Peter Henrici: Peter Henrici, Washington, D.C.
