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Vishay Intertechnology Inc. (NYSE:VSH)

Q1 2012 Earnings Call

May 2, 2012 9:00 am ET

Executives

Peter Henrici – Senior Vice President, Corporate Communications and Corporate Secretary

Lori Lipcaman – Executive Vice President and Chief Financial Officer

Gerald Paul – President and Chief Executive Officer

Analysts

Matthew Sheerin – Stifel Nicolaus

J Steven Smigie – Raymond James

Shawn Harrison – Longbow Research

Operator

Good morning and welcome to the Vishay Intertechnology First Quarter Earnings Call. My name is Melissa and I will be your conference moderator today. (Operator Instructions) After the speakers’ remarks, there will be a question-and-answer session.

I will now turn the call over to Peter Henrici, Senior Vice President, Corporate Communications. You may begin.

Peter Henrici

Thank you, Melissa. With me today are Dr. Gerald Paul, Vishay’s President and Chief Executive Officer, and Lori Lipcaman, our Executive Vice President and Chief Financial Officer. As usual, we’ll start today’s call with the CFO, who will review our first quarter financial results. Dr. Gerald Paul will then give an overview of our business and discuss operational performance as well as segment results in more detail.

Finally, we’ll reserve time for questions and answers. This call is being webcast from the Investor Relation section of our website at ir.vishay.com. The replay for this call will be publicly available for approximately 30 days. 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 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. In addition during this call, we may refer to adjusted, or other financial measures that are not prepared according to generally accepted accounting principles.

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 that we also provide.

This morning, we filed a Form 8-K that outlines the various variables that impact the diluted earnings per share computation. We expect to file our Form 10-Q for the first quarter this evening. On the Investor Relation section of our website, you can find a presentation of the Q1, 2012 financial information containing some of the operational metrics Dr. Paul will be discussing. Johan Vandoorn, our Executive Vice President and Chief Technical Officer will be presenting on Wednesday May 16, at the J.P. Morgan Global Technology, Media and Telecom Conference in Boston.

Now I turn the discussion over to Chief Financial Officer, Lori Lipcaman.

Lori Lipcaman

Thank you Peter and good morning everyone. I’m sure that most of you have had a chance to review our earnings press release; I’ll focus on some highlights and key metrics. As you’ve seen our adjusted EPS was $0.21 represents a $0.06 quarter-over-quarter increase despite the lower level of revenues. This is primarily due to the temporary cost reduction measures we implemented during the quarter and also to manufacturing efficiencies. This evidenced our ability to act quickly to changing economic environments with our products.

The HiRel acquisition was accretive as expected; we expect HiRel’s sales growth to outperform our corporate average. This is our second acquisition following Huntington Electric, which was acquired in quarter three of last year and also fits well into our strategy of acquiring specialty products businesses. After the quarter ended, we capitalized on our strong financial position to expand the borrowing capacity on our credit facility. These new incremental revolving commitments allows additional flexibility to pursue our growth plan, and we now have borrowing capacity in excess of $500 million.

Looking at the P&L; revenues in the quarter were $539 million, which were down by 2.3% from the previous quarter and down by 22.5% compared to the prior year. Our gross margin was 25.4% and our operating margin was 9.3%. Our quarterly EPS was $0.21. We recorded no unusual items in quarter one.

At this point, I will provide some information on the reconciliations.

Looking at our operating income for the first quarter of 2012, compared to operating income for the prior quarter based on $13 million lower sales or $8 million lower excluding exchange rate impacts, the operating income increased by $16 million from $34 million in quarter four 2011 to $50 million in quarter one 2012. The main elements were average selling prices, which had a negative impact of $5 million, representing a 1% ASP decline. Lower costs both fixed and variable with the positive impact of $15 million primarily due to temporary reduction measures and inventory impacts with the positive impact of $6 million.

Reconciling operating income quarter one 2012 compared to prior year based on $157 million lower sales or $150 million lower excluding exchange rate impacts, the operating income decreased by $72 million from $122 million in quarter one 2011 to $50 million in quarter one 2012. The main elements were a volume decrease with a negative impact of $69 million. Average selling prices had a negative impact of $11 million, representing a 2% ASP decline, which were offset by decreased fixed costs with the positive impact of $9 million.

Turning to SG&A for the quarter, selling general and administrative expenses were $86 million for the quarter. This was in line with our expectation primarily reflecting temporary cost reduction measures as well as the positive impacts in exchange rates. Also the current quarter will benefit from cost reduction measures been at a lower level. Our expectations are slightly above $90 million.

Taking a look at taxes; the tax rate for the first quarter approximately 27% based on the expected rates for the full-year. On share count, our total shares outstanding at the quarters end were $157 million. The expected share count for EPS purposes for the second quarter based on the average stock price below $15 is approximately 164 million shares. For a full explanation of our EPS share count and variables that impact the calculation, please refer to the 8-K that we filed earlier this morning.

Highlighting selected key metrics, cash from operations for year-to-date through March was $23 million. Our capital expenditures for the year were $17 million, split approximately $10 million for expansion, $2 million for cost reduction and $5 million for maintenance of business. Proceeds from the sales, property and equipment were $3 million. Free cash generation was $9 million. This compares to $80 million in the prior year. Vishay’s consistently generated an excess of $100 million free cash in each of the past six years and more than $200 million of free for the last three years. Cash flow from operations were greater than $100 million for the last 17 years and greater than $200 million for the last 10 years. Despite the slow start in Q1, we expect solid cash generation for 2012.

Taking a look at our backlog, it was $607 million or 3.4 months of sales at the end of the first quarter. On our cash conversion cycle, inventories increased quarter-over-quarter by $23 million or $19 million excluding exchange rate impacts and $7 million of this increase was from the HiRel acquisition. Days of inventory outstanding were 97 days. Days of sales outstanding were 47 days, and days of payables outstanding for the quarter were 33 days, resulting in a cash conversion cycle of 111 days.

Wrapping up with liquidity in debt, we had a total liquidity of $1.2 billion at the quarter’s end. Cash in short-term investments comprised $923 million and unused capacity on our credit facility was $297 million. We paid down our credit facility by $10 million in quarter one 2012 and by a total of $95 million in the trailing 12 months.

After the quarter ended, we added an additional $78 million of borrowing capacity to the facility at the same terms. This gives us a total of $528 million and brings our total liquidity back to $1.3 billion. The break down of our debt of $389 million is just follows, $145 million outstanding on our credit facility, $95 million of exchangeable unsecured notes, due in 90 years, and $149 million of convertible debentures net of unamortized discount, and due in 28, respectively, 29 years. The principal amount or face value of the converts is $425 million. I would like to remind you that no principal payments are due until 2015.

Now I will turn the call over to our Chief Executive Officer, Dr. Gerald Paul.

Gerald Paul

Thank you, Lori, and good morning, everybody. The first quarter represented a promising start into 2012. We have seen a very substantial recovery of orders in combination with declining inventories in the pipeline. Vishay achieved quite satisfactory results due to fixed cost reduction and good efficiencies despite still no sales. We reached like Lori said gross margin of 25% of sales, operating margin of 9% of sales and earnings per share of $0.21 and generated $9 million of free cash. We are confident for the second quarter and for the year.

Let me talk now about the economic environment. After a substantial slowdown in the second half of 2011, the business climate improved progressively through the quarter. obviously, the second half slowdown of orders was highly related to inventory build up in the pipeline during the first eight months of 2011.

We have seen reducing inventory levels of distributors worldwide. Returning confidence in the United States affected most market segments there, in particular, industrial and computing. There’s continued strength of automotive and industrial segments in Europe, there’s unbroken optimism especially in Central Europe. European automotive customers like Bosch and [Carte] obviously are winning more programs in the U.S. and benefit from the market growth in Asia.

Asia is improving fast after a very slow start into the year. we saw significantly increased orders from almost all segments, naturally for the region; this upturn is heavily oriented towards consumer segment like smartphones, laptops and few consumers.

Distribution inventory fell down by 10% or $41 million in the first quarter, which was very encouraging, this was supported by improving POS plus 7% versus prior quarter. Distribution terms in the first quarter were 3.2 worldwide versus 2.8 in prior quarter; 2.4 in the Americas versus 2.1; 3.8 in Europe versus 3.0; 3.8 in Asia versus 3.5 in prior quarter. So you see we saw improvements in all regions. Our expectations concerning successively improving business conditions through 2012 came through earlier than expected.

Let me talk about our business development now. Sales in the quarter still were impacted by high distribution inventories and a very slow start into the year in particular, in Asia as I mentioned. We achieved sales of $539 million in the quarter, out of which $11 million came from our acquisition, HiRel, versus $551 million in prior quarter and $695 million in the prior year.

Excluding exchange of effects, sales were down versus prior quarter by $8 million or by 1% and versus prior year by $150 million or by 22%. The positive development of orders in all business segments, which we saw is encouraging. orders were in total, up by 36% versus prior quarter.

Book-to-bill of 1.11 appears to indicate a turnaround. We have seen 1.11 for distribution, 1.10 for OEMs, 1.09 for actives, 1.12 for passives, 1.08 for the Americas, 1.17 for Asia, 1.07 for Europe. again, what you see is a very broad positive development impacted to all the markets.

Our backlog has increased to 3.4 months; 3.5 months in actives, 3.3 in passives, all this is very nominal. the order cancellations continued on a very low level. The ASP decline remained moderate, prices went down by 1% versus prior quarter, and by 2% versus prior year. The actives are back to normal to a normal ASP decline, they have declined 1.1% versus prior quarter and 3.3% prices went down versus prior year. Also this time passives declined slightly 0.8% versus prior quarter and 0.7% versus prior year, and we believe that this decline in the first quarter represents singularity normally passives are stable in our case. Despite relatively low level of activity especially January, our contributive margin remained well in our traditional range of between 46% and 48%, which we are proud of performance, which we like to see.

SG&A costs like Lori indicated before continued well under control, we came out at $86 million the quarter, including the acquisition. Savings programs helped, which way of partially temporary character, again as the CFO said before without these temporary savings programs SG&A costs would be more like $90 million.

Total headcount increased from 20,900 to 21,750 or by 4%, the only reason for that was the acquisition of HiRel. The inventory turns in the quarter came slightly down to 3.7 excluding exchange rate impacts inventories in the first quarter increased by $19 million, $7 million were due to the HiRel acquisition, the remaining increase (inaudible) basically was due to increasing production levels, which will support scheduled sales increases in the second quarter.

Capital spending in the first quarter was $70 million. For 2012, we expect capital expenditures of $165 million, which is 10% higher than originally expected. The business environment is what promising from today’s standpoint and Vishay is going to be act to that. 50% of the capital spending is for expansion and 15% for cost reduction projects.

We generated in the first quarter cash from operations of $23 million and free cash of $9 million, which is substantially below record levels of the first two quarters, 2011. But we still expect another good year of cash generation. The integration of our acquisition of Huntington and HiRel is well underway.

Let me come to our product lines and I start as always with the resistors and inductors. Vishay’s traditional business in the first quarter entered the phase of solid recovery. We enjoy a very strong position in the industrial automotive and mil markets and benefit from the strong performance of these segments. Sales in the quarter of $158 million, 14% above prior quarter and 7% below prior year, without acquisitions, 6% above prior quarter and 15% below prior year.

The book-to-bill ratio was 1.13, which improves the backlog to a good level of 3.1 months. The gross margin was at 34% of sales, of the 30% in the prior quarter, driven mainly by higher volumes. Selling prices continue to be fairly stable, minus 0.5% versus prior quarter, minus 0.6% versus prior year. The inventory turns were at quite excellent 4.3.

As I said before, the integration of Huntington and HiRel is well underway. We achieved already in this quarter gross margins of almost 30% of sales with both acquisitions. And the profitability of these two companies is planned to grow further with expanding sales and based on some fixed cost reductions to come.

Coming to capacitors, the business is based on a broad range of technologies with a strong position into European and American market niches. We still suffered from relatively high inventories at distribution largely to perceived shortages in 2011.

Sales in the quarter were $140 million, 4% below prior quarter and 29% below prior year. We’ve seen the book-to-bill ratio of 1.12, which brings backlog up to a good level of 3.6 months. And I think indicates starting recovery also for this product line. The gross margin of capacitors went up to 26% of sales by 4% versus prior quarter due to original product mix.

ASPs were slightly declining in the quarter by 1.2% versus prior quarter by 0.8% versus prior year. We indeed gave back part of the price increases of 2011 in molded tantalum caps accelerating inventory reduction in distribution. In that sense, we believe that this is somewhat was hit, ASP decrease was a temporary one-time effect. The inventory turns of capacitors were 2.9 and we strongly believe that capacitors in the second quarter will follow resistors in terms of recovery.

Coming to opto products, Vishay’s opto business consists of infrared sensors, couplers and LEDs, and contains a substantial share of a custom-designed products mainly sold to automotive and industrial markets. After some inventory corrections in the consumer pipeline, last year the business demonstrated relative stability and now has entered a phase of recovery, mainly driven by IR receivers in Asia where we are successful for years due to technical leadership.

Sales in the quarter were $51 million, 2% below prior quarter and 11% below prior year. Book-to-bill was 1.12, which leads to a solid backlog of 3.5 months. Gross margin increased to a good level of 34% of sales improving from 30% in prior quarter due to better efficiencies, lower fixed costs, and slightly increasing inventories. Inventory turns in this line are quite excellent with 5.1. There is a slightly increased price decline minus 2.4% versus prior quarter, minus 4.1% versus prior year, again we believe also in this case of temporary effects. Also for opto products, we expect a further improved second quarter.

Coming to diodes; diodes represent a broad commodity business, where we Vishay are largest supplier worldwide. We are leading in particular in power applications, Vishay offers virtually all technologies as well as the most complete product portfolio.

Business in quarter one still suffered from too high distribution inventories in particular, in Asia. Sales in the quarter were $120 million, which is 5% below prior quarter, and 24% below prior year. Book-to-bill was at 1.01, the backlog at 3.3 months. This does not really indicate at this point in time a major recovery yet. Gross margins were slightly improved, 21% of sales after 20% in prior quarter, inventory turns were at quite excellent 4.2, the price decline was moderate, minus 0.7% versus prior quarter and minus 2.4% versus prior year. But we do expect some first signs of recovery showing up in the second quarter.

Coming to MOSFETs, Vishay continues to be one of the market leaders in the segment of low-voltage MOSFETs, the predominately – Asian business with customers in computer, cellphones had been helped the most that by too high distribution inventories last year. The business is still on the low-level, but shows strong signs of a recovery. Sales in the quarter were $95 million, 13% below prior quarter and 34% below prior year. Book-to-bill was at 1.18, backlog increased substantially to 3.9 months.

The gross margin for MOSFETs reduced further to 11% of sales after 15% in quarter four. The performance was negatively impacted by lower volume and by a one-time manufacturing program due to purchase materials, which is behind us.

Inventory terms were 3.2, price decline was moderate, 0.9% down versus prior quarter, 3.9% down versus prior year. We have started volume production of new and competitive high-voltage MOSFETs, which will impact favorably to perform and of the quarters to come. MOSFETs in the first quarter clearly have reached the low inflection point of sales and profitability.

Let me summarize; the face of economic slowdown, we like our competitors just have gone through, as highlighted again Vishay’s stability and ability to react quickly and effectively to changes of its environment. We were able to prove substantially increased earnings potential also at the bottom of the cycle.

Now with sales trending upward, we will demonstrate our potential to return to the high profitability levels of the second half of 2010 and of the first half of 2011. We also have key at the company towards expansion by maintaining sufficient manufacturing capacities in critical lines anticipating the next upturn by increased efforts in R&D and marketing also in economically more depressed times, by a successful acquisitions especially products, which will continue.

All-in-all, we are following our plan to improve shareholders value by increasing earnings per share going forward. And very important for me, we will be so, we will defend our prudent capital structure.

For the second quarter, we guide to a sales range between $580 million and $620 million it accordingly improved gross margins. Thank you very much, and I would like to turn back to Peter Henrici. Thank you.

Peter Henrici

Thank you Dr. Paul. We’ll now open the call to questions. Melissa, please take the first question.

Question-and-Answer Session

Operator

Your first question comes from Matt Sheerin.

Matthew Sheerin – Stifel Nicolaus

Thanks. Good morning.

Gerald Paul

Hi, Matt.

Matthew Sheerin – Stifel Nicolaus

So a question on how you see the margins playing out over the next quarter or two. Dr. Paul, you talked about some or temporary cost savings programs that impact SG&A, where there also some temporary cost reductions that impact the gross margins so that you won’t get as much leverage as you see revenues come back. If you could just give us an idea what we should think about in terms of gross margin in SG&A in the next quarter?

Gerald Paul

You’re absolutely right. We will not see the full impact of the sales increase, but nice share of it. As I indicated already in the presentation SG&A we expect to go up from 86 to approximately 90 slightly over 90, and also in manufacturing fixed you can expect some increase of the same magnitude. So all together we are not going to see the full impact, but we expect a good quarter, Matt.

Matthew Sheerin – Stifel Nicolaus

But you still think that you can get closer like the do it kind of a 26% number on gross margin where you can still get it up in the quarter, okay. That’s great. And then in terms of Siliconix I mean, that obviously has been lagging the rest of your business and that’s got to an issue now, and I know you’ve talked about actually trying to expand capacity focusing on more higher margin, more specialty business, so could you talk about your near-term and long-term strategy for Siliconix?

Gerald Paul

Well, no change. We are – Siliconix remains to be one of the most important part of Vishay, no question. it has the highest growth potential, I believe of all of our lines, and we’d indeed have concentrated in the last month say, even in the last year, on developing a more competitive high-voltage version, which we lacked before. We have it now. We are in the qualification process and acquired broad qualification process. And for the remainder of the year, we really expect Siliconix to come back to historical levels in terms of sales and profitability. already as it looks for the second quarter, things look much better than in the first quarter.

Matthew Sheerin – Stifel Nicolaus

Okay. And just lastly on distribution, it looks like the book-to-bill there is quite strong, inventories were down, are your thoughts that – distribution will basically just replenish what you are selling out or not, right are yet in the position to be adding a buffer or layers of inventories. so in other words, what you’re selling in is basically going out. So you’re not going to see any near-term inventory build there.

Gerald Paul

I would say, I would even say, distribution will continue to reduce inventory, but at a much slower rate. As a matter of fact, (inaudible) POS is strong. So our fear that they go again into an inventory increase, it would not be justified I believe.

Matthew Sheerin – Stifel Nicolaus

Okay, great. Thanks a lot.

Operator

Your next question comes from Steve Smigie.

J Steven Smigie – Raymond James

Great, thank you.

Gerald Paul

Hi, Steve.

J Steven Smigie – Raymond James

Just wondering if you could talk a little bit about the SG&A, as we get I’d say, to the back half of the year, because obviously you’d had some of these cost reduction, it looks like you’re still getting some benefit in June. So do you expect the $1 step up, as we go into the September, December and I guess just trying to – I am assuming that you have proven revenue as well in the back half, but are there still – I guess my question is, are there some cost reduction efforts that you took in March that will be going away, (inaudible) after further September.

Gerald Paul

Sure. First of all, we came out as I said before, $86 million, which were substantially below or even what I had expected. I thought including the acquisition, we would be at $90 million or so. But there were a few things, which helped us partially, we’re really adding towards that and plant closings and included the SG&A people in that as we come to an end. So I expect next quarter, the second quarter to be around $90 million, maybe a little above, but not much. And for the remainder of the year, we think we can stay at this level approximately. I think we will be more or less at the same level of SG&A cost as last year, but including the acquisition.

J Steven Smigie – Raymond James

Okay. And that’s on a dollar level, not a percentage revenue level?

Gerald Paul

360 or so.

J Steven Smigie – Raymond James

Yeah, all right. And then with regard to the acquisition, can you talk about and I apologize if you’ve covered, how much of that impacted revenues in March and how much of it will impact in June?

Gerald Paul

Yeah. It impacted March by around $14 million, about $14 million in sales and gross margin was over 30%, which will grow. We are going to have more sales in the second quarter and profitability, excessive nice variable margin, we will be accordingly up.

J Steven Smigie – Raymond James

Okay. Just because you have a pretty decent June [guy], but it seems like certainly some of that comes from the fourth quarter, the acquisition, correct?

Gerald Paul

Yeah, but no, no. Most of it comes from the normal business.

J Steven Smigie – Raymond James

Okay.

Gerald Paul

Most of it.

J Steven Smigie – Raymond James

All right, thank you.

Gerald Paul

Thank you.

Operator

Your next question comes from Shawn Harrison.

Shawn Harrison – Longbow Research

Hi, everyone.

Gerald Paul

Hi.

Shawn Harrison – Longbow Research

Just, I guess the first question maybe if you could quantify what was the one-time charge within Siliconix for the quarter, how much did that affect the business?

Gerald Paul

Was above $3 million approximately, and as a matter of fact, it really was a one-time effect, which was quite exacerbating, but it was thing sometimes have, it was a purchase material, which was not up to the status.

Shawn Harrison – Longbow Research

Okay. And then I guess if you could help me, I’m trying to understand I guess the really positive book-to-bill ratio within Asia, at the same time, you’re still seeing some inventory corrections in distribution. That – was positive Asia implies to me maybe that we should see better semi-growth versus passives growth for the June quarter. Is that the correct way to think about it or...?

Gerald Paul

Yes, yes, yes, as it looks.

Shawn Harrison – Longbow Research

Okay. And then I guess within – since we’ve probably have a full month of the second quarter, has there been any changes through this quarter versus kind of what you saw during kind of the February-March timeframe, anything a little bit better or worse?

Gerald Paul

Better. It’s encouraging what happens.

Shawn Harrison – Longbow Research

Okay. And I guess finally, the two acquisitions smaller size now within the past nine months what does the M&A environment look like for you right now, what are the deals out there?

Gerald Paul

How to say it? We are still pursuing our strategy. We are going after small and mid-sized specialty businesses and there are possibilities around. We are pursuing certain possibilities.

Shawn Harrison – Longbow Research

Okay, thanks so much.

Gerald Paul

Thank you.

Operator

Your next question comes from Jim Suva.

Unidentified Analyst

Hi, this is (inaudible) on behalf of Jim. If you could just provide some more commentary on the end market that you referred to the industrial and auto segments in particular that would be helpful, thank you.

Gerald Paul

Sure. So you said industrial and auto, sorry I think it was a bad connection, industry and auto. So as a matter of fact that Europe continues, was excellent last year especially the German automotive industry in the recent year, and we were a little skeptical for the current year, but it were not true, people continue to be super optimistic, they go from record to record, and at this point in time, it doesn't look as if the automotive industry in Europe could slowdown, but also the U.S. recovered. so altogether we are seeing a very nice picture in automotive and we are quite strong in automotive, it helps us.

On the industrial side, they were never the same kind of peers, there was a certain – we had the feeling that the peak was over, but say in September, October, but also here we see a continuation now on the same level as is last year. So it’s altogether a very positive picture in automotive and industrial this year, may I add to that better than I personally had anticipated.

Peter Henrici

Hello.

Unidentified Analyst

Thank you, thank you.

Operator

There are no further questions at this time. (Operator Instructions) Your next question comes from Steve Smigie.

J Steven Smigie – Raymond James

Great, thanks. Dr. Paul, can you give a little color on the back of the year, like the forecast that far out. but with a pretty healthy guidance here, do you think that continues into the back of the year, kind of returned to historical peak revenue levels anytime this year?

Gerald Paul

Difficult question because we all know we have no visibility I’m imperative on that. But of course, if you want so, you can be optimistic, because you see passives in Europe seem to continue strong, the European economy seems strong at least the segments of Europe, which are important to Vishay that is Germany, basically and some of France. Then you can add of course, the cycle in Asia, which normally indicates always a better second half than a first half. So if you want to be optimistic, you can see higher sales in the second half than in the first half, that I think I can really see it. To which extend we can go up to the record levels of 700 and more this year, I would not forecast it, to say it at this point.

J Steven Smigie – Raymond James

Okay, and with regard to inventory and the channel you have a very positive book-to-bill, you indicated that there are still working inventory down, what is – what does that look like as we get to or how do you think that order pattern plays out in June, so of course now we are looking out into September, do you think distributors will be done depleting and will they actually start to get to a point where they might have to sort of restock it and, it seems that we haven’t finished depleting, as I don’t want to get too far ahead on the restocking, but I think as I alluded, (inaudible) reported yesterday and they, I believe have indicated they were starting to see their customers, so (inaudible) came from you starting to get support what they had to start to stock soon. So could you just talk through how you kind of take that timing of depletion to being where you want to be to having to re-stock is looks like?

Gerald Paul

I believe that the ambition of our distributors to reduce further inventory at this point is very limited. I think they count on increasing sales and when you look at their book-to-bill, it’s also very good, it’s above 1.1, it was quite substantially above even 1.1, so I believe the ambition is low, I think they will not reduce much anymore as [FTP whereas] pattern holds, but this looks as if it was the case that means what I would expect is very limited inventory reduction and the improved turns, inventory turns just will have to be improved obviously, they are still on the low side. But I believe they count more on their sales – on their cost of goods sold to improve it than on lower inventory.

So I could expect that there will be no real inventory correction anymore in the second half. This is unless the whole economy breaks down, which nobody of us expected at this time, I would say.

J Steven Smigie – Raymond James

Okay. And then just turning to Europe a little bit, I mean you’ve already given color on a much areas, but just overall is your sense that the major economies over there are in a good enough shape that you should see stability in orders for Europe and I’m talking specific about orders that more likely stay in Europe as I know one of your businesses shipping to maybe German automakers that end up in China. I’m talking more about the European demand that it seem like the cost versus (inaudible) over there for Europe or looking at a stable environment in the coming year or do you think it’s still (inaudible)?

Gerald Paul

We all know that Europe at the moment has two faces very clearly. We see Central Europe, well Germany is biggest part of it, which is hardly ever seen better times than these to say frankly. But as you said, it’s very much buffet by experts out of the European Union. Let’s assume that this stays the same. There may be some impacts of the business, I could imagine the Southern Europe sooner or later we are going to see (inaudible) for Vishay itself. This is not so relevant I believe indirectly we may see also something. But our major focus in sales is Germany and Central Europe, by far I mean really by far. Indirectly it can always be something, but I must say that the Southern part of Europe of course is not well, it’s clear.

J Steven Smigie – Raymond James

Okay. Last question was just with regard to pricing, I think your price seems actually reasonably good here even on the active and I just like – if you’d look at the Fairchild, I think they had about down 3% sequential a quarter, I think yes for down 1%, and then NXP have to get yet acknowledged, but it is so more challenging. It is just the case that NXP continues to be a price leader and is Fairchild more aggressive in this particular quarter or it’s just holding that you get later, you will not down as much?

Gerald Paul

No, we did not took anything differently from before, and I do not want to like I don’t like to comment on the pricing strategies of my competitors. They are good competitors and they do know what they do in the question. But it’s true what you say, our price decline is lower, and we do not see an acceleration either at this point.

J Steven Smigie – Raymond James

Okay, great. Thank you.

Gerald Paul

Thank you.

Operator

Your next question comes from Shawn Harrison.

Shawn Harrison – Longbow Research

Hi, just a follow-up on the pricing on the other side of the business within passives, leading that you thought, the first quarter was a singularity, how has been the experience here through April is the pricing decline gotten (inaudible)?

Gerald Paul

Well, as we said it clearly the whole thing was not – first of all we are not talking a big thing as you know. But secondly, all the sisters and doctors was practically nothing. So we are really talking capacitors and within capacitors we are talking the only remaining commodity part of that, which is (inaudible) capacitors and we did it intentionally. We wanted to help distribution to get rate of the inventories. So we indeed made some concessions, so this was to be expected. The inventory of distribution in general went down substantially by 41 million, which was a big number for us. So not only in tantalum capacitors of course, but altogether but tantalum contributed to that, and this is I think it’s a very, very clear. We are going to see the normalization rate in the second quarter.

Shawn Harrison – Longbow Research

Okay, perfect. Thanks so much.

Operator

There are no further questions at this time. I would like to turn the call back to Mr. Henrici for closing remarks.

Peter Henrici

Thank you for your interest in Vishay Intertechnology. This concludes our call.

Operator

This concludes today’s conference call. You may now disconnect.

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Source: Vishay Intertechnology's CEO Discusses Q1 2012 Results - Earnings Call Transcript

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