Vishay Intertechnology CEO Discusses Q3 2011 Results - Earnings Call Transcript

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Vishay Intertechnology Inc. (NYSE:VSH) Q3 2011 Earnings Conference Call November 1, 2011 9:00 AM ET

Executives

Peter Henrici – SVP, Corporate Communications

Lori Lipcaman – EVP and CFO

Gerald Paul – President and CEO

Analysts

Matt Sheerin – Stifel Nicolaus

Joe Flaningvil [ph] – Longbow Research

Steve Smigie – Raymond James

Jim Suva – Citigroup

Shawn Harrison – Longbow Research

Operator

Good morning, and welcome to the Vishay Intertechnology Third Quarter 2011 Earnings Call. My name is Melissa [ph], and I will be your conference moderator today. (Operator instructions). Thank you, I will now turn the call over to Peter Henrici, Senior Vice President, Corporate Communications. You may begin.

Peter Henrici

Thank you Melissa [ph]. Good morning and welcome to Vishay Intertechnology’s Third Quarter 2011 Conference Call. 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 third 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 relations section of our website at ir.vishay.com. A 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 discussion of factors that could cause results to differ, please see today’s press release and Vishay’s from 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 the 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 third quarter this evening. On the investor relation section of our website, you can find a presentation of the Q3, 2011 financial information containing some of the operational metrics Dr. Paul will be discussing, as well as a presentation on Vishay’s growth plan.

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

Lori Lipcaman

Thank you, Peter. Good morning everyone. I’m sure that most of you have had the chance to review our earning’s preface, as you have seen, revenues were significantly down, quarter-over-quarter, but in line with our revised guidance. Margins for the quarter reflected primarily the lower volume, but also higher metal prices and an inventory reduction. I will focus on some highlights and key metrics.

In the third quarter, we amended our credit agreement to permit up to $300 million of share repurchases. We are now well-positioned for quick execution should the board authorize another share repurchase. The cost was 5 basis points. Details are available in our 8K filed September 9, 2011. We also completed the acquisition of the registered businesses of Huntington Electric.

The purchase price for these businesses was approximately $19 million objective customary post closing assessment. This new acquisition is well into our recently announced growth plan. Dr. Paul would elaborate further in his discussion of the register segment.

We expect to pay back of less then eight years.

Cash from operations for year-to-date September came in at $288 million. Capital expenditures were 90 million and proceeds from the sales of property and equipment were $2 million using a free cash generation of $200 million for the nine months. Backlog at the end of quarter three was 655 million worth 3.1 month of sales.

Looking at the PNL, revenues for the quarter were $638 million, down by 10.2% versus prior quarter and down by 8.2% compared to prior year. Gross margin was 26.3%, operating margin was 11.8%, adjusted operating margin was 12.1%, EPS was $0.31, and our adjusted EPS was $0.32.

I’d like to walkthrough our unusual items. Our adjusted operating margin excludes a pretext charge of $1.9 million related to cost incurred upon the resignation of our former Chief Financial Officer, Dr. Lior Yahalomi. Our adjusted EPS excludes the after tax for this charge.

In our press release, we’ve included a table which reconciles GAAP EPS with adjusted EPS. Let me reconcile the adjusted operating income for quarter three 2011 compared to prior quarter. Based on $72 million lower sales or $69 million lower exchange rate impacts, the adjusted operating income decreased by 42 million from 119 million in Q2 2011 to 77 million from Q3 2011.

The main elements were average selling prices had a negative impact of $7 million representing 1.1% AFP decline. Volumes decreased with a negative impact of 27 million. Cost increased for a negative impact of 6 million, 4 million of which related to a higher metal prices and our inventory reduction had a negative impact of $3 million.

Reconciling the adjusted operating income for quarter 3 2011 compared to prior year, based on 57 million lower sales or $75 million excluding exchange rate impacts, the adjusted operating income decreased by $54 million from 131 million quarter 3 2010 to $77 million in quarter 3 2011.

The main elements were volume decreased with a negative impact of 40 million. Cost increased for negative impact of 9 million. 17 million were related to a higher metal prices, 9 million from taxes [ph] alone. These increases were partially offset by cost reduction efforts in fixed to variable cost.

Exchange rates had a negative impact of $4 million. Selling, general and administrative expenses for the quarter were $90 million. This included a positive impact related to the realignment of bonuses and profit sharing to recurrent expectation for the year 2011.

The tax rate for the year-to-date period, excluding unusual items, is based on expected rate for the full year and is approximately 27%. This resulted in an effective tax rate, again excluding unusual items, of approximately 30% for the third quarter.

The expected share count for EPS purposes for the fourth quarter, based on an average staff price of 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 8K we filed this morning.

Let’s review the key metrics we used to evaluate our performance at Vishay. Free cash year-to-date September was 200 million compared to 254 million excluding the spin-off of Vishay Precision Groups last year. As already mentioned, year-to-date capital expenditures were 90 million, approximately 54 million for expansion, 8 million for cost reduction and 28 million for maintenance of business.

DSO or days of sales outstanding for the quarter for 46 days. DPO or days of payables outstanding for the quarter were 32 days. DIO or days of inventory outstanding were 90 days resulting in a cash conversion cycle of 104 days. Inventory has decreased quarter-over-quarter by $19 million or $10 million excluding exchange rate impacts.

Wrapping up with a look at our liquidity and debt. We had a total liquidity of 1.3 billion at quarter end. Cash in short term investments comprised just over $1 billion and unused capacity on the credit facility was 262 million. The breakdown on our debt of 123 million – 180 million outstanding on our revolving credit facility, 95 million of exchangeable unsecured notes due in 91 years, and 148 million of convertible debentures, net of unamortized discount and due in 29 or 30 years.

The principle amount for (inaudible) is 425 million. I would like to remind you that no principle 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. In quarter three, we see like the entire industry has been surprised by a sudden downturn of demand. Vishay has affected manufacturing capacities, quickly as you’ve heard. We didn’t build any inventories, actually, we reduced inventories.

We have achieved a gross margin of 26% of sales and adjusted operating margin of 12% of sales and adjusted earnings per share of $0.32. We continued to generate free cash in a healthy way. Year-to-date, we have generated 200 million. A present low order rates on the other hand, in particular from this distribution, indicate a softer third quarter.

Then we talk about the economic environment next. We already had started into the third quarter with widely normalized lead times and sufficient inventory in the supply chain. During the quarter, the economy softened further but consumer products mainly computers, affecting predominantly our Asian business.

On the other hand, also some macro economic concerns seemingly started to influence business decisions in many markets. In particular, distribution stepped on the brakes. Industrial remained generally stable, seeing some softening towards quarter end. The economy in automotive remains good, vehicle sales and orders continued strong.

The inventory field of distribution has continued in the third quarter but at a reduced rate. Inventories of distribution came up by 5% but in September, inventories of distribution started to drop. The US in third quarter was 8% down quarter-over-quarter, contributing of cost to lower inventory trends of distribution.

We see 3.3 turns right after 3.9 in the second quarter, 2.4 in the Americans versus 2.6 in the second quarter. 3.7 in Europe versus 4.7 in the second quarter, which was a high number and 4.1 in Asia vis-à-vis 4.8 in the second quarter.

Let me refer to Vishay’s business development in the third quarter. Quarter three sales missed the originally expected range to a lack of short term orders in combination with an increased level of order cancellations.

We achieve sales of $638 million in the quarter vis-à-vis 710 million in prior quarter and vis-à-vis 694 million in prior year. Excluding exchange rate that affects sales versus prior quarter were down by 69 million or 10% and down versus prior year by 75 million or 11%.

The book-to-bill ratio of the quarter was relatively soft, 0.67, 0.55 for distribution, 0.82 for OEMs, 0.60 for actives, 0.75 for passives, 0.76 for the Americas, 0.59 for Asia, 0.69 for Europe. All in all, you can say consumer in Asia was weak in distribution, inventories were high. So this is really the short message of all these numbers.

The backlog due to low orders and increased cancellation has normalized that we see to 3.1 months, 3.2 in actives and 3.0 in passives. Cancellations seemingly has peaked in the quarter. Selling prices are on the level of prior of year but price decline has returned. We see a price decline of 1.1% vis-à-vis prior quarter and a slight up of 0.2% versus prior year.

The actives as part of our further portfolio are back to normal. Our ASP decline 1.9% loss versus prior quarter, 3.1% lower than prior year, the passives may I say is always stable on an increase level minus 0.1% versus prior quarter but up 4.1% versus prior year.

I’d like to talk about some highlights of operations. Due to a lower cost of goods sold, the inventory returns in the quarter is likely 24.0 excluding exchange of defects, inventories decrease by 10 million as Ms. Lipcaman said, by 7 million in raw materials and by 3 million in reprocessed and finish goods.

May I emphasize all that happened despite a quite abrupt drop of the volume. The SG&A cost at Vishay were under control. They reported 19 million in the quarter. Capital spending year-to-date is at 19 million as compared to 76 million in prior year excluding the VPG.

We continue to expect capital spending of 175 million in 2011 whereby approximately 95 million will be spent for expansion, 25 million for cost reduction and 55 million for the maintenance of business.

We will continue to focus on expanding manufacturing capacities at our leading products in order to exploit market chances during sudden increases of demand. However, we expect reduced capital spending next year.

Our employment came down from 22,500 to 21,900 people which obviously is the consequence of a lower capacity load in general. But let me emphasize that the plan to keep our change workforce even at lower activity levels by using short work, plan shutdowns and lower utilization of subcons in countries. We have a good cash generation as we said before, we generated 288 million cash flow operations year-to-date versus 330 million in prior year without VPG.

And 2011 will be another solid year for free cash – for the free cash flow. We generated 200 million free cash year-to-date as compared to 254 million in prior year which on the other hand has been our best year ever.

Now, let me come to the various product lines and I would like to start as always with resistors and inductors. Vishay’s traditionally most successful business with a strong position in industrial and automotive demonstrated another time success and strength, sales in the quarter by 156 million which is 7% below prior quarter and 5% below prior year when you exclude the impact of exchange rates.

Book-to-bill ratio was 0.85, backlog is at the normal of 2.8 month, gross margin came in at 33% of sales which is likely down from the prior quarter due to lower volume. Selling prices in resistors is another time. Stable 0.2% down versus prior quarter and on the level of the prior year.

Inventory turns in resistors and inductors were at 4.6 quite excellent as I think. And we expect the solid continuation of the business with slightly declining volumes in the fourth quarter. We further strengthened the product line by acquiring Huntingon businesses as well as produced of high power wide around [ph] resistors which is quite nice for us as a complement – it complements our product portfolio. And then it gives us some potential for growth and synergies going forward.

Coming to capacitors, this business is based on a broad range of technologies with a strong position in the European and American market – market needs in particular. Well, we are well-positioned in the renewable energy. This business stuff is currently from high inventory levels of distribution after a phase of tight supplies as all of you know.

Sales in the quarter were 142 million down by 8% versus prior quarter and by 2% versus prior year. A reduction sales versus prior quarter is mainly driven by tantalum capacitors. Book-to-bill was 0.65 in the quarter which brings our backlog down to a relatively normal level of 3.3 month still somewhat on the high side.

Gross margins were at 25% of sales down from prior quarter due to lower volume and increase cost for metals. The selling price is very stable quarter-over-quarter but substantially above prior year by 9%. Inventory terms remain at 3.1. We expect another soft quarter for capacitors mainly in the area of tantalum caps due to still high distribution inventories.

Coming to our cost of products which is up to business consist of infrared sensors cables and LEDs. And besides commodity contains a substantial share of customer-designed products mainly in the area of automotive and industrial.

We add lots of supply of infrared devices. The business is negatively impacted by the present weakness in consumer goods which partially offset by continued strength in the automotive statement.

Sales in the quarter were 56 million which is 12% below prior quarter and 5% below prior year, book-to-bill was 0.77 which brought backlog down to a more normal level of 3.1 month.

The gross margin in optical products continued at a satisfactory level of 31% of sales negatively impacted to a degree in the quarter by inventory reduction. The inventory terms of 5.2 would classify as quite excellent.

There was a substantial decline of selling prices in the quarter vis-à-vis prior quarter but this represents a peak. We have seen a price reduction versus prior quarter of 1.9% vis-à-vis prior year we have seen a more normal number of 3.6% price decline. Also the fourth quarter will suffer from the present weakness in consumer goods.

Coming to our product group timeouts. Timeouts represent a broad commodity business where we – not just supplier worldwide. We offer virtually all technologies as well as the most complete product portfolio and we are leading in particular in power applications.

The business in the quarter suffered more than expected from greatly reduced orders from Asian distributors, sales in the quarter by 151 million, which is 11% below prior quarter and 6% below prior year.

The book-to-bill ratio was at 0.62 reducing our backlog to a still high level of 3.4 months. Gross margin reduced to 24% of sales due to lower volume. The inventory terms record at 4.6. Also diodes are back to a more (inaudible) ASP decline 0.4% down versus prior quarter, 0.7% down versus prior year.

We have continued success with our French tiles where we practically are sealed in a sold source position. But we do expect also the fourth quarter to be negatively impacted by a continued low demand from distributors.

Last but not the least, MOSFETs – Vishay continues to be one of the market leaders in the segment of low voltage MOSFETs. This predominantly Asian business is hurt the most by the current weakness in consumer goods and combination with high inventories at distributors.

Sales in the quarter were 132 million. Down by 14% versus prior quarter and down by 28% versus prior year. Book-to-bill was weak at 0.5. Backlogs have been quite rapidly reduced to a normal level of 3.4 month. Gross margin is at 21% of sales, mainly due to lower volume and also to some impact of lower selling prices.

Inventory terms at MOSFETs are at a satisfactory level of 3.7. The price decline year-over-year has normalized but was substantial versus prior quarter. The only prior quarter we have seen a price decline of 3.5% vis-à-vis prior year of 5.4%. So, the price increases of recent months turned out to be not defendable.

There is a continued healthy demand in the market especially in the industrial segment for high voltage MOSFETs where Vishay is still a small player. There is capacity expansion on the way for a new and competitive high-voltage super junction technologies in Vishay. And we continue to expect to start into a volume production in the first quarter of 2012.

Also for the MOSFETs, we expect another difficult quarter due to lower sales but we currently see, especially in MOSFETs, an improved book-to-bill ratio.

Let me summarize. For Vishay, like for most of its peer companies, the third quarter presented some surprises and some challenges. Driven by too high inventories in the supply chain, but ultimately triggered by macroeconomic uncertainties as I believe. Vishay has reacted promptly, demonstrating another time the benefits of its restructuring efforts during recent years.

We will continue to push the main elements of our growth plan, in particular, in the field of new product and process development design-in and selected acquisitions, preferably in the field of specialty products.

As you’ve heard, we recently have closed the small but beneficial acquisition of Huntington Electric Resistor businesses and we are evaluating further steps. For quarter four, we expect the continuation of the present adaptation process, mainly in distribution which impacts our sales outlook. We guide for quarter four to a sales range, between 555 million and 595 million, if lower gross margins mainly due to lower volume.

But having said this, let me emphasize this especially in such times of uncertainty, we of course continue to be very confident in the electronics in general and in the unbroken growth of our end markets. So, we remain to be quite confident – very confident for our future. Thank you very much. Okay, now I turn it back to Peter.

Peter Henrici

Thank you, Dr. Paul. We will now open the call to questions. Melissa [ph] please take the first question.

Question-and-Answer Session

Operator

(Operator instructions). Your first question comes from Matt Sheerin with Stifel Nicolaus.

Matt Sheerin – Stifel Nicolaus

Yes, thank you. Just a couple of questions. Dr. Paul, do you have any sense of whether or not the book in trends here which obviously are weak to book-to-bill as weak as it’s spending a couple of years, is your sense that bookings are starting to bottom out here, and do you get a sense that revenues could bottom out here or could it take another quarter into the March quarter for this correction to play out?

Gerald Paul

Well Matt, what we have seen is a kind of a turn around since the beginning of October so orders in absolute numbers come back and get stronger which also means something of course for book-to-bill ration. Really, September, my appreciation was a low point.

Future will tell of course, but as we see a continued trend, still relatively weak order rates, but definitely better than they were in September. So which degree this will continue to be? Hard to say. But I think personally, that unless the world economy offers another surprise, the worst may be over.

Matt Sheerin – Stifel Nicolaus

Okay. And in terms of the pricing environment, it looks like it’s starting to crack a little bit, but your gross margin guidance seems to be predicated mostly on volumes and even when we talk about pricing, is your sense that pricing will sort of be where it is now because orders are soft, and then perhaps more pricing pressure when volumes come back and when orders start to come back? Is that how you see it playing out?

Gerald Paul

Matt, let me emphasize once more, it all relates only to our active business. I’ve said it before, on the past, except a few exceptions, we normally see and you will remember that very well constant prices, even in downturns. So because we are such a high share of specialty product.

On the actives, clearly, the situation has normalized, and at the beginning of such a change, it overshoots a little. So I would expect that we already in the midst of very normal price decline. But we in the past were able to cope with it. So I am not – that we would be able to do it going forward.

We also see of course by nature that some material cost come down, there is cost reduction effort, but as we – directly speaking, yes, we are – with normal development concerning prices in actives.

Matt Sheerin – Stifel Nicolaus

Okay, and just lastly on your current production levels, I know you’re working to bring inventory down. So do you plan to bring production level s down in both businesses in Q4?

Gerald Paul

We always adapt to the need. Vishay as you know is quite proud to be a relatively – I would say a very reliable supplier of free cash, the major element of that, is of course, not to let inventory to get out of hand. And we have demonstrated that in the past, we will adapt our levels.

And honestly, we are relatively experienced than that, and this is what we do at the moment. But what I try to say before is – my ambition is, not to lose, strain, workforce, so we will use all other tools which we have like short working pass, so Euro like plant shutdowns, et cetera, just to adapt the volume of production, but not really inventory, in fact reducing inventory further, but not lose the workforce.

Matt Sheerin – Stifel Nicolaus

Okay, thank you Dr. Paul.

Operator

Your next question come from Joe Whiney [ph].

Joe Flaningvil – Longbow Research

Hi good morning, it’s Joe Flanningvil [ph] on the line for Shawn Harrison. First question, I think you kind of alluded to, you said the MOSFET’s book-to-bill has improved here in October, can you get a little bit more specific in what kind of book-to-bills you saw throughout the month of October and by ...

Gerald Paul

I want to be that precise, but you know, in the quarter, it was 0.5. Let me highlight it substantially better than that. But still not on the level we would like to see as you mentioned, but substantially better especially on the MOSFET.

Joe Flaningvil – Longbow Research

Okay, and then maybe secondly here, you mentioned the automotive market holding about – there’s a lot of questions about global production slowing down a little bit here with issues in the supply chain. Are you seeing any incremental slowdown on the fourth quarter, or do you expect, you know, that to tapper off? It’s been an area of strength throughout the third quarter.

Gerald Paul

The moment we see – I’m talking mainly Europe I must admit but at the moment, people are really extremely optimistic in that. What we have seen in automotive maybe here and there, is some accumulation of inventories in the pipeline which needs a correction but this correction is underway but for my standpoint, the standpoint of this in production there is no slowdown as they say as they indicate as a longer trend or the mid-term trend so they are – they are continued to be confident on it.

Joe Flaningvil – Longbow Research

Okay. Thank you.

Operator

Your next question comes from Steve Smigie.

Steve Smigie – Raymond James

Great. Thanks for taking time to answering questions. I don’t think your results and guidance are all that different from your comparable companies.

So my question is more about what things look like as we come out of this? They look less cycle coming 2008 maybe a little bit different drivers but you had two quarters there where you grew 15 or I guess it’s 14% sequentially in 3Q and then 15% sequential the following quarter which does not necessarily square with your seasonality in those periods.

So, as we come out of this, do you think the recovery would take place fairly dramatically like it did last time? Meaning is this is just mostly inventory correction but looking at distribution it seems like that could be the factor, and if it is going to be that dramatic, again, is it more related just to returning to in-demand versus any real seasonal impact probably?

Gerald Paul

I maybe an old man but I have no crystal ball. Let me say the following, I suspect that this time it’s heavily inventory-driven this time. Last time we know what has happened but this time, it appears to be more likely that’s inventory-driven which means in deed as you said that there’s no inventory that last forever. That means there should be a recovery, a relatively quick recovery, relative if I’m right. But, you know, our politicians do the best currently to destabilize the world as we know.

Steve Smigie – Raymond James

Right. Actually on that point, since you are over there in Germany is just sort of chase your car on recent development with the steel and specifically stuff today and just feeling and the mood there in Germany.

Gerald Paul

Excuse me, sorry, I didn’t catch up with Germany, sorry.

Steve Smigie – Raymond James

Yes, just your feeling and the mood in Germany about the whole bank go up and how that would affect your business?

Gerald Paul

Okay. Germany is not the most important part of the world but the economy continues very strong here as you know. I mean, all segments with – we are close to full employment for our situation. But, of course, there is concern there. You know the situations in Southern Europe and people get kind of angry in a way in my country at least, but this is not so specific for electronic.

But overall, the industrial production in Germany runs high. But we know if the world does badly then German will not be an island, that’s also true.

Steve Smigie – Raymond James

Okay. Just – there’s been lots of questions going around about Thailand that there’s been some comments I think from it’s capacitor, tantalum capacitor players over there that’s got some exposure in tile industries if you could give us some color on how impact as you may – with what’s happening in Thailand.

Gerald Paul

I would not overestimate its impact but it’s to what you indicate. We do have some additional business because of the situation. And I think they’re not the only ones in the west that have additional business these days but I would not bill any forecast of any confidence on their product.

Steve Smigie – Raymond James

Okay. Last question was just with regard to gross margin, I think you indicated it will be down sequentially here mostly volume-related. Can you in some sense the magnitude with a couple hundred basis points to be unreasonable to think about?

Gerald Paul

Look our variable margin is between 45% and 47% so you see our sales bound and you can definitely calculate that.

Steve Smigie – Raymond James

Okay. Thank you.

Gerald Paul

Thank you.

Operator

Your next question comes from Jim Suva.

Jim Suva – Citigroup

Thank you very much. Can you give a little bit more details you’d mention about the cancellations in Asia? Are those primarily like on the consumer side, handset side, T.V. side and some of the end-market cancellations that you’re seeing?

Gerald Paul

First of all, most of them come from distribution in our case which through a degree seem to be expected this because we knew all along that, of course, they had to hide the order rate before out of many reasons was high and we expected some correction.

Anyway, and I think I said this before a few times. And so, it happened, but it happened immediately more abrupt seems to be typical for our industry more abrupt than we thought. And mainly it comes from distribution in our case but effectively this is indirectly consumer. This is consumer-driven I believe.

Jim Suva – Citigroup

And any end markets consumer through distribution that you’re seeing?

Gerald Paul

The computers relatively weak these days, relatively weak.

Jim Suva – Citigroup

Okay.

Gerald Paul

Hand phones, not the smartphones, regular phones are weak. I think this has much to do with overstocking everywhere but okay, in this case maybe the end sales has suffered already, the end market sales.

Jim Suva – Citigroup

And then my follow-up is, as we look at tantalum pricing typically if my memory is correct, it’s this time of year when the tantalum powder company start looking at contracting pricing for the future year out, is that the case now? And what type of pricing are we looking at for 2012 versus 2011? Because I believe 2011 was up pretty sharp versus 2010.

What type of price of tantalum should we be considering for your cost of good sold increase and are you back in the market or you have to have quite a bit of inventory you’re still having – that you can go through?

Gerald Paul

We did not believe in the shortages since a long time. We never believe the story with the shortage and therefore we don’t have so much inventory as well and this is not the environment for substantial price increases in tantalum powder, I would say.

Jim Suva – Citigroup

Thank you very much to you and your team.

Gerald Paul

Thank you.

Operator

Your next question comes from Shawn Harrison.

Shawn Harrison – Longbow Research

Hi, good morning. Just a few brief follow-ups. Hopefully, I’m not re-asking these but the commentary at point of sale being down by 8% sequentially for the third quarter. With October coming back, are you seeing, I guess, that increase. Did it increase sequentially, the point of sale for the month of October?

Gerald Paul

I have reliable information this case for a quarter, so I would rather not comment on a month on POS but obviously as quarters have come back to a degree, I would say the POS for sure will not have come down further, I think. It is what I would hope through from that.

Shawn Harrison – Longbow Research

Okay and I guess within that comment, your view on the inventory that we will essentially pass, I guess the deepest part of this throughout, exiting the calendar year and we should be, I guess, close to parity as we come into 2012.

Gerald Paul

Maybe a little longer. Maybe this takes a little longer than that. It all depends, obviously, on the POS which is the adamant economy in a way but I would say, if you ask me, I think the quarter for sure as we also guide to, this triggers our guidance will be impacted by inventory reduction and distribution, I would suspect you will see something also feeling quarter one.

Shawn Harrison – Longbow Research

Okay. And then I guess within the MOSFET business as well, you just briefly talked about continued or weakness within regular phones as well as notebook PCs. I know a big driver of that businesses, those two end markets. Does that, after we get through this inventory correction mean that you may not see a bounce back within that business just because the demand for those products isn’t as strong as it has been?

Gerald Paul

Why not? I think as soon as things are normal then why should this not be or go back to normal? But what we count on is a better participation, the high voltage MOSFETs where Vishay historically hasn't been really and now we will have probably see a light at the end of the tunnel in a way, we see product which can compete with everybody.

And we are going to start manufacturing them next year, beginning of next year, in large quantities. So I see, for MOSFET, should return to normal conditions. Why not? There’s no (inaudible) in that sense, end of this, either the implications nor of the product. But I see an additional change for us. Entering this high voltage market which we really haven’t been there, only a little.

Shawn Harrison – Longbow Research

Very, very helpful and the final question, you guys did a very good job of controlling operating expenses this quarter. In case I missed it, where are they expected to go on a dollar basis for the fourth calendar quarter?

Gerald Paul

They approximately where we are, maybe 191-192 something like that. Depends, of course, on the exchange rate also.

Shawn Harrison – Longbow Research

Thanks so much.

Gerald Paul

Thank you.

Operator

Again, if you would like to ask a question, press star one. There are no further questions; I will now turn the call back over to Mr. Henrici.

Peter Henrici

This terminates our quarter three conference call. Thank you for your interest in Vishay Intertechnology.

Operator

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

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