Littelfuse Inc (LFUS) 2003 Q4 法說會逐字稿

Good day, everyone, and welcome to the Littelfuse Inc. fourth-quarter 2003 earnings conference call.

Today's call is being recorded.

At this time I will turn the call over to Chairman, President and CEO, Mr. Howard Witt.

Please go ahead, sir.

Thank you.

Good morning.

This is Howard and with me is Phil Franklin our VP of Operations Support and CFO.

Welcome to this, our fourth quarter and year-end 2003 conference call.

After my opening comments, Phil will cover the fourth quarter and full year in detail.

I will provide a background to the fourth quarter and comments on 2004 for each of our business units, and then Phil will close with added comments on the outlook for this year, after which we will entertain questions.

We'll expect the call to be approximately 45 minutes this morning.

As this morning's press release indicated, we had a strong finish to the fourth quarter and a strong finish to 2003.

All of our businesses and regions were positive over the prior year period.

We are clearly extremely pleased with the Teccor (ph) acquisition of last July which is already contributing to our bottom line.

For favorable currency helped, demand increases were strong in all our three businesses.

We feel that the solution sell strategy that we are following, as well as our focus acquisition activity, and our ongoing rationalization of manufacturing -- which is helping us become the low-cost world producer -- are all working to benefit our shareholders.

Phil will now provide more details on the quarter and the year.

Thanks, Howard.

Let me first read the Safe Harbor language.

Any forward-lookings contained here involve risks and uncertainties, including but not limited to, production demand risks, the effective economic conditions, the impact of competitive products and pricing, commercialization and technological difficulties, capacity and supply constraints, exchange rate fluctuations, the effect of the Company's accounting policies, labor disputes or structuring costs in excess of expectations and other risks which may be detailed in the Company's SEC filings.

Sales for the fourth quarter of 2003 were 102 million, up 47 percent from the prior year period.

The strong topline growth reflected the addition of Teccor, favorable exchange rate effects and an extra week in this year's fourth quarter.

In addition, we saw a broadening of the recovery during the quarter, which resulted in sales for both base Littelfuse business and for Teccor, exceeding our beginning of our guidance.

The recovery, which until recently had been centered in the Asian consumer electronics market, has now broadened to include telecom and industrial North America, and the beginnings of recover in Europe as well.

Largely due to the higher revenue numbers, diluted earnings per share of 19 cents significantly exceeded the consensus estimate of 12 cents.

All three of our major markets contributed the strong topline performance for the quarter.

Excluding Teccor, electronics was up 22 percent, automotive was up 11 percent, electrical was up 11 percent.

On a constant currency basis, and excluding Teccor, electronics was up 17 percent, automotive was up 5 percent, electrical was up 11 percent.

This is the first time this year that all three markets have posted year-over-year gains.

Again, indicative of a broadening of the recovery.

Teccor sales are also running at a sales rate of 15 to 20 percent above last year.

The operating leverage from these higher volumes, combined with favorable currency effects and our recent cost reduction programs, resulted in continued improvement in gross margin.

Gross margin for the base business, excluding the Ireland charge, was over 36 percent for the quarter, up about 100 basis points from Q3, and up over 300 basis points form last year's fourth quarter.

Operating margin for the base business, again excluding special charges, is now been above 11 percent for two quarters in a row.

Teccor has turned profitable faster than we expected, contributing 4 cents of earnings for the quarter.

This stronger than expected performance reflects higher sales volume with the associated operating leverage, and excellent execution on the integration thus far, with cost savings running at or slightly ahead of target.

Cash flow was nothing short of outstanding, as we generated 17.9 million of free cash for the fourth quarter, and over 33 million for the year -- even after a pension contribution of $3 million in the fourth quarter.

The key to this performance was excellent working capital management.

During the quarter, we reduced inventories by 4.3 million, and receivables by $5 million.

And at the end of the year, inventory was at over five turns and receivables DSO dipped below 50 for the first time in recent memory.

While clearly, working capital management has been a focus area for us, and the performance has been good, we do not believe the current level working capital is sustainable and we will likely see some modest increases over the next few months.

This said, we still have plans to further reduce inventory over the longer term.

Now I will turn it back to Howard for some additional comments.

Thanks, Phil.

I would like to then now -- each of our three business units and add some commentary to give you some color to the results that we're sharing with your today.

First of all, our electrical business -- in this business, which is approximately 10 percent of our sales, our business was up 13 percent over the prior year quarter but only up 1 percent for the full year.

We're seeing stronger demand for industrial and commercial markets through our distributors, which has added evidence of a beginnings recovery in this market.

But we would add that this market tends to lag in economic recovery.

At the start of 2004 we were experiencing positive book-to-bill with electrical customers, but at lower levels than in our other markets.

Like other electrical manufacturers, we are expecting modest revenue growth in the low single digit range, including price erosion, in this year.

Also in this slower growth market, our electrical team continues to work diligently worked to reduce costs and improve efficiency.

To this end, we are moving assembly operations from the U.S. to our long established Mexico facility, as well as consolidating inventory and logistics in our North American distribution center.

Again, this will be going on during this year of 2004.

The electrical team is also continuing to work on cross selling opportunities, with our other SBUs (ph).

In 2003, we saw an increase of over $800,000 in revenue from cross selling of our electrical products with our electronic industry market folks.

In 2004, we are also targeting process industries, such as pharmaceutical and food processing where there are unique -- where our unique indicating products provide a significant savings for users.

Secondly, our automotive business -- car build, as you've probably have read, for 2003 in our prime North American and European markets, were lower than 2002 by roughly 2 percent.

Even given this negative trend in a higher than normal price erosion, our revenues were flat -- technically flat year-over-year.

In the fourth quarters (indiscernible) report our automotive sales were up 11 percent, with a late surge in December's sales.

U.S. vehicle inventories have dropped significantly from 76 days to 68 days as of December, with some premium brands holding very low inventories of 15 to 40 days of vehicles.

All of this, plus GM's new hot button (ph) campaign to stimulate sales, which includes a giveaway of 1,000 vehicles, bodes well for a decent start to 2004.

I can personally identify with that as my two sons, on their own, went to GM dealers to push the on start button (ph) to see if they were going to win some cars.

Unfortunately for our family, they did not win.

As with all of our teams in our businesses, the automotive group is targeting aggressive cost reductions to offset price erosion and increase our competitive edge.

We're continuing to move with some of our more mature some assembly processes to Mexico, and we're planning on scaling down our Swiss manufacturing site.

This is in addition to ongoing material changes and productivity improvements, such as the now completed revamping of our Chicago-based mini fuse production process.

Which is leading to over $1 million in yearly savings.

Looking ahead for the next few years, we are anticipating organic growth of 4 percent.

Assuming projected car build and fuse comp (ph) growth.

And targeting a higher unit increase based on initiatives in new growing markets in China, Korea and Eastern Europe, as well as more cross selling of our overvoltage products to our customers.

We're also looking to the benefit to transition to higher revenue products and let me give you some examples.

This is a transition mainly in Europe from our ATO fuse to a downsized mini fuse product.

Secondly, our Maxi fuse to a JCASE product, as we call it, in the U.S. and Europe.

And then lastly, to the higher dollar value cable pro in the U.S. and Europe.

Our new product initiatives in automotive include downsize -- or as we describe -- the low-profile versions of our mini and JCASE fuses, as well as multielement concepts for future vehicles.

We're also developing several versions of our higher dollar value cable pro for specific car applications, and we have several design wins, in fact, today.

Longer range, we're looking to leverage our Teccor silicon technology in next-generation automotive circuit protection solutions.

Lastly in electronics, we have to say, we're not just pleased, we're excited about the trends in this business as we are beginning to see the rewards of our solutions sell strategy playing out through the depth of our product portfolio and our improving field sales teams capability around the globe.

Let me just to give you some general details, book-to-bills -- or certain things that we measure as metrics.

Overall, as we begin 2004, we're seeing an overall book-to-bill of roughly 1.2 to 1.

That's 1.2 to 1.

And breaking that out with some more specifics from our marketplace -- in North America distributions -- distribution, rather.

Roughly the same number. 1.2 -- with strong bookings.

Although we are seeing a few cases of distributors pushing out deliveries, possibly due to the shortages of other products -- other items going to their products.

The North American distribution -- we're seeing also 1.2.

This started slow and has recently improved.

In Europe, a 1.3 book-to-bill -- with shipments strong, driven primarily by distribution.

China, 1.8, which might surprise you, but this is really related to the Chinese new year and at that level of book-to-bill, we were actually better than our late last year forecast of what would happen early this year.

Southeast Asia 1.1, which was somewhat slower than December.

Korea 1.3, which is actually improved from 1.1 in December.

Japan 1.3, with very strong bookings and shipments, and there our commentary would be really our seeing the economy here turn positive.

Teccor, where we're still at this point separating things out.

We are enjoying 1.1 book-to-bill, with demand above forecasted levels.

In this business, we have good 90 day visibility.

And things are looking decent through the first quarter, with telecom related businesses, which are higher margin, being a major contributor.

A few other comments from around the world to add some color.

In Greater China, which is Taiwan, Hong Kong and China, we're seeing distributors being more willing to place two to three-month orders, compared to conservatism last year.

Main drivers for business in this part of a world currently are notebook PCs, LCD screens, and mobile phones.

We're also seeing the beginnings of a strong market growth in telecom.

In U.S., comment on distribution -- we met recently went with Arrow (ph) and Future (ph), two of our major distributors -- both of these people or Companies are seeing continuous positive book-to-bill over the last six months and remain optimistic.

In last quarter's call, we talked about ODMs, or original design manufacturers, primarily in the Far East.

And we shared with you kind of breakout of this new and growing business.

I would offer up that business for us grew in 2003 by 57 percent over the prior years.

So clearly we are replacing our bets and our people at the right break positions.

Also add some color -- let me just comment again from our field people -- about a couple of specific segments.

And these are all pre-Teccor at this point.

And you'll know, when I talk about our devices on these customer products that it is not only fuses, but it is MLBs, metal oxide resistors, PTCs and our other devices.

Let me talk about two areas in handheld first.

I'll comment on cell phones and cameras, to add a little of background.

In cell phones, for this year, the forecasts are 500 million units, which is up approximately 8 percent over last year.

However, I would comment, this forecast is most likely expected to increase as the year goes on.

Global brands, such as Nokia, Motorola and Sonny Ericsson, continue to move their designs to Asia ODMs.

Local Chinese also continue to increase their share with locally produced telephones.

In terms of majority of the market for U.S. and Europe, (indiscernible) these are the placement devices for people that like you and I that have -- that had either one phone or a series of phones.

However, in Asia, these are new customers having cell phones for the first time.

A couple examples -- two Korea firms in terms of the use of our products, one major Korean manufacturer uses one fuse and 24 of our metal oxide resistors for a phone, and we have all of that product on their telephones.

Another major Korean manufacturer uses one fuse and 30 of our oxide resistors and we had in this case the metal oxide resister portion of this business.

In cell phones, we feel we are well positioned in most areas, including our Greater China cellular organization, but especially in Taiwan where the major design activity is taking place.

Second category is digital still cameras.

The 2004 forecast is for 55 million units to be produced globally.

That's up about 28 percent over the prior year.

As you can tell, this is one of the fastest-growing segments of digital consumer products.

In digital still cameras, Taiwan and Korean manufacturers continue to take a large share away from the Japanese, like other handheld applications, much the design and manufacturing of the market leader cameras is done in Taiwan.

The major OEM and ODM Companies, Companies such as L. Tec Asia Optician (ph) and Prime Ax (ph), in all of these we have design wins for (indiscernible) fuses and resistors.

And we are well positioned due to local expertise in this region.

And while there are two distinct imaging markets, the camera phones, in our opinion, will not severely cut into the digital camera growth.

The application examples in cameras and fuses -- where overcurrent protection is three devices per port.

Resistors and diodes for electrostatic discharge protection was up to 25 lines needing protection.

And again, using a Korean Company example, we have one fuse and 24 MLVs on just one camera.

Though not a camera, I might note an article from last Wednesday's Wall Street Journal, you may read, with a Blackberry (ph) having difficulties in one of their PDAs -- clearly we're talking to Blackberry and about our ESD devices that could solve their problems in their Blackberry PDA Tec devices.

The last category I will talk about is computers.

Forecast increase for 2004 is to 170 million units.

This is up -- projected to be 11 percent over the prior year.

You might find it interesting that for computers, 80 percent of motherboards and 60 percent of computers themselves, notebook computers, are made by Taiwanese Companies -- not necessarily in Taiwan, but rather in mainland China, where the product production is being transferred.

Projected growth rates for 2007 -- through 2007 -- for notebooks is 15 percent per year, and desktops 6 percent.

And there are moves by Taiwanese notebook manufacturers and top worldwide PC brands, such as Dell, HP Compaq, IBM, to push design to Taiwanese ODMs.

And you keep hearing that reoccurring message of ODMs -- this is why we see those players as a major target forwards.

All of this we feel tends to work in our favor.

We are already engaged with or selling to all of the tier one and tier two manufacturers.

We also have design content -- contact with those U.S.

Companies still involve design, people such as Dell, HP, Apple and IBM, that are examples of product (indiscernible) devices -- fuses and PTCs for core protection, three to six per computer, and for ESD (ph) production there are 2 to 16 lines per computer potential application.

That's fairly long, but I just (indiscernible) asked questions about applications and parts and I thought I would share that with you.

Let me close my comments with a story from the field that I just received over the weekend from Japan.

That will give you perhaps more color and example of how we work to become more valuable to our customers, and I've changed the name of this customer for competitive reasons so we don't lose the benefit of our fine Japanese sales agents -- salespeople.

And I quote, "Part of our sales strategy in Japan is to build a closer customer relationship through technical training seminars.

Tokyo Motors -- changed name -- approved us to do for them this week a seminar which was highly successful.

Tokyo Motors is one of the largest world's largest makers of electric motors.

In including precision, synchronized and stepping motors.

They make over 100,000 different models and customized a lot for customers.

"Certain protection is always an issue because of high inrush currents resulting in quality complaints.

Therefore, we had a team of six technical sales personnel from our Yokohama office along with two local distributor personnel at a meeting which was scheduled.

There were over 50 Japanese design energy engineers in attendance, as well as some customers of Tokyo motors.

"Throughout our presentation was a mixture of Fuseology (ph), rating analysis, calculation, product determination, selection, troubleshooting, how to use catalogs and specific design problem solving.

We used a lot of computerized still and animated illustrations, including showing how fuses react and blow under different inrush conditions.

Both of these sequences were filmed in our Yokohama test lab, using actual Tokyo Motors conditions as well as our x-ray equipment.

"Tokyo motors was very impressed and we secured a good relationship with them.

The technical presentation served two purposes.

First, they increased our sales potential to customer; second, it will reduce quality issues by providing better knowledge of how to design our products into their applications.

We have now taken the show on the road to other Japanese customers."

In closing, with our strong financial position, will we will continue to explore very focused acquisitions and contribute to our market share -- not only in electronics, but our other business as well.

And acquisitions that support our solution sell strategy.

We are not forgetting R&D.

We are also continuing to invest in R&D and new product programs and we can now leverage from our portfolio technologies including silicon.

Now I'll turn it over to Phil for some closing comments.

Thanks, Howard.

Taking a high-level look at 2004 -- for the first time since the year 2000, we expect at least some growth in all three of our major markets in 2004.

Our electronic markets are expected to grow in the higher single digits, whereas automotive and electrical growth will be more modest -- more most likely the 2 to 3 percent range.

Once again, we have significant cost reduction programs in the works, including the following.

Further plate (ph) consolidations and product moves, which will result in less production and in our (indiscernible) Illinois and Switzerland facilities and more production in Asia.

Reconfiguring and consolidating our internal global distribution network, which will ultimately result in fewer distribution centers, less internal shipping cost and less inventory.

Streamlining and further automating the Teccor back end processes in Mexico.

And then global sourcing programs, which will result in reduced costs for many of our most significant material categories.

Partially offsetting these efforts, however, will be the recent large increases that we have seen, and everybody has seen, in commodity prices, including zinc, copper and platinum.

Although we expect price erosion in our business, and really in all of our businesses, in 2004, these and other programs to take cost out, should allow us to make continued incremental improvements in both gross margin and operating margin during the year.

As we mentioned in the press release, we will begin to invest more in R&D going forward -- particularly in some of our newer overvoltage product categories.

We believe this is critical to sustaining and improving our position as the global leader in circuit protection.

While we'll begin to increase new product spending in 2004, we expect only modest increases this year in R&D as a percentage of sales.

We expect Teccor to contribute significantly to earnings in 2004, but the specific contribution will become more difficult to measure as we further integrate Teccor into the Littelfuse electronics business.

This concludes our prepared remarks -- we will now open it up for questions.

(Operator Instructions).

Richard Hilgert, Oppenheimer & Co.

On the automotive side, are you being approached more often now, now that we're seeing more hybrids coming into the market -- are you seeing more demand, more interest, in fuses and circuit protection devices for those types of vehicle?

Yes, we clearly are.

And, again, though the Japanese manufacturers have been the prime movers, as you know -- especially Toyota and Honda -- we are now seeing more interest by the domestics, Rich.

So we are working in their labs on putting our traditional fusing plus the higher value fusing we've talked about in the past.

Vehicle builds are beginning to increase.

Certainly -- they're still modest in numbers, and our role is to be there to again help them solve their potential problems on these vehicles.

Not expecting huge revenue from that category -- at least at the early stages.

Did you do any work with the Ford hybrid?

Our design folks are working with Ford on that vehicle.

Okay, good.

So that will be incremental for you then in '04?

Some fees will be, but again, I think as we both watch the hybrids overtime -- the real time to get to production -- and the ultimate volumes have been pretty modest.

So we're not -- certainly that would be kind of incremental to the general numbers that we're talking about.

Now, on the hybrids, is that still three to four times the normal, or the usual amount of fuses that go into those vehicles?

Yes, it would be, Rich.

Typically in a car it would be three dollars per car, or something.

So we are talking in that multiple range for hybrids.

Okay.

One last one on SG&A as a percent of sales in the fourth quarter.

It did look like that's been the lowest amount that it is usually -- that it has been running.

And the fourth quarter is usually the higher quarter.

Should we be looking on an absolute dollar value that maybe the 19 million mark is the new runrate going forward?

The 19 million in -- being the SG&A excluding R&D -- or.

Yes, excluding R&D.

Yes, I think that we did have a strong performance as a percent of sales in the fourth quarter, Rich.

In part due to the strong sales quarter that we had.

You have to take into account that Q4, we had an extra week in Q4 so that actually bumped up the expenses and the sales a little bit higher than it otherwise would've been.

So, we do have some selected SG&A and R&D increases planned for 2004, that -- if you look at where we've spent the last two quarters, that should be in the range of where we start out the year, anyway.

And we will be making some selected adds to those numbers.

But as a percentage of sales with the kind of growth we expect, we should still see some leverage in 2004.

Okay.

Great thanks, guys.

Alexander Paris, Barrington Research Associates.

I was just trying to get at what your incremental sales from Teccor would be next year?

You started out when you acquired them at 75 million and now it looks like it was rising at a 15 to 20 percent rate?

Yes.

We are about 15 to 20 percent over what Teccor was running last year under the previous -- under the previous owners.

I think this time -- if you look at, Alex, what we did we probably -- for you if you look at full year '03 for Teccor they did probably something in the 77 to $78 million range for that period.

And if you think about something like a 15 percent increase over that number, that's probably a reasonable -- that's a reasonable target we would be shooting for.

And then about half of that would be incremental mixture, roughly?

Yeah, it would be in that we only had six months of Teccor in '03.

Okay, good.

And -- I'm not mistaken, am I -- you were not looking for accretion from that earlier, right?

In the first quarter?

When we first did the acquisition, we talked about 10 cents -- up to 10 cents of dilution in '03, which, in actuality, it was essentially neutral in '03 even with some of the charges that we took.

And then, obviously, accretive in the fourth quarter.

We had indicated initially that we were going to be about neutral to earnings in '04, and obviously with the quarter that we just turned in, and sales still looking pretty strong going into '04, with some of the cost reductions we have planned, we will do a lot better than neutral.

Okay.

Thank you.

And in the fourth quarter in electronics -- 46 million -- could you give some idea of the dollar amount in the U.S., Asia and Europe, or the percentage change?

Was that still mostly in Asia?

Within the electronics business?

Yes, right.

I think we saw -- in the fourth quarter we saw strength in North America, as well as Asia.

And really for the first time, we had significant year-over-year growth in the North American regions.

So it was still Asia -- Asia was still strong.

We saw a good growth there.

But we also had a nice contribution in North America and even in Europe, although a lot of Europe was currency related.

Okay.

That was up on a constant dollar basis too in Europe?

Europe, I believe, was in electronics, was probably about flat on a constant dollar basis -- maybe up slightly.

Okay.

You have been mentioning the ODMs.

I guess is there, I don't know, 10 to 12 really of the biggest ones.

How many are you actively working with now where you've got actual business or --?

We're actually working with most of them.

And they're actually now -- the list has now grown to over 30.

Actually, 39 at this point in time. 38 at this point in time.

And we're doing major business -- with probably 60, 70 percent of them right now and in contact with all of them, Alex.

Okay.

Now, with the design before, I would say in the next, last year or so, before this.

Probably, your European customers, they were doing design there and then shifting the manufacturing over there to contract manufacturers.

So now they're doing the design there and the manufacturing.

That is correct.

Does that mean that you might want to transfer some of your assets from Europe, in terms of cost-cutting and moving over there to Asia to be closer to the design?

Definitely.

In fact, you might remember we had closed a factory in the North of England over a year ago and then moved most of that production to the Philippines, and some to China and the Philippines actually.

Part of that was sort of anticipating the thing we're seeing in the state is going on in Europe.

So that was an initial move.

You'll see us over time downsizing other operations in higher cost areas.

We have alluded to a couple already here in the States -- as well as in Europe.

So, yes, we will be following our manufacturers, our OEMs and ODMs wherever they go.

I guess just one final quick questions -- maybe for Phil.

The tax rate, is that going to stay at 36 percent in 2004?

Yeah, I would use 36 percent, Alex.

There may be some opportunities down the road to bring that down a little bit, but with some of the tax playing things we're doing, the 36 percent is probably the best number to use for right now.

Okay.

Thanks very -- just one other thing.

You had such a big surprise in your sales.

Did you mention in your lease or your sales rep about 10 million more than expected?

We mentioned what the number was, we didn't use that number at all.

I think we had indicated that we expected sales numbers similar to the third quarter, which would have been in the $95 million range, so they were up maybe about 70 million over that number -- in part, I think -- looking back on it, we may not have given adequate waves (ph) per week that we had in the month, because we knew there were a lot of holidays crammed in there.

But, as it turned out, because of some of the strength and the recovery in the market some, we pretty much shift pretty steadily through the holiday period.

So I think we did get some benefit from that extra week, but there is no (multiple speakers) that the broadening recovery helped drive that number up as well.

Right -- you never know.

Special factors.

I best I guess the much broad-based demand going up?

Right.

We are pretty broad-based.

Right.

Thank you very much.

I will add one more definitive comment.

There are 30 -- really 30 active ODMs and we're currently -- we have revenue and sales to 18 of them at this point.

And we're in contact with the other 12.

Amy Younker (ph), Robert W. Baird.

Quick question on gross margins.

If you could just help us understand -- you mentioned 36 percent in the core business.

How much of the charge fell in cost of sales?

All of it.

All of it.

So 3.2 million?

Yes, it would end up being about 3.1 million.

And that was all in cost of sales.

Okay so then, that means the gross margin was really in almost 32 percent -- is that a good run to use going forward.?

Since I assume that that charge is not going to be going forward?

It's probably a reasonable run rate to use going forward -- something in that range, yes.

Okay, and could you just tell us then -- I guess I could back into this -- but the Teccor gross margins are running around what percentage?

They are in the teens right now.

They're moving up towards 20 but they're still in the middle to upper teens.

Where you see that heading eventually?

Where do you think those could peak out?

We had indicated before we felt we could get those margins to roughly 30 percent.

Although, our real focus is on the operating margin there, which we have a target, like we do with the core business -- to get the operating margin to 15 percent, which we think is a very achievable number.

And we are halfway on our way to being there right now.

And that's for the entire business as well or just --?

Well, we do have a target for the entire business but also singularly for the Teccor business.

And as I mentioned my comments, you probably will be asking me a similar question a year from now, and I'm going to be a lot less able to answer it and probably won't answer, because Teccor is really getting fairly quickly integrated into the rest of our business, and it is going to be -- six months from now -- it's going to be very difficult.

We will still be able to -- when we know it's a Teccor sale's -- product category are -- so we will know what sales is.

But identifying for example operating expenses for Teccor distinct from Littelfuse will be impossible because we're merging all those together.

Understood.

And finally, could you just give us, even if it's just a broad-based first reaction to what your expectations are for the first quarter, you gave us some comments on '04, but typically Q4 is seasonably a little bit lower, but not sure how that's going to carryforward given the extra week.

Yes, I would say that -- as Howard had mentioned -- we went into '04 with pretty good book-to-bill's, and reasonable strength in really all of our markets.

And while Q1 is generally a relatively weak quarter seasonably, that gets offset somewhat by the addition of Teccor.

It changes a little bit.

It's actually a strong quarter for Teccor, typically.

So overall, I think that sales -- because of the extra week -- may not be quite to the Q4 levels, but they ought to be approaching those kind of numbers.

Okay, great, thank you.

John Franzred, Sidoti & Company & Co.

Could you just talk a little bit about what's going on at the distributor level -- what the inventory profile kind of finishes up at year-end?

And what you're kind of hearing about what the expectations are for the year-end?

Well, if you make a fairly general comment, we are seeing distributor inventories running at lower levels, John.

And we're beginning to differ somewhat by distributor, and we are -- as a mentioned earlier -- there are some shortages in the pipeline with -- not our products necessarily -- but other customers are causing a few stops -- stops and starts.

But generally, I commented on Neuro and Future, but we're seeing them at low inventories.

But they did stock up somewhat late last year.

We are expecting kind of a sort of stop, start movement -- at least in U.S. inventories as we're going forward -- at distributors.

The Far East distributors are getting more optimistic -- we are actually are getting planned orders out a number of months.

You can tell by our comments on demand in the Far East, that we would expect to see them continuing increase orders over there, given the demand of all of our products being produced.

Now, you guys have done a fantastic job on cost savings.

I was wondering if you could quantify how much you've actually taken out of the business in 2003?

We -- I think if you looked at the numbers -- and again it depends a little bit upon how you do the calculation -- but we're probably, as we have indicated before, we are probably, in terms of cost savings, that we calculate that we've achieved something in the neighborhood of $20 million.

Of course, that gets offset through a significant degree by the price erosion and so -- I mean, we're lucky if we get to drop some of that to the bottom line.

But I think -- certainly, being able to offset -- the least offset price erosion were our cost reductions, and then the operating leverage that we're seeing from the higher volumes that we're now starting to run at -- we should still be able to see additional improvements in our margins as we go into '04.

Probably just add some color to that, too, we are -- we are doing this across all of our business units so it's not -- the larger chunk is coming out of electronics because there's more opportunities with Teccor and other activities.

But -- no matter what the erosion might be, we are aggressively going after costs, moving things to low-cost model, using our factories in the Philippines, China, and Mexico.

And then -- investing in automation workcells here in the higher tech operations.

Now, you mentioned there remains to be some streamlining of some of Teccor's back office activities.

But, it looks like you're ahead of schedule.

When do you think you have Teccor fully integrated into the balance of Littelfuse?

Really, we talked about integration ongoing.

The bulk of the integration -- little integration has been done.

Our challenge now, in fact, we have -- as we may have mentioned on the last call -- we have really merged the two teams.

We have some folks coming out of Teccor who are actually taking on global responsibility for all of our product lines.

So, the basic integration has been done.

We have a systems integration ASAP starting this -- it will be done this year.

Into next year -- start of this year going into 2005.

So there is that system piece underway.

But basically, we are selling our products.

We are increasing the salespeople feed on the street.

And in the Far East we are -- we have -- are at midstage with training all of the field folks on their products.

Basically, we are kind of there.

On the backend process, we have really decided to stay in the manufacturing sites in Irving Texas and (indiscernible) Mexico, and we're very excited about what's going on there.

The teams have really reduced headcount fairly significantly -- several hundred people -- and they were producing at significantly higher levels already.

And this is -- at this point, (indiscernible) a lot of capital infusion.

Now as we went to this year and next, we will be adding more automation dollars to continue to take cost out over time.

But I would suggest, as Phil mentioned, we're ahead of schedule and feeling very good about the progress to date.

Still, clearly, as Howard mentioned -- the integration on the sales and marketing side is largely complete.

We still have a lot of opportunities -- we've talked about some pretty aggressive cost reduction plans and we're probably only -- probably only about a third of the way to where we will ultimately end of being in terms of cost savings relative to the Teccor business.

And just one other thing, Teccor is a case in point -- a fairly modest position in the Far East, in fact the one-- one person covering the area and one distributor.

And we -- it is going to take time.

But we certainly see leverage out of the kinds of people I related to in my little story -- plus broadening their lineup to our core distributors in the Far East.

One last one, and it's almost a related question, Howard.

You said you were excited about the electronics business.

Given your new marketing strategy, in the electronics end markets, do you think your gaining market share, either in the digital consumer or wire telecom or any of your primary end market segments?

Do you think there is a change share gain also going on there?

Yes.

No question about it.

Is that firm enough?

If that is far as you want to go.

Well, no, I will take it a little further.

In effect, when you talk about market share, hopefully we are doing, in our little way, no pun intended -- is to create a stronger niche which we're the primary supplier into.

I.e., there are people that we compete against that sell either fuses, or (indiscernible) or GETs or silicon-based protection devices.

But they don't sell all of them.

So what we're doing is hopefully -- we've indicated -- is our role is to become so valuable to these customers globally and serve them wherever they want to be served, and solve their problems -- that we're really going to be the No. 1 -- but the No. 1 in the new segment that we have defined.

Okay, thanks, good job again.

Jeff Rosenberg, William Blair & Co.

First of all, still -- what's the current utilization at Teccor?

Currently they're running about 74 percent, Jeff.

On the fab.

There is some back end also in that as well.

So, again, this business at one time did $160 million in revenue.

So the good news is there's capacity there yet to be filled.

Although that number we -- to get to that kind of a number again we would have to add capacity.

Right.

Given the pricing erosion, kind of what do you think you can get to there before -- and still can kind of enjoy the strong contribution margin from here to there?

Yeah.

I think that -- if we were to see volumes rise double digits for a couple more years, which we certainly hope and expect is going to be the case, we would have to certainly start thinking about some capacity additions.

Right.

You should start see -- you should continue to see good gross margin expansion?

Absolutely.

You know, Jeff, the kind of leverage you get on a fab and certainly we're -- we saw some of that in the fourth quarter and continue to see that.

Is there any incremental effect of having shutdowns semi term in Q4, now looking forward?

What kind of impacts does that have on overall gross margins?

Well, we haven't shutdown semi Tron (ph), but what we have done is we've started to move -- where they have crossover in their products, which is in the telecom silicon protection devices -- we have done the supply of those products to semi Tron customers out of Irving, as opposed to having them manufactured in Swindon.

We still do manufacture other silicon devices in Swindon, and we also manufacture GDTs there as well.

I'm sorry if I overstated that, but is there some gross margin impact though of the moves you've made?

Yes.

There is and there will continue to be, as we further evolve that plan.

Okay.

And in general, you're talking about the objective of 15 percent and if I sort of sketch out kind of where you're looking at entering '04 and Q1, I think 10, 10.5 percent is kind what I'm thinking you're starting out at.

What -- first of all, does that make sense to you?

Second of all, where do you -- what kind of progress do you think you can make during the course of the year towards your ultimate objective?

In terms of -- are you talking about operating margins?

Operating margins, yeah.

I mean it -- it remains to be seen.

I think we're in the base business now, with no charges.

And we are at over 11 as we talked about.

We are approaching 10 on the overall business, including Teccor.

We are going to take some charges throughout the year.

Not the kinds of charges that we took with Ireland with the $3 million, but we are going to take hundreds of thousands of dollars in a number of different chunks during the year as we restructure and consolidate some of these plans and move some of the products that we have planned.

But those are going to have cost savings attached to them too.

So I think we will make -- I'm not going to give you a number -- but we will continue to make progress towards that 15 percent number.

And while I think six months ago we thought that number was probably at least three years away -- it could be little bit closer now.

Okay.

Maybe to add to that, too.

All this depends on the sustainability of demand increases that we're seeing in the marketplace.

We -- all the right signs are there right now, borrowing some discontinuity.

So we were pleasantly surprised with strength late in the fourth quarter and even into the early part of this year, that has to be sustained going forward.

You know the other thing is as the more the telecom comes back -- and we're seeing some early signs -- it's certainly going to help us on that path that Phil described.

Okay, great, thank you.

Todd Peters, American century.

Three quick questions.

Given the last week in the quarter, where would be sales have come and if you didn't have that last (technical difficulty)

It's a good question.

I think that if you just take out a week's worth of sales, you get a number like 95 million for the quarter.

I think that's probably a little bit understated, just because we did -- in addition to the week, we also had extra holidays in the quarter, as we picked up New Year's holidays as well as Christmas and Thanksgiving.

So, it was -- there was an extra day, extra shipping days in the quarter.

But it wasn't a full week.

I would say it would be somewhere between those two numbers.

Somewhere between the 95 and 102 million.

Okay, well, I thought you said that things had kind of ramped up late in the quarter?

Or was everything pretty linear?

It was reasonably linear.

But normally we see things pretty strong up through Thanksgiving and maybe early December.

Then things kind of falloff and we really didn't see that this year.

So, relative to our expectations, probably the biggest difference was how strong things remained through December.

Okay.

On the balance sheet, do you have a number for your intangible assets with the acquisition of Teccor then?

It should be in the balance sheet that we released in the press release.

Okay, there you go. 33.5 -- okay, that's good.

And then last question -- your capital spending plans for '04?

Any change there?

We are going to see that ramp up for a couple of reasons.

One is, it's -- we're going to have a full year of Teccor which will add to that number.

Also we have -- we still had as we mentioned some significant cost reduction opportunities with the Tec core acquisition that we are going to be taking advantage of.

And a lot of those require some capital investment.

As well, we're expanding our Asian facilities -- particularly over in China.

We have already launched an expansion there so there some brick and mortar increases in Asia.

All told, we're probably going to be more in the range of 23 to 25 million, versus the 15 or so that we were at for this year.

Okay, I guess that was (indiscernible) more like 20 --

It's probably going to be a little over that.

That may not be -- that's probably not going to be the steady-state number, but we have a (indiscernible) of capital that we're -- not that we have to spend, but that has a nice return on it, that we've related to some of the Teccor activities.

We're also -- in addition to China -- adding to our Philippines site as well.

So just a couple of bricks and mortars issues.

But clearly, they're the right investments to make, in our opinion.

Alright.

Thank you very much.

Greg Halter, LJR Great Lakes review.

Question for you regarding your balance sheet.

You now have net debt of about $6 million, and I know in the past you have repurchased shares -- there is no dividend and you have made acquisitions.

Just wondered if you could comment -- as you continued to grow the cash share, what your plans are there?

Well, as Howard mentioned, we're -- we still have selective acquisitions on the radar screen and we think there are some interesting opportunities out there still to further consolidate and further enhance our leadership position in circuit protection.

So if we were to look at the list of priorities, that would still be number one.

Although, we're in the nice position now where, relative to acquisitions, we don't have to do any.

We've got really all of the technology and all the capabilities that we need to execute our strategy but -- so, it will be more opportunistic in terms of -- as things come up, that make sense -- that we can bring value too that could help us solidify our position.

We have the balance sheet to be able to take advantage of that.

So acquisitions would be number one.

And certainly, we have bought back stock in the past and we will continue to look at that opportunistically.

Although we don't have any -- we don't have any firm mandates or commitments to do that.

And then, as we've talked about in the past, at some point, we have discussed the possibility of a dividend.

So far, the decision has been made that's there are probably better returns and better uses for our cash than that.

That that's something we will continue to look at as well.

Let me add something to Phil's comments, so you don't feel that really we're only an acquirers as a major thrust (ph).

Certainly, 1A in terms of priorities, even ahead of the acquisitions, is always, always, always investing in our core businesses and our production process.

And, you know, we don't make a big deal of that, but we always want to be sure that the core products, a number of which are not as exotic as the new things we're adding, but are significant to cash contributors.

We're adding CapEx in terms of workcells, not only in our electronics business but our automotive business as well.

So, we always want to do that -- be sure our bricks and mortar are in the right location -- our factories.

And then we begin to look at acquisitions, as Phil noted.

Okay, great.

Secondly, your other income line for the quarter and the year -- much difference year-over-year.

Can you comment there?

Off the top of my head -- I mean it's -- you're talking about it's less than $0.5 million for the quarter, but it is -- it was an income number in the prior year.

There are a number of different things that flow through that, including gains and losses on asset sales and those kind of things and I know that accounts for a piece of it.

But I don't have a whole reconciliation in front of me, Greg, but I can get back to you on that.

And Howard, I did read with interest the January 28 Wall Street Journal on the Blackberry.

Did you say you're not presently supplying any kind of products to those?

Well, we were not before, but we're talking to them now.

They have some protection in the charger that the Blackberry is docked into.

But they don't currently, to my knowledge, have any protection on the product.

And we have certainly some solutions we will be talking about -- either diodes or LMBs or our internally developed DSD chips.

That literally could have solved the problem for them.

And again, revenue to loss might be anywhere -- depending on their choice of the solutions we provide -- anywhere from 5, 10 cents up to 60 cents per unit.

So, (indiscernible) I mean, I'm surprised in a sense, but pleasantly surprised this made the section via the Wall Street Journal.

But I think it indicates the problems you can get into with a high-profile product, and in this case, the simple thing, or the thing of I've talked about over years -- that the walking across the rug in wintertime and what a little spark can do to you.

And certainly we will be talking to Blackberry not just about this situation -- they are made by Canadian manufacturer, by the way.

But rather about their other products they have on the drawing board.

Okay.

And one other question, following up on the capacity question earlier on the Teccor -- can you layout where you are in terms of utilization in the other businesses, and if that's an issue at all?

Yeah.

Let me just address that -- we've mentioned Teccor at 74 percent roughly -- this is on a five-day basis for general talking purposes.

Our other electronic products are roughly 80 percent capacity utilization -- by the way, that's up from 68 percent that we mentioned last quarter.

And again, that's an average.

There are a couple of categories -- there is really -- not really any capacity, really major issue at Teccor at present.

There were one or two lines that were a bit tight in the fuse line which we're addressing.

Again these are good news issues -- sometimes we get surprised that we've got a capable operating team that will go and do multishifts and weekends, and then will add some more CapEx that will make it somewhat easier.

On the automotive side -- I think we're expecting the business to tailoff late in the year -- probably the reason for the cash flow (indiscernible) is we saw for the reason (indiscernible) I mentioned. (indiscernible) was reasonably strong at the end of the year and into early this year.

So we are continuing -- right now we're running our car parts at in the 90 percent kind of range, we're actually operating seven days in some cases.

So we're a bit stretched there, but we expect a little of that to subside as we get a little more into the year.

And in our electrical side, we are probably running at 60, 70 percent -- 60 percentish might be a good guess.

With no capacity problems.

Okay.

And my final question is -- I know that GM made some sort of change in how they're paying their suppliers.

Does that have any impact on any of your business?

I don't believe we've seen any change there.

In fact -- we don't supply GM directly very much.

It's mostly through tier ones, which -- so if they have made changes to our customers -- to our customers that has not resulted in any change to us to my knowledge.

Okay, great.

In fact our days outstanding are really--

Now we (multiple speakers)

Very good level (indiscernible).

Maybe not sustainable but very good level.

Well, we're at about an hour now.

Maybe just take one more question, then leave it up to anybody who wants to bring back to talk to Phil or myself.

David Callas (ph), Siegel Bryant and Hamal (ph).

Just looking through the numbers and given that you've done 11 percent operating margins for the last two quarters, I was just trying to understand why you would be hesitant to commit to something like 11 percent?

It seems like that's pretty easy for '04.

Am I reading something wrong?

Or how are you looking at?

I wasn't hesitant to commit to 11 percent, I was just hesitant to give you any number at all.

Okay.

Yeah.

I don't -- I think we've clearly committed to further improvements from where we are today, and we feel very confident that we can accomplish that. (multiple speakers) specific number out at this point.

Okay.

Fair enough.

And then -- how much of your business is telecom right now?

Or do you think it's going to be in '04 -- the way you break things out?

I believe if we look of our electronics business, I think it's about -- with Teccor, it's like 25 or 30 percent of our overall business.

It's a -- it's probably more like 15 to 18 percent.

Okay.

And then, the guidance you gave for the electronics market, if I that understand correctly, it was high single digits, but that does not include Teccor, what you think should be growing around 15 percent.

Is that correct?

The way I understood that?

I think the Teccor business -- the 15 percent was kind of our target.

I think the market probably is not growing quite at rate.

But we're seeing some opportunities through some of the synergies that we can bring to the table, to grow that a little bit over the market rate.

So, -- with where telecom is in recovery, maybe (multiple speakers) that market maybe even be a little bit higher than the higher single digits, but it is probably not at 15 percent.

But we still think we can grow our revenue 15 percent.

Right.

But the core electronics business is what you believe is going to be growing in the high single digits?

Right.

Yep.

And do you -- is there any sense that the telecom recovery, from what you can see, is sustainable versus a budget flush in the fourth quarter?

Can I get any input from anyone on that?

We haven't really seen any signs that it was a budget flush.

I think that, generally, we did see -- I think as Howard mentioned -- there were some -- the distributors were strong orders of product in -- late in the year, and they have probably topped up their inventories a little bit in anticipation of a good '04.

So we can see a little bit of a pause there as they are probably not -- it's probably not going to add a lot more to their inventories.

But I don't think that relates specifically to telecom.

Okay, thank you.

And that is all the time we have for questions.

I will turn the conference back to you for any additional or closing remarks.

We really have none.

We want to thank you all our being on the phone and for owning our stock.

Thank you very much.

And that does conclude today's conference call on behalf of Littelfuse Inc. and from your conferencing, thank you for your participation, and have a wonderful day.

You may now disconnect.