Littelfuse Inc (LFUS) 2011 Q1 法說會逐字稿

Good day, everyone, and welcome to the Littelfuse, Incorporated, first-quarter 2011 conference call.

Today's call is being recorded.

At this time, I will turn the call over to the Chairman, President, Chief Executive Officer, Mr.

Gordon Hunter.

Please go ahead, sir.

Thank you, and good morning.

Welcome to the Littelfuse first-quarter 2011 conference call.

And joining me today is Phil Franklin, our Vice President of Operations Support and Chief Financial Officer.

As you saw in the news release, this is another strong quarter for Littelfuse.

Our results came in as we anticipated in our April 13th guidance.

Sales of $167.2 million were an all-time quarterly record.

We saw continuing demand for our products across all geographies and end markets.

The automotive business was especially strong, achieving a record quarter even without the Cole Hersee acquisition.

Our strong financial performance is due in large part to our improved manufacturing footprint.

Investments we made in consolidating manufacturing into six strategically located, well-equipped manufacturing facilities are now paying off.

We're operating at higher levels of efficiency, achieving higher yields and throughput.

Our capacity is in place in the right locations and is ramping up to accommodate the expected growth in our key markets.

We also continue to benefit from new products and design wins which I'll describe in more detail in a few minutes.

But first, I'll turn the call over to Phil who will give the Safe Harbor statement and a brief summary of the news release.

Thanks, Gordon.

And good morning, everyone.

Before we proceed, let me remind everyone that comments made during this call include forward-looking statements based on the environment as we currently see it, and as such, do include various risks and uncertainties.

Please refer to our press release and SEC filings for more information on the specific risk factors that may cause actual results to differ materially from those expressed in forward-looking statements.

Sales for the first quarter of 2011 were $167.2 million, which was up 16% year over year due to strong growth in the automotive and electrical businesses and the addition of Cole Hersee.

GAAP earnings for the first quarter were $0.96 per diluted share, which included a $3.7 million non-cash purchase accounting charge related to Cole Hersee.

Excluding this charge, diluted earnings were $1.08 per share compared to $0.69 in the prior year.

This strong earnings improvement resulted primarily from higher sales, our improved cost structure and accretion from the Cole Hersee acquisition.

Cash provided by operating activities was $13.7 million for the first quarter of 2011, compared to $6.9 million for the prior year.

Typically, the first quarter is our weakest quarter for cash flow due to the seasonal ramp up in sales and working capital and the annual payout for prior year incentive compensation.

We expect cash flow to improve significantly over the next few quarters.

The book-to-bill ratio for electronics was 1.13 for the first quarter, indicating typical seasonal strength as we move into the second quarter.

Now I will turn it back to Gordon for some color on market trends and business performance.

Thanks, Phil.

Now let's move on to the review of our three business units, starting with electronics.

Electronics sales were $87.4 million for the first quarter, up 4% from the first quarter of 2010 and a slight increase from the fourth quarter of last year.

Strong sales of semiconductor products were driven by gains across the portfolio in end markets ranging from consumer electronic products to data command telecom applications and also industrial products.

This positive momentum in the semiconductor business helped to offset some inventory reduction in the distribution channels, particularly in January and February.

The good news is that we saw robust order rates in March as distributors began restocking for the second quarter.

And inventory levels appear to now be in line with market needs.

First-quarter electronics sales were also affected slightly by the earthquake in Japan and its aftermath.

While there's no direct damage or impact to our Yokohama-based operations or associates, there is some ongoing impact related to lower production by some of our Japanese customers.

This reduced our electronics sales by about $1 million in the first quarter.

And the impact is expected to increase to approximately $2 million for each of the next few quarters.

We're also evaluating potential indirect effects on our supply chain from shortages of Japan components.

But at this point, there are no known situations that would have a material impact on our financial results.

Given the strong performance of our semiconductor business, I'd like to provide a little more color on these products and the progress we are making in building this business from a very small base just a few years ago to a much larger contributor today.

A major driver behind our strong semiconductor sales is the success of our TVS diodes.

Littelfuse has the broadest offering of TVS diodes in the market.

These devices protect against voltage surges in applications ranging from low-power consumer electronics and computers to high-power communications infrastructure applications.

White goods, industrial and high-reliability applications also require these semiconductor products.

TVS diodes quickly and reliably suppress voltage spikes resulting from near lightning spikes or inductive loads that can damage electronic circuits.

Customers count on Littelfuse for TVS diode protection and application expertise, high-quality products and competitive delivery schedules.

One of the largest TVS diode wins continues to be the position we have with a large market-leading LCD TV manufacturer.

On a previous call, I mentioned that we expected to double or annual sales to this customer from $1 million to $2 million.

This increase has started to kick in and is making a solid contribution to our revenues.

Last quarter, I referenced the TVS diode wins to provide high-power overvoltage protection for data communications infrastructure, specifically cell phone towers.

These wins are now also ramping up, with anticipated additional revenue contributions trending towards $1 million.

We're very pleased with this fast-paced volume growth and are optimistic about the continued growth of the TVS diode product line.

Critical to achieving this growth is the partnership with our distribution channels.

By working with and through our world class distribution partners around the world, we are extending our reach to serve the many thousands of diverse end customers that require TVS diodes and are also increasing awareness of our outstanding product offering.

We continue to work through the consolidation of our TVS wafer fab operations into our new facility in Wuxi, China.

This project is extended beyond the original schedule due to the combination of an extraordinary rampup in volume from the large new business wins and the lead times we are experiencing in obtaining new wafer fab equipment.

We expect to complete the project over the next several quarters.

Moving on to applications, both our semiconductor and electronic fuse lines are benefiting from the fast-paced growth of tablet computers and e-readers.

We have opportunities to design in our overcurrent and overvoltage protection products on a number of applications within each product.

Both the tablets and e-readers require overcurrent circuit protection in the power supplies and protection for batteries to ensure safe operation of the application in the event of a battery discharge as well as ESD protection for various ports and buttons to ensure reliable and continuous operation of the device.

Littelfuse products are typically used in one or two of these applications, creating the potential to expand our position into the remaining protection applications where we don't already have a presence.

We are working with the leading companies in the industry in both of these product areas.

In the tablet computer market, Littelfuse products are providing protection for the Apple iPad, the Research in Motion PlayBook, the Samsung Galaxy and others.

In the e-reader space, last year, we built a position for ESD protection on the leading e-reader in the market.

Our flawless delivery execution and customer support during the market upturn earned us greater penetration on models going forward.

And we expect to increase sales to this customer by approximately $1 million this year.

We've already begun to receive this higher level of orders which should lead to sequential growth over the next two quarters.

In the tablet space, we are well positioned on the Apple IPad.

Our cartridge fuses are used to protect the battery charger, and our thin-film fuses are protecting the power module inside the tablet that controls the power to the screen.

While volumes for some of these tablet computer and e-reader applications start small, we have been focused on design wins that enable us to grow along with the consumer adoption of these products.

Today, we have approximately eight wins that we believe will generate about $6.5 million in sales in 2011.

And with more companies entering the market for these popular products, we will have even more opportunities to pursue new business and further expand our position.

On the fuse side of the electronic business, we recently won two new business opportunities in the notebook computer market with Lenovo.

This win is for our small-footprint nano fuse which was specifically developed to provide overcurrent protection for this type of space-constrained application.

We expect to ramp up the Lenovo production over the next few quarters and are now working to replicate this success with other notebook manufacturers in Taiwan.

Our recent wins in the fuse business offer a broad range of products, including the new LG notebook computer and some LED light bulbs, telecom applications and vacuum cleaners.

In summary, we will continue to watch inventory levels in the channel.

But end customer sales trends remain healthy.

While we face more difficult year-over-year comparisons in 2011, shipment and order rates ended the first quarter stronger than they started.

Based on the restocking in our distribution channels, momentum on design wins and the first-quarter book-to-bill of 1.13, we're optimistic about sequential growth into the second quarter.

That brings us to our second business unit, automotive.

First-quarter automotive sales of $40.9 million were up 11% year over year and up 23% from the fourth quarter of [2011].

These numbers do not include sales from Cole Hersee, a major supply of switch and control devices to the heavy duty vehicle market that we acquired in December.

Cole Hersee contributed an additional $13 million to first-quarter automotive sales, which is usually the seasonally strongest quarter for these products.

Looking at sales by region, European car production was up 15% from the fourth quarter.

And our sales in Europe were up 21%.

One of the reasons for our strong performance is related to the high export volumes by German car manufacturers, especially to Asia and North America.

[Bilgers] has a very high content of both high- and low-current fuses in most of these cars.

In North America, car production increased more than 12% from the fourth quarter.

And our sales were up almost 42%.

We've seen very strong stock fill for our new aftermarket customer, O'Reilly Auto Parts.

We highlighted this new contract in our call last quarter, and we now have 3,400 O'Reilly stores carrying Littelfuse products.

In China, while car production was down about 4% in the first quarter from the fourth quarter of last year, our sales were up about 12%.

The increases were driven by new business awards as well as stock fill of our major Tier 1s.

Going forward, we expect to continue to see substantial growth in China.

However, the growth forecast for car production for the full year 2011 has been reduced to about 6%.

This is due to the reductions in the government incentive program combined with a higher rate of inflation and increasing interest rates.

Sales of our high-current fuse products, including MasterFuse and our other standard high-current fuses, were strong in the first quarter.

This continues to be a growing application segment for Littelfuse as the big three North American OEMs continue to move to global architectures for most of their new platforms.

The desire for higher crash protection is also providing opportunities for our high-current fuses as the new car platforms will be equipped with pre-fuse boxes.

These boxes require additional space in the engine compartment which provides opportunities for our newest miniaturized fuses.

Moving to design wins and new business awards, we won a position for our MasterFuse on the new Volkswagen MQB platform with two major tier one suppliers in Europe.

This platform is one of the biggest car platforms globally, with more than 2 million cars produced each year.

This platform starts in 2012 with the Audi A3.

In North America, we won the high-current fuse content for the new global Ford CD4 platform which will produce about 800,000 vehicles per year in peak.

The Ford CD4 platform will also include our new miniaturized low-current fuses, the MICRO2 and MICRO3, which we developed jointly with OEMs in response to the need for additional space-saving components.

Asia remains a targeted focus area for us as the market continues to grow and evolve to higher levels of circuit protection.

Last quarter, we announced the acquisition of Cole Hersee, a major supplier of electromechanical and electronic switch and control devices for the heavy-duty vehicle market.

There are many synergies between the two companies in the area of products, customers and sales channels.

And we've begun working to leverage these into future growth opportunities.

In the second quarter, we anticipate that automotive sales will be slightly lower than the first quarter but higher than the second quarter of 2010.

OEM inventory replenishment won't be as high in the first quarter, and the initial stocking of the inventory for the O'Reilly contract has now been completed.

For the full year 2011, J.D.

Power is reporting global car production of about 5.5%.

With our existing programs and the new product launches we've initiated, we expect that our automotive business unit will continue to outperform the market in 2011.

And that brings us to the electrical business units where the overall results continue to be very strong.

First-quarter sales of $25.9 million increased 12% from the first quarter of 2010.

The continued growth in protection relays and custom mining products as well as further recovery in the industrial fuse market were the major contributors to the improvement.

Sales for the base fuse business were up 1% over the same quarter last year.

The continued improvement in overall industrial activity was offset in large part by a slower revenue quarter for our solar business.

Sales from both our industrial OEM customers and MRO distributors increased during the quarter.

Some of the volume in distributor sales came in March in anticipation of a price increase that went into effect April 1st.

In addition, we saw some increased sales from Asia as part of our efforts to grow our electrical sales outside of North America.

And we continue to benefit from several major distributor conversions that took place over the last 18 months.

Although our solar business was affected by inverter overproduction and high inventory levels in the channel in the latter part of 2010, we set the stage for continued growth in this market with the launch of the world's broadest line of 1,000-volt photovoltaic spring fuses used in solar panels.

These new products offer superior energy efficiency and low heat generation, and it's available in a wide range of amperages and has received the appropriate regulatory agency approvals.

The new string fuse product line got off to a great start with three excellent design wins with inverter and combiner box manufacturers in Europe, Asia and North America.

We expect these new wins will add about $1 million in incremental sales over the next 12 months.

In addition to continued success in the solar market, we also -- we are also winning new business to protect the next generation of data center and telecom base station power supplies.

These applications are transitioning from low-voltage to high-voltage direct current in order to achieve higher efficiency.

And as a result, they require more advanced circuit protection, which is a good fit for our product offering.

Sales of these products contributed to revenues this quarter, and we expect continued increases throughout the year.

Another recent win was a large manufacturer of HVAC equipment for our snap fuse holder.

This win is part of the customer's lean manufacturing initiative as our product saves time during assembly.

So looking ahead, we see our electrical fuse growth in 2011 primarily driven by the industrial MRO segment and our focused efforts in the solar market, which is one of the Littelfuse targeted growth areas.

Commercial construction continues to struggle, but we're beginning to see some light at the end of the tunnel with improvement expected to begin as we get into the last quarter of this year.

Commodity prices will continue to be a challenge.

Prices for copper and silver used in our fuse products remain extremely high compared to this time last year.

And as I mentioned, we increased prices on April 1st, but pricing pressures also remain high.

We will continue to monitor the situation very closely and evaluate next steps as the year progresses.

The other side of our electrical business unit is protection relays and custom products.

Our protection relays protect personnel and equipment by detecting hazardous electrical conditions before damage occurs.

The market for these products remained robust in the first quarter, with sales up 41% over the first quarter of last year.

The core markets for our protection relays include mining for gold, potash, copper, coal and nickel along with the oil and gas semiconductor manufacturing equipment and general industrial markets.

All of these markets are growing and contributing to our strong performance.

Overall, the continued demand for both precious and nonprecious metals is generating higher sales of protection relays in the core North American markets as well as globally.

Gold prices are at record levels, and extraction operations have resumed at mines that were previously inactive.

This activity is driving sales of our protection relays for both retrofit and new equipment installations.

Our relay sales into the semiconductor manufacturing equipment industry also continue to increase, and improved sequentially over the fourth quarter of last year.

The investments we made last year and in the first quarter in expanding our global protection relay sales force are starting to generate positive return.

During the first quarter, we landed new relay business with mines in China, in Mongolia, Africa, Australia and South America.

We're seeing a global concern over mine safety, particularly in emerging markets, which is a positive trend for our business.

In the second quarter, we expect to see more sales out of Chile, Ecuador, Peru and Brazil.

While the mining industry continues to be a significant part of our growth, we're also actively working on new business opportunities in the petrochemical, industrial manufacturing, food processing and municipal waste water treatment markets.

We're anticipating some significant wins from these markets later this year.

Our custom products business located in Saskatoon, Canada, continues to remain strong.

And as we've discussed on prior calls, increased sales of our portable power distribution centers are being driven primarily by the growth of the mining industry in Canada.

As mentioned last quarter, we plan to expand our production facilities in Saskatoon.

And those plans are now moving forward at full speed.

In summary, both areas of our electrical business, the base fuse business and our protection relay and custom products for the mining industry, are performing well.

We're making good progress on our strategies to expand our presence in the global mining industry and the solar market, and we look forward to continued growth from our electrical business in 2011.

So as you can see, Littelfuse is off to a great start in 2011.

First-quarter sales increased across all businesses and all geographies.

We introduced new products and continue to win new business in targeted markets, including the latest consumer electronics products, major new global automotive platforms, solar products and mining.

The impact from the earthquake in Japan is minimal in terms of our overall sales in global operations.

However, we will continue to monitor this situation carefully.

We are cautious about commodity costs and are watching copper, silver, oil and other materials very, very closely.

We anticipate that the second quarter will again be one of increased sales and earnings as we continue to benefit from our more efficient operating structure, new products and new business.

This is an exciting time for Littelfuse as we continue to build on our well-established reputation as the industry leader with the broadest and deepest circuit protection portfolio in the world.

I will now turn the call back to Phil who will provide the outlook for the second quarter, and then we'll open the call for questions.

Thanks, Gordon.

The following is our guidance for the second quarter.

Sales for the second quarter of 2011 are expected to be in the range of $173 million to $183 million which represents 10% to 16% growth over the prior year.

Including in this is expected Cole Hersee sales of approximately $12 million.

Earnings for the second quarter of 2011 are expected to be in the range of $1.10 to $1.25 per diluted share.

Even though we spent less than $5 million on capital in the first quarter, spending is expected to increase over the next several quarters as we introduce new products and add incremental capacity to certain lines.

Capital spending for the year is expected to be approximately $28 million to $30 million.

This concludes our prepared remarks.

Now we'd like to open it up for questions.

Thank you.

(Operator Instructions) And our first question comes from the line of Peter Lisnic, representing Robert W.

Baird.

Please proceed.

This is actually Josh Chan filling in for Pete.

On the gross margin line, I think you had talked about that being relatively flat this year based on the commodity inflation, but then you put up a pretty healthy growth if you back out the purchase accounting.

So does that thinking on gross margin change?

And how does it look for the balance of the year?

We were a little bit cautious on gross margin, primarily related to some of the cost pressures that -- many of which Gordon referred to in his comments.

So commodity prices obviously have been a headwind for us and most other companies.

China cost pressures, labor costs particularly have been a headwind as well.

In the first quarter, we were able to largely offset those with very good manufacturing performance, which there is no reason to expect that not to continue.

So we think we'll continue to be able to achieve maybe somewhat better margins than we had thought going into the year, barring further spikes in some of these costs.

And at the moment, it looks like commodities are -- at least for the time being, are moderating some.

And we've also benefited to some extent from the dollar being weak against some currencies that we have significant revenues in, particularly the euro.

So the strong euro has been a benefit to us, and it looks like that will continue at least through the second quarter.

So on balance, I think that we continue to face some headwinds.

But with the performance that we've had and expect to continue to have, there's no reason to believe that margins -- that the margin improvement that we showed in Q1 shouldn't be sustainable for at least the next several quarters.

And then going back to the pre-announcement, could you go through some of the pluses and minuses relative to the original forecast?

I know it was automotive, but a little more color on that would be helpful.

Thanks.

We looked at -- I think the question was relative to our original guidance that we gave coming into the quarter; why did we see the top line better?

Actually, all businesses performed at least as well if not somewhat better than what we had originally expected going into the quarter.

Automotive, as we indicated, was the biggest contributor to that.

But really, every business was at or above expectations.

And then just a final question.

I guess the lack of comment on your previous full-year guidance, how should we interpret that?

Typically, we don't -- we don't typically update -- we give at least some broad guidance oftentimes going into the year just to give people a sense of what we're thinking going into the year.

As a practice, we don't tend to update that during the year, so I wouldn't interpret that as anything other than we don't typically do updates.

I think it's -- if you look at how we performed in the first quarter and what we're guiding towards in the second quarter, certainly, that would imply that we're running ahead of that guidance.

And barring any economic issues that we don't see at the current time, there's no reason to expect that we wouldn't continue to run ahead of that guidance for the back half of the year.

Okay.

Thanks for your time.

No problem.

And our next question comes from the line of Shawn Harrison representing Longbow Research.

Please proceed.

Good morning, everyone, and congrats on the quarter.

I wanted to follow up a little bit on just the automotive commentary, if you could remind us of your geographic mix, and then maybe to an extent just some of the -- if you saw any kind of accelerated buying exiting the quarter just related to Japan uncertainty.

Like you saw some with O'Reilly and maybe a little bit in Japan, but just general market prebuying as well.

Well, the O'Reilly thing was really the complete stocking of all of their branches which we had talked about a quarter ago.

And that went full speed ahead and was ahead of what we had expected in volumes.

And so that was a good upside, not -- certainly not connected anything to Japan, I don't think.

We haven't really seen a major impact in Japan.

We don't do very much sales in Japan.

It's our strongest competitors' homeland, and they have a very strong position there.

So our sales in Japan are relatively small.

We do have some platforms with Japanese manufacturers in other parts of the world and work through some of the Japanese Tier 1s, but has not been a major impact for us.

You could speculate that, as was in the Wall Street Journal yesterday, the growth in the sales in April were quite spectacular for GM and Ford and even Chrysler, and very small for Toyota, I think only 1%, when GM was growing at 27% year over year.

So you can see that market shares of vehicles are maybe changing.

And if that continues, and Toyota continues to lose share, that could be beneficial for us.

But we're not really trying to think that through in terms of how long that would last.

But the impact on us has been very small because most of our programs are with companies that don't really have a connection directly to anything coming from Japan.

And just the geographic mix of --

Geographic mix is -- it's about -- we're about approaching 45% of revenues into Europe, which is our biggest region.

I think just under 25%, now going into Asia and about 30% to 35% in the US or North America.

And the Asia, is that half Korea, half China?

That's reasonably close, and there's some other minor geographies there as well, but it's mostly those two countries.

Okay.

Then I wanted to follow up on just the strong incremental gross margins this quarter.

They're almost 60%.

I can understand strong overhead absorption.

But maybe if you could talk about if there was a mixed benefit this quarter, what the margins were like at Cole Hersee versus expectations going into the quarter as well, maybe just some other factors beyond just good cost leverage with the volume growth.

You can't just look at the sequential change from Q4.

You have to kind of go back and look at Q3 as well where we had a very strong margin, in fact being slightly stronger than we had in Q1.

So I would look at Q4 as being a little bit of an anomaly, where we had a pretty sharp dropoff particularly in our electronic sales because of the inventory situation that we've talked fairly extensively about.

Also, we had the normal seasonal dropoff in some other parts of our business as well.

And generally, that fourth quarter is a challenging quarter for sales and margin as well.

So I think you have to look at some of it as just getting back to a little bit more of a normal quarter.

But we did -- we also did talk about -- I mentioned earlier, and we also mentioned in the press release, we continue to make forward progress in our manufacturing productivity and efficiency and yields.

A lot of these new factories, we've still fairly recently ramped up and are still making improvements there, and we would expect those types of improvements to continue.

So I don't think there was anything anomalous about the first quarter.

I think it's probably better to look at the fourth quarter as being a little bit more of an anomaly.

Okay.

Just the Cole Hersee accretion, has any -- has that changed for the year, the expectation?

I think we had originally said that it was going to be modestly accretive, maybe a couple cents a quarter.

It was a little bit more than that in the first quarter.

But also, I'd note that the first quarter we had an unusually strong sales quarter, at least seasonally strong sales quarter.

Q1 was right around $13 million in sales.

It would be a mistake to annualize that number because we think that could well be the best sales quarter of the year, just based on how seasonality works in that business.

But I think it's safe to say that there's a reasonable chance we would exceed that fairly conservative $0.02-a-quarter forecast in terms of Cole Hersee accretion for the year.

And our next question comes from the line of John Franzreb representing Sidoti & Company.

Please proceed.

Gordon, as always, that's an awful lot of information to digest.

Actually, one of the things I want to get narrowed down a little bit here is some of the puts and takes on the revenue side here.

You said about $1 million was impacted from Japan in the quarter, and you expect that $2 million of impact in the second quarter.

And the book-to-bill, the [tracks] is $1.13 million.

If I do some quick back-of-the-envelope math here, that kind of suggests about a 2% year-over-year growth in electronics in the second quarter.

Am I right with that math, or is --?

I would have expected a little bit higher number concerning some of the design wins you had talked about.

I don't think we -- John, I don't think we gave a second-quarter growth number for electronics.

I think you're trying to back into a number.

I would expect that it would probably be a little bit higher than a couple percent.

Typically, we see -- normal seasonal pattern in electronics would be probably more like about a 5% sequential tick up from Q1 to Q2.

Okay.

I was just making sure.

You're right, though.

I was actually trying to back into that.

We're certainly -- in electronics, we're -- I think you were talking -- I'm sorry.

You were talking year over year, right?

Right.

Correct.

Yes.

So year over year, it's going to be single-digit growth year over year, but I would guess maybe a little bit more in the couple percent.

And how much was the original stocking of O'Reilly?

How much of a benefit was that for the automotive side in the quarter, in the first quarter?

Not knowing exactly what our ongoing rate is going to be for O'Reilly, it's a little hard to say.

But I would guess that we probably got at least $1.5 million of extra sales in Q1 as a result of the restocking.

Okay.

So the initial stocking -- go ahead.

I'm sorry.

Yes, the initial stocking, right.

And so clearly, that number will not continue at that rate.

Into the second quarter.

Yes.

All right.

And another thing you mentioned on the sales side was what you called a pull forward in the electrical side of the business.

I didn't quite catch all of that.

You mentioned the price increase and that there might have been some sales pulled forward.

How much was that?

Or could you just provide some color there?

It's difficult to estimate.

We just always have a pattern when we announce a price increase, and we tell that ahead of time.

There's usually a little bit of extra buying that happens at that time.

So we always take that into account that there's going to be some stocking by the distribution channels of standard products before the price goes up.

And so it's difficult to estimate that.

I don't think it's a huge amount, but I think it's significant that we mention it that we do have that price increase that's gone into place.

And one last question.

Gordon, for the past at least a year or so now, you've kind of not had to manage the traditional price givebacks that have been more prevalent in the electronics segment than any other.

With commodity prices rising, are you seeing any pushback on pricing at all on the electronics side of the business?

Not yet.

I think that I'd say last year was characterized for the whole industry really as a less aggressive pricing environment.

There were still expectations of price reductions.

That's the norm in the electronics industry.

It wasn't as aggressive.

And that's really because a lot of end customers were more worried about delivery and availability of product and not being on allocation.

And that is not a strong a position to be negotiating prices on.

But we still saw price erosion.

That is the norm.

And so far, we're not really expecting it's going to be terribly different this year.

I think that if the industry goes into a downturn, that usually does indicate that everyone is tightening their belts and negotiating tougher.

But we're not really seeing that at the moment, so I think we're looking at this year being similar.

Okay, great.

Thanks a lot.

Thank you.

(Operator Instructions) And our next question comes from the line of Anthony Kure representing KeyBanc.

Please proceed.

Just a couple things.

I just wanted to hit on solar.

You mentioned that a little bit of a sequential downturn in the first quarter, which I think you've talked about in the past.

But I'm just trying to gauge the expectation as far as the length of that downturn.

Is that a 2011 event, where it rebounds in '12, or does that come back later in 2011?

Certainly 2011.

I think this is -- there's several reports out in the public domain about sales of solar inverters.

It's been a very high-growth market.

And it was growing tremendously through last year.

And then it became clear that there was an excess of solar inverters in the channel, and the solar inverter market took a breather at the second half of last year.

And I think that's fairly well documented.

But the expectation is that in the second half of this year, we're going to see that picking up.

So there's a strong feeling that that's a few months or a couple of quarters of delay.

And certainly, all of our predictions for the world of solar are for it to get back on track as being a high-growth market again in the second half of this year.

Even with the soft first quarter that was down significantly year over year, we're still expecting full-year growth in 2011 versus 2010.

It just won't be as strong as it was in 2010 because of the slow start.

That's helpful.

And then as far as visibility across the three main segments, can you just sort of remind us or compare and contrast how the visibility for your business historically has -- how that's worked for you?

That's a good question.

In automotive, generally, [pride] of the downturn that happened at the end of 2008, we generally said that it's fairly predictable.

We can usually see the platforms that we win designs on.

And there's usually estimates for the number of vehicles that will be built from those platforms as we talked about the Ford platform and the Audi platform earlier.

So usually there's a good level of predictability over the next several quarters, if not a couple of years in our automotive business.

So fairly healthy, I think, really, unless there's a major economic crisis that backs up sales and therefore backs up production.

But we feel pretty comfortable with the automotive predictions.

Half of our electrical business that's now focused onto the mining and industrial infrastructure I think has pretty good outlook too.

Those mining programs that we are getting a lot of success with, these are long-term capital projects that are planned for many years and multibillion dollar investments in mines.

So we have a very good outlook on that business.

The downturn in commercial construction that happened very quickly with the economic downturn, we obviously didn't see that coming, and it's taking a long time to recover.

But I would say that in general, the electrical business outlook is fairly steady.

The one that's the most challenging is the electronics industry, which tends to be more fickle, and we see more swings in that business.

And I think the outlook over the next few quarters, while I think people are looking for a steady, moderate growth year, after last year's rapid growth, it's more difficult to have the outlook in there.

The success of certain new platforms, whether it's consumer electronics products that get launched, we're obviously seeing a lot of interest around tablet computers and eBook readers.

And that's a major focus area for us.

Set-top boxes continues to be a robust market segment for us.

And although the TV flat screen dramatic growth is not as high as it used to be, it's still a very healthy segment for us.

But as a lot of that is determined by consumer taste, it's more difficult to predict that.

That was really helpful.

And then just looking back on prior years, I'm just trying to make sure that my math is right, or the historical numbers I have in place are right.

If I just look back maybe 2002 to 2007, second-half revenues versus first half are usually up anywhere from 3% to 5%, call it 4% on average.

So I guess what I'm hearing in your prior commentary is, really, there is nothing that you're seeing right now in your order book and your visibility out that would take away that sort of historical record.

Is that correct?

That's true.

I think that's right, Tony.

Normally, we would see continued sequential growth through Q3, and then we'd see the normal dropoff in Q4.

And there's nothing to suggest this year that we -- that that seasonal pattern would be any different.

And our next question comes from the line of Alek Gasiel representing Barrington Research.

Please proceed.

Good quarter.

Most of my questions were asked.

Just a couple little things, though.

I guess it's realistic to say that operating margins for the balance of the year, or for the year, will be in the range of 20% on average.

Is that realistic?

It obviously depends on a lot of things.

I made the comment earlier, Alek, that there's no reason to believe that the margins that we achieved in the first quarter were an anomaly in any way.

So I think you can take from that that something in that range would certainly not be unreasonable.

You mentioned the base electrical business, that you had some sales in Asia.

I know it's mostly in North America.

Is that something that you can go in and try to expand other regions, or is this just a test?

Or wondering if you can comment on that.

We typically have had a real North America focus.

And part of the reason for that has been that the product portfolio that we have really fit the North America electrical standards and didn't really fit to the electrical network and architectures and standards that are used particularly in Europe and most of Asia.

However, as we've sort of focused on OEM equipment -- and so, for example, if you think about air conditioning units that are made by Korean manufacturers, that inside -- which are exported -- inside those pieces of what we call OEM equipment, there are opportunities for us; so not inside of building in Korea, but inside a piece of equipment that's made by a Korean manufacturer that then exports those air conditioning units around the world.

So it's a question of us developing the sales capability and the technical support to call on those accounts that make OEM equipment specifically around the world.

And that's what we're doing as we build up our global presence.

Certainly, the solar business is a much more global business as well.

Exactly.

All right.

I apologize on this question.

You might have already talked about this.

But on the Cole Hersee acquisition, just how the integration is going, and should we expect to see any restructuring items or anything like that?

The integration is going right on plan so far.

We're pleased with it.

We think that the synergies that we saw when we acquired the business still seem to be intact, and we expect to start to see some benefits from those as we progress out over the outgoing quarters, not expecting any significant restructuring in that business.

It's pretty well, for the most part, structured the way it needs to be.

We just -- the leverage there is really on the -- leveraging the sales together with the Littelfuse products and Cole Hersee channels and some of the global platforms that we have that Cole Hersee did.

And we still believe in those sales synergies and are looking forward to attaining them.

And the Cole Hersee Company had actually gone through some restructuring prior to us buying them.

And they had moved their manufacturing from Boston to a town called Muzquiz in Mexico, which is not very far, ironically and fortunately, from our own very large facility that we've invested in a lot in Piedras Negras, Mexico.

And so although they're two separate sites, they're very close, and we have a lot of synergies between our manufacturing capability.

We've been in Piedras Negras for over 25 years.

They have just recently moved into that facility.

And so there's no plans to change anything there.

But it is very convenient that it's a short drive between those two facilities in the same area of Mexico.

So really, they have done a lot of the heavy lifting of restructuring.

And as Phil said, it's really about us leveraging the products, the channels, the global presence and putting together our own business that we had in the automotive offroad, truck and bus segment and combining it with the product offering they have, and particularly the penetration they had of some of the key accounts such as Caterpillar, John Deere, et cetera.

All right.

Well, thank you guys for answering my questions.

(Operator Instructions) And our next question comes from the line of Shawn Harrison with a follow-up, representing Longbow Research.

Please proceed.

Just a few brief follow-ups.

Gordon, your comment on China growth in the prepared remarks for the year, what was that number?

It was for automotive.

Did you mean specifically for automotive, it was --

Specifically for automotive.

My apologies.

Yes.

The latest number we have seen is 6%, although I have to say that's a public number.

But it's consistently been that China has outperformed that.

But the input that's coming from China is that the government -- it actually has cut back on some of the incentives that it was giving for buying cars, and those allowances have gone away.

But also, the interest rates are going up, and they're making it much more difficult to get credit.

And so they're predicting that people will not be as capable to buy cars as in the past.

But I have to say, I'm -- although that's a public number, it's always outperformed what's been the official number.

Okay.

And then my other two just brief follow-ups, with -- it looks like because of the strong demand in and long lead times for equipment, the delay closing down the final fab, when do you expect the synergies then to be in -- to roll into the model?

I know it usually was summertime.

I think the best way to look at that, Shawn, is really to assume that they're going to -- first of all, we're not talking about a big number.

I think we said originally it would be $2 million.

We probably already -- we've progressed in that transfer to where we are today, and there are just certain lines that we haven't been able to move over yet.

So I would say that the best way to look at that is that that number, we probably already started to see some benefit from that in the first quarter.

The rest of it will probably bleed in over the next several quarters.

But you're not going to see -- you're probably not going to see one big lump of cost savings that's going to be big enough to notice.

You will get a small lump at the very end when we finally kind of shut that down.

It's a little unclear at this point when that's going to be.

But it's not going to be a big enough number to be material.

And then I guess back to the prior set of questions from the earlier caller, with OpEx forecasts -- or excuse me -- operating income forecasts, I'll say, do you have kind of an expectation of OpEx growth, say in comparison to sales, or should we expect the dollar number to hold steady through the year?

We've been running the business of late at total OpEx, including R&D, including amortization, in the 20% range.

And I think that's a reasonable number to use.

With no further questions in the queue, I would now like to turn the call back over to Gordon Hunter for closing remarks.

You may proceed.

Well, thank you for joining us on the call this morning and for your comments and questions.

As you heard, 2011 is off to an excellent start, and we look forward to continuing our strong performance in the coming quarters.

As always, we appreciate your interest and support.

Thank you.

Thank you for your participation in today's conference.

This concludes the presentation.

You may now disconnect, and have a great day.