威世科技 (VSH) 2003 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Q1 2003 Earnings Results Conference Call. At this time, all lines are in a listen-only mode. Later we will conduct a question-and-answer session; instructions will be given at that time. If you should require assistance during this call please press "0" then "*". As a reminder, this conference is being recorded. I would now like to turn the conference over to your host Chief Financial Officer, Mr. Richard Grubb. Please go ahead, sir.

Good morning, and thank you for attending our first quarter 2003 financial conference call. With me today is Dr Felix Zandman, Chairman and CEO of Vishay; Avi Eden, Vice Chairman; Dr Paul, President and COO; and Bill Clancy our Corporate Controller. Bill, would you please comment on the forward-looking information.

Yes. You should be aware that in today's conference call, we will be certain forward-looking statements that discuss future events and performance. These statements are subject to risks and uncertainties that could cause actual results to differ from the forward-looking statements. For a discussion of factors that could cause results to differ please see today's press release and Vishay's Form 10-K filed and Form 10-Q filing with the SEC.

Thank you, Bill. I will give you a brief over view of the quarterly results and Dr. Zandman and Dr. Paul will go into more detail. Today, Vishay reported improved results in the first quarter of 2003. Revenues for the quarter were $532m compared to $434m for last year's first quarter, a 23% increase. The majority of this increase was due to the acquisition of BCcomponents in December of 2002. BCcomponents' revenues for the quarter were $69m. The impact of foreign exchange for the quarter was a $22m increase in revenues and a little or no impact on net earning. Net earnings for the quarter were $6.8m or 4 cents per share compared to 2 cents a share for last year's first quarter, a 100% increase. It should also be pointed out that this quarter includes a restructuring charge and a write-down of [Canadian] inventory to market values that had a negative of pre-tax effect of $2.3m on net earnings. Revenues for our Passive business including BC were $275m or 52% of total revenue. Gross margins for our Passive business were 20% for the quarter compare to 10% from last year's first quarter, a 100% increase in gross margin. Revenue for Passive business was $257m or 48% of total revenue. Gross margin for our Active business were 25.3% for the quarter compared to 26.9% from last year's first quarter. This slight decrease was due to a change in products mix. More details on the operations will be discussed by Dr. Zandman and Dr. Paul as I said before.

Selling, general and administrative expenses were increased as a percentage of sales from 17.2% from last year's first quarter to 18.2% for this quarter. As, we insist to our cost savings and acquired businesses in the 2002 year, we expect this percentage to come down. Also, this quarter includes expenses of $1m associated with compliance to the provision of the Sarbanes-Oxley Act. Interest expense for the quarter is approximately $3m higher due to the various acquisitions we made in 2002. The expected tax rate for this year is expected to be 13%, this represents an increase over prior year's and is primarily caused by a limitation on the tax effecting of current losses. Some other items of information; cash at March 2003 was $324m; long-term debt at March 2003 was $689m a decrease of 17m since December of 2002. Backlog at March 2003 was $458m, and cash generated from operation was approximately $57m. Capital expenditures for this quarter were 24m while depreciation and amortization were in excess of $47m. Total headcounts for the total company at March 2003 was approximately 25,000 employees. I would now like to turn it over to Dr. Paul, who has a lot more detail and at the end when Dr. Zand's speaks we will have a Q&A until we exhaust all questions. Thank you, sir.

Thank you [Dick]. Let me comment more on the operations. I would like to start out with the economic environment. Now everybody knows that the world economy continues to be depressed. There continues to be a lack of confidence in general. In the first quarter there was worldwide some instability on the political side and the Asian disease really starts to impact the business in Asia. The market conditions in the electronics therefore continue to be difficult as well. There is a fight for market share and again the same thing as last quarters there is a price pressure -- a heavy price pressure at the commodity products. On the other hand, we saw an unexpected, may I say, recovery since mid of February and this recovery was broad in terms of products, broad in terms of market segments, but also broad in terms of hemispheres. Especially, we got short-term orders from a [inaudible] equipment manufacturers, and from automotive. And astonishingly, these quarters we had stronger in passive. Now it is too early to judge whether this is adjusted inventory replenishment or really an upturn. And, of course, many unknowns make any prediction for this calendar year difficult. If we talk about the business development at Vishay, the acquisitions as Dick was pointing out mainly BCC, but also the exchange rates boosted our sales in the quarter. We achieved 532m in the quarter, [vis-à-vis] 459 prior quarter, and 434 in the prior year. If you eliminate the impact of the acquisitions and of exchange rates you practically reduce sales to the levels of prior quarters, respectively prior year. The orders improved the book-to-bill in the quarter -- book-to-bill ratio in the quarter was at 1.05 where by the active's were at 1.03 and the passive's better than the active's at 1.07. This number includes BCcomponents. Any way the number was much better than the prior quarter where book-to-bill was soft at 0.93. The backlog again they indicated increased to 438m or 2.5 months, which I think is a reasonable level. The price decline has accelerated in the quarter somewhat mainly at Power MOSFETs semiconductor. We saw a 6% decline versus prior year and 2% vis-à-vis the prior quarter. Talking about the results in reconciling it first of all [vis-à-vis] the prior quarter we can say that based on 73m higher sales we improved the operating margin by 37m. I am happy to say that included is a positive contribution already of BCcomponents of 1m.

I think we had a click turn around and from now on this company will be accretive. The main elements of this performance were price decline impact of minus 10m vis-à-vis the prior quarter; on the other hand, we got more volume which had an impact -- a positive impact of 5m. Then the material write-downs of the last quarter did not repeat themselves of course, so this gave us 25 plus and cost savings; on the other hand improved the results by $12m. If you compare the results vis-à-vis, the prior year based on 98m higher sales the operating margin improved by 8m. The main elements again the impact of the price decline of minus 31m, very severe, volume improved the result by 21m, and cost savings helped by 18m. Some other highlights for manufacturing; the inventory turns that we save they continue to improve and in the current quarter we reached, I mean the first quarter we reached 3.1 turns, vis-à-vis 2.5 turns in the prior year. We also reduced the inventory actually by 35m net of the exchange rate impact.

Due to the BCC acquisition the say of employment in high labor countries increased from 33-35%; that’s of course not what we want. We are working now on BCcomponents according to our acquisition plan. Our target remains in only 25% in high labor countries. We have started to synergize Vishay and BC components. I am going to explain it a little bit more in detail in the end. We reduced manufacturing fixed and SG&A personnel by 135 people in the quarter and off course there is more to come. Capital spending was 24m vis-a-via depreciation of 47m.

The capacity utilization mainly in commodity capacitors and in thick film resistor chips was low. On time delivery performance continued to be okay better than 92%. We also had closed manufacturing for MLCC in [inaudible] Germany and we have started to prepare moves of tantalum in film capacitors and of fix and resistor chips to China. May be, I run you through the most important product lines and I would like to start out with resistors and inductors. The process of recovery, which I reported about since one or two quarters already, it continues this process for Vishay as well for the BCC resistors. We saw in the first quarter a book-to-bill ratio of 1.10. Sales in the quarter were 120m in total. Out of which 32m came from BC components. Altogether, this is up by approximately 10% versus prior year.

The gross margin of resistors runs at a quite satisfactory level of 25% of sales. Let me remark that BCC especially [inaudible] this is the name of the resistor manufacturer. It is substantially profitable but also the Vishay lines are up concerning gross margin by 75% versus prior year.

The backlog of resistors and inductors has improved to quite reasonable 2.6 months. The ASP decline has slowed down to 3% versus prior year and due to the acquisition of BCC we expect the further stabilization in the future especially on the [inaudible] resistors that we practically now are in the monopoly situation. The inventory terms at resistors at an accepted level of 3.5. Quite substantial cost reduction projects have been started mainly the move of resistor chips to China, the move of [inaudible] to Israel.

The move of leaded resistors from BC components Germany to the Czech Republic and also the move of [inaudible] from France to the Czech Republic. Talking about capacitors. You know capacitors are really the problematic area of Vishay in the last year. We considered the business also this business starts to recover slowly from an admittedly historically depressed level. Book-to-bill in the quarter was 1.06 especially tantalum capacitors experienced some revitalization. Sales in the quarter were 124m in total and 37 out of that came from BC components. Business on the other hand is still down versus prior year by 8%, but the backlog has increased now to 3 months. ASP decline has slowed down; it was really terrible year ago. We saw 90% of vis-a-via a year ago, prior year. The gross margin is recovered for Vishay capacitors now to 7% of sales.

If you included BC components the gross margin for the entire line runs at a level of 10% of sales. The BCC capacitors do relatively better than the Vishay capacitors. The inventory of two in this field has to be improved. We are working on that. There is low capacity utilization for commodity tantalum and film capacitors as for MLCC. Just to describe this new capacitor group after the acquisition of BCC a little tantalum caps stands for 35% of sales, MLCC for 15%, film caps were 15%, [inaudible] layer cap also for 15% and aluminum capacitors for 15% and power capacitors for 5% of sales of this division.

Quite major restructuring programs have been started. The move of tantalum molded capacitors to China. The move of film capacitors to China. The concentration of tantalum wet capacitors in North America in one facility. The streamlining of aluminum capacitors from BCC in Holland. The move of power capacitors to the Czech Republic, closing of MLCC in Germany I mentioned that and the streamlining of multi-layer ceramics capacitors in North America. So altogether, I think we are on the way to improve also this product line, which caused problems for now at least a year. Talking about Measurements Group, Measurements Group is a profitable business and Vishay a very profitable business, which is built on specialties, and it helps also to stabilize Vishay's performance. Because of the fact that it is different concerning markets and customers, it has different business cycles and the principal is less volatile.

The historical core business is to engage and this comprises approximately 35% of the total business, where as transducers and instruments, many of these activities have been acquired last year comprises 65% of the business.

Sales run at a stable level of 31m per quarter roughly. It's substantially profitable as I said. Gross margin is at 37% of sales. As you know, there were a numerous acquisitions in the year 2002. In process -- they are in process to be merged into the group by exploiting synergies of cost also cost reduction programs and production moves a part of our program.

Let me switch over to semiconductors and let me start out with Siliconix. Siliconix has seen a relatively low order level in the previous quarter, and this was the reason to certain reduction in sales this quarter. We had 99m sales first quarter, vis-a-via 102m sales in the fourth quarter of 2002, and 87m in prior year. Book-to-bill continues to be weak. It was 0.94 in the quarter. Really the mobile phones internet services bill has been slow. The backlog has reduced to 1.7 months. On the other hand, we have seen an increase share of short-term demand. The gross margins in Siliconix run at a respective level of 27% of sales. This is somewhat negatively impacted these days by product mix changes. The inventory terms of Siliconix are excellent.

Historically, we achieved 4.2 terms. And needless to say, Siliconix is the technological leader of this industry that strong innovation to be seen in this division. Talking about the other semiconductors, which contains general semi, small signal telephone [inaudible], sales were relatively stable, 158m in the quarter, vis-a-via 159 prior quarter and 163 in prior year. There were some upturn in quarter mainly at general semi. Book-to-bill of the entire division of the entire business already was at 1.09 after only 0.87 in the fourth quarter. The business with [inaudible] has slowed down again with the weakness of the mobile phone that determine that -- that determines that. The backlog has increased to 2.5 months.

The price pressure is somewhat increasing. We see minus 7% versus prior year and minus 3% versus prior quarter. Gross margin is fine. I think it runs at a quite satisfactory level of 24% of sales. Inventory returns are as well quite excellent 4.5 terms. I think we can say that general semi has integrated very successfully. I am proud of competent and ambitious management team and there is more cost reduction to come. I am quite optimistic especially toward this business.

Now, may be I will talk a little bit about BC components, the acquisitions, also the restructuring efforts which are behind us and which are still to come. In the quarter, I think it was pointed out that BC components achieved sales of 69m, which was slightly better than we expected. The gross margin was at 21% and the operating margin, which was achieved in this first quarter after the acquisition, was 1.4m. You should notice that we took on BC components with a negative run rate of annualized 25m operating margin. Resistors did exceptionally well. Book-to-bill in the quarter was 1.0. Backlog is at 2.1 months. Excellent inventory management at BC components to achieve more than six inventory returns. Also, the on time delivery performance is historically good. It is practically on the level of Vishay.

We also are very happy that we found quite strong divisional and sales management in BC components. What has happened in the meantime, we have nurtured in the first 3 months already. The sales force is really, to a major extent, we are in process to close sales BC components; sales offices in Germany, France, U.K., Italy, and Asia. It will be finalized by the -- we will have done all that by mid of the year according to our plan. The headquarters in Holland has been closed and many of the external support contracts have been terminated. The Asian administration is in process to be merged with Vishay's activities; all this will be done by mid of the year. Vishay's organization in North America is about to take overall the functions they head, the BC components head in North America; this will be done already in May. We also exterminated all the non-U.S. reps. We have reduced the commissions in the U.S. by the changing to Vishay reps; we are in the process to match a right size in Holland. This will start in April -- has started in April. We have restructuring projects announced in Belgium and in Germany. And the divisional organization is quite important to managerial that. They have been merged. All together in the first quarter we already achieved annualized savings of 25m. I think we can say that BC Components will turn out to be a very good exhibition for Vishay. I believe business [springs] in our company. Thank you very much. Turn over to Dr. Zandman.

Okay. Thank you, Gerald. Thank you, Dick. I would like to summarize a little bit of what you have heard. The quarter is much better. We have a completely different [tunnel] business now. Few good points, the passive components which were worrisome before have doubled the gross profits; operational profits of the company have doubled; earnings per shares have doubled; bookings are up; a gain in market shares; and backlog is up. February, March, and April are three months in a row where we still sustained upward trend in bookings and this is across the board. It's not one product; it's essentially almost all the products, all most.

And across the industry and across the geography we have this in Europe, United States, and Asia. This [holds] well for the future, I believe. I believe that because it is a first time since the couple years now that we see that happening three months in a row, lets hope for the future. I would like now to say a few words about our strategy. I believe that the strategy was okay, and is okay, and it [does] out during these difficult times. Because of our broad line; we are much better penetrating customers, we are gaining market share, and we are not functioning [exactly] when I look at the Vishay, I look at the same time at our competition and kind of we are much better.

We are making money, some of them especially the passive components are losing money, which means [inaudible] our policy and our strategy of having a very broad line and strongly represented in China, in the Far East, in Europe, and in United States across the board, is bearing fruits. The [inaudible] results are doing fine, but I was worried about the passive to some extent. I think we are out of the, those rooms, there. This -- if we [inaudible] that our strategy is okay even in difficult time or maybe especially in difficult time by comparing us to other companies. We shall continue to do the same.

I would like to mention here a few important things in the strategic issue of customers. To be really, number one, number two, and number three is our policy for every single product line. If we are not number three, if you are number 5 or 10, you really don’t exist. And in fact most of Vishay products worldwide, like wire-wound [Lithium] smelts coated in wet Tantalums, rectifiers, diodes, low voltage thermos IRDC.

If all were number one position worldwide and there are many more products which have number one position in Europe and the United States. If you continue with this policy which -- if we intend to do that we in fact would emerge as the preferred supplier across the board everywhere and in fact in many product lines they are already. BCC has been helping us quite substantially, because we had some holes in our passive lines, especially aluminum capacitors, we were nonexistent. Now we are a force, especially in Europe, and United States, and Asia. Film capacitors, we were number, I don't know, 8 -- 7, 8, 9 something like that; now we are number 3 worldwide, and probably number 2 and number 1 in Europe.

Nonlinear resistors, we were very, very small. Now we are quite a force to content with. So, BCC not only gave us market share in existing lines, but also rounded off some other lines and gave us a much stronger position across the board in passive components. What is to underline is what Gerald said already and it makes me very happy, though I did not expect this to happen so fast, but he managed to turn around $25m savings in the first quarter and in fact, the last month we have been already accretive.

From a loss point of view of 25m [loss] rate towards the end of the year, we turned around, and we are making money now in BCC.

Concerning the measurements group, it was good company to start with, but there was a little bit worry about acquiring five small companies and putting it together to create a Transducer group together with strain gage group of $120m of sales. It is doing very well. It is already accretive also. We did not accomplish all the changes all the moves to different places to reduce the costs in terms of [way], but the transition is doing fine. I may say now, for the first time after couple of years, I am somewhat optimistic because the business is better since three months about, higher backlogs, activity across the border is better. BCC and Transducers having done well for us and we are on the way to fully integrate those companies, and I believe that next quarter we will look yet better than this one. Thank you very much. We are open for questions.

Ladies and gentleman, if you wish to ask some questions, please press "1" on your touchtone phone. You will hear tone indicating your line has been placed in queue and you may remove yourself from queue at any time by pressing the "#" key. If you did press "1" prior to this announcement, we ask that you do so again at this time. And our first question comes from the line of Matt Sheerin with Thomas Weisel Partners. Please go ahead.

Yes, thanks, good morning. Just a question concerning how the quarter played out; in early March, your guidance for revenues was about 500m and you ended up doing about 30m better than that. So I am just trying to get an understanding of what happened in March, and also if you could just give us an idea of what was happening with your distributors, what percentage of sales comes through distribution, and was there, you know, distribution playing a role there in building inventories at the end of the quarter?

Okay. Basically, we have seen progressive improvement in the course of March. It principally started already mid of February which I tried to point out, but throughout March, it became better and better, and we are in the position to deliver relatively short time. So end of [June], what you say, principally also distribution helped, but distribution was not the dominant force in all that. Basically, the better orders came from automotive but also from contract equipment manufacturers, but also distribution contributed to the improvement. We do not believe in principal that this is an inventory increase, but of course, you cannot completely exclude that also. This is why I said it is a little early to judge. One thing is for sure that there is an upturn in talking about April. It continued in the same way.

Okay. Great. And then one other question, it looks like BC components mix really helped your gross margin on the passive side, and does that have do with the product mix or because some of the manufacturing changes that you made? If you just give us a better understanding there why that helped your margins?

It is for that mix first of all. In resistors, what we took on is a highly profitable specialty business on [mills] resistors and on thin film resistors. Also, a very broad niche business on lead, relatively old for that so the leaded side, but all this is very profitable, and we already started to include that. This helps for sure. On the other side on capacitors, basically, our real problems last year like everybody's problems in tantalum and MLCC capacitors on the surface mount side. Whereas BC components which we knew from the beginning does not have any surface mount component. The [inaudible] traditional businesses is very strong in automotive and historically had better margins than we could achieve on the highly competitive surface mount side. So, indeed it is product mix, if you want, but these are the real reasons.

Our next question comes from the line of Patrick Parr with UBS Warburg. Please go ahead.

Good morning. I noticed you have been speaking to the policy of not really providing any specific guidance or outlook, but Dr. Zandman mentioned that he believes that the next quarter will look better than the March quarter. We to assume that means that both sales and earnings could be up on a sequential basis?

I think Dr. Zandman is optimistic about the next quarter, but the company is not giving any guidance for revenues or net earnings at this time.

Okay. That’s fair. Regarding the cost cutting, I guess the 25m was a good sign in the March quarter. Any further guidance as to what sort of restructuring and the benefit of that that we could see as we move through the year?

[inaudible] I don’t know. Basically, principally speaking, we started to process. We integrated as we completely closed the headquarters, but, of course, a portion of the cost is still in the first quarter by nature, and the same is true for the sales offices, the sale force. Also, in this case, we did not enjoy the full benefit of what we have done in the first quarter. So, this by nature will improve to second quarter vis-à-vis the first quarter by nature. On top of that, we will start to see the positive impact that we have terminated, perhaps this was done in March. We will see the positive impact of a general streamlining in Holland, which already started in April, and this will be finalized in the course of the second quarter. On the other hand, we do have some longer-term projects like moving to China, moving to Israel, and by nature, this cannot come within a few months.

Okay, so better but lower costs but not necessarily easy to quantify at this point?

Based on the revenues probably we will comment.

Okay, we know. Okay a strategic question regarding the comment about being one, two, and three in all the product lines. I guess the area that I would question that on is MLCCs because you comment perhaps?

Yes I can comment on MLCC as well.

Okay.

We are by far most number one, two, and three on MLCCs and as you say, we were worldwide. Number one is Murata, but what is really to be number one. You have to be number one with a customer. Where are customers in MLCCs [as we deal with] multi-business, and in fact for the multi-business for MLCC outside Japan, we are number one.

Okay, so as long as you can find...

That’s what we are stating, that’s where we send, that’s where we stand, that’s what we focus, but if you take worldwide, than we are not, and I did mention it for that reason. That in itself, this approach is also valid. We take some niche products and in the niche product I want to be number one or number two at worse. It doesn’t have to be across the board, but for the customers whom we serve we got to be number one or number two, maybe number two, maybe number three for the customers you serve.

Okay, fair enough, and then an I have a quick question for Dick. I guess a couple or 307m in blinds are portable in June of ’04 Dick. Any comment as to how that would be handled at that time?

We are interviewing and meeting with various commercial banks and also our western bankers. There has been four or five scenarios turnaround as we get closer towards the end of this and into the third or fourth quarter, we would be making a decision and probably announcing it at that time, but we are very aware of the situation. We know we have an option to put stock if we have to, if we need to, and the stock is a level that we feel is appropriate, but we are focused on it. We have no problems foreseeing on that.

Thank you.

Our next question comes from the line of Ted Kundtz from Needham and Company. Please go ahead.

I do have to congratulate you for this nice improvement in the margin. It is nice to see them moving in the right direction. Can you comment Gerald a little bit more on the -- may be the outlooks by region. I guess what I am hearing that Asia is somewhat weak primarily in the consumer area, which you may be or may not be a big player in. I am not quite sure how much of that is in your space there, but could you comment on what you are seeing in Asia specifically and also why you are out of Europe and US. Then, I would also like you to comment on what your concerns are about the SARS impact on any of your production facilities in Asia.

Okay, basically, may be you misunderstood I still would say Asia in relative terms is the market which does the best. It was more of [CF] what I wanted to express in the beginning that this Asian disease may have started already and we don't see it yet the business situation but basically Asia for us is doing relatively the best. Relatively the best is Europe we have to say that relatively the best but we think Europe automotive is relatively stable in continuous spell so what is really down is consumer in Europe at the moment and here we are exposed to a decrease through BC components on the other hand BC component is extremely strong in automotive also. So what we have seen in total is [lighter] satisfactory performance but if you ask about the market the Asia number 1, America Number 2, Europe the best at this point in time.

Okay and you expect that from what your are seeing in the most recent month April here you would say those trends are continuing?

I got the number just now ago basically [inaudible], we have broke it down into the hemispheres but basically from a product mix standpoint the same as in March -- as in February and March happened. I suspect Asia still the best in that sense so I don't a see change.

Working strong continuing strong in April.

Yes.

Sure they did?

Yes.

Okay great and could you comment on the SARS impact or concerns about it?

Well we are not going to reduce in Asia if you ask me -- if this is the question right the answer -- the opposite is true we are moving production from the highly countries into Asia we are preparing for that this is not the one, two, three thing, we have to expand facilities there which we do currently and our plans are unchanged.

Okay then you are seeing no impact from anything yes I would assume.

Specially no case of the disease in our [inaudible]

But the only real impact we have is that we do have some prohibition on travel factor [inaudible] and that's about the only impact I can say.

Thank you.

Our next question comes from line of Michael Morris from Smith Barney [inaudible]. Please go ahead.

Yes thank you good morning every one. Gentlemen you have referenced the acquisitions that you undertook last year and it sounds like you had some pleasant surprises in terms of integrating BCC. I was wondering if you could comment on the outlook for let say 2003 on the integrations, for example [OLC] Group could we expect SG&A dollars to come down and also could you discuss your IT systems that your using to last together the acquisitions and is there are you know some level of investment that we might expect in that connection?

Okay so let me may be answer first of all what happened with BCC was not a surprise, this is what we waited for as a matter of fact. We expected an improvement. It came quickly but this was according to plan the only question was the plan too aggressive but it was not. Obviously, it happened and is continuing from now on. Basically on the SG&A, naturally a major portion of our structuring not everything but the major portion comes from SG&A and as we continuously also trying to cut down Vishay there are the existing Vishay so I -- we worked for that to cut down further the SG&A percent of sales. Concerning IT you exactly hit one of the both problematic points. Of course, all these acquisition have their own IT systems and to bring it on the Vishay sale system for instance take some time but this cost reduction along the road and in our acquisition kind of BC components this was not included as a saving.

Okay I'd like to add something to that. Is that we are expecting further savings on the BCC area in the order of magnitude of $50m and in the measurements group another $12m in synergies.

And as between -- I am sorry have you finished sir?

Yes.

Okay, as between the SG&A and your cost of good line would you expect the preponderance of those savings to be an SG&A or relatively even splitter how should we look at that?

Basically what we have started with this SG&A by nature, so from now on naturally more than 50% of the savings have got to come from manufacturing that's clear, but also SG&A. We just have the company's BC components in 3 months so we are [going to] continuously reckon that, but more than 50% comes from manufacturing by nature.

Great. I just have one final fairly simple question. In terms of the variance between the impact of foreign currency on your top-line and the bottom-line, could you just help me understand why that didn’t flow through?

Well most of the operations that are in the European Euro district did not have in total a profit contribution to the bottom-line.

Got it.

So you would the cost as just as increasing [effect] just for translational purposes that are.

Thank you very much.

Okay.

Any other?

We have a question from the line of Bob (ph.) [inaudible] with Bear Stearns, please go ahead.

Hi. I have 2 questions, one; it looks your second quarter based on what I see in your press release and I have been in and out of the conference call, looks like you are looking for an up second quarter in terms of revenues based on the order flow?

Well Bob, we didn’t as I said we are not doing any guidance for that second quarter though.

Okay. Well I got one question anyway, you can’t -- come on you can’t get away with that. The question I have is on margins, is there is any belief that the second quarter margins would be better, worse or the same as the first quarter in general?

Again Bob, we are not making any guidance for the quarter, but I mean you can come to your own conclusion based on the -- we had 100% increase in margins for the passives.

right.

We have strong margins in the actives, although the mix can change.

Right.

I got to say I contacted some people but as the mix changes the margins going to be effected. You can draw your own conclusions; we think the things are going well.

The only thing I said is that it is going to be better and we believe it will be better.

Alright that’s cool. Now the second question I have and I talked about this last night, Moody’s downgraded you guys. I don’t get it. Could you tell me how you [get the] cash from--?

I don't get it either, they are completely in the left field. They didn’t understand our strategy of a broad lining; they didn’t understand that we are doing very well with BCC. They made mistakes in the statements which they have made there, for example they said that severing to write off a goodwill and this is a cash issue, which is not true. And things like that’s completely off the world.

Our strategy works very well. As I said before, we have a broad line; we are gaining market share, our passives which in the reports is completely downgraded to nothing is doing very well as a matter of fact. Yeah we have doubled the passives and the results and they are doing very well, especially because of BCC as it was discussed by Gerald here. So, my statement about it is that I say I don’t want to be maybe too strong, I say its rubbish.

[inaudible]

Bob, this is Avi. We are going to issue in the press release this afternoon with our response to Moody’s, and I think it will give you a much more complete answer.

Okay let me just one -- [while] I got you guys. On again your capital spending and depreciation this year, what -- did you give any guidance on that?

Well we didn’t, but it ran almost -- depreciation ran almost 2 to 1 as far as CAPEX was --

So if depreciation is 2x of CAPEX then you are making money.

Right.

I mean unless you are putting some money into working capital, you guys should be generating positive cash?

We state quite imperatively that we are running positive cash operation for the company.

Okay unless you make no more acquisitions, you should be in--

Some re structuring programs to finance as we go in the BC components, but nevertheless I underline what Dick (ph.) has said.

Okay. Well listen good quarter. Keep it up. Bye.

Thank you.

Our next question comes from the line Steven Fox with Merrill Lynch. Please go ahead.

Hi good morning.

Hi.

Couple of questions on this -- you mentioned that your gross margins declined a little bit in the semiconductor area. And you said that was mix. Could you be a little bit more specific in terms of how that happened? Was it lack of sales on a high margin business or more low margin sales?

Basically it was happening in Siliconix. Siliconix gross margins came down because of product mix within Siliconix very much. They have [inaudible] of commodity products and they also have higher costs because of the fact that they have to use sub contractors to a higher degree than last year. We are correcting that, we are in the process of correcting that. This was basically the reason, the predominant reason. Of course we also have price decline, but on the other hand we have cost reductions. So this is the most eminent reason for the decline.

Great and then Dr. Paul, I think you mentioned that the BC component's inventory turns were six, is that--?

Yes at least six.

That was surprising to me given at the more material line, why is it so high relative to the [shift]?

You got me. We are working very much on the -- you see, if you take the inventory returns of we say passives but only the actives are excellent, BC components are excellent, and then [inaudible] is not so good, still it improves all the time, but we have some historical there also. On the other hand, BC components really brought to the extremes because they were under notorious cash constraints. Even to the point that they lost business. So this is not the example to see.

Okay and then one last question. I just want to make sure I understand the charges Dick (ph.). Could you just review them from our pre-tax and post-tax effect on earnings?

Okay, I think I announced that the pretax was combination of restructuring of about some $700,000 and some of [tandem] mark-to-market of about 1.5, so it came to about $2.2m pretax.

Okay.

I haven’t attempted to do an after tax on that, because it depends upon location and geographic statutory rates and I haven’t done that.

Okay.

There is also $1m of the [inaudible]. Also million dollars which was being reserved.

Thank you very much.

Our next question comes from the line of Steve Snegi (ph.) with Raymond James. Please go ahead.

Yes, thank you. With regards to the Siliconix change in that the mix, I was just wondering if you could talk about the trend in April maybe of whether the commodity products are increasing or decreasing in April and then possibly going forward?

I don’t have this detail at this point of time. As I suspect, there is no change in the direction, principally it didn’t grow. This is my best guess, but I don’t have precise information for you.

We were out there last two weeks ago. We didn’t hear any changes either. This is told out to be a little [inaudible].

Basically what we do, we bring equipment in-- packaging equipment, which balances more the whole thing, which prevents us from going too much to subcontractors, which levels the cost as you can imagine. This is the mix -- the primary mixing impact, which we have.

And then in terms of the pricing decline that we are seeing there, was that more on the integrated circuit side or was that more on the MOSFET side or was that a combination?

MOSFET really. It's on the MOSFET side where we saw it, quite substantial. On the passives, the price decline really comes down, especially on the resistor side. Resistors are quite stable these days and to also -- well semiconductors at the moment show more heavy price decline than the passives in general.

Thank you very much.

Our next question comes from the line of Lee Zeltser with Needham & Company. Please go ahead.

Hi guys a couple of questions, first if you can comment on your expectations for sequential pricing trends in the coming quarter?

Okay, basically we have no reason to believe that the principles will change. There will be price decline in the commodity side and there will be no price decline on the specialty product side. But to talking a little bit more about the different product lines, on the resistors, I see a further stabilization, clearly. Also because of the BC components acquisition takes out the competitor in the especially in Europe, Vishay and BC components share of the business not completely but by far that is some strongest ones. Secondly, in capacitors, I see in all the BC components capacitors, only a very little price decline, historically they are in different markets, they are more traditional products, concerning the [MOCCs] and [tantalum] capacitors to price decline for the standard products of that will continue to exist no change. Concerning to semiconductors, I expect the same trend, which we have seen already in the first quarter.

Okay, then if you could possibly update us on your vertical market mix, kind of consolidating BC components acquisition that--?

What do you mean vertical, sorry?

By industry--telecom.

Oh by industry, I don’t know. Basically BC components, talking about them is slight strong in consumer and in automotives. These are by far the two strongest elements, where Vishay is also quite strong. But they are relatively speaking stronger vis-a-vis their own portfolio. So these two segments will be strengthened further in Vishay.

Okay, great, thank you very much.

Our next comes from the line of Sam Adondakis from Prudential Securities. Please go ahead.

Yes good morning this Sam Adondakis. I was wondering if you could comment on the decline in other income in the quarter and if you expect that we continue at the current levels moving forward?

Let me have the details of that, Bill.

Basically we had a moreover a foreign exchange loss this quarter than we had a year ago and due to the decline in the interest rate, we have a little bit less of interest income this quarter and that was [the year]. And that on the two, right.

Okay and then how about the level moving forward?

Well the interest rates are important and the foreign exchange rates are important also. It’s hard to predict, you know, overall at least here we don’t usually get affected terribly much by the exchange rates, netting that we set ourselves up forward and so that shouldn’t be a material thing, Adondakis. It hasn’t been in the past, we don’t expect to be in the future. However the interest rates have been, you know, we have a lot of money in the bank in savings and rates are extremely low and we are very conservative with our progress. So that’s what makes it a little bit lower at time.

Okay. So moving forward if you are to model about the same level, will that be a relatively safe?

Should it be something you could do I can not [inaudible] on it.

Okay. Fine, and then next hoping that you can provide a little bit of color on the mobile phone weakness that was mentioned; were those high-end versus low-end phones and was the weakness primarily in Asia because that was mentioned under Siliconix?

Basically we saw it across the board and basically more on the low end side than on the high end side, this is what we saw.

To anything particular to Asia with respect to consumer?

No nothing from my side. No.

Okay. Great and then one last question; what was capacity utilization overall, over this year and then?

We do not measured it. Our lines are very different but I can tell you in general that our capacity utilization in semiconductors is quite high, it’s 80% something approximately if I should give you a number; don’t quote me by 2 points plus/minus. We don’t measure like that. We do have quite low capacity utilization on commodity passive still, basically unregistered chips and on tantalum molded and as far as [inaudible]. The specialty products in the resistors, especially like [metal] resistors, they are practically completely full on the other side. So, it's a very mixed picture and it ranges between say low capacity utilization of 20-30% in certain lines like in moulded capacitors, tantalum capacitors up to practically 100%, say 90%, 95% on the [metal] resistors and in between we have to brought field of [affectives], which are say 80%.

We have a question from the line of Mark Pastenberg (ph.) with Nottingham Capital. Please go ahead.

Good morning.

Good morning.

Congratulations, it was a very nice quarter, particularly given less than a robust environment for the cell phone industry and you and some other companies have come out, you know, fairly cautious statements about the timing of the recovery. Do you base that on what you see in terms of inventory or new product rollouts or delays of product rollout that make you obviously more cautious on cell phones than you have been in the past and in the rest of your product line?

I think we were never really bullish on the mobile phones recently. In general we are careful because of the world economy per se and let’s face it. If you are a big player, relatively big player like we say, you can not deny that you depend on the general economic situation and this is one of, for me at least personally speaking, this is one of the most negative things we see; our market per se is not doing badly; this is at least our business is not doing badly. But the economic environment is questionable these days but I don’t have to tell you that.

And I would like to ask something to that, it is not just one product line; it is across your board and it’s across the geographies and it’s across the industry. So, certainly for telephone systems and things like that, we are quite surprised to see that.

Yeah.

we do have time for one last question that comes from the line of Shawn Severson with Raymond James. Please go ahead.

Hey, good morning gentlemen.

Good morning.

Can you just give a little color on what the current acquisition environments like, I mean, what you have seen today versus six months ago, versus 12, I mean, you are more enthusiastic about it or are the prices still not real compelling from your perspective?

Shawn it’s Avi, you know obviously we can’t’ comment on the specifics of what’s out there, but the flow continues. I mean we get enquiries every day on a continuous basis. Our problem is obviously we have to be very selective and be cognizant of our own cash position and of the lines coming through and everything factors in, but that’s what we do. So, we have not seen prices go up on acquisitions -- let’s say it that way, potential acquisition. It depends on how the environment will continue over the next three to six months before we can give you any more answers.

And now Mr. Grubb I will return the conference back over to you.

Okay, thank you very much. Thank you for spending the time and listening to us. I know, you got the apparent optimism that Dr. Zandman, Dr. Paul, and myself share for the future in the remainder of the year 2003. However, I want to emphasize that we are not giving any guidance at this time but we do remain optimistic and then look forward to see you next time. Thanks very much.

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