威世科技 (VSH) 2003 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Vishay second quarter earns results conference call. At this time all participants are in a listen only mode. Later we will be conducting a question and answer session. Instructions will be given at that time. If you should require assistance during the conference, please press star, then 0, and an operator will assist you offline. As a reminder, this conference is being recorded. I would now like to turn the conference over to the chief financial officer of the Vishay Inter technology Mr. Richard Grubb please go ahead, sir.

Good morning and welcome to Vishay’s second quarter conference call for July 30, 2003. Bill Chancey our corporate controller will read our opening statements then I'll go into the presentation.

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

Thank you, Bill. Today with me I have Dr. Zandman chairman and CEO. Keefe, Avi Eden our vice-chairman and Dr. Paul our president and chief operating officer. I will give ah I brief summary of our result and Dr. Paul and Dr. Zandman will elaborate on them.

Today Vishay was happy to report improved results for second 2003 that were in line with first calls estimates. Revenues for the quarter were $538 million. An 1% increase over last year’s revenues, last quarter's revenues and a 17% increase over last year's same quarter. Net earnings after restructuring charge of $12 million were $2.8 million or 2 cents a share; however, the restructuring charge has 5-cent negative effect on earning per share bringing us to a 7-cent operational earnings per share. Net earning last quarter were $6.8 million or 4 cents a share so an improvement of 3 cents over last quarter. Revenues by major product lines were, Our active businesses contribute $258 million to our revenues. Our passive businesses contributed $280 million to our revenues. A little bit increased in our passive over the -- and from the prior year. Gross margins for our active business in the quarter were 26.9% passive business contributed 19.3%. Continuing the increase over last year's last quarter. Overall gross margins were 22.9%, an improvement over last -- this year's first quarter. Selling, general and administrative expenses as percentage of net sales rows 17.8% for this quarter and represents a decrease from the 18.2% for the previous quarter. Higher interest expense for this quarter and the first quarter compared to last year's second quarter and first quarter reflects the debt assumed and incurred in the acquisition of BC components in December of 2002. The effective tax rate for the year remain at 30% for this quarter, and we still predict ticket that the whole year will be at the 30% level.

Some balancing information for you, that the balance sheet we expect to be available for publication sometime next week, but I can give you some key numbers. Our cash balance at the end of June was $362 million. Our long-term debt at the end of June was $691 million as compared to $706 million at December 31, 2002. Backlog at June 30, 2003, was $420 million. Total cash generated from operations for the quarter was a positive $70 million. Capital expenditures for operations for the quarter were $25 million. While depreciation and amortization for the quarter was $51 million. Total head count is now 25,000 employees of which 66% are in low-cost areas. We're very happy with the results of this quarter, and Dr. Paul will go into much more detail as to what the individual contributions were by product line. Gerald.

Okay. Thank you very much, Dick. Let me start out with the economic environment which we have seen in the second quarter. There is no doubt that the world economy continues to be depressed. There is a lot of pessimism in Europe. The Asian disease SARS impacted the economy there, and the super low interest rates in the United States really did not restart the. US yet. Therefore, the market conditions in electronics continued to be difficult. Difficult despite the fact that the inventories in the various pipelines have normalized by now. We see a substantial fight for volume everywhere. The quarter 1 recovery, the perceived quarter 1 recovery has slowed down since the end of April and especially the activities are suffering, were suffering in the quarter in Asia. There is a continued weakness in telecommunication and consumers; on the other hand, networks, we see them slowly improving. Automotive stays strong in Europe but is weakening in the United States only substantial price concessions, you know that, only substantial price concessions are able to maintain the business level. Computers have slowed down after a good first quarter. Altogether, predictions for the second half of the year 2003 are difficult, but some optimism for say shah may be justified as the Asian SARS disease now seems to be on under control. Talking about the business developments of Vishay, we can say that the sales has leveled off at an annualized rate of 2.1 - $2.2 billion. The acquisitions are caused mainly BC components and exchange rates boost sales versus the prior year as indicating we achieved 538 million sales in the quarter vis-à-vis 532 prior quarter and 458 million in the prior year. If you eliminated the impact of acquisitions and of exchange rates, then you can say on an interest to interest compare comparison basis we are working virtually on the same level as prior year. BCC contributed 64 million sales in the quarter, very close to our expectations. During the second quarter the orders have slowed down somewhat. We saw book-to-bill at .96 actives and passives each at .96. The total backlog decreased somewhat to $420 million as Dick again was indicating or 2.3 months. Let me say that this is still a healthy situation.

The price decline continued. We saw a 7% versus prior year, and the 2% versus prior quarter. Virtually the same numbers as I reported last time. The price decline is mainly driven in our case by power MOSFETs and tantalum multi-chips. The fact that the strong euro supports our competitiveness in Europe. Talking about the reconciliation of our results versus prior quarter, we can say that based on 6 million higher sales, the operating margin improved also by $6 million in absolute numbers from $21 million in rounded numbers to $27 million. The main elements of this development were a price decline with a negative impact of $14 million quarter over quarter, volume improved $5 million, the result, and we have cost reduction of 15 million dollars. Quite substantial cost reduction which we are proud you of. If you compare the results vis-à-vis prior year you see that based on 80 million higher sales the operating margin went down by $5 million from 32 to 27. Driving elements were the selling price decline of close to 7% which gave a negative impact of 33 million, volume came up by 40 million basically due to the acquisitions. We had variable costs savings of $27 million vis-à-vis prior year but fixed SG&A costs only due to the acquisitions went up by $34 million. If I talk about highlights of operations, we can say that inventory terms improved substantially versus prior year. We achieved three the in quarter vis-à-vis 2.7 terms prior year. The inventory in total but net of the impact of the exchange rate stayed constant, but it has to be highlighted that the increase in raw materials which exclusively comes from tantalum powered was offset buy a decrease in process and finished goods. We continued to work on moving labor out of high labor countries to low labor countries, and we went down in high labor from 35% to 34% we have started the projects on BC components factories, but let me remind you that our long-term target continues to be a 25%. We have also continued to reduce overhead. In the quarter we have reduced 90 manufacturing fixed and SG&A people, 225 people since the beginning of the year. And all of these reductions have happened naturally in high labor countries. And, can, there's more to come. Capital spending in the quarter I think Dick mentioned that, was $25 million versus a depreciation of $48 million. The capacity utilization in commodity passives has started to improve mainly in tantalum capacitors and in resistor chips. I personally believe, that's my impression based on the order level, that Vishay presently is gaining share. The on time delivery performance was better than 90%. We have successfully negotiated with the labor unions and labor council social plans for the BCC locations in Germany, Belgium, and in Holland, and now we are free to start our reduction programs there. We have practically implemented the consolidation of the BCC sales offices with our exist ten offices, especially in Germany, Singapore, Shanghai, Hong Kong, Korea, UK, Sweden, Italy, and the United States, practically everything implemented. Only France is not completely implemented, but this is in process. Can I switch now to the major product families, and I would like to start with resistors and inductors. There has been quite strong order intake in the previous quarters, and all this was leading to a further increase in sales. In this product group we had sale in the quarter of $126 million whereby $30 million came from BC components. On an interest to interest comparison basis we are up 10% in this business vis-à-vis prior year. Resistors are doing very well. The gross margin continues to run at a very satisfactory level of 24% of sales. BCC by shawk, this is the resistor portion of BCC, contributes strongly. Dale resistors as well. And we see recovering properties for the low end product for the fixed end resistor chips based also on the exchange rate gains. Book-to-bill was close to one, and the backlog remains at the reasonable level of 2.4 months. ASP decline in resistors slowed down to 2% only versus prior year and vis-à-vis prior quarter the prices were practically stable. It's another time an indicating for the fact that our specialty product shares, especially in resistors, is very high. We do not see any price decline there. The inventory terms are at the very acceptable level of 3.8. The move of PCC leaded resistors and transducer to the Czech Republic and of Israel are progressing. We see a substantial growth of inductors in medical and this helps the volume and also the P&L of this product line. We also have decided to merge all Vishay and BCC activities with non-linear resistors organize. We took first steps. And also we have decided and announced to close the Dale operations in Norfolk, Nebraska and to move the other Vishay factories which will further decrease our fixed costs there. Coming to capacitors, unfortunately, the observed upturn during the first quarter, the prior quarter, did not continue. We saw a quite substantial slow down of the orders in the quarter. Book-to-bill was at .93. Mainly MLCCs are suffering. Sales in the quarter were $122 million, $34 million came from BC components. Again, if you compare the business to prior year, it's below still. We are running 4%, excuse me, in percent below prior year. Backlog is at 2.7 months which is principally okay. ASP decline has slowed down further. We noted 8% versus prior year. Whereby basically the price decline in tantalum and MLC caps the other lines are fairly stable in price. Profitability of capacitors is not as good as in resistors but it continues to improve. The gross margin in the quarter came up to 11% of sales. Capacity utilization for commodity tantalum capacitors started to improve. I reported that already. And we have major restructuring programs on the way for capacitors, such as move of tantalum, move ships to China. The site has been prepared. Move for film prepared for China. The concentration of all tent lump bets in North America. Has been closed. The we are streamlining practically implement already. Aluminum capacitors in Holland. We moved power cans to Czech republic close don't finalized we have closed MLCC facility in Germany. And we continue to stream line our MLCC operation in North America. The Far East projects have been some what delayed by SARS, but, again, we are on track, maybe we have lost a quarter principally we are on track. And we expect further improvement of the profitability of caps based on these restructuring projects. Coming to measurements group, let me remind you that this is a very profitable business with a specialties that helps to stabilize Vishay's performance. Sales were stable at the level of $31 million per quarter, book-to-bill was at 1.03 in the quarter and backlog was grown to 2.4 months. The gross margin was very good at 33% of sales in the quarter. Somewhat impacted even negatively by ongoing restructuring efforts at transducers, normally it's even higher than that. You will remember, then, that the transducer part of the business has been created by acquisitions in the year 2002, and we are in process to merge companies and to exploit synergies. Inventory terms have improved, a steady improvement to 2.8.

Coming to Siliconix, this was not the best quarter of silicon I can. There was a relatively low order level in the previous quarter. This was a leading to a reduced sales in the quarter of $90 million vis-à-vis $99 million in the prior quarter and $98 million in prior year. No wonder, as the traditional markets for Siliconix products move by phones and laptops continue to be slow. Of course, also the business of Siliconix is, as it is heavily in Asia, was impacted by SARS. We saw very cautious Asian distributors in the second quarter but things will change. We also found accelerated price declines due to the tense market conditions. Prices dropped by 7% versus the prior quarter and 10% versus the prior year. On the other hand, this makes me more optimistic that book-to-bill ratio in the quarter has recovered for Siliconix. We saw 1.09 in the quarter versus .94 in prior quarter. And this could lead, should lead to improved business level in the quarters to come. Backlog in that context has recovered to approximately two months. Despite low business levels, relatively low business levels, the gross margin in Siliconix I can was defended I runs quite nice at 30% of sales which also was last year's performance. It's clear that Siliconix is and will remain a very successful division of Vishay.

Finally, I'd look to report about all the other semiconductors which contain general semi, small signal, telecom cone and end veno operate I products. The sales of this business gripe was relatively stable. We achieved 168 million sale in the quarter vis-à-vis 158 in the prior quarter and 173 prior year. The business slowed down somewhat in the quarter. We saw book-to-bill at .90 only. Backlog has decreased to 2.1 months. In particular, it was General Semi that suffered. Again, the reason is the same as for Siliconix. The Asian part of the business, and this is a very may for part for General Semi, suffer in the quarter due to the local conditions. On the other hand, is doing quite well due to projects, special projects and to improved mark share in European, automotive with LEDs. Continued price pressure receive 7% in this group versus prior year and 2% versus prior quarter. Profitability con to be satisfactory so gross margin even slightly improved vis-à-vis prior quarter to 25% of sales. The inventory terms are plainly excellent. They run at 4.8 and we are in process to reduce our remain presence high-level countries in particular we are in process to move, as you know, approximately 1,000 people from Taiwan to the republic of China am this has been delayed to due to SARS by a quarter but we expect to be there and start production in December '03 which I think is a very important step to assure is the competitiveness of General Semi long-term.

Let me summarize. It's true that the economic environment at the moment is not really favorable; nevertheless, I think there are some hopes, justifiable hopes for a recovery mainly in Asia, which is important in our business. Regardless what we say will continue, of course, continue its efforts to reduce its cost, and I believe that this is personally this is the best prepaying for the future. Thank you very much. Dr. Zandman, please.

Good morning. I would like to summarize a little bit of what was said before and to speak about our strategy. In this quarter operationally, as you know, we have better result than the previous quarter we have produced $27.4 million in operational results this quarter as supposed to 23.4 million last year. In terms of earnings per share. Substantial improvement all this has been done in spite of the fact that the sales essentially were constant. Improved very little there. Our cost reduction programs are working very well, and this is ongoing project continuously to push the costs down. Our business, if you look at it, is essentially split 50/50 between specialty and commodity products. This is the main reason why the performance, even in bad times as it is now, is much better than our competition. We make money, our competition is losing. The real reason for that is coming from the fact that our product line is very broad, so we have more and more demand from customers. Our price erosion of the specialty products is small, and sometimes even zero or going up upwards, while the commodity products, the price is very strong as you know and somewhere between 10 and 15% depending on product lines. But even in the commodity product there are some sectors which we see improvement as said by Dr. Paul. Another area which is a very big importance to us and I Believe helps us very much is our program which is called one face to the customers. As you know, Vishay has grown to its acquisition of many companies such as spread, certain east, del ore et cetera, and it was it was very difficult for the customer to buy from us the product from one source. They said always it's very fine. You have a very broad product line. It's very important to us that we tell have to buy separately, for example, from spread and from Dale. This has ended now. We introduced SAP program. And customers can buy from one place, one telephone call will give you a possibility to buy any product you want of Vishay. This has been a major improvement and, in fact, some distributors came to me and said this they place more orders now than before because it became much easier to do business with us. This is really what we wanted to do, is to create a very broad product line on one hand and make it very easy for the customer to buy from us. Another issue, also, which helps enormously presently is our sample service . We have installed in San Diego a year ago or so a system whereby us customers could get samples almost instantaneously from any products which we have am you realize we have some 70 factories and thousands and thousands of product, and it was a major problem for customers to get a sample. Sometimes they would have to order a sample from Europe, sometimes from the States, sometimes from Mexico. It was difficult to work. Presently a customer can get, take a sample order and get delivery of the order the same day or next day free of charge; in other words, it's almost saying its a different service. This has not existed before, and this in fact helps us tremendously. Because of that, many OEMs started to send out billable materials, the bonds, to be reviewed by Vishay and include Vishay as a supplier. We have been lately swamped with that. We have two engineers full-time and special program, special program which was end stalled for that whereby any EOM which comes to us is translated immediately into Vishay products so that any purchasing agent could buy the product not only from whatever OEM but also Vishay on the same line. We believe this that this will give us much better exposure and a possibility to quote essentially on every major buy.

The integration of BCC and measurement group is doing very well, as Dr. Paul told you BCC and EMG measurement improved our line. Many projects have been already done, such as integration of the sales force on the G&A, the manufacturing integration is in process. This will take a little longer whereby we are transferring plants from one, from the areas of high cost into areas of low cost, mainly into China. We have been a little bit shade delayed by SARS but now everything is in full swing again. Our strategy to have the broadest line of passive and active components, plus acquisitions, and the split of 50/50 between specialties and commodity products works very well. I always said that in good times everybody can make a profit, buts what happens in bad times? We at Vishay have shown and this time again that in bad teams we are functioning quite well and still making a profit. This is the most important thing for me, is to see how our management is able to weather the bad conditions and still continue to propel the company. I believe that we are well-positioned for the future, as we have our facilities well equipped now, most of it is being transferred where it has to be, and when the upturn comes up, we will anybody a strong position. Thank you very much. We are open for questions.

Ladies and gentlemen, if you'd look to ask a question, please press the 1 on your telephone keypad. You will hear a tone indicating that you have been placed in queue and to remove yourself from queue at any time by pressing the pound key. We also ask that if you are using a speakerphone that you please pick up your hand set before depressing the numbers of once again for ask a question please press star 1 at this time. And our first question comes from Patrick Parr with UBS securities. Please go ahead.

Thanks and good morning. I was wondering, perhaps Dr. Paul could lead us through what the specific cost cutting activities would be for the second half of this year, perhaps quantifying in term of head count and potentially the reductions in SG&A and operating expenses.

Well, I could try to do that. It's quite a lengthy operation to do that because there are quite a few moves, and not everything can be finalized by the end of the year, as to move plant is something which is more time consumption than just to cut SG&A. Now, well let me go through. First of all, we are going to move tantalum molded caps to China. This will be finalized approximately in the first quarter next year and we are going to move, and I'll tell you somehow, people at the moment something like, say, a few hundred people from Israel to China depending on the capacity. And you can, of course, calculate the difference between the Israeli costs and the Chinese costs. Then you are going to move substantially film capacitors from Holland -- from Belgium we are going to move them also to China am this is a longer program. This will take approximately a year or to one and a half years for the first phase. We are going to at the same time reduce the Portuguese factory substantially which also makes film capacitors, also the low end of these products have to move to China we are talking, as I say, altogether also a few hundred people. Then we are moving, we are concentrating tantalum wets in the United States and contacts, a portion will go to Israel. We are doing that, and this will take another, I would say, half a year to nine months to complete that. Then we are moving from France and from Germany resistor operations continuously to the Czech republic. From France it's transducers. From Germany it's leaded resistance from the new acquisition by slap. Then we are moving, again, we're talking always a few hundred people, each of these moves. Then we are moving non-linear resistor operations from bell crumb, we are moving to China, also, the finishing portion of that. And then, as I indicated, we are dissolving in steps the factory in Norfolk, the Dell factory from Norfolk not giving up any product line but integrating it into Israel, into Mexico, partially into other American facilities. These are the major moves which are ahead of us. And altogether you can see this concerns far more than 1,000 people.

Okay. And any -- when it's all done, would could you hazard a guess, Dr. Paul, as to what the savings could be? The current cost?

Just coming back to our plan for BCC because most of these plans or exclusively, most of these plans were related to BC components, and you can remember that we expected savings of $70 million annualized, so basically we have already the SG&A part more or less behind us. There is something more to come, but I would say altogether we see just consistently what we said of something like $40 million annualized savings for that.

Okay. That's very helpful. And then a second question. Regarding how business has trended through the month of July, would the book-to-bill that you reported at the end of June be representative of thing that they stand right now at the end of July?

July was a continuation of the second quarter on average, more or less.

Okay. And would we -- --

Gerald, we we're not really going to be commenting on the open rightness since June. Okay?

I understand. So you have heard.

Okay. And then perhaps Dick could answer this. In a normal environment, Dick, would we typically expect a seasonal pattern in your results, meaning a positively or negatively, from June to August -- or June to September?

We don't have any outlook for that write right now. In prior years when the company was a different company it had experienced things like that, but this is an entirely different company today, so we will not comment on the next quarter.

Okay. Thanks.

Our next question comes from Matt seer sheer on with Thomas will partners am please go ahead.

Thank you. I just wanted to get a little mitt bit mere into the semiconductor business and specifically Siliconix was down sequentially because of Asia, handsets and notebooks. Is there any indication that there is, you seeing like some other components, suppliers are, buildup of finished goods, inventory there, and what's your sense of that sort of getting to normalized levels in what silicon I can is saying there?

It's exactly the opposite. We have followed the inventories of our distributors as you have imagined, and specially in Asia it's remarkable. This is why I tried to say that we're very cautious in the second quarter. They are really under stocked. This is what practically gives me some hope for a quick turn around. As soon as the overall condition there is getting better, and as far as I understand it, this Asian disease seems to be under control. One thing is for sure, from an inventory standpoint the Asian distributors are under stocked.

That's from the standpoint of components.

Yes.

Fine. And so are you starting to see -- you talked about Siliconix seeing a bit of an up tick. Is that both from the handset market and notebooks?

It's both p either both it's 1.09 book book-to-bill in the quarter which is a remarkable rebound.

Great. And then one other question. In the past I know you've talked about sort of a goal of gross margin of around 30% blended with a 50/50 active versus passive split. Given the BC components and the integration there, is that sort still of a normalized level that you're comfortable with?

Yes.

and can you give us any sort of idea of what sort of revenue run rate you have to achieve that.

I have to ask Dick.

Our goals ten to stay the same. I mean we still have a 10% to the 50/50 and the run rate of revenues to be as you said before higher than the 2.2b that we are running at earlier as Dr. Paul talked about at the beginning of his presentation.

I only want to add one thing. Of course, by nature the restructuring, especially necessity capacitors, capacitors is as I indicated before our weakest area, not only our weakest area, it is the weakest area of the industry eight moment can but we are doing heavily cost reduction in this area, so a portion, and this is part of my $40 million which I excited before, of the cost reduction in the context of the moves is a middle effect of. Plainly come from cost reduction.

Okay. Great.

on you income question comes from Steven Fox with Merrill Lynch. Please go ahead.

Good morning. A couple questions on the financial side. Dick, do you have some balance sheet info on inventories, receivable and payables during the quarter?

We will have a balance sheet published -- didn't I say that? I'm sorry. I meant to say that. The balance sheet will be posted at the beginning of next week. We'll have all that information once we have it all completely reviewed by us.

What is the recurring charge exactly for in the quarter? What are you doing with the $5.3 million charge?

How much?

the charge you're taking in the quarter.

the 12.3.

12.3. What is it for?

Gerald, do you want to give?

Massive moves from Germany and France to the Czech republic, as a matter of fact, and these programs have been announced and and this is basically what it's for. It's also mar she'll for further reduction in SG&A as it relates not to BC components people but to original Vishay people.

So how much is related to severance versus moving?

Most of it is severance. Most of it is severance. This was a mess understanding. Most of it is related to severance but you can have severance payments for just reduce than overhead or to move production. This is what I wanted to say. But most of the money is needed for severance payments.

And do you expect any further charge the rest of the year?

Oh, I think Dr. Paul said that, you know, he announced the various programs that were still ongoing, so you can expect a restructuring charges to be in the third and fourth quarter, yes.

and then the last question, Dick, have you guys broken out how much savings you got from BC in the quarter just completed?

We've broken et out but we haven't announced it.

Is that something you're going to disclose or not?

No.

Okay. That's it. Thanks.

Thank you.

Next we have Shawn Severson with Raymond James.

Thank you. Good morning, gentlemen. Dr. Paul, I was wondering if you could just give a little color on what you think happening in Europe and as you see Vishay business over there just kind of from a 50,000-foot view, what your take is on things for the next six months or so.

You talk Europe, John?

Europe. yes

Europe is doing relative, I expected the worst of Europe for this year, to be honest. I know all pessimisms I am is round and so forth. It doesn't seem that way there are segments in Europe which do remarkably well this year. One of the segments is automotive. We see it, American automotive, how it suffers, and European automotive is not the same thing. Quite strong , quite strong. Also, instrument -- industrial electronics is relatively doing well. Relatively weak in Europe is, of course, consumer, but consumer by nature is not that strong in Europe, so we see a relatively Goodyear in Europe, may I say, ironically.

And you feel that that's sustainable at least? It doesn't seem to be anything out there that's going to ruin that in the next four to six months some.

Being a good European I should be pessimistic about the I cannot. As a matter of fact, it appears to be that automotive is continuing on that rate. It appears that the whole economic scenario in Europe tends to become a little more friendly as the year progresses so I'm quite optimistic for Europe really.

and then another question on Siliconix, if you could. Margins being held there were pretty impressive given the decline in sales sequentially. Is that something that if we do pick those sales back up and it was really more of a pushout, should we expect to see another significant step-up in the gross margin as utilization rates pick up or is there something that relationship there --

Each substantial cost reduction in Siliconix and they are pushing new generations which are technically better but also have financial advantages. So as a matter of fact Siliconix, as I said it before, continues to be one of our major hopes for the future, indeed. We expect Siliconix to come up in profitability.

and if you look at the mix of the backlog that did pick up in Siliconix, is that mostly with new generation products and things that would --

No. This would be saying too much. No. It's a continuous increase of the new generation. It takes always 12 months easily to have, 12 to 18 months to have a new generation penetrating the market of no, no, it's traditional business but it grows.

Great. Thank you.

and next we have Ted Kundtz were Needham & Company.

Hello everyone. Gerald, just talking about the pricing environment out there it sounds like from your comments that we're probably getting close to normal except for perhaps some of the capacitor area. Is that true? Do you still think that's the outlook going forward, that we are back to normal pricing, and secondly where do you think the capacitor business will start to improve for you guys a little bit in term of the pricing environment?

Okay. If you allow me to go through briefly, resistor pricing is not the issue. It was resistor chips only, and resistor chips will continue to go down. There is no question. But this is the chip side, as I say, 10% of our resistor sales which means we are really not exposed in resistors to the general price pressure except for the small segment. In Siliconix I have to, as I said, there is continued price pressure. The market conditions are tense, it was a substantial decline in the second quarter vis-à-vis the first quarter, but it's obvious. As soon as this market, especially in Asia, becomes more normal and we are quite optimistic that it's going to turn around now did the disease being defeated, hopefully, that also the price pressure will go down. It will never go to zero in the case of power MOSFET. We never saw less than a 10% year-over-year but a 10% year-over year with the innovation rate of Siliconix than could I can doesn't help us. The new generation is starting at the price, the learning curve goes down. Queer not real exposed to that. On the all the other semiconductors we have to live in something like between 5 and 6% historically on rectifiers but we are able to cope with that, with all the cost reduction which is ongoing. At the moment it's higher than that, but it's is same thing. The major portion is in Asia. As soon as the market normalizes, this will help had. On tantalum capacitors in particular because all the other capacitors, MLCCs is very competitive, Not necessarily for us because we are sitting in a niche. We are in automotive. Nevertheless, we see also price pressure. It's the same thing. Economy gets better; we will also normalizes specially in automotive. Tantalum is, a big overcapacity if in the fact, market and this will take some time until the prices, at least for molded segment, will go down, the price pressure. Do I not foresee when this will happen.

Okay. Final question, are you seeing a pickup in the PC business? You mentioned it was weak for you guys. We're seeing some better numbers there. Are you starting to see that yet or not?

No.

You're not?

No. excuse me. Did I say it right? In Siliconix indeed we had a book-to-bill which was greater than 1 in the quarter and it was also from PC. Sorry.

Okay. But the rest of your business you're No. seeing it yet.

No.

Okay. Thanks a lot.

Next we have Andrew Huang with American technology. Please go ahead.

Thank you. Could you estimate the impact, revenue impact of SARS for the June quarter?

We have no idea. It would be hard to. It was greater -- as he said, it was more than one. Okay. I don't know how we could estimate that. I could tell you what our original bud yet were. They were a little bit higher than what we had have we have here.

Dick, it's hard to quantify, absolutely hard to quantify.

Okay. And then in your comments by the individual product lines you specified that pass ifs capacity utilization was up sequentially. Can you gives a feel for what the number is?

It really depends heavily on -- we have so many passive lines, about you if you took, for instance, tantalum modem, particular case, tantalum molded was down to below 25%. We are now utilizing over 35% and MLCCs we were down to below 30. Now we are utilize than 50% of the capacity, and so on.

Okay. So it's clearly improving on the sequential basis.

Yes.

Thank you.

Next in queue David McGregor with Longbow research. Please go ahead.

Yes, good morning. Couple of questions but first of all just a clarification. You had mention they'd our tantalum powered costs were higher in the quarter.

No.

We didn't say that.

I said the increased inventory of powered in the quarter and this was offset by reductions in process and finished goods.

Thank you for clearing that up for me. I was hoping you could talk a little bit about pricing in the specialty products versus the commodity products. I guess it's pretty difficult see where you'd be getting price increases anywhere these days but it seems as if you've got a little more resilience on the specialty side. I was just wonder regular if you could give us a little more perspective on that.

You are correct to get price increases in general is not easy these days can but there are situations for specialty anything solutions or you can sometimes be the sole source when you can have some modest price increases, also, but I would say first approximation on specialty products, the prices stay stable, and on the commodity side, as Dr. Zandman said before, they fall between 10 and 15% per year these days.

David McGregor Could you give us a range on the specialty side? Low sing del digits?

Say constant. It's the best guess.

Okay. Thank you.

Really constant.

Okay. And then just last question, I was wondering if you could talk a little about the impact you might be seeing from online auctions. You talked about consolidating your sales force and a lot of progress sound to be occurring there, about the online side, is that a factor in your business right now.

I didn't understand the question. I'm sorry for that.

he's asking with OEMs and when they will put up a purchase order and have you bid online. I don't think we've seen very much of this.

Oh, the online bidding. No, no. That's not playing a role, not much at least. Some people try. It doesn't play a big role.

the big companies have folded who were doing that.

Thanks very much gentlemen.

Next we have Michael Morris with Smith Barney I'm please go ahead.

Yes, thanks. Good morning, everyone. Say, I just wanted to compliment you and thank you for detailed information that you provide per business line. It's actually quite helpful for us as we model. And I want to ask if we could maybe take it a slight step further and ask you to comment on your unit volumes, particularly in the capacitor side, and I guess as we work through the downturn and hopefully an upturn, we're still a little bit puzzled by the under capacity situation in capacitors because units seem to be rebounding, and so is there any way you could compare to us to an apples to apples basis what your unit volumes are doing in capacitors versus say the year 2000 and I'll start with that question.

It's very complex. We have very many lines and, I would prepare myself a little more for that but I will give you some indications, if in the year 2000, if you take this as a reference point. The year 2000 was absolutely unique. You know that. If you took 100% for instance in MLCCs vis-à-vis this level, we are still below, I would say, 35%, approximately 35% or something. No, excuse me. Close to 40% in this case out of memory, out of memory. Then we had on tantalum molded, as we said, we had, of course, again, it's we work seven days around the clock like everybody did. Now we are back on normal working time. You have to figure that out. So we are down I would say vis-à-vis the high point utilizing seven days per week, we may be at 30% of this historical value. You understand. But then you have so many other product lines. We have the -- not really changed. On specialty product it's not much less than it was at that point in time. It's a different world.

Is it your observation that any productive capacity has been removed from the worldwide supply?

Not to my knowledge. Not to my knowledge.

Gerald, again, I think you've been closing your factories. Other companies have been closing their factories.

Yes, but the need of capacity goes down, nobody scraps this equipment.

Right.

So I believe maybe it's dismantled and not installed. Theoretically this would could be. But I would not imagine that equipment is dismantled. And if things pick up, it's available again.

Right. Okay. Thank very much.

Next we have Lee Zelser with Needam company. Please go ahead.

Dr. Paul, you mentioned that you were taking market share in the capacitor.

That was my impression, yes.

Right. Right. What kind of factors would lead you to believe that?

As I said, we have substantial order intake. This is really, we have some indications by customer, of course, as everybody does, and this leads me to that impression, but we also have in total, as I talked about, the capacity utilization, would in creed the utilization, and this is not how I perceived have the market. The market, I believe at the moment, is flat, and we see improved volumes; therefore, it's just my personal conclusion from that, that we have taken share.

and share what you feel will be more prevalent on the tantalum side?

Especially on the tantalum. We also took some share for sure, for sure, again according to my impression, on the OPTO side infrareached we are quite successful on the project in Europe.

Okay. Thank you very much.

and next we have Jim Kelleher with Argus. Please go ahead.

Good morning, Dick. Let me take a big picture question here. You mentioned, Gerald mentioned 2000 when sales were rising so strongly but the net income was riding well more than 10 fold. I we realize that your passive business is no longer so heavily we'd toward commodities, and mainly you're going to be so much more heavily restructured when we get some kind of you be upturn so looking at the end of the year and financing of next year muck start get than organic sales growth at perhaps double the GDP growth rate, what kind of operate can leverage do you have in there particularly relayed to your restructuring efforts, and then I have a question on the business.

the marginal contribute on the next dollar of sales after the extraordinary amount of the restructuring that we have and will be completing in the rest of this year is, you know, is a powerful thing to the bomb bottom line. We said before we have a desire and this goal of 30%. We would expect that, you know, that 30% will be achieved with this type of restructuring, and the contribution of that line. Whether it will be in this quarter, next quarter I don't know. It should be in the year 2004.

and then you were adding heavily in the measurement area. Then you kind of sagged, and then you sigh and you picked up BCC. But what does the pricing look for niche players and measurement and are you likely to be more active acquiring there, and also what is your kind of target for percentage of sales for measurement?

I was involved in that personally a little bit. We started to take measurements as a group at about $40 million, sales was 20 assess advertise essentially. We have acquired five companies and integrated together and at that time it looked like we added $70 million into that. It turns on the that the we added more than that. presently they are running at the rate of over $120 million. Some increase in transistors, as a matter of fact, a lot of increase in, we have long delays in certain product lines there. We are working it out presently. The pricing is constant or up in certain areas. In transducers the pricing is constant. We are gaining market share there. I believe so, because we had some news from customers telling us that this orders have been transferred to us. The outlook for that now, you are asking what is going to be there, well, two things will happen, I believe. One, we are going to continue to gain market share, I believe, because we are producing in China and our costs are below the average cost in the industry; therefore, gain more orders; number 2, we are going to continue with the general strategy of acquisitions. We will acquire some more companies and integrate more. So this blended together should produce the same kind of a pattern of growth, as we say, it has grown, about the I believe a better bottom line potential because it is much more specialty product.

Thank you.

Our last question today comes from Thomas Dingus with JPMorgan. Please go ahead.

Right under the wire. I was hoping that you guys could remind us again what your panel and purchase commitment is for this year and given that that was the primary reason why inventory didn't go down, what can we expect for the rest of the year in terms of inventory? At least directionally, if you're not going to stick a number on it. And then I have a follow-up question for Dr. Paul after that.

This year for purchase of tantalum we expect to purchase $100 million of tantalum powder.

Okay.

At a steady rate throughout the year.

You should also realized that our consumption of tantalum this year is higher than it was last year, and we have, thinking that higher than project, so as we are buying it, we're replacing it, we are consuming it also at the same time.

Not on a 1-to-one ratio I don't but not far off.

and then, Dr. Paul, given all restructuring that you have outlined here and on a go-forward basis, thinking about using the same analogy that you used with unit volumes, thinking about capacity right now as 100%, how much, when you get done with this in, you know, when you get to the trail end of it in 12 months or so, when you think of capacity in terms of shifts, closure, and so forth, how much will you be reducing your overall capacity and therefore the overhead burden from those facilities that you are going to be exiting say out 12 months or so.

First of all frequent a capacity stand point we are not reducing anything. We are moving equipment from A to B, moving it for instance from Belgium to China, from France to the Czech rep can, et cetera, so we are No. closing any, how to say it, lines, we do have the capacity. Why should we? We also believe in an upturn. You may need this capacity at that point. We are moving. Of course, the fixed costs go down by closing factories, et cetera, et cetera, but the major savings when which I said before we expect altogether accumulated at the point in time in the future which can be fully from all our activities together, they will contain some fixed cost portion but most of the savings comes just from the different hourly wage. In China or Belgium or Germany.

Seeing ago you're going to have some further restructuring through the year are you guys going to have a guess as to what we can expect over the next couple of quarters in terms of dollars that are going to be coming through in the restructuring charges.

We have budgets for that area but we have to pro hesitate to project what the costs are going to be a. As we incur them be they will object a U.S. GAAP they will be applied to P&L and we'll announce it but right now we don't really have any desire to express that.

Okay. Thank you much.

Thank you. Okay. Well, look, thank you very much for attending our conference call here today. We've enjoyed being able to report such good results for Vishay. We're happy about the continuation of our programs. And we believe that as the year comes along, that we'll be able to be happy again. So this web cast will be on our web site I think after today and thank you for calling.

Ladies and gentlemen, today' conference will be available for audio replay beginning at 2 30 p.m. eastern time through August 3rd at midnight. You may access the AT&T replay system by wile 1-800-475-6701 and entering the access code 692755. International participants dial 330-365-3844 with the same access code 692755. That does conclude our conference for today. We thank you for your participation and for using AT&T's executive teleconference service. You may now disconnect.