威世科技 (VSH) 2003 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Vishay Intertechnology third-quarter 2003 earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Instructions will be given at that time. (OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded. I would now like to turn the conference over to our host, Chief Financial Officer, Mr. Richard Grubb. Please go ahead, sir.

Thank you. Before we begin, Bill Clancy, our Vice President and Corporate Controller, will read our opening statement, as he usually does. Bill?

You should be aware that in today's conference call, we will be making certain forward-looking statements that discuss future events and performance. These statements are subject to risks and uncertainties that could cause actual results to differ from the forward-looking statements. For 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.

Thanks, Bill. I would also like to introduce our Chairman and CEO, Dr. Felix Zandman, who is with us today; Dr. Paul, our President and COO; and, as always, Avi Eden, our Vice Chairman, is here for any questions after I make my presentation.

As always, I will begin a brief summary of our results, and Dr. Paul and Dr. Zandman will go into much more detail.

Vishay's third-quarter results were similar to the results reported for the second quarter of this year. As expected, revenues of $533 million were slightly lower than June's quarters, and 13 percent higher than last year's third quarter, primarily because of the BCcomponents acquisition of December 2002. Net earnings, before any non-reocurring charges, were $9,398,000 or 6 cents a share, about the same as last quarter's net earnings.

Now, we had some non-reocurring items included in this quarter. I'd like to go over them with you. First of all, we had $6.3 million of restructuring expenses, having to do with some closures of plants in Europe and the United States. We also incurred a $9.9 million loss on early extinguishment of debt. As you will recall, back in June/July of this year, we had a new $500 million convertible issue that went to pay off convertible issues that we inherited from General Semiconductor that had interest rates of about 5 3/4 percent. We replaced that with interest rates of 3 5/8, and we will, in the future, experience a $3.5 million interest savings each year on this one-time charge write-off.

In this quarter, we also took a $15.6 million write-down of tantalum. As you recall, Vishay entered into a contract with a supplier back in 2001, and we had a large write-off due to a mark-to-market in December of 2002. And after evaluating the market conditions that exist today, and those that are anticipated for the year 2004, we have taken a $15.6 million write-off to adjust it for about a 5 percent reduction in Turkish (ph) prices that we think is going to occur -- that we know is going to occur, in the year 2004. With this write-off, we now have our cost -- unit cost of tantalum at levels that existed in 1999. So now, we will be going forward with levels that are more appropriate, we think, for what the market has out there.

Additionally, in this quarter, we had a one-time gain on the insurance settlement of a fire at our Rhode Island facility of $30 million. As you recall, two weeks ago, we had a grand opening here in Rhode Island at this facility. We now have a $50 million state-of-the-art facility for the manufacturing of our products in that area, and Dr. Zandman will talk about that a little bit later on in the broadcast (ph).

The total combination of all these losses and profits (ph) had about a -2 cent effect on Vishay's earnings per share. So when you see our financial reports, our press release that come out, it shows a 4 cent earnings per share; 2 cents was the result of these transactions. Additionally, with the press release this time, Vishay has, for the first time in its history, released a full-blown balance sheet with its press release. For all those who were requesting to do that, we now have accomplished that at this time.

Okay. So, the remainder of my remarks we will be interested in talking about the 6 cents per share in the operating results. Revenues by major products were as follows. Actives, 265 million; passives, 268, about 50/50. Gross margins for this quarter decreased from 22.9 percent in the quarter to 22.1 for this quarter. Dr. Paul will go into this in more detail. And gross margins by major products were actives, 25.9 percent; passives, 18.5 percent.

Selling, general and administrative expenses for this quarter were 17.3 percent of sales, and represent a 5 percent reduction for each of the last three quarters in this year. In fact, this quarter's SG&A costs were reduced by approximately 50 basis points from the second quarter of this year. Interest expense of $9.7 million is about the same as last quarter's. The operational tax rate for the year remains at approximately 30 percent.

Our cash balance at September 30th, 2003 is $529 million, with about half of it belonging to Siliconix. Our long-term debt at September 30th, 2003, was $835 million, and the $400 million revolving credit agreement that we signed in June has no draw on it whatsoever, so there's no money outstanding on the $400 million. Total inventory at September 30th, 2003 was $513 million, as compared to $533 million at June, a decrease. Current assets are at $1.6 billion, and current liabilities are at $559 million. Our total assets at September 30th for the total Company were $4.5 billion. Backlog at September 30, 2003 was $434 million, up from $420 million at the June quarter. Dr. Paul will go into much more detail as to the book-to-bill and the backlog by category.

Happy and pleased about the cash generation from operations in the quarter; it was $36 million. Capital expenditures for the quarter were $31 million. Depreciation and amortization for the quarter was $46 million. Our headcount now stands at 25,000 employees, of which 67 percent are in low-cost areas.

Thank you. Dr. Paul, would you please continue?

Thank you very much, Dick. Let me first of all talk about the economic environment of our business. There is definitely some improvement of the general economic outlook. There is some accelerated growth expected in the United States. Asia definitely has overcome the SARS disease, and is in the process to catch up economically. And even in Europe, which is normally the slowest part of the world, in terms of recovery, we see some severe attempts for structural economic changes. I am also happy to report about the steady improvement of the market conditions in electronics during the quarter, coming from Asia, in particular. Actives were leading the passives, as this historically is always the case. We have seen a substantial rebound in computers, which has some seasonal impacts, on the other hand. Telecom turns slowly, but networks, in particular, continue to improve much faster than the average of this market segment. We also saw an acceleration in mobile phones for domestic use in China and in Korea. Automotive continued to be strong in Europe, and is recovering in the United States. On the other hand, consumer is still relatively slow. At the beginning of the quarter, we have seen very low inventories at the Asian distributors, in general. During the quarter, there was some stock replenishment, and at the end of the quarter, the situation has more normalized. Altogether, there is more optimism, substantially more optimism for a general and more profound recovery.

Talking about the business development of Vishay, sales in the quarter remained at an annualized rate of 2.1 to 2.2 billion. Of course, acquisitions, as Dick mentioned, and the exchange rates boosted the sales versus prior year. We achieved 533 million in the quarter, vis-a-vis 538 million in the prior quarter and 471 million in the prior year. Of course, the elimination of acquisitions and exchange rates show a substantially different picture. On an apples-to-apples comparison, the sales in the quarter was approximately 3 percent below prior year.

There was a substantial pickup of orders in the course of the quarter. Book-to-bill came in at 1.03, but actives -- especially actives came in quite nicely, at 1.09, and passives slightly below 1. Especially Siliconix did very well. They had a book-to-bill in the quarter of 1.21.

The total backlog, again, as Dick mentioned, increased to 434 million or 2.4 month (ph), which is an essentially healthy situation. With actives, we even foresee some short-term shortages. The price decline continued in the quarter, at a rate of 7 percent versus prior year, and 1.8 percent versus prior quarter. The price decline another time (ph) was driven (indiscernible) capacitors and power MOS.

Now, let's talk about the reconciliation of the operational results. First of all, versus prior quarter, based on 5 million lower sales, the operating margin deteriorated by 16 million, from 27 million to 11 million. The main elements were a price decline of 10 million and, of course, the mentioned write-down of tantalum of 16 million. On the other hand, volume helped by 4 million and we had savings -- cost savings -- from quarter to quarter of 6 million. In other words, if there had been no write-down, the results would have been approximately on the level of the prior quarter, despite somewhat lower sales; and this is, of course, due to our cost reduction.

Concerning the reconciliation of our operational results versus prior year, the picture is the following. Based on 62 million higher sales, the operating margin went down by 18 million, from 29 million to 11 million. Again, it was a very negative impact of the price decline of 36 million. Volume offset that; we had a positive impact of increased volume of 38 million. We had quite respectable, I believe, savings in variable costs of 24 million. On the other hand, the fixed costs, exclusively due to the acquisitions, went up by 19 million. There was inventory reduction which impacted the P&L by 8 million, and then again, of course, we had this write-down of tantalum this quarter of 16 million. Again, without the write-down of the tantalum powder, the results would have close to the results of last year.

Concerning some other highlights in operations, I would like to mention that inventory turns increased to 3.1, which is an improvement over last year, where we achieved 2.7 turns. We have reduced inventory by 13 million in the quarter. There was an increase in raw materials, in particular only in tantalum powder, and this was more than offset by a decrease of WIP and finished goods.

We have continued to reduce fixed-cost headcount by 72 people in the quarter. Year to date, we have reduced 296 people, and all of this happened in high-labor countries. And there is more to come. We have continued to decrease our share of employment in high-labor countries. During the year, we went down from 35 percent to 33 percent. Our long-term target remains between 20 and 25 percent. Capital spending in the quarter was 31 million, versus a depreciation of 33 million, which of course is a contribution to the cash flow. The on-time delivery performance of Vishay was okay in the quarter, better than 90 percent.

The capacity utilization continued to improve. We are approaching full load at most of the actives, and we see some improvements, partially some important improvements, in passives. The consolidation of the SG&A organization of BCC with Vishay has been finalized. We enjoy ongoing savings of approximately 30 million annualized. We have started another and additional reduction program for SG&A of approximately the same order of magnitude.

Now, let me address the most important product families of Vishay, and I would like to start with resistors and inductors. There was a somewhat weaker order intake in the previous quarter. This was leading to a slight decrease in sales. We achieved in the quarter 121 million, whereby 29 of that came from the BCC acquisition. On an apples-to-apples comparison basis, we were up in resistors and inductors, vis-a-vis prior year, by 12 percent in sales. The gross margin continued at the level of 25 percent of sales. We have virtually no price decline. The cost reduction measures start to impact the results, and there is an ongoing strong performance of the BCC acquisition. This is (indiscernible) -- this division is there (ph) and of inductors.

Book-to-bill was slightly below 1, and the backlog remains at a quite reasonable level of 2.4 months. There was some ASP decline vis-a-vis prior year; it was 3 percent. But, as I mentioned, vis-a-vis the prior quarter, the prices were close to stable. Inventory turns were at a quite acceptable level of 3.6, and the capacity utilization, depending on the line in the resistors and the inductors, varied between 50 and 70 percent. We are restructuring. It means in particular, we are ramping up MELFs in Israel -- MELF resistors in Israel. We have virtually finalized the right-sizing of the Avery (ph) plant in Belgium. We're in process to move leaded resistors and transducers from Germany and from France to the Czech Republic. And finally, we have merged, now, the organizations for nonlinear resistors, and we are on the way for further restructuring.

Now, capacitors continue to be the most difficult part of our business. The business continued, really, at the low level of last year. Book-to-bill recovered in the quarter, still below 1, slightly below 1. Sales in the quarter were 118 million; 32 million came from BCcomponents. Backlog is at quite healthy 2.8 months. ASP decline is still noticeable, but it slowed down a little. We have now 5 percent versus prior year, and 1 percent versus prior quarter. Our share of specialty capacitors through the BCC acquisition helps. The capacity utilization is, of course, very different for the various capacitor lines, but in commodity capacitors -- this is basically tantalum and MLCCs -- you have approximately 50 percent utilization. Utilization is higher in specialty capacitors. The profitability in capacitors in the quarter was negatively impacted by some startup costs in the context of production moves. Nevertheless, the gross margin was running at the same level as in prior quarter, at 10 percent, excluding, of course, the tantalum write-down.

Some restructuring projects -- we will have the first production of tantalum capacitors early next year. We have moved to really 50 percent of the Belgian equipment for film capacitors to China; they have been installed there, and production has already been started. And the move of power capacitors to the Czech Republic is close to be finalized.

Coming to measurements group, you will remember this is a niche business, an important specialty business for Vishay that is very profitable, and it helps to stabilize Vishay performance. Sales in the quarter were at 29 million, slightly below previous quarter, book-to-bill at 0.92, and the backlog at 2.4 months. Gross margin runs at a very satisfactory level of 32 percent of sales, was even somewhat negatively impacted by ongoing restructuring in transducers -- you know, our new acquisitions. Inventory turns were at 2.7, and there will be, also, in future -- for the foreseeable future -- substantial restructuring efforts to merge the transducer acquisitions.

Coming to semiconductors, without Siliconix -- I will comment on Siliconix separately -- this contains General Semi, Telefunken Small Signal, Telefunken and Infineon opto products. Over the last quarters, the business was quite stable. We achieved 166 million sales in the quarter, vis-a-vis 168 prior quarter and 175 in prior year. Of course, the business has suffered, also, in this case from the Asian disease, from SARS, and the relatively low orders in the second quarter. Book-to-bill, on the other hand, has recovered during the quarter, reached 1.01. Mainly, General Semi showed improvements, which is not astonishing. A major portion of their business is in Asia. Backlog has slightly increased to 2.2 months. We have seen continued price pressure also for these products, 8 percent versus prior year and 1.7 percent versus prior quarter, mainly at power diodes.

The profitability continued to be satisfactory. Gross margin runs at the level of 25 percent of sales. Inventory turns were simply excellent; we achieved 4.6. The capacity loading in these various product lines improved during the quarter. Now it's between 60 and 75 percent. General Semi's move of finishing operations from Thailand to China is quite well on the way. The production will start in December of this year, and all this will concern approximately 800 jobs to be moved from Taiwan to the People's Republic of China.

For small signal products, we also are in process to reduce further our presence in high-labor countries. I talked before about our ambition to reduce, in high-labor countries, the share of our employment. This is an important aspect of it.

Concerning Siliconix, Siliconix was to starve (ph) the quarter, so to speak. There was a substantial rebound of the business after a strong recovery of the orders already in the previous quarter. Sales came in at the level of 99 million, which compares to 90 million prior quarter and 100 million prior year. The book-to-bill, as I mentioned already, has reached 1.21. And the backlog has recovered to quite healthy level of 2.6 months. We are practically at full capacity utilization, and we see shortages already. The business recovery definitely came from Asia, and is driven by computers and also distributors, of course, restocked. There was still (indiscernible) a price decline, on the other hand, in the quarter, due to the tense market conditions during the first half. We have seen 5 percent decline versus prior quarter, and 1 percent versus prior year. But given the full load of the -- better load of the industry, we believe that the price decline should go down from now on. The gross margin came in at 27 percent of sales; it was slightly negatively impacted by an inventory decrease. And the inventory turns are good, 4.1. Especially in Siliconix, we have an excellent management, which is dedicated to our technical progress there, and to leadership in technical things. It's an excellent division.

Let me summarize. I believe that Vishay is well-positioned for an upturn, whenever it will happen. The latest acquisitions have been merged quite successfully. There are definitely encouraging signs of the economy in semiconductors, and especially in Siliconix, they are very encouraging. And all this underlines our confidence for the new future of the business.

Thank you. I'll turn it over to Dr. Zandman.

Good morning. I would just like to summarize that by repeating what Gerald just said. The outlook is much better than before. We have better bookings, better order intake, especially in the semiconductor area, followed by, first, Siliconix as the leader. It's always like that; it's always the most sophisticated part which starts the upturn. They are already more than two quarters; the orders are up. So we do believe that Siliconix, and then followed by General Semi and the other semiconductors, like Telefunken, are, in our opinion, upturn now, steady upturn. It will be followed by passives. We're starting to see, also, in passives, a familiar pattern of bookings which are up, much more volume. But it is not as strong as the semiconductors. Historically, it's always happened like that; semiconductors, in general, especially the sophisticated part, was the first and was followed by less sophisticated parts of semiconductors, then eventually by the passives. I think we are now in the cycle of this upturn.

The capacity utilization is now better, for us and for our competition. When I look at some publications made by our competition, they also see an increase in the passive area of volumes, and much better capacity utilization, which I believe will produce a slower price erosion and, hence, a better bottom line, with time. Our consolidation of BCC is on target, an extremely important part. We are quite lucky of having acquired BCC. All the projects are on target or above target. Measurements group also is on target; they are consolidating now the different small acquisitions in the transducer area, but especially the strain gauge part of measurements group is very strongly up. Our variable margins there are absolutely excellent; they exceed the 65 percent. Absolutely excellent. And we're exploring, now, entering into new markets in Asia, low-cost market, by revising the way we're producing, and we believe that we can attack this market with high profitability in the near future.

I would like to say a few words about R&D. We kind of always spoke about acquisitions and what's happening on the markets, but we didn't emphasize R&D. We have made a survey now, and it turns out that if you look for the last 10 years, 50 percent of our products did not exist. In other words, during the last 10 years, one-half of the company, $1 billion, came from new products. Siliconix -- it is 88 percent. The remainder of Vishay is 41 percent, and has averaged over the 10 years, due to new products, there's a renewal of about 50 percent of our product lines. If you look at five years areas, this is lower. Of course, it's 28 (ph) percent, with 46.5 percent for Siliconix, and for the remainder of Vishay, at 23 (ph) percent. In other words, we are renewing our lines through new products, and therefore, are pushing our new products through our R&D effort at the rate of about half of our business over 10 years. Our product line, in general, at Vishay, does not suffer from the same kind of obsolescence as integrated circuits. In integrated circuits, we can see a turnover, and we've seen four to five years, and our product is dead. For us, the products are lasting 20, 30, even 40 years. So we are interested to see what is (technical difficulty), and as a repetition again, $0.5 or $1 billion is all due to new products.

It was mentioned, shortly and briefly, by Dick about EFI. This is a thin-film facility acquisition from several years ago, which is involved in specialty thin-film resistors used for medical and military. The facility has burned down completely, by accident; there was -- on the second shift, our primary process took fire, and EPA forced us to remove the plant, start to build from the beginning. And we've seen 1.5 years, we have rebuilt the plant completely. The insurance company gave us $50 million to be able to do that. We have, today, a state-of-the-art -- I believe the most advanced state-of-the-art thin-film facility, which started to work, now, very efficiently. We are seeing productivity improvement, and the most important, during the fire and the restructuring, we didn't lose any of our customers; they stayed with us.

Another issue which was mentioned in our release is Walsin. Walsin is a Taiwanese company making MLCC capacitors, mainly for the consumer market. We entered in a corporation for technical and marketing work together, and we will now be able to sell Walsin-produced products for us, to our specs, in U.S. and Europe, and attack the low-price markets. As you may know, our markets for MLCC capacitors were almost exclusively targeted toward automotive business, very high reliability and specials, hence higher prices. And we were not able, with this product, to enter the main market. Since our sales force is everywhere, and could sell this lower-cost product, this deal for us, and for Walsin, I believe, will produce much more sales and more product presence and bottom-line improvement in this area.

Concerning the strategy, it is the same as before -- acquisitions, R&D and cooperation with others like Walsin, cost reduction, rendering (ph) -- pushing us toward better marketshare, a presence in attacking market shares in certain areas which we are not there. And of course, all this should lead to a better bottom line. We always look at the bottom line as being the number-one, the most important part of whatever we do.

I look forwards toward better times, because the bookings are better, and the bookings are in fact -- are going to produce the sales, which are going to produce the profits. We are poised to recovery. Next quarter, I believe, will be better than this quarter. Thank you very much.

Okay. We will open it up to questions now, please.

(OPERATOR INSTRUCTIONS). Shawn Severson, Raymond James.

I'm just wondering if you could touch on some of the margins and the actives going forward. Listening to International Rectifier and Fairchild and some of the other ones, they have all seen improvements in gross margins, and they talked about prices starting to stabilize. What kind of improvements can we expect from Vishay? I was a bit surprised it wasn't actually stronger, in terms of the gross margin, this quarter. And if you could just give a little more color on those two areas?

Okay. Number one, first of all, as you indicated before, there is ongoing cost reduction on one side, which partially was eaten up, up to now, basically by price decline. So by nature, if you have half of the price decline, you would see, for instance, which I would see as a possibility, you would see definitely some improved margins as we go -- a few points, easily. And then, of course, concerning volume, it is -- it especially relates to the Telefunken lines. In the quarter, the capacity was not completely utilized. Siliconix was quite okay, but we see also additional improvements concerning the volume, which we are going to see. And fixed costs tend to be kept stable; we don't grow fixed costs, normally. So, as you say, principally speaking, by less price decline, by higher volume and by ongoing cost reductions, should see the gross margin coming up to levels which were historically over 30 percent in gross margin.

Just a quick follow-up. Steve Smith had a question on Siliconix, as well.

Just a follow-up. Again, with regards to the pricing pressure seen at Siliconix, I guess International Rectifier had mentioned on their call yesterday that they had seen the firmest pricing that they had seen in years. I'm just wondering why there might be a disconnect between those results and yours at Siliconix.

Well, basically, what we have seen in Siliconix is the following. Of course, the sales in the quarter were based on orders which were taken in the quarter, basically in the second quarter. And we all know that in the second quarter, the economy was still relatively low. So definitely, we were more willing to make concessions. If you look at the order book from now on, we see a better picture.

And just lastly, on the passives business, having a book-to-bill below 1 -- is that really more just because of very short leadtimes? Would you say the demand trends, over the last month, and going through October and November, seem stronger than a 1, but it's just leadtimes are still short?

Well, it's not so much a leadtime. It's true, we entered into the third quarter at a relatively low level of orders. Definitely, July was not a good month. But during the quarter, and especially September, then, turned out to be excellent. And also, the run rate, as we go, seems to be encouraging. But the orders of the quarter, especially in passives, were really burdened by a slow start.

Patrick Parr, UBS.

A couple of quick questions. Regarding the passives business, your capacitors business was down, I guess, 2 percent quarter on quarter. A number of the Asian companies, as well as your U.S. competitors in that segment, reported huge unit growth sequentially. I'm curious; I know you are a different business, of course. But I'm wondering if you could help reconcile why your unit growth wouldn't be much higher, based on what the competitors are reporting.

As you indicated before, Vishay, our specialty products is very different from what our competitors typically have, especially the BCC businesses, on ceramic disks, on power capacitors, on aluminum capacitors. These are absolutely different from what you normally have seen in Vishay before, say. Even in tantalum capacitors, we have a relatively high share of what I would call specialty products. And of course, they didn't suffer before that much. And also now, maybe they don't see the same recovery.

Anyway, also, we see quite a substantial increase in orders on the commodity side of the business, just recently.

Okay. Now, Dr. Paul, I'm sorry; maybe I missed it. But did you break out the ASPs for tantalum specifically, or did you just group it by capacitors as a group?

I commented on capacitors as a group. And I think I have mentioned the price declines there, as far as I can remember. But of course, it's a relatively simple explanation. On the specialty products, the price decline, which is aluminum capacitors, which is ceramic capacitors, which is power capacitors -- there's virtually no price declines in the year, between 2 and 3 percent. And all the price decline happens, naturally, on the commodity side of tantalum capacitors and in MLCCs.

And also, maybe Dr. Paul, in your commentary, you mentioned some weakness in the consumer side. That, again, is kind of counter to some of the other areas we have been hearing -- or some -- we have been hearing from others. I was wondering if you could give a little more color on that. Are we talking white goods, washing machines and such, or are we talking consumer electronics?

Consumer electronics, in reality -- this is what would be realized. But you know, consumer, in the portfolio of Vishay's market segments, is historically not the most important one. So this is our observation. Maybe turns, also.

And then real quick, finally, I think, Dick, in your early comments, you made some statement to the effect of as expected, revenues were lower in the quarter. I'm curious; seasonally, I would have thought things would have been flat to up, all things being equal. So I'm curious where the as expected aspect comes from.

Well, I think last quarter, when we were asked how things were going to be for this quarter, we ourselves thought that the second quarter of 2003 had an enormous effect on the revenue side, due to the dollar exchange rate. And that dollar exchange rate was coming down, and wasn't as an impact (ph) to this quarter as it was last quarter. We knew that in June and July, when we were giving these numbers out.

May I add to that that the book-to-bill in the second quarter was below 1. You can remember.

That would suggest that the book-to-bill is a fairly good indication of the next quarter's results?

Yes.

Steven Fox, Merrill Lynch.

A couple of questions. First of all, in terms of capital spending, it sounds like Siliconix is running full out. Do you expect to spend a little bit more to add capacity anytime soon?

Well, we are in process to add capacity on the back-end side. And you know that we already -- that we use foundries substantially for the primary.

Dr. Paul, the bottleneck is on the back end, I would assume?

Yes.

And then, in terms of just going back to your commentary on the markets, if you looked at it passives versus actives, was there much difference that stood out?

Yes. In the quarter, as we explained -- it happened like so often before. What really picked up first was actives, and in our portfolio, it always is, as Dr. Zandman was saying, the most advanced product. This is definitely Siliconix, which started the whole upturn, as we see it today. Then followed General Semi, and then came Telefunken, so it's one after the other, still on the actives side. Just recently, we also see better orders on the passives.

How about in terms of looking at the consumer market specifically, and some of your other served markets? Did the actives do better in certain areas than the passives, or is there not that much to distinguish them?

Well, definitely, Siliconix leading that; it's in the notebook; it's quite strong in the notebook. So the first push came from Asia, and came from the computer industry, is where it started from.

And last question, Dick. Do you have a full-year capital spending outlook for this year?

I think we said back in -- at the end of the first quarter, of March, we were looking somewhere around about $100 million of CapEx for this year. I don't think that's changed yet.

It's a little more.

A little bit more.

A little more because Siliconix gets consolidated in that number?

Yes.

Matt Sheerin, Thomas Weisel Partners.

I know you didn't give specific guidance for December, but based on the answers of a few questions here, it sounds like you are expecting revenue and gross margin to be up sequentially. Is that correct?

Yes.

And regarding the restructuring program, which is happening every quarter, could you give us some timetable of when some of those savings will kick in -- December, March, June, for instance? And then when we may see basically an end to the restructuring and no further charges?

Gerald?

Well, on the SG&A side, we already had tried to say that we have concluded the integration of BCcomponents; so this is behind this. But we have an additional program now set up, which is comparable. And this really will kick in, in the course of the first quarter -- close in steps next year. And then, of course, in manufacturing, we pursue our programs. And this is basically moving production; in this case, it's not so much exploiting synergies. In this case, it's moving production. And we all know moving production is a time constant. So basically, I would imagine that whatever we plan today -- but there can be new projects, as we go, of course -- it's cost reduction. But whatever we have today in our portfolio of projects should be finalized within the next one to two years; it's close in steps.

And could you remind us what revenue level you would need to achieve the 15 percent operating margin that you talked about?

In a normalized case, we went from an assumption of 2.5 billion.

2.5, so that's -- okay, very good. And then, just lastly, on the balance sheet, inventory was down sequentially. How much of that was related to the tantalum charge? And if you back that out, what was it apples to apples?

About $4 million related to the tantalum on hand.

So it's down otherwise?

Right.

Lee Zeltser, Needham & Company.

I was just wondering if you could talk a little bit about the outlook for the resistor business. You mentioned pricing was very firm, sequentially. What is your pricing outlook for that business? And if you can talk about why it was so firm.

Well, it's historically firm in this business. Because, you know, in -- practically 80 percent of what we have is halfway or completely specialty product, so we never reported major price reductions in this business, even in the worst downturn, in 2001/2002. Because of the nature of the business, normally, customer-designed products do not show price decline. Of course, they suffer in bad times in volume; that's like everybody else. That's like all the other products. But concerning prices, they are stable. And we have a high share in that (ph). It's close to zero, the price decline and the weighted average. Of course, there are some products, like thick-film resistor chips, which continue to go down. On the other hand, on some specialties there, we can even increase prices. So altogether, we are in a relatively stable situation.

Dr. Paul, from a vertical mix perspective, who are your main customers or main industry customers there?

In resistors?

Yes.

Broad. Resistors represents very much the breadth of all our customers; this is where we come from.

So not that different from the overall Company mix?

Absolutely not; it's the broadest.

David MacGregor, Longbow Research.

A few questions. On the Siliconix press release, it was noted that revenues were up 10 percent. Most of this was being driven largely by the consumer business, and they are not yet seeing any significant recovery in telecommunications infrastructure or corporate IT markets. I was just wondering if, that being Siliconix, can you say the same thing about the balance of your business?

Siliconix was up basically on the computer side, on notebooks, et cetera, not necessarily -- it depends how you define it -- not necessarily in consumer. Siliconix is strong in mobile phones, really, and strong in notebooks, and especially note books, laptops, et cetera have picked up substantially. What we see, really, at the moment, in the other segments, is that -- I tried to say it before; automotive continues to be very strong in Europe, and definitely has recovered in the United States. And then, in telecommunications, we see especially in networks, not necessarily in mobile phones, quite a substantial pickup. But even mobile phones, local applications, local usage in the Far East matters (ph) recently was coming up.

Let me just ask another couple of questions here. I was trying to get some sense of what the expected P&L impact was from the relocation of all this manufacturing. I realize you've got a restructuring charge in your P&L this quarter, but could you talk a little bit about the amount of charges that sort of worked their way into the continuing number that would have reflected this relocation, and what the --?

Well, as it relates to BCcomponents, this is all reserved, Dick, right? This is in the --

Yes.

-- the acquisition accounting. So whatever you see, in terms of charges, comes from, may I call it old Vishay. It was Vishay except BCC. BCC is a major portion of our restructuring; nevertheless, there is restructuring also in the other lines, and this would show as charges. And it really depends from where you move. I mean, everybody knows, if you move out of France, for instance, this is the worst; you have to count on two years, roughly, the layoff process.

Everything, right (ph)?

Yes. And Germany is approximately a year. It depends on seniority, but as a rule of thumb. If you move out of the United States, on the other hand, the charges are little.

So you are saying all of these moves are provided for already. Are you saying, therefore, that --?

The BCC portion of the move, right? Wherever BCC is concerned.

Okay, so let's talk about the balance of the enterprise.

What's that? Excuse me? Sorry?

Let's talk about the balance of the business. What's the impact on the P&L this quarter from the movement to Israel and to the Czech Republic?

You want us to quantify what the contribution has been of the prior moves from the other companies?

I'm just trying to get a sense of the impact on your margins this quarter.

But we can estimate. We increased -- but it's a little calculation; we don't show it like that, but it's a little calculation. We decreased the high-labor content in one quarter by 1 percent; this is 250 people, roughly. 250 people on average. Now, I would have to count from where to where, but say, on average, you save, on an annualized basis, $10,000.

And then finally, just on this Walsin announcement, how are you going to market? Are you getting paid on a commission? Or are you taking a spread?

No; it's buy and resell.

So it's buy and resell? Okay. And what is your target for North American market share?

Well, there is no defined target at this point in time. We start basically from scratch there, because Walsin is very strong in Asia; in fact, they are the third-largest, in the meantime. But within North America and Europe, there is some base business -- there was some base business through BCC, basically in Europe. But in North America, in particular, we start from scratch. But the product is good, and the costs are very competitive, and we do believe that we can get our share, a share.

Do you end up taking a loss to the P&L for the first couple of quarters while you build --?

Absolutely not, absolutely not.

So there is no P&L drag here as we get started?

No, absolutely not.

And maybe to ask the market-share question a different way, do you have some target revenues for that business?

At the moment, we are running at approximately 3 million, relatively little. I could assume -- but this is my wild guess, at the moment; don't take it as a projection. I could assume that in the foreseeable future, this could be 20 million also -- in the foreseeable future, you understand, not in 10 years.

Michael Morris, Smith Barney.

I was hoping to focus back on Siliconix, and you had mentioned, Dr. Paul, that in some areas of specialty resistors, you can occasionally get pricing increases. I was wondering if that would ever pertain to the Siliconix business. In other words, it seems like the ASP declines are moderating. If pricing gets firm, is that as good as it gets? Or can you actually get pricing in some applications in Siliconix?

Not really. I remember the excellent year 2000, excellent for everybody. And the price decline for Siliconix was still approximately 5 to 6 percent. But the mechanism in Siliconix is different. They generate always new products, and the learning curve is short. It means they are relatively -- very often the first on the market with a new product, and start at relatively high prices. And then, as others kick in and the volume comes up, then the prices erode. But then they already have the next generation, so it's a different mechanism vis-a-vis resistors.

And you mentioned that capacity's running tight on the back end. Does this mean that one of the mechanisms for getting firmer pricing in that unit is that you can be more selective about the business you are taking? Or is it just the fact that on an apples-to-apples basis, the price declines do --?

On existing products codes (ph) -- not on new ones, you understand -- on existing product codes, the prices go down. But of course, if you have new ones, you start at high variable margins again, and a more dynamic situation.

And you mentioned that there were some shortages. I know it's a little sensitive, but is there any additional help you could share with us in what areas or applications you might be seeing shortages?

It's packages, really. It's certain packages where we are short, but we're investing already. Of course, you can always use subcontractors, which we do. We prefer, on the other hand, to keep this on a relatively low, reasonable level because of gross margin.

I want to switch to passives, and I just have one sort of broad question. And I know that your passives business is very diverse, and in capacitors in particular, somewhat more specialized than some of your competitors'. But just generically speaking, it seems like unit sales of things like mobile phones and desktop computers and, as you mentioned, notebooks have been doing extremely well. Unit sales are at or near all-time peaks, or even above their all-time peaks. And yet, the capacitor industry appears to still be pretty beleaguered. I wondered if you could just comment, generically, whether you think that's due to too much capacity being put in, in those wonderful years of '99, 2000 and 2001? If it's pricing that has declined to levels that are not necessarily rational, or some combination thereof? Or just give us, based on all of your years of experience, what you think it's going to take to fix the generic commodity capacitor business.

Well, volume, upturn. We are not expecting -- I think the industry does not expect a repetition of the year 2000, but what we have seen in the year 2001 and 2002, partially, also, was something I personally have not seen in my 26 years. It was huge capacity and very little demand. Only a normalization of the situation helps, because even in these terrible years, the volumes -- now, they may have dropped from 2000 to 2001 -- but otherwise, from 2001 to 2002, the volumes didn't go down further; they increased. So really, to use up the capacity resolves the issue. This is my personal opinion.

Andrew Huang, American Technology Research.

With respect to Walsin, the buy and resell business, what kind of gross margins can you expect to get out of that business?

Dick, can I --?

Yes.

A normal resell business is between 15 and 30 percent, to give you a wide range. Walsin, for us, is on the attractive side.

You commented a little bit about the book-to-bill being less than 1 for the passive business?

Slightly, yes.

And that was mostly due to a very weak July. I was wondering if you could comment on kind of the booking trends, October to date?

We saw a continued improvement through the third quarter, and October is not different from that.

And did you provide a unit gross number for the passives business?

No, because we're so diversified it's practically meaningless.

And then the last question is, with respect to the BCcomponents, I think in the press release, it said that it was roughly 61 million in sales for the quarter; is that correct?

Yes.

And if I look at the previous press release, I think that was actually down, on a sequential basis. Is that something you had planned for? (multiple speakers). It actually said 64 million in the June quarter.

First of all, the deviation is relatively little. But secondly, an important portion of the business is in resistors. And old Vishay has the same product portfolio than BCC, and BCC runs at capacity in these resistors. So basically, we are taking some volume from formerly BCC to old Vishay, so to speak. You understand? It's a mix already between plans (ph).

Tom Smith, Standard & Poors.

I wondered if I could draw on your experience in past cycles to talk about the amount of lag that you would normally see between a recovery in semiconductors or actives and passives. Does it have to be two quarters or four quarters?

Two quarters, as you say it. There's no magic formula, but according to our experience -- Felix, I think it's two quarters?

Six months, yes.

And would there be anything a little different about this cycle? Was there so much industry plant built up (ph) before --?

No, we don't know.

We don't know yet.

It looks like it's a normal cycle now. Because there have been a few attempts before, which were not working -- a small spike, and went back. This is already upturned, because it's several quarters in a row, and October looks good. So we think that this is now for keeps, for good.

Thank you very much.

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