威世科技 (VSH) 2004 Q1 法說會逐字稿

Welcome to the Vishay Q1 fiscal-year '04 earnings conference call. At this time, all the participant lines are in a listen-only mode. However, there will be an opportunity for questions. Instructions will be given at that time. (OPERATOR INSTRUCTIONS). As a reminder, today's call is being recorded.

I would now like to turn the conference over to the Chief Financial Officer, Mr. Richard Grubb. Please go ahead, sir.

Good morning. Thank you for joining us here at Vishay. Before we begin, Bill Clancy, our Corporate Controller, will read our normal opening statement.

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. With us today, as usual, is Dr. Felix Zandman, Chairman and CEO of Vishay. Dr. Gerald Paul is in Germany; he is our President and COO, and they will have remarks after I give us a brief summary.

As you all know, today, we reported the first-quarter results that exceeded all analysts' expectations. Net sales of $641 million, which included foreign exchange effect of $33 million, represents a 13 percent increase over the fourth quarter of last year and a 20 percent increase over last year's first quarter.

Diluted earnings per share of 20 cents for the quarter represented more than a 100 percent increase over last year's fourth quarter's earnings per share, and better than a 300 percent increase over last year's first quarter. The dilutive effect of securities was 2 cents for the quarter.

It is our pleasure to report that there were no material unusual or non-recurring charges during the first quarter of 2004. Revenues by major product lines were, for our active products, $320 million; for our passive products, $321 million, an even split between the total sales.

Consolidated gross margins for the quarter were 24.9 percent, up over 12 percent, as a percentage of sales, when compared to last year's fourth quarter, and up over 10 percent when compared to last year's first quarter. Gross margins by major product lines were for the actives, 27.3 percent; for the passives, 22.6 percent.

Selling, general and administrative expenses continued to decrease as a percentage of sales. For this quarter, they were 15.3 percent. For last year's fourth quarter, they were 17.1 percent. For the first quarter of last year, they were 18.2 percent.

Interest expense for the quarter remains consistent with that of the fourth quarter of 2003, and about $2 million lower on a quarterly comparative basis, mainly due to reduced interest costs because of high-cost borrowings that were paid off in the year 2002.

The tax effect for the current year is 30 percent. This rate has remained constant over the last two years. Our cash balance at the end of the first quarter was $582 million. Our long-term debt at quarter end was $838 million, all of which are convertibles.

Total inventory at the end of the quarter was $534 million. Working capital now stands at $1.1 billion.

Bookings for the quarter were $733 million. Our backlog at the end of the quarter was $620 million, up $88 million from year end. Cash generated from operations for the quarter alone was $51 million. Capital expenditures for the quarter were $15 million, and are expected to total $175 million for the year.

Depreciation and amortization for the quarter was $48 million, and our total headcount now stands at 26,000 employees, of which 70 percent are in lower-cost areas.

Now, as far as the second quarter is concerned, we're going to give some guidance, and we expect revenues to continue to increase to levels in the $670 to $675 million area for the quarter. This would represent a 25 percent increase over last year's second quarter, and our earnings are expected to increase at least another 15 percent over what the first quarter's earnings per share were.

Gerald, would you please?

Thank you, Dick. Well, let me first of all comment a little on the economic environment which we have experienced in the first quarter. Well, we have seen a very much improved market economy, and this market economy contributed to a strong and an accelerating upturn in electronics. All geographic markets have recovered. Asia is really booming. The low interest rates support the U.S. economy, and Europe, as usual, follows the United States slowly but securely.

Virtually all market segments are doing well, in particular mobile phones and networks, the broad industrial segments and the consumer goods in Asia, especially. I would like to highlight digital cameras and DVD players. The slowdown in notebooks which was experienced during the quarter appears to be temporary. There is an excellent capacity utilization in actives; there are even some supply shortages. And passives concerning the capacity load are catching up.

There is a stabilization of selling prices that we will comment in more detail as we go to the product lines. There was also the possibility, since a long time the first time, for selective price increases. We watch very carefully the inventory levels at our distributors, and I can state that the low inventory level which I reported before continues to exist. The strong POS increase of the distributors also helped the inventory turns; they are close to 4, in our case.

So altogether, we see an excellent economic environment, and there are no signs for a slowdown.

Now, Vishay's business development -- the sales in the quarter increased more than we expected. They have continued pressure on short-term deliveries. Sales in actives are clearly limited by our capacities. We achieved the record sales levels since the first quarter of 2001. We had 640 million sales in the quarter, which compares to 567 million in the prior quarter and 532 million in the prior year. Excluding exchange rates, this represents an increase of 11 percent versus prior quarter and a 14 percent versus prior year.

The real booming orders in the quarter increased the backlog now to 2.9 months. Book to bill was 1.14. Like in the previous quarter, actives were at 1.21, but also passives recovered strongly; they were at 1.08. And I think very important, that 70 percent of the backlog in shippable within three months.

There was also a continuation of the slowdown of the price decline. We have seen still a minor 6 percent weighted price decline versus prior year, but vis-a-vis prior quarter, there was no price decline at all anymore.

If you look at actives, we had a minus 7 percent versus prior year, and already a slight increase of the prices by 0.5 percent versus the prior quarter. Passives showed a minus 5 percent versus prior year, and no price decline versus prior quarter -- a big change to the quarters before. We also expect further improvements in pricing as we go.

Some of the highlights of operations -- the inventory turns increased to 3.5. The inventory as such in the quarter was virtually constant. Increases in raw materials -- mainly in tantalum powder and wire -- and also (indiscernible) process, were offset by a decrease in finished goods.

We continue to reduce the share of employment in high labor countries. In the quarter, we came down from 31.5 percent to 30 percent. Our long-term package remains at 20 to 25 percent. Despite the strong capacity load, we continued to reduce fixed headcount slightly by 15 people in the quarter, which I think is remarkable, as manufacturing fixed costs are not really fixed if the capacity load is as high as it is today. So we kept our discipline.

We kept the on-time delivery performance at a level better than 93 percent, but of course the lead times are stretching out at the moment -- 10 to 12 weeks on the passive side, 16 to 18 weeks on the active side. The capacities are virtually loaded in actives, and we are in process to expand them. The capacity load for passives is improving, but no major extension of equipment is needed.

Capital spending in the quarter, as Dick was mentioning, was 15 (ph) million, vis-a-vis a depreciation of 46 million. But we will ramp up this capital spending in the quarters to come, mainly for capacity increases at actives.

The announced restructuring projects -- we have talked quite often about them -- are well underway. Our target of having 27 percent only in high labor countries is very valid.

If you look at the results -- the operational results of the quarter -- and compare them to prior quarter, we can see the following. Based on 74 million higher sales, the operating margin improved by 34 million, namely from 28 million to 62 million. The main elements of this improvement was the volume, contributing 29 million; some price increases, 1 million; and less obsolescence, 8 million. There were some increases in fixed overhead, mainly through higher depreciation, insurances and more R&D expenses. If you compare our quarterly results to the first quarter of 2003, we see that based on 109 million higher sales, the operating margin improved by 40 million, from 22 million to 62 million. The main elements were, again, the volume, 57 million; price decline in this case of minus 41 million; lower costs of 18 million, which is more or less the explanation of the development.

I would like to comment now the product lines, and I would like to start with resistors and inductors. The business of the resistors and inductors experienced a substantial upturn. Virtually all of the product lines ran well. Sales in the quarter were 147 million, which is up by 17 percent versus prior quarter, and by 21 percent versus prior year. Book to bill was at 1.08, which indicates a continuation of the very positive trend for resistors and inductors. The backlog has come to a very comfortable level of 2.5 months. Gross margin was further improved to a level of 32 percent of sales. Higher volume, low price decline versus prior quarter, but also the excellent performance of Beyschlag from BCC were the reasons. The inventory turns improved to 4. The satisfactory financial performance now is also true for the commercial thick-film chips, which is the most problematic area within resistors and inductors. They showed in the first quarter more than 20 percent gross margin. And we achieved a capacity load in this line of close to 80 percent. MELFs and leaded resistors are loaded at 70 to 80 percent.

Our restructuring efforts in this area are ongoing. The MELFs moved to Israel; the thin-film expansion, Israel; and the nonlinear move to China, Dale Resistors. They also (ph) moved to Mexico, and semi (ph) transducers are being moved to the Czech Republic. All this is on plan.

So altogether, for resistors and inductors, we are very confident for the future of this highly profitable and also growing business.

Coming to capacitors, there was also a recovery for this most problematic product line which we have. Sales in the quarter were 139 million, which was up by 12 percent versus prior quarter, and by 13 percent versus prior year. Book to bill improved to 1.10, and the backlog is now at a comfortable 2.8 eight-month (ph) level. So we can expect further growth in the quarters to come.

Gross margin improved to a level of 9 percent of sales, through higher volume, through the fact that there was no price decline -- versus prior quarter, at least -- and lower obsolescence cost vis-a-vis the prior quarter. Price erosion, as I mentioned, was still fair there (ph) vis-a-vis prior year, 9 percent, but no price erosion vis-a-vis prior quarter. And we expect, as we go, further stabilization also versus prior year.

The inventory turns in capacitors improved slightly to 2.2. The tantalum powder inventory was still growing in the first quarter, but from now on, given our capacity load, we expect to reduce it. The capacities in tantalum caps are utilized to about 60 to 65 percent. The move of the power caps, power film caps, to the Czech Republic is finalized, but all the other restructuring projects are ongoing -- the move of film capacitors to China, of tantalum capacitors to China and the consolidation of MLCC activities. So altogether for this line, capacitors, we reconfirm the potential of a gross margin of 15 percent.

Coming to measurements group, we saw improved business also for this profitable product line. The sales in the quarter was at 35 million, which is 13 percent over prior quarter and also over prior year. Book to bill was at 0.99, which shows practically a constant level for the next quarter. We see backlog of two months, inventory turns of 2.7, which can be improved. The gross margin improved to an excellent level of 38 percent of sales, through more volume but also through the fact that many restructuring efforts are behind us now.

So altogether, for measurements group, more restructuring and even better results are about to come. It's a complex project, the reorganization of the measurements group and the merging of our acquisitions, but the project is executed very nicely.

Siliconix, in the first quarter, has seen quite an extreme acceleration of the business, which was leading to record sales and backlog. Sales in the quarter were 121 million, which was 9 percent over prior quarter and 22 percent over prior year. The sales were clearly limited by capacity. Book to bill was at 1.24, which was leading to a backlog of 3.7 months and long lead times, between 16 and 18 weeks for customers that do not enjoy reserve capacities.

The gross margin has improved further, to 28 percent of sales, limited by inventory reduction which took place in the first quarter, but also by the necessary increased usage of subcontractors. The inventory turns were at 5.2. The plastic line of Siliconix products has been stopped. Price increases have been implemented selectively. Vis-a-vis prior year, we saw still a decline of 8 percent, but vis-a-vis the prior quarter there was an increase of 3 percent. I think it was a very responsive management reaction to the situation which we have seen from Siliconix.

The increase of capacities is a very high priority at Siliconix. We are going, as I said last time, we confirm it, we are going to increase our annualized capacity by 20 percent in steps during the end of this year, and by another 25 percent in steps during '05.

At the moment, we are fixing existing bottlenecks in the fabs, we are expanding existing foundries and we are also expanding the back-end operation. All this has been started. So Siliconix -- we are really quite excited about the potential of this successful division. We expect further improvements in sales and in profitability.

Last but not least, all the other semiconductors. We have seen there a broad continuation of the upturn which we have seen before, and this was leading also here in this case to record sales, high backlogs and further improved profitability. The sales in the quarter were 199 million, which was 14 percent over prior quarter, and 25 percent over prior year. Book to bill for these semiconductors increased to 1.19, so the trend of increases continues. Backlog is at 2.9 months.

The gross margin improved to a level of 27 percent of sales through higher volume, despite the fact that there is still price decline versus the prior quarter. But there is a slowdown of the price decline. We have seen 1.4 percent versus prior quarter, and 6.5 percent versus prior year. All the price decline -- most of the price decline is driven by power diodes; there is this quite strong local competition, but we expect a further slowdown of the price decline as we go.

Inventory turns for the other semiconductors were at 5.1. Capacity load is high, on average. It's above 90 percent at General Semi, and also quite high at Photo Modules. The other lines are good or satisfactory loads. The lead times are partially quite long. We are on the way to increase General Semi, but also Photo Modules quite substantially in capacity. In terms of General Semi, we intend to increase by 20 percent annualized by the end of the year, and the Modules and SMD LEDs, we're going to expand by 10 to 20 percent and utilized by the end of this year. Altogether, General Semi Telefunken lines is a profitable, broad business, which is on the way to even higher sales and better profitability.

Well, as you have heard, Vishay is doing well. To a degree, we are harvesting at the moment what we have worked for since (ph) years. But it is more than that. There is the clear potential for more -- for more business, more profits, if we just continue to do our homework. And there's no question that we will do that. Felix?

Thank you, Gerald. Well, I would like to summarize that in somehow different ways. First, we have an excellent business climate, an excellent quarter -- 20 cents a share. The last-quarter guidance we gave was for at least 50 percent increase in earnings for Q1 2004. The 20 cents a share earnings, our increase is over 100 percent in respect to Q4 pro forma earnings, excluding Q4 write-offs, and over 300 percent increase of net Q4 earnings. Our guidance for Q2 is at least 15 (ph) percent increase in earnings. Well, I hope we will do better than that.

Sales were up 13 (ph) percent sequentially, without effects of an acquisition; this is all organic increase. Solid backlog and bookings very strong, and somewhat limited by level of (ph) capacity in our semiconductor business. Increase of capacity is on the way, which should help to decrease delivery time and increase further (ph) sales. We have no bank debt. All Vishay product lines are doing quite well. Quite a recovery.

I would like now to speak about one aspect of our strategy, which is the one-stop shop. We're always saying that we have a very broad product line, our one-stop shop. But what does it mean? Does it give us anything? I would like to just take one example to illustrate that.

How do you get an order? An order comes from a request for quotation from the customer, as we then quote the part (ph), and then if the price is right, the delivery is right, et cetera, we get an order. But the question is, are we going to get the quotation, the request for quotation? And this comes from what is called bill of materials. When a purchasing agent wants to place an order with you, he has a bill of materials in front of him, and each part has the vendor shown (ph). It turns out that not all vendors are on the part, so we did not know to what extent Vishay, for recent products and all products, is included in all bill of materials. We made a survey, and we found out that in some cases yes, we are there, and there we have a chance to quote. But in many cases, we are not on the bill of materials. And then the quote comes out to somebody else, and we don't have a chance even to look at that.

So what do we do to get on the bill of materials? We started a project a few years ago by delivering samples to our customers from our very broad line of products at no cost. Today, people can order any sample from Vishay at no cost, and get it within 24 hours. This has created a very big demand of samples, and people are putting us with (ph) new samples on the bill of materials, if they design in.

Then this has created a climate that people started to believe that there is good service at Vishay, and they started to send to us their bill of materials to put all Vishay parts on their bill of materials, wherever it's missing. Why did they do that? Two reasons. One, as I said, was service, and other because we have a very broad product line.

So today, we're in fact flooded with bill of materials, and we have many engineers which are cross-referencing the bill of materials with Vishay. For example, you have a certain resistor ABC, and on the bill of materials, it states that Company X and Company Y and not Vishay. Well, Vishay is put there on. So next time, the purchasing agent has to request for a quote; this request will come to Vishay, and it will give us a much better chance, because with the increase of quotations, could get the order. It's not sure the order will be there; you still have to have the price and delivery, which we do, but this has increased our capability for the possibility of getting more and more purchase orders through increased quotation activity. And we are starting to get the results of that in market share gains. We believe that we're starting to begin already to see market share gains, because of the increased activity of quotations.

Now, we will continue with our strategy of acquisitions, like in the past. Market penetration I discussed above now. And in other areas of this sort -- new product introductions, continuous R&D, continuous overhead streamlining and low-cost countries exploration for introduction of products to be produced there. We will continuously to push type our products into China and other areas to reduce our costs.

So with that, I am optimistic for Vishay's future. It looks like our strategy is paying off. Thank you, and we are open for questions.

(OPERATOR INSTRUCTIONS). Steve Smigie, Raymond James.

Congratulations on a nice quarter. The first question is with regard to the capacity you talked about at Siliconix. At what point do you think that you will actually be able to have all those facilities qualified and ready to begin accepting parts? I know you mentioned some timing on when you might have the capacity in place, but when would you expect to sort of hit normalized gross margins with that new capacity?

Well, first of all, it's not a matter of qualifications. We're expanding most of that. We're expanding existing sources in-house but also foundries. So most of that is without any new qualification of foundries. So we expect, as I said, in steps during the year, a 20 percent increase. The fourth quarter, we already see an increase, and next year then it continues. During the year '05, we're going to increase again in steps by 25 percent annualized always. And so it goes up steadily. (inaudible).

And when you might potentially see a normalized gross margin?

You mean -- normalized gross margin means?

I guess in some of your presentations, you discussed the possibility of a normalized gross margin on the factors (ph) business of about 35 percent.

You know, if the volume comes up, there is a substantial impact on the bottom line. So when we increased by 25 percent of sales, you can imagine that this helps with (ph) a more than 50 percent impact on the bottom line; that's an easy calculation.

Patrick Parr, UBS.

It's (indiscernible) for Patrick. I had one question for you, Dr. Zandman. Can you give us a sense of where you see the growth drivers coming into the June quarter, in terms of what product lines and markets or by geographies? And then I have a follow-up.

Gerald, you will answer better than me.

Well, as I tried to explain in the beginning, at the moment, from a geographic standpoint, Asia is absolutely outstanding, since, I would say, the fourth quarter of last year -- no change there. America has come up substantially in the first quarter. It's obvious that the low interest, they help (ph). And Europe is the last in line, but Vishay is doing relatively well in Europe, despite that. We see Europe also coming up. They historically always follow the United States. The export industry in Europe really depends, to a large extent, on the United States. So geographically, I would say it's green light everywhere, and Europe is improving.

From a product standpoint, it's also really across the board, quite strongly. I would like, as I tried to stay before, to highlight the mobile phones, especially in Asia, and the networks, but also, this very broad application of the industrial application, the industrial applications, which indeed is a good sign. It's not only one segment; it's very broad. And this is strong around the world. And consumer is not doing badly in Asia; not so strong in Europe, but in Asia very strong.

And then in your press release, I wanted to go through one comment in terms of guidance. You say in 2004, you will have your best earnings in the history of the Company other than 2000. Are you talking about that on an operational basis, or on a strict (inaudible), because clearly your share count has increased?

In both. In both -- you're talking on an operational basis and on an after-tax basis -- I mean, net earnings, earnings per share.

Because in '96 and '97, you guys did about $1.25 to $1.30. Are you saying that '04 can be better than that?

Well, if it continues like it is right now, that's quite likely. It is just a matter of markets. If market is as strong as it is today, no question about it; we will do it.

One last question for you, Dr. Zandman. If you can comment on your thoughts on the acquisition strategy now that demand is recovering, what are you seeing on the acquisition front? Are prices getting a little bit higher than you would like?

Well, acquisitions are still coming. But the prices have increased, obviously, because the climate is very good. There are some big acquisitions coming up on the horizon also. I am not at liberty to divulge it, but also with high prices. So we don't know. If the price is acceptable, we will do it. If not, we will wait till the next recession to acquire more companies, like we have done last year and two years ago. We have the means, definitely; we have the cash. We have bank lines and so on. We can make even very large acquisitions today, but we are not going to overpay.

Steven Fox, Merrill Lynch.

A couple of questions. First of all, on the expense control, does that continue, in terms of dollars, or would we expect it to creep up a little bit, given the volume growth that you're seeing in the June quarter?

You mean percent SG&A of sales?

No; actually in dollars. I mean, in dollars, it looks like you held pretty firm quarter on quarter, despite the revenue growth. I was wondering if that would continue.

We will not increase SG&A as we go.

In dollars.

No.

Well, we probably would have some dollar increase just to the volume (ph), commissions and things like that.

But commissions in our case are very minor, a very minor share of SG&A.

So it's a modest increase as you go through the year? (multiple speakers).

If at all, yes.

And then the tantalum powder increase -- is that from contracted supply?

Yes.

And that does not continue the rest of the year?

Now, our capacity load is such that we're going to decline.

And then just a last question on the gross margins. Can you talk about the offset or the impact on gross margins, as a percent of sales, from the increasing capacity, and how much of a limiting factor that is? And do you overcome that as the year goes on, to see expanding gross margins?

You mean capacity-wise?

Yes, because you are adding capacity, so I would imagine that is capping gross margins in the meantime.

True, in actives, at least. In actives and especially in Siliconix, the limit of the gross margin was indeed capacity. But it's a simple calculation, as I tried to say before. The contributed margins are above 50 percent, so every capacity that we can add adds more than 50 percent to the pre-tax line, really. That means, as we increase step-by-step by 20 percent annualized this year, I think it's an easy calculation that you see an impact through the year already.

Dr. Paul, would the increasing capacity be pretty linear, or is there one quarter where you expect to bring on a lot of --?

The fourth quarter is the biggest impact, but you see already in the next quarter -- in Semiconductors and Vishay in general -- improvements.

Matt Sheerin, Thomas Weisel Partners.

Back to the issue of pricing, you talked about modest improvements in the actives business and stable in passives. Given that you are at basically full capacity in actives, what are you modeling or what are you expecting to see this quarter, in terms of increases in actives?

As we say, you know we have contracts. And a portion of the price decline which is an element of the total goes away as these old contracts expire. So what you can see from now on is a better performance in pricing, especially in General Semi. So altogether, as we go, we expect for the foreseeable future, at least, if the economy holds, and is like that, that the price decline will be converted into -- which already is to be seen in actives in this quarter -- price increases as we go. It will be accelerating price increases. We have seen 0.5 percent already vis-a-vis the fourth quarter of last year. So we expect a continuation of that trend.

In passives, also, it's obvious that with better capacity loads in the industry, the price pressure will go down. And also, in this case, we have not seen any price decline anymore vis-a-vis the fourth quarter. So also, in this case, we should be able to see modest price increases as we go.

And the backlog is strong in both businesses, but particularly in actives, and everybody obviously is looking at inventories, particularly at EMS, to make sure that there is not sort of an abnormal inventory build. Can you get any sense of whether there is double ordering or excess stocking by customers?

There is, for sure, at the moment double ordering. There is no question; such an overheated situation calls for some double ordering. But we are watching very carefully the inventory, at least at the distributors, which is the other chain. And in this case, I have to state it went down; it did not go up, it went down. And the distributors are close to their full terms which they normally have. So it came up, came up, the POS of distribution came up substantially in the quarter.

So EMS, I cannot give you any numbers like that, but on distribution we watch it carefully.

Chris Lippinka (ph), KeyBank Capital Markets.

Just wondering if you could go back over some of the major drivers or contributors to the operating income. I think you had some great granularity, so I was wondering if you could go back over that.

Sure. If you compare to the prior quarter, it was clearly the volume which helped us, clearly. So you see -- I just repeat what I said before. The volume increase contributed 29 million improvement, but also there was some improvement also through the price increase -- 1 million only, but nevertheless it starts to show. Then also we had special obsolescence last quarter, which obviously did not repeat itself, which added another 8 million, and you get close. So it's approximately -- the main drivers vis-a-vis the prior quarter, if you compare to the first quarter of 2003 is, again, the volume, 57 million up. Then on this case, you have a substantial price decline, still, if you compare a year ago to a year ago, of 41 million negative, and cost reduction overall of 18 million. So again, this more or less explains the difference.

And in terms of your tax rate, it looks like the tax rate was close to 28 percent. Now that we're seeing profitability continue to increase, and yet we're seeing some of the cost structures in different geographies, do you expect the tax rate to change, based on either profitability or perhaps geography?

Well, geography would definitely change the tax rate, because the different countries that are in there have different, varying rates. But when you estimate what the tax rate is for each quarter, you are supposed to -- as we do -- project what those activities will be for the year. So right now, 28 percent is the estimated rate.

So that's a good rate to work with?

Yes.

Joseph Wolf, Banc of America Securities.

I wanted to go back to the inventory comment. You talked about the difference in visibility between the EMS customers, where you have limited in the distributors. Could you go through that in a little bit more detail by, perhaps, end market, how you're seeing the order patterns, and the sustainability of those orders, or where you think there is double ordering beyond the EMS market?

Double ordering was a general statement. I don't know exactly who double orders, but only I said the climate is such, because there are really shortages on inactives; the climate is such that people tend to -- there must be some double ordering. I cannot nail it down. But I think overall, looking at the market segments, things are looking very nicely at the moment. Mobile phones are booming, networks -- the networking around mobile phones is strong. And again, what is most encouraging for me -- it's not like in the year 2000, just one particular mobile phone which is carrying the whole thing. We see a broad upturn in the industrial segment altogether -- equipment, testing equipment, medical, et cetera. It's broad and strong around the globe.

Consumer is not as strong everywhere. It's very strong in Asia, not so strong in Europe still. But altogether, I would say, as I can judge things, as far as I can judge things, it's quite sustainable, what we see at the moment. I do not see any particular inventory build at distributors, which I tried to say -- which is, of course, a very strong indication that things are not overheated still.

You gave guidance for one quarter, which -- and you talked about a backlog being, I guess, a little bit greater than three months, and I guess 70 percent of it shippable in the current quarter. If you look at the growth in your backlog in the quarter, was the majority of the growth shippable in three months, or out into the September quarter? And when you think about the sustainability of the recovery, how confident are you about September, right now, without giving any guidance, obviously?

I don't think we're giving guidance for September; I think Dr. Paul said that 70 percent is shippable and 30 percent is probably beyond the June date. So you can only extrapolate it that far, I think. But I think the confidence is there.

We think we can only say that the profile in time has not changed. There is still pressure on short-term.

You just have to look at the orders coming in, at the same time. It's a continuous flow.

Michael Walker, Credit Suisse First Boston.

Just, again, on kind of that last question about the sustainability, your conviction is pretty high about the broad-based strength of the industrial market. And you do see it being sustainable. But also, you mentioned that you thought the low interest rate environment in the U.S. was helping that along, but the probability of interest rates going up increasing, do you think -- does that bench your conviction on the sustainability at all?

I am not the expert on (multiple speakers).

Rates are so low now. A 100 basis point increase in the Fed funds rate -- and they are not even talking that high yet -- would not have a dramatic effect during the next six months.

I mean, there is no question that the macroeconomy is good at the moment. It's also no question in the United States, I believe, that the low interest rates help. If these interest rates change, would this impact immediately our business? I don't see that.

And my second question is on the capacitor gross margins. You talked about that getting back to 15 percent. Do you have a timeframe on that? Do you expect that to happen this year, or is that probably not until next year?

I see continued improvement as we go, given the economy holds. But nobody knows that. I am convinced it will, but given that we have enough cost reduction on the way to improve the situation, plus also the pricing (indiscernible) in capacitors.

Jim Kelleher, Argus Research Group.

Good morning. Getting back to the one-stop shop issue, I was wondering if you kind of quantified what that could do for your SG&A, given that it should give you more bang for the SG&A day selling dollar. Do you assume any formal targets on what that can provide?

We cannot quantify it at this point. The only thing I can tell you, that we have broad demand, quite high demand, to put our parts on bill of materials. This has started in a portion of the United States only. Now it has been increased to all the United States. We didn't touch Europe, we didn't touch Asia yet. But the trend is such that it looks like, if it continues, we are going to increase probably double or triple exposure to what we had before. I was myself amazed how come we were not in so many applications at the same customer. For example, you can have -- Hewlett-Packard, let's say -- we are selling to them since 20 years, starting since the beginning. Okay? But there are some applications there where we belong, and we are not there. Now they are sending to us bills of materials to put us on there. So I'm sure that we're going to gain market share quite substantially. I can't put numbers at this point. I have seen many more requests for quotations. We are sending out quotations in increased numbers. This should produce more orders, but it's not sure how much, because the order doesn't depend only on your exposure but it depends on somebody asking you to quote. It depends on the price and delivery time. I think in prices, we are okay, very competitive. And today, delivery times are more or less the same as our competition. So we should be all right. And if not, we are going to increase capacity. But to quantify, it's too early.

And getting back to what seems to be the theme of the morning, concerns about double and triple ordering, do you have any kind of formal mechanisms in place that will enable you to grow your capacity in line with what is sustainable and what -- what is kind of illusory growth? Is there any kind of like order funnel, or any kind of (multiple speakers)?

I didn't understand the question. Could you (multiple speakers)?

I'm just wondering, to avoid this issue of building capacity, and finding at the end of the day that it was kind of illusory growth, do you have any kind of formal mechanism in place to grow the --?

We are checking certain customers, of course. We are going quite in detail, especially in Siliconix, where the likelihood of double ordering is the highest, as you can imagine, with the high orders which you will see. We are checking, really, the major customers, the major sites. We talk to the purchasers. This is basically what you can do. There is no formal mechanism that you can see it, but I think the best proof of the pudding at the moment is the relatively low inventory at the distributors, to be honest (ph).

Finally, could you give a little guidance on diluted share count going forward?

Well, the computation is with the press release, exhibited in there. But that is a 100 percent dilution of the number of shares that would be issued. Let me see if I have the exact. There is, on convertible and exchange notes, about 36 million shares that are in the computation -- employee stock options, 3.3 million shares in the computation, and then warrants, 1 million shares, so a total of 40 million extra shares are added to the 161 that was normally calculated. That would have given you probably a 22 cents earnings, but with the GAAP presentation, we now have a 20 cents earnings, so the dilution was 2 cents, as I said.

Shawn Severson, Raymond James.

I was wondering if you could talk a little bit about how you would expect seasonality to progress this year. Obviously, you have a higher mix of active components these days. And just what you expect as we go through June, September and December? Maybe breakout as much detail as you can, by month or whatever works?

Do you mean capacity?

No, I mean normal seasonal demand trends.

Vishay's business is not really seasonal. If you sell all over the world -- and we do, practically, equally to all the hemispheres -- we do not see a real seasonality. If you are just in Europe, it's clear that the first half is stronger than the second. But if you go to all the parts of the world, if I look at my sales cycles, historically, and also what we plan for, it's quite even.

Even with a higher consumer mix coming in kind of September/October timeframe, or is that --?

No; we don't see that because, on the other side, Europe is relatively weak in this time. So gain, I can only talk out of experience. It's quite flat through the year, historically.

And then just looking at some of the drivers of growth going forward, again, maybe in a more generic sense, could you talk about how higher-end products are doing versus consumer? I know you have mentioned some digital cameras and things that were driving it over the near-term, but as you look out into June and into that backlog, is there are shift towards larger case sizes, and things that would indicate higher-end IT spend?

I wouldn't see that, but you have seen our book to bill in actives. It's still higher than the book to bill in passives, if you look into it. And actives, per se, are higher-value products, on average. So we cannot complain. This is not a degradation of the variable margin, as we go, just for that mix (ph), I don't see that.

Thomas Dinges, JP Morgan.

Real quickly, Dr. Paul, how much are you using on the outsource side on Siliconix right now, if I missed it? And given where you're adding some capacity and so forth, where does that go by the end of this year? And then I have a follow-up.

As a matter of fact, we approximately, I would say, have on the foundry basis 25 to 30 percent. And of course, we are raising at the moment, but the pressure from the market is high, as you have seen. And I tried to explain that before. We are going in steps this year, to an increment of annualized 20 percent. You will see it quarter by quarter, because we're also fixing bottlenecks internally. But we're also expanding at external foundries. The most increase we can expect in the fourth quarter, as a matter of fact.

On the back-end side, we can help ourselves. We have ordered equipment, so this portion of using subcontractors will be minimized as we go.

Will you be, by the end of the year, using nearly 100 percent internal packaging, or will you always have some some stub (ph) out there in the 10 percent range?

No, no. (multiple speakers). Exactly right. You picked the number.

And finally, just to put in context the capacity addition that you're doing, and some of the order questions that you had before, when you think back to what you saw at this point in 2000, you guys were talking about adding roughly 20 percent capacity in '04 and an additional 25 percent in '05, can you sort of (multiple speakers)?

In Siliconix.

-- in Siliconix, yes. Can you remind us what does that look like, as you started this point in 2000 and again, qualitatively, why do you think this is a bit different this time around, just so that, I think, folks can get a little bit more comfort around this issue?

Well, I do not believe that they are adding too much capacity. What we have done between '98 and 2000 -- the rate was quite similar, as a matter of fact. And you see we're out of capacity again. So the usage of the powerMOS goes up and up and up, obviously. You can count an average of an increase in pieces between, I would say, 15 to 20 percent a year, on average, if you go through ups and downs. So the likelihood of adding equipment which stays idle for a longer time is very little.

I would like to add something to that. That's Dr. Zandman. The question is if you have too much capacity, also how much does it cost you? If the interest rates are low, it costs you not very much, because of the depreciation, which is not a cash issue, it's just a P&L issue.

The past experience shows that if we project today 20 percent increase, and if the sales will continue very strong, there's going to be pressure on me to allow for higher capacities, higher-capacity purchases, more machinery in all kinds of areas, and usually it ends up (ph) by buying more. That's what happened in 2000, and we are very careful with that, anyhow. But if it continues very strong, the 20 percent number is quite conservative.

We have time for one more question, please.

Andrew Huang, American Technology Research.

Just two quick questions. First, on the actives side of the business, I just wanted to be clear -- for the remainder of the year, with the capacity additions, would you expect gross margins in the actives to remain stable for the rest of the year?

If growing capacity and, given this pricing scenario, the business environment which I described, the gross margins will come up.

And then the second question -- just kind of on the Walsin announcement that you made a while back, can you just comment on how that is going, and maybe give an update on the progress there?

This is not a 1-2-3 thing. We are establishing a business at the moment, and as a matter of fact, I think there is quite some interest on the distribution side of the business, mainly. But we are establishing ourselves first, so it's a very early stage of the project.

And then, the last question -- do you have an idea of, for the quarter, how much of it was turns?

Excuse me? How much was --?

-- was booked and shipped in the same quarter?

Well, as I tried to say before, if I look at the back door (ph), I can only look forward. But the profile hasn't changed, really; approximately 70 percent is shipped in the same quarter.

Thank you very much. We appreciate you coming, and all your questions. Again, as you all know, Bob Preece (ph) is available for questioning afterward and telephone calls, if you missed anything on this particular call. And it will be played back to you almost immediately.

Thank you very much, and we look forward to the June quarter.

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