威世科技 (VSH) 2004 Q3 法說會逐字稿

Welcome to the Vishay's third quarter 2004 earnings conference call. At this time, all participants are in a listen-only mode. Later we'll conduct a question-and-answer session and instructions will be given at that time. If you should require assistance during the call, please press star and then zero. As a reminder, this conference is being recorded. I would now like to turn the conference over to Vishay's Chief Financial Officer, Dick Grubb. Please go ahead.

Morning, thank you for calling in. Before we begin, Bill Clancy, our Corporate Controller, will read our customary opening statement.

You should be aware that in today's conference call we'll be making certain forward-looking statements statements that discuss future events and performance. These statements are subject to risk 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 10-K and 10-Q filings with the SEC.

Thank you. With me today is Dr. Felix Zandman, Chairman and CEO of Vishay, and Dr. Gerald Paul, Vishay's President and Chief Operating Officer. As usual I'll go over key information about our third quarter results, and later Dr. Paul and Dr. Zandman will give more detail.

Today, Vishay reported third quarter earnings per share of $0.14 before special charges. This is above recent analyst estimates. Net sales of $584 million represent a 10% decrease over the second quarter of this year, and a 10% increase from last year's third quarter. The foregoing financial comparisons I will be making do not include the effect of special items incurred in the quarter. These special items included a pretax negative $1.5 million effect for the purchase of inprocess R&D on a recent acquisition. The negative pretax effect of approximately $5 million for restructuring costs mainly in Mexico and Europe. And a 3.1 million dollar gain pretax for settlement of a note receivable. The total negative effect on earnings per share of this was $0.01. Revenues by major product lines were: Our Active products came in at $294 million. Our passive products $290 million, approximately 50% each. Consolidated gross margins of 24.1% as a percentage of sales were down 2 points when compared to the second quarter of this year, mainly due to volume decrease. Gross margins by major product lines were: for the Actives, this quarter, 27.8%, down from last quarter of 29.2%. Passives are at 20.4% down from the second quarter of 23.1%.

Selling, general and administrative expenses were 16.4% as a percentage of sales. In dollars, SG&A was actually down by $4 million compared to to the second quarter and again, in spite of increased costs associated with our compliance in Sarbanes Oxley. Interest expense $8 million for the quarter is lower than the first two quarters, due to the reduction in our lines convertible. This was put to us in June 2004. This reduced the long-term debt by approximately $100 million at that time.

The effective tax rate for the year remains at an estimated 30%. Cash balance at the end of the third quarter $640 million. An $85 million increase for the year so far. Long term debt as of September 30, 2004, was $740 million, substantially all of which is convertibles. Total inventory at quarter end was $540 million. Working capital remained the same for this quarter at $1.2 billion. Bookings for the quarter for $491 million, backlog of the end of the quarter was $474 million. Cash generated from operations for this quarter alone was $64 million. Capital expenditures this quarter were $41 million, and we now expect total for the year of $150 to $160 million. The depreciation and amortization expense for the year was $48 million. This quarter, I'm sorry. Total head count is 26.-- 26,700 employees, of which 71% are in low-cost areas.

As far as our fourth quarter is concerned, we expect revenues to be slightly lower than revenues of this quarter. Dr. Paul?

Okay. Thank you Dick. Let me start out with the economic environment which we've seen in the quarter which actually has deteriorated vis-a-vis the second quarter for electronic components despite the fact that the market economy stayed relatively friendly. The main reason for that is clearly the inventory levels of distribution that were perceived to be too high. All this led to a quite massively reduced order level from distribution, 50% down vis-a-vis the second quarter. All distribution worldwide was concerned, inventory reduction at the distribution of 5 to 10% has taken place in the quarter in the Americas and Europe, but inventory correction in Asia still has to come, but if you look at the POS of the Asian distributors it's, obviously going up these days.

In contrast to distribution, I think this has to be emphasized, were the orders from OEMs and EMS is quite stable. The direct business in the marketplace really continued quite well. Lead times of components are back to normal. They are no shortages of supply.

Talking now a little about the various market segments. The industrial segments around the world continued strong in the third quarter, automotive was solid in Europe and say okay in the United States. There was a continued weakness of the European consumer segment, and we saw softening of consumer in Asia. There was a slowdown in notebooks and mobile phones, which impacted mainly Asia and we saw some increased finished goods inventories, especially mobile phones in Asia. So altogether there is no real short term recovery expected, but for 2005 we remain confident.

Talking about the business development for Vishay, well, for sure it was a difficult quarter. Which deteriorated progressively. The sales projections had to be adapted during the quarter as the low order level in the quarter had an impact already on the sales of the third quarter. Also, the expected September turnaround did not materialize.

We achieved sales of 584 million as Dick said before vis-a-vis 647 million in the prior quarter and 533 million prior year. Which was equivalent to a reduction of 10% versus prior quarter, and 6%, it was about 6% as quarter above prior year, if you took out the impact of the exchange rate. The book-to-bill for Vishay was .84, .89 for passives and .79 for actives. If you look at the book-to-bill and the split of distribution in the other business, you see something astonishing, it was .65 for distribution, very soft, but OEMs and EMS, as I indicated before, was at 1.02. The weak distribution orders have hurt mainly Actives, in particular, electronics in this quarter. Our direct business continues normal.

The backlog is at 2.4 months, which we can classify still as being normal. Selling prices quite nice. We were able to hold it virtually constant vis-a-vis the second quarter, and the further slowdown the price decline versus prior year. All Vishay saw a price decline vis-a-vis prior year of 3%, 5% for Passives and only 1% for Actives. The low level of order cancellation continues. Really if you want to summarize all that, you can say the overstocking in distribution during the first half have hurt orders and sales in the quarter. Where OEM and EMS business remains normal.

Let's talk a little bit about the results and to reconcile it, vis-a-vis prior quarter you see based on 62 million lower sales, the operating margin decreased by 26 million, from 70 million to 44 million. Practically all of this can be explained by the volume decrease, which had a negative impact of 27 million. If you want to look into prior year and compare to prior year, you will see based on 51 higher sales, the operating margin improved by 33 million, namely from 11 million to 44 million. The main elements of this change, of this variance, was volume increase with an impact of 32 million plus; price decrease, 20 million burden, and non-repetition of a tantalum write-down last year, which gave us a plus of 16 million vis-a-vis the prior year, and lower inventory obsolescence of 5 million, this explains the difference.

Some more highlights about operations. Due to the lower sales, the inventory returns are reduced to 3.2, vis-a-vis 3.5 in prior quarter. Like to emphasize, though, the inventory in re inprocess and finished goods was kept constant. There were some increases in raw materials, 9 million, which can be corrected in quarter 4 for the most part. There were overall reduced fixed costs -- I mean, manufacturing plus SG&A costs by 5 million, vis-a-vis the prior quarter. The employment in high labor countries was further reduced by 130 heads, but the share of employment in high labor countries was not changed, and it stayed at 28.7%, due to the fact that we also had to adapt capacities in low-labor countries. Our year end target remains at approximately 27% in high-labor countries. Further, cost reduction is going to come.

The ontime delivery continued stable, at a little better than 93%. Quite important, we announced the closing of the (Kolma) facility in packaging of semiconductors in France, which will result in major savings as we go. In the meantime we have not only announced it but we came to an agreement with the Labor Council so we're able to move. All other restructuring efforts are in line with plan. We have introduced (SAP R3) for general semi now and for passive (salts) in Europe, only the latest acquisition, BCC has still to be converted to SAP. Capital spending in the quarter was 41 million, vis-a-vis depreciation of 46, the number will ramp up a little as we go, because of the increased investment for expansion in Actives.

Let me run you through the major product line. First of all, resistors and inductors. This business declined versus prior quarter, and followed the general trend of the business in total. And all of the lines, all of the resistor lines were concerned. Sales in the quarter were $132 million, down 13% versus prior quarter, but up 5% versus prior year. Again, without the impact of exchange rates. Book to bill, was at .87, which, of course, indicates some weaker, short-term outlook. The backlog was reduced to 2.2 months. The gross margin was reduced to 27% of sales, due to lower volume. Nevertheless, of course, resistors and inductors remain a major contributor to Vishay's profitability. There was a somewhat increased price decline in this line, mainly due to thick film resistor chips where the market conditions became somewhat more fierce, we have seen for the total line, resistors and inductors 1% price decline, versus prior quarter and 2% versus prior year. Nevertheless, resistors is a fairly stable business in terms of pricing as I've indicated numerous times before.

The capacity utilization went somewhat down vis-a-vis prior quarter. Especially in thick film chips at [mills]. The utilization now depending on the line is between 60 to 90%. The inventory turns were at quite acceptable 3.8 and I'm quite happy to say our efforts concerning nonlinear resistors the restructuring continues to be successful. Nonlinear resistors have shown in the quarter 17% gross margin and 17% of sales, despite lower sales. For resistor inductors in total, we have quite major projects on the way, we're going to expand our thin film operation in Israel, remove nonlinear resistors to China. Move Dale resistors to Mexico, move a couple of resistor lines from Germany and France to Israel and the Czech Republic, and we will start into a project to make fuses based on the thin film technology in [Baischlag]. Altogether, resistors continue to be a very solid and profitable business, that has suffered somewhat from the slower demand, but there are many projects for further improvement.

Capacitors also suffered from the weakness in the month, especially in distribution, sales in the quarter were $128 million, which was 11% down versus prior quarter but 6% up versus prior year. The book-to-bill was at 0.90, also indicating somewhat weaker short-term outlook. The backlog was reduced to 2.3 months. The gross margin, slightly reduced to 9% of sales, the drop in volume could not be compensated completely by ongoing operational improvements that take place.

The plastic line has been stopped, versus prior quarter. It was no plastic line stability and has been reduced versus prior year to 8%. The capacities were loaded at about 60% on leverage, of course depending very much on the line. Lower than in quarter 2 and lower, mainly, in tantalum capacitors. The inventory turns deteriorated due to lower volume to 2.1. But tantalum (wet and solid) inventory remained quite well under control.

We have taken a decision in the quarter to close all film capacitor activities in Germany and the Czech Republic, and to reduce substantially in Portugal moving production to China and India. This of course, is additional to the ongoing program to move the BCC film capacitors to China. Altogether for Capacitors we continue to work on improving the cost base of this business.

Coming to measurement groups. Measurement groups showed more stability in sales compared to other businesses we had sales of 31 million in the quarter, which was 4% below prior quarter but 1% above prior year. Book-to-bill was at 0.87, which led to reduction of the backlog to a level of 2.1 months. We have defended the gross margin, I think, at an excellent level of 37% of sales.

Our integration plans for the five companies acquired run smoothly. In fact, most of the production moves have been completed. I think it's rewarding to see that, Vishay in less than three years has become a market leader in transducers, with about 15% market share, building on it's traditional business with strain gages.

Coming to the Actives, let me start out with Siliconix. Definitely, Siliconix had a weak quarter in terms of orders,The overstocking and distribution, mainly in Asia had a very negative impact on orders in the quarter. There are still some capacity limitations in certain lines which affected sales slightly. Sales in the quarter, were 118 million, 4% below prior quarter and 17% over prior year. Book-to-bill as I said was low, 0.68 which led to a backlog of 3.4 months, which, of course, is still very healthy. The gross margin was close to prior quarter, at 30% of sales. The inventory turns at excellent 5.0. Very important, the price decline has been stopped for the first time that we own Siliconix. We saw a 1% price increase versus prior quarter and prior year. First time we experienced that. There are still long lead times for certain lines, but overall, the lead times are reduced. The I-expansion program is on the way and it's (tower), the company, our foundry in Israel, in packaging and in Germany in [Itsahoy]. We, in the quarter, decided to expend (Itsahoy) fab, a class 1 fab for a new power (mus) generation in the 8-inch technology. Quite important to say that the clean room for this project does not have be expanded. I think that Siliconix continues to be Vishay's most innovative business with a very strong potential for growth and we are using the present slowdown in orders for positioning ourselves.

Finally, the broad business with semiconductors without Siliconix, they also suffered from the weakness in distribution and in consumer. Achieved 176 million sales in the quarter, which was 12% below prior quarter and 3% above prior year. Book-to-bill at 0.87, backlog has been reduced to 2.1 months. Gross margin, I'm quite proud to say was defended at the level of 27% of sales. There was a further slowdown of the price decline, also, in this part of Vishay's product portfolio, and there was no price decline vis-a-vis prior quarter, and 3% price decline versus prior year. The selective price increases we decided on earlier this year, mainly in power diodes, general semi, have a positive impact.

Inventory turns were at 4, which is acceptable. The reduction of the turns came only through practically only through lower sales and there were some increases in raw material, minor, but this can be corrected in quarter 4. But no increase in finished goods and inprocess, like for all Vishay. The lead time is reduced to four to six weeks. There is a satisfactory capacity load, except for some standard diodes and IR receivers, where we're somewhat short of orders. The capacity expansion programs for these product lines, especially for general semi and for some opto lines are on the way. The closing of the (Korma) plant France, and the move of GS from Taiwan to China are important for this group, and will have quite an impact on profitability, we expect annualized savings of $20 million. Well, this business is semiconductor business without Siliconix is a broad and profitable business, all along, and it has major potential for growth and further cost reduction.

Well, overall, we now live in more difficult times than half a year ago. What we do today is obvious. We keep the inventories under control, we have a special focus on cost reduction, and on specialty products, and we are positioning ourselves for the next upturn in terms of capacity and technologies. And, gentlemen, there will be a next upturn after this correction, electronics is going to grow, there's no doubt, thank you. Felix?

Thank you Gerald. Dr. Zandman will now add his thoughts for the Company and the future. Felix?

You heard the Q3 numbers, the quarter was not as we originally expected, but in spite of the sudden downturn we managed, I believe, honorably. The main reason for lower than expected sales was the inventory adjustment at distributors. Our book to bill for OEMS, which is most important for us, because this is the normal business we do day-to-day was 1.02, but for distribution it was only 0.65, as indicated by Gerald previously.

Now I would like to speak about our strategy. One, we'll continue to acquire companies to further broaden our product lines, so as to reinforce our position as a one-stop shop. We already have the broadest line of these great components, but we would like to further strengthen it. Two, we'll continue to reduce costs by moving production to China, India, eastern Europe and Israel, as the case may be. Already over 70% of the workforce are in those countries. Three, by being large, we leverage our purchase of materials, shaping travel, et cetera, and reducing our costs. Four, due to our service and deliveries of samples, at no cost of such a large variety of components, more and more of our customers are asking Vishay to put all Vishay components on their drawings and into their build of materials, their view-ins. To that effect, we have now 5 engineers working full-time involved in doing that. The result is that the convertible [1000] Line items per day to Vishay components, this is already producing the effect of OEMs asking for more and more RFQ's from requests for quotations from Vishay, some of the requests for quotations will eventually be converted into orders which will increase our market share. Five,we have announced recently Vishay will start to acquire some high-tech startups. Why? Why would we do that? Well, we have our R&D activities, mostly done inside of each division to support the products they manufacture. Each division has its own independent R&D group and what they do, day in and day out, they invent new products to support their present product lines. We believe Vishay should get involved in new and future products where Vishay has no expertise. We don't have, of course, expertise in every area, but we want to enter in areas where we have no expertise.

To that effect, we have acquired a stack up called RF Waves, a specialist in certain aspects of RF wireless chips for the audio and games industries. Their advantage is that they produce a much cleaner and stronger signal while using less energies. This month in Munich on the electronic exhibit, which is held every two years and is the largest exhibit in the world of electronic components, we'll demonstrate speakers with the RF Wave chipsets versus competition. How would we do that? We would put the two speakers side by side and turn on a microwave oven located in the vicinity of the speakers, our device will show no change in sound quality, while the competition device will stop functioning because of the interference produced by the microwave oven. Just one demonstration, at the show there will be many, many demonstrations of our internal R&D activities, but this is the first, which will be shown and viewed to our position of RF Waves. Vishay will produce and market those chipsets. There will be more and more acquisition in similar areas, which should help Vishay to open new markets. Of course, we will also continue to acquire competitors, as in the past.

While Q3 showed a lukewarm performance, due to inventory adjustments of distributors, we believe after that adjustment, the sales will pick up again. Vishay is financially strong and we will continue to use downturns as an opportunity for acquisitions and streamlining operations, so that when the upturn comes, we will again be in a strong position of growth. I continue to be optimistic about our future. Thank you very much. We're open for questions.

Ladies and Gentlemen, if you wish to ask a question, please press star and then 1 on your touchtone phone. (OPERATOR INSTRUCTIONS) Our first question today from the line of Tom Dinges with J.P. Morgan go ahead.

Real quickly, Dr. Paul, you mentioned in the prepared remarks, talking about the lead times of Siliconix coming down. Can you put some numbers around there? I think last quarter you talked about lead time for Siliconix about 12-16 weeks, what did they come down this quarter? And then, as you do add a bit more capacity, is there an expectation they're going it come down a week or two? I have a follow-up.

You're absolutely right. The lead times are very long and it now depends very much on the package and type and lead times are between 8-12 weeks at a moment.

Is there an expectation next quarter?

At the moment, book-to-bill was below one, therefore, the capacity loads will go down, therefore, the lead times will also continue to go down, to a degree, of course.

Okay. And then, when you are done with -- as you talked about, about a 60% utilization or so right now in the capacitor business, as you move the production from Germany and the Czech Republic and also some of the production from Portugal into China, when you get done with those moves, where do you believe, assuming that you get some flattening or some recovery in sales, where do you think the utilization rate will end up, post all those moves?

Basically, 60% is an average of many lines, you understand?

Sure.

We do have lines like power capacitors which are virtually full, but other lines, main lines, tantalum capacitors, (MLCC)s, depends really what you want to take on in terms of incremental business. I would expect that on mode of capacitors, modal tantalum capacitors, we can for sure, foresee a utilization of capacity better than 65%.

Okay. Thank you very much.

Next question comes from the line of Lee Zeltser with Needham.

Guys, if you could run through capacity utilization plans for 2005 in some of the different business lines? And then I have a follow-up.

Sure. Well, first, the concerning the specialty products. You know, it's hard to talk capacity utilization these specialty products are mostly only in one shift, sometime twos shifts, depends on the case and we're really talking the commodity product part of it.

I guess to answer that, if you could talk about what the CapEx plans are specifically?

Well, basically, we're spending capitalistic, saying between 150 and 160 this year and approximately on the same level next year. Approximately, it's not been decided completely but this will be about it. Most of it goes -- you always need a certain amount for maintaining your business and for cost reduction, but for expansion we basically invest in expanding our Actives capacity as we've said before, in Siliconix, but also in channel semi and in opto products. The principle plans I described before have not been changed.

I think for Siliconix you previously stated about 20% capacity additions in 2005.

That's correct.

Given the outlook for the macro economic environment, are you still feeling that's a prudent number?

We want to continue with our plans. We do believe that what happens today or let's say in this time, now, this is a correction. Because we really are quite positive on the end customer sales, really what happens at the moment is clearly distribution, so we count on the recovery next year for sure. And we will need the capacity.

Okay. Previously you put out metrics or target metrics with regard to profitability at certain sales levels.

Yes.

Looking to achieve kind of a blended gross margin I believe 30% at something in the range of 2.6, 2.7 billion annual sales.

Correct.

Okay so that's the plan. Can you talk about a timeframe when you feel that might be achievable?

It depends, obviously, all on volume. And it depends very much on the recovery. And depends how long it will take to burn the inventory off in the pipeline, which, obviously, exists, especially in distribution. It's really depends on that.

Okay.

But you know, if you took our first two quarters, we were already at 2.5 run rate, 2.-- yeah, even above 2.5 run rate. It doesn't take much and we were hindered by a lack of capacity and that's exactly what we're now fixing, and the capacity lack was in semiconductor, this is exactly where we put the money in now.

Are you -- I guess, assuming you get flat to somewhat better sales in 2005, do you think you'll be in a position to hit those metrics? Because it's still a little ways to go to get to about 30% gross margins?

I cannot project 2005, definitely, right at this point in time. It all depends on the economic development. The capacity will be in place.

Okay. Fair enough, thank you.

Thank you.

Our next question comes from the line of Chris Lippincott with KeyBanc Capital Markets.

I was wondering, you'd mentioned that orders had dropped about 50%, first, was that on a sequential basis or annual basis?

Yes. It was on a sequential basis, these are orders from distribution, third quarter compared to second quarter this year.

Primarily distribution orders are dropping?

This was exactly the distribution orders.

Okay.

Whereas the remainder of the business was at a book-to-bill at slightly above 1 even, 1.02.

Okay. And at this point, with the distribution, are you getting any sense that -- I mean, clearly, this is most of the inventory correction. Are you getting a sense that this is essentially going to be leveled out after the, you know, going into the first quarter? Where do your discussions, if you are talking to distributors, where are you getting the sense that most of this will get ironed out?

I believe what's in Asia at the moment is really a further reduction of the inventories at the distribution. But it will be helped by an increasing POS. What we've seen at distribution, what we're discussed of course with them, POS, talking Asia in particular, is growing. But for sure and this, of course impact the fourth quarter for all of the us, the inventory still has to be depleted in Asia. In America and Europe, there's been quite a substantial inventory reduction in distribution already in the third quarter. If I had to put a number on it, approximately, 5-10%. Maybe this continues in the fourth quarter? But as I indicated before, yeah? We are optimistic for 2005, true.

Okay. And just to a recollection, you are around 45-50% of sales from distribution?

That is correct.

Any thoughts about looking from a strategic perspective of changing that mix or are you comfortable with that?

No. We're comfortable with going through distribution and we are partners and they do a great job for us. This is not a reason to change to strategy vis-a-vis distribution.

Thank you.

Our next question comes from the line of Matt Sheerin with Thomas Weisel Partners.

Thank you. You gave us a guidance for revenue slightly below September numbers yet you didn't give any guidance in terms of what you think margins will do, or EPS. Can you directionally give us some clues there?

Yes. I can say if the revenues are slightly down like we're projecting now, you could add the same language to the EPS. That's a direction, I can't quantify exactly the amount.

Okay. And then, if we could just talk a little bit on pricing. It sounds like pricing has held up well.

Yeah.

Particularly given the sequential drop in both revenue and in bookings. What is your outlook on pricing particularly as you get into contract negotiations with your big OEM and EMS customers and then distributors start to come back in volumes, are you expecting to see another drop here in pricing?

As a matter of fact, I always have to overemphasize that we talking only about half of Vishay's business, say 60% of Vishay business, the specialty business is not what we talk about right? Just to bring this back to the memory. As a matter of fact, we are talking about 60%. You are right, principally speaking as soon as there's no shortages of supply anymore, you have to anticipate increased price pressure in our industry, but you are ready to cope with it. We do have cost reduction programs on the way. Will it be chaotic? I don't think so. It held up nicely and I do not believe that around the corner we have a massive price decline to expect. The pressure on price, as I said last time, will increase, again to a degree, and we do have cost reduction on the other side.

Okay. So you're looking to offset any of that with the restructuring and the move to China et cetera?

That is correct as we always did in the past, really.

Okay. Thank you.

Thank you.

We have a question from the line of David MacGregor with Longbow Research, please go ahead.

Dr. Paul, you've made a distinction a couple of times between commodity and specialties, thought maybe I'll give you an opportunity to talk about the specialty side? I presume you're seeing stable pricing there?

Yes.

Is the prospects there for the quarter ahead any better?

Well, basically, our share between commodity and specialty products is never constant; typically in good times, booming times, the share of commodity gets higher, clear, they grow more, they grow more with the economy, and the share of specialty gets lower in good times. It's the opposite in bad times, that means in relatively bad times, specialties have a higher share, which stabilizes also historically our results. You will remember if you look back into our history Vishay has performed in downturns fairly well, I dare to say. One of the reasons for that is for sure our share in specialty products, which is even more (reciprocal) in relatively bad times.

Can you give us some sense of just the disparity in margins between the two categories as it stands today?

Well, it's about average. But, of course, of course, the specialty products rank at last 10 points in gross margin higher on average, than the commodities. But if you go back to the year -- but this is, of course, a snapshot really, because if you go back to 2000, the molded tantalum capacitors for sure are a commodity product and at that time there was a shortage on these products, and their gross margin was beating everything we have ever seen. Really it depends on the situation but, in general, of course, you are right. Say 10% is not a bad guess, as a difference.

Okay. Secondly, you had talked about Siliconix and the fact you're using the period of slowdown to reposition Siliconix. I was just wondering if you could elaborate further? I realize you're tight on the back end capacity and are making expansions there, are you repositioning with respect to the product line, with respect to the customer mix, with respect to just what?

The repositioning is first of all, in terms of capacity, you know, that we've been very tight on capacity the first half and in fact we lost sales in the first half due to that. So we're going to expand our capacity, we do that at the foundry in Israel, and at the foundry in Germany, as Siliconix had all along. The foundry in Germany has an additional target to fulfill, we want to change to 8-inch wafers there, and put the next generation of power MOS higher cell density in this plant, this plant is suitable for that, and we take the opportunity now to expand it, really. Two things: Capacity and technology.

Thank you. Final question, perhaps for Dr. Zandman? Or Dr. Paul. You talked about acquisitions and making acquisitions, and sort of smaller startup companies, and I was just wondering if you could elaborate on that as well a little further for us? And give us some sense of, just, do you have a budget in mind for these investments? How much do you expect to be investing and over what period of time? How large a risk would you take on any single start-up?

Well, in general, just start-ups are not very expensive, in our terms, and not very large. A -- we are talking about spending, say, somewhere between 5-10 million dollars, per start-up. Of course, if there is one which is much more already has much more sales and business and profit and so on, it could go to higher numbers, but, therefore, the risk is reduced. The risk issue in those start-ups is that you can put $5 million in something and it doesn't pan out; or if you find out the people aren't as competent as you thought, or the product lines they are involved in will not take on into the market. We don't have a fixed number on how much money we want to spend on that, but I would say that depending on the case, it is likely to other acquisitions. We don't have a fixed number on the regular acquisitions, as opposed to tomorrow, we have acquisition of a competitor. And we have to spend, say, $1 billion to acquire that. We can do that. We have the financial strength to do that, even above that. And in this particular case, it depends what it is. I would say those are small expenditures, in general, what we are looking is to acquire expertise. We have expertise in specific areas in resistors, capacitors, and semiconductors, but there are so many areas in the semiconductor area and especially in the utilization of semiconductors, like wireless, our RF Wave company that we really don't have any expertise, and if you want to build Vishay for the future, we just have to, we must invest in those areas, so as to have more and more R&D products which will position Vishay for the next 5 to 10 years. That's in general the strategy, Remember, that Vishay as a company started some 40 years ago, with an invention I made for resistors, I was a start-up, it was $4000 investment. It was nothing, look to what it grew! A $2.5 billion Company. Many of them will produce quite a boost for resale, not tomorrow, it will take time. It will happen.

That's plausible. Is there a focus on a specific area of technology? I mean, I guess, there's the RF area, can you talk about--

RF area and analog design area, because, for example, we have Siliconix today, division, subdivision, making integrated circuits for power, power ICs and it's relatively small. This area of power ICs, which Maxim is a big company doing that on linear is enormous, and the future is enormous there. We have suffered in the past, quite strongly suffered from the fact that in the Silicone Valley there was no stability in hiring people, you hire people, after one year they quit and go away with the technology, you have to hire some others absolute no stability, very difficult to have a team. We may be looking into acquiring some competence abroad with expertise in this area. We definitely -- that's also an area of expansion. So RF, also Analog Design for supplementing, helping Siliconix, get stronger in this area, also, infrared. For example, we are quite strong in infrared and especially in IRDC, the unit which we acquired from Infineon and what we acquired from Telefunken is now quite large and, however is suffers from the situation that infrared has to be in-line if you want to transmit information, from one device to another you have to be in-line with the device, and you have to be in a relatively close environment that is very secure. So it's a a compliment to the [lutus] which could be functioning everywhere. On the other hand, the RF should be expanded more, to be able to do larger distances, not necessarily to be in-line and things like that, and there are many technologies in this area, which we are looking at and we may be broadening our position there by acquiring some start-ups in this area as well.

Okay. Thanks very much and good luck.

Thank you.

Ow next question from the line of Patrick Parr with UBS. Please go ahead.

This is Leann Stew for Pat. I had a question about your guidance. In terms of the growth expectations are you expecting both Passive and Active to be down?

We didn't specifically distinguish between the Active and Passive in the guidance, we just said the sales for the fourth quarter would probably be slightly less than they were for the third.

In terms of softer demand, are you seeing it across the various product lines?

It's across the Board. If you want to look at a different product line of Vishay, and I think I said it before, the book-to-bill in the third quarter was below one, nearly to the same degree for most of our product lines. Siliconix suffered the most, Measurements group the least, but altogether, we see product-wise, we see approximately the same performance.

Okay. And, should we expect any seasonality in the March quarter?

Well, you know, the first quarter normally should be a good evening quarter, otherwise, as a matter of fact. But, well, we'll see.

Okay. And also one modeling question, you're add-in interest fell by about $3 million this quarter, is that the number we should be modeling going forward?

Yes. The interest expense for the quarter represents, probably, a fixed debt of about $740 million that's on the balance sheet at end of the quarter.

Okay.

and all fixed rates.

Okay. Thank you.

Thanks.

We have time for one more question and we'll go to the line of Steve Smigie with Raymond James.

There was announcement today from (Teller) Semiconductor they still need financing for one of the fabs and I was wondering if that need for financing there has slowed down those guys in terms of their relationship with you expanding Siliconix capacity?

Well, I am not in a position to talk at this point about it.

Okay. Fair enough. If I could turn to the Asian distributors? You had mentioned that is an area where you're still experiencing some weakness or seeing , actually inventory, is it across the board in terms of end-markets there?

What we've said, what has slowed down really, in the third quarter we saw notebooks slow down and also the mobile phone slow down. In fact, the mobile phones we saw in Asia, also, which came as a kind of a surprise to us. Some increased inventory in terms of finished goods, mobile phone finished goods. Basically, this is -- these are the areas where I could imagine we have our distributors have too much inventory on order. On the other hand, we have visited just recently our Asian distributors and the POS is definitely going up, so they are burning inventory at the moment. This was what has happened, the same in the fourth quarter now in Asia, what has happened in Europe, and in America during the third quarter. So, people are burning inventory and of course hopefully, depends now on how it goes they'll burn inventory, say, a quarter later but this depends all on the environment.

Okay. I guess you sort of answered the last question, could you just give me how many weeks inventory those guys typically like to hold for you, and maybe how many weeks they are at now?

Normally, normally, depends very much. In Europe and United States, people shoot for, approximately, 4 inventory turns. Four.

Okay.

Asia, they want more. So they are between 6 and 7 inventory turns. This is our experience, but maybe it's different from distributor to distributor, but this is our experience.

Thank you very much.

Thank you.

Mr. Grubb at this point I'll turn the call back to you for closing comments.

Thank you very much for attending this conference and we like to see the interest in Vishay and look forward to continuing these calls over the quarters, and look forward to a better 2005. Thank you very much.

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