威世科技 (VSH) 2005 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Vishay first quarter financial conference call. At this time, all participants are in a listen-only mode. Later we'll conduct a question-and-answer session. The instructions will be given at that time. If you should require any assistance during today's call, press star then zero on your touch tone phone. As a reminder, today's call is being recorded. I would now like to turn the conference over to Chief Financial Officer, Richard Grubb. Please go ahead, sir.

Thank you. Good morning. Welcome to Vishay's first quarter financial call. Before we begin, Bill Clancy, our Corporate Controller, will read our customary opening statement. Bill.

You should be aware that in today's conference call, we'll be making certain forward-looking statements that discuss future events and performance. These statements are subject to risk and uncertainty 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 S.E.C.

Thank you. Also, with me today on the conference call is Dr. Felix Zandman, Chairman, Chief Technical and Business Development Officer of Vishay, and, of course, Dr. Gerald Paul, Vishay's Chief Executive Officer. As usual, I will make some brief remarks on our results for the quarter Dr. Paul will go into more detail. Additionally, Dr. Zandman will update us on current M&A activities and research development interests that are going on in Vishay.

Our earnings for this quarter included the negative effect of restructuring and a loss on a purchase commitment of $7 million or $0.03 per share. Without this charge, net earnings would have been $0.06 per share or $0.02 above the average estimate of our annals. Net sales for the quarter were $554 million, a 2.2% increase over the fourth quarter of last year and in line with our guidelines from early February of 2005. Consolidated gross margins for the quarter were 21.4% as compared to 18.9% for the fourth quarter of 2004, a 15+% improvement. Selling, general and administrative expenses equalled 17.4% of sales for the first quarter as compared to 17.3% for the fourth quarter of 2004. Interest expense has remained constant with that of the fourth quarter of 2004.

Gross margins by major product lines were: Actives for this quarter was 22.3%, approximately the same as it was for last year's fourth quarter. Passes for this quarter, however, increased to 20.5% compared to 15.5% for the fourth quarter of 2004, a 39% increase. The cash balance at year-end was $623 million.

Long-term debt at quarter-end was $768 million substantially all of which are convertibles. Total inventory at the quarter-end was $516 million. Working capital at quarter-end continues to be strong at $1.2 billion. Bookings for this quarter were $588 million and backlog at quarter-end is $464 million.

Some other items of interest were capital expenditures were $29 million while depreciation and amortization totalled $49 million. Total head count at year-end was -- at this quarter-end was 25,400 people of which 72% are in low-cost areas.

As stated in our earnings release today, we expect the second quarter of 2005 to be an improvement of the current quarter with revenues at $570 million to the $590 million range and improve the profits. Dr. Paul?

Thank you, Dick. Well, let me talk first of all about the economic environment of our industry. We have seen in the quarter for sure, an improvement of the business climate in electronics worldwide.

The sales were still relatively low in the industry but the orders recovered from quite depressed levels in the third and fourth quarter 2004. We have seen a noticeable reduction of the inventory levels at worldwide distribution at the end of the first quarter, we see them at approximately four terms. This is also true in Asia, where the situation improved since March. We see sure declines, in general, in the industry and base continued pressure on selling prices but this pressure is not as brutal as it has been in the fourth quarter 2004. So, altogether, what we see in the industry is something like the first phase of recovery.

Talking about the most important market segments, we see industrial continuing strong worldwide with the orders from the sector even increasing further. Automotive continued to be strong in Europe and recovered to an extent also in the United States. There is a worldwide move to 3G telephones, mobile phones, which helps the telecom segment. Computers continue to be relatively disappointing. Customers seem to hold back. Consumer is strong in the United States, weak in Europe, I want to say as usual, and improving in Asia.

Talking now about the business development of Vishay in particular, there were low backlogs at the beginning of the quarter and which, of course, gave to sales as low start into the year which accelerates now. We achieved sales at the extent of $554 million in the quarter versus $542 million in the prior quarter and $641 million prior year. You must note that exchange rates increased sales of this quarter by $4 million versus the prior quarter and by $10 million versus prior year. The orders increased sequentially substantially by 21%. 23% from distribution and 18% from OEMs and also all geographic regions were positively impacted. Book-to-bill recovered to 1.06, 1.01 for actives and 1.10 for passives. There was the book-to-bill for distribution at 1.07 and for OEMs at 1.05.

You see the recovery came from all segments of our business. The backlog recovered to 2.5 months as a consequence. There was some slowdown of the price decline. We have seen throughout the entire Company, a price decline of 1.4% versus prior quarter and of 4.2% versus prior year.

Quarter-over-quarter, the slowdown really took place in actives where we've seen 1.5% sequentially. You may remember in the fourth quarter, vis-a-vis the third quarter last year, we had to report 3.9% sequential price decline. Vis-a-vis prior year, the price declined in actives forcing 5.9%. There's more price stability in passives, in general. We had 1.1 price decline -- 1.1% price decline versus the prior quarter and 2.6 price decline versus the prior year. I think altogether, we can say for Vishay that we see inventories worldwide returning to normal levels, the business picks up.

Let's talk about the results and the reconciliation versus prior quarter based on $12 million higher sales which actually was $8 million without the exchange rate impact. The operating margin improved by $13 million namely from $9 million to $22 million. The main elements of this development was a positive impact from the volume of $11 million and negative impact from the ASPs and the ASP decline of minus $8 million. The costs were better by $7 million and we gained $5 million in inventory-related changes.

Now, concerning the reconciliation of the results versus prior year, based on $87 million lower sales, $97 million even without the exchange rate impact, the operating margin decreased by 40, 4-0, million from 62 to 22 million. Main elements again, the volume decrease impacted result by $32 million, there is an impact of price decline of $24 million. The costs were better by $12 million and inventory-related development improved the situation by $6 million.

Let me comment briefly on some highlights from the operations. The inventory terms decreased slightly to 3.1. The exclusive reason is lower cost of goods sold in the quarter. The inventories remain virtually unchanged versus prior quarter. The overall fixed cost continued to decrease sequentially by $3 million and versus prior year by $11 million. We reduced [ INDISCERNIBLE ] personnel in the quarter by 120 heads, and, of course, most it happened in the high labor countries.

We reduced, we continue to reduce in the high labor countries the employment in the quarter by 160 heads, but we remain as indicated before, at 28.2% as reductions took also place in the low labor countries. We have improved our on-time delivery performance to 94%. Capital spending again, as Dick said, was $29 million in the quarter versus depreciation of $47 million. We expect capital spending for the year around $135 million. And, as I mentioned before, most of it will spend for, expanding capacities at Siliconix, General Semi., and Telefunken.

Talking, restructuring, I indicated last time that we have defined the companywide $50 million, 5-0 million, savings program which is now implemented and as you may have understood, $11 million of the program already showed in the first quarter. Beyond that, we are working on additional programs to cut costs and now we want to concentrate on some underperforming product lines. All of this will be done as a combination of production moves, plant closures, overhead streamlining, and changes of pricing policies wherever this is appropriate. We expect from these programs we try in a moment design the more precisely, annualized savings between $30 and $40 million.

Let me now talk about the product lines and I would like to start out, as usual, with Resistors and Inductors. We have seen in this product line, quite a nice recovery of revenues. Sales in the quarter were $134 million which is up by 7% versus prior quarter but down by 11% versus prior year.

There was a substantial improvement of book-to-bill. 1.12 in the quarter up from only .94 last quarter. This gives us, of course, some hope for the quarter to come. The backlog improved to 2.5 month. Gross margin recovered to 26% of sales and in this case, mainly due to better volume.

The price decline continued for resistors and inductors at the modest level. We have seen minus 1% versus prior quarter and minus 3% versus prior year. The inventory turns were at a solid level of 3.9. We have seen improved capacity of utilization. We say approximately 75% to 90% for surface mount product and about 55% on average for leading resistors.

Based on the capacity for Thin Film resistor chips now established in Israel and we expect the first shipments to customers in the second quarter of this year. The MIC acquisition is behind us. we are integrating that and we want to accelerate this move. we are going to close the facility of MIC and integrate it into the whole thing of one of our facilities by the middle of the year.

Furthermore, we've seen first sales with our new products, SMD fuses and altogether for resistors and inductors, you can say that this continues to be one of the backbones really of our business. It is a solid and profitable business and at the moment, it really experiences volume recovery.

Talking Capacitors, there was a modest sales increase in the quarter. Also there was a low starting backlog. We achieved sales in the quarter of $119 million which was up by 2% versus prior quarter but down by 16% versus prior year. On the other hand, the book-to-bill ratio was at 1.09 which recovered noticeably from a $0.93 of the prior quarter.

Backlog at the end of the quarter was at the run-rate of 2.6 months. The gross margin improved due to 11% of sales in this case mainly due to better costs. Price decline continued at a low rate. We've seen a minus 1% versus prior quarter and the minus 2% versus prior year. Inventory terms reduced to 2.0, main reason was a lower cost of goods sold. The Tantalum powder and wire inventory increased by 6 million but [ INDISCERNIBLE ] and finished goods remained constant.

Capacity loads altogether was unchanged except for Tantalum caps where we've seen some improvement. The restructuring efforts in film capacitors continue according to plan. You will remember that we are moving from Europe to India and China. We also have decided to close the Sanford facility and we increase our efforts to sell ceramic capacitors, single-layer capacitors, and film capacitors in Asia. Again for capacitors in summary, we continue to work heavily to reduce costs to optimize pricing and also to expand our market share. I insist on the fact that gross margin of 15% for capacity for Vishay remains absolutely achievable.

Measurements group relatively stable business. We have seen sales of $33 million in the quarter which is 4% above prior quarter, and 7% below prior year. Book-to-bill improved to 1.13 after .94 in the previous quarter. The backlog has gone up to 2.2 months. The gross margin improved and reached quite excellent level of 35% of sales in the quarter. The inventory terms improved to a level of 2.6.

The relocation of the production in the context of the restructuring efforts which are going on two years now, practically finalized and as a next priority, we will concentrate on the consolidation of the divisional sales force. The new acquisition of SI Technology will further enhance the measurements groups or world profitability. They're substantial synergies from this acquisition to be expected in manufacturing but also in the sales force. So, altogether, measurements group continues to grow and continues to be successful.

Siliconix, there was a low beginning backlog and of course the low beginning backlog affected the sales in the quarter. On the other hand, since March, for Siliconix, we see substantially increased orders. Also and especially from Asia. Sales in the quarter were $104 million which is 4% below prior quarter and 15% below prior year. Book-to-bill on the other hand recovered to .97 in the quarter, after .79 in the fourth quarter last year and .68 only in the third quarter 2004. The backlog remained at 3.1 months. Gross margin recovered and improved to 27% of sales despite lower sales and the reason is clear, we have lower costs.

The inventory turns are satisfactory at 4.1. The price decline has reduced sequentially to 1% versus prior quarter and 6% versus prior year. Quite a solid situation. Maybe the best we at Vishay have ever seen in Siliconix concerning pricing. The capacity load is at about 85% to 90% at the moment but we are increasing, as you know, our maximum capacity in the course of the year.

Based on tower in Israel -- the foundry in Israel but also based on our own expansion efforts in Itzehoe in Germany. The tower qualification is well on the way. Itzehoe is in qualification for high sale density on the six inch basis. The move to eight inches planned for the end of this year. Altogether, I believe that Siliconix has entered into a phase of recovery and we will make sure that capacity at this time will be available.

The other semiconductors continue to suffer this quarter to a degree. They also had low starting backlogs and achieved sales in the quarter of $164 million. Same level as prior quarter and down by 19% versus prior year. Book-to-bill on the other hand recovered to 1.04 after .90 in the fourth quarter and .87 in the third quarter. The backlog now is at 2.2 months. Gross margin dropped on the other hand to 20% of sales. Due to the fact that volume increased, it did not offset the price decline and we had some start-up problems in Hungary. On the other hand, they are behind us. We have a situation in hand but there were some problems when we entered into new production lines there.

There was a continuation of price decline, 2% versus prior quarter and 6% versus prior year. The inventory turns in this business were kept at a very satisfactory level of 4.2 and they continue to go down by $2 million in the quarter. For these products, we experience on the market very short lead times in general, the capacity load has slightly improved. It is 60% to 70% for low power product and 65% to 80% for infrared products. Power diodes and SMD LEDs run at a higher utilization of 80% to 90%.

The production in Colmar, France is now closed. We are in process to move General Semi. packaging from Taiwan to China. This is on schedule. And we are -- we have decided to expand the fab capacities in Heilbronn, Germany and in Taipei by 20% each by the course of the year. And we are in process to move to a six inch technology in Heilbronn. Altogether, we are talking about a solid business which currently suffers from low demand but on the other hand, we see also improvements there in terms of orders. There is a lot of restructuring potential there.

Let me summarize as follows. I think Vishay has recovered to an extent from the very disappointing results of the previous quarter. But the recovery I would like to highlight that did not come from sales but from our efforts to reduce costs and to restructure the Company further. The cost cutting and the restructuring will even be accelerated as I try to explain in the quarters to come.

While streamlining the fixed overhead, we will not impact negatively the ability of Vishay to further develop its products and processes and to serve the customers well. On the contrary, we are o the way to expand critical capacities while introducing next generations of processes. I think we will be prepared for the next upturn whenever it will take place. Maybe it is already on the way. Thank you very much. I would like to transfer it to Dr. Zandman.

Good morning. You have seen the results of Q1 which is quite a bit better than last quarter. We expect Q2 to be better yet based on our backlog and the rate of incoming orders. We would like to say something about the side issue. In fortune of March '05 was published a list of most admired companies in America in different segments of industry. In the semiconductor segment, to my amazement, Vishay is one of the ten most admired companies probably of Siliconix which is, in fact, one of the best there is in this area. For me, it was a pleasure to be able to see Vishay in the company of Intel and Texas Instruments.

I want to say a few words about succession. As you know, Dr. Paul is now the CEO. I have transferred my duties as CEO to Dr. Paul and he's also maintaining, for the time being, the duties of Chief Operating Officer. We are preparing and training new generations of management to have a similar succession of management positions in time. We believe that no outsiders, if possible, are needed to manage our Company. We have a lot of very good talent in the Company and trying to prepare them for future growth.

Concerning acquisitions, I have to announce a few things. First of all, you probably know about Siliconix. We have 20% of our shares not in our hands. Siliconix is an independent public company and we decided to acquire it at 20%, we would, therefore, made a bid for the 20% and exchange rate for share-for-share is going to be 3.075 shares of Vishay for one share of Siliconix. This looks quite good.

Though we are not sure but we believe that on May 12th when the time is going to close -- the deal is going to close at that time, we believe that people will surrender more than half of the shares and that's what we need to acquire completely the remaining shares in the market of Siliconix. It is going to help us because of all kinds of inconvenience by having independent public company and inconvenience concerning in cost first, to run separate a public company cost a lot of money.

There are other costs involved, there are questions of transfer pricing, working together and so on. We have to keep it so carefully completely separate one from the others, that it was introducing management problems and real difficulties in running. If we acquire it at 20%, which I believe we will, this is going to ease the situation quite well and produce more profits.

We also have acquired SI, the main product line is they have transducers, with the name, Revere, very well-known trademark. This is going to add to our transducers line and yet strengthen the Vishay position in the market with this business. We also are looking to acquire a European company of instruments for transducers. That's a separate segment of our work of integration. We have some instruments of our own but not enough. We therefore, decided to acquire a line of existing instruments from a European manufacturer.

Each would then give to Vishay a full line of instruments and on top of that, we are going to our own R&D to improve this line and to grow in this area. There were concerns in another segment in this area of strain gages, transducers, instruments, and systems. The systems area is quite weak at Vishay. We are looking how to strengthen it to total market proposes for steps in the transducer and instruments and the systems areas about 1.5 billion. We are just at the beginning of entering this area and we believe that we will be there making quite a mark with time.

We are continuously looking for acquisitions. At this point, we are looking for some big fish. The balance sheet is very strong. There is essentially no debt because the debt we have is convertible debt and we have some $650 million cash. Vishay is very strongly underleveraged and really, to run a proper business, you have to have some leverage. If you have Vishay, we could acquire easily a company in the area of $1 or $2 billion, and we could manage it quite well. We are just looking for something big and good, so we could afford to expand our horizons.

The growth at Vishay for the last ten years has been 22% compound growth per year, for the last 20 years. If you look at 1994 and 2004 and you compound sales along the way, you'll find out that the growth has been phenomenal, 22% compounded. We hope we can sustain this kind of growth in the future but to do that, we would have to acquire some larger companies. Concerning R&D, this is now one of my major duties in addition to Chairman of the Board and issues of acquiring companies. I am now starting to look into details to find out how we could synergize Vishay's enormous potential in R&D and the different divisions that we have.

In addition to that, as you know, we have acquired a small start-up in Israel called, RF Waves and this is doing quite well. Let me give you an example. What they're doing, you know that there is a major issue of security of containers which enter the United States. Nobody knows if anyone tampered with them or not and there is a big concern how to fix it.

This process, at this time, there is a program going on to put sensors on the containers which would decide -- which would show if there's some tampering has been done with the container or not. So, sensors are connected to a unit, RF Wave unit, as a matter of fact, which would beam the information in a wireless way. Once the containers are coming into the port and somebody with a hand-held instrument or instrument in the [ INDISCERNIBLE ] that's usually compact just like -- hand-held just like with inventory checking, would be able to immediately check if the containers has been tempered with or not. We already have some orders on that and it could develop into quite an interesting business.

As I said before, the R&D synergy of Vishay would have to be explored and I believe that this would give us new products and processes. I'm starting to organize myself to be able to help in this area. Structure of Vishay in general has not changed. As before, we look for internal growth and of positions of discrete components in both areas, passive and active. We would prefer to grow stronger in actives but we don't neglect the passives as well. And we look into new start-ups like RF Waves, we look for other ones to be able to enter new markets. As it concerns me, I am quite optimistic for the future. Business looks good. We have a very strong balance sheet which would bring us new acquisitions with time and I hope we continue to grow. Thank you very much.

Okay, we're open for questions now, please.

Ladies and gentlemen, if you would like to ask a question, press star then one on your touch tone phone. You will hear a tone indicating you've been placed in queue. You may remove yourself from the queue at any time by pressing the pound key. If you would like to ask a question, press star then one.

We'll go first to the line of Kevin Kessel with Bear Stearns. Please go ahead.

Good morning.

Good morning.

In your guidance for sequential revenue growth, do you believe that more of a factor in that is a better overall inventory situation especially at distribution or is it actual in market growth that you're seeing from existing customers and if so, which end markets?

We believe in a continuation of what we have seen in the first quarter in terms of orders. So, our book-to-bill was a 1.06 and the backlog is better and R&D increased orders came practically from all segments. From distribution as well as from OEMs and also from all of the regions so what we expect is just a general improvement. I would not highlight one segment really.

Ok. And in terms of the acquisition commentary that Dr. Zandman gave, would it be in Vishay's preference to look at areas where it is already strong, for example, like on the MOSFET side, or would it be more interested in other areas like maybe power ICs where there's definitely exposure but it's not one of the stronger areas today in terms of the product line.

We look at that as it comes along and there is continuous stream of acquisition possibilities. But it depends it could be too expensive to -- the right product line is not there, the management is not there. So, we look carefully before we enter. Both areas you mentioned are definitely of interest. Our business or any semiconductor business in discreet areas and even in simple ICs are open to us. We would definitely like to grow there.

When you say $1 to $2 billion, I assume you're talking about sales.

Yes, I just mention this as an order management, if you look at Vishay's balance sheet, you'll realize that $1 billion to $2 billion, acquisition is a possibility. It doesn't mean it's there, it doesn't that we will do it. If one come at $200 million we are not going to neglect either, but these are the types of things which are possible and we are not going to pass it.

Right. With the debt to cap of roughly 20% or so today, what does Vishay comfortable with in terms of leveraging itself in the future for acquisitions?

Well, I would like to see balance sheet whereby you have like a ratio of .7 between debt to equity.

Ok. Last question for me is on the restructuring, Dr. Paul, I think you had said $50 million program. You announced last quarter you saw $11 million in savings, so that means there's an additional $39 million expected to be seen over the remainder of the year.

Yes.

And then you announced, if I'm not mistaken, an additional restructuring program?

Absolutely. Yes. This is on top of that. The $50 million savings program was across the Company. Now we are picking out specific product lines. Smaller divisions with product lines which are underperforming. And we are concentrating on these and do hopefully the right things there. This, we expect is just in the process of being designed this program but we are quite close to the end. We expect from that another annualized savings, not this year but annualized savings of 30, 3-0, to 40 million.

In terms of the 11 million you saw this quarter for the remainder, is that something that should still be spread out over the remainder of the year or do you expect to see the cost savings accelerated in Q2?

We expect it to grow because we are going to reach the 50 million. We started with 11 million, the real sum of the new programs will kick in this year. We expect an acceleration of savings as we go.

Thank you very much.

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

Yes, thank you. Just one question on the SG&A. The actual SG&A dollars was up quarter-to-quarter. And you had lots of cost cutting and I know a lot of that came out of COGs. But trying to figure out what we should think about in terms of expenses. Was any of that related to Sarbanes-Oxley?

Yes. In the quarter -- this quarter, first quarter of '05, we had Sarbanes-Oxley costs that were higher than anticipated last year.

How much was that?

We didn't give a quantification.

Ok. Is that -- because you were above 17% for two quarters in a row. Granted it was at a lower revenue rate but what -- historically, you've been down in the 15% range. Is that an area you're comfortable with or because of some the added costs, it's not possible?

Let me answer that. This $50 million savings program relates to manufacturing fixed costs as well as to SG&A cost. Of course, it is our target to be back to 15% but you will remember it was at a time when the sales were higher, as a matter of fact. So, we are looking at the absolute SG&A and manufacturing fixed costs and we are going to drive it down year-over-year by $50 million plus the additional program which we are in the process to be designed.

Ok. So, it should come down then.

Yep.

Ok. Just in terms of your goals, short and long-term goals, on operating margin you've talked in the past about the 15% goal and given the choppy end demand environment, we haven't seen that yet. Could you talk about short and long-term operating margin goals now, perhaps year-end goals then further out?

Dick, can we?

That would be something that would -- you know, we gave our goals, we said that the ideal situation at the certain revenue level would give us the 15% operating margin.

That was at, I think, 2.5 billion?

That was 2.5 billion --

-- 2.8 billion because you have to figure in the exchange rate impact.

That's right. So, when you get to that, that's where -- we have not quantified that on the upswing but you know, it is something that you yourself can mathematically, you make a progressive increase as you go forward.

Ok. And just lastly, on distribution, it looks like distribution finally is ordering what they are selling and replenishing stocks. Have you seen any signs they're going to Bill buffer stocks here or are they trying to remain relatively lean in inventory?

They try to remain lean at this point in time. This happens again in the future but at the moment, they really let us suffer for half a year. Not only Vishay but the whole industry. Now they're back but I think they don't increase at this point in time. Just order back-to-back but they had to refill to a degree. They were reducing quite nicely in the first quarter.

Ok. Thank you.

Our next question comes from the line of Andrew Huang with American Technology Research. Please go ahead.

Thank you. Other than the sequential improvement in revenue and gross margin, are there any other signs that are giving you confidence that we are in the early phases of an industry recovery?

As a matter of fact, we believe that we have seen the first sign of recovery. Nobody knows that, of course in the end. But I think the fact that it comes from everywhere is helpful. It doesn't come only from distribution which now changed its mind and starts to reorder. It comes also from OEMs in the same way. It comes from all of the three regions. Asia, Europe and also the United States, of course. So, it is relatively broad. This is what gives me personally, comfort, but this is my opinion. So, I cannot prove it, obviously.

Ok.

Maybe this is the beginning of a steep upturn, I don't know.

It looks like ASP declined moderately from 2.5% in the December quarter. To 1.4% in the March quarter.

Yes.

Can you comment on your expectations for the June quarter?

Well, I try to say this before, because we were shocked a little and everybody watches Vishay were shocked about the steep price decline in the fourth quarter vis-a-vis the third quarter. Even then, I said it was a peak and we would return to more normal levels. I believe that we have returned to more normal levels. So, we expect -- just my personal expectation that this present level will be relatively typical for the next future.

Ok. Great. Then just some housekeeping items. Should we be using a 32% tax rate going forward or a 30% tax rate?

As of now, it is our estimate is 32%.

Ok. And should we expect SI to contribute about $6 million in revenue for the June quarter of the SI acquisition?

They have about a $36 million run rate. We wouldn't pick them up until probably May 1st, so you wouldn't get the whole quarter in there. I would say two months. Less than that.

And then lastly, can you comment on the Cap Ex plans and G&A expectations for '05?

As I said, it will be approximately $135 million to be spent. And of course, this is in dollars. That means if the Euro becomes more expensive, then it will be higher. You see, it is approximately $135 and we will concentrate on expanding the actives capacities for Siliconix, for General Semi., and for Telefunken.

Thank you.

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

Good morning, guys. In your earlier comments, you mention, I believe Dr. Zandman mentioned, the incremental cost of running Siliconix as a public company and expected savings, if that were to cease to be. Can you give us any sense of what sort of cost savings you would realize by completing the tender offer for Siliconix?

This is Dick Grubb. Most of the analysts who have put a pencil to paper at this have been predicting somewhere between $2 to $3 million as being the savings and that is pretty much across the board they've estimated that. That's -- although we don't have it qualified to the last dime. That's in the ballpark.

Ok. Ok.

But the other savings will come from improvements in performance. For working together between Vishay and Siliconix. It was really very difficult to work.

Right. Ok. And then a second question, you know, pretty -- very high contribution margins this quarter on the incremental sales. Considering all of the cost savings and things that are going on and with pricing holding up maybe a little better than expected.

Yes.

What would I expect both in actives and passives in future quarters here.

Excuse me, I didn't hear you, sorry.

Just what sort of contribution margins would I expect in the current quarter and you know, future --

You know, the gross margin is subject to volume and our guidance leads the sales up. That means volume will for sure grow. This is what we see. On top of that, we are going to pursue our cost reduction programs. Normal ones, the cost reduction programs and secondly, the incremental ones. The $50 million program which we have and then on top of that we have in process, as I try to explain, an additional program for underperforming divisions and product lines. So, we expect to be able to improve our situation further.

One final one. It has been awhile since we've had what I would call I guess a normal summer but from a general perspective, all of the things being equal, would the September quarter based on holiday schedules and your geographic mix of business be typically more likely up or down relative to a June quarter in sales?

Hard to forecast. Hard to forecast. If this -- if this leads into an upturn of cost, this will also help the summer quarter but nobody knows that. We just saw good orders in a broad way in the first quarter. This is basically what we have seen. There is some optimism on the market, that is true.

Direction -- in the right direction.

Sure.

Ok. Thanks.

Thank you.

Our next question comes from the line of Steve Smigie with Raymond James. Please go ahead.

Great, thank you. I was wondering if you could comment on what gives you some confidence that so far the transaction will be completed.

Well, this is Dick Grubb, in our announcements and our filings with the SEC, we pretty much spell out the activities that have taken place since the original bid was made back on March 3rd, I believe the date was. We have had many -- the majority shareholders of Siliconix approach us and ask us questions about what Vishay will be like going forward and of course we give the same information we give to the public.

We've had good indications from some of the hedge funds that have been purchasing these stocks that they would tender at a certain amount. We listen to the special committee, the Board of Directors of Siliconix who has engaged the outside firm of Lehman Brothers to evaluate the offer Vishay has put on the table. And in fact, that led us to going from a 2.65 then to a 2.9 to the current 3.075 valuation that we had complete acceptance from the people I just mentioned. So, we believed that that type of -- what the public is speaking to us, how it's trading on the market right now is in our favor but March -- May 12th is a couple of days away and we'll know then.

Could you still give potentially some sequential revenue guidance for Siliconix. Book-to-bill but revenue likely to be up or down sequentially?

Gerald?

Siliconix will be slightly up.

Ok. Some gross margin guidance?

You know, Siliconix is a good contributive margin. It means every sales dollar that goes up, improves automatically the gross margin percent is all I can say.

Ok. Thank you very much.

Our next question comes from the line of Michael Walker with First Boston. Please go ahead.

Thanks. Dr. Paul, can you remind me as to whether I should be reading anything into what looks like you might be able to characterize as an early surge on the passive side relative to the active side with book-to-bill still kind of lagging in Siliconix but margins in book-to-bill rising pretty nicely in passives. Is there any reason to believe that is something that leads the actives or is it the other way around?

I think it is the correction. The passives were really impacted badly in the last year. They did not enjoy the same upturn as the actives. I think it is a catch up situation. This is what I feel. I think overall long-term, the actives should grow faster than the passives. No question about it. Nothing changes there. If you look at Siliconix, they were really burdened heavily by this inventory build in Asian distribution. And they attempt to get normal which we believe is not behind us. If we look at book-to-bill over the last three quarters, I try to say it before, it really came up from .86 in the September quarter, which was a disaster, up to now close to 1 and I'm pretty sure this will continue so in Siliconix and the semiconductors are in the process to recover.

Ok and then Mr. Grubb, have you talked or quantified at all -- maybe it's too early to do this -- what the infrastructure cost savings would be if Siliconix were folded into the Vishay organization? Well, what I said is that we had pretty much endorsed what the analysts have gone out there in the $2 to $3 million savings for the public company, double audits, double opinions, Sarbanes-Oxley, registration statements, printing of annual reports, things like that. There is more savings to come from some of the combinations that can be accomplished without the sensitivity that existed when had you the two separate companies both trading publicly. That has not been quantified publicly. I mean there is definitely a savings there. We know what they are in many instances but they have not been disseminated to the public.

Our next question comes from the line of Thomas Dinges with J.P. Morgan. Please go ahead.

Hi, good morning. A couple of quick ones for you. Dr. Paul, there was a comment in noted in the Siliconix press release talking about customer shifting from leaded part to nonlead part going forward, and that did have some impact on the inventory. Could you quantify how much that was and what you think the impact is going to be going forward and how you handle that mix when you've got issues around ROC coming up here. Then I have a follow-up.

Siliconix like all of the other divisions at the moment see this move on the market to lead-free. But all of this goes over a longer period of time. The deadline in Europe is middle of next year. And there are some segments in the market that want to extend this period, automotive, military doesn't want to jump at all as you know. So, there will be, as we go, a continuous move to lead-free but we are trying to manage that closely.

There will be some inventory to be managed in that sense of lead keep, of lead containing, but we manage it down. We follow it on a monthly basis. We drive it down in lines where we have already made the change. A few of our lines already have made the change. So, we are managing the situation. The customers themselves sometimes don't know exactly what they want to do timewise. Of course, in the end, they want to be lead-free but timewise, some of the customers, even larger customers, don't have a complete opinion on that. So, we have to adapt, but as I said before, we think we are on top of the situation.

Ok. Then just real quickly on the distributor side of things, they talked about a little bit stronger orders there and they're still trying to stay a little bit lean. Maybe -- I know there is a lot of different product lines with inside Vishay but rough ballpark of what you look at as normal say weeks of inventories on the shelves of your distributors that you've looked at over a number of years. How close are they to those levels now? Are they still below the levels which means there might still be a little bit more of inventory stock or are they at the levels within a week or two so far as we stand right now?

At the end of the first quarter, our distribution, I can only talk about this one of course, averaged four turns, four inventory turns, really. Historically, this is the average where they want to be. So, if they haven't changed their policy dramatically, I would say that they are exactly at the point they wanted to be historically. Asians are above and the others are below.

Ok, thank you.

At this point we have time for one additional question. That will be from the line of Chris Lippincott with KeyBanc Capital. Please go ahead.

Just wanted to follow up on the last question with reference to distributors. You were indicating that you're now turning four times, hit historical. Are you getting any sense now that the distributors perhaps would like to see those norms, those turns actually decline somewhat as they perhaps want to push down some of the inventory back to you?

No. No. They have -- if I understand the question right, they were working down for half a year of the inventory and you can follow it on a monthly basis. The inventory has dropped and on the other hand, their POS has come up. So, they're now at the four turns on average. Of course, Asia is different than the rest of the world. They want higher turns. So, I'm relatively confident that they have reached what they want to reach if I understood your question right.

Ok. Thanks.

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