威世科技 (VSH) 2005 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Vishay second-quarter fiscal year 2005 earnings conference call. (OPERATOR INSTRUCTIONS). I would now like to turn the call over to Vishay's Chief Financial Officer Mr. Richard Grubb. Please go ahead.

Good morning. Thank you for attending our second-quarter financial conference 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 will be making certain forward-looking statements that discuss future events and performance. These statements are subject to risks and uncertainties that could cause actual results to differ from the forward-looking statements. For a discussion of factors that could cause results to differ, please see today's press release and Vishay's Form 10-K and Form 10-Q filings with the SEC. Thank you.

Also with me today on this conference call is Dr. Felix Zandman, Chairman, Chief Technical and Business Development Officer of Vishay, and Dr. Gerald Paul, Vishay's Chief Executive Officer. I will make some summary comments on the quarter's results, and Dr. Paul will elaborate. After which, Dr. Zandman will remark about our acquisition activities and update us on some technical matters.

Revenues for the second quarter were $581 million which are in line with our previous guidance and represent a 5% increase over the first quarter's revenue. Earnings per share for the quarter was $0.05; however, as stated in our earnings release, net earnings and earnings per share for the quarter were affected by several nonoperational items which include, restructuring costs of some $9 million; expenses and write-offs associated with our successful tender offer for the minority shares of Siliconix, some $13 million; an additional loss on future purchase commitments of $1.3 million; a gain on the sale of property of $2.1 million, and a favorable tax ruling of a foreign country of $3.7 million. The net effect after-tax of these items on earnings per share for the quarter was a negative $0.07. Without these nonoperational items, diluted earnings per share would be $0.12, considerably higher than consensus estimates of $0.09 for the quarter.

All my comments going forward on the quarter will exclude the effect of these items. Revenues by segments were our semiconductor segment 49% revenue -- 49% of the revenues, while our passives represent 51% of our revenues. Consolidated gross margins for the quarter were 22.8% as compared to our first-quarter percentage of 21.4%. In addition, selling, general and administrative expenses of $95 million equals 16.5% of revenues for this quarter as compared to 17.4% for the first quarter of this year. Other income besides a $2.1 million gain on the sale of property consists mainly of interest income.

Gross margins by segments for the quarter were semiconductors 23.3% compared to 22.3% in the first quarter. Passive products 22.3% as compared to 20.5% for the first quarter, all showing increases. The cash balance at quarter-end was $577 million. Long-term debt at quarter-end was $743 million, substantially all of which are convertibles. Total inventory at quarter-end was $503 million, while working capital remains at $1.1 billion. Bookings for the quarter were $575 million, and backlog at quarter-end is $451 million. As noted in our press release, cash generated from operations for the quarter was $45 million.

Capital expenditures during this period was $23 million, while depreciation and amortization exceeded $46 million. Total headcount at quarter-end was 25. -- 25,847 people, of which 72% are in low-cost areas.

Now as announced in our press release, we expect the third-quarter revenues to be in the range of $560 million to $580 million and margins to be flat to slightly lower. If warranted, we will update our guidance in September.

Now I will turn the details over to Dr. Paul.

Thank you. Let me start out in discussing a little of the economic environment of our industry which was fairly friendly in the second quarter. It was a continuation really in the sense of the (inaudible) decline of the first quarter. The strong book-to-bill ratios of the first quarter has led to sales increases in the quarter in general. The inventory levels in the supply chain remained reasonable. It has to be stated that worldwide distribution controls hit stock levels much more tightly than in prior years. They remained at four terms, according to what we can judge.

There are no shortages from the market, and the lead times remained relatively short. And we have seen a continuation of the price decline of the price pressure.

Talking a little more in detail about the various market segments, we can say that the industrial segment continues strong like it was since quite some time worldwide. Automotive was strong in Europe, but disappointing in the United States. The volume in mobile phones was increasing further. On the other hand, there is some price pressure for the uses.

Laptops and PCs recovered somewhat before the seasonal upturn, and consumer remains strong in the U.S. and is relatively weak in Europe. Asia came in in the second quarter with charges that are somewhat disappointing. So altogether the industry has enjoyed a fairly friendly climate, and the inventory levels quite in contrast to last year remained at reasonable levels.

Talking a little more about the business development of Vishay, the strong book-to-bill ratio of the previous quarter increased sales in the quarter. Noticeably, as Dick stated, we achieved sales of 582 million in the quarter versus 554 million in prior quarter and 647 million in the prior year. It has to be noted that the exchange rates decreased sales by 8 million versus the prior quarter, but increased the sales 8 million versus prior year.

New orders decreased slightly by 2% sequentially, distribution is up by 2% and OEMs are down by 7%. Book to bill came in at .99, 1.0 for access and .98 for the passives. Between distribution and OEMs, the split looks as follows -- 1.01 book-to-bill for distribution, quite a good quarter for distribution again, and .97 for the OEMs.

The backlog decreased slightly to 2.3 months, which is fairly comfortable still. The rate of price decline stayed virtually unchanged. It was 1.4% down versus prior quarter and 4.4% down versus prior year. There is some acceleration of the sequential price declines for the excess, which showed 2.4% versus prior quarter and 5.8% versus prior year. On the other hand, there is a slowdown of the price decline for the passives, only .5% down versus prior quarter and 2.9% down versus prior year. Altogether also Vishay has seen the support of the market for recovery of its revenues.

Now let's talk a little about the reconciliation of the results versus prior quarter first. Based on 28 million higher sales, which actually were 35 million without the impact of the exchange rate, the adjusted operating margin improved by 15 million, namely from 22 million in the first quarter to 37 million in the second quarter. The main driving elements were the impact of the volume increase, which was a positive of 20 million; the ASP decrease, a negative of 8 million; on the other hand, there was cost reduction with an impact of 5 million in the quarter.

Comparing with the second quarter of prior year, it is as follows based on 65 million lower sales, 73 million without the impact of the exchange rate. The operating margin decreased by 34 million from 71 million last year to 37 million this year. Driving forces were the volume decrease with a negative impact of 22 million. The price declined with a negative impact of 26 million. On the other side, we have cost reduction altogether of 14 million.

Some operational highlights of the quarter. The inventory turns improved slightly to 3.2. The main reason was the higher cost of goods sold in the quarter. The inventory has been down versus prior quarter by 11 million, mostly from the impact of the exchange rates. The overall fixed cost continued to decrease sequentially by 5 million and versus prior year by $12 million.

The reduction -- we reduced really the fixed cost personnel in the quarter by 58, most in high labor countries, and year-to-date, the number is 170 hits fixed cost being reduced.

The high labor share of employment continues to go down. It is now at 27.8% from 28.2% at the beginning of the year, which is equivalent to a reduction of 270 hits in high labor countries. Our delivery performance was at 92% on-time. There was a slight deterioration vis-a-vis the first quarter, but in the meantime this has been corrected. We're back to a normal performance.

Capital spending in the quarter was 23 million, as Dick indicated, and vis-a-vis a depreciation of 43 million. We continue to expect about 140 million capital spending this year, most of it, and I said it before, for Siliconix, General Semi, and Telefunken capacity increases.

Our restructuring programs are in line with our plans. As you will remember, we have a defined 50 million program annualized savings, and this contributed in the first quarter 11 million, and in the second quarter we came in with 12 million, so we are really on target and we are going to save these costs.

On the other hand, as I indicated this before already, we are in progress to define further cost-cutting programs for underperforming product lines. In this context we have announced selective price increases already and also have started to cut additionally overheads, and there is more to come, substantially more to come. We expect that the total annualized impact of these official programs will be 440 million annualized.

Now let me go a little into the businesses, in the various businesses, and I start out as usual with Resistors and Inductors. We have seen there a continued recovery of the revenue sales in the quarter. We are 140 million, up by 6% versus prior quarter but down still 9% versus prior year. On the other hand, book-to-bill in the quarter was 1.02, indicating further recovery as we go.

The backlog is stable at 2.4 months. Gross margins improved further to 29% of sales due to better volume and continued reduction of costs. The price decline for Resistors and Inductors continued at a very modest level, which was virtually unchanged versus prior quarter, less than 1% price declines versus prior quarter and 3% price declines versus prior year.

Inventory turns were at a quite satisfactory level of 4.1. Capacity utilization became better. We have 80 to 90% for S&P products and 6 to 7% for litered (ph) products.

I'm happy to report that our MIC acquisition is integrated now completely. The operations have been merged completely with Vishay's existing EFI facility, which will give us going forward about 3 million annualized savings. And also to be noted that the first shipments of thin film chips out of Israel has been made. So altogether Resistors and Inductors represent a very solid and profitable business for Vishay strong, and at the moment we see the volume further improving.

Talking about capacitors, business was stable in the quarter. Sales were at 120 million, up by 2% versus prior quarter but down by 18% versus prior year. Book-to-bill was at .95, and the recovery of the prior quarter in this product line was not maintained. Backlog is at 2.3 months. Gross margin remained at 10% of sales like in the previous quarter. Price declines came down less than 1% versus prior quarter and 3% versus prior year. Actually now capacitors show the same price decline as resisters.

Inventory turns were at 2.0 with the levels of inventories practically unchanged vis-a-vis prior quarter. Capacity load is now between 50 and 85% for the relevant lines which again is practically unchanged vis-a-vis the prior quarter. Our restructuring efforts for capacitors continue on plan, and just to give you an impression, if you look at all the division of fixed costs vis-a-vis prior year, we see a decrease of 13%.

We also especially in this product line have announced elective price increases, and as a part of our restructuring programs, we have closed our facility in Sanford in the United States.

Well, talking capacitors, there are continued efforts to improve profitability. The gross margin I'm pleased to say that 15% remains definitely achievable.

Measurements group. The next business I would like to talk about is a stable business, a very profitable business for Vishay that currently experiences an upturn. We have achieved 40 million sales in the quarter, whereby 6 million out of that came from our new SI technology acquisition. On a comparable basis, this means without the acquisition sales were 4 million above prior quarter and prior year. Backlog is at two months, and I would like to highlight as a moneymaker, this division, gross margin improved further and reached an excellent level of 37% of sales in the quarter.

The acquisition already contributed with 33% gross margin. Inventory turns were at 2.4, and we are on the way to consolidate the divisional sales force further and to merge the new acquisition, SI Technologies, with the existing organizations. Altogether measurements group continues to grow in terms of sales but also in terms of profits.

Siliconix has recovered in the second quarter further. You can remember the fourth quarter last year was quite low for Siliconix. Since then, things get better quarter to quarter. Sales in the quarter were 113 million, which was 10% above prior quarter, still 8% below prior year. But you will remember that this second quarter last year was characterized by substantial inventory build at distribution, especially at Siliconix. Nothing like this year. Inventories and distribution are normal, is normal, are normal.

Book-to-bill of Siliconix in the quarter was at 1.04, which indicates a continuation of the upswing. Backlog is at 2.9 months. Gross margin improved further to 28% of sales. Inventory turns are at a satisfactory level of 4.2. The price decline has sequentially accelerated after a very low-level in the prior quarter. We have seen 3% down prices versus prior quarter and 6% down versus prior year.

The capacity load was at 80% for Power MOS in our programs, so capacity increases for Siliconix are quite well underway. You know them. It is Itzehoe and it is Power, our subcontractor. The qualifications are ongoing, and in an unchanged way, we plan to move to the 8 inch technology in Itzehoe at the end of this year. Siliconix is very much in process to implement in a reliable form all the programs we expect from them. There is a lot of discipline in controlling the fixed costs.

They continue to recover in terms of order sales and profits, and as I emphasized before, we are preparing Siliconix for future growth by spending, but also by moving to new technologies.

The other semiconductors in Vishay show some segments which have been under pressure in the second quarter, mainly small signal. They suffer from quite heavy competition. Backlogs are relatively low still. Sales in the quarter of this group were 169 million, 5% on the other hand above the prior quarter but still 16% below prior year. But it's the same story as at Siliconix. In prior years, the second quarter was really characterized by inventory build also for these products, which is not the case this year.

Backlog was at 1.9 months, and the book-to-bill was at .97. Gross margin improved to a level of 21% of sales, mainly due to better volume, somewhat better volume and lower fixed costs. Price decline continues at a rate of 1.5% versus prior quarter and 6% versus prior year. The inventory turns decreased -- increased, excuse me -- to a very satisfactory level of 4.4. Inventory (inaudible) in absolute numbers continued to go down by 1.5 million in the quarter.

In this product group, we see very short lead terms, and general capacity load has continued to improve. Power products is 80 to 95% load, low-power small signal had 70 to 80% in OPTi infrared opti in particular at 70 to 85% capacity load.

Our move of packaging from Taiwan to China will be finalized as announced in quarter three this year just according as I said to (inaudible). The fab expansions in Heilbronn and Taipei are well underway, and we are on the way to define quite substantial restructuring programs for small signal products. We are talking in this product group about quite a solid business with a substantial further potential for more restructuring and for more cost reductions.

Let me summarize my impressions about the quarter and give a little outlook. Vishay continues its recovery from the disappointing second half of 2004. Discipline in cutting cost, improved revenues and the addition and integration of specialty businesses helped to maintain our momentum. It appears that the market conditions will provide some tailwind going forward. Vishay on the other hand will consequently pursue its plan for further consolidation and cost reduction regardless the economic environment as we have done in the past.

We also believe in our strategy to offer to our customers a broad product portfolio and expect major competitive advantages based on this approach midterm, and we continue to be prepared for acquisitions. All-in-all we are very confident for the future.

Thank you. I will pass it on to Dr. Zandman.

Good morning. As I said before, we had a better quarter than previous quarter, $0.12 versus $0.06 and a consensus of 9 to 10. The quarter looks much better, but concerning the strategies of Vishay, they remain the same. We have to go to cost reductions, acquisitions, new technologies and new products.

I would like to emphasize a small point here, maybe I would say a major point which concerns me. The CEO job has been now under Gerald Paul. My role in the Company in addition to being the Chairman of the Board is to try to synergize the different technologies of Vishay.

We think Vishay is a unique company. There is nobody in the world who had so many technologies under one roof. From the simplest resisters to the most complicated and sophisticated resisters through capacitors of all kinds, through inductors, through the split semiconductors and some ICs, we have a unique company with many many technologies. The problem here is that the opportunity here is very large to synergize it, to put several technologies together to come up with new products. That is very hard to do. So I have taken on this role myself. I have a staff of people helping me, and we have already some results there.

So first let's talk about the main technology, what we want to do. Cost reduction is clear. Dr. Paul takes care of that. Acquisitions large and small, and we are still looking for a large fish, a large fish, may be two or three of them, and as well as small ones. The small ones, of course, are needed to round off product lines and introduce us to a high-tech stack of companies which will project Vishay into new markets.

The large ones, of course, are the same thing as before. We will gain market share, and we will also geographically benefit much better in many markets. New technologies to be added to our projects, our product lines for the future. For example is RFWaves, which is a radiofrequency specialty company, which (technical difficulty)--.

Yesterday we announced that we acquired or we are just about to require CyOptics Limited, an Israeli startup company. CyOptics has been in fiber optics. They gave it up because their mother company, CyOptics Inc., decided to buy frequent in the United States, and therefore, the CyOptics facility in Israel became redundant.

Well, we are just about to buy it. They had a first-class wafer fab, absolutely first-class which we need and which we don't have with concerns the capability of the fab. Also, there is a group of people with very solid and strong background in infrared technology which we need very much. So this fab, which features a gallium arsenide and indium phosphide fab, will be used to produce chips and products -- final products -- in the infrared area and especially the new products will concern products with very high-intensity. In fact, this is the future for the infrared business. Everybody is working towards that directional high-intensity infrared, and here we have an occasion to be in there immediately by acquiring this company. It is a very advanced high-tech group.

It replaces our infrared division in the forefront of new technologies in this area and into new markets. Synergies in engineering for new products are many in the company. For example, we started by vertical integration of (inaudible) into transducer into instruments and systems. This is doing very well. They acquired several companies, which are very profitable presently and will continue to do that.

The second group is vertical integration in terms of taking components and putting the group of Vishay components in the same package. One example is the DC/DC converter. It is a package -- it is a product which has truly needed in many many applications. Telephones, computers, etc. We developed a series of those DC/DC converters, and it is presently Siliconix who took it under its wing to market this product. It is doing very well, and it is growing very nicely. We believe that we have there a winner.

New products in general is our strength for the future. I believe that Vishay must develop new products, must develop or acquire new technologies so as to be in the forefront of what we're doing.

To sum it up, I'm optimistic for the future, and the quarter was good, and our strategy works. Thank you very much. Questions now.

(OPERATOR INSTRUCTIONS). Michael Walker, First Boston.

Just a question first on your outlook for the coming quarter. You printed a pretty strong June quarter here, but you are clearly guiding for things to slow down pretty significantly in the September quarter. I'm wondering if you saw anything transpire late in the quarter or perhaps here in July so far that has caused you to become a little bit more cautious in terms of what end demand looks like?

I'm also noticing that your OEM business was down 7% sequentially, and your book-to-bill was below 1 in the OEM side of things. It seems like a lot of the strength is coming through distribution. So I'm wondering if you can put that altogether and give us some color in terms of what you're seeing and further demand for the summer?

Well, let me say the following. I don't think we have painted a black picture for the third quarter. As a matter-of-fact, we had a few weeks in June where the book-to-bill was not as strong. I'm happy to say that this has been changed in the meantime.

We see stronger book-to-bill ratios now, but of course, when you talk about the third quarter, we're basically out for seeing kind of a flat performance. This is basically the message. If the sale should be slightly under and there can be the possibility that also the margins would suffer slightly, but it is really nothing that we paint black.

Can you just expand a little bit on the disparity between OEM results and the distribution results in the June quarter?

As a matter-of-fact, the distribution is still I believe in the -- they have very normal inventory in the meantime. I would say even lower inventories. At the moment what we see is quite strong distribution performance. We are not alone in seeing this I know, and the fact that OEMs are down, I would not overemphasize.

Okay. Thanks. And then my second topic is on the acquisition strategy. You have been fairly public over the last few quarters saying that we are going to do a major acquisition. You have thrown around a few numbers. You have thrown out a couple of companies you have talked to a little bit. But we have not seen anything come out. In the meantime, valuations for a lot of semiconductor companies have started to go up quite a bit. So I'm wondering if the urgency around the acquisition is as strong as it has been over the last two quarters, and do you still expect -- is it still appropriate for us to assume that you're booking at a multibillion dollar type of opportunity from a revenue perspective?

Well, in general we don't give details about that, but it is true we are looking for a large acquisition. There are many companies available or not available I don't know, but they are on the radar. And it is true that the prices would go up because the share price went up, but we are still very much interested in them. There are many opportunities now appearing here and abroad, and there will be more and more of that. Vishay is very well positioned to do that, and I can't announce it is going to happen tomorrow or next quarter, it depends how things happen, but we're looking to that diligently.

Kevin Kassel, Bear Stearns.

I just wanted to ask a question here on pricing. It seems like particularly on the active side pricing pressure is accelerating. Is that something that you saw getting progressively worse in July and the month of July versus the second quarter?

Well, on July I don't have a result at this point in time, and I could not comment anyway on the current quarter. But you must see the increased sequential price special I talked about was based especially on Siliconix on an extremely historical low price decline of the prior quarter. So again, we don't see that things accelerate at that point. It is a kind of a back to normal situation.

And on the other side, as you have said -- actually as you have heard, on the passives, especially also in capacitors, our price decline goes down.

Okay. And then also kind of going back to the former question, when you look at your guidance for the third quarter, it is kind of flat to down. You guys are going into the third quarter with a similar booking as a lot of your competitors, and they seem to be guiding up slightly. So I am just wondering what might be causing your incremental cautiousness?

I guess it is a matter of interpretation. Maybe I'm conservative a little by nature as a matter of fact, but we did have a few weeks of relatively low orders, relatively low. This is different now I must can say that. It is better. It became better again. But you know 38% of the business or something like that approximately is in Europe, and you're facing the summer months. So altogether we do not see a change in the market. The market is friendly. It continues to be friendly. And as I said before, we are not indicating a sharp drop or something like that. We are talking about a flattish scenario.

I would like to add there, that also includes the strengthening of the dollar against the Euro. So the summer affects the reduction in revenues due to that also.

Okay. And then just going back to the expansion comment you made earlier, I think Tower ramped up the first quarter, is that right? In terms of that relationship there on the -- (multiple speakers).

Yes, we are starting to get parts from Tower. They are in the midst of the qualification. We're going to start shipping parts to customers from Tower already in the third quarter, in the current quarter.

What does that do to your -- how much does that increase the Siliconix capacity by roughly percentagewise, the Tower relationship?

Well, all altogether we always said this will increase about 25% of capacity both things together.

So that means both things meaning Tower, as well as the (multiple speakers)

This is basically the expansion of our existing family.

Okay. So that is 25% combined, and Itzehoe is scheduled to come online at the end of the fourth quarter or in the first quarter?

They are in process to do that. Already they work on 6 inch now on the high cell density, but at the end of the year, they are going to jump to 8 inch business. This is all in progress, and I'm quite positive that this will take place.

Okay. And then the last one is just on the -- just to be clear on what your restructuring comments, you said 11 million in Q1, 12 million in Q2. Expectation is obviously 50 million annually. Does that imply that you're looking for 12.5 million in a Q3 type of a rate to get to a 50 million annualized or?

Always compared to prior quarters or to prior year, no? This is how we measure it.

And then just in terms of share count, just for housekeeping, what is the expectation for share count next quarter?

Well, based on what the earnings are is to how it gets diluted, but if things stay the same, it would probably about the same level it is in this quarter.

Okay. But we are talking about 15 million roughly shares would be the shares that were antidilutive this quarter?

(multiple speakers) -- well, we had 177 million shares outstanding for the first six months. None of their convertibles were included. But on the website, we did file an 8-K last quarter to include the shares for the Siliconix acquisition, and our goal is to do another 8-K filing to update everybody on the share count. Because now all the Siliconix -- from the acquisition of Siliconix, all the shares will be included in the results for the third quarter.

I got it. And would you guys expect minority interest going forward to come down to almost zero?

Well, yes. Practically zero, yes.

Matt Sheerin, Thomas Weisel Partners.

If I may just go back to your guidance, it sounds like you just were talking about seasonality. I also just wanted to talk about the automotive end market. What percentage of our overall sales is from automotive, and if you could talk about other end markets as a percentage? And what kind of seasonality do you normally see in auto, and is that sort of baked into your guidance?

This is, of course, integrated. Approximately 20, 22% is automotive of our sales, and there is not a big seasonality in automotive as a matter of fact. We have integrated all that according to our projection. But, you know, Europe is relatively slow, relatively slow in the summer quarter. It is not a big impact, but we are also not talking big things, big variations from the prior quarter.

And is this September normally, or given the low kind of inventory environment and lead time is pretty short, do you think this will be a relatively back-end loaded quarter as customers wait to see what demand looks like going into the end of the year?

Exactly what I anticipate.

This is why we also said that we would, if warranted, adjust the guidance in September.

Got you. Just back to distribution, are you getting signs now that distributors are basically replenishing the inventories that they are selling sort of one-to-one right now, or are they still being conservative and working down? Are do you see at some point them looking to build buffer inventory?

Our picture is that they have come to a reasonable equilibrium.

Okay.

Shawn Severson, Raymond James.

I was wondering if you could expand a little bit more on Europe and the outlook. I know you kind of touched on maybe an update for September if necessary. But, Dr. Paul, how much of this is just lack of visibility versus sort of any material change in the business outlook or the lack of September not being up, let me put it that way? But it's just a very back-end loaded quarter, and at this point you really just cannot see?

As a matter-of-fact, as I said before, it is definitely more a lack of visibility. We do not believe that the market conditions have changed. I'm only commenting based on the backlog I have and the recent order intake, which as I said before, has improved in the last two weeks as a matter-of-fact.

Well, maybe compare it to how you historically would see the September quarter stack up? What would you expect to see in each of the subsequent months?

Well, obviously talking Europe, August is relatively low and the business comes back substantially early September.

Is it something like maybe even 50% of the quarter in the month of September as far as European business goes?

Well, it is high, but it is very much back-end loaded. That is true.

Steven Fox, Merrill Lynch.

A couple of questions. First of all, on the comment regarding price increases, can you be a little more specific about what type of mature product lines you're looking to increase prices on?

We did not want to comment in detail as you may have mentioned.

Just to make sure I understand this clearly, you are basically focusing on products that are in a declining sort of pattern? Is this -- is there any kind of core products that you're raising prices on?

Not necessarily only. We are looking at the performance of the product lines and what we can offer to the market in terms of technology, and we feel that from time to time we are underpricing as a matter-of-fact.

And then if you look at the cost reduction outlook for the third and fourth quarter, sequentially what type of improvement do you think you can get in terms of cost by year-end?

Well, as I tried to say before, we announced the $50 million savings program, and we are well underway to have it vis-a-vis prior year. We measure it quarter by quarter vis-a-vis the same quarter of the prior year, and it is just -- it really accelerates from now on slightly, but we are on the way to 50. As you remember, we're delivering in the first vis-a-vis the first quarter prior year 12 for the second and so on.

And then, Dr. Paul, you also mentioned another $40 million (multiple speakers). You're considering that would be something for 2006?

Exactly. We have identified a few bad performers as a matter-of-fact in terms of product line, and selectively not relative but the other program was for everybody, and this is now selectively for these underperforming product lines. It will be a combination of marketing tools, but also further cost cuts as a matter-of-fact. Also improved moves, I mean accelerated moves to offshore. It is a variety of things which are underway, but they will kick in as you indicated, and soon they will kick in early next year. There is a time constraint as you can imagine in Europe. There are social plans to be announced, etc., etc.

Great. And then just a quick question on the tax rate. Any guidance for the rest of the year please?

Well, I think the tax rate that we applied to operating earnings is 32%. We are constantly -- that should be the annualized rate right now that you should be using. But we are constantly looking at ways to reduce taxes by moving jobs from area to area.

Andrew Huang, American Technology Research.

I was just wondering if you could share with us your thoughts on the cycle and where we are right now, and then I have a follow-up?

Cycle of the business. In the year sales cycle or what do I -- how do I --?

More like in the semiconductor cycle or perhaps the component industry cycle?

Well, from a cycle standpoint, we expect a good year there as a matter-of-fact. We expect as normal, that in August/September we will get increased orders which will lead to substantial sales increases in the second half of the year. This is the normal cycle, and I have no reason that this year this will not take place.

Last year was different. You remember there was too much inventory built in the first half, and we suffered in the second. So the cycle last year was not the same. Last year was against the cycle. This year it is different. We have normal inventories at distribution, so we expect that the normal cycle will take place. It means higher sales in the second half.

And just a housekeeping item, do you happen to have the net income on a pro forma basis? (multiple speakers)

10 million 377.

10 million 377. Great.

Excuse me. Is that right? That is the tax. 22 054. Pricing in 054.

Shawn Harrison, Longbow Research.

One point of clarification. I missed the book-to-bill ratio for the measurements business?

Just a second, please. Approximately at 1, but I can show once more --. Well, that was not said. About 1 to 1.

Okay. And then secondly, I just want to focus on cost savings from Siliconix. I believe you mentioned last quarter you were expecting maybe in the range of 2 to 3 million on a quarterly basis. I was just wondering if you had seen any change to that expectation?

No, it was not a quarterly basis. It was an annualized cost, and we related those costs to a), the cost of being a single public company, and also our cost of having a separate Board of Directors and things like that. That was for an annualized rate.

That was annualized? Okay. And my last question just focuses on pricing and capacitors. It was down less than 1% sequentially this quarter. Do you think it will stay at that level for the rest of the year, or will it head back to kind of a more normalized type of decline?

Just for Vishay, and I'm just commenting for Vishay, we want to keep it in that range. I talked before about putting programs we want to implement, and part of it is also price increases. I cannot exact -- I don't know exactly how it will kick in. The timing is a negotiation with a customer who is also involved.

But principally speaking we want to fight the price decline of capacitors in Vishay because we have a lot of specialty products, and again we have also reviewed the commodity products. We very often offer to the market special services, special performance, and as a matter-of-fact, we don't want to see it underpriced. So we are negotiating with customers.

Chris Lippincott, KeyBanc.

I was wondering if -- I mean you did indicate that you're seeing the inventory levels at the distribution channel with typically normal levels. I was wondering if you're also getting a sense that perhaps the distributors are looking perhaps to keep their inventories even more lean indicating that perhaps they may not necessarily restock perhaps the staff as they might otherwise in a normal cycle?

There is no indications like that. They are at four terms and what we understand is that they are satisfied in general with such a level. But you know in Europe and America their target is below four terms, and in Asia it is above four terms. But there's no change. I think altogether they have reached a level they are satisfied with. This is my impression at least.

Okay, and you also mentioned Asia. Could you comment on where the Asian distributors are in terms of their levels, and also where they seem to have been lagging their other geographic peers in terms of their inventories?

I do not believe that they are quite there at the six terms they normally want, but they are approaching quickly. I think on the other hand America and Europe does better at the moment than they normally do. So the average is reasonable.

But we're not talking major differences. I think that overall the statement is true, that distribution is in a stable situation.

Okay. And just one last point of clarification. Could you give us the book-to-bill for the distributors and the OEMs again?

Distribution book-to-bill was 1.01 and OEMs .97.

(OPERATOR INSTRUCTIONS). Tom Dinges, J.P. Morgan.

Just a follow-up real quick on the last question. Dr. Paul, is there a significant difference in inventory turns and stocking levels between the actives business and the passives business at the distributors? And I have a quick follow-up to that.

I am not aware of that. I have not checked it even in such a way. I have to admit that. But I would not say that this is the case.

Okay. So they are roughly close. One could be just slightly higher, one could be slightly lower than the level that you gave? But there is not a material difference?

There is no major difference there. This is what I would say is (inaudible).

And then secondly, you had made a mention that lead times were still very short. Have you -- can you talk about you are raising some prices selectively to garner back some margin on products that are underperforming likely on the margin side. Some of the utilization rates have obviously gone up. Are there some areas here where you have actually lengthened lead times out, or is the market sort of keeping that lead time lengthening process that we would normally see sort of around this time of the year and especially at the utilization levels that some products are at, is it keeping it from moving in that direction at all?

No, there is enough capacity in the market and at Vishay normally except exemptions. So the lead times are between six and eight weeks for commodity products at the moment.

Okay. And one housekeeping item. How much between the two different segments between actives and passives actually flows through distribution percentage of sales-wise?

I don't think we separated it out. I think when we talk about distribution we say --

I would say again we don't have to split it. But actives have a higher share in distribution than passives normally. In active the shares should be above 50%. In passives, it is substantially below 50%.

That will conclude the question-and-answer session. I will turn it back to the presenters for any closing comments.

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