威世科技 (VSH) 2005 Q4 法說會逐字稿

Good morning.

My name is [Unique], and I will be your conference facilitator today.

At this time, I would like to welcome everyone to the Vishay Intertechnology's fourth quarter and year-end earnings conference call.

All lines have been placed on mute to prevent any background noise.

After the speaker's remarks, there will be a question-and-answer session.

[OPERATOR INSTRUCTIONS]

I will now turn the call over to Richard Grubb, Chief Financial Officer.

Thank you.

Good morning, and thanks for dialing into today's conference call for Vishay's fourth quarter.

With me today will be Dr. Gerald Paul, Vishay's President and CEO, and Dr. Felix Zandman, Vishay's Chairman and Chief Technical and Business Officer.

Before I start, Bill Clancy, Vishay's Senior Vice President and 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 10K, and form 10Q filing with the SEC.

Thank you, Bill.

First of all, as usual, I will give some summary facts and results for the quarter, and Dr. Paul will add more detail later, and finally, Dr. Zandman will update our research and development and acquisition activities since last quarter.

As stated in our press release of today, Vishay reported $0.17 operational EPS as compared to $0.01 for last quarter, and as compared to $0.14 for the third quarter of this year. This is a 21% increase in EPS over last quarter. The net after-tax effect on EPS of severance charges of $18 million, in-process research and development expense of $500,000, and a gain of $3.4 million on a long-term purchase commitment, plus a favorable tax benefit due to foreign tax rulings, amounted to a negative $0.03 per share against operating earnings, resulting in GAAP earnings of $0.14.

Revenues for the fourth quarter are $594 million, were approximately 10% higher than last year's fourth quarter and 5% higher than this year's third quarter. Revenues came in slightly higher when compared to our previous guidance.

Revenues by segments were -- semiconductor divisions, 51% of sales, our passive divisions represent 49% of sales.

Consolidated gross margins for the quarter were 23.5%, as compared to 23.8% for the immediately preceding quarter. Gross margins by segments for the quarter were -- semiconductors, 25.5%, and passives, 21.4%.

Selling, general, and administrative expenses of $90 million equals 15.2% of revenues. Other income of $15 million for the year consists of mainly of interest income.

The effective adjusted-tax rate for the year was 26%, as compared to our previous estimate of 28%. This difference is due to changes in the geographical mix of income.

Capital expenditures for the quarter were $59 million, mostly for equipment in our semiconductor divisions.

Depreciation and amortization for the quarter were $47 million.

Total head count at quarter-end was 25,929 people, of which, 73% are in low-cost areas.

Some other key amounts -- cash and short-term investments at the end of the quarter were $633 million; long-term debt, substantially all of which is convertible, equals $752 million; total inventory at quarter-end was $488 million; working capitol at the end of the year was $1.1 billion; bookings for the quarter were $615 million; and backlog stands at $511 million.

Cash generated from operations for the quarter was $78 million, and looking forward, as announced in our press release, we expect the first quarter revenues to increase over this quarter and be in the $600 to $620 million range with continued increases in profitability.

Now, Dr. Paul will give us some more detail.

Thank you, Dick.

Summarizing what you've said, really, we live in good times at the moment and, looking back and also looking ahead, we can say that the business climate has improved further, and also, at the moment, we see a solid development of the economic environment.

All regions and most of the market segments did well, and if you go to your customers and ask them what they expect for 2006, practically all of them are quite optimistic. We watch carefully the inventories and the supply chain, and I can report back that -- or, in quarter four, they stayed at low levels the worldwide distributors, at least for our products, now at 4.5 turns, which, in fact, is somewhat higher than it was before. So, we do not see any accumulation of inventories to speak of in the supply chain.

The lead times for certain products continue to stretch out in the fourth quarter. Price pressure on the other side still exists for commodity products, but the price decline slows down versus prior year.

Concerning the different market segments, we can state that the industrial market, which really has pulled us through the year 2005, continued strong worldwide. There are no signs of any weakening, which we could see at the moment.

Automotive in Europe and Asia remained healthy, and we all know that in the US, it is not as good, but there are restructuring efforts on the way.

It was a strong quarter for computers, namely laptops, which partially, of course, was seasonal.

Altogether, 2005 was an excellent year for mobile phones, driven by Asian, and also the introduction of T3 worldwide, and this impacts positively on the other side also, metrics. We don't see any seasonal weakening.

There was a strong quarter in consumer. Consumer was good last year, but it ended well. Partially -- of this, of course, this was seasonal, the MP3 players on the other side and flat displays are booming, and we expect an additional push at least in Europe and Asia to a degree, from the soccer world championship to come.

EMS continued strong.

So, altogether, we live in quite a friendly environment in most of our markets.

Talking about the business development of Vishay, we can say that the strong orders of the prior quarter have led to a substantial increase in revenues. We achieved sales of 594 million in the quarter, vis-a-vis, 566 million prior quarter, which is an increase of 5.8%. If you exclude the impacts of exchange rates, and, vis-a-vis, prior year, where we had 543 million in sales, it's an increase of 12.5%.

Just to note that the exchange rate decreased sales by 5 million versus prior quarter, and by 15 million versus prior year. [Technical difficulty] up 3% versus prior quarter, and by 29% versus prior year, again, when excluding the impact of exchange rates.

The book to bill ratio remains healthy. In the quarter, we were at 1.04, 1.09 concerning distribution, and 0.99 for OEMs and EMS. If you split book to bill geographically, you'll find for the fourth quarter 1.05 for the America's, 1.09 for Europe -- Europe did very well -- and 0.99 for Asia.

In terms of product groups, we had 1.04 each for active and for passive. I am happy to report that January continued well, generated -- book to bill is at 1.07. Backlogs, at the end of the quarter, were at the quite comfortable level of 2.6 months.

Due to several new annual contracts, ASP declined, accelerated sequentially, but it slowed down versus prior year. Vis-a-vis, prior quarter, we had 1.7% ASP decline versus prior year, 3.8%. The slowdown of price declined year-over-year, also happened for discretes. We had for discretes, 2.4% price decline versus prior quarter, and 4.8% versus prior year.

For passives, the low rate of price decline -- at least for Vishay's passives -- continued. We have a high share of specialties, as you will remember. We had 0.9% price decline versus prior quarter, and 2.8% decline versus prior year.

We believe that based on our solid order levels and our strong backlog, together with a friendly market outlook, we believe in a good first quarter to come.

Commenting on some important issues in operations, we can say that our inventory turns were stable at 3.2. Excluding exchange rate impacts again, our inventories went down by 12 million in the quarter, by 7 million in raw materials, and by 5 million in WIP and finished goods. Taking all 2005, our inventories were practically constant.

Our total fixed costs went down again sequentially by 3 million, and versus prior year by 8 million. [Inaudible] cost savings in the year of 44 million, vis-a-vis, prior year, and the fixed cost reduction will continue into this quarter into the first quarter 2006.

We have reduced fixed cost personnel in the quarter by 35 heads, most in high labor countries, but more important, I believe, we reduced 285 heads in fixed cost during the year if you disregard acquisitions, which, of course, you -- we must.

The high labor employment is down to 26.7% as compared to 28.2% in December, 2004, and this is equivalent to a reduction of 470 heads, again, disregarding acquisitions.

As Dick indicated, capital spending in the quarter was 59 million, as compared to the depreciation of 43. Total capital spending in 2005 was 143 million as compared to 176 million depreciation. Approximately half of all that was invested for capacity expansion mainly in actives.

In 2006, looking forward, we expect to spend approximately 170 million, again, most of it -- 60% in this case -- for capacity increases in actives.

Our [inaudible] program -- I reported on this last time -- is -- continues to be well on the way. We don't expect surprises there.

We are also in process to implement restructuring programs for the under-performing divisions we have. Partially, they have been announced, and the impacts in 2006, and 2007, each, will be 20 million, as I explained last time.

Comparing, now, the quarter results with the prior quarter -- you see that based on 28 million in higher sales -- actually, 33 million without exchange rate -- the adjusted operating margin improved by 8 million, namely from 41 million to 49 million. The main elements were positive impact of 20 million through higher volume and the negative impact through price decline of 10 million.

If you look at the picture versus prior year, it means the fourth quarter of the year 2004, you see that based on 51 million higher sales, 66 million without the impact of exchange rate, the adjusted operating margin improved by 39 million, mainly from 10 million to 49 million. The main elements were, again, a positive impact from the volume of 42 million, negative impact of the exchange of the price decline of 23 million, and on the other side, better costs of 15 million.

Now, let me comment a little on our various product groups, and I would like to start with resistors and inductors.

We have seen a noticeable recovery of this business from the slight slow down, which we have seen in the prior quarter. Sales in the quarter for resistors and inductors, were 134 million, which, again, excluding exchange rates, was up by 4% versus prior quarter and by 12% versus prior year. Resistors and inductors showed a book to bill ratio is 1.04, and the backlog increased to 2.7 months.

GM came in at an acceptable level of 26% of sales, or slightly negatively impacted by some temporary issues in manufacturing, which are fixed by now.

The low level of price decline continued. We had 0.9% decline versus prior quarter and 2.8% decline versus prior year.

Inventory turns were at a very satisfactory level of 4.0.

Capacity load was practically unchanged, vis-a-vis, the prior quarter ,we had approximately 80% to 90% loading for SMD products and 50% to 70% for leaded products.

We are shipping thin film resistor chips out of [inaudible] at the run rate of 750 million pieces a year, and we are planning for further capacity increases of this quite profitable product. We have announced the move of PTC finishing from Evere in Belgium, to Danshui in China, and this project will be finalized in the course of the first quarter '06 or later, and there is more restructuring to come.

So, resistors and inductors -- I think -- they remain a very solid and profitable business in Vishay, and, at the moment, experienced an upturn.

The same is true for capacitors. They also saw an upturn in the fourth quarter. In particular, tantalum capacitors were performing well.

Sales in the quarter were up 117 million, that means 9% above prior quarter and 4% above prior year. There was a strong book to bill ratio of 1.07 in the quarter, which, I believe, indicates the continuation of the upward trend for capacitors.

Backlog was a quite comfortable level of 2.8 months, and gross margins improved quite nicely to now 13% of sales. Obviously, the higher volume, but also cost reduction efforts helped by achieving this improvement.

Price decline continued at a low level, 0.9% versus prior quarter, and 2.8% versus prior year.

Inventory turns at capacitors continued at a relatively low level, 1.7 in the quarter. Capacity utilization was improved to 70% to 85% for volume production.

Our additional fixed costs continue to go down. The restructure, the area of capacitors quite heavily, and it was -- it came out -- the fixed division -- the fixed costs came out 15% -- 15% -- below prior year. Again, we continue to restructure. The next construction project that will be announced in the first quarter, '06.

So, taking this together, capacitors for sure continued to be our least profitable product group, but they improved in terms of profitability, and the 15% GM, which always was our target for short-term, mid-term target, is definitely achievable already on the basis of the restructuring efforts on the top of that. i think we really enjoyed tail wind from the market. Capacitors will continue to become more profitable for Vishay.

Talking about our Measurements Group, you remember it is quite a stable business for Vishay. It's on the -- puts us on the sales level of prior year, when we disregard acquisitions.

Sales in the quarter were 38 million versus 40 million in prior quarters, whereby, all of this reduction is due to the divestiture of a small portion of our latest acquisition, Aeroflex, otherwise, it is constant business.

Book to bill was at 0.97, the backlog is at the level of two months, and the gross margin came out in the quarter at 32% of sales, which suffered a little from a one-time inventory correction at our latest acquisition.

Inventory turns were at 2.6, and there is ongoing restructuring of the organization. Measurements Group, for us, is a reliable contributor to our profitability and to our revenues, and I think we have further potential for growth through acquisitions, but also for cost reduction.

Coming to semiconductors, without Siliconix, we have seen a noticeable improvement in the business climate despite ongoing, quite intense, competition in this field. Sales in the quarter were 174 million, which is 4% above prior quarter and 10% above prior year. Backlog was at the level of two months, book to bill at 1.03, I believe indicates some further recovery to come. GM remained at the level of 23% of sales, and all this despite the inventory reduction we had in the fourth quarter.

We have seen continued price decline, which, on the other hand, slowed down year-over-year. We have seen 1.8% versus prior quarter and 6% price decline versus prior year. The inventory turns increased to quite an excellent level of 4.7, and the inventories, in absolute terms, were down by 5 million versus prior quarter.

Capacity loads were virtually unchanged. For power products, we had 75% to 90% load, low-power, 65% to 80% load, and [inaudible] and infrared products, 65% to 85% load.

The automotive qualification of our factory in China is progressing, and we expect to be qualified there in the course of the second quarter of this year.

The vast expansions in [Hybran] and [Typie] continue as planned. As you may remember, we planned for a 20% capacity increase year-over-year.

We are also in the process to grow the business with our new product, Trench rectifier, and we expect already, in the year 2006, a 10% contribution of this new product to our sales.

I think the upturn is also reciprocal -- the current upturn is also reciprocal for our standard discretes and Octo-products. I believe also that continued cost reduction and product innovation will further support the profitability of this broad line.

Coming to Siliconix, the business growth of Siliconix accelerated in the quarter quite substantially. We also have worked successfully on getting rid of our capacity constraints for our most recent product generations. You will remember the [inaudible] the sales growth in the prior quarter. Sales in the quarter came up to 131 million, which is 11% above the prior quarter and 22% above prior year. Book to bill continued strong; it was 1.05 in the quarter. Now, we start to work down the backlog, which, at the moment, is at 3.3 months, which is too high for the business.

The GM came in at a satisfactory level of 29% a sales. The results in the quarter were burdened by a relatively high sequential price decline and by an unusually high usage of Subcon.

Inventory turns of Siliconix were at an excellent level of 4.7.

The price declines slowed down versus prior year, but was quite substantial versus prior quarter, 3.2% versus prior quarter, and 3% price decline versus prior year. As I indicated before, there were new annual contracts, which became effective in the fourth quarter.

The capacity load was at 85% for power, and we are fully booked for certain packages in high sale density technologies. We continue to raise capacities according to plan. Again, you will remember the target of an increase of 20% year-over-year. I am happy to report that the first 8-inch wafers out of the German plant in Itzehce , have been qualified.

Siliconix continues to be the Vishay business with the highest potential for internal growth, and I believe it was a good move to take this company over completely over the course of 2005.

Now, summarizing and looking ahead, I think we can say, no doubt, Vishay had a good quarter. This can be underlined by a few numbers again -- sales, we had 594 million, which is up from 566 million prior quarter and 543 million in the prior year; the adjusted operating margin, as you will remember, came out at 49 million, up from 41 million prior quarter and from 9 million prior year; and the operational EPS came out at $0.17, up from $0.14 prior quarter and $0.01 the prior year. And, altogether, we came out above the expectations. I think this was an achievement, which was not only do to better market conditions, but was the result of a consequent work in the detail, namely on costs and on production capacities. Of course, these efforts will continue and next steps will be taken too. Much emphasis will be laid in 2006, on internal growth through R&D and designing activities. We also want to explore -- better the idea -- of a one-stop-shop.

From the standpoint of our economic environment, we believe to be in a healthy upturn without overheating. So, 2006 should become a good year for our industry and also a good year for Vishay, who is really one of the leaders of the market.

Thank you very much.

Felix?

Okay.

Thank you, Gerald.

We have a much better quarter than previous, and a better quarter than last year quarter. As said by Gerald, $0.17 this quarter versus $0.14 last quarter versus $0.01 last year, quite a progress now, and the outlook for 2006 looks quite good. We started, as we say, the same. We don't change something, which is working quite well, namely acquisitions, cost reductions, R&D for new products, and one-stop-shop concept.

The acquisitions -- we are looking all the time for small or large, whatever it is, provided the price is right and provided it fits Vishay's product line. If those things happen continuously, we don't take everything, which is coming on line, we study carefully that, and when it makes sense, we make a move.

Concerning R&D, each division is accelerating its efforts for pushing new products out to the market, and in addition to that, I, myself, am responsible for corporate R&D, where we are trying to look for new technologies to enhance the divisions in different Vishay groups, subsequently, new technologies for new products.

For example, the RFWaves acquisition, which we made since the start up, is being used now, to enhance our sensors. Very soon, at the end of this month, we're putting on the market, a wireless transducer, whereby you would be able to weigh yourself without any wires connecting you to the instrument with which you look at what is your weight. This could be quite a product for aircraft weighing, for cranes, and other applications where wires are a burden. We have quite a hope for this product, and the first line will come out by the end of this month.

In addition to that, we are looking at other improvements in this area, such as using wireless products on top of our sensors, in addition to transducers, such as potentiometers and current sensors, where we are quite strong.

We are -- we have introduced -- or just about to introduce -- the [inaudible] capacitor on the market, which will be used for small cars. Also, the silicon capacitor, which we have introduced lately, will be used for 5 gigahertz, which is where the industry is coming more and more towards this high-frequency, and as soon as this will take on, we have the right products for that. Already, many customers are quite interested in that.

Furthermore, our infrared division is involved in new technologies through the acquisition of CyOptics, a small startup, and we are moving very strongly in the direction of introducing, in the future, ultra-high luminosities .

All in all, the confidence in the future is quite high, not only because of good sales presently, and good outlook for the fourth quarter '06, and -- for 2006, and maybe beyond, but also for the very strong work done for new products and new platforms, which we are introducing throughout the product line.

Thank you very much, and now, we are open for questions.

[ OPERATOR INSTRUCTIONS ]

First question comes from Shawn Harrison with Longbow Research.

Good morning.

I guess my first question -- I would just like to get to the restructuring savings maybe going forward, if you could possibly review the savings coming more from the GM level or the SG&A level? SG&A dropped nicely this quarter, and I was wondering if that same dollar rate will continue in the next few quarters.

As I tried to say -- two remarks to that -- number one, our savings program for 2005 -- $50 million savings program -- will continue into the first quarter of 2006, which is more or less -- most of it will come from the SG&A line, the remainder.

And then, we have programs on the way, as I tried to explain, to improve the performance of some under-performing divisions. In this case, it predominantly comes from manufacturing fixed cost, but also from variable costs for accelerated moves from pricing -- it's a combined program. It comes from all of the segments of the P&L. It goes from price decline to SG&A cuts; it's everything, but it's focused on certain product lines, which under-perform these days.

Okay.

My second question has to do with the GM decline quarter-over-quarter. Is that primarily just due to mix and a greater sales of passive components, versus active component growth?

There were some singularities in the fourth quarter. Going ahead -- going forward, I expect the GMs to improve. There were some singularities. For instance, at Siliconix, we have a relatively high use of subcons, which, of course, depresses the GM by nature. We're fixing that at the moment. We are buying more equipment, which fixes this hole.

But there were also some manufacturing programs in [inaudible], which I tried to indicate, which are behind us, but have hurt this quarter. So, there were some singularities, which didn't help the GM. Going forward, I see improvements -- further improvements.

Maybe the time frame for the use of the subcontractors -- will that be just solely a first quarter phenomenon, or should I expect that for the first half of --?

It is a continued -- continued improvement. So, normally, a portion of it already will come in the first quarter, but it is a longer-term program.

Alright.

Thank you.

Your next question comes from Michael Ellis with Thomas Wiesel.

Good afternoon.

I was wondering if you could talk about the areas of -- that the price you on the upside in the quarter. Can you talk about the strength that you saw in Siliconix, and your outlook for Siliconix in the first half of '06?

Maybe I didn't understand quite -- you want further expansion in Siliconix -- that comment on --?

Yes.

Okay.

As I said, year-over-year, we are expanding Siliconix capacity by 20%. This will kick in gradually. Of course, we had quite a substantial sales increase in quarter four, which was partially due to an increased use of subcons, but we're going to fix that as we go. We expect Siliconix to come up on average -- quarter-by-quarter on average.

What would you expect for GM for both Siliconix and your other semiconductor division in Q1? Would you expect them to be better slightly better than Q4?

We expect gross margins to be better in general. We don't want to comment too much on the detail. It's very much volume-driven, as you can imagine.

Thank you.

Your next question comes from Steven Fox with Merrill Lynch.

Hi. Good morning.

A couple questions -- first of all, pricing -- given where you stand on utilization when you look around the industry, what type a price pressures do you expect on your product lines as you go through the next couple quarters, and then, I had a follow-up?

We expect for the current year, still price pressure on commodities -- some price pressure -- but, it will be in the range of our years in history, which show price decline between 4% and 8%. It will be on the low-end. This is what we expect.

Okay.

In terms of your year-over-year growth, what portion was from acquisitions? I know you did a number of smaller sized ones. How much of your growth this year was from --?

Small -- small portion -- small portion. I don't know -- we didn't have a big acquisition in 2005. We had re-acquired -- let me guess -- let me just try to summarize -- $30 million annualized, but that is just an estimate at this point in time. I would say not more than 20, 25 million out of the increase came from acquisitions, not more.

That is a whole year now.

Got it.

Another quarter.

No, not the quarter, it was the impact on the year.

Your next question comes from Kevin Kessel with Bear Stearns.

Hi. Good morning. Can you hear me okay?

Yes.

My question is a follow-up on the margin question asked about Siliconix.

What do you expect in terms of the time frame for that 20% capacity to come on line? How much --?

It comes in steps during the year, hand-in-hand with a shift of the profile of production to a high sale density. You can assume a linear increase of the capacity as we go.

5% for the quarter?

That is an approximation.

5% a quarter?

Well, it is an average. It's an average.

Okay.

I was under the impression there was supposed to be about a 25% capacity expansion. Is it somehow less than it was anticipated a few months ago, or what -- did you already see some --?

20%.

Okay.

In terms of cost -- cost savings on this expansion -- can you address how much lower cost you expect the capacity to be versus your existing capacity at Santa Clara?

Talking cost reduction -- variable cost reduction -- I think there are many things, which go into cost reduction. This is, hopefully, lower prices for your materials, this is higher productivity based on 8-inch -- going from 6 to 8-inch -- this is also dye shrinkage in the context of our technological improvement, but up to now, we were absolutely able to offset the price decline, and our price decline over the years is about 10% per year, so this may answer you.

Okay.

And then, just to play devil's advocate for a second, you say that you guys believe you're in a steady upturn, and that you're pretty confident because you don't see inventory building across the supply chain. My question is -- what about when you look at mobile phones? That's one area of the market that everybody is optimistic about, including all the customers, and it seems as if there are more phones being built than can possibly be sold, and therefore, there will be some sort of a glut. You guys might not see if yet, but it might be developing. Do you want to comment on that at all?

As a matter of fact, I can only repeat what I said, we are not aware -- we are looking basically at inventories of our components. This is what we can see, especially at distribution, and and that point in time, we really see inventory of distribution down, and not up. Markets go up; markets go down. Vishay does not depend really on one of these market segments. One of the advantages of Vishay, I believe, is that we're not really dependent on mobile phones. We have a very strong foothold in all of the markets.

But I am talking to the producers even, we were not under the impression that they are pessimistic, they believe they can sell. This is my opinion.

Okay.

You mentioned a few times during the call that you've signed new annual contracts, which have hurt pricing a little bit in the quarter, and I guess this annual pricing applies to '06. My question is -- do you expect this annual pricing at all to hurt your leverage as you go through? The reason I ask is your contribution margin in the quarter was only about 17% of the growth level, which was below the typical 50% you guys talk about. So, when you go into '06, do you still expect to see that 50% GM even with these new contracts?

Yes.

You do?

Yes, but you understand what happened? It is an annual contract, and the price decline for the entire year showed in one quarter. Cost reduction now catches up, right?

Okay. I got that.

And the last is a housekeeping question -- cashflow from operations -- do you have an expectation for what that might be in 2006, as well as your depreciation and amortization for the full year would be? I think you gave CapEx already.

Depreciation for the year of '06 -- 170?

176.

176 for depreciation? 170 for CapEx?

Right.

And cashflow from operations expectation --?

We don't have that announced.

You haven't got that.

And what about tax rates, Dick, for the year?

Tax rates -- we -- again, it is based on where the money is being entered, but we are going into '06 with an average rate of about 28%.

28 is the expectation?

Right.

Okay.

Thank you very much.

Your next question comes from Jason Gursky with JP Morgan.

Good morning, guys.

Just a quick question on some commentary on the semiconductor space -- you talked about some new products -- the new Trench rectifiers -- perhaps being 10% of sales in this group. I was wondering the timeline on that, and the GM might be relative to existing products in that group?

It has solid GMs. I think it's really more for expanding our business. On the other hand, from a time line standpoint, a 10% is not a -- we're already in 2006, that means it is not an annualized number. It is really kicking in, as we believe, in 2006.

Okay.

You also mentioned in some of the prepared remarks that you have got some more restructuring to come, both in the resistors and capacitors division? The question is two-fold. First of all, can you just give us a hint of magnitude relative to what you did in '05, and whether that going to be coming from the SG&A, or the COGS?

It comes, basically, from the manufacturing side.

Okay.

And order of magnitude relative to what you were able to do in '05?

The order of magnitude -- and I don't want to be more precise -- the order of magnitude is similar.

Similar to '05.

Okay. Great.

Thank you, guys.

Your next question comes from Michael Walker with Credit Suisse.

Hi, guys. Thanks. It's Will Stein, in for Mike here.

Just wondering if you can talk a bit about the share count -- I understand there are converts that are sometimes included in various degrees. I know you used to file an 8K every quarter. I'm wondering if we are going to see that this quarter, and if you can talk a little bit about like might change relative to what has been called in the past?

The 8K was filed this morning. It is available online. It is self-explanatory as it can be, as far as the computation of EPS on the conversion of the various outstanding ventures, but if there's, for you, pending questions, give us a call back at that time. Give us a call back.

Great. Just haven't seen it yet.

Thanks.

Two other real quick ones -- first, if we can get an update on the Tantalum Power contract, where that stands, and what savings you might expect to achieve from that, and then finally, just any comments on component shortages during the quarter on what you guys have seen in [inaudible]?

Our contract on Tantalum Power will expire in the course of this year -- towards the end of the year. There will be no cost advantage persae, because we've de-valued the powder to the market price, but, of course, it will be a very positive impact on our cashflow, as you can imagine.

Concerning shortages, what we see at the moment is certain packages, in [inaudible] for instance, but, in general, semiconductors are already tight in supply.

Great.

Thank you.

Your next question comes from Andrew Huang with American Technology Research.

Thanks.

Congratulations on a good quarter.

Thank you.

First question is -- with respect to the capacitor business, you mentioned the gross margins were in the range of -- or, actually, 30% in the quarter?

Thirteen -- 13.

My question is -- over the next 12 months, can you give us then an idea where you think those could go?

I always tell the public that I believe in GMs of 15%. I re-confirmed that this is for sure achievable even at this level of sales based on just more restructuring, which is on the way. As soon as we get more tail wind from the market, for sure, we can also surpass the 15%-mark.

Got it. Okay. Great.

And then, Dick, if you could just comment on a little guidance for SG&A for the March quarter, I'd appreciate it?

I think, as Dr. Paul indicated, we have continued savings that were started in the year 2005, which will continue into the first quarter of 2006, so I would think, as the percentage of sales, it was a -- probably will go down because of the increased sales that we're projecting, but in real dollars, it is going to be in the same area, maybe down a little bit.

Okay.

Thanks.

Your next question comes from Kevin Kessel with Bear Stearns.

Hi there.

Just a couple of follow-ups -- in the release, you guys talked about looking more at -- not looking more, but you'd also look at passive areas and other area expanding, and your preference is obviously [inaudible] as the right opportunity if the price is right. Can you comment on what areas of passives you're most interested in?

In terms of acquisition, you mean?

Exactly, in terms of acquisition.

We cannot say exactly in what area we're looking at because it depends on the acquisition. If it was in the resistor area, we would be very apt to add to our portfolio, but it could be in capacitors as well. [Inaudible]. It depends on the acquisition. There is no special policy saying that we have to do that and something else. We would like though, if it were possible, to increase our portfolio in sensors -- in resistive sensors. Transducers sell, so this is a part of our resistor capability -- it's Measurements Group, but it is based on resistor sensors, such as [inaudible]. We'll be looking into that more.

We are open to everything. If the price is right, and it fits the product line, we would be very glad to acquire.

Felix, on the flip side, when you look at your capacitors now being a more healthy business, this is a business you guys have hinted at in the past, you would be interested in divesting parts of it. I mean it has honestly been a very under-performing business ever since the bubble burst. Are you still open to divesting parts of this capacitor --?

Who told you that we are divesting.

No, I -- no one said you were, I said are you open to doing so?

No. It depends on work; it depends on price and situation. Our capacitor business is now getting healthier than before. We're looking for expansion in this area, especially in specialty capacitors, but -- look, I can't tell you that we are going to buy or sell something in particular, it depends on price and situation. This could apply to any product line. At this point, the policy in the Company is not to divest at all, is to acquire, and to get bigger and stronger. The strength in capacitor could come from specialties, in commodity capacitors -- the problem, that is not so easy, as you know. Everybody suffers from that. Right now, we have a tail wind, and that will get better, but commodities are not a very good business in capacitors.

Alright.

That begs the question why stay in it if it's not a good business, but I understand what you're saying in terms of --.

[Inaudible] with other businesses, but we have segments in capacitors, which are excellent business, where we have 50% gross profits [inaudible].

No, definitely. I understand.

A question for Dick. When I look at your days payable, you guys are extremely fast payors to your suppliers. This, obviously, hurts your cashflow. Is there any plan in '06, to try to match your DSOs and DPOs a little bit better?

We to take advantage of discounting, so we to pay our bills. If there is a 2%, net 30 discount allowed, or we had contractually reduced prices because of the quickness our payment, it is all based on the cost. We continually look at the cashflow, both on the income and the outgoing.

Okay.

Thank you very much.

Your final question comes from Jason Gerske of JPMorgan.

Hi, guys.

Just a quick follow-up -- more of a bookkeeping one for Dick. Based on where shares are today, and assuming they go similar going forward, do you have any expectations on stock options expense for the year?

Immaterial -- the amount a stock option expense for Vishay is less than $1 million pre-tax.

Pre-tax for the entire year?

Yes.

We haven't issued any new options in the Company since 2000.

Okay. Great.

Thank you, guys.

At this time, there are no questions. Mr. Grubb, are there any closing remarks?

Yes.

I want to thank you for participating in Vishay's year-end closing conference. We had an excellent year. We look forward to '06 coming in even better, and stay tuned, and we'll see you in April.

Thank you.

Ladies and gentlemen, this concludes today's conference call.

You may now disconnect.