威世科技 (VSH) 2006 Q2 法說會逐字稿

At this time, I would like to welcome everyone to Vishay's second quarter earnings conference call.

[OPERATOR INSTRUCTIONS]

Thank you. Mr. Richard Grubb, you may begin your conference.

Thank you. Thank you for dialing in today for Vishay's conference call. With me on the line is Dr. Gerald Paul, Vishay's president and Chief Executive Officer, and also Dr. Felix Zandman, Vishay's Chairman and Chief Technical and Business Development 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 risk and uncertainties that could cause actual results to differ from the forward-looking statements. For a discussion of factors that could cause results to differ, please see today's press release and Vishay's Form 10-K and Form 10-Q filings with the SEC.

Thank you. As usual, I will go over some summary facts and results and Dr. Paul will elaborate on those discussions and finally Dr. Zandman will update our acquisition activities and any new research and development items.

As stated in our press release today, Vishay reported $0.28 operational earnings per share as compared to $0.12 for last year's second quarter, and $0.25 for Vishay's first quarter. Representing a 12% increase over the previous quarter. These reported non-operating earnings per share, behooves a loss of $794,000 of the long-term purchase commitment, restructuring of severance costs of $8.2 million, delayed asset write downs of $3.8 million, a $3.6 million increase in the environmental reserve related to our General Semiconductor acquisition, and a loss on the early extinguishment of debt of $2.8 million. All of these charges amounted to a negative $0.06 per share against operating earnings.

Revenues for the second quarter of $661 million or approximately 13% higher than last year's second quarter, and 5% higher than the first quarter of 2006. And we're in line with our previous guidance. Revenues break down as follows: semiconductors, 49% of business; assets, 51% of business. Consolidated gross margins for the quarter were 27.4% as compared to 26.6% for the immediate preceding quarter. Gross margins by segments for the quarter were semiconductors 27.8%, as compared to 27.4% in the previous quarter; packaged products amounted to 26.9%, as compared to 25.9% in the last quarter. Operational, selling, general and administrative expenses of $101 million equals 15.2% of revenues. Other income consists mainly of interest income.

The effective adjusted tax rate for the year is estimated to be 25%. That's down 1% from what we thought it would be in the first quarter. Capital expenditures for the quarter were $34 million, depreciation and amortization was $46 million. Total head count at quarter end was 27,000 people of which 74% are in low cost areas. Another key amount of interest on our cash and short-term investments at quarter end was set $575 million. Total debt, substantially all of which is convertible, equalled $613 million. You remember the line convertible debt of $138 million was put to us on June 4th, 2006 and we repurchased the note with cash. This will reduce the number of shares used to calculate future earnings per share.

Total inventory at quarter end of $527 million; written capital stands at $1.2 billion. Bookings for the quarter were $703 million with a backlog now at the end of the quarter of $654 million. Cash generated from operations for the quarter was $77 million. And as announced in our press release, we expect similar revenues for the third quarter and also to be in the $650 to $670 million range.

Gerald?

Yes. Thank you, Rick.

Let me first of all talk a little bit about the economic environment in which we are seeing in the quarter. And looking back, we must say our industry continued to enjoy quite an interesting economic quarter. This holds true for all geographic regions and virtually all the market segments.

We have seen quite strong ordering in particularly from OEMs and EMS. On the other hand, we have seen some slowdown of orders from distribution as the inventories there started to grow due to quite high bookings in the first quarter, which I reported. The situation, nevertheless, according to our judgment remains healthy also in the distribution. The inventory turns of all distribution SPCs is around four turns. So it's normal. And also, the business of distributors themselves is reported to be very strong and I believe this is a major difference to the same point in time three years ago. We still see relatively normal lead times and some shortages of supply, mainly at Columbus. There's only modest price pressure on the market and most importantly I believe there's general confidence in our customers for the second half of this year, and also for the next year.

Let me talk about the markets we are active in. Number one, the industrial markets most importantly for us, continue strong worldwide. This is an unbroken trend since at least six quarters. Automotive, also no change to prior quarters, solid, except for North America, we must see that Delphi and Visteon are in process of restructuring and consolidation. Consumers in the second quarter was very strong in all areas. Mobile phones are booming, despite some delays in Vishay the whole thing in the mobile phones seem to live up to the high expectations we had. There's some continued upturn for laptops and also AMS and medical are in excellent shape. So altogether we can say, we see the same favorable situation per market also as we were able to report a quarter ago.

Let's talk about the business development at Vishay. Our expectations for further sales growth came through, as Rick indicated we have achieved sales of $661 million in the quarter which was 4.7% higher than in prior quarter when we achieved $631 million. Each of the prior quarter distribution sales increased by 10% in the sales to OEM and EMS by 1%. For the entire year we see an increase of 13.4% or $582 million. Exchange rate -- exchange rate all together increased sales by $9 million, versus prior quarter and decreased sales by $3 million, versus prior year. Our orders remained on a high level. In fact we are close to the outstanding first quarter. The orders from OEM and EMS were even higher than in the first quarter. Book-to-bill ratio continued to be substantially above one. We achieved 1.07 for the quarter, 1.08 for distribution, 1.05 for OEM and EMS. Regionally, we achieved 1.19 for Asia, 0.97 for the Americas, 1.01 for Europe. And by product kind, product groups we achieved 1.15 for actives and 0.19 for passives. So overlooking that, I think we can say that actives in Asia are really booming. Our backlog has continued to grow in the quarter. We are now at a very comfortable level of three months. Lead times are still quite long, especially for the MOSFETs. Price declines remain modest sequentially and versus prior year. We have seen a price decline of 1.3%, versus prior quarter and 2.4% versus prior year. For passives we practically have reached price stability. Recently prior quarter, the decline was 0.3%, and the prior year, the decline was 0.6%. Year-over-year, we also see a slower decline for the actives. It's 4.1%, for our active portfolio. A very reasonable level. So all together, the business development we see for Vishay is in accordance with our expectations.

Let me talk about some highlights for the operations. Inventory turns improved to 3.4, mainly due to higher volume. Excluding the extra impact, inventories have been up by $7 million, which is quite in line with the increased production output of 6%. Capital spending in the quarter Rick indicated that was $34 million, as compared to $44 million depreciation. We continue to expect capital spending this year of $180 million, whereby 60% of it will go for expansion, mainly inactives. Cash provided by operations in quarter two was $77 million, as compared to $46 million the prior year. I think a nice progress. The same is true for free cash; we generated free cash this quarter in the second quarter of $46 million, as compared to $29 million in the prior year. Total head count went up from 26,000 to 562, by 433 people, or 1.7%. If you want to look at between fixed and variable heads, by 49 fixed head and 394 variable heads. I would like to emphasize that the increase in fixed heads exclusively took place in the low labor countries in the context of our moves there. There's some overlap. The high labor employment continued to go down in the quarter from 26.7%, to 26.3%. This is a continued process and I have reported about it every time.

We have announced the closing of the -- our vasostat in Frankfurt in Germany. I will talk a little more about it later. The move of semiconductors out of Belgium, of aluminum capacitors out of Holland and the streamlining the nonlinear resistors in Belgium proceeds according to plan. And you will remember, all these efforts are part of our program for underperforming divisions, with a total utilized impact of $50 million.

Let me talk briefly about the reconciliation of our results, versus prior quarter. Based on $29 million higher sales, which is really $20 million higher sales excluding exchange rate impacts, the adjusted operating margin impact improved by $8 million, mainly from $72 million to $80 million. The elements were impact of volume increase of $14 million. The ASP erosion of a negative $9 million and lower costs of $3 million positive impact, of course. When comparing to prior year, you can see that based on $78 million higher sales, $81 million when excluding exchange rate, the adjusted operating margin improved by $43 million, from $37 million to $80 million. Again, the main elements of this development, volume increase contributed to a positive effect of $48 million. The ASP erosion, a negative one of $16 million, and lower costs helped by $10 million, which explains the difference. I think overall we had a nice quarter and also our incremental performance vis-a-vis the periods we are referring to is quite okay.

Let me go through the product line. First of all, resistors and inductors. The business after an excellent first quarter and continued to grow. Sales in the quarter for resistors and inductors were $159 million which is 1% up versus prior quarter and 14% up versus prior year, when excluding the impact of exchange rate. We do believe that we have gained market share in inductors, thin film resistors and power resistors. Book-to-bill in the quarter was 1.0. The backlog was stable at a very reasonable level of 2.5 months. The gross margin remained at an excellent level of 32% of sales, despite the fact that we were hurt by the middle price increases there in particular. After selective price increases we have achieved practically price stability versus prior quarter. There was no price decline in vis-a-vis prior year 0.4%, I think, it's reasonable to say price stability. Inventory turns were at a quite satisfactory level of 4.1%, capacity load was good. 80% to 100% for SMT products and 50% to 80% for the older products, the leader products. The recent capacity increases, which I talked about, for inductors, thin film resistors and SMT wire wounds will lead to potential incremental sales of $20 million with variable margins of about 50%, I think it's an excellent investment, these products on a going forward basis. Belong to the best we have. Restructuring efforts at nonlinear resistors continue to bear fruit. The variable margin in the first half of '06 is better than '05 by nine points. I remind you also this program is part of our improvement program for the underperforming divisions. And there's more restructuring of this field to come. So resistors and inductors continue to perform well and there is further potential.

Talking about capacitors, also capacitors maintained the increased business level of the prior quarter. Sales in the quarter we had $135 million, which is 1% above prior quarter and 13% above prior year. Very similar to the resistor performance. There was a strong demand for power capacitors and Tantalum capacitors. Tantalum capacitors in general are benefiting from supply shortages at high sea value MLCCs. Book-to-bill for capacitors was at 0.99. Backlog remained at 2.7 months. The gross margin, I'm very happy to report improved to 18% of sales despite heavy pressure for metal prices. Also in capacitors on our close to price stability, 0.7% price decline versus prior quarter but only 0.6%, versus prior year, and the iron process to raise prices selectively. Inventory turns are improving slowly. Now in the second quarter we had 2.1 turns. There is -- between 75% and 90% load for volume production, and the load of specialty lines in general are good. The relocation of production to India and China, which I reported about before is progressing as planned and all together I think we can say that our capacitor -- our capacitor lines have recovered.

Talking about the measurements group, we can say that the business is growing. Sales in the quarter were $42 million, which is 5% above prior quarter and 9% above prior year. Book-to-bill, close to one. Backlog at two months. And across margin, we are quite proud of it, improved further to an excellent level of 36% of sales, mainly due to increased volume. Inventory turns remain at 2.7, and there's further stream lining and restructuring to come. So I think what I said before, I can repeat. Measurements group is a very reliable contributor to Vishay's overall results.

Changing to semiconductors, without Siliconix , they were strong orders in the prior quarter which I reported about and they were leading to the increased expected sales. The sales in the quarter were $186 million which is 6% above prior quarter and 11% above prior year. Especially rectifiers and center diodes are in strong demand these days. Book-to-bill we have seen for this group of products of 1.0 in the quarter. There are extremely strong orders from distribution -- extremely strong orders in distribution for in the first quarter and this is now back to a normal level. The gross margin remained at a respectable level of 24% of sales despite no further inventory builds. Price declines slowed down further. We have seen 1.1% versus prior quarter and 4.4% decline versus prior year. Also for this product line, a relatively modest price decrease vis-a-vis the prior year. Inventory remained at the very satisfactory level of 4.5. Capacity loads remained good. And power products we have a load between 85% and 100%. On low power between 75% and 90% and on opto and infrared depending again on the line between 70% and 90%.

As I indicated before, we in the second quarter have announced the closing of our Freiburg facility. This is in Germany. We are going to integrate these activities into our high prong fab which will save going forward $6 million annualized and also this is part of our program for the underperforming divisions. Also the moves to larger wafers in the high prong fab is underway. We will be able to report implementation, complete implementation by the end of this year. I think we can summarize this important product group, that for stand up this creates the market conditions continue to be good, and we continue to restructure and cost reduce further.

Coming to Siliconix, Siliconix, due to continued high bookings and our systemic capacity increases, achieved all-time record sales in the second quarter. The sales were $138 million, which is up by 4%, versus prior quarter, and by 23% versus prior year. Especially consumer LCDs TVs and game consoles were the drivers. Book-to-bill remained very strong in the second quarter at 1.34. Gross margins continued at Siliconix to improve and came to 33% of sales which is mostly volume driven. Improvement is mostly volume driven. Inventories increased slightly by $6 million but, again, this is quite in line with the output or the increase of production. The terms were at 4.1%. Price decline on the year-over-year basis continues to run on the low level, really the low level for Siliconix product of about 4%. This is in contrast to the more historical declines between 8% and 12% per year. So really low price decline. We have practically fully utilized internal capacities. We are expanding as you know our capacities and these efforts are on plan. We expect continued sales growth from Siliconix in the quarters to come, and I believe Siliconix -- we should emphasize that Siliconix is on its way to the best year since 2000.

Overlooking the situation and summarizing it for Vishay, I think we can say after a very good first quarter, Vishay was able to improve further. We increased sales sequentially by 5% and earnings by 12% from $0.25 per share, to $0.28 per share. And all in all, this is absolutely in line with our guidance. Our operational projects for expansion, cost deductions are on plan and we continue to push new products and better processes. We entered into the third quarter with a once again have a higher backlog and are confident to maintain our very good performance. As we indicated, our guide sales to a range of $550 and $570 million, being quite optimistic also for the fourth quarter. The economic environment continues to be friendly, and we expect a good second half, which will lead us to our best year since the year 2000. Thank you very much.

Felix?

Okay. We had a good second quarter. $0.28 per share is a record since the extraordinary period of the year 2000. Our strategy consists of leveraging our very broad product lines spanning essentially all passive, infrared and discrete semiconductor components; two, reducing costs by moving to local, improving productivity and streamlining overheads; and three, introducing new products and vertically integrating some of our product lines. And finally acquiring small and large companies to gain market share, increase our product portfolio, access new technologies, and improve our return on investment and profitability. This is the same strategy we had all along the years. I think it paid off and will continue to do that. But we will be pushing much stronger in R&D.

Now, a few words about our R&D efforts. We started to track the introduction of new products. For example, we have for the three years prior to 2004, new products in the passive area were 9.3% of our sales and semiconductor products were 11.5% of our sales. This is three years prior to 2004. Now if you look for 2006, or for three years prior to 2006, new products in the passives was 11.6% and in the semiconductors 22.5%; in other words, if you combine together, we have increased an average between 2004 and 2006, from 10.4% to 17.1% of sales. This represents the progress of innovation at Vishay. We should drive these numbers upwards and we shall report to them from time to time.

A few examples of our R&D. Our W seller line, a special resistor product line, which is a new technology and we first introduced several years ago is now selling at a rate of about $65 million a year and growing. Growing every year. It took some three years until the market accepted it. Our IHOP doctor line also a new technology introduced several years ago is selling already at a rate of $30 million a year. And also growing vigorously. Our micro MOSFET from Siliconix also a new platform introduced recently selling at the rate of $35 million a year and growing. And so on. And then we have new product lines. It takes a few years to introduce it and it starts to grow and after a few years after introduction, it takes off and we start to see competition in these lines. And so on with new products; that's the way it goes.

Now, a few products just being introduced. No sales yet. A semiconductor capacitor, for frequencies up to five gigahertz, no sales yet but we see it coming because the industry is moving towards the five gigahertz. Next the wireless cell for weighing aircraft. No sales yet. This is an important product, whereby we take items produced by Vishay and outfitting it with a Vishay wireless system for weighing aircraft. No sales yet.

Now a few products in the pipeline for the model application, just to give you a flavor of what is going on here. A drive-by wire break for cars, no hydraulics. New combination of Vishay load cell and the Vishay tactometer that is in development now with a major manufacturer for car products. Next, high intensity infrared LEDs for vision in poor conditions while driving a car. Introduction of infrared technology for eye lid detection for car drivers to avoid sleeping while driving. These are all car- applied products. And by each group here would be for cars or cell phones and so on. We have all groups of all products being in the pipeline and eventually introduced for example. Example. Now security applications of the pipeline, a combination of Vishay's [unintelligible] and Vishay wireless technology, for security applications such as electronic sensors and so on. The above are just a few examples of Vishay's R&D activities.

Concerning acquisitions, we are continuously evaluating small and large companies for possible acquisitions. We acquire carefully what we are doing in that area. Acquisitions should match our goals concerning product line, market position, R&D, management, return on investment, and future profitability. It must also be accretive in the first year and so on.

To summarize, we had a good quarter. The remainder of the year looks good. The industry expects also good 2007. We are on targer with our R&D activities and continue to be active in acquisitions and evaluations.

Thank you very much. And we are open for questions.

[OPERATOR INSTRUCTIONS]

Your first question comes from Michael Walker.

Question on the guidance. Your book-to-bill was pretty solidly positive, 1.07, but your guiding revenues were flat sequentially. I was wondering if you could tell us if you are seeing conditions slow a little bit or is it seasonality? What kind of accounts for the discrepancy?

You say the right word. As a matter of fact we are having something like 38% of all sales in Europe and I would of course not say that Vishay's business is really strongly cyclical, but you see second quarter effect. That means Europe historically -- not historically also is relatively weak in Europe and this is the difference. This is why I also said that we are confident for the fourth quarter.

Okay. And then secondarily, the margins, would you expect gross margins to continue to increase slightly? Or would that be flat also along the separate revenue line?

Well, we said we want to maintain our performance without the guidance in this case. We don't tie it to gross margins but we are confident, you see.

And the tax rate was down, as you pointed out. What kind of tax rates should we expect going forward?

We should -- when we made the provision of 25, that was for the rest of the year.

25?

25%.

And on the OpEx line, it looks like you had a one-time charge, associated with General Semi. I just want to confirm that that kind of the write off ratio to be looking at is the 15.2 that you had the last two quarters? Or would you expect that to go up or down?

Well, it depends of course, on the sales. But as we are confident for the sales, I can say that looking forward that we don't expect this percentage to grow but to go down more than to grow. It depends really on the sales. We are talking about fixed costs in that case.

Okay, my last question is on the difference between sales and distribution versus direct EMS. You had said that you started to see the distributors draw down inventories a little bit but it sounds like your orders or your sales into distribution were still quite a bit stronger than they were in EMS and OEMs. I wonder if you could resolve that or reconcile that.

As a matter of fact you may remember that in the first quarter we were reporting to having had quite substantial increase in the distribution orders and this led automatically so to speak, to some increase on the distribution inventory side, which on the other hand, this is what I wanted to point out, is backed up by a continued strong order intake by the distributors which is a big difference to the year 2004. This is what I tried to say before. That means you have a different situation, that the distribution really needs the inventory. What was good, we had practically absolute numbers to same orders, they are not very different in the record quarter, so to speak, one of the record quarters, the first quarter. And so at the same time that the orders from distribution slowed down to an extent, the orders from OEMs went up. So I think it's a healthy situation that distribution stopped this time early enough, not like 2004, to the higher amounts. But this is now replaced by OEM and EMS orders going forward. This is part of the reason why the optimistic for the second half.

Are we going to start to see the OEM and EMS side orders outpace the orders into distribution?

This is what I would foresee. This is my personal opinion.

Okay.

That is principally healthy development, I would say.

Okay. Thank you.

Your next question comes from Matt Sheerin.

Yes, thanks. Just back to the issue of distribution. I believe you said that the book-to-bill and distribution at the end of the quarter was 1.07; is that right?

That is true.

But it was 1.25 the first quarter, right?

Yes, indeed. So it went down. It came down to a more normal level, if you want.

And in terms of -- if you look at passives versus actives is the number higher just because of the situation with Siliconix?

I think Siliconix is driving the number, definitely. Definitely. Siliconix in combination with Asia is at the moment, the most booming combination. It's true that Siliconix, in itself -- and I think I said this -- enjoys more than 1.3 book-to-bill again.

What was the percentage of sales from distribution? I didn't get that.

In Siliconix you mean?

No, overall business.

Oh, let me see. I have it. The distribution normally in Vishay is around 45%. You are mean in the quarter?

Yes.

In the quarter. We had sales approximately $335 in OEMs, $368. This is was orders. So sales we hit in OEMs, $349, and distribution $311. Yes. That's approximately it.

Okay.

So distribution was relatively high, but we already hit higher sales to OEMs in the quarter.

Okay. And then just in the inventory situation, within the Siliconix channel, with that very high book-to-bill, how are you sort of trying to control that, you know to make sure that there's not a lot of double ordering that may come back to haunt you in a couple of quarters or so?

Principally, you can never avoid double ordering, as a matter of fact, but you want to stay close to your customers, especially close to distribution, which for this time we really practice. And together with distribution are monitoring that there will not be too much ordering, especially on the most booming product lines of Siliconix. So we work together. Otherwise, you can never avoid completely the situation of double ordering.

Okay. Then my last question regards capacity expansion. You talked about what's going on in Siliconix. Do you have any plans, given the relatively better environment in -- in the passives area? Are you looking at any expansions beyond what you talked about?

Selectively, I tried to say that for very juicy products like inductors, like thin film chip resistors, and SMD wire rounds we are putting in more capacity and we do this selectively. But on capacity products, we are very skeptical to put in too much, to be honest.

Okay. Thank you.

Your next question comes from Jim Suva.

Great. Thank you. You made a lot of great progress on the gross margins for your capacitor unit. I believe it's around 18% now, versus a 17% last quarter.

Yes.

And preferably from 10% a year ago. Do we start to kind of top out there? Or is there still more upside there?

I believe, as I reported before, there's continued restructuring ahead of us still. So we still move from Europe to Asia, which, of course, will help the further performance of capacitors. On the other hand, we also are raising prices selectively. So we reviewed our business very carefully, and we are choosing certain businesses not to be continued also.

Okay.

Not a contributor. So it's a -- it's a program. A combined program.

Great. Thank you. As a follow-up on a different topic, on the acquisition pipeline, I'm wondering, are you seeing a lot of things out there that have your interest? I know that there's been some -- quite a bit of chatter of some specific talk of IR international rectifier business and I'm wondering what type of things you are seeing out there.

Well, we are always looking at acquisitions. We never discuss it publicly. There are many possibilities now. Well, you know, publicly, for example, Phillips is for sale. And maybe some separate product lines for Phillips may be for sale. There are also IR, some products at IR for sale. And there's some other companies. So we continue to look at that but we are not at liberty, we never say -- we can only discuss, are we ready to do it or not.

But it's pretty safe to say that it's healthy out there? Fair to say?

Yes. And we are continuing to evaluate that. And from time to time, we make up a proposition.

Okay. Great.

We are watching very carefully of course not to overpay and return on investment, accretion and things like that.

Thank you and congratulations.

Thank you.

Your next question comes from Kevin Kessel. Mr. Kessel, your line is opened.

Yes, hi. Good morning. Can you -- can you talk about what you expect in terms of the pricing environment in the third quarter, what is assumed in your guidance?

We didn't give guidance with it, Kevin, but my outlook is that the price pressure remains modest. The business is good, capacity is partially tight and so it's a good basis for a continuation of the modest price decline which we have seen.

Okay. And then in terms of the margins, in the past you have spoken -- I know not specific margins but just in general, would you expect the restructuring that you've been doing to have a positive effect on the margins in the third quarter, or what exactly is your assumption there?

My assumption is going forward. Don't want to relate to a specific quarter. Going toward, we still have a lot of restructuring efforts in the pipeline. I'm announcing step-by-step, just also because of the legal situation in Europe. You can only announce when you make it public. So this is a specific thing, but I can assure you that there are quite a few steps ahead of us. And for sure this will positively impact the gross margin.

Okay. And then in terms of the Siliconix's expansion, can you talk more about that in terms of the second half of the year. What do you expect to see in terms of additional capacity coming online?

Well, I think you may remember, last year when we started into the last phase, the previous phase of the expansion of Siliconix, which is fairly typical for us, we are talking 20% year-over-year in incremental sales and this is what we definitely are going to achieve, but it's a process. Siliconix is a very successful enterprise, and you see this book-to-bill is really -- is really mind boggling in a way. 1.3 again. So the products from Siliconix are leading the market. And obviously, the demand is high. So we will continue to expand the capacity. It will be an ongoing process. We never have invested any dollar in Siliconix in terms of capacity, which very briefly after that, was used. So we will continue.

Where were you then do you think in the first half of the year in terms of the capacity increase? If you're targeting 20 for the full year, where do you think you were in the first half?

I don't know by heart, Kevin. But I think if you prepare it to half years -- but I would have to verify that. It would be 20% -- I would say at least 20% because a year ago, the economy was relatively low but you would have to verify that.

Okay. And then just lastly, the ongoing war over in Israel, how is that affecting, if at all, operations?

Well, I'm in Israel. I'm talking to you from Israel and it doesn't affect us at all. We have only one plant up north very far away. Up north in Carmel. It's a small plant of 200 people, making transducers. All of our other plants are completely out of the range, and many of them are in the south. There's another one up north that's far away from the border. This plant in Carmel has seen many rocket attacks. Nothing has happened to plant. 85% of the people are coming to work. The productivity is higher than before. So we are just not suffering, really. The morale is high. It's not the first time it happens in Israel. They always work, normally, never miss delivery. So that's what's going on. I think you have there, in the United States, much more television, kind of scare on the issue than here. So everything is normal. And myself, I have been up north several times. We are working.

Thank you very much.

Your next question comes from Steven Fox.

Hi, good morning. Dr. Paul, did you talk about how much of a drag Siliconix was since you are continuing to outsource more than you would like on even margins and profits.

Yes there was, of course. We are, of course, doing what we can to satisfy our customers, and we have -- I don't want to really be precise on the number but you are absolutely right on. We had a negative impact of some millions of dollars in the quarter, just because of an increased use of subcontracting which is of course a nice potential going forward for cost reduction.

And do you think that was about in line with what you thought it would be.

Absolutely.

For the quarter?

Absolutely. Yes.

And has the drag peaked at this point, given the capacity you are adding in the second half of the year?

You know, we are talking packaging, really. We are not talking foundry. On foundry there was no surprise whatsoever. We are talking the packaging part of it, so the finishing part of it. You had to use more self-contractors than we have anticipated, you see. But not before the quarter. We knew how much we would need but before the year -- we were taken by surprise by the good capacity to a degree. But we are adding capacity.

Great. And then a quick question on the share count, fully diluted for the quarter. I might've missed that. Do you have a rough idea what it should be given the change in the debt structure?

Yes, we filed an 8-K this morning.

Yes.

Go online to the 8-K. It's all out there for you.

Great. Thank you.

Your next question comes from Andrew Huang.

Hello?

Mr. Huang, your line is opened.

Oh, thank you. Sorry about that. I was just wondering -- I think someone else asked this question, but if you could maybe provide a little more color on your revenue guidance for the September quarter of being flat sequentially? In the context of -- over the past three years, I think the September quarter sales have been down 1%, 10% and then 3% for the September quarter.

Well, as a matter of fact, we are talking small differences as a matter of fact, right? But we forecasted flat taking into account, as I said before, that a major share of our sales, 38% or so are in Europe and Europe for sure shows relatively weak summer period. It's not as first-class impact. It's not a dominant impact on Vishay sales. Overall I would still say that the cycle in Vishay relatively flat but when you talk about $10 million up, or $20 million up or down in total sales numbers of 60 or 70, then you have to take into account the seasonality. So it's nothing that I want to lead with or something. That's why I said before we are confident for the fourth quarter.

Okay. Okay. And if you could remind us, what your automotive exposure is as total sales.

Approximately 26%, but don't quote me. That is approximately.

Okay. Great. Thank you very much.

Thank you.

Your next question comes from Shawn Harrison.

Hi. Good morning.

Good morning.

Just a quick clarification. I missed the sequential change in average sales price for Siliconix.

For Siliconix? This I could say -- I don't have it here. As a matter of fact, what I wanted to emphasize, it's relatively small. I wanted to emphasize in Siliconix really and this is more important I believe, than quarter over quarter because it's such a big change based on the historic numbers. Power MOS always have seen price declines between 8% and 12% year-over-year and now we run at something like 4% or so. So I wanted to highlight that. Quarter over quarter, I would have to deliver. I don't have the number here but it's also very little, very low number.

My second question just has to deal with the backlog in the book-to-bill at Siliconix. Just wondering how far I guess that backlog extends. And -- looking into a book-to-bill of above 1.3. In terms of -- ?

Most is shippable of course always in the next quarter. Most of it -- don't have exactly have the profile in time. This is a solid backlog. This is the background of your question of course, right?

Yes. Yes. And then my final question just has to do with inventories in EMS and OEM channels. You feel comfortable with the distribution. I wonder your level of comfort in terms of your product inventories in those channels?

Well, you were talking about the inventory increase, right? And vis-a-vis two years ago, I guess this is the question now, how well I feel. About two years ago, you remember, we were all together. We had not been paying enough attention to the inventory business at distribution. This time we monitor it very closely. Inventories have come up. No question. This was foreseeable. They order a lot in the first quarter because they needed it. What is really the difference to two years ago, that already in April, May, the orders on our distributors, really dropped like a stone and they only reacted and we didn't see it. I think we, Vishay and others. Now we are following that and I can assure you that our orders on our distributors are high and continue to be high. This is I why I say, I feel comfortable with the present level of inventory which leads to four terms at the moment. I think it's reasonable average for our distributors at least.

What about with respect to your other sales channels. How do you feel in terms of your comfort with inventory levels there?

You know that our the numbers are really reliable. We have them reported back every month, you see? We don't have such a reporting system from OEMs and EMS, we don't. So in this case, my answer is more qualitative, qualitative nature. And I think we can state, according to what we know, what we think we know that we also do not see any increase -- substantial increase, dangerous increase in inventory in the other pipelines. You see, our sales goes up there at the moment and the response is -- if you look through the market segments, business is good. For most of the market segments, we have to believe they need inventory, but again, qualitative answer, I cannot give you a number. But we are not aware of any, you know, dangerous way to increase inventory levels at the larger OEMs.

My final question has to do with restructuring savings from the $50 million plan. It looks like there's maybe $6 million or so year-to-date and that would equate to maybe $7 million in the third quarter and maybe an incremental $7 million in the fourth quarter.

We stick to our plan. And I talk, I think what I promised is -- yes -- is $20 million impact this year and the prior year, another $20 million next year and $10 million finally two years from now. So I think we can -- we will stick to our plans.

Okay. Thank you.

There are no further questions at this time. Mr. Grubb, do you have any closing remarks?

Yes, thank you very much. That concludes our presentation for the second quarter. We expect the third quarter conference call to be scheduled in late October, and that will be coming out more extensively. Thank you very much.

That concludes today's teleconference. You can now disconnect.