威世科技 (VSH) 2006 Q4 法說會逐字稿

Good morning. My name is LaQuecia, and I will be your conference operator today. At this time, I would like to welcome everyone to the Vishay's fourth quarter financial conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [OPERATOR INSTRUCTIONS]. Thank you.

I will now turn the call over to Mr. Richard Grubb, Vishay's Chief Financial Officer. Thank you, sir. You may begin.

Thank you. Thank you for attending today's conference call. With me today are Dr. Gerald Paul, Vishay's President and Chief Executive Officer; Dr. Felix Zandman, Vishay's Chairman, Chief Technical and Business Development Officer. Before I start, Bill Clancy, Vishay's Senior Vice President and Corporate Controller, will read our customarily -- our opening statement.

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.

As usual I will go over some summary facts and results, and Dr. Paul will elaborate after I'm finished, and finally Mr. Zandman will update our research and development and acquisition activities. The year 2006 was an excellent year for Vishay. For the first time in its history, we reported revenues in excess of $2.5 billion. We also reported our second best yearly results with adjusted net earnings on operations of $197 million. As far as the fourth quarter is concerned, as stated in our press release, Vishay reported $0.19 operating earnings per share as compared to $0.17 for last year's fourth quarter and $0.27 for the third quarter of 2006. The reported non-operating earnings per share include a loss of $849,000 on a long-term purchase commitment, restructuring and severance costs of $12 million. All these charges amounted to a negative $0.05 per share against operating earnings. Revenues for the fourth quarter of $636 million were approximately 7% higher than last year's fourth quarter and slightly less than 3% lower than the third quarter of 2006 and were in line with our previous guidance. Revenues by segments were 50% -- 51% of the revenues were from semiconductors or active products, 49% for our passive component products. Consolidated gross margins for the quarter were 24.5% as compared to 26.4% for the immediately preceding quarter. Gross margins by segments for the quarter were semiconductors 21 -- 24.1% compared to 27% in the last quarter; passive products were 25% compared to 25.7% in the last quarter.

Selling, general and administrative expenses of $105 million equals 16.5% of our revenues and included some one-time charges to be discussed later. Other income consists mainly of interest income. The effective adjusted tax rate for the year remains at approximately 25%. Capital expenditures for the quarter were $68 million while depreciation and amortization was $52 million. Total head count at quarter end was 27,000 people, of which 74% are in low-cost areas. Some other key amounts, cash and short-term investments at quarter end was $672 million. Total debt, substantially all of which is convertibles, equals $609 million. Total inventory at quarter end was $536 million, and working capital remains at $1.2 billion. Bookings for the quarter were $598 million, and backlog at year end is $583 million. Cash generated from operations for the fourth quarter was $121 million, and for the year $349 million. As announced in our press release, we expect the first quarter revenues to be in the 625 to $645 million range.

And now Dr. Paul will give some more highlights to what's going on for this quarter. Gerald?

Thank you, Dick. Good morning, everybody.

Just to repeat it, Vishay indeed had an excellent year 2006, practically doubling earnings per share and cash flow. But the fourth quarter was somewhat weaker than the previous quarters basically due to lower sales, some temporary shift to a less favorable mix, and increased SG&A costs largely due to one-time effects. Nevertheless, let me highlight we are very confident for the year 2007. The economic environment in the fourth quarter showed a continuation of the friendly business climate our industry has enjoyed throughout the year 2006. Very strong were consumer and mobile phones, the next generation of MP3 players, and gaming had a positive impact. The automotive industry in the U.S. remains somewhat slow, but all the other markets continued strong. On the other hand, the reduction of the inventory in the supply chain was lower than anticipated. Worldwide distribution remained at 3.9 turns despite lower purchases. Lead times are down to normal levels in general. On the other hand, orders pick up in general now in January indicating an [unbroken], healthy end customer demand.

Vishay's business, as projected, was running somewhat lower than in the third quarter, basically because of the lower order level from distribution in quarter three. We achieved sales of 636 million in the quarter as compared to 654 million in prior quarter and 594 million in prior year. I believe what is really important is the fact that the decline of orders has slowed down to just 1% versus prior quarter. Book-to-bill ratio has improved in the quarter from 0.92 in Q3 to 0.94; 0.95 for distribution, 0.94 for OEMs; 0.89 for actives and quite strong for passives, 0.0 -- 1.0. For Asia it was 0.87, for the Americas 0.94, and the book-to-bill in Europe was 1.02. Backlog continued stable at 2.5 -- 2.8 months, which is above the long-term average. We have seen no price decline versus prior year and no price decline versus prior quarter. Price are up for passives. It's just a continuation of the trend which we see since a few quarters. For actives, price decline is year-over-year only 1.5%, and no price decline, even slightly up versus prior quarter. We have achieved a substantial slowdown of the price decline also year-over-year, that means 2005 vis-a-vis 2006. We came down from a 4.5 price decline in 2005 to a 1.9 price decline in 2006. And we expect the low price decline to continue also this year. Book-to-bill in January for Vishay was 1.01.

Let me talk about some highlights of operations. The inventory turns in the quarter declined slightly from 3.3 to 3.2. The inventories went up by 3 million, but all this came from raw materials. In fact, WIP and finished goods inventory went down by 7 million, and raw materials went up by 10 million. In this context, I think it's important to say that our long-term purchase commitment for tantalum has expired. We expect a positive cash flow now going forward of approximately 100 million additional cash flow over three years. Capital spending in the quarter was 68 million, as compared to 45 million in prior quarter; and depreciation was 47 million. This leads to a capital expenditure of 184 million for the entire year 2006, which is exactly as projected, and you will remember 60% of this capital was needed and used for expanding capacities mostly at actives. We plan to invest on the same level in '07, again, mostly for the expansion of our capacities in Siliconix, but also in the other semiconductor areas.

The total headcount reduced by 440 heads. We were adapting some capacities. The fixed headcount stayed unchanged. The employment in high labor countries remained at 25.8%, which is down from 27.2% as of December 31st, 2005. We had a very satisfactory generation of cash. Cash generated from operations in the quarter were 121 million as compared to 99 million in the prior quarter and 95 million prior year. For 2006, we therefore generated from operations 349 million vis-a-vis 209 million the year before. Free cash, also quite impressive I believe, we generated free cash in the quarter of 54 million as compared to 57 million in the prior quarter and 39 million prior year, which gives a free cash generation in 2006 of 175 million as compared to 81 million the year before. We continue to restructure according to plan, in particular in Belgium, Holland, and Hungary. And I believe we can say from today's perspective that we are approaching the end of our major restructuring projects, which continue since quite a few years. We expect restructuring costs in 2007 of less than 10 million as compared to 47 million in 2006.

Now let's talk about the reconciliation of results versus prior quarter. Based on 19 million lower sales, actually 20 million excluding exchange rate impacts, the adjusted operating margin decreased by 23 million, namely from 74 million to 51 million. As indicated in the beginning of my presentation, Q4 was somewhat weaker than the quarters before. Volume and mix gave us a negative impact of 15 million, 10 million from volume, 5 million from mix; and there were increased SG&A costs, mostly due to one-time effects like, for instance, government mandated retro housing allowances, transferred tax settlements on a prior acquisition, and due to some year end fine tuning of accruals. I think most important is the fact that we expect to be back to normal levels in the first quarter '07, which, depending on sales, is in between 15 and 16% SG&A costs of sales. If you compare the results of the year now, it looks as follows -- based on a 285 million higher sales, operating results adjusted increased by 127 million. It means from 150 million to 277 million, which indeed is a 45% incremental performance. The main elements were, of course, higher volume which contributed 173 million. ASPs came down just by 1.9 million -- 1.9% or 49 million. Royalty income improved by 3 million, variable costs became better by 34 million, which includes a major hit from metal prices of 30 million. And fixed costs came up by 33 million, all fixed costs together, from the acquisition, from wage increases, and from the bonuses.

Now let me talk a little about the product lines, and I would like to start with resistors and inductors. Business continued on the high level. Sales in the quarter were 155 million, stable vis-a-vis prior quarter, but up by 12% vis-a-vis prior year. A book-to-bill rate of 0.99 indicates stability for this important line of Vishay. Backlog was stable at 2.6 months. Gross margin declined slightly to 29% of sales, basically due to the consequence of some inventory reduction and due to a combination of various small influence, most of them one-time effects again. The positive ASP trend continued. The impact of our pricing strategy is noticeable. [Vee een vee] for its resistors increased prices really selected -- in selected cases, mostly at specialty products. Vis-a-vis prior quarter, the prices went up by 0.5%, and vis-a-vis prior year by 0.7%. The inventory turns at resistors/inductors continue at an acceptable level of 3.9, slightly improved versus prior quarter. We continue our price increases, our selected price increases especially for leaded resistors, and we continue to expand our capacity -- manufacturing capacity for thin film resistors in Israel.

Coming to capacitors, the business of capacitors continued to be impacted by distribution reducing its inventory, and also by a firmer pricing strategy of Vishay. Sales in the quarter were 115 million, which is 5% below prior quarter and prior year. Book-to-bill of 1.02, on the other hand, and an increased backlog of 3.1 month indicate that the market has accepted our pricing strategy which we -- which we are working on which we are implementing since more than a year. You will remember selective price increases in combination with the exit of unprofitable businesses. Despite the lower volume, gross margin remained at the level of 16% of sales, and we do expect further improvements after the finalization of all ongoing restructuring efforts. The price increases really show. We have seen a 0.6% price increase for all capacitors versus prior quarter, and a 2.4% increase versus prior year. The inventory turns are still burdened by tantalum -- by our tantalum purchase commitment. There were 1.8 turns in the quarter; but as I said, the commitment has ended as of December 31st, '06, and now we can use what we have too much on stock. If you reduced for -- for the sake of a calculation the excess inventory also capacitors would be above 3 turns, namely 3.4 turns, and now we are working inventory down.

Measurements group achieved sales in the quarter of 42 million, which is stable versus prior quarter, but 6% above the prior year. Book-to-bill close to 1, 0.99 actually, backlog stable at 2.2 months, and the gross margin remained at an excellent level of 36% of sales. The inventory turns for the measurements group are not satisfactory, they are 2.4, but we will improve after the finalization of the restructuring efforts that currently go on. Midterm we expect this business will grow based on new applications on cost reduction, and some targeted acquisitions. So let me summarize our business with passives 2006 versus the year before. I think we can say that Vishay's passives have enjoyed a year of strong recovery. Sales went up by 10%, but gross margin went up by 32%. And if you calculate the incremental performance, more profits over more sales, you come up to 73%. These numbers exclude our acquisitions, which also contributed. Gross margin itself came up from 21.5% of sales to 26% of sales. We have enjoyed higher volume, stable prices, and a lot of cost reduction. The strongest improvement we have achieved at capacitors, if you calculate the incremental performance there you really achieve 100%. It means really a major improvement on the cost side. Profitability is expected to go up further due to ongoing optimization. As I mentioned before, some restructuring efforts have been started, but they will be finalized according to plan in the course of 2007.

Let me come to semiconductors without Siliconix. The business has declined slightly in the quarter, impacted mainly by the inventory reduction efforts at distribution. The sales in the quarter were 178 million, which is 5% below prior quarter, but on the same level as prior year. Book-to-bill was at 0.97. Gross margin declined somewhat to 21% of sales because of lower volume, a less favorable product mix, and volume-related inefficiencies in some plants. We are adapting that. The ASP decline slowed down further after selective price increases also in this area, but vis-a-vis prior quarter we had no price decline, vis-a-vis prior year 1.1% price decline. The inventory turns in this segment remained at a very satisfactory level of 4.4. Our planned move to larger wafers for high volume pin diodes has been finalized, and we're now working on other products also to move to larger wafers. The closing of our two factories, Freiburg and [Gungesh] will be finalized in the first quarter '07 just according to plan. We expect a 50% increase of [trench] rectifiers in '07, a new product, from 10 million sales in 2006 to 15 million sales this year.

Coming to Siliconix, after a record quarter, sales declined slightly mainly due to the build up of consignment stocks at major customers. Sales in the quarter were 146 million, which is down by 4% versus prior quarter, but up by 11% versus prior year. Book-to-bill was still low, 0.97 -- 0.79 in the quarter, but it seems to recover in January. We have seen 0.88 book-to-bill. The backlog is still at a very high level of 3.4 months. Gross margin declined to 29% of sales. Volume and a less favorable product mix impacted our profitability. We have seen at Siliconix a very temporary shift to larger packages. We expect a more normal picture already in the first quarter '07. Since the beginning of the year at Siliconix, the performance has been burdened, and I indicated that before, by material prices and an additional usage of subcontractors. Quite important for Siliconix, I think, is that the price decline continued at a much lower rate than the historical average. We have seen versus prior quarter 2.6 price increase even, and vis-a-vis prior year only a drop of 1.8%. We currently are preparing for another 20% volume increase for -- to be implemented the course of the year mainly for high-sale density products with a positive impact on the product mix. And we expect to start -- we expect to start enjoying the '07 cost reduction from 8-inch technology in the course of the year, quarter after quarter.

Now let me summarize our actives business. I think we can say that Vishay actives participated nicely in the economic upswing of 2006. Our business was growing by 13% or 151 million. Gross margin for our actives benefited from volume, and the lower than average price decline, while being burdened by increase material prices as I said. The adjusted gross margin came up by 65 million, which is an incremental performance of 43%. If you look at the gross margins themselves, they came up from 24.4% of sales in 2005 to 26.6% of sales. We are emphasizing new technologies and products while expanding our capacities, and we will further enhance our product offering going forward, and our profitability as well by the acquisition of the IR group.

Now let me talk about the IR power management group a little, the acquisition. The closing will be as of April 1st, and I think I can report that the things develop according to plan. All relevant operation and functions of Vishay and IR are indeed in close cooperation for transitioning the business. Joint customer vendor visits are ongoing. Our future structure and also the people in this structure are defined. The IT system is in test, and our people are being trained, and we review, together with IR, the expansion plans. And just to add, Dr. Lidow, my colleague from IR, and myself are talking to each other weekly reviewing the progress of the whole project. I think we can say things are very well under control. The transition in service supply agreements are underway to be finalized. From a business standpoint, we are pleased to say that the [carved out] IR business we are acquiring continues to develop at least according to Vishay's expectations. Run rate at the moment is around 320 million of sales. The acquired business is expected to contribute to earnings from the beginning, and as I said before, we anticipate to be at a run rate of 55 million incremental operating margin in the fourth quarter after closing. Quite important, only minor restructuring costs are to be expected.

So looking back to 2006, again, Vishay has achieved its best results since the year 2000, the second best result ever. Sales increased for the Company by 12% year-over-year. Gross margins came up from 22.9% to 26.2%, and adjusted earnings per share from $0.51 to $0.99. We increased the generation of free cash from 81 million to 175 million, despite substantial capital spending of 184 million which we needed for the capacity expansion, mainly at actives. Looking ahead, we expect 2007 clearly to be another good year for Vishay. For the first quarter, we guide to sales in the range of 625 million to 645 million, as Dick said; and for the year, we see an additional positive impact from the IR acquisition. We also see substantial increase again of our free cash generated by a similar level of capital spending. We are in the final phase of our restructuring. The efforts will be completed this year, and we expect a major reduction in our cost for restructuring to less than 10 million. So all in all, we are very confident for the year 2007.

Thank you very much. Felix?

Dr. Zandman?

Good morning.

As you have heard, our fiscal year earnings for 2006 was the best in our history except for the bubble in the 2000 year. Our sales exceeded $2.5 billion, an all-time record, and we will surpass it in 2007. Our adjusted net earnings were $197 million, and adjusted earnings per share were $0.99, or 114% over last year. We generated free cash flow of $175 million or 116% over last year. These are good numbers. However, the quarter was weaker than the previous quarter due to one-time charges, product mix, and as predicted, somewhat lower sales. We expect next quarter, Q1 2007 to be better. The outlook looks good because of industry [consensus] that 2007 will be a good year, and because of our acquisition of IR's discreet semiconductor business. The IR discreet components absorption looks very promising. We expect accretive earnings due to this acquisition as of April 1, 2007, the date of closing. Furthermore we expect $40 million net earnings, [the rate] during the year following the closing. Additionally, the year after at least $10 million net earnings through the quarter after.

Our focus on R&D is yielding good results. New products introduced during the last three years, it means during 2004, 2005, and 2006, contributed 13% to our sales in 2006, for passive 11% and for active 15%. It takes a minimum of three to five years to judge the effect on sales of a new product, hence our reporting on a three running year basis. Just a few examples. MICRO FOOT [inaudible] MOSFET, which reduced the size of an equivalent mode at MOSFET by 70%. Its sales for 2005 were $16.7 million and $35 million for 2006, an increase of 109% over 2005, an important product, and we expect this to grow quite strongly in the future. It is used in cell phones and other handheld devices. The main issue here is reduction of size. The IHLP, a [surface mount] inductor, is also 50% smaller and handles twice as much current as its competitor. It is used mostly in power supplies. The sales for 2006 were $23 million, an increase of 40% over last year. Once again, we expect very good growth in this product line. In the [inaudible], our third example, the trench technology invented by Vishay Siliconix for MOSFET is now introduced to diodes. Sales started in 2006. Q1 2006 sales were only $600,000. For the full year of 2006, sales were approximately $10 million. We are increasing capacity in these lines and other new lines. These are just a few examples of new products.

The Vishay strategy of one-stop shop for passive and discreet semiconductor components implemented through acquisition, sales penetration, and introduction of new products has been expanded to include product synergies which we call vertical integration. Vertical integration consists in combining several Vishay components into a package which provide a function such as DC to DC conversion for example rather than separate components that the designer has to combine to create a DC to DC converter. Several products with Vishay vertically integrated components are in the pipeline.

To sum up, our 2006 year was good. The year 2007 is predicted to be better. Integration of IR's discreet semiconductor components is on target, and should substantially add to our earnings already during 2007. Thank you.

We will now be open for questions.

[OPERATOR INSTRUCTIONS]. Jim Suva.

Great. Thank you very much. And can you talk a little bit about the acquisition of International Rectifier? Previously I believe it was slated to close in February, and I believe previously you also mentioned a run rate of 340 million, and now it looks like it's a run rate of 320 million and April. Are you seeing additional integration risk or effort or what should we expect there and why a change in numbers?

Well, in a nutshell, first of all, there's no change. The fact that this is closing a month later is just out of convenience on both sides. There were so many service contracts and details and training to be made that I agreed with Dr. Lidow to postpone the closing by four weeks. There's nothing else behind. Concerning the sales, it was a rounded number. Indeed, the number runs, depending which months you see, at around 330, 332, and the last time it may have been 335, but this is not the point. So it's no surprise whatsoever.

Okay. Thank you.

Tom Dinges.

Hello?

Your line is open, sir.

This is for Tom Dinges?

Yes.

Great. This is Jason Gursky stepping in for Tom. Just a quick question on the revenue outlook. Given that the book-to-bill across most of your product lines as you ended the quarter was sub 1.0, and just -- if you could offer a little bit more clarity as to why you're so confident that the revenue outlook will be kind of flat to slightly up at this point.

Two reasons. Reason number one is that our backlog is still way above average -- historical average. There's enough backlog, but secondly, and maybe more importantly, book-to-bill in January is slightly above 1, so it recovered.

Okay. Great. And then just a little bit of commentary as well as perhaps reach the product lines on gross margin. You talked about being impacted by mix on several of the product lines during the fourth quarter. Can you shed a little bit of color on what the outlook looks like going into the first quarter as it relates to mix and the potential for gross margin expansion in the quarter?

I -- I'll start out with resistors. Really in the case of resistors was no mix. There were somewhat lower sales, which of course with a nice variable margin that resistor converts into a P&L decline. It's clear, but secondly, there have been a small -- a couple of smaller incidents which is not product related -- product mix related, and most of them one-time effect, so they will go away. Really, not to be mentioned this case, little things, but they came all together and in the wrong direction, unfortunately. In capacitors, we remained on the same -- like [inaudible] group on the same gross margin as in the prior quarter, so not much commented needed. In the case of semiconductors without Siliconix, we had substantially lower volume, and in this case there has been a change in product mix which again is not a trend, is not a trend. The most -- the most significant thing which I think I should comment on is Siliconix. Siliconix indeed hit the combination of lower sales and a shift to larger package sizes, which is clearly a temporary thing and can be identified as temporary. All you have to look at the shippable backlog. So really at the end of the quarter, some customers urged us before to increase -- to increase the consignment stock. This is one of the reasons why the sales was slightly below the third quarter. This is done now, and on the other side we had a temporary mix from customers favoring the larger case sizes, so this came together again for January. We see a normalization of this trend.

Okay. Great. Thanks, guys.

Steven Fox.

Good morning. Just one other follow up on the gross margin. When you look to Siliconix just for the quarter, Dr. Paul, are you then saying that you could see margins rebound back towards where they were in the middle of the year or is it going to be a slight rebound? Can you get a little more specific on that, please?

Well, the whole thing is, of course, you know Siliconix has substantial variable margins. That means volume is the most important part of it so to speak. In the first quarter, we have Chinese new year, and Siliconix is shipping a major portion of its revenues to Asia. But principally speaking, I see no reason why Siliconix shouldn't come back to 30 plus gross profit -- percent gross profit.

And how would the use of subcontractors play into that during the course of the year? When do you expect to be less burdened with that?

Well, basically we are investing. It's a little bit a gamble like everybody can agree to, I believe. We are seeing very many packages, we continue to invest in our packaging lines, not only in the packaging lines but also in the packaging lines, and it depends somewhat on the mix of the products. I think we have done our share. We invested, and we do hope -- we are -- we are confident if you want that if the business doesn't shift very much, we will have a lower subcon share in 2007 than we had in 2006.

Great. And then one final question. Just on the SG&A, Dick, you said there was some one-time items. As you look at it, how much would that be in the dollars during the quarter?

I think we said it was $9 million was the reconciled item.

Yes, I think we analyzed it today, it was around 7 million, which were really one time.

Okay. Great. Thank you.

Matt Sheerin.

Yes, thanks. Good morning. Could you give us the capacity utilization levels at the different -- the different operating groups?

Yes. Siliconix -- I'll start out with Siliconix, is practically full, practically full. In its own operations in the subcons, it's 85% but we are adding capacity. You've have understood, I believe, that we are adding another 20% of capacity in the course of this year. In the case of the other semiconductors, it varies. On power diodes -- on power applications, we are approximately 85 to 90%. The other applications very -- depends very much on the line. It's between 70 and 85%. Then on the passive side, it's always difficult to comment because our resistor business consists of many specialty lines, so it's very difficult to add -- to define utilization. The only line we are, I think, you can measure utilization is thick film resistor chips. In this case we are around 60, 65%. On the other hand, on the thin film resistor chip, where our future lies, we are totally full and we are expanding further. In capacitors, the same picture. You can only talk tantalum capacitors in this case around -- commodity tantalum, only 65% or so.

Okay. So what gives you confidence that pricing will continue to hold up? I mean, we're not -- we're hearing it not just from you but from some of your competitors as well that pricing seems to be holding up very well despite book-to-bills below 1 now, around 1 and demand okay but not great. So what gives you confidence that that will continue?

Okay. I cannot talk for my competitors, obviously. But in the case of Vishay, passives really have become more and more a specialty business. I said it before. In resistors -- we started clearly on resistors, that the commodity applications were tuned down, so our business in resistors, 80 to 90% of that is not really subject to price pressure, so we, by definition, so to speak, we are confident. On capacitors we have worked quite hard in the course of the last one to two years to withdraw from the high volume, low margin businesses, and I believe that the results show it. So it's more or less the same picture. I think on the passive side, Vishay is much less vulnerable principally by an economic downturn as it relates to pricing than we were before, much less. On the semiconductor side, I agree with you, it's a matter of the economy. But we are also confident for the economy to say that.

Okay. Thanks very much.

Kevin Kessel.

Thanks. Good morning.

Good morning.

Can you just go into a little bit more detail? In your press release you mentioned that the decline in orders has virtually come to an end. Can you just get a little bit more specific in terms of what you're seeing there?

Okay. Well, if you -- quarter three showed a quite deep drop of orders. In quarter two, we reported still orders in the area of 700 million, and this came down to 600 million orders in the third quarter. Now, if I look at the fourth quarter, we have practically the same order level again. So the decline of orders -- this is what I tried to say -- has come to an end, which I think is a -- kind of indicates kind of a deflection point. This is my personal opinion.

Okay. So in other words -- so it's finally stabilized here and the way you guys look at it is with bookings picking up here in January that's why you believe it's an inflection point?

Yes.

Is there any way -- you mentioned the Chinese new year, and I imagine it might have a small effect, but is there any chance that maybe this could be accounting for maybe some of the bookings pick up ahead of that date?

don't think so. We were talking only about Siliconix before. For total Vishay, I do not see a big impact of Chinese new year, also from a stand point of lower shipments, by the way, just to correct this picture. I do not believe that this comes from them. I don't believe but everybody can have his theory. It is a systematic thing. The orders decline came down already in the fourth quarter and now January looks better, so it's a trend, I believe.

And then you also mentioned earlier the inventory decline is happening a little bit slower than you expected --

That's true.

-- At distribution, so -- but at the same time you see them picking up orders. So how do you reconcile that?

This question we asked ourselves. The only reasonable explanation is that distribution, like ourselves, sees the end customer demand healthy, continuously healthy, so they want to be equipped, so to speak. So they obviously do not drive down their inventories further.

Okay. And then just a housekeeping, Dick, you said there's a -- higher fixed costs, and it looks like it was primarily in SG&A here, you just mentioned 7 million. Can you kind of give us an idea of what made up the majority of the 7 million, and why you believe it's one-time?

Well, we had some -- we had some effects of a government mandated retro housing allowance. When we purchased General Semiconductor, they had some particular adjustments they didn't make to their employees that we were mandated to do in the fourth quarter, and we provided for it. Also we had some transfer taxes for some prior acquisitions with BCC that were told that we weren't going to have to be charged, and all of a sudden in the fourth quarter, the government has come back and asked us to make these tax charges, so that's the majority of the amount at that time. That will not recur again in the first quarter or hopefully not at all in 2007.

So in absolute dollars, then, we can assume SG&A should drop back kind of to the 95-ish type level?

Yes.

Okay. Thanks very much.

Steve Smigie.

Great. Thank you. Your revenue guidance is actually, I think, fairly good considering what I'm seeing maybe from some of the analog companies out there, and I realize it's maybe a little bit different product mix. I was just curious if you could give some sense of why you guys are maybe not declining as much as other people are? Is it just different end markets or different product mix?

First of all, the real reason is a very solid one. I think we have quite substantial backlog -- shippable backlogs. I know them. Secondly, book-to-bill has turned, and generally slightly above 1 again. So this is the real reason. Now, to interpret it, I think that passives this year at this time, have turned out to be much more stable than the actives. And Vishay to 50% is a passives company. There is a combination of reasons, but this is our outlook, and if you look back the last two years, we were practically always on.

Okay. I'm just curious. Your gross margin in most of your businesses is very nice. The gross margin on the capacitors is still somewhat lower than the other businesses. Is -- would you maybe continue to exit some of those businesses as you've done a little bit here, or is the cash flow more important to you than --

Yes, the cash flow is positive in all these cases, you name it. On the other hand, we are also not at the end of improvements. A portion of the restructuring efforts, which already are accounted for but the implementation goes step-by-step, the fruits we will see in the course of this year. So we are closing two plants, and this is all known, it's all announced, et cetera. We're only waiting for the implementation -- for the finalization of the implementation. So this will, again, lower the fixed costs in capacitors. This is what we foresee, so we do see a further improvement on the way, but you're right. It's also cash positive.

Okay. And just one other question. Just curious, especially with the more of the IR business coming in you should have a pretty healthy mix of auto as a percentage of your revenue. I'm just curious your outlook for '07 on auto end markets? And then specifically if you could talk a little bit about if you have any sense yet on the module business from IR. I think they invested a lot there but have not really seen the returns I think they had hoped to get there, and maybe what sort of future you see for that business.

It's a little early to talk in that detail, to be honest. But first of all, our exposure to automotive is -- how to say, it's 25%. We like to be in automotive, but even together -- I don't have the number here -- but even together with IR should be around 25%. But we are very strong in Europe. That means two-thirds of our business in automotive at least is in Europe, and Europe is prospering in terms of automotive. And even in the U.S. which is at the moment not in good shape. We are -- we have a good position there, and the pieces are solid, so I'm not concerned on automotive. In terms of marginal business, IR, I don't know what you are referring to exactly.

I think if I remember correctly, they had a number of businesses, for example, on the electric steering modules and some others I think you acquired --

Yes. So it's -- you're talking the automotive modules, I suspect.

Yes.

I could imagine. This business indeed as I understand was not super successful financially in the past. On the other hand, again, what I understand is that a lot of restructuring and especially manufacturing improvement has been put in place by IR already, and the plant already shows a much better performance. This was the problem. There has been a production move before you may know, much better than it used to be, and I think we can also add a little over line streamlining. We are thinking about another structure which is leaner. We are clear with the people in this plant they can run the business, so let's see, I think we can make money with it.

Okay. Great. Thank you very much.

Shawn Harrison.

Good morning. Just a few quick questions. I was wondering if you could break out the book-to-bill ratio in January for passives and actives?

Oh, I don't have it here. Let me see. Can estimate it at least. Just a moment. Passives better than actives.

Okay. So actives still below parity, passives above parity --

Slightly, it's only slightly. Passives slightly above and actives slightly below.

Okay. My second question just has to do with the closing date moving -- being moved to April 1st. Does at that provide just in any way quicker integration, meaning that the accretion forecast of 40 million, getting to that run rate could maybe be achieved a little bit quicker or the first quarter accretion may be a little bit better than what you had been originally estimating?

This was not -- this was not the real background. We just wanted -- I think both companies agreed that the transition, which is fairly complex, it's under control and it's fine, but it's a complex thing. We would have less hiccups if we just had another quarter to go. Cross-training, for instance, common customer visits, et cetera. These were the time-limiting factors, and so, again, as I said the CEO of IR and myself, we agreed to push it out. Will it be smoother through that? We hope so, but I cannot put any number to it. Okay.

And for financial reporting purposes, taking over at a quarter end is a lot cleaner than trying to do mid-quarter, so it made sense that way also.

Okay. Final question is just a housekeeping question. I didn't catch it. The backlog in the other semiconductors business for the December quarter.

Oh, sorry. Don't know by heart. Absolutely right. You catch everything. We haven't said it. Backlog was -- well, anyway, must be, but I can come back to that. Must be around three months approximately, but this -- I would have to verify that.

Okay. Thank you.

Michael Walker.

Hey, guys. It's Will Stein stepping in for Mike. How are you? Just a quick question first on gross margins. Do we have a target for Q1 and for the full year going out to -- how much do we expect that to kind of come back after this quarter's decline?

Well, it depends on the volume, but we do not guide to gross margins. But, of course, all this Vishay has a variable margin of around 50%. That means volume matters a lot. And as we do expect 2007 to be a good year -- another good year, then we will also come back to performances which have seen in the three first quarters, hopefully better. We'll see.

Okay. Then on the ASP trends in passives, that seems to have been going very well for the last couple quarters here, and I think that's relatively atypical in the passive industry. Can you maybe talk to us a little bit about when was the last time you saw this kind of trend in ASP and whether you think it's sustainable going forward? In other words, has something fundamentally changed in the business?

Yes, not in the business, but in Vishay. To answer the first part of your question, the year 2000 was the only year I can remember, and this is a long time I can remember, that we really had price increases, substantial price increases, but 2000 was not normal. It was a perceived shortage which actually maybe was never there. This time is totally different. The markets have not changed, okay? The economy is good, but what has changed is Vishay's situation. In resistor, it also has to do with specialty products, as a matter of fact. Like Dr. Zandman said, Vishay is proud to be a specialty house in that sense. We provide solutions for customers. It means the share of this part of the business which naturally is not subject to price pressure as much as a commodity product as you can imagine grows and grows and grows. In fact, in resistors we have reached a situation already since I would say one or two years for sure. In capacitors we have [inaudible], I must admit that. We have withdrawn from low-price commodity businesses where it doesn't make sense really, and this is why our top line went down somewhat, but I tried to explain that before, but the gross margin hasn't suffered. I believe in combination of -- with restructuring we can further improve the top line so -- the bottom line, the gross margin. So going forward I think it is sustainable out of definition because -- it's a definition because we have -- we are in specialty businesses.

Great. Thanks. Just one more quick one. On taxes, did the Company benefit from the R&D tax credit this quarter, and what should we be thinking about taxes going forward?

We haven't benefited from the R&D credit this quarter. And as far as the tax rate going forward, there is new policies that are going into effect January 1st of '07 and one has to evaluate their tax reserves under different conditions. So that may have an effect on the reserves that we currently have on the books and what the tax rate will be going forward. The only thing it would have is a positive reduction in it. But right now we haven't determined exactly what that will be, and we hope to report that in our 10-K. So I would stick with the 25 that we currently have until you have -- know otherwise.

Great. Thank you.

There are no further questions. I would now like the turn the call back over to the host for further closing remarks.

Okay. Thank you very much for tuning in. We expect to report first quarter earnings sometime in late April, early May, at which time we look forward to having conversations again. Thank you very much.

Thank you. [inaudible] today's conference call. You may now disconnect.