威世科技 (VSH) 2007 Q3 法說會逐字稿

Good morning. My name is Phyllis, and I will be your conference operator today. At this time I would like to welcome everyone to the Vishay's third quarter 2007 earnings results 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 would now like to turn the call over to Dick Grubb, Vishay's Chief Financial Officer. You may begin your conference.

Thank you. Thank you for calling in for today's conference call. On the line with me are Dr. Gerald Paul, Vishay's Chief Executive Officer; Dr. Felix Zandman, Vishay's Executive Chairman, Chief Technical Business and Development. Before I start, Bill Clancy, Vishay's Senior Vice President and Corporate Controller, will read our customary opening statement.

You should be aware that on 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 make some summary comments, and Dr. Paul will add a more detailed evaluation of the results for the quarter. Finally, Dr. Zandman will update our research and development and acquisition activities.

As announced in today's press release Vishay reported $0.25 operating earnings per share, as compared to $0.27 to last year's third quarter and $0.26 for the second quarter of 2007. The operation results of the third quarter of 2007 and for the last six months of 2007 exclude the automotive business unit acquired as part of the international rectifiers PCS businesses. The Company announced its intention to sell this business unit in June and is in the process of meeting with interested parties.

The reported GAAP earnings per share include restructuring and severance costs of $9.9 million. This item and its related tax consequence plus an additional tax benefit for change in foreign tax rates had a negative $0.05 per share effect against operating earnings. In addition, this quarter earnings were negatively affected by a foreign exchange charge of $2.5 million. Revenues for the third quarter of $730 million were approximately 11% higher than last year's third quarter and 2% higher than the second quarter of 2007. Increase in revenues compared to last year's third quarter was primarily due to the international rectifiers PCS acquisition in April of this year. Revenues by segment were, semiconductors, 55% of the total revenue. Passives 45% of the total revenue.

Consolidated gross margins for the quarter were 24% as compared to 24.9% for the immediately preceding quarter. Gross margins by segment for the quarter were semiconductors 23.3 compared to 24.1 in the last quarter. Capacitors, 24.8 compared to 25.7 in the last quarter. As I said before Dr. Paul will discuss the operating results in much more detail.

Selling, general, and administrative expenses for this quarter were 15.1% of revenues and are expected to remain at these levels. Other income consists mainly of interest income and foreign exchange loss. The effective adjusted operational tax rate for the year remains at approximately 22%. Capital expenditures for the quarter were $34 million, depreciation and amortization for the quarter were $53 million. Total headcount at quarter end was 28,000 employees of which 75% are in low-cost areas.

Some other key amounts, cash and short-term investments at quarter end was $477 million. We expect to end the year 2007 in excess of $500 million in cash. Total debt, substantially all of which are convertibles equals $608 million. Total inventory at quarter end was $555 million, while working capital remains at approximately $1.1 billion. Bookings were good for the quarter at $715 million for a book-to-bill ratio of 0.98 to 1 for the third quarter. Backlog at quarter end is $678 million. Cash generated from operations for the third quarter 2007 was $117 million, and free cash flow was $84 million. As announced in our press release we expect the fourth quarter revenues to be in the 710 million to 730 million range with slightly improved gross margins. Now Dr. Paul will add a lot more detail. Thank you.

Thank you, Dick. Good morning, everybody. I think quarter three was another solid quarter for Vishay. Earnings per share were $0.25 per share, and we were close to Street expectations. Our free cash flow remains strong. We achieved as Dick said $84 million and our acquisition, our IR acquisition continued to contribute to the results.

Let me talk first about the business environment. I think that the general skepticism for the quarter was not justified. Q3 showed the continuation of the friendly business climate that exists since the end of 2005. Asia in quarter three was strong beyond pure seasonality. Europe, on the other hand, was seasonally weak. There was strong business at distribution. The POS was above the prior quarter, and the profit the prior year. Inventory turns of our distributors improved to 4.1, Americas at 3.0, Europe at 3.8, And especially Asia, who in these days turns 5.9.

Relatively moderate price pressure continues to exist despite the lead times being normal in general. We have seen a strong upturn in notebooks and in mobile phones beyond seasonality. Industrial and automotive segments are stable on a high level. Let me talk about Vishay's business development in quarter three.

We were in line with our guidance. We achieved sales of $730 million in the quarter as compared to $716 million in prior quarter and $654 million last year. The IR acquisition excluding the automotive systems part of it contributed $59 million which was also in line with our expectations. Without acquisitions and without the exchanges effect, sales are constant versus prior year but the orders are up by 6% which makes us optimistic for the time to come. Book to bill was, as Dick said 0.98 which includes some backlog corrections for the IR product lines. Some details of the book-to-bill ratio, 0.93 for distribution, 1.03 for OEMs. 0.95 for the actives. 1.02 for the passives. 0.94 for the Americas. 0.98 for Europe. And 1.03 for Asia. Our backlogs remains at a comfortable level of about 2.8 months. And as I said before, the price decline was low in general. Vishay has lost prices of 1.3% versus prior quarter, and 2.7% versus prior year. The active part of Vishay lost 2.0% versus prior quarter and 4.5% versus prior year. The passives had practically no price decline which we see since many quarters 0.4 price decline versus the prior quarter, 0.7% versus prior year.

Let me talk a little about the reconciliation of the results of this quarter versus quarter two '07. Based on $14 million higher sales which is $10 million higher excluding exchange impacts, the adjusted operating margin remained at the same level of $65 million. The main elements was the impact of volume, a positive impact of $4 million, price decline of minus $9 million. Costs were better by $8 million, and our inventory related impacts, namely the reduction of the inventories, cost a negative of $4 million versus prior quarter.

Let me compare now the results of the quarter versus the third quarter last year. I'll talk first about the Company, the core business that is without the acquisitions IR and PM. Based on $10 million higher sales, actually $4 million lower sales because excluding exchange effect, the adjusted operating margin decreased by $14 million from 74 million to $60 million. Main elements, the volume was slightly positive by $4 million, selling prices cost a negative of $18 million. Costs were better by $4 million which includes a negative of $5 million higher costs for metals and silicon, and inventory related impacts gave a burden of $3 million. Our acquisitions in the quarter contributed $65 million sales and $5 million operating margin.

Some highlights from the operations. We improved the manufacturing inventory turns further to 3.6, excluding exchange rate effects the inventories went down by $29 million, by $16 million in raw materials, and by $13 million in finished goods. My comments on inventory includes $44 million classified as other assets. Capital spending in the quarter was $35 million, as compared to $42 million in the prior quarter, and to $45 million prior year. Depreciation was $49 million. We expect capital expenditures of approximately $190 million in 2007. Again, without the automotive systems division of IR.

Overall, employment remained virtually constant at 27,760 people for continuing operations. The share of high labor reduced from 26.2% to 25.3%. We have seen a good capacity load in virtually all commodity product. The lead times are quite normal between four and eight weeks. We continue to expand production capacities mainly in discretes but also for selected specialties and passives. We have accelerated our last major manufacturing restructuring effort. We have announced the complete closing of all Belgium production of nonlinear resistors by the end of 2008 and recorded the charge in the third quarter. We expect a payback of 1.3 years from this project.

We had a very good cash production this quarter. We generated cash from operations of $121 million as compared to $107 million prior quarter and to $$$98 million the prior year for the core business, and free cash for the core business we generated $87 million as compared to $68 million prior quarter, and to $56 million prior year. Again, for the core business. The acquisitions IR and PM Onboard generated minus $4 million cash from operations and also minus $4 million free cash in this quarter.

Let me talk about our IR acquisition. Quarter three sales were $59 million, which was quite in line with the expectations of $240 million annualized. Book to bill year to date under Vishay was close to parody. Actually, at 0.97. There are still some relatively high inventory levels for high voltage MOSFETs at distribution. The levels are coming down but it will take some months still for a normalization. The daily business of the acquisition run smoothly. The service levels are approaching our Vishay standards. Operating margin in the third quarter were at 8% of sales or $5 million. The results are still burdened, as you know, by transition service agreements with IR and also by substantial purchases and shipments from and to IR at fixed prices. The transition service agreements are planned to end in the first quarter next year. We are in the process to move out of the IR facilities in steps by the end of 2008.

Let me talk about the product line resistors and inductors. There was a seasonal decrease of the revenues but the business remains healthy. Sales in the quarter were $156 million, which is 4% below prior quarter and 1% below prior year. Book to bill was at 1.01. The backlog has grown to 2.8 months. Due to lower sales volume, inventory reduction, and some temporary inefficiencies, gross margin in the quarter was only at 28% but we expect the recovery in the fourth quarter. The selling prices were stable versus prior quarter, and prior year. Inventory turns for resistors and inductors improved to 4.2. We announced, as I said before, the closure of nonlinear resistors in Belgium effective end of next year and we pulled in this project by nine months.

I'll talk about capacitors next. Business has stabilized after a successful implementation of our new pricing strategies. Sales in the quarter were $124 million, which is down by 2% versus prior quarter but on the same level as prior year. Book to bill was at 1.02. Mainly driven by film power capacitors where we see a very good development, especially in India. A strong backlog at capacitors of 3.2 months, gross margin was at 18% of sales, and recovered as we expected due to a more normal product mix than in quarter two. Price decline was modest for capacitors minus 1% versus prior quarter, minus 1.3% versus prior year. Manufacturing inventory turns of 2.2 continued to improve as in particular tantalum powder and wire inventory levels decreased. All together, inventories for capacitors were down by 17 million in the quarter. We are in process to expand the capacity for a tantalum map chips.

Coming to our measurements group, it's a stable business, which we recently expanded by the acquisition of PM Onboard in the U.K. Sales in the quarter were $48 million. This compares to $49 million in the prior quarter and $42 million in the prior year. Book to bill was strong at 1.06, and driven by low sales and weighing systems. Backlog has grown to 2.6 months. The gross margin of our measurements group remained at an excellent level of 33% of sales. Inventory turns of 2.5, this requires further improvements. There are restructuring measures for PM Onboard on the way to be implemented but we do not expect significant charges in that context.

Semiconductors without Siliconix but including now a portion of the IR business, the diodes portion of the IR acquisition, we see a solid and quite dependable development of the business. Sales in the quarter were $220 million, which is 2% above the prior quarter, and 15% above the prior year, mostly due to the IR acquisition. Book to bill in the quarter was at 0.94 which was driven by distribution. Backlog was at 2.4 months. The gross margin improved to 24% of sales, and we see -- we continued to see a steady and reliable performance of this product family. The selling price decline remained moderate minus 1.1% versus the prior quarter. Minus 2.2% versus prior year. Inventory turns improved to quite an excellent level of 4.6.

The new product family trends, short key rectifiers continues to grow in revenue. We continue to expand manufacturing capacity in Taiwan. Siliconix, again including a portion of the IR acquisition, the high voltage MOSFETs, the core business continues to grow year-over-year, up to 4% versus year to date September 2006, which was a record year for us. Sales in the quarter were $181 million, up by 10% versus prior quarter, and up by 19% versus prior year. Again, mostly due to the IR acquisition. Book to bill was at 0.97 but contains some backlog corrections for IR high-voltage MOSFETs. Backlog is strong at Siliconix at 3.1 months. Gross margin declined to 23% of sales mostly due to a temporary shift of the product mix and due to inventory reduction. We have seen quite a normal level of price decline at Siliconix minus 3.1% versus prior quarter and minus 7.3% versus prior year. Inventory turns of Siliconix improved dramatically to 4.5.

Let me summarize. Vishay continues to operate in a friendly economic environment. And there are no signs for a change of this environment. We have stabilized on a solid performance level of $0.25 earnings per share. Our generation of free cash remains very strong. We expect to exceed the excellent year 2006 for the core business. We are progressing to integrate our two recent acquisitions and expect from them a growing contribution going forward. 2007 will be another successful year for Vishay. For the current quarter we guide to a sales range between 710 million and 730 million, and similar to slightly improved gross margins. Thank you very much. I transfer to Dr. Zandman.

Good morning. I am Felix Zandman, Executive Chairman and Chief Technical and Business Development Officer. The quarter produced $84 million free cash. Free cash is for Vishay one of the key focus points. We always emphasize that. Our earnings per share was $0.01 or so below market expectation. If it were not for a substantial, quite substantial inventory reduction, our earnings per share would have somewhat exceeded market expectations. Integration processes for our businesses which we acquired continue on plan. IR and PM Onboard are proceeding properly.

Our R&D programs are on target, and I would like to mention now about one program, it's worth to mention that about the introduction of new product line by PM Onboard, our new acquisition. PM has developed sensors for a new way of weighing the cargo transported by vans and trucks. The sensors and its software optimize loading of a truck and a truck which is overloaded pays heavy fines, and when underloaded is expensive to operate. The market potential to outfit new trucks and retrofit old ones is in the hundreds of millions of dollars per year. During the Birmingham show in U.K., which was a show for commercial vehicles, General Motors, Volkswagen, Renault, and others, truck manufacturing producers, and major truck fleet operators showed a high interest. Small orders imports are on the way. 50 better sites to prove product reliability show excellent results. The official product release will be next month. This is but one of the R&D projects which are underway.

We continue to investigate small and large acquisitions as in the past to broaden our product portfolio and introduce advanced technologies in our line of business, namely passive components, discrete semiconductors, infrared components, and weighing sensors. We look with confidence on the immediate and long-range future of Vishay. Thank. We're open for questions. Well, we're open for questions. What is it?

Hello?

Yes. (OPERATOR INSTRUCTIONS) We'll pause for just a moment to compile the Q&A roster. Your first question comes from the line of Jim Suva.

Can we come back to the gross margin issue? I believe last quarter you had mentioned that you expected gross margins to improve or rebound somewhat, and I know you mentioned that there were some inventory adjustment on your end in this quarter but I believe inventory direction for the most part within Vishay is kind of under your control. So kind of help us triangulate around really what happened this quarter to profitability as sales are going up and margins are going down?

Okay. Well, we did not guide for gross margin actually. And it was clear that we would continue to reduce inventory. In fact, it's the target of the year to generate a strong cash flow, which we are doing. As it relates to the inventory reduction you understand a reduction like that has an impact on the P&L, which we show and Dr. Zandman pointed out without this impact we would have exceed the Street expectations. In the fourth quarter we will stop to reduce the inventory of -- to reduce the inventory in finished goods and we will continue to reduce, on the other hand, the inventory in the raw materials. We also had in Siliconix a negative shift of the product mix which contributed to the negative gross margin development vis-a-vis the prior quarter but mostly it came from the inventory reduction.

Okay. Thank you.

Your next question comes from the line of Matt Sheerin.

Thank you. It's Thomas Weisel Partners. Just a follow-up on Jim's question on the margins. Siliconix gross margin was I guess the lowest number in three years. I know you talked about mix, you talked about inventory. Could you be more specific about the mix issue there and how you see that playing out in the next couple of quarters?

Well, we had -- there was a replacement of sales volume to the handsets by volume for the desktops, which was at lower variable margins. We are working on cost reduction quite heavily and we see a normalization of the mix going forward but it will not come overnight. But we work heavily on the cost reduction.

Okay. Because not too long ago gross margins were in the 30% range. I mean, is that--?

It was 28 to 30%.

Okay. And, I mean, do you see -- do you think you can get there sometime in '08, back there with Siliconix?

I think we will have a very strong cost reduction next year.

Okay. And then on the distribution book to bill seemed pretty low. What are you seeing from your distribution customers in terms of their strategy concerning inventories, and are you expecting -- normally you see strong distribution sales in the first quarter of the year. Are you talking distributors about restocking inventories at any point in the next couple of quarters?

In our numbers for distribution, we have included an inventory correction, in effect, inventory correction as a permanent drop of inventories for IR. As I reported last time, when we took on the IR acquisition, the inventories at -- for IR product at distribution were very high from the beginning, and now we see a constant decrease in normalization of these inventories. Of course, this is reflected in our book to bill for distribution. Overall, the business, and this is I think, what counts, the business of our distributors is very strong. Their POS continues on a high level. We expect no decline there.

Okay. Just -- what was the distribution book to bill within passives then? Was that higher than the overall number?

Passives was higher. I said it before. Let me just see. It was 1.02. In distribution, you mean?

Yes.

I do not have this break down here. Yes, it was, for sure. Yes, it was.

Thank you.

Your next question comes from the line of Thomas Dinges.

Dr. Paul, I wanted to follow-up just on two quick comments that you had made. You did say that notebooks and phones were better than what you would have expected normal seasonal, then you said that industrial and auto was stable at a high level and you had previously also said that Europe was down just sort of seasonally. Nothing other than seasonal and maybe just some distribution realignments in the numbers geographically there?

I see only, in Europe we only have seen the seasonal impacts. The environment continues strong.

Okay, then just one last quick one. If you looked at that the Siliconix overall the back to bill there being a little bit less than 1, if you adjusted for those backlog corrections at the--?

We would have seen slightly above 1.

You would have been slightly above 1? Thank you. That was my question.

Thank you.

Your next question comes from the line of Kevin Kessel.

Great, thank you. My question is, in terms of the PCS acquisition, I think that you guys are still looking to bring that to, what, about an $11 million operating profit quarterly?

That is true.

And is that still on target for, I think it's March quarter, March '08?

Well, we still have the same target, but it may take somewhat longer because we found to separate manufacturing from IR will take more time than before, this is major portion of the improvements going forward.

And can you help us understand what you mean by take longer than you thought?

Something like six to 12 months.

So you thought it would be done by the end of--?

We felt it would have been in the second quarter next year, if I remind, and now we would say six to 12, depending how it goes, a month.

Later than the second quarter. So either--?

It it goes successively also, step by step, but this separation from IR manufacturing is -- represents quite an effort, which is on the way, of course.

Right. So how much -- if that was going to happen as still past the March quarter, how much of that was -- how much of it additional improvement did that represent getting fully separated from manufacturing?

Well, I think manufacturing going forward represents still at least half of the remaining improvement.

Half of it. Okay. And then in terms of the overall top line, you do essentially $730 million in September, and when you look at the outlook at the midpoint 720, what is exactly driving the sequential decline even though it's slight, what is driving it?

Well, it's the end of the years and we have a new business IR. We may be some somewhat conservative, but this is our best opinion.

Thank you very much.

Thank you.

Your next question comes from the line of Steven Fox.

Hi, good morning. Can you talk a little bit more of the pricing pressures? I'm a little confused. It sounds like you saw a little bit more pricing pressure than you were expecting, but at the same time, the other metrics that we would look at seemed fairly stable. So could we dig into why you saw the pricing again?

On the passives, I don't have to argue, it's 0.4% versus prior quarter, and 0.7% versus prior year. Sometimes it's a little positive, sometimes a little negative. I think it doesn't contradict the statement that passives more or less at Vishay see no price decline at this point. On the actives indeed it's slightly increased but only slightly. Vis-a-vis prior year it's 4.5%. It's still on the low side, definitely. Historically it's on the low side. It was 2% versus prior quarter. I would not overinterpret it. It's sometimes a little more, sometimes a little less. So I would not see, at this point an increase of the pricing pressure.

Okay. And then when you look at Siliconix can you just update us on any kind of expansion plans year to date?

We will continue to expand. We will continue expand volume by 15% going forward for next year in the course of next year, so we expect to grow, accordingly.

How much is volume increased this year at Siliconix?

20%. Roughly 20%.

And just to be clear, the expansion underway into next year may still basically back end December?

It's both. It's back end and front end both.

Thank you.

(OPERATOR INSTRUCTIONS) Your next question comes from the line of Andrew Huang.

Can you hear me okay?

Sure.

I was just wondering if you could talk a little bit about your revenue guidance in relation to some of the other discrete companies we've heard from so far and some of the passive guidance? Generally they've been thinking about revenues up in the range of 2% sequential, and your guidance at the midpoint is down 1% sequential.

It's our best estimate, and it's the year end. We have a new acquisition Onboard, and we want -- I think we may have been a little conservative, but that is the projection.

Great. And I know you don't like to give guidance beyond the quarter, but I was just wondering if you could just give us kind of a general outlook for '08 for the full year. Would you expect the year to be up or down?

We see no signs, and I can only talk of what I see, which doesn't mean that I know the future. I see no signs on the market that the economy should slow down. And Vishay is going to participate properly at this economy. I think we can expect another good year 2008, given the situation as we see it today.

Thanks very much.

Thank you.

Your next question comes from the line of Shawn Harrison.

Hi. Just firstly, a point of clarification. You mentioned operating expenses would hold at the current level going forward. Is that as a percentage of sales or in dollar amount?

Well, we expect more or less the same sales, so it's the same thing. The next quarter we are guiding to practically the same sales level. We are managing it not to the percent of sales. We are managing it to the absolute number.

Okay, that helps out. Secondly, just going back to Siliconix, you mentioned you had backfilled some demand with desktop related products, negatively impacting the mix. With the handset demand coming back, shouldn't that positively impact gross margins going forward for you?

Yes, it will, for sure. It will, but it doesn't go overnight. So it will be a -- we forecast for next quarter an improvement in Siliconix gross margin but it goes step by step is and it's a combination of recovering product mix and cost reduction going forward.

Okay. My third question just has to do with incremental restructuring actions. You mentioned you had a good -- or a solid plan for cost removal heading into '08. Was wondering if there was any update to the $50 million program that you had spoken of, that you're currently implementing.

The manufacturing -- all our restructuring efforts are on plan, absolutely on plan. We just advanced a -- I wonder whether I got across properly, we just advanced the last major manufacturing restructuring program by nine months. We wanted to announce with the closing of nonlinear resistors in Belgium in the course of -- sorry of, 2008, but we came to the conclusion that we could be faster. It's an attractive project with a payback of 1.2, 1.3 years. We just decided to announce it now. This is given the present structure of Vishay. Not talking about future acquisitions. This is the last major manufacturing project we see.

So no further major manufacturing relocations.

No.

Okay. My final question just inventory reductions. It sounds like they may slow to an extent in the fourth quarter but as we look into '08 what should we expect in terms of inventory reductions on the raw material side? Should it be at a reducing pace or a similar pace?

On the raw material side, we want to go down approximately at the same pace, approximately. I would say three-quarters of the year. You know what would happens. We correct our high inventory of tantalum powder and wire, and we can foresee this reduction to continue at approximately the same rate for a main part of next year but this doesn't impact the P&L.

So mainly it's on -- going forward it's on tantalum powder versus--?

tantalum and a few other programs but I must admit tantalum is the biggest part of it.

Thank you very much.

Your next question comes from the line of Steve Smigie.

My first question -- well, first I just want to say I appreciate the gross margin guidance. That's very helpful. Second, I was wondering if you could talk a little bit about any plans you have for any potential capital structure changes, given the convertible debt and the cash, any changes coming up?

Dick?

Yes, we, as you all know, we have this $500 million bond, convertible bond that is 2023 is the maturity date, but they do have a put date available in August of '08, and we are addressing that situation right now, some way tweaking that bond to make it last a little longer and do away with the put.

Thank you. And could you just state again what the gross margin was on the capacitors, or, excuse me, the resistors?

18% and the resistors were 28.

It seems like there's been some drop here recently across a number of your categories in terms of gross margin, and I was just hoping you could talk a little bit about -- and it just seems that there's a pretty decent potential for recovery there. I'm just trying to hope you could help me understand what -- was there sort of a step function jump a couple quarters out maybe? When can we expect to see that recover? It seems like there's a lot of potential there. I was just trying to ask you about--?

On the resistors, 28% is on the low side of gross margin potential. If you go back during, to the recent quarters, four, five quarters, you will see resistors would be more on the 30% gross margin. But it's a certain swing which is primarily due to product mix. It's, of course, so it's not constant. Secondly, the quarter was definitely burdened there by inventory reduction, which was our plan. Which was our plan.

So we expect, and I said it in the presentation, we expect already in quarter four an improvement of the gross margin in the resistors back to more normal levels because, for instance, the inventory reduction will discontinue. On capacitors it's the same thing. It's a spread. You may know we come from very row gross margins in capacitors, the and we have recovered to a range between 17 and 21%. This time it came out at 18%. We see potential there to improve, especially as we see a good development, I also tried to say it at some power applications, film power applications which grow faster.

How much of the impact on the Siliconix gross margin was from including IR revenue in there?

IR was close to the average.

IR was chose to average. Okay. And just in general, you mentioned that the environment, you view it as friendly. I was hoping you could talk a little bit about what makes you consider the environment friendly and what signs you might see in the economy that might make you say, hey, things are slowing down or becoming unfriendly.

They are qualitative and quantitative. Quantitative for sure is the inventory turns of our distributors. 45% or 40 to 45% of our business is with distribution, and, of course, seeing their POS strong and seeing the inventory turns high gives confidence. And then, of course, we talked to customers. So overall the response from the market does not indicate a downturn.

Okay. And are you seeing anything different, say in the U.S. where maybe you have some weakness in housing that might affect the consumer versus other international markets, is there any dramatic difference?

At least nothing I can see from our responses and our numbers, as a matter of fact. If the gross national product goes down everywhere dramatically, this of course will also be reflected in our industry. But this is for me nothing tangible at this point. It's not in our responses nor in our orders. I cannot see it it at this point.

Thank you very much.

(OPERATOR INSTRUCTIONS) Your next question comes from the line of Shawn Harrison.

Hi, just two quick follow-ups. The decline in other income sequentially, how should we look at that going forward? And I know this quarter was FX-related.

We expect the interest income to be about the same, it's running about $4 billion positively for the quarter. The FX for this quarter as I indicated is for the first six months we've had 0 effect on FX, and for this quarter we had a $2.5 million negative charge, mainly due to the sheckle-dollar relationship. That's something that's unusual. We don't expect that to continue into the fourth quarter.

Then just a point of clarification. I wanted to make sure that I had this correct. You're trying to eliminate the put on that $500 million convert and potentially change that into a longer term, just strictly debt instrument?

No, we continue to be a convertible. However, we have announced back in I believe June of this year that if the put takes place, or when the particular maturity comes, we would be settling that in cash anyway. We would not be using shares. So it becomes almost like a debt instrument anyway. But besides pushing the put factor will have to be some tweaking of the call futures and some other nuance.

Okay. I just wanted to make sure that you weren't replacing that with another debt instrument.

No.

Thank you.

At this time, there are no further questions. Are there any closing remarks?

Yes, thank you very much. I'd like to thank everybody for calling in today. That officially ends our call for this quarter. We expect in late January to be reporting on the year, and look forward to talking to everybody there again. Thank you.

This concludes today's Vishay's third quarter 2007 earnings results conference call. You may now disconnect.