威世科技 (VSH) 2007 Q4 法說會逐字稿

Good morning. My name is Crystal, and I will be your conference operator today. at this time, I would like to welcome everyone to the Vishay's fourth 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).

I will now turn the call over to Vishay's Chief Financial Officer, Mr. Richard Grubb. Please go ahead, sir.

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

You should be aware that in today's conference call, we will be making certain forward-looking statements that discuss future events, and performance. These statements are subject to 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.

As usual, I will make some summary comments, and Dr. Paul will add a more detailed evaluation of the quarter, and the year. Finally, Dr. Zandman will update our R&D and acquisition activity.

As announced today in our press release, Vishay reported $0.19 operating earnings per share, as compared to $0.19 for last year's fourth quarter, and $0.25 for the third quarter of 2007. The operational results of the fourth quarter of 2007, and the last 9 months of 2007, exclude the automotive business unit acquired, as part of the IR PCS business, in April of 2007. The company announced its intention to sell the business back in June, and is in the process of meeting with the interested parties. This transaction is included in the financial statements as discontinued operation.

The reported GAAP earnings per share include, restructuring and severance costs of $2.8 million, a contract termination charge of $18.9 million, which was partially offset by a gain on a sale of the building of $3.1 million. These items and the related tax consequences, plus additional taxes compense for changes in certain tax positions, evaluations allowance of $5.9 million, had a negative $0.13 per share effect against GAAP operated earning.

Revenues for the fourth quarter of $730 million were approximately 15% higher than last year's fourth quarter, and relatively the same, as compared to the third quarter of this year. The increase in revenues compared to last year's fourth quarter, is primarily due to the IR PCS acquisition.

Revenues by segment were; our semiconductors comprised 53% of our revenues, and our passes at 47% of our revenue. Consolidated gross margins for the quarter were 22.9% as compared to 24% for the immediately preceding quarter. Gross margins by segment for the quarter were; semiconductors, 22.5%, compared to 23.3% in the last quarter, passive products were 23.3% compared to 24.8% in the last quarter. As I said before, Dr. Paul will discuss the operations in much more detail a little bit later.

SG&A for this quarter were 15.5% of revenues, as compared to 15.2% for the third quarter of 2007. Other income consists mainly of interest income, and foreign exchange. The affected adjusted tax rate for the year, now is at 24% as opposed to the 22% that we were projecting for the year, back during the first 9 months of this year, and we now estimate, that with 2008, 24% will be the tax rate that will be used.

Capital expenditures for the quarter were $92 million, and $201 million for the year. Appreciation and amortization for the quarter was $57 million, and total head count 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 totaled $537 million. Total debt substantially all of which are convertibles, equals $607 million. Inventory at quarter end was $555 million, and working capital at the end of the year was $1.2 billion. Bookings for the quarter were $699 million, for a book to bill ratio of 0.96 to 1, in the fourth quarter. Backlog at year end is $647 million.

Cash generated from operations was $143 million for the quarter, and $354 million for the full year. Free cash flow, on a consolidated basis was $55 million for the fourth quarter, and for the year, $160 million. And as announced in our press release, we expect the first quarter revenues to be in the $720 million to $740 million range, and again, we estimate the tax rate for 2008 to be at 24%. Thank you, and Dr. Paul will now elaborate on these numbers.

Thank you, and good morning, everybody. Well, as you've heard from Dick, the fourth quarter turned out to be not satisfactory. On the other hand, 2007 was another successful year for Vishay. In fact, it was one of our best years in terms of cash generation, and the adjusted earnings per share for 2007, were in the range of 2006, which has been the second best year ever. We also have integrated this year successfully, new discrete lines from international rectifier complementing our product portfolio.

Let me start out to look at the economic environment which we have seen in the quarter. Quarter four '07 principally showed the continuation of a friendly economic climate worldwide, some slowdown of orders in consumer laptops and mobile phones, represent in our conviction, a seasonal affect. Industrial markets, aviation, military, and space, as well as automotive in Europe, remain strong. Inventories at distribution have grown by 5%, but inventory turns remain reasonable. Worldwide, we have seen at our distributor 3.8 turns, 3.0 turns in the Americas, 3.5 turns in Europe, and 4.9 turns in Asia, which is down from 5.9 turns last quarter, but if you compare on prior year, it's in same level as prior year.

Orders from Asian distributors weakened through the quarter. Some corrections seemed to take place in view of a weaker POS of our distributors. Lead times remain short, between four to eight weeks, and we see increasing price pressure in our negotiations. I am aware of the fact that there is some broader uncertainty about the mid-term economic future, but looking into our first quarter, this looks solid for Vishay.

Talking about the business development in the fourth quarter, Vishay's sales were in line with our guidance. We achieved sales of $730 million in the quarter versus $730 million in the prior quarter, and $636 million in the prior year. The [IA] and PM, on board acquisitions contributed $64 million in the quarter. Excluding exchange rate effects, sales versus prior quarter were down by $12 million, and vis-a-vis the prior year on an apples to apples basis, sales excluding acquisitions, and excluding exchange effects, were slightly above prior year.

Book to bill in the quarter was at 0.96, some were details, 0.92 for distribution, 1.0 for OEMs, 0.94 for actives, 0.99 for passives, and regional split, and 0.96 for the Americas, 1.02 for Europe, and 0.91 for Asia. You see the weak areas were distribution on one side, and Asia on the other. I commented on it before.

The backlog remained at a comfortable level of 2.7 months. We still see low price decline in general, Vishay in total had minus 1.2%, versus prior quarter, minus 3.5%, versus prior year. The actives down by 1.8%, versus prior quarter, and 5.7% down versus prior year. Passives continue to show hardly any price decline, 0.4%-- 0.5%, excuse me, versus prior quarter and 1.4% versus prior year.

Let me talk about the results of the fourth quarter, and reconcile them vis-a-vis the prior quarter, the third quarter. Based on the same sales level, as I said, $12 million lower excluding exchange rate impacts, the adjusted operating margin decreased by $10 million, from $65 million to $55 million. The main elements were ASP decline, which had a negative impact of $9 million, inventory impacts of plus $3 million, and the exchange rate impact of minus $3 million, not really related to euro dollar, but related primarily to the Israel shaker, the Hungarian [Forint] and the Czech [Koruna], which were stronger than the dollar, than they have been before.

Some remarks on the quarter, as I said in the beginning, quarter four has not been a good quarter for Vishay. It was below our guidance. Quite a few negatives have burdened the quarter. We have seen increases in material prices. They continue to hurt us, and they have been production inefficiency, mostly in connection with production moves. In general, we also had the expected for the quarter, an improved product mix, especially at siliconix, and this did not come true yet.

If we compare the results of the fourth quarter, to the fourth quarter of 2006, we can see that based on $31 million higher sales for the core business, that is without acquisitions, actually $7 million higher excluding exchange rate impacts, the adjusted operating margin increased by $1 million from $51 million to $52 million. The main elements again, the volume was positive with $16 million, selling prices negative with $24 million, the costs were better by $12 million, and the exchange rate has a negative impact of $3 million under results. The acquisitions contributed $64 million in sales, and $3 million in operating margin.

Now we can also compare the years 2007, vis-a-vis 2006, based on 66 million more sales, just 5 million lower, even excluding the exchange rate impacts, the adjusted operating margin of the core business decreased by 35 million, from 277 million to 242 million. The main elements year over year was an ASP decline of 49 million, positive volume impact of 27 million, inventory-related impact, negative 9 million, related primarily to the reduction of inventories this year, and last year, and a negative exchange rate impact of 4 million. So what you see really is that the volume increase in 2007, did not balance the ASP decline. I would also like to remark that our costs have been negatively impacted by metals and silicon, substantially by 20 million year over year. Acquisitions contributed $186 million in sales and $11 million in profits.

Let me summarize some highlights of the operations. In quarter four, the manufacturing inventory turns improved further to 3.8. In 2007, they are at 3.5, as compared to 3.3 in 2006. We see a continuous improvement there. Excluding exchange rate effects, inventories in the quarter reduced by $12 million. Comments on inventory always include, tantalum, classified as other assets, which now is at 36 million down from 44 million end of Q3, and from 65 million at the end of '06.

Capital spending in the quarter, as Dick said, was $94 million, resulting in $201 million for the total year 2007, very close to our expectations. This includes acquisitions and compares to $183 million in 2006. Just to remark, more than 50% of the capital that has been spent in 2007, was spent for expansion projects, predominantly for discretes.

The overall employment, but also the share of employment in high labor countries was stable. These have seen in the fourth quarter, a good capacity load in virtually all commodity product lines. As I said, the lead times are relatively short, between four and eight weeks.

2007 for Vishay was an excellent year for the generation of cash. We generated $145 million cash from operations in the quarter, for a total of $414 million in 2007 for the core business, that means without the acquisitions. This compares to $350 million in 2006. We generated free cash in the quarter of $64 million, for a total of $231 million in 2007, again for the core business without acquisitions. This compares to $166 million in 2006, a substantial improvement which we expected to happen.

Acquisitions generated minus $61 million in cash from operations, (inaudible) minus $70 million free cash in 2007, but please be reminded that we bought IA without the receivables. Talking about the IA integration and its status, just to remind you, we have successfully integrated in 2007, a complementary business with discretes generating annualized sales of $240 million. We are in negotiations to divest the IA automotive systems business. It's not strategic to Vishay, and there are also no potential synergies. The profitability in 2007 of the acquisition without automotive was 7%, which of course, is far below still, of our expectation of 18% operating margin, on an incremental basis. We do expect major improvements of profitability in the context of moving out manufacturing from IA facilities into old facilities, specifically foundries. This will be completed step-by-step until the end of '98-- or of '08. Presently, only 10% of packaging at (inaudible) and has been moved by middle of '08 just to give you a feeling about the timing. Approximately 50% of the front end and the back end will be moved, and the improvements, the major improvements of the results are expected in the second half. We continue to be on the target concerning the profitability in the first quarter of '09, also based on some sales growth which we see.

Let me come to our business of resistors and inductors. It's a healthy business, and we see the business in a normal cycle. Sales in the quarter were $164 million, which is 2% above prior quarter, and on the same level as prior year. I exclude always the exchange rate impacts. Book to bill in the quarter was at 0.97, backlog at 2.5 months. Gross margin in the quarter, a little disappointing, 27% of sales. The variable costs (inaudible) by on going inefficiencies, primarily caused by relocations and increased metal prices. We expect the recovery in resistors and inductor prices in the first quarter of the gross margin to 28% of sales. Selling prices were stable, vis-a-vis prior quarter, and prior year. And the inventory turns improved to 4.5.

The Passives, the business has stabilized after a successful implementation of new pricing strategies, sales in the quarter were $125 million, which is down by 1% versus prior quarter, but up by 4% versus prior year. Book to bill in the quarter was very strong, 1.06, and this was driven by our power film capacitor division. The backlog is also strong. It's at 3.2 months. Gross margin came out at a level of 16% of sales, which is the lower end of the expected range. We had a worse product mix than expected. For the first quarter, we expect gross margin to improve by 1 to 2 points. Modest price decline as capacities continues, we have a price decline vis-avis prior quarter of 0.9% and vis-a-vis prior year of 2.8%. The price decline primarily comes from tantalum caps.

Manufacturing inventory turns for capacitors are at 2.4, and they will continue to improve. The inventory reduction in the quarter of 11 million, mostly is due to tantalum, and this reduction will continue into 2008, at about the same rate. We are adding presently capacity for film power capacitors, where our capacity is constrained, the manufacturing capacity is constrained. The business with face-down tantalum chips, the map technology is growing, and we are in process to expand capacities in Israel.

Coming to the measurements group, this is a principally stable business, but in quarter four '07, this has been influenced by singularities. Sales came out at $54 million as compared to $48 million in prior quarter, and to $42 million in the prior year. The increase versus prior year was due to the PM acquisition, the increase versus prior quarter was due to a spike in the resale business, and other one time effects. Book to bill of 0.90 and backlog of 2 months have been influenced by the spike in sales, naturally. Gross margin of 30% of sales has been impacted negatively by a temporary shift in product mix, and additional onetime costs, like the introduction of a new IT system for planning. We expect to return to historical sales and gross margin levels in the first quarter. Inventory turns of 3.1 in the quarter will also normalize going forward.

For measurements group, looking out into 2008, we expect, based on restructuring measures, substantial improvements of profitability. Coming to semiconductors in the start, all semiconductors without siliconix, it's a solid and dependable business, which currently experiences some impact of relatively high inventory in levels at Asian distributors. Sales in the quarter were $211 million, which is 6% below prior quarter, which is partially seasonal, 14% above prior year, including acquisition, the IA acquisition, and 3% below prior year without this acquisition. Book to bill was at 0.99. Backlog was at a normal level of 2.5 months, and gross margin at 23% of sales, which is within the normal range. The inventory turns are quite excellent for this business, 4.5. We have seen some slightly accelerated ASP decline, 1.4% vis-a-vis prior quarter, and 3.6% versus prior year.

We are happy to report that the new low-profile generation of, SMD infrared receiver, successfully has been introduced into notebooks and other portable devices. We expect nice sales growth there.

Coming to siliconix, siliconix as you know, is the market leader in low voltage MOSFETs, and they have increased the market share even, vis-a-vis prior year, vis-a-vis 2006. The sales in the quarter was at $175 million, down by 4% versus prior quarter, again a seasonal effect, up by 19% versus the prior year, including the IA acquisition, and up by 2%, without this acquisition. Book to bill was at 0.88, also a reflection we believe, of the high inventory levels at Asian distribution. Backlog was at 2.8 months. Gross margin came out as a negative-- as a disappointment, declined slightly to 22% from 23%, 2 percent points below our expectations. We have not seen the mix improvements which we were counting on, and the volume was lower in the prior quarter, but we expect improvement already in the first quarter by 1 to 2 points of gross margin, from a better product mix, and from cost reduction. We have seen in at siliconix a normal price decline, 2.2% versus prior quarter and 8.1% versus prior year. Inventory turns are at the very good level at siliconix, they are running at 4.4.

Looking ahead, we siliconix to get back to historical gross margin levels, of above 27% of sales, in the course of 2008. This is based on higher volumes, reduction of available costs, and improved product mix. The reduction of the variable costs will come from an increasing share of $300 million sale density products in 8-inch technology, as well as from the introduction of lower cost foundries. Also, of course, our improvements at IA -- at the IA acquisition will contribute.

Let me summarize. Despite a relatively disappointing fourth quarter, 2007 has been one of the most successful years in Vishay's history. Earnings per share of $0.95 were in the range of 2006, which I repeat was our second best year ever. From our core business, we generated free cash of $231 million, representing a 39% increase versus prior year, which already was good, while investing also significantly in expansion, and cost reduction. Following our strategy to be a broad liner, we continue to complete our product portfolio, by integrating the PCS power control systems business of IA and PM on board. We introduced promising new products in discretes and in passives which will enhance internal growth.

We look into 2008 with confidence, despite some macroeconomic concerns. Pay substantial potential in Vishay for cost reduction, further increased despite in-activities, new products, and service improvement. At comparable economic conditions, 2008 is expected to be another good year for Vishay, with higher operating margin, and cash generation as compared to 2007. CapEx will be down by about 15%. For the first quarter '08, we guide to a sales range between $720 and $740 million, at improved gross margins. Thank you very much. Felix?

Good morning. This is Dr. Zandman speaking. The first three quarters of 2007 were fine. Unfortunately, the fourth quarter was less than expected, not satisfactory. A total of 2007 was similar to 2006, which was one of the best years in Vishay's history. In 2007, we generated $231 million dollars free cash for the core business, our record, except for year 2007, which was a bubble, and this in spite of heavy investments, some $200 million in capital equipment, months for capacity extension. Free cash generation is a major focus of Vishay. We always look at that, and always push to create as much free cash as possible.

Next quarter looks okay. We should be back on track. IR, and PM on board acquisitions, are being integrated into Vishay as planned. We continue to look for additional acquisitions, which should be now more accessible, due to lower valuations. We continue to focus and expand our R&D, and new products introduction, which in time will increase our sales and our gross profits. At this point we don't see the recession everyone is talking about, and expect a good next quarter. Thank you. We are now open for questions.

(OPERATOR INSTRUCTIONS). We'll pause for just a moment to exile the Q&A roster. Your first question comes from the line of Mark Moskowitz.

Yes. Good morning, from JPMorgan. A couple questions here. Could you maybe just drill down a little more on the margin impact from higher materials cost? How much of this is related to the possible shortage in palladium?

It's not really the palladium. We suffer -- it's across the board in our case. We have $20 million, you may have heard from metals and silicon, year over year, 2007 over 2006, and we are basically impacted by gold, by copper, all kinds of materials. Rutanium even. These are-- in this case it's broad. It's not really the palladium.

Okay. And then, as far as the distribution inventory levels, can you give us a little comfort in terms of, are you still within the six to seven weeks comfort zone, or are you starting to push up past the high end? And is that because of Asia more so, or Europe?

Okay. As I said, distribution inventory has come up further in the quarter by 5% approximately. But you should then, look at the inventory turns, and find it quite normal. Asia is somewhat low, but, you know, if you compare this one, this deterrence which they had in the fourth quarter '07, with the turns a year ago, then you find it was on the same level. So there's a seasonality in all that. But I must say inventory levels are relatively high, but not vis-a-vis the business activity.

And then just lastly, can you maybe give us kind of a rank in terms of the contribution of the weakness that you cited as far as wireless versus notebook? Is wireless, a bigger driver, and is that also part of the inventory uptick, or is it more on the notebook side?

We don't distinguish really. We feel that these businesses are just following seasonality at the moment, all these businesses. We would not highlight at this point a weakness in these-- in these markets. It's always like that in the fourth quarter, and then normally it starts to get better. The best quarter is always quarter three, quarter four, and this business is intended-- it starts again.

Okay. Thank you.

Your next question comes from the line of Steve Smigie.

About what you'd expect operating expenses to look like in the March quarter?

We don't see a big difference-- a big change from the 15%.

Okay. And could you talk a little bit about-- I think you discussed some improvement in siliconix in 2008. What would be the drivers of improvement there, and how much have you been impacted by major handset OEMs in terms of a little bit of weakness here.

We expect higher revenues at siliconix next year, and I think that siliconix has a very strong position in their market, and we expect based on their activities, they are going to expand this position even. And all of this is, of course, based on the expectation of a normal business development in the market, but as I said, quarter one looks solid.

Then we see major opportunities for cost reduction, the variable cost side, based on further introduction, as I said, of the $300 million sale technology in combination with 8-inch technology, which is really a text of variable costs, partially in-house, partially at foundries, and we are starting with a new foundry, which offers us very competitive prices. On top of everything, we believe that the last two quarters especially have been burdened by a relatively low margin product mix, and we expect also improvement.

Okay. And siliconix, do you expect to see any customer diversification going forward? I think you had-- you've been very successful in general over the past several years there, but seems like you had a few customers that were pretty significant, and so I was just curious if you expect some diversification?

We are driving at the moment to increase our share in automotive. You know, historically, siliconix is quite strong in laptops, and in mobile phones, and since years we pushed this development to diversify more into automotive, which starts to bear fruit. So the share in automotive of siliconix, is already around 10% which was really not existing a few years ago, which automatically will decrease our vulnerability in that sense.

Great. Thank you very much.

Thank you.

Your next question comes from the line of Andrew Wang.

Andrew?

Hi. Can you, for the March quarter revenue guidance of $740 million--

$720 million to $740 million.

Right.

So it's really on the same level.

Can you talk about within the end markets where you're seeing relatively strength, and then relative weakness?

We don't see a big change in general from what we have seen in the fourth quarter. There is always the seasonality included in our considerations, but the markets we are strong in historically, industrial, automotive, especially in Europe, and AMS, they continue strong. We don't see anything negative there. And historically, the first quarter in Vishay is, of course, a strong quarter because of our presence in Europe.

Right. And then, for the tax rate for the rest of 2008, should we be using 24%?

Yes. Twenty-four is what we're estimating for 2008.

And I guess the last question, on the gross margin for the March quarter, you did guide up sequentially, it should improve?

Yes.

But are you still feeling, I guess, the pain from the higher materials cost even in the March quarter?

This is priced in so to speak.

Okay. Got it. Thanks very much.

Your next question comes from the line of Shawn Harrison.

Just a point of clarification on the variable cost reduction at siliconix. When should we expect those savings to roll on in earnest, during 2008?

As I said, you will see-- this is our plan, and this is underlined with several concrete actions-- that we go quarter after quarter back-- this is our plan-- back to historical gross margin levels of more than 27%.

Okay.

So it will kick in during the year.

And exiting the fiscal year close to 27% gross margin?

Yes. This is our target.

And then the mix shift, is that just replacing the desktop business, which negatively affected the mix in the September quarter, with higher margin business?

Yes. We also expect that our IC part of the business, which is more choosy than the Power MOS, will increase its share again, and we have decreased there.

And you have the wins in place, or the designs in place, for that IC business to grow?

On the [analux], which is in particular.

Okay. Secondly, on the operating expenses, I know there has been some talk about potentially looking to reduce those going forward. I was wondering if there was any update on, your thoughts in that area of just operating expenses?

I didn't catch the beginning of the question. Sorry.

I know there had been some talk regarding, you know, taking down operating expenses--

Yes.

Maybe more in line toward your peers. I was wondering if there was any update on that plan?

We were just entering, and have designed a fixed cost reduction program, which not only focuses on the SG&A, which is-- manufacturing, fixed, and SG&A-- but it's too early to talk about it. But we are in the midst of planning.

Okay. So maybe next quarter's call?

Yes.

Okay. And the final question on the convertible debt that's put-able to you in the fall, maybe any updates on your thoughts on that other than settling with cash, in terms of offering a sweetener, or anything else? .

We have been discussing with certain bond holders, their perception of what they think would be recommended, and we have discussions that have taken place with the board during February.

Okay. So next quarter's call as well, hopefully an update?

Yes, sir.

Okay. Thank you.

Your next question comes from the line of Steven Fox.

Hello, good morning. Can you talk about your order rate, how it changed December versus November, and what's happened to orders in January versus December?

January, we are close to 1, slightly above 1, book to bill, and with the quarter, December was relatively weak, but this is always like that.

And were there any highlights in January? Was any product area better than others?

No. It was a quarter, what see as across the board, across the board. Book to bill slightly above 1.

Okay. And then just looking at siliconix, just one other question on what happened in the quarter. You said the year over year growth was about 3% organically--

Two.

How do you think that compares to the market, and is there certain product segments that you think you're stronger in? Because it seems like that would not be keeping up with market growth, do you agree with that?

Not really. We are looking at the market data. I cannot comment especially on quarter four, but what we are looking at, is the year as far as we know it, from the market statistics, and in this case, siliconix 2007 over 2006 has gained market share, in low vote, but we have to look at the segment siliconix is active in, and this is low-voltage power MOS. Only now, based on the IA acquisition, we are entering the high voltage part of the market, but siliconix strength lies into low voltage power MOS, and the market reports differentiate. So we can really track our position.

Okay. So you think in low volt-- if we looked at low voltage during the course of--

We gain share. In 2007, vis-a-vis 2006.

That's helpful. Thank you.

Your next question comes from the line of Kevin Kessel.

Great. Thank you very much.

Kevin.

Dr. Paul, I just wanted to-- to get your sense. You talked about inventories here, in terms of Vishay's inventories, and some distributors, but in general, I mean, when we look at the distribution channel, it seems like their inventories are still fairly lean, and I guess we don't get as great insight on a geographic basis, but what is your sense? You're going into '08 in terms of general inventories for the industry, and for Vishay?

I would say, based on the business-- on the business, on the POS, which they had in quarter four, and this is what I tried to say, the inventory is, especially in Europe and the Americas, is absolutely acceptable. In Asia, the turns came down from 5.9 according to our measurement, to 4.8, which, of course for Asian distribution, is on the low side. No question.

On the other hand, let's also face it, if you compared the situation to the fourth quarter 2006, it was the same thing. So there is seasonality, but I don't deny that, of course, the absolute level is higher than a year ago. That's true. But again, to shout "fire" if this is an English expression, I would not say it's adapted, necessarily.

And then, in terms of the margins, think you guys have said now that you expect your margins to move up sequentially in the March quarter.

We were wrong this quarter. We were wrong for quarter 4. I must admit that. I tried to explain it. We are guiding up.

You are guiding up in the March quarter. Would it be fair to say that based on that statement, and the other statements that you made about, much more of the expected improvement from the integration of IRF to happen in the second half of the year that Vishay--

Yeah. The improvement will come from the core business, not necessarily from IA in the first half. In the second half, we expect major improvement from IA.

Right. Major in the second half. So would it be fair to say then, that there's a chance that margins could actually be improving sequentially throughout 2008.

As I said, even comparable economic conditions, 2007 and 2008, and nobody knows that of course, then we expect margins to go up for Vishay, vis-avis '08, vis-a-vis '07, and also the cash flow to go up vis-a-vis '08, vis-a-vis '07.

And just lastly, I think Dr. Zandman, you made a comment that you don't see the recession that everybody else is talking about. Maybe can you just give us a sense of, what are the cues that you guys look for at Vishay, that in your business that give you a sense, things are definitely slowing down?

We don't have visibility very deep into the market, but the first quarter looks okay, looks good, looks strong. So we just don't see any problem there. Of course, it could happen during the second, third and quarter thereafter, but Gerald, you say. We don't see --

Yes. Everybody talks about it.

We are saturated with it, but we just don't see it.

It to repeat what Dr. Zandman, our visibility is one quarter, and quarter one in '08 looks solid. Very simple. Beyond this quarter it's feeling, like for everybody else. And on the other hand, when you talk to your customers, you don't feel that people are-- everybody's concerned somehow, but if you nail them down, nobody is really concerned, concretely.

And but sometimes, you know, I guess, backlogs can always be canceled without recourse and so that's-- are those sort of things that are sometimes cues or not really?

We don't see any bloating there of inventories.

We had the same in 2004, second half, inventories were canceled. Nothing of that nature happens now. Can it happen? Yes, of course, principally always. But we don't see it. My only report is everything looks normal, except the fact that I've said that distribution inventory turns in Asia are relatively low, which indicates relatively high inventory, but again, a year ago it was the same number.

And lastly, just on taxes, Dick, the high tax rate in the quarter I just missed. What caused that? Was that a catch-up.

Yes. We were booking at 22 the for the year, up to the 9 months, and the shift in earnings geographically, and under low-tax versus high-tax change. So if you didn't have that catch-up, the $0.19 would have been somewhere around $0.21 I think. Others have pointed that out also. So you expect '08 to be a 24% rate rather than 22.

Okay. I got it. Thanks.

(OPERATOR INSTRUCTIONS). And your next question comes from the line of Matt Sheerin.

Yes, thank you, and good morning. Just to clarify a couple of earlier questions. One on siliconix, the book to bill is low. You talked about distribution in Asia, and then seasonality, but you also talked about getting incremental gross margin improvements over the next few quarters. Are we expecting gross margin to be flat to down because of a seasonal drop at siliconix? Or should we still get margin improvement there?

Our plan goes that we improve, and I said even directly, we expect siliconix in the first quarter to be up by 1 to 2 points in gross margin.

But based on the book to bill sounds like revenue will be down seasonally, is that correct?

Not really. There's backlog, of course. One does not directly reflect the other. It's only at the moment relatively low, but there is backlog of more than-- there's backlog. So anyway, we don't expect revenues to go down. As a matter of fact. But it will have cost reduction there.

Okay. And then on distribution, you talked about Asia distribution, but it sounds like you're seeing normal distribution trends in Europe, and in North America, and of course, normally distributors see strong sequential growth in Europe and North America in the first quarter. Avenet one of your biggest distributors, already reported earnings, and they talked about seeing strength in North America, but actually a little bit of weakness seasonally, or weaker than normal trends in Europe. Can you comment on trends in each of those areas?

In America, I agree, and in Europe, our impression is different. We feel Europe being strong at the moment. Just strong. So maybe everybody has a different view on that. So this is our experience for Europe.

I would not-- I would-- if I had any concerns, then I would look to Asia, because now seasonality has to kick in, and we'll see that the distribution inventories in Asia objectively, are high, for Asian circumstances. I am not so concerned for Europe, and especially not for the U.S. at this point.

Okay. And just a quick follow-up. Normally when we see inventory, particularly in Asia start to build, there's more pricing pressure, you're expecting gross margin to improve, but are you going to weigh, taking share or losing share, versus pricing, and profitability?

No. We have built into our plans increased price decline, especially on the actives in 2008, vis-a-vis the same price we had in 2007. So we have built this into our model, into our budget.

Okay. Thank you.

Your next question comes from the line of Jim Suva.

Thank you very much. Your comments around gross margin are pretty interesting, about an improvement in March. Looking back historically, they've been up, though, for the past six years sequentially in March, so I guess can you help us, maybe quantify or get a better grasp around that? Since December was so weak, if December came in as expected, which it came in lower than expected, would you still expect to see March up or down, or just because March seems like it would always be up, and I think I just want to make sure expectations are somewhat realistic.

You're right. First of all, it's very true, what you say. The first quarter in Vishay is a good quarter, no question about it. This has many reasons. One of the reasons is, of course, that we are strong in Europe, and passive specialties are strong in Europe. This helps. It's true what you say. Of course, my statement would then not have been 1 to 2 points up for siliconix, for instance, or it would not have been-- but we still would have guided up in gross margin.

Okay. Great. And then as a quick follow-up on a different topic, you mentioned a new IT system. Was that just in the measurements group, or something company-wide?

No, no, no. This is only related to the measurements group which has a different system. A different planning tool.

And you mentioned that was a little bit of extra cost or transition?

Yes.

When do you think that that kind of -- is that a six-month transition?

No, no. This one was, of course, in the quarter. That was it.

Okay. Great. Thank you.

Your last question comes from the line of Steve Smigie.

A follow-up. On the gross margin, I know you gave on some of the segments, some improvement estimates. Can you-- did you give a total overall expectation for gross margin?

Yes. We were guiding up. We did not give a complete number. We were guiding up, but we gave the detail.

And so-- but for the total-- it seemed like there were some segments, the notes I had quickly that we didn't get estimates for. Is it more like 20 basis points or a hundred basis points?

No, it looks like a hundred basis points.

Okay. And then just it seems like, for the non-siliconix semiconductor business, if you could walk through that again, where you said Q4 that's seasonably down.

It was very much in line with the quarter before. It was maybe half a point down, or so. This is more seasonal, but principally speaking, it was in the range. They are never-- this business is not exactly constant quarter after quarter, but it was nothing I had to comment on, I felt. It was very close to the quarter before.

Okay. I just think normally the businesses would be a little stronger in Q4 seasonally, but--

I would not over interpret half a point or something, in this case. We have not seen anything. We are seeing this as a very stable and dependable asset business.

Okay. And then just the passive business in general, I was hoping you could just give some industry comments. I think one of your competitors anyway is doing some consolidations, and it seems like maybe it's a little bit of a witching environment out there in general. Just curious if you could give some industry comments on how you see the passive market currently?

The passive market for Vishay is a market for specialty products mainly, especially in resistors, and to a larger degree, also in capacitors, which makes us different from our competition, which is to a much larger extent in the commodity part of the business. So for us, the arena is not as competitive as it is, and when this event resistors in the fourth quarter, we are down to 27%, we expect normally between 28% and 31%. This was due to our own things, so to speak, due to costs, temporary costs for moving production, et cetera, et cetera. Principally speaking, from a competitive situation, resistors is very stable for us.

Okay. And last question just on the measurement business. If I understand it correctly, is a little bit of improvement sort of short-term, but then the outlook is slowing with the book to bill, I think, of 0.9 you said. Tends to be a pretty stable business. Hoping you believed give a little more color on that. Seems to be a great business for you margin wise. I was curious if there are any sort of new long-term opportunities that might increase the growth rate there?

Felix would you like to comment on the measurements group?

Well, measurements group is a stable business, it's composed of sensors, transducers and systems. We expect this to grow, but the past has shown that growth is rather slow. I don't know how to comment more on that business, that we were in since the beginning. This was the foundation of Vishay. It is a cash-producer, it's a good business, but stable. It doesn't have a big up turn.

But we see major opportunities, just to add to that.

Yes.

On the cost side.

It's due to some speculation. I hope it comes through. The major opportunities and systems whereby we integrate strain gages into transducers into systems. We had a few successes, but I don't want to overemphasize.

No. I meant on the cost, Felix. On the cost side, there are firm plans to--

Yes. On the cost side we are going to reduce costs in many areas, and improve profitability.

Can you give an example or two, of the systems you've had some success in?

Yes. We introduced a systems to improve quality and yield in paper machinery. We are producing a transducer system, which aligns the machines in such a way that the yield, instead of being 94%, becomes 99% for paper, which is being put on spools. This depends on the precision in which you can align the spools when you change the spools one to another during the winding of the paper. This has been introduced in Sweden. Ten machines have been sold successfully, and we tried to introduce it now in Germany and the United States. We had two successes there, which worked well, and also in Russia, six successes. We hope to have it grow across the board.

In many, many, countries there are machines which require upgrading, improvement in yields, but it's a very difficult sale. Very difficult sale. It's profitable, but eventually we hope it will come through in a major way, but at this point, I don't want to put a fire behind it, and then to find out that it doesn't go well. We have sold so far, a 10 and 6, and 6 and 8 machines. Present price of that per machine is approximately $600,000, and it's quite profitable.

Okay, thank you very much. Appreciate it.

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

Yes. I would like to thank you for your interest in Vishay. We appreciate your comments and questions, and wish everyone a happy day. Thank you.

This concludes today's conference call. You may now disconnect.