威世科技 (VSH) 2009 Q4 法說會逐字稿

At this time, I would like to welcome everyone to Vishay's fourth quarter 2009 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 Dr. Lior Yahalomi. Sir, you may begin your conference.

Thank you. This is Lior Yahalomi, Vishay's Chief Financial Officer. Good morning, ladies and gentlemen, and welcome to Vishay's fourth quarter 2009 earnings call. On the line with me today are Dr. Felix Zandman, Vishay's Executive Chairman and Chief Technical and Business Development Officer, Dr. Gerald Paul, Vishay's President and Chief Executive Officer, and Lori Lipcaman, Vishay's Executive Vice President and Chief Accounting Officer. Before I start, [David Tomlinson], our Senior Vice President- Corporate Controller, will read our customary opening statement. Dave?

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, Dave. I will make summary remarks. Dr. Paul, our CEO, will add a more detailed analysis of our year and fourth quarter 2009. And finally Dr. Zandman, our Chairman, will update our R&D and acquisition activities and will make summary remarks. Before I start, please note that the press release that we issued this morning includes a schedule which reconciles GAAP EPS and adjusted EPS.

Quarterly results. For the first quarter of 2009, Vishay reported revenues of $607.0 million, 15.5% higher than the third quarter of 2009 and 5.5% higher than the fourth quarter of 2008. On a GAAP basis, our consolidated gross margin for the quarter was 22.6% as compared to 19.9% for the third quarter of 2009 and 14.8% for the fourth quarter of 2008. The increase from the third quarter of 2009 reflects mainly the recovery from the historical global economic crisis with increased sales and the cost reduction initiative implemented by the Company.

Selling, general and administrative expenses for this quarter were $98.3 million or 16.2% of revenues compared to $89.7 million or 17.1% of revenues for the third quarter of 2009, and $97.9 million or 17.0% for last year's fourth quarter. Restructuring and severance cost and related asset write-downs in our fourth quarter were $4.1 million. Total cash paid out for restructuring during the fourth quarter of 2009 was $7.2 million. Other income and expense for the first quarter of 2009 consists mainly of $1.2 million of interest income. The effective tax rate for the fourth quarter of 2009 was 17.2%.

Capital expenditures for the quarter were $24 million as compared to $8 million in the third quarter of 2009 and $52.9 million in the fourth quarter of 2008. Depreciation amortization for the quarter was $60 million as compared to $59 million in the third quarter of 2009 and $55 million in the fourth quarter of 2008. As announced in our press release, Vishay reported earning attributable to Vishay stock holders of $0.15 per diluted share for the fourth quarter of 2009. The net earnings attributable to Vishay stock holders for the fiscal quarter ended December 31, 2009, was impacted by the pre-tax charges for restructuring and severance cost and related asset write-downs of $4.1 million. These items and their related tax effect had a $0.01 per share effect on the net earnings attributable to Vishay stock holders. The adjusted net earnings, therefore, is $0.16 for the fourth quarter of 2009 as compared to adjusted net earnings per share of $0.03 for the third quarter of 2009 and adjusted net loss per share of $0.07 for the fourth quarter of 2008.

Annual results. For the year of 2009, Vishay reported revenues of $2.042 billion, or 27.6% lower than 2008. On a GAAP basis, our consolidated gross margins for the year 2009 were 19.0%, as compared to 21.2% for 2008. SG&A expense for the year 2009 were $359.2 million, or 17.6% of revenues compared to $450.9 million, or 16.0% of revenues for the year 2008. Restructuring and severance cost and related asset write-downs for the year 2009 were $38.6 million. Total cash paid out for restructuring during the 12 months of 2009 was $48.4 million. Other income and expense for the year 2009 consists mainly of $3.9 million interest income and $5.0 million of foreign exchange gains. The Company incurred significant pre-tax losses in low tax rate jurisdictions during the year of 2009, which meant we could not benefit from the losses, and this led to a negative effective tax rate.

As announced in our press release, Vishay reported a loss attributable to Vishay stock holders of $0.31 per diluted share for the year of 2009. The net loss attributable to Vishay stock holders for the fiscal year ended December 31, 2009, was impacted by pretax charges for restructuring and severance costs of related asset write-downs of $38.6 million for the amended executive employment agreement of $57.8 million, partially offset by a gain of $28.2 million on settlement of matters related to the acquisition of the International Rectifier's Power Control System Business. These items and the related tax effect had a $0.33 per share effect on the net loss attributable to Vishay's stock holders. Therefore, the adjusted net earnings per share is $0.02 for the year of 2009 as compared to adjusted net earnings per share of $0.45 for the year 2008.

Capital expenditures for the year 2009 were $50.3 million compared to $152.0 million in 2008. Depreciation and amortization for the year 2009 was $229.6 million compared to $222.9 million for the year of 2008. We expect depreciation and amortization for 2010 to be slightly above $200 million.

As previously disclosed, Vishay was required to adopt two new accounting standards on January 1, 2009, which required retrospective adjustment of previously issued financial statements. The retrospective implications of FSP APB 14.1 had no effect on the reported loss from continuing operations or diluted share for the fourth quarter of 2008 and increased the previously reported loss from continuing operations by $0.8 million with no effect on earnings per diluted share for the year-to-date period.

Vishay's liquidity. Vishay had a total debt of $331 million as of December 31st 2009. The debt consists predominantly of the following four segments. $105 million of long-term notes with 93 years maturity due on September 12th, 2102, with interest rate of 90-day LIBOR plus 0%, $87.5 million of long-term maturing on July 1, 2011 with payments spread over the next one and a half years with interest rate of 30-day LIBOR plus (inaudible). We also have a $250 million revolving facility maturing on April 20th, 2012, with an interest rate of 30 day LIBOR plus 1.52%, $125 million of which was unused on December 31, 2009. And finally, $50 million of long-term loan maturing January 27th, 2014, with payments spread over five years with interest rate of 30-day LIBOR plus 3.45%.

As of December 31, 2009, Vishay had cash and cash equivalence of $579.2 million. Total available credit lines, including the $125 million unused revolver in the U.S., was $172 million at December 31, 2009. Vishay's total available liquidity measured by cash plus all available credit lines as of December 31, 2009, was $751 million, while our total debt payable over the next five years is only $230 million.

Some other key summary financials are, total inventory at year end was $434.9 million as compared to $538.0 million at the end of 2008. Working capital at year end was $1.0 billion as compared to $867 million at year end 2008. Free cash flow, which Vishay defines as cash flows from operations less capital expenditures plus proceeds on sale of property and equipment, was $91.9 million for the fourth quarter of 2009 as compared to $103.4 million for the third quarter of 2009 and $30.3 million for the fourth quarter of 2008. For the total 2009 year, our free cash flow was $246.5 million as compared to $133.4 million during the year of 2008. Vishay's total liquidity as of December 31, 2009 again is $751 million. And our continuous focus in generating free cash will further improve our liquidity throughout 2010. I will now turn the call over to Dr. Paul, our President and Chief Executive Officer. Dr. Paul?

Thank you, good morning, everybody. As you could hear from Lior, our CFO, the recovery of Vishay's business in the fourth quarter continued at the robust pace with orders approaching pre-crisis levels. Due to better sales, good efficiencies and reduced fixed costs, profits improved further. Vishay came back to pre-crisis profitability levels at still much lower sales. Gross margin increased to 22.6% of sales. We reported $0.15 per share GAAP or $0.16 per shared adjusted. 2009 also became one of our best years in terms of cash. We generated $246 million of free cash, $92 million alone in the fourth quarter. Fixed costs were reduced quite dramatically versus 2008, which put us in a favorable position for reaching new performance levels going forward.

Let me talk about the economic environment as we see it. The demand for electronic components in the fourth quarter increased dramatically across all geographies, all markets and all sales channels. Low inventory levels in combination with stretching out lead times contributed to exceptional order levels. After a strong turnaround in Asia in the third quarter, in Q4, also the US and Europe followed. The main Asian market segments, laptops and mobile phones, defied normal seasonality in the fourth quarter. We have seen a major order increase in automotive, which is still driven by small cost, but also supported by very low inventory levels in the pipeline. The industrial segment continued to show a steady recovery worldwide, which I believe is a promising sign for the profound and solid upturn. Military and medical continued strong and stable.

POS was strong. Inventories at distributors were still going down somewhat in the fourth quarter by 2%. I remind you after a reduction of 10%, 12% and 10% in the prior quarters. Inventory turns at distribution came back to normal. We have seen worldwide 4.2 turns after 3.7 last quarter. The Americas 3.0 turns after 2.8, Europe 3.9 turns after 3.3, Asia 5.8 turns after 5.3. Book-to-bill ratio of our distributors were substantially above one in all regions. What we also see is a decreasing price pressure in general due to component shortages and lengthening lead times.

Let me talk about Vishay's business develop. Due to stronger than expected orders, we exceeded our original sales projection for the fourth quarter substantially. We achieved sales of $607 million in the quarter as compared to $525 million in the prior quarter and compared to $575 million prior year. Excluding exchange rate effects, sales versus prior quarter were up by $74 million or 14%, and up versus prior year by $11 million or 2%. We have seen very strong book-to-bill ratios across the board, 1.22 in the quarter after 1.11 in the third quarter.

Some book-to-bill details. We have seen book-to-bill of 1.37 for distribution, 1.06 for OEMs, 1.32 for actives, 1.12 for passives, 1.16 for the Americas, 1.22 for Europe and 1.29 for Asia. So what you can see we have had exceptionally strong orders from distribution, in particular for actives, of course, supported as I said before by a strong POS of our distributors. Backlog has grown to 3.1 month, and this underlies our anticipations concerning further sales increases.

Price decline quarter-over-quarter has practically stopped and continues to go down year-over-year. For the entire Company, we had a price decline of only 0.1% quarter-over-quarter, practically stable, and 2.2% price decline versus prior year. Looking at actives, stability also vis-a-vis prior quarter and the price increase of 1.1% versus prior year. For the actives also, stability versus prior quarter and a decline-- a reduced decline of 5.4% versus the prior year.

Some highlights of our operations. Despite the sales increase, we continue to reduce inventories in the quarter by $11 million, even you exclude exchange rate effects, $5 million reduction raw materials and $6 million reduction in finished goods and (inaudible). We have reduced $113 million or 20% of our inventory in the year 2009. Our inventory turns increased to 4.1, but further improvements can be expected with growing sales at substantially constant inventories.

Capital spending in the fourth quarter remained on a low level of $24 million versus $8 million in prior quarter, and $53 million in 2008. Capital expenditures in 2009 were at $50 million versus $152 million in 2008. For 2010, we expect to spend approximately $135 million, $50 million in maintenance of business, $35 million in cost reduction and $50 million for expansion. The focus of expansion projects will be on new technologies, new products like Trench diodes, MID tantalum caps and new infrared applications. So I'm talking about very specific, very special expansion projects.

During the quarter, employment in Vishay increased by 490 heads due to the rebuild of manufacturing capacities. However fixed cost personnel as part of the total continue to decrease by 60 heads quarter-over-quarter. Since September 2008, the beginning of the crisis if you want to, 19% of all employees and 16% of all fixed heads have been reduced, and we expect only very limited additions of fixed heads during the upturn.

The restructuring of our operations has continued in 2009. We have completed the consolidation of Opto packaging in Asia. We have closed the film capacitor plant in Shanghai, moving the volume to Loni, India. We have closed the MLCC plant in Monroe, Connecticut, moving the volume to Israel. All this will reduce and reduces already our fixed costs without a loss of volume.

We generated $112 million cash from operations in the quarter as compared to $110 million in prior quarter and $76 billion in prior year. We generated, as Lior pointed out, $92 million free cash in the quarter as compared to $103 million in prior quarter, and to $30 million in prior year. In the crisis year 2009, we generated free cash of $246 million, which is one of the best results in Vishay's history, and you will understand that we are somewhat proud of it. Also foreseeably, Vishay will continue to be an excellent generator of free cash.

Let me talk about the results a little and reconcile this quarter for 2009 vis-a-vis quarter three. Based on $82 million higher sales, $74 million higher excluding exchange rate impact, the adjusted operating margin increased by $24 million namely from $15 million to $39 million. The main elements were price decline, very low price decline, with a negative of minus $1 million. Volume impact positive by $36 million, variable costs were better by $5 million, and fixed costs went up by $17 million whereby $8 million out of the $17 million came from the needs to increase capacities, and $6 million came from generally nonrecurring costs like the spin-off project which we currently pursue and of some warranty costs.

Now let me go to the reconciliation of the fourth quarter vis-a-vis prior year. You can see that based on $32 million higher sales, 8-- $11 million higher excluding exchange rate impacts, the adjusting operating margin increased by $50 million from minus $11 million to $39 million. Main elements were again ASP decline of 2.2% or $14 million impact, negative impact, volume impact of plus $15 million, variable costs better by $28 million in the quarter, fixed costs better by $13 million, and we also had the positive inventory impact of $7 million.

Now comparing the two years, 2009 versus 2008. You can see that based on $780 million lower sales, $748 million lower excluding exchange rate impacts, the adjusted operating margin decreased by $119 million from $148 million to $29 million. The ESP decline of 2.5% gave a negative of $52 million. Volume was impacted heavily, as you can imagine, by $295 million. On the other hand we had better costs of $206 million and the exchange rate helped by $27 million.

Let me report about our 2009 measures concerning restructuring and right-sizing and let me just communicate what we have achieved vis-a-vis our targets. First of all we wanted to reduce inventories by $50 million to $100 million originally. As I have said before, we have reduced by $113 million. We wanted to limit our capital spending to $70 million. As you have heard, we came out with $50 million capital spending. We wanted to limit our cash cost for restructuring to $50 million. We nearly got there, we spent $48 million. Finally, we wanted to reduce all fixed costs by $150 million year-over-year. We have reduced $176 million whereby $80 million came from manufacturing fixed in terms of reductions and $96 million from SG&A. We actually expected $200 million reductions only achieved $176 million, but short work and plant shut-downs had to be discontinued earlier than we expected due to the certain economic upturn in the last quarter. Also the spin-off project and some accelerated depreciation increased the costs. But overall, we have dramatically reduced the fix costs.

Let me talk about resistors and inductors. This traditional and successful business is in a steep upturn. It's supported also by quite an accelerated rebound of the industrial segment. Sales in the quarter were $146 million, which is 25% above the prior quarter, and on the same level as prior year. We have seen in the quarter, a very strong book-to-bill ratio of 1.20. The backlog is at a healthy level of 2.9 months. Gross margin was exceptionally good due to higher volumes, good efficiencies, good mix and lower fixed costs, it is at an excellent level of 32% of sales. We believe that approximately 30% gross margin can be sustained at historical sales levels. The ASPs and resistors continue to be stable. Inventory turns and resistors improved to a record level of 4.8. There are some shortages for inductors and specialty resistive products and we quite selectively are expanding our capacities there.

We are also in process to correct pricing. In the few still existing commodity segments of the business, namely for Thick Film Chip Resistors. We have successfully completed the move of Non-linear Resistors out of Avery to China, Israel and Germany, all this for consideration. We are going to save fixed costs like that. The Avery side, this is in Belgium, is about to be sold.

Coming to capacitors, also capacitors see a solid up turn. Only some industrial power applications are lagging, which according to our experience is the normal sequence of events. There's a strong demand for capacitors, in particular from automotive and consumer. Sales in the quarter were $122 million, which is up by 19% versus prior quarter, but still down by 3% versus prior year. We have seen a solid book-to-bill ratio of 1.07 for capacitors and the backlog is at a quite healthy level of 3.1 month. The gross margin due to fixed cost reduction and good efficiencies improved further to 21% of sales. We expect gross margins in the range of 23% to 25% at historical sales levels.

The prices for capacitors are virtually stable quarter-over-quarter but continue to increase year-over-year. We have seen year-over-year a 2% increase, which is really the impact and the consequence of selective price increase programs which we have in place since quite some time. The inventory turns improved to 3.4, the record level for capacitors. We expect, again also we expect further improvement with growing volume. Film capacitors in Loni, India are now completely up and running. We also completed the concentration of all MLCC manufacturing in Israel. Again all this without a loss of volume and for saving fixed costs. We currently see a very strong demand for tantalum caps in general, but in particular for the tantalum [mep] capacitor and also here for the tantalum mep capacitor we increased capacities.

Let me come to the measurements group. Some segments of the measurements group business are still impacted by the economic crisis. Nevertheless the sales of this group in the quarter grew to $37 million. The book-to-bill ratio is close to one, it's at 0.95. Gross margin, historically good, but at the level of 28% of sales and inventory turns were at 2.5.

Let me come to semiconductors, I would like to start with diodes and Opto products. The recovery has started for this product group in July 2009, mainly at consumer customers in Asia. The recovery has reached European automotive in the third quarter. And in the fourth quarter, it became apparent everywhere, practically in all geographies and all markets, and we currently see quite dramatic order levels there. There are all-- quite dramatic shortages of supply in SMD Rectifiers, but also in several Opto lines, mainly in couplers, partially up to 20 weeks' lead time, we have to talk to customers. The sales in the quarter were $178 million, which is 14% above prior quarter, 13% above the second quarter and 13% above prior year. We have seen an extremely strong book-to-bill ratio of 1.26, which may contain some over reaction mainly by distribution, but it will enable us for further sales increases.

The backlog of this product group has grown to 2.9 months, which is high for this business. The gross margin remained at the level of 18% of sales, but was negatively impacted in the quarter by an accelerated write-down of equipment of $3 million. Our profitability target for this group is 22% to 24% gross margin at historical sales levels. The group has shown quite excellent inventory turns of 5.2. Price decline quarter-over-quarter has stopped. There was a slight increase of 0.2%, and there's still a normal, may I say, price decline year-over-year 4.7%, undoubtedly this will go down.

We do have quite substantial success with our Trench power diodes, where we continue to be in a sold source position. We launched a product line in 2008. And in 2010, we estimate already sales of about $50 million, and we are expanding capacities quickly here.

Last but not least Siliconix. The market leader in low voltage (inaudible) after suffering the most of all Vishay business, has now reached a phase of a rapid, partially even overheated market upturn. Very low inventories in the supply chain are leading to extremely long lead times on the market and to over reactions of the buyers. Foundry-related capacity limitations are impacting Siliconix ability to catch up to demand currently. Main shortages are there especially for older products due to the discontinuation of supply by a foundry of ours. Sales in the quarter were $124 million which is up by 1% versus prior quarter and up by 2% versus prior year. We see extremely strong book-to-bill ratios of about 1.4. The backlog is at 4.1 months. The gross margin has improved in the quarter to 18% of sales, but we expect gross margins to come back to the range of 25% to 27% for Siliconix at historical levels of business.

The price decline also for Siliconix reduces. We have seen price decline of only 0.4% versus prior quarter and of 6.3% versus prior year and foreseeably also for most (inaudible) the price decline will reduce further. The inventory turns at Siliconix are at 3.8, which will improve with growing volume. We see (inaudible) at Siliconix. I remind you of the [creek] sale, which is the highest sale density on the market. Our current main focus, as you can understand, is on the increase of manufacturing capacities. We are in the process of re-establishing the fourth shift in Santa Clara. We are expanding the (inaudible). And we are developing further existing foundries. We expect the output to increase steadily through the year, mainly in the second half.

Let me summarize. For the first time since more than a year, Vishay had a satisfactory quarter. We are solidly back to profitability. We improved gross margin to pre-crisis levels. We again generated free cash in a remarkable way. During the crisis, fixed costs have been drastically reduced. We have lowered our breakeven permanently point by $500 million, break even is really break even sales, the sales you need to cover all your fixed costs. Vishay therefore will be able to reach new levels of profitability. Our defined restructuring programs have been implemented, therefore, restructuring costs going forward will be low. Vishay also in future will remain to be an excellent producer of free cash, based on improving profitability in combination with lower working capital requirements.

The preparation of the spin-off of VPG is proceeding smoothly, and eventually we'll have both companies to concentrate even more on their respective businesses. We are now actively looking again for small-to medium size acquisitions that will enhance further our profitability. Vishay's business since the fourth quarter is in the face of a steep upturn, and we are confident that 2010 will become a good year for us. However, in the case of a new economic slowdown, we are prepared to reestablish all saving measures of 2009. For the first quarter, we guide to a sales range of between $630 and $670 million at further improved results. Thank you very much, and I would like to pass on to Dr. Zandman.

Good morning. As presented by Dr. Paul, quarter for Q4 is a strong improvement over Q3. Sales increased by 14% from $525 million to $607 million from Q4 over Q3, and earnings per share increased over five fold from $0.03 to $0.16 per share for the same periods. Free cash generation was $247 million for the 2009 year, well above our budget. Free cash generation was the number one priority for 2009, and I am really gratified that our management was able to accomplish that. Free cash will continue to be strong for 2010. General reduction of overheads by approximately $180 million will result in a better bottom line for the future. The recession showed us that Vishay is able to respond fast and efficiently even in the case of sudden and very deep recession, as we have seen in 2009.

Now a few words about the spin-off. We have announced the spin-off of our Measurements Group and Foil Resistor business which will be called Vishay Precision Group or VPR. Now, VPR or Vishay Precision Group, is not core to Vishay. The reason for the spin-off is a fundamental difference between Vishay Intertechnology and VPG across products, technology, manufacturing, and markets and customers. Vishay Intertechnology has a broad line of discreet electronic components, while VPG is vertically integrated from sensors to weighing modules, to instruments to control systems. The spin-off of Vishay makes Vishay a pure play discreet electronic component Company. The spin-off of VPG will show the VPG performance on a stand alone basis, not being diluted into Vishay. Also if you sharpen Management focus for both Companies.

Furthermore, it will enable each Company to more effectively execute strategies and allocate resources. And finally it will enhance the effectiveness of employee compensation structure. It also will provide VPG with its own acquisition currency. I mean, it will have shares which could be then put to the market to increase its liquidity if needed for acquisitions.

Our R&D activities progress as planned and will accelerate as the economy improves. Based on our very strong balance sheet, strong liquidity and the improved economic environment, we are now again actively pursuing acquisitions. We are targeting small-to-mid-sized companies for the passive components we aim to strengthen and broaden our position as a specialty product supplier. For the discrete semiconductors, the intent is to increase market share and exploit synergies. Of course, the goal for acquisition activities is to further improve our profitability. The short-term future, including next quarter, looks very, very promising. Thank you, and we are open for questions.

(Operator Instructions). Your first question comes from the line of Shawn Harrison.

Hi. First question just has to do with the step-up, I guess, in SG&A spending and it looks like some of the onetime costs in the fourth quarter. What should we look like-- or what should we look for in terms of SG&A spending in the March quarter and how much of that will roll off eventually tied to the spin-out?

Yes. Well what you are seeing in the December quarter is typically for the March quarter, because you have bonuses coming back, some salary increases will be there. So what you see approximately $98 million per quarter is typical for the March quarter and for the remainder of the year 2010.

Okay. So essentially the cost with the spin-out will be replaced with bonus accruals and--?

Exactly, precisely.

But the inventory write-down that was in COGS will roll off?

Yes. Manufacturing fix you can expect to go down in between quarter four and quarter one.

Okay. And then second I'd like to just touch again on your commentary about the semiconductor market getting a little bit overheated. With the book-to-bill even above 1.2 in the businesses but inventories being very lean at distribution, what do you think the, I guess, the carry through from these high book-to-bill ratios are not into the March quarter, but into the June quarter, does that imply that we'll see a slowdown in ordering and less than normal seasonality as a result? Just maybe, I guess, your high level of thoughts knowing that it looks like at least on the semi side the March quarter is fully booked.

Exactly. Just to reconfirm that March quarter looks solid, very solid. I think there is some overheating, but I do not believe that it impact negative lower-- our positive (inaudible) of the economic situation. Could imagine that the orders may see some decline, but the shipments will continue to go up when capacity catches up to demand. And then you see in the second quarter normally the better season for the semiconductors any way. The seasonality always sees the better-- the best quarter in quarter three, and also quarter four is not bad for semis in terms of sales. So we are optimistic.

Okay.

Not denying, excuse me, not denying some overheating at the moment in terms of quarters, of course.

It seems that, I guess your statement is that it's more of a situation of capacity versus demand, and once that begins to normalize --

Exactly.

Okay. And then just finally, if you could clarify again for actives and passives what the price changes were on both the quarter-over-quarter and year-over-year basis?

Really quarter-over-quarter, there was no price decline at all anymore, neither in passives nor in actives. On the passives, quarter-over -- or year-over-year on the passives, we see an increase of 1.1%, basically driven by capacitors in our case because we have longer term price increase projects in place-- pricing projects in place, and which now really show some effect. Resistors are practically constant year-over-year. Actives come down year-over-year by 5.4%, as I said before, which is a low -- which is low. But I have no question that this price decline foreseeably will slow down even further on the actives.

Okay, thank you very much.

Thank you.

Your next question comes from the line of Matt Sheerin.

Yes. Thanks. Just your comments on distribution, obviously, that was very strong orders you saw in December and also in March. If you look at your guidance in March being up sequentially, and I know it's normally flat to down, is that mostly distribution, or is what you're seeing is going to driving the higher number in March?

Distribution will be strong, no question, but we see a good picture everywhere. But distribution will be strong it's true.

And do you get a sense that those low inventories are going to start to creep up again, or do you expect the sell through to be just as strong in the March quarter for distribution?

Must admitted I was wrong again and again over the quarters. I always expected -- and I said it here, that inventories would level off. Still they went down slowly in quarter four. I think everybody hopes that we come to a stabilization. Personally I think we will reach it in the first quarter.

Okay. And you gave revenue guidance, but you didn't give gross margin or EPS guidance, and I appreciate that. But what kind of incremental margin contribution should we expect going forward given that you still have some costs coming out? Should it be in the 40% or more range?

Yes. As we always say, between 40% and 45%.

40% and 45%. Okay. And do you see that -- as the year goes on, do you see that coming down at all as you invest back in capacity and people?

No. As a matter of fact, we are going to keep the fixed cost fixed, and this is our typical variable margin, [competitive] margin we are talking about. So it's just a function of sales.

Okay. And just lastly, Dr. Paul, obviously things are very good. You used the term overheated a couple of times, and we've seen that from some other suppliers. Back in 2003 and 2004, we saw very strong growth and then there was an inventory correction because there were order cancellations, customers got ahead of themselves in terms of ordering. What are you doing in terms of looking for signs that that may happen this year? And in terms of running your own business, what sort of plan B do you have in place to keep costs down so that if you do have a down quarter, the negative impact won't be that big?

First of all, as I said, fixed costs are fixed. We have achieved quite a reduction vis-a-vis 2008. A portion will come back, but you have seen that already in the fourth quarter. So we will keep the fixed costs on this level regardless what.

Secondly we are not going to jump back into high levels of capital spending. What we do really is we concentrate on specialty products, on new products, which I believe is-- would be absolutely detrimental if we didn't do it. But we are not investing based on these high order levels which we see, which absolutely contain some overheating. And as a matter of fact if, which we don't believe to emphasize that, that the economy slows down really again, our shipment slows down, really then we go back to our saving modes, cost savings mode of the year 2009. We have trained it, so to speak. We had to train it, and this is absolutely possible to reintroduce that in a short time.

Okay. Thanks very much.

(Operator Instructions). Your next question comes from the line of Steve Smigie.

Great, thanks.

Hi, Steve.

Could-- hello. I was hoping you could talk a little bit about what the revenue looks like now for the business that will be spun out. I think we have a clear picture of the Measurement stuff, but I think the part of the resistors, what would the dollar amount be at this point? And it's Q2 that that's likely to get spun out, correct?

Out of my memory, Steve, in 2009 the sales of this-- of VPG altogether was about $175 million.

Okay. I just was wondering because of the big jump up here in the guidance, if that's changed dramatically?

The jump up doesn't come from this portion of the business.

Okay. And just I was curious, I was thinking that the spin-off was Q2 in your answering a question earlier about what OpEx would look like in March and taking into account some of that cost coming out, so I guess I was a little confused as to how that cost would come out if the spin-off wasn't until June or the June quarter?

Well, we expect -- maybe I've misunderstood your question, but we expect the spin-off to take place middle of the year. And then when I say the fixed costs are constant, I always talk still about the entire Company, of course.

Okay. So I guess, if I'm looking at overall operating expenses for the March quarter, you're saying that's going to be -- and going forward, everything included is going to be roughly around that $98 million level?

Yes, yes, yes. And on the manufacturing fixed costs side you will see a drop.

Okay. And then on the book-to-bill on the distribution business, as others have mentioned, is obviously very strong, so I have to assume that part of that is just their desire to really fill a channel that's come down meaningfully. So how much of that increase in orders do you think you'll actually service in the quarter? I mean is it-- you think you get through all that, or is it you're just sort of working your way through, and you're going to have to keep some of that, you're not going to be able to get some of that just because of capacity until somebody (inaudible)?

Let me ask-- now if-- let me answer, now if we ship what we can ship, obviously, and (inaudible) there's some limitation for Vishay to bring back capacities, super, super quickly and as a limitation obviously not only for Vishay. So I think there's kind of a fuse in the whole thing. I don't think that inventories will shoot up so dramatically, it's not just not there, the potential is not there to my-- in my judgment . So I do believe that the low inventory level at distribution will survive for

Okay. Last question, and I'll let somebody else jump in here. Is just on the capacity, and it sounds like you're adding some other people are, but even given that, it seems like people-- most companies are generally remaining fairly constrained in terms of what their commitments are to future capital spending. You're taking it back up, no doubt, but a lot of guys seem to be still a very conservative mode, and I was just, at least for yourselves or whatever you're willing to comment, what you see from your competitors? Does that seem reasonable?

Well, I think I can only reconfirm what you said, and this is also true for Vishay. So what we are spending at the moment in terms of expansion, as I tried to say before, is really not a consequence of this high order level which we see. In reality, this is something we would have done any way for new products in particular and for specialty applications. So I don't think we jump blindly as maybe the industry and Vishay has jumped into such situations in the past.

Okay, great. And congratulations on the numbers. Thanks.

Thank you.

And there are no further questions. Dr. Yahalomi, do you have any closing remarks?

Thank you. I would like to thank you for participating in our call. We appreciate your interest in Vishay, and we look forward to your continued interest in the future. Thank you and bye.

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