威世科技 (VSH) 2010 Q1 法說會逐字稿

Good morning. My name is Latisha, and I will be your conference operator today. At this time, I would like to welcome everyone to Vishay's first quarter 2010 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 conference over to Dr. Yahalomi. Please go ahead, sir.

Thank you, Latisha. Good morning this is Lior Yahalomi, Vishay's Chief Financial Officer. Ladies and gentlemen, you're welcome to Vishay's first quarter 2010 earnings conference 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; Lori Lipcaman, Vishay's Executive Vice President and Chief Accounting Officer; and Dave Tomlinson, Vishay's Senior Vice President, Corporate Controller. Before I start Dave Tomlinson 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 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 will add a more detailed analysis of our first quarter 2010 and finally Dr. Zandman will update our R&D and acquisition activities and we'll add summary remarks.

Quarterly results. For the first quarter of 2010, Vishay reported revenues of $640.5 million, 5.5% higher than the fourth quarter of 2009, and 42.5% higher than the first quarter of 2009. Our consolidated gross margin for the quarter was 26.1%, as compared to 22.6% for the fourth quarter of 2009, and 15.1% for the first quarter of 2009. The increase from the fourth quarter of 2009 reflects the continued recovery from the historical global economic crisis with increased sales and the cost reduction initiatives implemented by the Company. SG&A expenses for this quarter, were $101.9 million or 15.9% of revenues as compared to $98.3 million or 16.2% of revenues for the fourth quarter of 2009, and $87.1 million, or 19.5% for last year's first quarter. Other income and expense for the first quarter of 2010 consist of $2.4 million of interest expense. The effective tax rate for the first quarter of 2010 was 27%. Capital expenditures for the quarter were $18.1 million, compared to $24 million in our fourth quarter of 2009, and $11.3 million in our first quarter of 2009. Depreciation and amortization for the quarter were $50.4 million, as compared to $60.1 million, in the fourth quarter of 2009 and $54.6 million, in the first quarter of 2009.

As announced in our press release Vishay reported earnings attributable to Vishay stockholders $0.24 per diluted share for the first quarter of 2010. There were no unusual items for the first quarter of 2010, earnings per share of $0.24 for the quarter represents improvement as compared to net earnings per share of $0.15, for the fourth quarter of 2009, and net loss per share of $0.16 for the first quarter of 2009.

Vishay's liquidity. Vishay had a total debt of $335 million, as of April 3, 2010. The debt consists predominantly of the following four segments. $105 million, of long-term note with 92 years maturity, due on December 12, 2102, with interest rate of 90 day LIBOR plus 0%. $87.5 million of long-term loan maturing on July 1, 2011, with payments spread over the next 1.25 years, with interest rate of 30 day LIBOR plus 2.5%. $250 million revolving credit facility maturing on April 20, 2012, with an interest rate of 30 day LIBOR plus 1.4%, $125 million of which was end used April 3, 2010. Finally, the $13.5 million of long-term loan maturing on January 27, 2014, with payments spread over five years with interest rates of 30 day LIBOR plus 3.45%.

As of April 3, 2010, Vishay had cash and cash equivalence of $613 million. Total available credit line including the $125 million end used revolver in the US was $170 million, at April 3, 2010. Vishay total available liquidity measured by cash plus all available credit lines as of April 3, 2010, was $783 million, while our total debts payable over the next five years is only $230 million. Some other key summary financials are, total inventory at quarter end was $443 million, working capital at quarter end was approximately $1 billion, free cash flow was $50 million for the first quarter of 2010, as compared to $92 million, for the fourth quarter of 2009, and $42 million for the first quarter of 2009, Vishay's total liquidity is $783 million, and our continuous focus on earning growth and free cash generation 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. I think we had a good quarter and I believe also that the upturn of Vishay's business during this quarter accelerated further with orders clearly exceeding precrisis levels. Due to stable prices, manufacturing efficiencies, and permanently reduced fixed costs we in the first quarter achieved higher profits than before the crisis despite the lower sales 10% to 15%. Reported $0.24 per share adjusted as well as GAAP as you have said, there were no unusual items reported for the quarter thus there are no adjustments to our GAAP earnings per share. The cash generation was strong again, free cash in the quarter was $50 million. A very strong order book indicates the continuation of the upturn.

Let's talk about the economic environment. The overall market demand for electronic components accelerated versus an already substantially improved fourth quarter. There are shortages of supply and continuously increasing lead times. We also see an increasing nervousness of the buyers. There is an extremely low level of inventory in the supply chain as manufacturing up to now has not caught up with demand. This whole situation is more severe at semiconductors but also noticeable at passives. We have seen a strong POS up by 13% vis-a-vis the last quarter. And very high inventory turns at distribution. Worldwide we have seen 5.0 turns after 4.2 turns in the fourth quarter. In the Americas 3.4 turns after 3.0 turns. In Europe up to 5.2 turns after 3.9 turns. In Asia up to 6.7 turns after 5.8 turns. So you see the inventories are down by another 6% at our distribution despite the POS is up by 10%.

All markets and all regions were strong. I would even say Asia was overheated, driven by note and netbooks and the consumer industry. Automotive is further accelerating. There are some really come back of mid sized and larger cars. And we see the continuation of a steady upturn of the industrial segment which I talked about already last time. Nearly consequently I say there is low price pressure to be seen in the market. Talking about our business development in the first quarter, sales in the quarter increased according to our expectation, of course they were limited by some manufacturing capacities. The exchange rates had some negative impact. We have achieved sales of $641 million in the quarter, after $607 million in prior quarters and $450 million in the prior year.

Excluding exchange and effects sales versus prior quarter were up by $46 million or 8%, and up by versus prior year by $179 million, or 39%. There's a extremely strong book to bill ratio of 1.46, versus 1.22 in the fourth quarter '09. Some details of book to bill, we have seen 1.67 for distribution. 1.22 for OEMs, 1.57 for actives and 1.35 for passives. Regionally now, 1.30 for the Americas, 1.31 for Europe and 1.70 for Asia. You see there is really broad optimism in all markets all regions. The extreme situation we have noticed -- we have experienced in Asia at distributors in actives. The strong demand from distribution is supported by POS and book to bill and what we do is we try to manage the distribution backlog with our colleagues from distribution. Vishay's backlog has grown to 4.3 months in the first quarter to 4.8 for actives and to 3.7 for passives. All this supports our expectation for higher sales in the second quarter, also as our manufacturing capacities will have increased them.

Selling prices at Vishay were virtually stable we have seen a slight decline versus prior quarter of 0.5%, and 1.5% decline versus prior year. In passives there was no price decline. And in actives the price decline has reduced to 0.8%, versus prior quarter, and to 2.9% versus prior year.

Some highlights of operations. Inventory turns in the quarter have increased to 4.2, and further improvement can be expected with growing sales at substantially constant inventories going forward. We have increased inventories in the quarter slightly by $10 million, when you exclude exchange of defects by $6 million in raw materials and by $4 million in finished goods inventory. Capital spending in quarter one remained on a relatively low level of $18 million, versus $24 million in prior quarter. And $11 million in prior year. For 2010 we currently expect to spend approximately $135 million. $85 million out of this for expansion and cost reduction.

During the quarter, employment increased further by 1100 heads to a total of 23,400. Due to the increase of manufacturing capacities but I would like to highlight that fixed cost personnel out of this number even went down slightly during the quarter. During this quarter. No major new restructuring projects to be seen at this point, we do not expect to report material restructuring costs in 2010. We generated $68 million cash from operations in the quarter, as compared to $112 million in prior quarter, and to $53 million in the prior year. And we generated $50 million free cash in the quarter as compared to $92 million, in prior quarter and to $42 million in the prior year. All together we expect another very good year of cash generation despite higher capital expenditures which we will have due to various substantial improvement of profitability due to substantially stable inventories, no material restructuring costs, and further improved cash collection.

Let's talk about the result and reconcile the first quarter of 2010, vis-a-vis prior quarter. Based on $34 million higher sales, $46 million higher sales excluding a change it impacts, the adjusted operating margin increased by $26 million, from $39 million to $65 million. The elements were as follows and slightly negative impact of selling prices of $3 million, and a very positive impact of volume of $27 million. Now let's look to the first quarter in comparison to a year ago.

Here we can say that based on $191 million higher sales, $179 million excluding exchange it impacts, the adjusted operating margin increased by $84 million from minus $19 million, to $65 million. The main reasons were negative impact of ASPs of $10 million, a very positive impact of volume of $80 million, variable costs were better by $24 million. Fixed costs reversed by $9 million. But this is really due to the reinstatement of bonuses.

Now let me go to the various product lines. Let me start out as always with resisters and inductors. At this time I will report without the foil resisters, which will become part of the spinoff. Vishay's traditional and most successful business continues to be in a phase of a steep upturn. This is supported by I would say heated demand from automotive in combination with a solid and broad rebound of the industrial segment of worldwide. Sales in the quarter were $149 million. Which is 13% above prior quarter. And 42% above prior year. This is all on an apples to apples basis and also excludes foil resisters. The book to bill ratio of resisters inductors was very strong, at 1.27 in the quarter. The backlog has reached a level of 3.3 month, which is high for this business, there are some shortages of supply at inductors and power resisters. Due to higher volume, manufacturing efficiencies and a favorable product mix gross margin increased to 35% of sales. I think we can say that this is one of the best results we ever had in resisters and inductors and 4 percentage points above the prior quarter. Prices were virtually stable. 0.4% down vis-a-vis prior quarter 1.1% down vis-a-vis prior year.

Inventory turns are quite excellent, they improved further to a record level of 5.1. We in resisters and inductors are expanding manufacturing capacities selectively while also optimizing further the cost structure of this business. Coming to capacitors. Also, capacitors continued to experience a broad upturn. But power capacitors is part of that, only during quarter one started to improve in terms of orders. This is the normal sequence of events which we have seen before. Sales in the quarter were $117 million, down by 2%, vis-a-vis prior quarter but up by 8% versus prior year. A very significant increase of book to bill ratio from 1.07 to 1.54 indicates an accelerating recovery also for capacitors now. We expect substantial sales growth in capacitors in the second quarter. Backlog has grown quite dramatically to 4.7 months. Gross margin at capacitors was a 20% of sales which will increase with growing volume. The selling prices due to an ongoing optimization program continued to increase slowly but steadily. We have raised prices by 0.4% versus prior quarter and prices are up by 1.4% versus prior year, the inventory turns at capacitors were at 3.3.

Let me now talk about our diodes business. And going forward I will report separately. Diodes and opto products for better transparency. Diodes represent a broad commodity business with limited volatility where Vishay is the largest supplier worldwide. May I say that the keys for success in this business are efficiency and service. Vishay offers virtually all technologies there. As well as the broadest product portfolio and we are technically leading in particular in power applications. After the steep recession, diodes are in the phase of an extremely steep recovery, book to bill in the quarter was 1.63, of course, including some over-reactions by the markets. Sales in the quarter were $140 million, 11% above prior quarter. And 17% above prior year. The backlog has grown to 4.4 months, which is a record level in this business. Gross margin has improved from 15% in the fourth quarter to 20% of sales mostly due to higher volume. The business has excellent inventory turns, this time they had 5.4. The price decline continues to decrease, prices went down 5.7% versus prior quarter and by 2.3% versus prior year. We have quite extraordinary success in this business with our new trench power diodes and we are expanding the manufacturing capacities.

Let me come to our opto business. Vishay's opto business consists of infrared sensors, couplers and special LED's. It contains a relatively high share of custom designed products especially in the segment of sensors. Vishay is the largest supplier of infrared components worldwide, and we are also here in a substantial recovery since the fourth quarter '09. Sales in the quarter were $58 million, 23% above prior quarter and 64% above prior year. Book to bill is also strong in this case 1.25. The backlog solid has grown to 3.3 month. The gross margin increased to 34% of sales from 25% in the fourth quarter, we have seen higher volume and we too have low fixed costs there also. Inventory turns of 6.2 are plainly good. Price decline is on historic leverage. Minus 1.2% versus prior quarter and minus 3.2% versus prior year. We do enjoy the high innovation rate. We are quite application oriented. We just introduced the smallest IR receiver on the market.

MOSFETs, Siliconix' main product continued to experience the continuation there of an overheated upturn. There are extremely long lead times these days for MOSFETs due to broad capacity locations -- limitations which also were leading to allocations in the meantime. The inventory levels in the pipeline are extremely low. There is a broad shortage of supply. Sales in the quarter $128 million up by 3% versus prior quarter and up by 55.0% versus prior year. We too expect the significant capacities debt now in the second quarter. The book to bill ratio of MOSFETs was very strong 1.65 and this has increased the backlog to 5.9 months. The gross margin of MOSFETs has improved to 21% of sales, and we continue to expect the range for gross margin between 25 and 27% of sales at historical volumes. The price pressure is low. As you would expect it. It's 0.7% versus prior quarter, lower prices and 3.5% lower vis-a-vis prior year.

The inventory turns were at 3.8. And they will improve with growing volume. We have now the fourth shift for six inch wafers in Santa Clara now up and running. We will expect the full output of this fourth shift in steps in the second quarter. Our 8-inch expansion [ITSU] in Germany is on target and the impact we will see in the second half. We have introduced the 1 gig end channel now after having done the same for the 1 gig P channel before.

Finally, I would like the talk about the Vishay precision group now which continues -- which consists now off the measurements group and before the resisters and also they are starting to see better economic conditions now. Sales in the quarter increased to $48 million. 6% above prior quarter. And 7% above prior year. The backlog has grown to 2.3 months from 2.1. The book to bill ratio of 1.12 indicates a further recovery, gross margin of this group is at excellent level of 35% of sales and the inventory turns are at 2.7.

Let me summarize. The first quarter again demonstrates like Q4 did already, that we see after three challenging years a successfully refocused on profitability. We are performing better than during the time before the crisis at still substantially lower sales. We will be clearly in the position to reach new levels of profitability as sales return to precrisis levels. We continue to be a strong and reliable generator of free cash, contributing further to our very solid financial position. The spinoff of our Vishay precision group is progressing well, we continue to expect completion by midyear and as I said before it's my conviction that both companies will benefit from this move. Vishay continues to be one of the largest and technically leading enterprises in electronic components and I believe that we think long-term. For the second quarter of this year we guide to a sales range between 660 million and $700 million, at further improved results. Thank you for your attention. Felix, may I transfer to you.

I'm Felix Zandman, Executive Chairman of the Board of Vishay, and Chief Technical Officer and CBDO. Good morning. It is interesting to examine the earnings per share for the past five quarters. Which include the calendar year 2009 and the first quarter of 2010. We went from minus or negative $0.08 per share for the first quarter 2009, to minus $0.10 per share, second quarter 2009, then started the recovery we have a rebound. Plus $0.03 per share for the third quarter of 2009, to $0.16 per share for fourth quarter of 2009, and finally to $0.24 per share for this quarter Q1, 2010. The present running of quarter, our Q2 of 2010 also looks very good. Our gross margin also increased from 15%, in Q1 2009 to 26% in Q1 2010. This 26% of gross margin the already better than the gross margin in 2010, pre-recession.

Q2, gross margins should further increase in spite of increasing sales we succeeded not to increase our fixed cost and align not to increase as a matter of fact fixed costs were slightly down. Vishay is now functioning at the higher plateau. The sales bookings and general activities are very brisk, we continue to generate free cash $50 million for this quarter. I would like to congratulate our President and CEO, Dr. Gerald Paul, on his excellent leadership during the recent global economic crisis during which he restructured the Company in order to position it for the current and future earnings growth as exhibited during the past three quarters. Reduction of fixed overhead and other measures have positioned the Company for yet better earnings per share in the future. Congratulations are also due to Mr. Ziv Shoshani, who most recently has been the COO of the Corporation and the General Manager of the Vishay Precision Group that we are spinning, he will be the COO of the Vishay Precision Group we call VPG. He has done a great job preparing VPG to be a stand alone Company and to spin it off successfully. Ziv has exhibited first class leadership, management characteristics and business acumen. I'm certain he will take VPG to new heights. The separation of VPG from Vishay should occur in mid 2010.

Our R&D activities continue as planned. A few examples of new design team or of products in the market industry for future cars and energy savings are shown as of today on Vishay's website as part of our corporate presentation. We are actively looking for acquisitions in both passive and active components. All in all the Company is doing well and expect even better results in the immediate future, thank you.

You are now invited to ask questions. Please.

Thank you. (Operator Instructions) Your first question comes from Shawn Harrison.

Good morning. Looking at the capacity constraints this quarter, how much revenue do you think you left on the table particularly given that inventories at distribution fell 6% sequentially which I guess underscores capacity constraints and the shortages in the market?

There would have been no question that we could have sold at precrisis levels if we had had the precrisis capacity already in place. It means something like 10% to 15% more.

Okay. I guess the follow up to that is looking at the backlog now of $903 million how much of that do you think is actually shippable versus maybe an overheated supply chain out there, given I don't think I've seen the book to bill ratios in a decade across many of the market segments so just trying to get an idea of how you are reading through these sky high book to bill ratios in the backlog on orders that you have for -- to -- what is true demand and what is shippable over the next say two to three quarters?

I think we are very well set for the next few quarter. So the guidance which we gave is very much on solid ground. The remainder is speculation, I do believe because of the inventory and the supply chain is that low, objectively that low, that the share of the questionable backlog if you want to call it like that is relatively small. But the whole pipeline as far as we can judge is really empty.

Okay. Then I guess two quick follow ups and I will get back in to the queue. The new business breakouts the diodes and the opto business, what should we look at as incremental gross margins for each of those businesses?

You mean the variable margin?

Yes.

Variable margin, approximately I would say diodes between 40% and 43%. And the opto business is better. It's around 50%.

Then the variable margin for the new or I guess the resisters business that you are holding on to?

It doesn't change really.

Okay.

Small.

The next question comes from Jim Suva.

Thank you very much. You're approaching or you're at basically peak gross margin levels since we've seen since eight years ago or so with sales increasing it appears that your margins should see some more upside here and you've restructured the business extremely well, can you let us know optimally what type of gross margins it seems like that Vishay should be running now at this post restructuring level?

Well, last time you may remember we talked about sustainable gross margins per product line. And we thought about the same question in the light of the first quarter to which degree does this lead, even upside vis-a-vis what we said before. As it looks especially resisters, inductors seem to contain some upside for the future, where as the numbers we have said before that means you -- you we you may remember just to repeat them. We have said something like 30% for resisters, inductors sustainable gross margin capacitors between 23% and 25%, Siliconix 25% to 27%, another semi between 20 which is the combination of diodes and opto, is between 22% and 24%. I mean we are -- in Siliconix in particular, far away from that we are sure we are going to get there with growing volume. All together, you are right the gross margin of 26% is not the end of the story it will be higher in this combination depending how the mix will be. We will not be surprised if this could be another say 2%.

Just a quick housekeeping item. Is kind of 27% tax rate a good tax rate, and will we look at breaking out the Precision Groups when the spin actually occurs is that how we kind of should account for it in the Vishay remaining business?

We do expect the tax rate to be in the mid to high 20s. Moving forward. It is as we estimate 27% for this year. That is including the expected spinoff.

Spinoff will not change that.

Not change that.

As far as you're accounting and the way you will communicate post spin will it be at the time of date going forward you won't consider it a discontinued op?

Yes.

Great, thank you, congratulations everyone to you and your team for a very well job done.

Thank you.

Your next question comes from Steve Smigie.

Great, thank you. I was hoping you could talk a little bit about how you are thinking about operating expenses here, I think last quarter you were thinking maybe $98 million. And I think it was a little bit higher than that this quarter. Is that just you're preparing for--?

We are -- we stick to our forecast about 400 -- about 200 -- what is it, excuse me--?

You said it correct.

$400 million per year, about $400 million, so no change of our forecast.

Okay. So I shouldn't--?

This slight increase came from exchange rate for the most part.

Okay. All right. Then with regard to the capacity step up coming for Siliconix, how should we think about how that works with relation to a potential jump there in revenue and change in gross margin? So it seems like there is plenty of demand there, you guys have some very good parts in that space. Does that mean you have a significant sequential increase there in revenue and then since you have extra capacity coming on line will there be extra cost that's coming on line, while I understand we will see a gross margin improvement there does that push out a couple quarters?

No. As a matter of fact it goes straightly strictly with volume because the fixed cost will be fixed. We will not change the fixed cost, not increase the fixed cost on top of what we have now. Really what you see in terms of sales increase, will go straight to gross margin -- excuse me, sorry, close with 50% about to gross margin.

Okay. Is it reasonable though to expect to see a big revenue jump there sequentially?

Through the order of 10% more.

Okay. Great, thank you.

Your next question comes from Matt Sheerin.

Hi, this is Mike Levinson in for Matt Sheerin. I was hoping you could talk about if you are concerned about, with double ordering are you seeing any signs of double ordering right now?

Nobody can exclude at this point in time double ordering, on the other hand the order book is really full. We are very solid in quarter two, and my additional -- as I said before, additionally, Mike is that the pipeline is very empty. This makes this situation quite unique and gives us quite a confidence also for a second half of the year.

Okay thanks. And then if you could talk a little bit more about the pricing environment and if you're able to put in price increases?

Yes. Selectively, but this is the time for price increases. No question about it. On the other hand they are contracts which we always honor. On the other hand for sure, as you have seen from what I said before the price decline already has slowed down dramatically, vis-a-vis historic levels. All of this is not a step function of course, this goes you have contracts and it's a mixture of price increases and contracts which are -- I think it's fair to forecast that the price decline will go down further.

Thanks.

(Operator Instructions) Next question is a follow up from Shawn Harrison.

Hi. It's just a follow up to the incremental capacity coming on line at Siliconix. I want to be clear on the statement that it sounds like you are adding variable capacity, outsourced capacity versus--?

Yes, it's both. It's inside and outside both. As I mentioned in my speech we have started to establish a full shift in Siliconix in November or so. Now in the course of the second quarter this becomes fully operational. This is one of the sources of higher capacity and then of course it's through -- from the outside from foundries, we also get more as we have continued to qualify new sources.

But at the same time you may still be constrained in terms of wafer availability?

I think like everybody at the moment in MOSFETs, all of us could sell more if we could make more. That's for all of us true I would say.

Then in terms of the guidance with the dollar strengthening lately, I guess what exchange rate versus the euro is I guess--?

It's -- I'll give you the actual one, it's 1 -- I mean the average was -- I don't know by heart but must have been 1.33 or something. It was $1.33 to the euro, this is approximately it.

So relatively realtime.

Yes.

Okay. Then finally just maybe some update on the cash usage you are going to be generating a significant amount of free cash flow. I know last quarter you talked about looking at smaller types of acquisitions. If maybe you could just talk about what you are seeing out there in the market environment? Are prices getting better? Just how you would look to deploy the cash going forward?

Felix, do you want to talk about this?

Well, we are looking at the [Mana] acquisitions in small size and average size. Pricing is about, it's difficult to comment because on one hand some of them prices are higher, some of them are willing to sell now. But we are very careful with that. Acquisitions you don't buy like in a store certain products you have to negotiate. You have to see that. But the contents are available and we are looking at that. Pricing is about constant. We didn't see any major increase in prices. No major drop.

Thank you, congratulations again on the quarter.

Thank you.

Your next question is a follow up question from the line of Steve Smigie.

Great. Thanks for the follow up question. Dr. Paul, I was hoping you could talk a little bit more about -- you mentioned some overheating in Asia and I know you guys are looking at being very careful about understanding what true demand is. But you did mention overheating so is that -- when you mean that do you just think that the orders are coming in earlier than they should because of lead times or -- I'm just hoping you could give a--?

It is principally speaking the same mechanism. All of us and Vishay is no exception have problems to meet demand, the recovery from the crisis like the crisis itself, happened very abruptly. Very abruptly. All of -- especially distribution which is typically understandable and the crisis minimized the inventory. So did OEMs, so did bought stuff, so all of them did. The crisis really came back more as -- the business came back after the crisis within the quarter. Not completely but it went up very drastically which caught all of us in the supply chain by surprise. Then of course the lead times went out. Then of course is the next step -- the systems that command the orders. The systems themselves get nervous and of course order even more. So it's like a circle, it's like -- which happens all the time principally. In the meantime all this is especially dramatic in Asia because as we know in Asia the inventory levels people are ready to tolerate are very low. Whatever happens everywhere is there in particularly drastic but this is not the first time. It is always like that because they have no buffers, very simple, they don't believe in buffers. This time I only say I'm 30 years in this business I've never seen an increase so steep and I believe my colleagues must more or less feel the same way.

Right. So how do you approach that from management perspective. You've got this feedback loop that keeps ramping up. You just haircut all the orders or say, hey we got to have extra internal inventory to be ready for whatever?

MOSFETs and I'm talking only MOSFETs. For the remainder it's relatively okay. But for MOSFETs it's beyond allocation, there's no question about it. And of course, we work together and with our distributors on their inventory, what is reasonable, what is maybe not reasonable. So we try to distribute our available capacity which grows. In a reasonable form. That everybody if you don't let down anybody if possible.

Last question was just hoping you could talk a little bit about cash for you guys, if our cash flow -- very good cash flow generator. It changed a little bit from last quarter, can you talk a little bit about why it stepped down and how we should sort of be thinking about your cash flow potential going forward?

Well, first of all you shouldn't compare to the fourth quarter. In this case it's more meaningful to compare quarter with one year ago and this case we are a little better as you've seen. It's up, the free cash. I see approximately the same performance as prior year.

Okay. Great, thanks a lot.

Your next question is a follow up from Jim Suva.

A quick clarification--what were you expecting for CapEx now that we are coming out of the recession for the year? And then maybe you could help us with you had mentioned that we're at orders above precrisis, how much excess orders are overheated do you think we are, like 5%, 10%. I know everyone is worried on double ordering.

(Inaudible - technical difficulties) But again, the order book is so full and the pipeline is so empty that nobody should be scared that the situation -- the sales level breaks down immediately or quickly. We feel very safe for the foreseeable future. Some booking must be there by principal but we try to minimize it in working with our distributors, in working with the OEMs. I feel solid. Some overheated -- some impact of the overheated situation of course exists but you know it doesn't change the picture.

Gerald, if I may add something to that. I have been at the conference -- this is Dr. Zandman -- I have been at the conference for distributors a few months ago and at that time there was a vote taken in the audience who believes in a V upturn or in a W? Well, the majority was for W. Today they don't speak more about W. Everybody is for V. There were some voted for a square root. Now most of the people we talk to speak about a V. They don't see too many major drop. It's because of what Gerald said, inventories are empty, and demand is very brisk.

Thank you, congratulations again.

Thank you. .

Thank you, there are no further questions at this time. I will now turn the conference back over to Dr. Yahalomi for any closing remarks.

Thank you for your participation in our call. We appreciate your interest and look forward for your continued interest at Vishay. Thank you.

Thank you for participating in today's conference call, you may now disconnect.