威世科技 (VSH) 2010 Q2 法說會逐字稿

Good morning, my name is Kayla, and I will be your conference operator today. At this time, I would like to welcome everyone to the Vishay second quarter earnings results 2010 conference call.

(Operator Instructions).

I would now like to turn the call over to Vishay's CFO, Dr.Yahalomi. You may begin your conference.

Thank you, Kayla. This is Lior Yahalomi, Vishay's Chief Financial Officer. Ladies and gentlemen, good morning, and welcome to Vishay's second quarter 2010 earnings call. On the line with me today are Dr. Zandman, Chairman and Chief Technical and Business Development Officer. Dr. Paul, Vishay's President and Chief Executive Officer, and Lori Lipcaman, Vishay's Executive Vice President and Chief Accounting Officer, David Tomlinson, Vishay's Senior Vice President, Corporate Controller. Before I start, our Corporate Controller, David Tomlinson will read our customary opening statement. Dave?

You should be aware that in today's conference call, we'll be making certain forward-looking statements that discuss future events and performance. These statements are subjects 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. After my remarks, Dr. Paul will provide an analysis of our second quarter 2010, and Dr. Zandman will update our R&D and acquisition activities, and will provide summary remarks. As you are aware, on July 6, 2010, we completed the spin off of Vishay Precision Group, into an independent, publicly traded Company. Vishay financial results for second quarter of 2010 still includes VPG. VPG is an independent company. However, we will not re-state prior financial statements to present VPG as an discontinued operation, for US GAAP purposes. The reason is our continuing involvement, primarily due to common Board members, trademark licenses, and certain transitional services. To assist in the analysis of Vishay, including and excluding VPG, we have realigned our US GAAP reportable segments, segregating VPG into it's own segment as detailed in our current report on the Form 8-K filed with the SEC this morning. This Form 8-K is available on the SEC EDGAR website, as well on the Vishay Investor Relations website at ir.vishay.com.

I will first discuss our quarterly results as reported, in other words, including VPG, and then provide information on Vishay, excluding VPG. Quarterly results for Vishay as reported including VPG, for the second quarter of 2010, Vishay reported revenues of $701.7 million, 9.6% higher than the first quarter of 2010, and 52.4% higher than the second quarter of 2009. Our consolidated gross margin for the second quarter was 30%, as compared to 26.1% for the first quarter of 2010, and 17.1% for the second quarter of 2009 The increase from the first quarter of 2010 reflects the continued recovery from the global economic crisis, with increased sales and the cost reduction initiatives implemented by the Company.

Selling, general and administrative expenses for this quarter were $109.3 million, or 15.6% of revenues, compared to $101.9 million, or 15.9% of revenues for the first quarter of 2010, and $83.8 million or 18.2% for the last year's second quarter. The second quarter of 2010 included $6 million of costs related to the VPG transaction. Other income and expense for second quarter of 2010 consists mainly of $2.4 million of interest expense, and $5.5 million in foreign currency gains. The tax rate for the second quarter of 2010 was approximately 27%. Capital expenditures for the quarter were $31.1 million, compared to $18.1 million in our first quarter of 2010, and $7 million in the second quarter of 2009.

Depreciation and amortization for the quarter was $48.9 million, as compared to $50.4 million in the first quarter of 2010, and $55.8 million in the second quarter of 2009. As announced in our press release, Vishay reported earnings attributable to Vishay's stockholders of $0.40 per diluted share for the second quarter of 2010. There were no unusual items for the second quarter of 2010, hence the $0.40 is both GAAP and adjusted. Diluted earnings per share were $0.40 for the quarter, as compared to net earnings per share of $0.24 for the first quarter of 2010, and a net loss per share of $0.32 for the second quarter of 2009.

Now quarterly results for Vishay excluding VPG. For the second quarter of 2010 excluding VPG, Vishay had revenues of $648.8 million, 9.5% higher than the first quarter of 2010, and 54.8% higher than the second quarter of 2009. The gross margin for the quarter was 29.4%, as compared to 25.3% for the first quarter of 2010, and 16.2% for the second quarter of 2009. SG&A expenses for this quarter were $89.5 million. This amount excludes, both the SG&A expenses incurred by the VPG business, as well as the $6 million VPG transaction cost born by Vishay Intertechnology. This represents a 13.8% of revenues, as compared to $86.6 million, or 14.6% of revenues for the first quarter, and $273.6 million or 17.6% for last year's second quarter. VPG did not have a material impact on reported other income expense, nor on the consolidated effective tax rate. Capital expenditures for the quarter were $29.1 million, as compared to $16.2 million in the first quarter of 2010, and $6.7 million in the second quarter of 2009. Vishay, excluding VPG, generated earnings of $0.38 per diluted share for the second quarter of 2010, as compared to $0.23 for the first quarter of 2010.

Vishay's reported debt and cash position including VPG, Vishay had a total debt of $322 million as of July 3, 2010. The debt consists predominantly of the following segments, $105 million of long-term note with 92 years maturity due on December 12, 2102, with interest rate of 90-day LIBOR plus zero, $75 million of long-term loan maturing on July 1, 2011, with payments spread over the next year 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 1.875%, $125 million of which was unused on July 3, 2010. As of July 3, 2010, cash and cash equivalents were $675 million. Total available liquidity, measured by cash, plus all available credit lines, was $817 million, while the total debt payable over the next five years is only $212 million.

Now Vishay's liquidity excluding VPG, VPG assumed approximately $12 million of debt in the spin-off. Vishay, excluding VPG, had a total debt of $310 million as of July 3, 2010. The debt consists predominantly of the following segments, $95 million of long-term notes with 92 years maturity, $75 million of long-term maturing in 2011, and $250 million revolving credit facility maturing in 2012, $125 million of which was unused on July 3, 2010. As of July 3, 2010, cash and cash equivalents were $604 million. Total available liquidity, measured as cash plus all available credit lines, was $744 million.

Some other financial summaries as reported including VPG. Total inventory at quarter-end was $450 million, working capital at quarter-end was approximately $1.1 billion. And free cash flow was $79 million for the second quarter of 2010, as compared to $50 million for the first quarter of 2010, and $9 million for the second quarter of 2009. Other summary financials excluding VPG, total inventory at quarter-end was $406 million. Working capital at quarter-end was approximately $1 billion. And free cash flow was $76 million for the second quarter of 2010, as compared to $47 million for the first quarter of 2010, and $3 million for the second quarter of 2009.

Now I would like to share with you a decision by Vishay's Board of Director regarding the maximum debt for acquisitions. Vishay, based on it's strong generation of free cash, and the resulting continued strengthening of it's balance sheet, will continue to pursue other successful strategy of acquiring and integrating businesses. In order to limit our financial exposure, the Company has refined it's acquisition strategy and policy. Our strategy, target acquisitions to strengthen and broaden Vishay's position as a specialty supplier of passive components, and to increase our market share and exploit synergies in our discrete semiconductor product lines. As announced today, the Board of Vishay decided not to pursue acquisitions, if our post acquisition debt would exceed 2.5 times our pro forma EBITDA.

Again, apologies, not to pursue acquisitions if our post-acquisition debt would exceed 2.5 times our pro forma EBITDA. For this purpose, we will calculate pro forma EBITDA to be Vishay's EBITDA for the four quarters preceding the acquisition, plus the adjusted EBITDA of the target for the same quarters. The adjusted fees for the expected savings predominantly estimated through expected synergies. At this point, we have no concrete targets for a large acquisition. I will now turn the call over to Dr. Gerald Paul, our President and Chief Executive Officer. Gerald?

Thank you, Lior, and good morning everybody. As you heard from Lior, we are living in excellent times. After a phase of steep recovery, Vishay, in the second quarter, experienced really good business conditions world-wide. Orders were stabilizing above pre-crisis levels. With shipments close to pre-crisis levels, and permanently reduced fixed costs, a new level of profitability was reached. As you've heard, gross margin of 30%, and operating margin of 14%. With out VPG, the numbers are very similar, gross margin were 29% and operating margin 15% We reported $0.40 per share, adjusted as well as GAAP. The cash generation remains strong. We generated $129 million free cash year-to-date. A very strong order book gives us confidence for the second half of the year.

Let me talk about the economic environment. We believe that global economy is in the phase of a robust recovery, no slowdown is visible in Europe. I know there have been some concerns about it, we cannot see any slowdown. The overall market demand for electric components has reached historically high levels. There are substantial shortages of supply, capacity allocations, and long lead times. There is still very low inventory in the supply chain, in particular for semiconductors, namely for MOSFETs. There's a strong POS, and a very high inventory turns at our distributors. POS is up by 9%, and inventory turns world-wide of our distributors at 5.5, after 5.0 in the first quarter. The American distributors showed 3.9 turns, after 3.4 turns in the first quarter, the European distributors, 5.6 turns after 5.2. And the Asian distributors are at 7.1 turns, as compared to 6.7 turns in the first quarter.

Distribution inventories went up slightly in the quarter by 6%, but they are still at an extremely low level. All market segments, in all regions, remain strong to overheated, in particular, netbooks, consumer, and fixed telecom. There's a strong comeback of automotive. There's a steady recovery of industrial, and the continued strong picture at AMS. Pricing is stable in general, and some opportunities exist for selective price increases.

Let me talk about Vishay. The picture is quite positive. Sales in the quarter came out at the upper end of the expected increase, and they were still partially limited by manufacturing capacities. We achieved sales of $702 million in the quarter, as compared to $641 million in prior quarter, and $460 million in the prior year. Excluding exchange and defects, sales versus prior quarter were up by $79 million or 13%, and up by versus prior year by $253 million, or 56%. Without VPG, sales in the quarter were $649 million, as compared to $592 million in prior quarter, and to $419 million in prior year.

We see a continued strong book-to-bill ratio of 1.15, as compared to 1.46 in the first quarter, and 1.22 in the fourth quarter 2009. Without VPG, the book-to-bill ratio is 1.16. Some more details about the book-to-bill, 1.17 -- 1.17 for distribution, 1.14 for OEMs, 1.08 for the actives, and 1.23 for the passives, 1.27 when you exclude VPG, 1.17 for the Americas, 1.24 for Europe, and 1.07 for Asia. You see, there is unbroken optimism in general. For the actives, we have seen some stabilization of orders on a high level. There are strong orders from European and American distributors that support the passives. The backlog continues to be at an extremely high level of 4.2 months, 4.5 for the actives, 4.3 for passives when excluding VPG, and 2.2 for VPG itself. All of this I believe, can support and does support our expectation for a strong third quarter.

Price decline has stopped in general. As I said before, there are selective opportunities for price increases. Prices vis-a-vis prior quarter for Vishay went up by 1.9%, and by 1.1% up, versus prior year. For passives, the prices were stable. For actives, there were price increases of 3.8% versus prior quarter, and 2.3% versus prior year. Some highlights from operations, inventory turns in the quarter improved further to 4.4. We increased inventories in the quarter slightly, by $13 million, excluding exchange rate effects, by $2 million in raw materials, and by $11 million in (inaudible) and finished goods. We increased inventories year-to-date by $ 22 million, which is immaterial in view of the revenue increase of $500 million annualized, which we have seen since the beginning of the year.

Capital spending in the second quarter was $31 million versus $18 million in prior quarter, and $7 million in the prior year. For 2010, we currently expect to spend $150 million, 1, 5, 0, $65 million for expansion, $35 million for cost reductions, and $50 million for the maintenance of the business. This is $50 million up from previous projections, mostly due to the fact that we need some additional capacity expansions in highly profitable specialty products. We are talking here about pay back times of less than one year.

During the quarter, employment increased further by 930 heads, to a total of 24,350, mostly due to the increase of manufacturing capacities, of course. Fixed personnel as part of the total remained stable. There is no significant increase from the lowest level in 2009. The total employment, without VPG was 22,180. We do not expect to incur material restructuring costs in 2010, as I said before, but also not in 2011. We generated $109 million cash from operations in the quarter, as compared to $68 million in prior quarter, and $216 million in prior year. We generated $79 million free cash in the quarter, as compared to $50 million in prior quarter, and to $9 million prior year. As I said in the beginning, our year-to-date generation of free cash is $129 million, vis-a-vis $51 million prior year. So you can see 2010 will be another excellent year of cash generation for Vishay.

Let me talk about the reconciliation of results of the quarter, vis-a-vis prior quarter. Based on $61 million higher sales, actually $79 million higher when excluding exchange rate impacts, the adjusted operating margin increased by $36 million from $65 million, to $101 million. The main elements were a positive impact from selling prices of $13 million, 1, 3, a positive impact from increased volume of $34 million, and the negative impact from increased fixed costs of $10 million, predominantly from the spin-off project which Lior mentioned, severance costs, and bonuses.

When comparing the results of the quarter, vis-a-vis prior year, you find the following, based on $241 million higher sales, $253 million higher excluding exchange rate impacts, the adjusted operating margin increased by 1, 0, 6, $106 million from minus $5 million to $101 million. The main elements were a positive impact of the selling prices of $8 million, a large impact, a positive impact from the volume of $120 million, positive impact of variable costs of $9 million, and higher fixed costs of $32 million, coming mainly from the bonuses, from the discontinuation of short work and plant shut down, from the spin off project,, and from some layoff costs.

Let me come to the product lines, and I will start, as usual, with resistors and inductors. This is Vishay's traditional and most successful business. We are the world market leader, offering all existing product technologies. Our business has regained, in the meantime pre-crisis sales levels. There's a strong demand from industrial and automotive. Sales in the quarter were $153 million, which excluding exchange rate effects, is 7% above prior quarter, and 66.0% above prior year. There is a very strong book-to-bill ratio for resistors and inductors of 1.22. The back log has grown to 3.8 months. There are shortages of supply of inductors and some power resistors.

The gross margin has increased to 36% of sales , one of the best results we have ever had in resistors, inductors, and 1% above prior quarter. We have seen a favorable product mix,, excellent efficiencies, and reduced fixed costs. The selling prices were stable versus prior quarter and prior year. The inventory turns are at 5.0. We are expanding manufacturing capacity selectively, while optimizing further the cost structure. We are aiding production capacity in power resistors and inductors. And we have implemented some price increases for the remaining commodity part of this business.

Coming to capacitors, this business of Vishay is based on a broad range of technology. We have a strong position in European and the American market niches, founded on product performance and reliability. We do have a strong position and a record growth in high power applications. As expected in the second quarter, also capacitors came back to pre-crisis sales levels. Strong -- there's a strong demand for tantalum capacitors, multi-layer ceramic capacitors, and film capacitors, mainly from automotive and industrial. Also the power caps started to recover with, may I say, the normal time delay which we always see. Sales in the quarter were $134 million, which again, excluding exchange or defects were up by 19% versus prior quarter, and by 51% versus prior year. There's a continued strong book-to-bill ratio of 1.31. The backlog has grown to a very substantial 4.8 months, and there are some shortages of supply. Q2 higher volume, gross margin has grown to a level of 24% of sales.

Selling prices, like in resistors were stable versus prior quarter, and versus prior year. Inventory turns have grown to 3.6. We can say, we can state that our film capacitors restructuring efforts have been finalized successfully. You may remember, it took us some time to get there. We are also starting our expansion project for power capacitors in India. Coming to the semiconductors, and starting with diodes, diodes represents a broad commodity business where Vishay is the largest supplier world-wide. We offer virtually all technologies as well as the broader -- broadest product portfolio, and a technically leading, particularly in power applications.

After a very deep recession, diodes in the fourth quarter 2009 entered a phase of steep recovery. The business presently is even somewhat stronger than before the crisis. Book-to-bill is at 1.35. There are very long lead times, and also some shortages of supply. Sale in the quarter were $151 million, 10% above prior quarter, and 69% above prior year. Backlog has grown to 5.1 months. The close margin of diodes has improved, from 20% in the first quarter to 24%, and mostly due to higher volume. Inventory turns are quite excellent, they are at 5.5. The price decline for diodes has come to a halt. There are selective price increases possible, altogether prices went up by 2.1% versus prior quarter, and by 0.7% versus prior year. We are working on some capacity for de-bottlenecking for high-powered diodes.

Let me come to our Opto line. Vishay's Opto business consists of infrared sensors, couplers and special LEDs. It contains relatively high share of custom designed products, especially in the segment of sensors. Vishay is the largest supplier of infrared components world-wide. We have a high innovation rate, and the business is very application driven. We have seen also here, a substantial recovery since the fourth quarter 2009. Business is back to pre-crisis levels. Sales in the quarter were $58 million, 2% above prior quarter, and 48% above prior year. There's a strong book-to-bill ratio, also for Opto products of 1.26. The backlog has grown to 3.8 months. The gross margin increased to 35% of sales, one of the best results ever. Inventory turns of the line at 5.8, quite excellent. The price decline has come down. In fact, vis-a-vis prior quarter, we had an increase of 1% of the selling prices, vis-a-vis prior year, a decrease of 1.4%.

Talking about last, but really not least, the MOSFETs. We are the market leader through Siliconix, in the low voltage MOSFETs. For the most part of the second quarter, we continued to experience the continuation of a completely overheated upturn, with extremely long lead times, capacity allocations, and substantial shortages of supply. There are -- there is some stabilization of orders on a high level recently. Sales in the quarter were at $153 million, up by 21% versus prior quarter, and up by 61% versus prior year. The Siliconix business is not yet on pre-crisis levels. The backlog has grown to 4.2 months, extremely strong for this product line. Gross margin has improved quite drastically to 31% of sales, due to higher volume and better pricing.

For MOSFETs, there is really no price pressure at this point on the market. There are some quite important opportunities even for price increases. We have raised the prices vis-a-vis prior quarter by 6.8%, and vis-a-vis prior year by 5.5%. The inventory turns are at 4.0. Our eight-inch expansion in our fab in Germany in Itzehoe is quite on target. And quite important I believe we are going to reach pre-crisis manufacturing capacities already in the third quarter, we basically counted up to now in the fourth quarter. It will be faster.

Well, let me summarize. The second quarter, I believe, has demonstrated Vishay's ability to fundamentally improve it's earnings power. At pre-crisis sales levels, operating margin and earnings per share have at least doubled. A strong generation of free cash continues to be one of the main strengths of this Company. We successfully have implemented the spin-off of the Vishay Precision Group, which will be beneficial for both companies going forward. It will not materially impact the performance of Vishay. Vishay continues to be one of the largest and technically leading enterprises in electronic components, close to it's customers also in times like these, with long lead times, et cetera.

No doubt, we currently enjoy excellent market conditions. We nevertheless believe in a steady and permanent measures for expansion and cost reduction. We think long-term, and will be careful not to invest in manufacturing capacities, just in order to follow speculative spikes of demand. For the third quarter of 2010, we guide to a sales range between $650 million and $690 million, at slightly improved results. And, ladies and gentlemen, this is now without VPG. Thank you very much. I would like to turn to discussion to Dr.

Good morning. This is Felix Zandman, Executive Chairman of the Board, Chief Technical Officer, and Chief Business Development Officer. Vishay had good second quarter as you heard, with earnings per share of $0.40 per share. This is the fourth consecutive increase of GAAP earnings per share since the crisis. Let's look at the last four quarters, $0.01 EPS for third quarter of 2009 from a loss of $0.16 from the prior quarter, $0.15 per share for the fourth quarter of 2009, $0.24 for Q1 of 2010, and finally $0.40 for the second quarter of 2010. The present quarter, and the third quarter of 2010 looks also quite promising. All operational results have improved substantially as you've heard, when compared to pre-crisis level.

Free cash year-to-date was $129 million, an exceptionally good result, and we are focusing on that continuously. We continue to focus on free cash, and this is one of our basis of operations. The separation from Vishay of Vishay's Precision Group, called VPG, under the leadership of Ziv Shoshani, it's President and CEO, was seamless and very well executed. The sales at Vishay have almost reached the pre-crisis levels, while the sales of VPG are still somewhat lagging in the area of product areas of load cells and systems, while sales in foil products are at record levels. As expected, the combined market cap of Vishay and VPG together is higher by 10% to 20% range, when compared to the market cap prior to separation of VPG from Vishay. Both companies are now focusing on their separate businesses.

Vishay continues to look for acquisitions, small and large, however with the intent not to exceed the ratio of 2.5 times debt to EBITDA ratio of Vishay and the potential acquired company. As you've heard from our CFO, no details about this issue. Our new and recently introduced products contributed significantly to our results and are enjoying great success. Some of them were recently licensed under royalty agreements. Just a few examples, [IHOPs], surface mount square inductor, in great measure replaced the old-fashioned cylindrical inductor. Our W-cell SMD, flat type resistor, in great measure, also replaced the old-fashioned cylindrical power resistor. MAP miniature (inaudible) capacitor is very successful in areas of low ESR Tantalum capacitors of same size.

The [trange] diodes have enjoyed great success and penetrates rapidly new markets. Many new products in power MOSFETS and [ICs] have been introduced by Siliconix, which enjoys present day rapid expansion. Our electronic sensors are introduced into many new applications, especially the new automotive area. New electronic products such as the Apple iPad, and other products contain many Vishay components. Because of our broad product line, and brand name recognition, Vishay components are found world-wide in most electronic applications. Vishay management, under the leadership of our CEO, Dr. Gerald Paul, has weathered and excelled very well the past very difficult crisis, by generating substantial cash, substantial free cash, and properly positioning Vishay for the future, and got the recovery we presently enjoy. As a summary, the Company is doing well, (inaudible) -- excuse me, and we look with optimism for the future. We are now open for questions. Please, any questions? Kayla?

(Operator Instructions).

Your first question comes from Jim Suva.

Congratulations, gentlemen, this is [Althea Merchant] on behalf of Jim Suva.

Thank you.

The VPG spin-off, if you can provide further clarity any how we should look at your outlook for gross margins, operating expenses, and sort of the effective tax rate, now that you have spun off VPG, if you can provide guidance on that?

Okay. First of all, the gross margin we have guided to slightly further -- further slight improvements, you will remember, and we are at 29% in the second quarter without VPG. On the SG&A, I think we can say $90 million per quarter is the appropriate number for Vishay without VPG.

And then your effective tax rate?

There will be no big change from what we have now, around 27%.

Okay. And the gross margin improvements that you're citing. Is that a function of both ASB increases and --

It's mostly volume. The further improvement we expect to come from volume for the most part.

Okay. That's all I have right now. Thank you.

Thank you.

Thank you. Your next question is from Matt Sheerin.

Yes, thanks, good morning. So Dr. Paul, I didn't get the book-to- bill for Siliconixs. You may have given it, but I missed that. Did I miss that? No, I haven't, Siliconix was at 0.8 in the quarter, but this is somewhat distorted by the fact we do not recognize orders that are beyond one year, you understand? This is our policy, we do not recognize them. If you had counted all of the orders, also the ones beyond one year, confirmation time, it would have been above 1.2.

Okay. So it was 0.8?

Approximately, 0.79, as I said.

Okay, so that was -- that was up to six months? Why was it down so much

As I said, if you had counted all of the orders, also the ones with confirmation dates beyond a year, we have very full capacities, then the order -- the book-to-bill ratio would have been above 1.2, around 1.2.

Your guidance for September implies up, at the mid-point around 4% or so.

Right.

Sequentially. And is that -- do you expect all of your segments to be up sequentially, or would Siliconix be down, based on that book-to-bill?

Siliconix will be up in particular. If I didn't get across, so our order book in Siliconix is extremely full.

Okay. And on the gross margin, it looks like you're at, basically record gross margins, if you take out the bubble years of 2000, 2001. Same thing on operating margin. Do you think that's sustainable, or are you getting help from ASPs and the fact that, as you said, you used the term overheated. Do you think Vishay can sort of sustain that? I mean you're at $1.40 plus EPS run rate right now. Do you think that's sustainable, for the new Vishay, if you will, or is that a little bit too optimistic?

Well, as a matter of fact,, as I said since quite a few quarters, based on all the fixed cost reductions we had during the crisis, our break-even point has come down by $400 million to $500 million. And this is sustainable. It means at same sales level we are going to generate substantially more profit than before the crisis. The remainder is a function of volume. The same profits before the crisis. It remains a function of volume. As it looks for a third quarter, we are very optimistic, the volume remains, but principally speaking, it's each sales level that we're going to be at, our results will be substantially better than before the crisis.

And your book-to-bill did come down pretty significantly in the third quarter. Do you think part of it is -- as you said, you acknowledged last quarter, that there were some so-called double ordering. And do you think that see going away, and the book-to-bill is more reflective of what the real demand looks like goes forward?

Try to make the same argument. If we had regard's of when the confirmation date was, even beyond the year, if we that had done so, the book-to-bill would have been very similar to the first quarter. Very similar.

Okay.

Understand, if you have full capacities, then you confirm the orders sometimes after one year, and then we don't count it anymore. This is our policy.

Okay, and just my last question, Dr. Paul, on your -- what is the company's total capacity revenue right now at, in terms of if you were full, what could you produce?

Depends very much, of course, on the mix of products. We have very many lines. And but I think I -- I expected this question, so I think a fair number without VPG could be around 750.

750. Okay.

But, Matt, this is -- it depends really on the mix. It's a good guess, I think.

Got you. And then just lastly on pricing. Obviously you're in a cyclical business. Are you expecting -- are you expecting to sort of run your business in an environment, where there's more normal price erosion?

Well, we expect this level of prices for our foreseeable future. So we do not expect price decline for the time being.

Okay. Thanks very much.

Thank you. Your next question is from Joe Wittine.

Hi, this is Joe calling in for Shawn Harrison. First off congratulations on the quarter. I want to jump on the gross margin question from the first caller as well. The incremental margins, I guess, have been robust for three straight quarters now, 70% to 90%. It doesn't seem like from your comments, there's any reason to expect a slowing, and you said they will increase further. Is it safest just to model your typical incremental gross --?

Very much so, very much so.

There's no mix benefit that you expect to change to the downside or anything to that extent?

No, I think if you go with the variable margin of 50%, or contributive margin, you're right.

Okay, secondly, lead times, have lead times come in at all, as you look out in any aspect of your business?

No, they are very, very long. In fact, quite often, longer than a year, as I tried to say.

Okay. What about an update on the new capacity. You mentioned that the internal efforts have been going pretty well. I didn't hear you speak to the external wafer sourcing. How is that going --?

All together, as I said, all together Siliconix already in the third quarter, will be from a manufacturing standpoint. And, of course, also from a sales standpoint at pre-crisis levels. It is one quarter earlier than we anticipated, and this includes, also, our external sources.

And just one more thing. Inventory distribution, you said it ticked up a little bit. We also saw that at Arrow. The question is, how do you see that trending in the second half of the year inventory?

I don't have anything new since then, to be honest. But you must see, we are not the only ones who had some price increases in the quarter. It could also be the matter of an inventory devaluation. So we still see that inventories in distribution at extremely low levels, given the activity. Extremely low levels. I can hardly remember distribution turns, world-wide at 5.5.

One last clarification thing you had mentioned to Matt, I think, what the Siliconix s book-to-bill would have been excluding --

About 1.2

Do you by chance have a comparable number to what the March quarter would have been along those same lines? Were there orders more than a year -- ?

No, not by half. But it would of been higher, I would say, more than 1.2. But book-to-bill above one is not sustainable by definition.

Terrific. Thanks, and congratulations again.

Thank you.

Thank you. (Operator Instructions).

Your next question is from Steve Smigie.

Hi, guys, this is Andrew calling in for to Steve. Congratulations on the nice numbers here. Just to start out, I think you mentioned adjusted EPS for stand-alone Vishay at $0.38 there. But you also mentioned about $6 million of transaction costs related to VPG. Is that still included in your --

Yes, in the $0.38, it's included.

Okay. Great, great. And then I think you mentioned -- you gave a little color on the increase in gross profit there for the quarter of $30 million -- $34 million related to higher volumes, approximately, a $10 million negative impact of fixed costs. Was there a third or fourth component there?

Quarter over quarter, these were really the three important items. ASP is $13 million, positive, volume, $34 million positive, and some mostly singularities increased fixed cost of 10. These are really the three elements.

Okay. And I think you said for the next quarter, you're expecting pretty broad-based growth across each segment there. Can you talk a little bit about if G -- if gross margin expectations have changed for any of the lines, based on some of these -- some of the additional capacity that you're bringing on-line, but also the de-bottlenecking as well? Have those changed at all?

As soon as sales go up, you can count on everything Vishay, on something like 50% contributive margin. So this is really the answer, it's constant prices, right? From a pricing standpoint, I would say it's firm, as I said before, and there are no surprises on the fixed cost side. So I think it's easy to model.

Okay. And then finally, you mentioned automotive recovery is pretty nice here. Any regions in specific that may have outperformed?

I think in Germany, in particular -- say Europe, but for the most part in Germany, large cars are exported very much to Asia, there is a enormous boom there at the moment.

Okay. Thank you very much.

Thank you. Your next question is a follow-up from Joe Wittine.

Hi, thanks, just two quick follow-ups.

Sure.

tantalum and power. You can work from the assumption that we are secured for sure for this year. And last thing, in the press release, the wording that orders have stabilized, I guess at this point. Granted well above pre-crisis levels. In any of your businesses, I guess, is that more so than others, I guess, orders that -- ?

At the moment, we have book-to-bill. If you count all of the orders as I said regardless of confirmation date, all of the lines are above one.

Well, can you say when the book-to-bills peaked within the June quarter, I guess, was it early or late -- ?

There cannot be book-to-bill forever substantially above 1. The lead types get too long. That means even if there's absolutely wonderful times for the next years, sooner or later book-to-bill will approach one by nature of things, I would say. So it's not an indication for a slow down. If the book-to-bill is not 1.5 anymore, but just 1.2, I think.

Absolutely I think. Some may welcome a little bite of a decline in the ratio. All right. Thank again.

Thank you. Your next question is a follow up from Matt Sheerin.

Yes, just a couple of questions. One, on the acquisition strategy, and the debt to EBITDA ratio, is that a net debt ratio?

Lior, do you want to say something?

No, that's not a net debt. However, considering our $600 million plus of cash, which we continue to general separate will continue to focus on, you could expect that we'll maintain a very strong cash position in any acquisition forward.

So, in other words, you would use cash, or some of that cash for an acquisition?

Possible. Possible. However, we would maintain some of it for restructuring and maintain some of it to manage any potential down turn in the market as we always do.

Okay. Good. Because if you look at the numbers, and even if you normalize the EBITDA run rates of 2007 and 2008, you're still talk about the capacity to spend a billion dollars or more on acquisition. Correct?

We agree.

And then just back to the Dr. Paul --

I want to reiterate. This is really the -- we have no large targets. And I would say that the 2.5 really represents the maximum the Board directed us to reach. So it's not like this is what we're looking for. We're looking for smaller mid-sides acquisitions, as Dr. Paul and Dr. Zandman, indicated over the last couple of quarters. And we will be --- obviously we will only reach to that 2.5 if we know for sure, that immediately thereafter we will be able to generate free cash to start paying down the debt. So that we could go back to a more normalized in a 1 or below 1 as we are today, in terms of our debt to EBITDA.

Understood. Okay. Thanks on that. And then Dr. Paul, just Back to the question of lead times, you mentioned, for Siliconix s, for instance, you're at a year, which seems like we haven't heard that number, maybe ever. So what do you realistically quoting customers? Is it basically -- when do you sort of stop? Is it six months, and then after that, then the orders you get are sort of don't make any sense, and they're phantom orders?

Well, as a matter of fact, it's our policy, and I think it's very, very broad, this policy, to recognize lead times -- to recognize order when lead types are below a year. At the moment, there is, of course, a location. And by the nature of things, people order very much long term, which doesn't mean very much. But in the other hand, it's also not a sign of any down turn if she is should go down at a point. It's just the concern people have not to get the product.

Okay. And how are you allocating product, whether it be on the passive side or the active side, to customers? How do you make those decisions?

Well, as a matter of fact, it's basically in Siliconix, by the way, basically in Siliconix. On the other side, it's not a firm allocation. We look at the history of the customer. And basically, well how good we are together, as a matter of fact. And we have to take into account contractual conditions, also.

Okay. Thanks a lot.

Thank you. At this time, there are to further questions. Dr. Yahalomi, do you have any closing remarks?

Thank you for your participation in our call. We do appreciate your interest, and we look forward for our continue -- your continued interest. Thank you.

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