威世科技 (VSH) 2010 Q3 法說會逐字稿

Good morning, my name is Patrick and I will be your conference operator today. At this time I would like to welcome everyone to the Vishay Q3 2010 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session. (Operator Instructions). I would now like to turn the call over to Vishay CFO Dr. Yahalomi, Dr. Yahalomi, you may begin your conference.

Good morning, Patrick. This is Lior Yahalomi, Vishay's Chief Financial Officer. Welcome to Vishay's third quarter 2010 earnings call. On the line with me today are Dr. Felix Zandman, Vishay's Chairman and Business Development Officer, Dr. Gerald Paul, Vishay's President and CEO, Lori Lipcaman, Vishay's EVP and Chief Accounting Officer, and David Tomlinson Vishay's Senior VP, Corporate Controller. Before I start, David Tomlinson will read our customary opening statement. Dave?

You should be aware in today's conference call we will be making certain forward-looking statements that discuss future events and performance. These statements are subject to risk and uncertainties that could cause actual results to differ from the forward-looking statements. For a discussion of factors that could cause results to differ, please see today's press release and Vishay's form 10-K and form 10-Q filings with the Securities and Exchange Commission.

Thank you, Dave. I will make summary remarks, Dr. Paul will present detailed analysis of our third quarter 2010 and finally, Dr. Zandman will update our R&D and acquisition activities and will make summary remarks. As you are aware on July 6, 2010 we completed the spinoff of Vishay Precision Group into an independent publicly traded company trading in the New York Stock Exchange under the VPG ticker. Although VPG is an independent company, due to continuing involvement by having common Board members, limited supply agreements, leases and trademark licenses, we will not restate prior financial statements to present VPG as a discontinued operation for US GAAP purposes. To assist in the analysis of Vishay including and excluding VPG, we are realigned our US GAAP reportable segments segregating VPG into its own segment beginning last quarter.

Quarterly results, for the third quarter of 2010 Vishay reported revenues of $694.4 million, 1% lower than the second quarter of 2010 and 32.2% higher than the third quarter of 2009. Excluding VPG, revenues were 7% higher than the second quarter of 2010 and 43.1% higher than the third quarter of 2009 on a comparable basis. Our consolidated gross margin for the quarter was 31.5% compared to 30% for the second quarter of 2010 and 19.9% for the third quarter of 2009.

SG&A expenses for this quarter were $87.5 million or 12.6% of revenues, compared to $109.3 million or 15.6% of revenues for the second quarter of 2010 and $89.7 million or 17 .1% for last year's third quarter. VPG accounted for $10.3 million of the third quarter of 2009 SG&A. Other income and expense for the third quarter of 2010 consists mainly of $2.5 million of interest expense and $5.6 million in foreign currency losses. The effective tax rate for the third quarter of 2010 was approximately 27%.

Capital expenditures for the quarter was $30.9 million compared to $31.1 million in our second quarter of 2010 and $8 million in the third quarter of 2009. Depreciation amortization for the quarter was $44.5 million compared to $48.8 million in the second quarter of 2010 and $59.2 million in the third quarter of 2009. As announced in our press release, Vishay reported earnings attributable to Vishay stockholders of $0.47 per diluted share for the third quarter of 2010. There were no unusual items for the third quarter of 2010. Diluted earnings per share were $0.47 for the quarter represent an improvement as compared to the adjusted net earnings per diluted share of $0.40 for the second quarter of 2010 and adjusted net earnings per share diluted shares of $0.03 for the third quarter of 2009. Vishay excluding VPG generated $0.38 earnings per share in Q2 of 2010.

Year to date results, for the nine fiscal months of 2010, Vishay reported revenues of $2 billion, this is 41.9% higher than the same period of 2009. Excluding VPG which had revenues of $101 million through the spinoff date of July 6, 2010, revenues were 47.7% higher for the nine fiscal months of 2010 relative to the same period of 2009. Our consolidated gross margin for the nine fiscal months of 2010 was 29.3% compared to 17.5% for the same period of 2009.

SG&A expenses for the nine fiscal months of 2010 were $298.6 million or 14.7% of revenues compared to $260.9 million or 18.2% of revenues for the same period in 2009. VPG accounted for $35.4 million including $8.4 million of transaction costs for nine fiscal months of 2010 of SG&A expenses and for $31.4 million in the same period of 2009. Other income and expense for the nine fiscal months of 2010 consist mainly of $7.4 million of interest expense and $1.8 million in interest income. The effective tax rate for the nine fiscal months of 2010 was approximately 27%.

Capital expenditures for the nine fiscal months for 2010 were $80.1 million compared to $26.3 million for the same period in 2009. Depreciation and amortization for nine fiscal months of 2010, excuse me, was $143.8 million compared to $169.6 million for the same period in 2009. As announced in our press release, Vishay reported earnings attributable to Vishay stockholders of $1.10 per diluted share for nine fiscal months ended October 2, 2010. There were no unusual items for the nine fiscal months of 2010. Diluted earnings per share of $1.10 for the period represent an improvement as compared to adjusted net loss for diluted share of $0.15 for the nine fiscal months of 2009. Vishay excluding VPG would have earned $1.07 for the 2010 year-to-date period.

Vishay's liquidity. Vishay had a total debt of $298 million as of October 2, 2010, the debt consists predominantly of the following three segments. $95 million of long-term note with 92 years maturity due on December 12, 2102 with interest rates of 90 day LIBOR of 0%. $75 million of long-term loan maturing on July 1, 2011 with payments spread over the next eight months with interest rate of 30 day LIBOR at 2.5%. And $250 million revolving credit facility maturing (inaudible), 20, 2012 with an interest rate of 30 day LIBOR plus 1.875%, $125 million of which was unused on October 2, 2010.

As of October 2, 2010, Vishay had cash and cash equivalents of $745 million, total available credit line including the $125 million revolver in the US plus $143 million at October 2, 2010. Vishay's total available liquidity measured by cash plus all available credit lines is $888 million, while our total debt payable over the next five years is $204 million.

Other summary financials; total inventory at quarter end was $426 million with inventory turns in the quarter improving to 4.6, working capital at quarter end was approximately $1.1 billion, free cash flow was $131 million for the third quarter of 2010, compared to $79 million for the second quarter of 2010 and $103 million for the third quarter of 2009. Free cash flow plus $260 million for the first nine fiscal months of 2010 compared to $154 million for the same period during 2009.

I will now turn the call over to Dr. Paul, our President and Chief Executive Officer. Dr. Paul?

Thank you Lior and good morning to everybody. Well, I think we had a truly excellent quarter which exceeded all expectations. Based on pre-crisis volumes, favorable pricing environment and continued low fixed costs, Vishay has achieved its best performance since nearly 10 years. The gross margin as Lior pointed out increased to 32% of sales bringing the operating margin to 19% of sales and earnings per are share came in at $0.47. Free cash year to date September is at $260 million which is better than the quite excellent results of prior year. And a very sizable backlog represents a solid basis also for the current quarter.

Let me talk about the economic environment. We have seen the continuation of a clearly excellent business environment during the quarter. There were shortages of supply (inaudible) but also we have seen some pressures on the deliveries for several passive lines. The environment for pricing was naturally favorable. There was some normalization of orders recently but this was to be expected as manufacturing capacities now are catching up with demand and the lead times are starting to come down. There is -- this is currently -- what happens currently is not meaningful for the sales level in do to extreme backlogs which are 50% above normal.

Most markets continue strong, especially automotive, industrial, AMS and telecommunication networks or fixed telecom. There is a limited slowdown at computers and in segments of consumer mainly impacting our Asia business. The inventories at distribution have grown by 17% in the quarter, but they are still at low levels in view of the strong POS which again is up by 5% over the second quarter. The inventory turns and distribution are still very high on a worldwide basis we have seen 5.0 after 5.5 in the second quarter, the Americas at 3.5, after to 3.9 in the second quarter. Europe at 5.3, after 5.6 in the second quarter. Asia 6.4 turns after 7.1. So altogether as I said, very high inventory turns at distribution. Our OEMs continue to be overall very optimistic.

Talking about the business development. Quarter three sales as you've heard came in slightly above guidance, mostly due to faster than expected capacity ramp-up at Siliconix. We achieved sales of $694 million in the quarter versus $649 million in prior quarter and $485 million in prior year and these numbers exclude VPG. Excluding [exchange rate effects], sales versus prior quarter we are up by $43 million or by 7% and up versus prior year by $228 million or 49%.

The book-to-bill ratio in the quarter was at 1.04, which underlines the continuation of a strong demand in the existence of capacity constraints still in the third quarter. Some book-to-bill details, we had 0.95 for distribution, 1.16 for OEMs, quite strong, 1.02 for actives, 1.06 for passives. We had 1.09 for the Americas, 1.20 for Europe and 0.88 for Asia. It is obvious that Asian distribution is in process of adapting backlogs to better delivery situations which they know see, but it's also clear that the strong order pattern from OEMs continues. The backlog is at an extremely high level of 4.4 month, 4.3 for actives and 4.5 for passives and this historically speaking is 50% above normal.

All this supports our expectation for a strong fourth quarter. There were opportunities for price increases and for customer requested expedites in the quarter. So altogether prices went up by 2.0% versus prior quarter and by 4.2% versus prior year. And these opportunities existed as well for actives and for passives. In passives, prices went up by 2.4% over prior quarter and by 2.6% over prior year. Inactives by 1.7% versus prior quarter and by 5.5% versus prior year.

Some highlights from operations, the inventory turns in Vishay in quarter three improved further to 4.6. We have increased our inventory slightly by $5 million when you exclude the exchange rate effects namely by $4 million in raw materials and by $1 million in VIP and finished goods. Year-to-date September we have increased our inventories by $29 million, which is immaterial as we believe in view of the revenue increase of more than $500 million annualized which took place this year. The capital spending included in quarter three was at $31 million also in prior quarter and vis-a-vis $8 million in prior year.

For 2010, we continued to expect capital spending of $150 million, $65 million for expansion, $35 million for cost reduction and $50 million for maintenance of business. The fourth quarter capital spending will be higher in the frame of the $150 million which I just talked about, we expected approximately $70 million. Obviously we suffer from some longer lead times for the equipment.

During the quarter the employment at Vishay increased further by 430 heads to a total of 22,610. All this happened due to the increases of manufacturing capacities whereas the fixed cost personnel is part of the total remained close to the lowest level of 2009. We do not expect to incur material restructuring costs in 2010 but also not in 2011.

We generated $160 million cash from operations in the quarter as compared to $109 million in prior quarter and $110 million in prior year. We generated $131 million free cash in the quarter as compared to $79 million in prior quarter and to $103 million in prior year. The year-to-date generation of free cash is $260 million vis-a-vis $155 million in prior year and 2010 can be expected to become a record year of free cash generation. We are proud of that.

Let me talk about the results and let me compare them to the results of prior quarter. First, based on $46 million higher sales, which is $43 million higher excluding exchange rate impacts, the adjusted operating margin increased by $36 million from $95 million in quarter two to $131 million in quarter three. The main reasons for this improvement were the ASPs which led to an improved result of $14 million, volume was higher with an impact of $15 million, fixed costs were also better than in quarter two by $9 million, but this is really mostly due to the nonrefutation of spinoff-related costs.

Let me now compare the results with the third quarter prior year. Based on $209 million higher sales, actually $228 million higher excluding exchange rate impacts, the adjusted operating margin increased by $119 million from $12 million to $131 million. The main elements again, ASPs were positive by $28 million, volume gave a positive impact of $99 million, verifiable costs were better by $4 million, the fixed costs altogether were higher by $13 million, which is basically and predominantly from bonuses and from the discontinuation of short work which obviously was needed to manufacturer the present volume.

Let me talk about the various business lines and I start with resistors and inductors. As you know, this is Vishay's traditional and most successful business. We are the world market leader offering all existing product technologies. We have in resistors and inductors regained pre-crisis sales levels and continue to enjoy very strong demand from automotive and industrial. Sales in the quarter were $158 million, which is 3% above prior quarter and 56% above prior year. We enjoy a very comfortable backlog of 3.9 months and in combination with a solid book to bill ratio of 1.01, this indicates stabilization of the business on a high level. Gross margin for resistors and inductors came out at 35% of sales which is a continuation of the excellent performance of Q2. We have seen again a favorable product mix caused by strong automotive demand. Selling prices in resistors and inductors were stable vis-a-vis prior quarters and prior years. The inventory turns were at quite excellent, 4.9, and we continued to add some production capacities in power resistors and inductors.

Coming to capacitors, this business that Vishay is based on a broad range of technologies. We have a strong position in the European and American market niches founded on product performance and reliability. We have seen rapid growth in high power applications. There's a strong demand for Tantalum and aluminum capacitors mainly from automotive and industrial. The sales in the quarter were $140 million which is up by 4% versus prior quarter, up by 46% versus prior year. The book-to-bill ratio at capacitors was 1.11 and this good number is driven really by automotive and high powered applications. Backlog of capacitors has grown to 5.2 months, the were some shortages -- there are some shortages of supply in Tantalum, film and aluminum capacitors. Higher volume and the effect of price increases led to a gross margin in the quarter of 29% of sales, which actually is the highest profitability we have seen in this product line since the year 2001. Price increases have been implemented, 4.7%, price increase versus prior quarter at 5.7% versus prior year. The inventory turn of capacitors are at a satisfactory level may I say of 3.6 despite some buffering of Tantalum powders for our specialty products there.

Coming to diodes, diodes represents a broad commodity business at Vishay where Vishay is the largest supplier worldwide. We offer virtually all technologies as well as the broadest product portfolio and are technically leading in particular in power applications. After a steep upturn, diodes have clearly entered the phase of normalization, book to bill in the quarter was at 0.91. The backlog is at 4.7 months which is still extremely high. Historically we would expect 2.5 months. Sales in the quarter were at $157 million. This is the pre-crisis level, 4% above prior quarter and 47% above the prior year. Due to better prices and higher volume, gross margin in diodes improved further to 25% of sales. The inventory turn were historically excellent in this line. We had in the third quarter 5.4. The opportunities for broader price increases and we have done so. The prices went up for diodes by 2.3% versus prior quarter and by 5.1% versus prior year. We have extraordinary success with our new product line transpower diodes and we also expand the manufacturing capacities there.

Coming to Opto, which in our case consists of infrared sensors, couplers and special LEDs. Our opto business contains relatively high share of custom designed products, especially in the segment of sensors. Vishay the largest supplier of infrared components worldwide and the business is back to pre-crisis levels. Sales in the quarter were $57 million, which is 2% below prior quarter and 38% above prior year. In the face of this normalization is the business with book to bill of 0.86 but backlog at a high level of 3.8 months, the normal level would be also like in diodes around 2.5 months. The gross margin continues on various satisfactory level of 34% of sales, inventory turns quite good at 5.4, and prices are stable vis-a-vis prior quarter and prior year.

Coming to MOSFETs. We are the market leader in low voltage MOSFETs and after a completely overheated upturn of the last three quarters, this business now has reached a phase of normalization. The lead times currently are between 10 and 16 weeks but the backlogs are still very high. Sales in the quarter were $182 million, up by 19% versus prior quarter and up by 49% versus prior year. We have reached the pre-crisis levels of manufacturing and sales. We fully utilize our manufacturing capacities also for (inaudible) part of core sales, the sales level is determined in the quarter by the number of working days there. Book to bill in the quarter was 1.17 and backlog of 4.0 months. There were opportunities for broader price increases and customer requested expedites, prices went up vis-a-vis prior quarter by 1.8% and vis-a-vis prior year by 7.7%. After quite dramatic increase of profitability in the second quarter, gross margin improved another time, now to 35% of sales due to higher volume and better pricing. This of course includes the impact of special deals for expedites. Inventory turns at MOSFETs are a satisfactory level of 4.3.

Let me summarize. I think there's no question Vishay has emerged from the crisis stronger, more streamlined, more effective, motivated and even more are focused on the essentials of the business, if particular of course more profitable. At least twice as profitable as before the crisis at the same sales level. The third quarter of 2010 has been the best quarter since a long time. And these improvements are sustainable. We have lowered the breakeven point of sales by about $450 million to $1,850 million sales, $1.85 billion.

We will defend conservative margins by innovation and cost reduction and we will keep the pressure on the fixed costs and we will continue to be an excellent producer of free cash. For the fourth quarter, we guide to a sales range of between $650 million and $690 million at performance levels close to those of the third quarter. Thank you very much and I would like to pass onto Dr. Zandman. Thank you.

Good morning. The Q3 results indicate a continuation of strong sales and strong earnings. Our earnings per share of $0.47 per share is a 24% increase over the $0.38 per share of Q2 excluding VPG. However, other entry of the most advanced products such as the power ACs and some MOSFETs indicate maybe a stabilization of the market not clear yet. Our spinoff of Vishay precision products called VPG was orderly and seamless. VPG is functioning as an independent public company and does not rely on Vishay. The facilities, services and manufacturing have been separated completely. As expected, the market cap of VPG of $226 million and the market cap of Vishay as of today of $2.16 billion together representing $2.39 billion, almost $2.4 billion is substantially higher than the market cap of Vishay pre spinoff or an interest of 72%. During the same periods of time Dow Jones increased only 14%. All in all, the spinoff went very well due to the leadership of Ziv Shoshani, CEO and his team.

Our free cash generation of $131 million for Q3 and $260 million for the year continues unabated due to the excellent execution of Company policy by Dr. Paul, our CEO. We continue to explore large and small acquisitions, also our R&D programs are on target, with most divisions exploring new platforms of growth.

The last several quarters have shown that Vishay knows how to manage strong downturns and strong upturns. We have emerged from the last brutal, difficult downturn much stronger, leaner, more effective and better for the future and the most important with a much better bottom line. We look forward to [these opportunities]. Thank you.

Operator, we're now open for questions.

Thank you, sir. (Operator instructions). Our first question comes from the line of Steve Smigie.

Great, thanks a lot. First of all congratulations on the excellent performance in the quarter.

Thank you.

If you could talk a little bit about how you see operating expenses going forward. I think maybe in the past your last quarter you said might be around $90 million ex VPG so one specifically would be sort of flattish dollar wise in Q4 but how should I think about it also going forward as say a percentage of revenue?

Okay. Steve, really nothing has changed from what we said before. The $90 million per quarter is a fixed number, practically independent of sales. It's still valid and therefore the percentage of sales has been affected. In our case we have a direct sales force, we don't go by commissions practically as only minor the impact if we have any in this case therefore I can say $90 million is a good number going forward.

Okay. Even for Q4 or be a little bit lower?

Approximately that.

Okay. And then could you go into more detail on gross margin? You obviously had great improvements here some of it you mentioned I know was mixed. If automotive and -- or some of the industrial categories we mix come up if that were to start to slow would it come down and similarly I know there's some, very strong pricing obviously I think you've indicated that if pricing started to slow down, that it would come down so how should I be thinking about a new sort of gross margin level after the strong pricing and maybe if we had a different mix?

The most -- the strongest driving force is not really the price in our case. The driving force is the volume, no question. At the moment we are running concerning sales at least at pre-crisis levels, but of course pricing helped. And now it depends really what you call normal. I would say Vishay's expectations in a normal year of something like 2.6, 2.7, 2.8 area is in the higher 20s, I would think, concerning gross margin.

Okay. Great. And congratulations again. Thanks.

Thank you.

Our next question comes from Jim Suva.

Great. Thank you and congratulations to you and your team for great results and turning around the Company and coming out stronger. Following up on the gross margin commentary, is it fair to assume that giving the lead time and the shortages that your pricing pressure won't go to normal for another couple quarters likely and it's pretty fair to think that gross margins could remain at this level for another quarter or two or how should we think about that?

As a matter of fact it's obvious that in our passives business there has been no price decline and no price pressure historically. Because of the nature of the business, I say that before, this is a specialty business, we are even in the back hours of the recession we had no price decline. Now in the meantime especially in caps there was a possibility to bring some prices up really, as a matter of fact as soon as the economy will go down, I would not expect major price decline in passives like there was no before.

On the actives side it's a different ball game, of course. At the moment the lead times are long. The lead times will go down depending how fast it goes down, also the price -- the pressure on pricing will come back to a degree, no question but I'm absolutely -- I agree with you, the pricing pressures come back for the next quarter even longer than that for some time for sure. But there's no question, longer term when the supply catches up -- has caught up to demand, we will see the normal picture again but Vishay sustainable as decreased the fixed costs so that's why we say came to a new level of profitability which is true.

Great. And then as a follow-up on the mergers and acquisition opportunities for you, you have a very strong cash position and the Company in the past has done acquisitions. Can you talk a little bit about maybe the size or private versus public or niche focus and maybe a time line, should we be thinking six to 12 months or how should we be thinking about mergers and acquisitions and the pipeline for your company? Thank you.

This is Felix. We are completely open to that. This is Dr. Zandman and we are completely open to that. We have strong position in cash and want to improve it for the purpose of acquiring companies, a -- presently they are looking at small and large, we never announce exactly what we are doing, so as to not to indicate to competitors where we are, but large acquisitions are not too many to look at today. Everybody is doing very well. That's the problem. And when people do very well, the prices go up very strongly and people don't want to talk. So however, smaller acquisitions are still available. You look to the all spectrum of passive and active components and if something is valid and well studied, then we just go in and attack it and we let you know when it happens.

Thank you and congratulations to you and your team, gentlemen.

Thank you.

Your next question comes from [Joe Whitney].

Hi Joe with Longbow calling in for Shawn Harrison. My first question is just (inaudible)

Hello.

Can you hear me okay?

No, I can. I hope.

I'll start over. My first question I just wanted to drill in on inventories are up at distributors you said sell-through is pretty good but what does guidance assume for any destocking in the fourth quarter or do you anticipate beyond the fourth quarter any destocking in the channel and any details would be helpful. Thanks.

As a matter of fact, all this depends on the business of our distributors. I only was saying the following, that despite the fact that the inventory went up by 17% in the quarter, terms very high, it means their business is healthy and I'm pretty sure that overall they will not destock further if they think they are in a healthy situation. We expected some destocking at Asian distributors at a point, some increase of inventories there. I cannot believe that given the strong POS somebody would like to see a major destocking.

Fourth quarter guidance doesn't assume any material destocking?

No, no.

And then maybe second, the pause that you're seeing in computing and consumer electronics also, just curious on your thoughts, you have pretty big OEM customers there. How do you see this? Do you see this only short-term issue impacting the third quarter of the western holiday builds or does it potentially extend in the fourth quarter and I'm curious how you see that business speaking of customers.

This relative weakness in our case as I tried to point out came mostly from distribution. The OEMs altogether, also in Asia continued to be quite optimistic and in terms of distribution, it had to be expected to a degree because now our lead times really have not only our lead times, three lead times have come up, came down to quite normal levels and it's obvious that people don't want to -- orders which are longer than a year, three quarters of a year, they don't need that so kind of for correction normalization was to be expected. Concerning the specific industry segments you were mentioning, we will see. Normally the first quarter is not superstrong in these businesses but after that, seasonally speaking should come up after and this is my conviction.

Okay. Great. I'll offer my congratulations as well. Thanks.

Thank you.

Your next question comes from the line of Matt Sheerin.

Yes. Thank you. Good morning. So just a question again, Dr. Paul on pricing. Could you just help us differentiate the normal ASP increases and the special pricing you get for expedited orders, how much benefit did you get from those special pricing and those special deals and as lead times come in over the next couple of quarters, wouldn't you think that those start to go away?

You absolutely right, Matt. This portion of the price increases is going to go away. There's no question about it. But it was not the dominant factor in the third quarter. There was some impact but it was not huge to see it.

Great. And if you look at that year-over-year number looking at the reasons why margins were up, I think you quoted $28 million or so on pricing so that looks like it's about 300 or 400 basis point impact on gross margin which gets you to that high 20% range that you were targeting --

By expedites, you say?

No. You said 20 -- you got favorable pricing impacted positively impacted your margins by about $28 million, I think you said.

Yes, yes, yes.

So you take that out, it gets you back to the high 20% gross margin which you've been talking about. I guess the question is when do you think we are going to get there? Are you still going to be in the -- the higher range for the next couple quarters until the pricing kind of sorts itself out?

My visibility is not a few quarters. My visibility is a quarter, see.

Got you.

But from a logical perspective, to say the opportunities for expediting really go away relatively soon. On the other hand, I do not see that the newly established price levels will disappear overnight. This will influence more than just the next quarter. It's my belief.

Yes, and the backlog that you have booked now obviously is booked at higher levels but could you see if either demand falls off or we see more capacity from competitors, could we see some of that backlog just get cancelled like we have in the past?

This is always the case. The really long-term backlog will be cancelled, I believe, anyway, the long-term backlog which has no impact on the sales level but this is the historical truth, it's obvious.

Okay. And then just a question on gross margins as it relates to materials costs because we have seen certain commodity raw materials go up, copper, gold, Tantalum, powder. Could you talk about any impact you may see in the next couple of quarters in that respect?

We already have seen some impacts, already incorporated to a degree in the third quarter results to a degree, gold for instance has been very expensive all along, so on the other hand there will be further increases, very lightly. Depends on the economy. So silicon is definitely a candidate for that, metals in general not likely they go down so there will be some impact, but may I say that limited impact. It's the same order of magnitude on an impact on the margin as we have from our expedites to say it frankly, it's not a first order effect.

Okay. Great. Thanks for your time.

Thank you.

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

Great thanks for the chance for the follow-up. How are you thinking about -- I know you guide one quarter ahead but how would you think about seasonality now for Q1 for Vishay without VPG?

There has never been a very strong seasonality in Vishay overall because we are fairly well distributed over the world so we sell to Asia, like we sell to Europe. In Asia the first quarter normally is relatively weak quarter. On the other hand, quarter one in Europe is strong. So historically the seasonality of all of our businesses together is negligible and this is also true since VPG is not with us anymore, change and they were just 9% of the total and they were also in Asia, they were also distributors themselves so I do not see a major impact there.

Okay. And could you talk a little bit within MOSFETs, are there any particular categories that are stronger or weaker and then certainly with computing (inaudible) to the global offsets or something -- ?

I can yes we see a very strong request for products in automotive. This has been strong all year long and there's absolutely no decline on that. The market is as hot as it has been through the year and Siliconix now just entered the automotive a few years ago entered the automotive business we see a different pattern for the Company. This was what we intended to achieve when we took the decision to go stronger in the automotive. I believe it pays off now. Automotive, especially in Europe is very strong and this stabilizes of course some of the Asian slowdowns if there are any. This was our target.

Okay. And the last question is just on auto. It's been very strong here and had started out very weak. Any chance that some of this is an overshoot like we saw with some TV business where TVs are really soft and had a great run and they got -- getting pounded down again here? Is that -- could that happen to auto or because the way they manage the supply chain is that less likely?

I think it's less likely, as a matter of fact, real enormous inventory build ups in the past to my knowledge did not happen in the automotive. You can never exclude anything. But I don't believe that the nature of it business is like telephones or computers.

Okay. Great. Thanks a lot.

At this time, I would now like to turn the call back over to CFO, Dr. Loir Yahalomi.

Yes, please and thank you Patrick and thank you all for your participation in our call. We appreciate your interest and we look forward for your continued interest in Vishay.

And this concludes today's conference call. You may now disconnect.