威世科技 (VSH) 2010 Q4 法說會逐字稿

Good morning, my name is Kelly and I will be your conference operator today. At this time I would like to welcome everyone to the Vishay year end Q4 earnings conference call. (Operator Instructions)After the speakers' remarks there will be a question-and-answer session. (Operator Instructions). I would now turn the call over to Dr. Yahalomi to begin.

Good morning. Thank you, Kelly. This is Lior Yahalomi, Vishay's Chief Financial Officer. Good morning, ladies and gentlemen. And welcome to Vishay's fourth quarter 2010 earnings call. On the line with me today are Dr. Zandman, Vishay's Executive Chairman and Chief Technical and Business Development Officer; Dr. Gerald Paul, Vishay's President and Chief Executive Officer; Marc Zandman, Vishay's Vice Chairman of Board, Chief Administrative Officer and President of Israel; Lori Lipcaman, Vishay's Executive Vice President and Chief Accounting Officer; and David 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 a discussion of factors that could cause results to differ, please see today's press release and Vishay's form 10-K and 10-Q filings with the Securities and Exchange Commission.

Thank you, Dave. I will make summary remarks, particularly related to our US GAAP results. Dr. Paul will present a detailed analysis of the fiscal year 2010 and quarter four 2010, focused on our business, excluding this spin-off of Vishay Precision Group. And finally Dr. Zandman, our Executive Chairman will update our R&D and acquisition activities and provide summary remarks. As you are aware, on July 6, 2010, we completed the spinoff of Vishay Precision Group into an independent publicly traded company. Although VPG is an independent company, because we have some continuing involvement due to 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 realigned our US GAAP reportable segments, segregating VPG into its own segment in the second quarter. Quarterly results, for the fourth quarter of 2010, Vishay reported revenues of $688.6 million, 0.8% lower than the third quarter of 2010, and 13.5% higher than the fourth quarter of 2009. Our consolidated gross margin for the quarter was 30.7%, compared to 31.5% for the third quarter of 2010, and 22.6% for the fourth quarter of 2009.

Selling, general, and administrative expenses for this quarter were $90.9 million, or 13.2% of revenues, compared to $87.5 million, or 12.6% of revenues for the third quarter of 2010, and $98.3 million, or 16.2%, for the last year's fourth quarter. Other income and expense for the fourth quarter 2010 consists mainly of $3.7 million of interest expense and $1.1 million of interest income, offset by $2.2 million in exchange rate losses, and $1.6 million loss related to the early extinguishment of term loan and the Comerica credit facility. The quarter ended December 31, 2010, includes $59.5 million of one-time tax benefits, primarily related to the reversal of deferred tax valuation allowances in the US and Israel. The effective tax rates for the fourth quarter 2010 was approximately negative 29.1%.

Capital expenditures for the quarter were $65.3 million, compared to $30.9 million in our third quarter of 2010, and $24 million in the fourth quarter of 2009. Depreciation and amortization for the quarter was $46.9 million, compared to $44.5 million, in the third quarter of 2010, and $60.1 million in the fourth quarter of 2009. As announced, in our press release, Vishay reported earnings attributable to Vishay stockholders of $0.81 per diluted share, for the fourth quarter of 2010. The fourth quarter of 2010 includes the $59.1 million of one-time tax benefits, primarily related to the reversal of deferred tax valuation allowances in the United States and Israel. The adjusted net earnings per diluted share, excluding the $59.1 million of one-time tax benefits, were $0.48, compared to adjusted net earnings per diluted share of $0.47 for the third quarter of 2010, and adjusted net earnings per share, diluted shares of $0.16 for the fourth quarter of 2009.

12 months results, for the year of 2010, Vishay reported revenues of $2.725 million (sic - see press release), 33.5% higher than the same period in 2009. Our consolidated gross margin for the year of 2010 was 29.6%, compared to 19% for the same period in 2009. The increased year-over-year reflects the continued recovery from the historical global economic crisis with increased sales and the cost reduction initiatives successfully implemented and sustained by the company. Selling, general and administrative expenses for the year of 2010 were $389.5 million, or 14.3% of revenues, compared to $359.2 million, or 17.6% of revenues for the same period in 2009.

Other income and expense for the year 2010 consists mainly of $11 million of interest expense, and $2.9 million in interest income, offset by 2.8 million in exchange rate losses and $1.6 million loss related to the early extinguishment of the term loan and Comerica credit facility. Excluding one-time benefits primarily related to the reversal of deferred tax valuation allowances, the normalized tax rate for the year 2010 was approximately 26%. Capital expenditures for the year 2010 were $145.4 million, compared to $50.3 million for the same period during 2009. Depreciation and amortization for the year of 2010 was $190.7 million, compared to $229.6 million for the same period in 2009.

As announced in our press release, Vishay reported earnings attributable to Vishay stockholders of $1.89 per diluted share for the year ended December 31, 2010. Excluding the $59.5 million of one-time tax benefits, adjusted diluted earnings per share were $1.58 for the year ended December 31, 2010, compared to adjusted net earnings per diluted share of $0.02 for the year of 2009. Some of these one-time tax benefits are related to reversal of valuation allowances on deferred tax assets in Israel. After year end, a new tax law was enacted in Israel, lowering our tax rate; and accordingly, our first quarter of 2011 will include approximately $10 million of one-time tax expense to write down our available net operating losses to the new tax rate.

Share buyback, on November 9, 2010, using proceeds of the new convertible debt instrument in the amount of $275 million, we repurchased 21.72 million of our own shares. We purchased our shares at an average stock price of $12.66. The use of the low coupon at an annual fixed rate of 2.25% over 30 years, convertible debt was a more efficient means to finance our share buyback than utilizing our cash, most of which is offshore. Because the convertible includes a contingent interest feature, Vishay can take tax deductions at its comparable straight debt rate of 8%. The debentures are convertible into common stock at a conversion rate of 72.0331 shares per $1,000 principal amount, or approximately $13.88 per share. We intend to net share settle the notes upon conversion, thus limiting any dilution.

After the buyback, we have approximately 150.6 million common shares and 14.4 million of class B shares outstanding. The share count used for EPS is -- weighted for the period shares are outstanding. Accordingly, weighted average shares for Q4 were approximately 181 million. For the year 2010, they were approximately 190 million; and going forward, they will vary based on the average stock price for the quarter between approximately 172 million and 176 million, based on the current trading range of our stock. We filed the form 8-K this morning, detailing how certain variables impact our share count for earning per share calculations.

Vishay's liquidity, Vishay had a total debt of $431.7 million as of December 31, 2010. The debt consists of the following three components. $95 million of long-term note with a 91-years' maturity due on December 12, 2102 with interest rate of 90-day LIBOR plus 0%. $275 million of durable convertible senior debentures due on 2040, issued during the fourth quarter with a fixed interest rate of 2.25%. These debentures have a carrying amount of $96 million, which includes $178.7 million of unamortized discounts under debentures, which for accounting purposes represent the fair market value of equity conversion option at issuance. This discount will be amortized as noncash interest over the term of the debentures.

In addition, we have a new $450 million of revolving credit facility entered into during the fourth quarter and maturing on December 1, 2015, with an interest rate of 30-day LIBOR plus 1.65% and facility fee of 0.35%, $210 million of which was unused on December 31, 2010. This facility replaced our former $250 million facility at better prices over a longer term with improved covenants. As of December 31, 2010, Vishay had cash and cash equivalents of $897.3 million, total available credit line, including the $210 million unused revolver in the US, was $237 million at December 31, 2010. Vishay's total available liquidity measured by cash plus all available credit lines is $1.134 billion. There are no principal payments due on our debt until the new revolver expires in December 2015.

Our summary financials -- some other key financials are total inventory at year end was $428 million compared to $434.9 million at the end of 2009. Working capital at quarter end was approximately $1.3 billion at 2010 year end, compared to $1 billion at 2009 year end. Free cash flow was $141 million for the fourth quarter of 2010, compared to $131 million for the third quarter of 2010, and $91.9 million for the fourth quarter of 2009. For the full 2010 year, our free cash flow was $401 million, compared to $246.5 million for the year -- for the total year of 2009. I will now turn the call over to Dr. Paul, President and Chief Executive Officer. Dr. Paul?

Thank you, Lior. And good morning, everybody. As you could hear, we had a good year and we had a good quarter. Actually Vishay in 2010 has achieved its best performance since 10 years. Due to sales close to pre-crisis levels, reduced fixed costs and despite excellent efficiencies in all divisions, we were able to improve gross margin from 18% to 29% of sales, operating margin from 1% of sales in 2009 to 16%, and earnings per share from $0.01 to $1.55. And we also generated $395 million of free cash, which is all-time record. All of these numbers, as Lior mentioned, exclude VPG spun off at the beginning of the third quarter of 2010. Quarter four has practically been the repetition of the quite outstanding third quarter, with gross margin of 31% of sales, operating margin of 18% of sales, and earnings per share of $0.48.

Let me talk first about the economic environment as we see it. Basically, we see the continuation of a very friendly business environment. Of course, some normalization is taking place as we expected it. There are no significant shortages of supply in general, and there are backlog corrections mainly at distribution. Backlogs seem to remain at healthy levels across the industry. Most markets continue to be strong, especially automotive predict unbroken growth. Most other industry segments appear to be solid at this point. Bright spots are existing in certain product areas like template computers, smart phones and alternative energy, which promise growth opportunities on new programs.

Inventories at distribution continue to grow in the quarter by 14%, with POS on the other hand remaining strong virtually on third quarter levels. Inventory turn to distribution came back to more historical levels. We have seen 4.2 turns worldwide; 2.8% in Americas, which was relatively low; 5.3 turns in Asia; and 4.6 turns in Europe which is really high. The OEM's in general continue to have a positive outlook.

Some words about our business development. Quarter four sales came out at the upper end of the forecasted range. Passives in particular with European automotive customers exceeded our expectations. We achieved sales of $689 million in the quarter versus $694 million in prior quarter, and versus $560 million in the prior year. All this is, as I said, excludes VPG. Excluding exchange rate effects, sales versus prior quarter were down by $17 million, or 2%, but up versus prior quarter by $145 million, or 27%. Sales in the year were achieved of $2.6 billion, which basically means that we were back to pre-crisis levels.

The book to bill ratio of 0.83 in the quarter underlines what I said about normalization. If you look in more detail, you will find 0.71 book to bill for distribution, and 0.97 book to bill for OEM's; 0.81 for actives; 0.84 for passives; 0.76 for the Americas; 0.73 for Asia; and 0.97 for Europe. I think it is remarkable that the business at OEM's continues at the same level. And as I said before, there are correction of backlogs at distribution. Europe in particular is strong, driven by automotive and industrial.

Our backlog remains at the very high level of 3.8 months, 4.4 months for actives, and 3.6 months for passives, which is still 35% above what we call historical normal. The solid backlog and the recent improvement in January of orders support our expectations for a good first quarter. The pricing environment remains principally favorable. Prices went up by 1.3% versus prior quarter, and by 5.2% versus prior year. There is stabilization at actives, minus 0.3% versus prior quarter, but 5.1% plus versus prior year. There are some increases in passives, 3.2% versus prior quarter up, and 5.4% versus prior year.

Some highlights of operations. The inventory turns in the quarter remained at the satisfactory level of 4.5. They improved year over year from 3.5 to 4.5. Excluding exchange rate effects and VPG, inventories increased in the year 2010 by $34 million, which we believe is immaterial in view of the revenue increase of close to $800 million year-over-year. Capital spending in the fourth quarter was at $65 million versus $31 million in prior quarter, and $23 million in prior year. Capital spending in 2010 was at $142 million, without VPG; $60 million for expansion; $33 million for cost reduction; and $49 million for the maintenance of business. For 2011, we expect CapEx of approximately $150 million in a very similar split.

During the quarter, the employment at Vishay virtually remains stable at the level of 22,580 heads. In 2010, total employment grew by 11%, or 2,300 people. Fixed personnel as part of the total was increased just by 3%, mostly caused in the context of manufacturing capacity increases. There was no material restructuring in 2010. We also do not expect them in 2011. In 2010, we generated cash from operations of $536 million versus $261 million in prior year, again without VPG. We generated free cash in 2010 of $395 million as compared to $290 million in prior year. This is all-time record for Vishay.

Let me talk about the results of the fourth quarter and first of all compare it to the third quarter. Based on $6 million lower sales -- actually $17 million lower excluding exchange rate impacts, the adjusted operating margin decreased by $10 million, from $131 million to $121 million. Main elements were ASP's, gave a positive influence of $9 million. The volume, a negative of $10 million. Costs, basically metals, went up by $6 million, and the exchange rates had a negative impact of $2 million.

Now the comparison to the fourth quarter '09. Based on $129 million higher sales, $145 million higher excluding exchange rate impacts, the adjusted operating margin increased by $85 million from $36 million to $121 million. For the most part, this was due to selling price increases of $34 million and the volume impact of a positive $63 million. It should be noted that included in this result is an unfavorable impact from exchange rate of $9 million year-over-year. If we now compare the two years, 2010 and 2009, we see that based on $754 million higher sales, $790 million higher excluding change rate impacts, the adjusted operating margin increased by $389 million from $19 million to $408 million. The main elements of this development were a positive influence from ASP's of $60 million, a positive volume impact of $352 million, better variable costs of $31 million, and higher fixed costs of $50 million, whereby all of these increases came from bonuses, profit sharing, and of course, from the discontinuation of short work in the factories.

Let me now come to the main product lines of Vishay and let me start as usual with resistors and inductors. Supported by an ongoing strong demand, in particular from automotive and industrial segments, Vishay's traditional and successful business continues to perform at record levels. Sales in the quarter were at $167 million, which is 3% above prior quarter, and 28% above prior year. There is also in resistors, some normalization of backlog. Book to bill in the quarter was 0.84, but the backlog itself is still very high at 3.1 month.

The gross margin came out at 36% of sales, which is the continuation of the excellent performance of the second and the third quarter. We continue to enjoy a favorable product mix there. Selling prices were slightly up versus prior quarter and versus prior year, each by 0.8%. Inventory turns at resistors, inductors were quite excellent at 4.8, and we do expect a strong continuation of the business also in the first quarter.

Coming to capacitors, also capacitors have reached record levels of performance. There is continued strong demand from automotive and industrial markets, but also a strong push from high power applications. The business is based on a broad range of technologies with a strong position in European and American market niches and is founded on product performance and reliability. Sales in the quarter were $156 million, which is up by 9% versus prior quarter, and up by 33% versus prior year. Normalization of backlog seems to have started in capacitor. Book to bill ratio was 0.85, but the backlog is still extremely high at 4.2 month. Also for capacitors, we expect a strong continuation of the business in the first quarter.

Higher volume, the effect of selected price increases and the favorable product mix led to an historically good gross margin of 31% of sales. The mid-term program for selective price increases shows effect. The prices went up versus prior quarter by 6%, and versus prior year by 10.8%. The inventory turns at capacitors improved to 3.7, caps obviously are catching up in terms of turns. We are in process of expanding manufacturing capacities, mainly in power filling capacitors.

Coming to opto products. Vishay's opto business consists of infrared sensors and cuplers and LED's. There is a relatively high share of specialty products, especially of sensors. Vishay all together is the largest supplier of infrared components. Sales in the quarter were $54 million, 8% below prior quarter, but 13% above prior year. Book to bill was 0.99, and the backlog is strong, 3.8 months. We expect stability of this business going forward.

Gross margin was at a very acceptable level of 31% of sales, slightly impacted by lower volume versus the third quarter. The inventory turns had opto products at quite excellent, 5.5; and the selling prices have stabilized -- in fact they went up a little -- 1.5% versus prior quarter, and 0.9% up versus prior year. Coming to diodes, diodes at Vishay represent a broad commodity business, 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 since two quarters clearly is in the phase of normalization, with distribution adapting the backlogs to shorter lead times.

Sales in the quarter were $148 million, 7% below prior quarter, but 18% above prior year. The backlog is still extremely high, 4.6 month. Book to bill was 0.88. And also for diodes, we do expect a strong first quarter. The gross margin of diodes was at 23% of sales, close to the very satisfactory performance of the third quarter. Also here, there is some impact of a lower volume in the fourth quarter. The inventory turns quite excellent at 5.0, and the quarter three price increases for diodes continues to show some impact. Prices went up in the fourth quarter vis-a-vis the third by 2% and vis-a-vis the prior year by 5.7%.

Last but not least, MOSFETs. We are the market leader in low voltage MOSFETs. The business after a completely overheated upturn has been normalizing quickly. Lead times in general have come down to normal; and backlogs, especially at distribution, are in the process of being adapted quite rapidly. Sales in the quarter were $164 million, down by 10% versus prior quarter, but up by 33% versus prior year. Book to bill was at 0.70. Backlog is high still at 3.6 month, and we do expect for MOSFETs a seasonally weaker first quarter.

The gross margin came out on a level of 32% of sales. It remains satisfactory, but it was also impacted by a somewhat lower volume in the non-repetition of customer requested expedites in the fourth quarter. Inventory turns were at a satisfactory level of 4.2. There were some price erosion quarter over quarter. As the competitive nature of this business starts to prevail again, prices went down quarter over quarter by 2.9%, but up vis-a-vis prior year by 5.9%.

Let me summarize. I think we can say that we are somewhat proud of our achievements during the recent two years. Vishay in 2009 has reacted quickly and I believe professionally to an unprecedented crisis, and has reached new levels of profitability in the upturn of 2010. We have lowered the break-even point by about $450 million to $1.85 billion by restructuring the enterprise fundamentally. And we have generated more than $600 million of free cash within two years. We have in 2010 achieved an operating margin of more than 15% of sales, and earnings per share of more than $1.50. And all this is based in 2010 on sales just on pre-crisis levels, not above. So we have more than doubled Vishay's earnings power.

Quarter four results, like the whole year 2010 demonstrates this clearly. For 2011, we expect the basic continuation of a friendly business climate, but we will remain prepared to react quickly to any slowdown. We will continue to invest in new products, new technologies, and manufacturing capacities in particular, for our specialty products. For the first quarter, we guide to a sales range between $675 million, and $715 million at a performance level close to one of the fourth quarter. Thank you very much. And I would like to pass on to our Chairman, Dr. Zandman.

Good morning. The year 2010 was excellent. As described by Dr. Lior Yahalomi and Dr. Paul. I have really nothing to add to it. It was an excellent year. We entered a new policy of buying back shares. And as a first move, we repurchased 21.7 million shares by issuing a convertible bond of $275 million. We will continue on this route, so as to reduce the number of outstanding shares on hand and enhance therefore shareholder value. Short-term outlook looks good, and we hope to continue with this same policy of maximizing profits after-tax and generating free cash. The spinoff of VPG went well. As expected, the total capitalization of the share in VPG is now higher than prior to the spinoff. We continue to look for small and average size acquisitions. I would like to congratulate Dr. Paul and his staff for a job well done. In sum, it is an excellent year, an excellent quarter, and we look optimistically toward the future. Thank you. Gerald, maybe you are going to pass now to answering some questions.

Yes. Lior, would you?

Kelly, we're ready for questions, please.

(Operator Instructions) . Your first question comes from

Hi, good morning, everybody.

Good morning, Shawn.

Wanted to ask a two-fold question, just pricing expectations for the first half of the year, for both the actives' and the passives' portfolio. And then particularly with the passives' portfolio, maybe if you could also comment on the commodity environment, be it tantalum prices, copper, etc.

As a matter of fact, as I've said, backlogs are high, and orders are recovering. They're recovering in January. So the normalization which we expected to happen seems to be relatively soft and mild. And on the passive side, in particular, our seasonality, because we are very strong in Europe and also in the United States -- less strong in Asia in passives -- our seasonality favors the passives in the first half. And we see the same thing happening in 2011. This is how it looks. Concerning the prices, say tantalum, it is obvious that prices went up in the courses of 2010. But I believe they have peaked already to a degree in the fourth quarter. So the impact going forward, if you compare around the present situation with the fourth quarter, is not dramatically different. And by the way, to the extent we can -- and maybe you remember our price development in the fourth quarter, which I just talked about -- we are in the process to pass on to a degree these price increases to the customers.

On the actives situation, it is also good principally. They have high backlogs, but there is some seasonality, in the first half, in the actives not as good as in passives. Again we see approximately the same seasonality as is normal.

Looking at the way the numbers have tracked into the fourth quarter, and potentially in the first quarter, there is more potential pricing pressure to come on the active side, but it seems to be gradual versus passives where you still have some pricing power.

That is exactly right.

Okay. And then two clarifications going into 2011, for me. The commentary that you wish to hold operating -- or fixed costs relative stable. Operating expenses, I know that is primarily fixed, but should we see any inflation as the year progresses? And then maybe just the tax rate for 2011, too.

As a matter of fact, when I talked fixed costs I meant all of the fixed costs. We were able to keep all of the fixed costs very constant.

Okay, and then maybe a tax rate, if Lior has that update?

Yes, Lior, do you want to talk?

Yes. This is Lior. We expect the tax rate for 2011 to be in the mid to high 20s.

Okay. Thank you very much. And congratulations, everyone.

Thank you.

Your next question comes from Jim Suva.

Thank you. And congratulations to you and your team. When we think about the commentary about you expect similar operating performance going ahead from Q4, am I correct in assuming that that means you believe gross margins should relatively be constant at these levels going forward? Or with -- (multiple speakers)

Pardon. I commented on quarter one, and that's indeed true. Quarter one, as I said, I said in quarter one, we expect the same, the same performance and this relates also to gross margin, of course. Our visibility of course is just the quarter and this is what I'm talking about. Principally speaking, Vishay has done a lot of restructuring, as you know. And of course, the gross margins going forward will be better than the gross margins of the past. We are talking about doubling earnings power, and this was meant as a permanent thing.

Thank you. And Lior, on your tax rate of mid to high 20s, am I correct that that excludes the one-time adjustment true-up you're going to have in Q1, that the mid-20s is a go forward pro forma run rate?

Absolutely. You're correct.

Great. Thank you. And congratulations to you and your team.

Thank you.

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

Great, thank you. And my congratulations on a good year and a good quarter. I was wondering if you could give some thoughts on what you expect interest expense, either just interest expense on its own or net interest expense, for the quarter, how we should think about that trending forward?

Lior, do you want to answer?

We expect it to be approximately $8 million-- I'm sorry, one second. It is approximately $11 million for the year; $8 million of which is the cash, and then $3 million additional -- it is in the second component., non cash piece.

And just like amortization?

Yes. Exactly.

Okay. And then with regard to the drop in pricing on the MOSFETs in Q4, can you talk a little bit about -- does that trend continue into Q1? Or does it firm up again? And is it just because of seasonal patterns they're related to that drop, do you think?

Steve, first of all, historically, MOSFETs is a business that grows in volume and goes down in price. This is the historical truth. So in 2010, the situation was substantially different. There were shortages, as we know. So basically, the business is coming back in a way to normal. Of course, normally, the drop between -- I didn't look it up, but normally there are reasons why the drop in the fourth quarter should be substantially higher than the average of the year, because there are some new contracts in place, etc. So as a matter of fact, I would say MOSFETs are returning. On the other hand, the volume growth is still there. We in the past were able to cope with the price decline by cost reduction. This will go ahead also. So I see just a normalization of this business. And throughout overall historically, at least in our case, price decline for year-over-year was something around 6%, 7%, and I would not be hesitant to say that this is going to come again, that we had hoped to in the past.

Right. Okay. Can you talk a little bit about your plans over the next year, two years, on high voltage MOSFETs, what you guys are expecting there? New product platforms coming out?

Yes, as you know, we entered the high MOSFETs business some years ago through the acquisition of a portion of International Rectifier, and we are focused very much on R&D there. We believe in this business. It would be a nice move, which brings us more with MOSFETs to the industrial segment, which we like, as you know, we are strong there. And we are going to see progress in this field in the course of this year at Vishay.

Great. Last question was just on -- overall, you've done very well in the automotive market, and I think you're selling into European autos that are being shipped into China. Just your thoughts on how the demand environment looks in China.It sounded like you were pretty positive. Obviously, they are raising interest rates here a little bit. And is that demand you think; is that market saturated? Or anywhere even close to that? Or is there so much growth that -- (multiple speakers)

I can only repeat what my customers tell me, and they're quite bullish, especially the larger car seems to be the sales are unbroken, the demand there. Of course, there will be one day, in a way, at least a slowdown. But automotive is the most optimistic segment, especially European, say German automotive, in fact. They see an excellent year in 2011.

Great. And again, congratulations on the numbers.

You have a follow-up question from Shawn Harrison.

Hi. As a follow-up, I know you gave the book to bill for January and aggregate was 0.93. Do you have that for distribution and OEM as well?

No, unfortunately, I haven't. But I would be very surprised if distribution didn't go -- become better, vis-a-vis the first quarter, has to be.

What you're seeing in distribution, do you believe that, since we're in 2011, that sell-in versus sell-through or POS versus sell -- POS is now tracking what it should be normally? Are you still seeing the inventory adjustment?

I think POS hasn't suffered at all. So as we said before, POS did not see any difference in quarter four vis-a-vis, practically none, vis-a-vis quarter three, and as it looks -- and this fits into the statement of most of the OEMs, that they are quite confident. So really, it was a backlog correction. This is what I see. Of course, there were some cancellations, but there were more orders to compensate for them. I think basically what has happened in distribution was a backlog correction, and this we announced quite early. We expected it; it was way too much backlog, driven by too long lead times, which all of us had in the course of the year 2010.

And now, at this point, you believe that backlog, even though it is maybe a little bit inflated, you're back to more normalized levels?

Yes, I would say the backlog, say in Vishay, is still much higher, still, than is needed for the present level of sales.

Okay.

I would suspect that over the year, there will be a greater normalization of this backlog. This is my anticipation. So there will be -- this is -- how to say, there will be book to bills around one or below one for some time, just to bring it down.

Just because of the declining backlog, even though the point of sale may continue to be strong?

Exactly. So again, as I say, this declining backlog does not necessarily mean that our sales suffers. It is a continuous correction of backlog.

More than fair. Thanks for answering the follow-up.

Thank you.

Thank you. Your next question is a follow-up from Steve Smigie.

Great. Thank you. Just a follow-up on that last series of questions there. So it sounds like book-to-bill ratios are below one, but as you point out, not necessarily impacting sales here. So given that, how should we think about seasonality, as we move into June? You've had a number of really solid quarters here. Could you still experience some growth as we get into June on a seasonal basis? And if that is the case -- I know you don't guide for June, but I mean --

I cannot. I cannot. I have no visibility. But talking theoretically, may I emphasize theoretically, the second quarter very often has turned out to be a good quarter for Vishay, that's true.

Okay. Fair enough. All right. Thank you.

Your final question comes from Matthew Sheerin.

Hi, this is Param Singh for Matthew Sheerin. So a quick question. So you guys are seeing gross margins come down on the MOSFETs side, as some of the premium pricing goes away.

Right.

So do you think that's going to happen on the passive side toward the second half of the year? Or do you think 2011 is going to be good and then you will probably come down to a 36%, 37% level?

We didn't have much in that respect on passives, as you may remember. But most of these kind of opportunistic sales happened -- by far the most happened -- in MOSFETs, by far. On passives, we didn't have it, so there is not much to be lost.

Okay. So you think the 30% gross margin is sustainable like towards the next year?

Given the same sales, yes. The fixed costs are down. The price -- there is no price decline -- we work -- only material costs come up, but partially we can pass it on to customers, as we already demonstrate. So yes, it looks good.

Great. Sounds great. Thank you.

Thank you. This concludes today's Vishay year-end and Q4 earnings conference call.