威世科技 (VSH) 2012 Q2 法說會逐字稿

Good morning, and welcome to the Vishay Intertechnology second quarter 2012 earnings call. My name is Melissa, and I will be your conference moderator today. All lines have been place on mute to prevent any background noise. After the speakers remarks', there will be a question-and-answer session. I will now turn the call over to Peter Henrici, Senior Vice President, Corporate Communications. You may begin.

Thank you, Melissa. Good morning. With me today are Dr. Gerald Paul, Vishay's President and Chief Executive Officer; and Lori Lipcaman, our Executive Vice President and Chief Financial Officer. As usual, we will start today's call with the CFO who will review our second quarter financial results. Dr. Gerald Paul will then give an overview of our business and discuss operational performance as well as segment results in more detail. Finally, we will reserve time for questions and answers. This call is being webcast from the Investor Relations section of our website at IR. Vishay.com. The replay for this call will be publicly available for approximately 30 days.

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

In addition during this call, we may refer to adjusted or other financial measures that are not prepared according to generally accepted accounting principles. We use non-GAAP measures because we believe they provide useful information about the operating performance of our businesses and should be considered by investors in conjunction with GAAP measures that we also provide. This morning, we filed a Form 8-K that outlines the various variables that impact the diluted earnings per share computation. We expect to file our Form 10-Q for the second quarter this evening.

On the Investor Relations section of our website, you can find a presentation of the Q2 financial information containing some of the operational metrics Dr. Paul will be discussing as well as a presentation on Vishay's growth plan. Dr. Gerald Paul will be presenting on Wednesday, September 5, at the Citi's annual technology conference in New York. Now, I turn the discussion over to Chief Financial Officer, Lori Lipcaman.

Thank you, Peter. Good morning, everyone. I am sure that most of you have had a chance to review our earning press release. I will focus on some highlights and key metrics. Adjusted EPS of $0.24 increased $0.03 quarter-over-quarter. We successfully sold a property vacated due to our restructuring activities recognizing a gain of $12 million.

In the second quarter, we completed the repurchase of 13.9 million shares of our common stock. Including this most recent repurchase, we have spent $575 million to repurchase 44.3 million shares of our common stock since the fourth quarter of 2010. This represents 24% of our shares outstanding before we began the initiative. We pay a fixed cash interest of 2.25% on the face value during the lifetime of the convertible debentures. We chose converts as a more efficient way to finance and to execute substantial share repurchases rather than repatriating cash or using other forms of debt.

Looking at the P&L, revenues in the quarter were $588 million, up by 9.2% from previous quarter and down by 17.1% compared to prior-year. Gross margin was 25.1%. Operating margin was 12.4%. Adjusted operating margin was 10.3%. EPS was $0.29. Adjusted EPS was $0.24.

Our adjusted operating margin excludes a gain of $12.2 million recorded on the sale of a manufacturing facility in Belgium previously vacated as part of our restructuring activities. Our adjusted EPS excludes the after-tax effect of this gain. In our press release, we have included a table which reconciles GAAP EPS to adjusted EPS. Reconciling adjusted operating income quarter two, 2012 compared to operating income for prior-quarter, based on $50 million higher sales or $53 million higher excluding exchange rate impacts, the adjusted operating income increased by $11 million from $50 million in Q1, 2012 to $61 million in Q2, 2012.

The main elements were -- average selling prices which had a negative impact of $8 million, representing a 1.4% ASP decline. Volume increased with a positive impact of $27 million. We had higher fixed costs with a negative impact of $4 million due to the non-repetition of temporary reduction measures in Q1. And, inventory had a negative impact of $4 million due to a non-repetition of the Q1 inventory build.

Reconciling adjusted operating income quarter two, 2012, compared to prior year, based on the $122 million lower sales, or $101 million lower excluding exchange rate impacts. The adjusted operating income decreased by $58 million from $119 million in Q2, 2011 to $61 million in Q2, 2012. The main elements were -- average selling prices, which had a negative impact of $18 million, representing a 3.1% ASP decline, and volume decreased with a negative impact of $38 million.

Selling, general, and administrative expenses for the quarter were $87 million. This is lower than our original expectations, reflecting primarily the realignment of bonus accruals to current expectations for the year, as well as positive impact from exchange rates of approximately $1 million. For the current quarter, our expectations are approximately $90 million.

The normalized tax rate, excluding the Belgian property sale for quarter two, was approximately 29%, in line with our expectation for the full year. Our tax rate is based on an assumed mix of income among our various taxing jurisdictions. A shift in income could result in significantly different results.

Total shares outstanding at quarter-end were $143 million compared to $157 million at the end of quarter one. The expected share count for EPS purposes for the third quarter, based on an average stock price of below $12 is approximately 150 million shares. This compares to 159 million shares for quarter two. For a full explanation of our EPS share count and variables that impact that calculation, please refer to the 8-K we filed this morning.

Looking at selected metrics. Cash from operations for year-to-date June was $94 million. Capital expenditures for the year were $47 million. Split approximately $28 million for expansion, $6 million for cost reduction, and $13 million for maintenance and business. Proceeds from the sale of property and equipment were $6 million.

Free cash generation was $53 million. This compares to $130 million prior-year. Vishay has consistently generated in excess of $100 million free cash in each of the past six years and more than $200 million free cash for the last three years. Cash flows from operations were greater than $100 million for the last 17 years and greater than $200 million for the last ten years. We expect solid cash generation for 2012 in line with this history.

Backlog at the end of quarter two was $593 million, or 3 months' sales. Inventories decreased quarter-over-quarter by $6 million but increased by $4 million excluding exchange rate impacts. Days of inventory outstanding were 90 days. Days of sales outstanding for the quarter were 45 days. Days of payables outstanding for the quarter was 30 days, resulting in a cash conversion cycle of 105 days. We expect an inventory reduction in the second half of 2012.

We had a total liquidity of $1.3 billion at quarter-end. Cash and short term investments comprised $948 million, and unused capacity on the credit facility was $360 million. As previously announced, in quarter two, we added an additional $78 million of borrowing capacity to the facility at the same terms. This gives us a total of $528 million.

The breakdown of our debt of $462 million was $160 million outstanding on our credit facility. $95 million of exchangeable unsecured notes due in 90 years. $207 million of convertible debentures net of unamortized discount issued in three tranches and due in 28, 29, and 30 years, respectively. The principle amount or face value of the converts is $575 million.

In the second half of 2012, we expect to repatriate cash in excess of $70 million. This cash will be used primarily to pay down our revolver such that the carrying value of our debt will approximate the carrying value before we issued the third tranche of converts in May, 2012. I would like to remind you that no principle payments are due until 2015. Now, I will turn the call over to our Chief Executive Officer, Dr. Gerald Paul.

Thank you, Lori, and good morning, everybody. Despite the fact that Q2 did not fulfill all expectations in terms of a further improving business environment, Vishay's results continued to be solid and improved versus prior-quarter. We achieved a gross margin of 25% of sales and operating margin of 10% of sales and earnings per share -- adjusted earnings per share of $0.24. Our generational free cash is back to normal, as expected. As Lori pointed out, we have generated $53 million year-to-date and $45 million alone in quarter two.

Let me talk about the economic environment. As all of us know, most markets currently are suffering increasingly from macroeconomic anxieties. Of course, most visible are the concerns about the euro -- its stability and its existence longer term that seemingly starts to influence our customers. There are signs of a weakening even in the presently still prospering Central Europe in industrial, and recently also in automotive market segments. There is principally and improved situation for the United States, but the positive trend of Q1 did not continue. We currently see stability there.

After a quite steep recovery of the Asian markets in quarter one -- I reported about it. We now missed the seasonal order increase of June and July. The traditional Asian market segments of consumer and computing are suffering from weakening exports to the United States and to Europe. There is also a cooling of government spending -- governmental spending in China. Governments globally have cut back on alternative energy programs, but no question -- long-term, the prospects are still good there.

Distribution inventories continued trending downward by 3% in the second quarter after a 10% decrease in the first quarter. POS after a major improvement of 7% in Q1 remained virtually unchanged. The distribution inventory turns were in the second quarter 3.5 worldwide versus 3.2 in the first quarter. 2.5 in the Americas versus 2.4. 3.7 in Europe versus 3.8. 4.6 in Asia versus 3.8. Quite an improvement. All of this is relatively encouraging, in particular in Asia. All in all, we have a limited visibility for the second half in view of the ongoing macroeconomic uncertainties.

I would like to talk about the business development of Vishay. Sales in the quarter were within the expected range but did not completely fulfill our expectations. We achieved sales of $588 million in the quarter versus $593 million -- $539 million in prior-quarter and $710 million in prior-year. Excluding exchange and effects, sales were up versus prior-quarter by $53 million, or by10%, but down versus prior-year by $101 million, or by 15%. When excluding the impact of acquisitions, down by $118 million, or by 17%.

Orders versus prior-quarter were virtually flat. Book-to-bill of 1.01 should indicate stability for the near-term. We have seen 1.06 for distribution. 0.94 for OEMs. 1.03 for actives. 0.98 for passives. 1.02 for the Americas. 1.05 for Asia. And, 0.95 for Europe. Backlog has reduced to a very normal level of three months. Quite the same for actives and passives. Order cancellations during the quarter remained on a very low level.

Driven by the MOSFETs, the overall ASP decline accelerated slightly. We are seeing minus 1.4% versus prior-quarter and minus 3.1% versus prior-year. The actives versus prior-quarter declined more than normal. Minus 2% versus prior-quarter, minus 4.6% versus prior-year. As I mentioned, mostly due to the MOSFETs. Passives declined just slightly, minus 0.7% versus prior-quarter and minus 1.3% versus prior-year. I'd like to mention and highlight that we are on the way to quite substantially increase our selling efforts in Asia, particularly in China. We will add local sales resources to focus on designing in our broad product portfolio in specialties.

Some highlights on operations. Also, in the second quarter, contributive margin remained within our traditional range of between 46% and 48% of sales. The SG&A costs continued to be well under control. $87 million in the quarter including acquisitions as Lori mentioned. Our total head count in the quarter increased from 21,750 to 22,100, or by 1.6%. All increases were in variable personnel.

Inventory turns in the second quarter improved to 4. Excluding the effect of exchange rate, inventories went up slightly by 4 million, or 1% -- all in WIP and finished goods as a consequence of higher production rates. Capital spending in the second quarter was $30 million. For the year, we expect capital expenditures of approximately $160 million. Approximately 50% for capacity expansion and about 15% for cost reduction projects.

We are in process to move HiRel, our acquisition in Asia, to larger premises in Suhai in order to support the growth there. We, year-to-date generated $94 million cash from operations and $53 million free cash, and we do expect another solid year of cash generation.

I'd like to come to our product lines, and as always, I will start with resistors and inductors. Vishay's most traditional business, after a quite substantial recovery in the first quarter, continued to do well. We enjoy a very strong position in the industrial and automotive markets, have benefited from their strength in recent quarters and now feel some stabilization on a high level. Sales in the quarter were $165 million which was 6% above prior-quarter and 3% above prior-year. Without acquisitions, the numbers would have been 6% above prior-quarter but 7% below prior-year. Book-to-bill ratio was 0.99. The backlog is at a normal level of 2.8 months.

Gross margin in inductors and resistors continues at a high level. 33% of sales versus 34% in prior-quarter. The selling prices in the quarter declined somewhat more than normal, 0.7% versus prior-quarter and 1.2% versus prior-year. We took some larger volume lower price business there. The inventory turns in these product lines are quite excellent, 4.6 in the quarter. The acquisitions, Huntington and HiRel, continued to be successful with gross margins above 30%. And, the book-to-bill ratio of these two acquisitions are 1.07 year-to-date June. More beneficial opportunities for acquisitions exist, and they are being evaluated.

Coming to capacitors, this business is based on a broad range of technologies with a strong position in European and American market niches. It did not recover yet to the degree we had anticipated, mostly due to some slowdown in Europe. Sales in the quarter were $116 million, 3% above prior-quarter and 22% below prior-year. Book-to-bill at capacitors was 0.97. The backlog in this business is presently at the normal level of 3.2 months.

Gross margins reduced to 23% of sales from an exceptionally high level of 26% in the first quarter due to the return to a more normal product mix. This has been favorable in the first quarter, as we indicated. Selling prices were slightly declining, 0.7% in the quarter, 1.4% versus prior-year. Inventory turns improved to 3.1. We do expect stability of the business for the next quarter.

Coming to Opto products, Vishay's Opto business consists of infrared sensors, couplers, and LEDs. It contains a major share of the customer-designed products, mainly sold to automotive and industrial markets. Based on strong orders in the first quarter, sales in the quarter increased to $58 million, 16% above prior-quarter and 5% below prior-year. Book-to-bill ratio was 0.91. This leads to a reduced but still normal backlog of 2.6 months.

Gross margin continues on a good level of 32% of sales, slightly down from prior-quarter mainly due to the impact of inventory reduction. Inventory turns are quite excellent at 5.9. After a [true] spike in quarter one, the selling price decline has normalized as expected minus 1.2% versus prior-quarter, minus 3.9% versus prior-year. Also, for the Opto products, we expect stability for the months to come.

Coming to our product line, diodes. Diodes represent a broad commodity business where we are the largest supplier worldwide. We are leading, especially in power applications, and Vishay offers virtually all technologies as well as the most complete product portfolio there. The business in the second quarter developed better than anticipated with the Asian distributors recovering. Sales in the quarter were $136 million, which was 14% above prior-quarter but still 18% below prior-year. The book-to-bill was 0.95. The backlog is at a normal rate, normal level of 2.6 months.

The gross margins remained at 21% of sales. They were impacted by inventory reduction and slightly higher fixed costs. Inventory turns in diodes were, again, at a quite excellent level of 4.8. Relatively moderate price decline, we see for diodes minus 1.5% versus prior-quarter minus 2.7% versus prior-year. Due to the present business conditions, mainly in Asia, we do not expect further recovery of this line, near-term.

Last, but not least, our MOSFET lines. Vishay continues to be one of the market leaders in the segment of low voltage MOSFETs. We are on the way to establish ourselves as a larger player also in high voltage MOSFETs. The business, concerning volume and profitability in the first quarter, had reached its low inflection point and now is trending up. Sales in the quarter were $111 million. 18% up versus prior-quarter but still 27% below prior-year. A book-to-bill ratio of 1.2 principally indicates the continuation of this positive trend quarter-over-quarter. The backlog is at 3.8 months.

As expected, gross margin started to recover from its low in the first quarter of 11% of sales. We achieved 17% of sales of gross margin in the quarter. Inventory turns were at 3.5. The ASP's decline was relatively high in the quarter. It also includes some selected volume deals. We have seen 3.1% price decline versus prior-quarter and 7.1% price decline versus prior-year. The customer qualifications of our new and competitive generations of high voltage MOSFETs are ongoing. The market receives it very well. They accept for MOSFETs -- we expect for MOSFETs into the third quarter higher sales and profits.

Let me summarize. I think that also in the second quarter, Vishay has demonstrated its sustainably improved earnings power, achieving 10% of operating margin based on still relatively low sales of under $600 million per quarter. Thanks to Vishay's business model of being a worldwide [first in] broad-liner that sells to all industry segments, we are well positioned to face the challenges of erratic developments of the world economy. We continue to follow our growth plan, investing in critical manufacturing capacities, further increasing resources and efforts in R&D, product marketing, and selling, and pushing more into Asia, in particular with our specialty products.

Last, but not least, acquiring beneficial specialty businesses for profitable growth and for expanding our portfolio. Doing so, we can be trusted to maintain a prudent capital structure. We do believe in a good future for Vishay as expressed quite recently by another stock buyback. The third within two years. Given the present business conditions, we, for the third quarter, expect similar sales and margins. Thank you. I would like to pass back to Peter Henrici.

Thank you, Dr. Paul. We will now open the call to questions. Melissa, please take the first question.

Your first question comes from Matt Sheerin.

Thanks. Good morning, everyone. Question, Dr. Paul, on your outlook, guiding flattish which is not a big surprise certainly. Are we to assume, though, that you are expecting your active business to be up somewhat seasonally given the Asia exposure and some of the product exposure there and the passive business will be down seasonally?

Passives business was down somewhat only. And, on the actives, I believe we will not see the same seasonal increase which we have seen every year because the order intake in the last eight weeks, especially in actives out from Asia, was relatively disappointing. I'll say that. This is the time of the year where actives should really get the orders. So, there will be more sales in actives. This is seasonal. But, we do not see the same seasonality as in the years before.

Okay. Are you getting a sense that customers will just keep inventories at pretty low levels here? And, that you might not see much seasonality going into the fourth quarter? Obviously, realizing that there is not a lot of visibility right now?

I think people, if I understood the question right, people at the moment have the tenancy to reduce inventories even more. It's very limited. I think we have come down to a healthy level of inventories and distribution. Visibility into the fourth quarter is low given the [environmental causes].

Do you see the pricing pressure that you seem to be seeing in most segments of your business -- are you seeing that into the next quarter as well? You look like you are maintaining gross margins at the current level, but with some increased ASP pressure, what are you doing to offset that pressure?

Well, we have ongoing cost reduction that we always had, and at the moment, part of this price decline, which I reported about, was due to our decision. We took more higher volume business intentionally, especially in resistors, which normally doesn't show much price decline, historically. So, we decided to get into some additional volume business and at a lower price, I must say that. But, beneficially for the bottom line.

On the semiconductors, yes. I could imagine that somewhat more price decline will continue, but I do believe it will not continue at the rate which we have seen in the second quarter. There were some singularities also there.

Okay. Lastly, on the capacity expansion, could you be specific about where you are at in capacity? I believe it's more in the active side, right?

It's everywhere. It's in our strategic product lines. It's in our specialty inductors like in the wirewounds, like in thin-film resister chips. Like, of course, in MOSFETs. Like in diodes -- it's across the board. But, only in specific product lines where we feel strong -- where we feel ourselves to be a very important supplier to the market. We want to provide going forward, spare capacity there.

But, are there areas that you have excess capacity given the year over year decline in revenue where you may need to cut capacity?

Well, from a manning standpoint, these are basically older products where the depreciation has come down dramatically already. From a manning standpoint, we adept to the needs normally.

Thanks so much.

Your next question comes from Jim Suva.

Thank you, Dr. Paul, and congratulations to you and your team. I have two questions. The first is, can you just help us understand your capital structure and use of cash going forward? I believe in the last two years, you did two converts. Any more need to do converts there? It seems like the converts was the function of the stock buyback. What are your cash flow capital needs that you are seeing the Company going forward?

And then, the second question is, can you just talk about raw material pricing -- like on the tantalum side? What are your expectations for tantalum pricing going into your cost of sales? Thank you.

Jim, it's obvious that going forward we continue to be -- we will continue to be a free cash producer like we always have been. On the other hand, it's true we are going to invest to a degree more. This was part of our growth plan. And, I believe -- and also you can mention the acquisitions, also. All together, we are going to spend more than we did in the past on equipment in these critical lines which I just talked about, and we continue to look for strategic acquisitions mainly also in specialty products. But, all together, if is this was your question, you will not see a change of our behavior. We are going to continue to be a very reliable and predictable cash generator.

What was the -- oh, the second question was concerning raw materials in tantalum. Tantalum prices -- tantalum powder prices continue relatively flat these days. Since quite a time -- some would say a few months -- we haven't seen a big change. Normally, you would expect that prices decline a little these days because of lower requirements, but this is not the case as it appears the manufacturing capacities in tantalum powders are adapted to the needs. The prices stay relatively flat. This is our observation.

Thank you, and congratulations to you and your team at Vishay.

Thank you very much.

Your next question comes from Shawn Harrison.

Hi, good morning. It's Joe Wittine on the line for Shawn. I wanted to ask about gross margins first. It looks like maybe just a little bit below expectations this past quarter. I just wanted to be crystal clear that the key driver for that was ASP erosion maybe being a little bit higher than your expectations?

Exactly. It's also inventory driven a little. We brought down inventory. Really, if you want to look at it a little deeper, and I think Ms. Lipcaman has said it before, it was really the selling prices which came down somewhat more than normal. It's a little bit fixed costs which are also minor. We could not completely, and we said so. Part of the fixed cost savings in the first quarter were of temporary nature. A little contribution of higher fixed costs came from there, also, as expected.

And then, as I said, we reduced inventories. There were some inventory-related issues, and all that may have led to one point if I can guess. I didn't [caker] it. I think it led to a point of gross margin which we would have been better. It's no secret in the whole thing. No mystery.

Okay, so a number of factors. With inventories looking pretty washed out here and no expectations for significant more ASP erosion, as we look out beyond the third quarter, is your expectation for quote-unquote typical incremental gross margins in the low to mid-40% for the businesses? Or, any other reasons why we would --?

There is no -- there is principally no change. There is principally no change. This is our incremental performance. If we don't reduce inventories dramatically, if you don't add fixed costs dramatically, this is it. That's exactly the incremental performance. 40%, 45%.

Okay, got it. Then, on the operating expense line, that was a big positive this quarter. I think you were expecting $90 million-plus. I guess the question -- I think you said you took down some bonus accruals.

Yes.

So, I guess the question is assuming sales trend flat over the next few quarters like a lot of people are anticipating, what would you expect gross margin -- I'm sorry, operating expenses to do? Could there be a step up if sales reach a certain level? That kind of thing?

We believe, as Ms. Lipcaman said, our CFO, next quarter to go -- that SG&A costs go up a little to $90 million which I think in our history is still a very good number, and I think we can keep it there. We can keep it there. I also see the possibility if the business should cool down, which not necessarily is the case, that we do have some room to go back to the scenario of the first quarter, say, $85 million to $90 million, somewhere.

Okay, great. Finally, a quick modeling question, just with the changes in the capital structure. Do you have an interest expense target for the third quarter at this point?

Interest expense?

Interest expense should be about $6 million in quarter three.

Great. Thank you very much.

You're welcome.

Your next question comes from Steve Smigie.

Great. Thank you. My first question, Dr. Paul, it seemed like in the past you might have been more negatively impacted by weak euro in the past. Have you brought down your euro exposure to revenue? Maybe a cycle versus some previous cycles where it seemed like you got hit a little bit more?

Well, we always did that we have a natural hedge concerning on the line of operating margin, vis-a-vis the euro. Of course, if the euro gets weaker, and we report in dollars, then the sales will go down inevitably, right? But, on the operating margin in the first approximation we are -- we have a natural hedge because of our distribution in sales between the two currencies, euro and the US dollar is approximately like the distribution in costs. Therefore, this was always the case. It came, more or less, by chance in a way. It's like that, but it's the case in all times, so to speak, since I can remember.

Okay. With regard to the MOSFET business, what would you say your peak gross margin could be if you had full utilization on the MOSFETs assuming the current mix? What could you get up to in the current mix?

Our target is to get back to the mid-20%.

And, if you had a really successful ramp of the high voltage products, would it be higher?

The mid-20%. This was of course a range. Of course, if the high voltage -- but the high voltage depends -- the success in high voltage depends on the success depends, of course, very much of the situation in the market segments we were selling these to which is auto -- which basically is industrial. And, of course, if industrial does well, there is no major that we should be limited at 25% gross margin. But, this is our, I would say, visible target to go back with higher volume at the new product to the mid-20%.

Okay. Within the low voltage space, have you seen any competitors become less aggressive in that market? Try to back out a little bit? Or, is it pretty much --?

I wish I could say that. I wish I could say that. No. It's tough competition, but it's not untypical. We have seen it in the past. If I compare the situation to previous times, I would say that the price pressure in MOSFETs -- in low voltage MOSFETs has not gone up. I would even say from our standpoint, it's less stringent. But, still it exists. No question.

Right. And, with regard to the auto business, I think you talked about some weakness there. Do you perceive that as being sort of temporary? Or, is it some fundamental change? I guess I would look at trying to spend ultimately the big buyer of a lot of the cars. And, they've had some negative stimulus several months back, and then they seemed to re-ignite some of their stimulus plans. Do we see a short-term lull here? And then, as the new stimulus comes back online -- for their overall economy -- do you see those autos pick back up? Any characterization there would be helpful.

Well, I see when we talked about these record numbers of the last quarters, we basically deferred for the most part to the Central European -- say, the German carmakers. It was so extraordinarily high that it would be a miracle if this was to be sustained forever. That means, at the moment, what we see is something which goes from excellent to very good. This is how we see it at the moment.

On the other hand, it has to be a remarked that the US car industry has -- and you know it better than me, likely -- has recovered quite nicely which is then, of course, in the other direction. So, when I say that there is some cooling of the car industry that it's a very careful first statement. I do not see there a substantial decline as we go forward. Kind of falling off the cliff, not at all. I would call it normalization coming from historically high levels in Europe, in particular.

Okay. And, could you give some color, just on ordering in Europe? Would you say it's -- as we are approaching the month of August, are you seeing typical European order patterns ahead of a leave-for-the-holiday? Or, are they stronger or softer?

Europe -- to judge business in summer in Europe is always not completely easy. You have seen Europe, the book-to-bill of 9.95 in the second quarter was somewhat weak. And, I do not expect a major recovery in the third quarter. It would be absolutely untypical. Is it worse than it was before? Well, not really from (inaudible) from what we discussed before. But from industrial, I must admit we see signs of weakening which somewhat, but we are talking shades of gray. Somewhat stronger than normal, than seasonal.

Okay. And then, with regard to the softness we're seeing, does this give you increased opportunities to get some good deals on some acquisitions?

Well, don't want to be too precise about it. We have a few acquisitions under consideration, and, of course, some slow down can help for the price. But, not for the principle that people must sell.

Okay. Great. Thank you very much.

Thank you.

(Operator Instructions) Your next question comes from Shawn Harrison.

My follow-up questions were just asked by Steve. Thank you.

Okay.

There are no further questions at this time. I will now turn the call back to Mr. Henrici for closing remarks.

Thank you for your interest in Vishay Intertechnology. Melissa?

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