威世科技 (VSH) 2014 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Vishay Intertechnology Incorporated Q4 and FY14 earnings conference call.

(Operator Instructions)

I would now like to turn today's conference over to Peter Henrici. Please go ahead.

Thank you, Susan.

Good morning and welcome to Vishay Intertechnology's fourth-quarter and year 2014 conference call. With me 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'll start today's call with the CFO, who will review our fourth-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'll 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 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.

In addition, during this call we may refer to adjusted or other financial measures that are not prepared according to generally accepted accounting principals. 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. On the investor relations section of our website, you can find a presentation of the Q4 2014 financial information containing some of the operational metrics Dr. Paul will be discussing.

Johan Vandoorn, our Executive Vice President and Chief Financial -- Chief Technical Officer, will be presenting Tuesday, February 10 at the Stifel Technology Internet and Media Conference at the Westin St. Francis Hotel in San Francisco.

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 earnings press release. I will focus on some highlights and key metrics. Vishay reported revenues for Q4 of $611 million, within the range of our guidance. Exchange rates negatively impacted the top line by $12 million quarter over quarter.

GAAP EPS for the quarter was $0.19. The fourth quarter includes pretax charges of $2 million related to our previously announced cost reduction program and $1.2 million of tax benefits related to US tax law changes. These items, effectively netted, make an adjusted EPS also $0.19 for the quarter.

In September we acquired 88.95% interest in Capella Microsystems through a successful tender offer. Capella is a fabless IC design company specializing in optoelectronic sensors. It was listed on the Taiwan stock exchange. We acquired the remaining shares on December 31st, 2014.

The acquisition of the non-controlling interest totaled $21 million, funded with cash on hand. This brings the total consideration payed for Capella to $201 million, funded with $53 million of borrowings on a revolving credit facility and of the balance with cash on hand.

The borrowing on a revolving credit facility allowed us to achieve a legal structure -- legal entity structure which provides optimal future flexibility. Capella had cash and short-term investments of approximately $50 million on the date of acquisition, making the aggregate acquisition price, net of cash, $151 million. Capella has been included in Vishay's consolidated financial statements since the completion of the tender offer, with the 11.05% interest that we did not own presented as non-controlling interest.

Going forward, 100% of Capella's results will be included in the line items net earnings attributable to Vishay stockholders. A significant value has been described to amortizable intangible assets in our purchase accounting allocation. We expect the yearly amortization costs to be approximately $10 million. The acquisition of the non-controlling interest did not impact the value ascribed to these intangible assets.

Revenues in the quarter were $611 million, down by 4.3% from previous quarter and down by 0.9% compared to prior year. Gross margin was 23.5%. Operating margin was 7.1%. Adjusted operating margin was 7.4%. EPS was $0.19. Adjusted EPS was $0.19. EBITDA was $90 million, or 14.8%. Adjusted EBITDA was $92 million, or 15.1%.

Reconciling verses prior quarter, adjusted operating income Quarter Four, 2014, compared to adjusted operating income for prior quarter, based on $27 million lower sales, or $16 million lower excluding exchange rate impact, adjusted operating income decreased by $20 million to $45 million in Q4, 2014, from $65 million in Q3, 2014. The main elements were: average selling prices had a negative impact of $6 million, representing a 0.9% ASP decline; volume decreased with a negative impact of $5 million, despite a positive $4 million coming from acquisitions; amortization of intangibles increased with a negative impact of $2 million, which was Capella for a full quarter as anticipated. Inventory reduction had a negative impact of $5 million.

Reconciling verses prior year, adjusted operating income Quarter Four, 2014, compared to prior year, based on $5 million lower sales, or $10 million higher excluding exchange rate impact, adjusted operating income decreased by $5 million to $45 million in Q4, 2014, from $50 million in Q4, 2013. The main elements were: average selling prices had a negative impact of $16 million, representing a 2.6% ASP decline; volume increase for the positive impact of $11 million, representing a 4.4% increase, $4 million coming from acquisitions; variable cost decrease with a positive impact of $12 million, primarily due to cost reduction efforts, efficiencies and lower metal and material prices, which more than offset the increase of labor costs.

Fixed cost increased with a negative impact of $8 million. This increase includes from acquisitions $7 million, including the amortization intangibles for $3 million and our cost reduction programs and exchange rate impacts offset salary and wage increases. Inventory reduction had a negative impact of $3 million.

For the year, adjusted operating income for the year 2014, compared to prior year, based on $122 million higher sales, or $121 million excluding exchange rate impacts, adjusted operating income increased by $27 million, or $22 million excluding exchange rate impacts. The main elements were, average selling prices had negative impact of $63 million, representing a 2.5% ASP decline; volume increased with a positive impact of $87 million, representing an 8.0% increase, $12 million coming from acquisitions; variable costs decreased with a positive impact of $42 million, primarily due to cost reduction efforts, efficiencies, and lower metal and material prices, which more than offset the increase of labor costs.

Fixed cost increase was a negative impact of $41 million. This increase includes inflationary effects of $20 million, which were limited to 2%, due to partial offset by the 2014 impact of our cost reduction programs and from acquisitions of $15 million, including amortization of intangibles of $4 million and additional depreciation related to our MOSFETs restructuring program of $5 million.

Selling general and administrative expenses for the quarter were $98 million. This includes a positive impact of exchange rates. For Q1 2015 our expectations are approximately $98 million of SG&A expenses, assuming a 1.15 USD-to-euro exchange rate and for the full year, $392 million.

I'd like to give you an overview of our cost reduction program. As we announced in October 2013, we are implementing some targeted cost reduction programs. The first is our MOSFETs enhanced competitiveness program, which will have cash cost of $16 million with annualized savings of $23 million at current volumes when fully implemented. The program will occur in steps through Q1 2016.

The long implementation is primarily due to automotive qualification complexities. Meaningful savings are not expected until the program is nearly completed. Restructuring charges are recognized ratably during the implementation period. Q4 2014 includes $1.3 million severance related to this program.

The second is our voluntary early retirement program. All of the voluntary participants have been identified and have left, or will leave the Company in the next few months. The total charges related to this program were about $13.3 million, which includes changes and estimates of $0.6 million recorded in Q4. We expect this program to have annualized savings of $10 million.

We achieved savings of approximately $2.5 million in Q4, realizing our expected run rate. The savings split between cost of goods sold and SG&A, approximately 35% and 65%. The third program are minor activities within our diode segment. These are activities are expected to be completed in Q1 of 2015.

Our normalized tax rate for 2014 was approximately 31%. This is slightly lower than the expected rate we used to record income taxes through the first nine months of the year, resulting mathematically in a tax rate of approximately 28% for Q4. The GAAP tax rate for the year, which includes the tax benefit from a US tax law change and the tax impact of the charges related to our restructuring programs and US pension transaction, was approximately 30%.

We expect our normalized tax rate for 2015 to be approximately 31%. This rate is based on an assumed level and 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 148 million. The expected share count for EPS purposes for first quarter 2015, based on same average stock price as the fourth quarter, is approximately 152 million shares. For a full explanation of our EPS share count and variables that impact the calculation, please refer to the 8-K we filed this morning.

Cash from operations for the quarter was $100 million. Capital expenditures for the quarter were $66 million. Free cash generation for the quarter was $34 million.

For the year 2014, cash from operations was $297 million. Capital expenditures were $157 million, split approximately for expansion, $72 million, for cost reduction, $19 million, for maintenance of business, $66 million. Proceeds from the sales of property and equipment were $3 million. Free cash generation was $143 million.

Vishay has consistently generated in excess of $100 million free cash in the each of the past nine years. Cash flows from operations were greater than $100 million for the last 20 years and greater than $200 million for the last 13 years.

Backlog at the end of quarter four was at $55 million, or 2.7 months of sales. Inventories decreased quarter over quarter by $19 million, excluding exchange rate impact. Days of inventory outstanding were 85 days. Days of sales outstanding for the quarter were 43 days. Days of payables outstanding for the quarter were 32 days, resulting in a cash conversion cycle of 96 days.

We had a total liquidity of $1.5 billion at quarter end. Cash and short term investments comprised $1.107 billion and unused capacity on the credit facility was $432 million. The break down of our debt of $455 million was $200 million outstanding on our credit facility, $39 million of exchangeable unsecured notes due in 88 years, $216 million of convertible debentures, net of unamortized discounts issued in three tranches and due in 26, 27, and 28 years, respectively. The principle amount, or face value, of the converts is $575 million. No principle payments are due until 2018.

You may recall from our third-quarter call that the convertible debentures may be redeemed if certain stock price thresholds are met. Based on an evaluation at the end of Q3, the convertible debentures due 2042 were redeemable during the fourth quarter and we reclassified the difference between the carrying value and the principal amount for those debentures from stockholder's equity to a separate line between liabilities and equity on our consolidated balance sheet. This criteria is measured quarterly and at the end of quarter four, the criteria were not met. Accordingly, the amounts presented as temporary equity at the end of Q3 reverted to regular equity as of the end of Q4.

Now I will turn the call over to our Chief Executive Officer, Dr. Gerald Paul.

Thank you, Lori, and good morning, everybody.

The year 2014 for Vishay, like for the entire electronic components industry, has been again a year of very mixed economic exposures as they relate to different developments in relevant market segments, but as well to macro-political and macroeconomic changes and prices. Vishay in 2014 achieved a gross margin of 25% of sales and adjusted operating margin of 9% of sales, adjusted earnings per share of $0.92 and GAAP earnings per share of $0.77.

We generated free cash of $143 million in the year, which represents the continuation of our good long-term performance. Due to higher-than-expected inventory reductions, the fourth quarter came in slightly below consensus. Gross margin was 24% of sales. Adjusted operating margin 7% of sales. Adjusted earnings per share $0.19 and GAAP earnings per share also $0.19.

Let me comment on the economic environment. After a fairly friendly first half and a reasonable third quarter, end markets, during the fourth quarter, weakened in general. Recent feedback, on the other hand, indicates signs of a turn around. The book-to-bill in generally was noticeably above one.

Distribution inventories were dropping in the quarter. Inventory turns continued to be reasonable. We have seen 3.4 turns worldwide versus 3.4 in the third quarter.

Some regional details on that, in the Americas it was the inventory turns of distribution were 2.4, vis-a-vis 2.3 in prior quarter. In Asia, 4.4 versus 4.5 in prior quarter. In Europe, 3.4 versus 3.5 in the prior quarter. The orders from end customers to distributions started to recover in the fourth quarter.

The economic outlook seems positive in the Americas, driven by improving employment and an increase in consumer confidence. Asian markets, despite some existing macroeconomic concerns, in particular for China, promise continuous growth in many areas, especially in the industrial segment. Europe still suffers from slow to non-existing GNP growth in general. The recent weakening of the euro, on the other hand, raises hopes for an improvement.

Automotive maintains very strong in all regions, driven by ongoing growth of the electronic content. The drivers are connectivity, telemetry systems, collision avoidance systems and 48 power distribution systems. The industrial segment shows different pictures depending on the region and on specific product factors. European large industrial customers tend to stagnate and oil-related sectors are down in general. America shows solid growth and Asia keeps expanding even faster.

The worldwide smart phone shipments increased by 20% year over year and growth is expected to continue strong based on the 4G technology. Some cooling in fixed telecom, as the rapid growth of the 4G-based station equipment starts to level off. In computing, the overall decline of notebooks reduced substantially to about 2% year over year.

New opportunities in the consumer segment, based on the fast growing new technologies like wearable and 3D printing can be observed. Military markets remain under pressure while aerospace programs do well and medical continues to be healthy and stable.

Let me come to Vishay, the business of Vishay. Excluding the impact of a substantial weakening of the euro, sales came in close to the midpoint of our guidance. In the fourth quarter, we achieved sales of $611 million verses $638 million in prior quarter and $616 million in prior year.

Excluding exchange rate effect and acquisitions, sales in the quarter were down verses prior quarter by $23 million, or by 4%, and virtually on the level of prior year. Sales in the entire year of 2014 were $2.49 billion versus $2.37 billion in 2013, an increase of 4% excluding exchange rate effects and acquisitions.

The book-to-bill ratio in the quarter was 0.95, with 0.93 for distribution and 0.96 for OEMs. We are seeing book-to-bill of 0.91 for actives and 0.99 for the passives, 0.93 for the Americas, 0.91 for Asia, and 1 for Europe. Backlog in the fourth quarter reduced to a low level of 2.7 months, with 2.8 months in actives and 2.6 passives.

All the cancellations remain at the normal level. The price pressure in channel and was normal. We have seen minus 0.9% versus prior quarter and minus 2.6% versus prior year. For actives in particular, minus 1.0% versus prior quarter and minus 3.7% versus prior year, and for passives we have seen moderate price decline as always of minus 0.8% versus prior quarter and minus 1.2% versus prior year.

Some highlights on operations: we in 2014 were able to offset the impact of inflation and price decline on the contributive margin and return to our traditional range of variable margin between 46% and 48%. We improved efficiencies in many areas and benefited also from lower metal prices in general. SG&A costs in the quarter came in $98 million, slightly above expectations. SG&A costs for the year were $386 million, $8 million, or 2%, above prior year at constant exchange rates and excluding acquisitions.

Manufacturing fixed costs for the year were $521 million, an increase of $12 million, or 2%, versus prior year at constant exchange rates, excluding acquisitions and the impact of the additional depreciation at MOSFETs in the context of our restructuring program. Total employment at Vishay at the end of 2014 was 22,555, which is 2% below prior quarter and close to the level of prior year. The fixed head count in 2014 came down by 55 heads, but were by approximately 1% when excluding the impact of the acquisitions, all this driven by the announced voluntary retirement program.

We continue to expand our sales organization in Asia, namely in China, for intensifying design efforts mainly in the industrial segment and we start to see successes there. We fully integrated the MCB acquisition in France into our traditional Sfernice division, started to integrate the acquisition of Holy Stone in Japan into our tantalum division, and finalized the announced voluntary retirement program, achieving all expected results.

Inventory turns in the quarter, like in the entire year of 2014, and also in prior year, were at a good level of 4.2. Excluding exchange rate impacts, inventories in the fourth quarter were reduced by $90 million. For the whole year, inventories remained virtually constant.

Capital spending in 2014 was $157 million versus $153 million in prior year. Main expansion projects were for innovative SMD diode packages, power inductors and for increasing the manufacturing capacities for new sensor products.

In 2015, we expect capital expenditures of approximately $170 million following the mid-term requirements of our growth plan. We generated, in 2014, cash from operations of $297 million verses $292 million in prior year and generated, in 2014, free cash of $143 million verses $144 million in prior year. I think I can repeat my sentence that Vishay remains to be a very reliable generator of free cash.

Let me come to the product lines. I'll start with resistors and inductors. Vishay's traditional, and most profitable business unit, continues on a good level, whereby, in particular, inductors grow steadily. This is true for our traditional business with power inductors, as well as for the acquisition of HiRel, which is active in the field of magnetics.

With resisters and inductors, we enjoy a very strong position in the industrial auto and [meal] markets and HiRel is very well positioned in the medical segment. We continue to see opportunities for substantial growth in the Asian, predominantly Chinese, industrial market, and we do experience both successes in thin film and thick film power resisters. By the way, power inductor [since years] grow nicely in Asia.

Sales in the quarter were $186 million, on the same level as in prior quarter and 1% above prior year, excluding exchange rate impacts. The book-to-bill ratio in the quarter was 1.02 after 0.98 in prior quarter, which keeps backlog at a quite normal level of 2.7 months. Gross margin was at 32% of sales in the quarter, up by 1% verses prior quarter, leading to a gross margin of very good 32% for the entire year. Inventory terms in the quarter were at 4.3. We have seen slightly increased price decline, 0.9% verses prior quarter and 2.6% verses prior year.

We continue to invest in additional manufacturing capacities for power inductors in our Danshui plant in China. We started to move production of the MCB acquisition in France from France to existing plants in the Czech republic and we do not expect any restructuring charges in this context.

The acquisition specialty products Huntington, HiRel, and MCB altogether are quite successful. We achieved in 2014 sales of $102 million with these acquisitions at a gross margin of 26%. Further growth and cost reduction can be expected.

Coming to capacitors, our business with capacitors is based on a broad range of technologies, with a strong position in America and in European market niches. The business since 2013 suffers from a slow down in renewable energies in combination with slow meal markets. Also, our expectations for high power caps did not materialize to the full extent yet.

Successes in Asia have been partially offset by a presciently low activity level in Europe, which is our traditional market for these products. Sales in the quarter for capacitors were $101 million, 3% below prior quarter and 8% below prior year, which, again, excludes acquisitions and exchange rate effects. The book-to-bill ratio in the quarter was 0.94 after 0.90 in the previous quarter and the backlog decreased slightly to 2.6 months.

Gross margin in the quarter came in at 19% of sales, on the level of the prior quarter leading to a gross margin of 21% for the year, which does have some potential to be improved. Inventory turns in the quarter increased to 3.6. Selling prices are stable and better than in prior year. We have seen minus 0.5% verses prior quarter and plus 1.5% verses prior year.

We remain confident for this product group, especially in view of our opportunities in China and for the mid-term based on Holy Stone's technology, which will allow Vishay to penetrate the polymer tantalum market. In this context, we have started to develop a new range of met tantalum capacitors based on the polymer technology.

Coming to opto products, Vishay's business with opto product consists of infrared emitters, receivers, sensors and couplers, as well as LEDs for automotive applications. It contains a substantial and growing share of customer design products. The business with infrared opto products presents one of Vishay's real opportunities for growth, strong opportunities, especially the segment of high performance couplers and of sensors. Our recent acquisition of Capella, a leading design house for chips used in IR sensors will strengthen our position and our potential for expanding this promising business mid-term.

In our traditional markets, auto and industrial, as well as in mobile phones, which up to now, is Capella's primary focus. We have started to review Capella's technical programs and are in process to add designers for broadening their efforts further.

We are incorporating increasingly also the needs of Vishay's traditional sensors activities going forward. Consequently, and in order to optimize the combined resources, it has been decided to create a subdivision opto sensors that comprises all traditional activities of opto in sensors and the new acquisition, Capella. On a pro forma basis, this newly created subdivision in 2014 would have achieved sales of $120 million, at a gross margin of 35%. We do expect noticeable growth for the subdivision this year.

Coming to diodes, diodes represent a broad and steadily growing commodity business. We are largest supplier worldwide. Vishay offers virtually all technologies, as well as the most complete product portfolio and we, in particular, are leading in power applications. In the context of our growth plan, we have decided to invest in manufacturing capacities as ahead of demand for our innovative SMD packages.

Sales in the quarter were $141 million, 5% below prior quarter, but 3% above prior year, again excluding effects of exchange rates. The book-to-bill ratio in quarter four continued weak, 0.83 after 0.89 in prior quarter, but we have seen generally a substantial improvement of the situation.

Coming to MOSFETs, Vishay continues to be one of the market leaders in MOSFETs transistors. The originally predominant Asian business with customers in computers and phones over the years has been expanded successfully to automotive and, recently, to industrial. The business currently undergoes a major cost reduction program which, after implementation, will lead to a really meaningful step in terms of profitability.

Sales in the quarter were $112 million, 8% below prior quarter and 4% below prior year, excluding ex rate impacts. Book-to-bill ratio for MOSFETs was still weak in Quarter Four, but improved verses prior quarter. In quarter four we had 0.95 as compared to 0.83 in the third quarter of last year. Again, book-to-bill in January is promising.

Backlog is at three months. Gross margin in the quarter reduced to an unsatisfactory level of 10% of sales after 14% in prior quarter. It was impacted negatively by a strong reduction of inventories and by a less favorable product mix. The results continue to be burdened by addtional depreciation as a consequence of the announced restructuring program. The gross margin the year was at modest 13%. As I said before, this will be improved quite dramatically after the finalization of our announced cost reduction program.

The inventory turns were four. We have seen normal price decline for the MOSFETs, minus 1.5% verses prior quarter and minus 5% verses prior year. The announced restructuring program is on track and we continue to expect its full implementation by the first quarter of 2016.

Let me summarize. 2014 for Vishay clearly was a successful year. We achieved organic growth of 4% year over year, raised operating income by 14%, and adjusted earnings per share by 16%. We continue to generate free cash in a more than satisfactory way, like in so many years before. Operations were in good shape as it relates to efficiencies in manufacturing and to the fixed costs, which were kept in line nicely.

We, furthermore, in 2014 continued to acquire promising businesses, whereby last year we were able to close two technological gaps, namely the polymer technology for tantalum capacitors and competence for designing chips in IR sensors. Both acquisitions, Holy Stone and Capella, undoubtedly will help supporting Vishay's ongoing organic growth in the years to come.

We will continue to do our best for positioning Vishay well for the future, whereby further growth in Asian industrial markets, technological innovation and the finalization of our major cost reduction projects, will be the most important targets.

Naturally, we again will look carefully for opportunities for acquisitions that will strengthen Vishay. Despite initially low back logs, we remain confident for 2015, seeing orders strengthening substantially in January.

For the first quarter, we, at an exchange rate of $1.15 per euro, guide to sales range between $590 million and $630 million at gross margins between 24% and 25%. And, finally, and maybe also important these days, please be reminded that Vishay, on the level of operating margin, is practically not exposed to changes in the exchange rate between the US dollar and the euro.

Thank you very much.

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

Your first question comes from the line of Ruplu Battacharya.

Thank you for taking the question. Dr. Paul, the margins for the capacitors were still at 19%. Was it because of still the start up costs for Holy Stone or was it due to orders from distribution? If you can kind of comment on that?

Holy Stone played a very small role in that. It's small size. It's really a volume question. A volume question would be, the volume run relatively disappointing in tantalum capacitors and especially also now our power capacitor arena. They were behind expectations but we see no reasons why we should not be successful in our major programs to grow, especially in Asia, which would impact mainly power capacitors. It's a volume question and not really polymer or Holy Stone.

Overall, when you look at inventory and distribution now verses a year ago, would you say inventory is more normal now than lean as it was last year, or is it all at the same level? And can you comment on POS in the quarter?

First of all, I think inventory is higher than last year. Still, it's the turns are reasonable. We see an improving situation in the first quarter, especially the changes come from Asia. You may remember, I expected an increase of continued decrease of inventories in Asia and I think this comes through, which always in the last year's turned then into a better picture for us, more orders on us. After Chinese New Year, I think it will repeat itself.

Okay. Thanks. The last one from me is just on the capital returns to shareholders. Do you think 2015 -- in 2015 you can get the cash break even in the US with the dividend? Any outlook for a dividend increase in 2015?

It's not decided yet, Ruplu. This has to be, of course, first of all decided within the Company. We do see a continuation in channel of good cash generation. You are right the picture in the US will be better than the years before.

Okay. Thank you.

Your next question comes from the line of Harlan Sur.

Morning. Thanks for taking my question. Your starting backlog declined for the third consecutive quarter, you're guiding flat revenues here, but you have to turn, it looks like, at least [$40 million] more of shipments verses the December quarter, but you've got positive book-to-bill. So how confident are you about the higher level of turns required here in the March quarter?

I think we are very confident to reach this guidance which I gave. By the way, just to say, we are not guiding flat, actually. You have to take into account exchange rate. At constant exchange rates, we are guiding up for the first quarter even by 2%, little more than 2%. It's obvious that this decline of the euro happened in the course of the fourth quarter and for the first quarter, as we said, we expect at least in our projection a rate of 1.15, which would be another negative vis-a-vis the euro -- for the euro vis-a-vis the dollar. So in reality, we forecasted local currency or to say constant dollars, an increase of slightly more than 2% and we are confident to achieve it.

Okay. Great. Thank you for that. And then on the [disti] recovery that you started to see in the fourth quarter, and it looks like it's probably continued here through the first quarter, I think it -- I don't know if you answered this in the last question, but is the POS also improving as well as you kind of monitor that? I think as you mentioned, is most of the strength coming out of Asia or is America still strong? If you could just give us a little bit of color geographical wise.

Really, the changes are going to come like every year from Asia. It's obvious that the inventory goes down in Asia as predicted and it for sure continues in January. I don't have numbers for January, but it continues in the same trend. The POS for the fourth quarter was about the same as for the third quarter, so no change, but according to our long term experiences, orders on distribution in Asia, and this is really the place where changes happen, as I said, will start to come quite abruptly after Chinese New Year.

Okay. Great. Thank you for that. My last question, on the Capella acquisition, as you mention strong in smart phone and tablet markets. I think the team has said that there is a large opportunity to take advantage of the technology, move that into the industrial and automotive markets. Maybe, Dr. Paul, if you can give us an update on that front. What is going to take to annualize revenue run rate from $40 million to date to the $50 million to $60 million this year that you kind of mentioned on the last earnings call? Thank you.

Thank you very much. First of all, it was our intention from day one with the acquisition for Capella to strengthen our quite successful Opto business which we had since years. This is going to take place but it doesn't go overnight. They work -- our people work for industrial and for automotive and you know that qualifications cycles alone take some time. But we have started do that. We have brought the two teams together and we even have hired -- or are in process of hiring, in Capella additional designers in this environment of Capella that work for the traditional projects in industrial and automotive.

This is a process. We have started it. I think we have acquired very competent people in Capella and I am very optimistic that this will be a major step. A major step for growing our good business in Opto product further. The starting point run rate of sales in Capella is relatively low in the fourth quarter. This was $9 million, as I said. But we already in the first quarter expect better sales and the second quarter is an outlook of further improvement of the situation.

You know, this is a project business. Surprises in both directions can come quite easily. We expect very well that we will see, over the time, increases in this business which can be quite dramatic based on the successes we have in certain projects with customers. We are pursuing them.

Thanks, Dr. Paul.

Your next question comes from the line of Steve Smigie.

This is Vince Celentano in for Steve. I want to talk about industrial trends that you have been seeing. It looks like this quarter you were down about 7% sequentially. Can you talk a little bit how much of that was seasonal verses the trend mixes you have been seeing in other areas? Then going forward, can you talk a little bit -- I know you were seeing strength in China. Can you talk a little about if you have any visibility to when you see Europe and America starting to improve? And then just trends in general? Thank you.

Let me concentrate on industrial, which is important for us. As you know, it is our most important segment we are shipping to. Let me start with the most positive one. This is the United States. We have seen major improvements, especially us in industrial. It seems to hold. It's going well. In Asia, the overall growth has come down, but if you really look into the segments which are relevant for us, I think industrial in China, or in Asia in general, are strong and faster growing even than in the United States.

The problem is Europe. The European growth in industrial has been really low in the last year. They have problems, Europe in general. The growth is not so great. On the other hand, as I tried say before, if you -- first of all, [the weaker] euro should help exactly these people in central Europe that export a lot. Secondly, when you look at industrial in Europe, just a general remark, it's not just Siemens, so to speak, or other biggies. It's a big variety of smaller companies that are very often world-market leaders in this segment. I do believe that the strength of the European industrial industries is unchanged and, again, I repeat it, the weaker euro should help. So I see a fairly good year there.

Okay. Great. Thanks. Then just in general, as far as foreign currency impacts you have been seeing, the $12 million this quarter. Given your long-term goal of 5% growth, do you see that as attainable goal for 2015. If so, what do you think needs to happen in order to achieve that?

I do believe that we are on track in our growth plans. Of course, I don't manage the exchange rates, obviously. It's obvious that if the dollar weakens vis-a-vis -- the euro weakens vis-a-vis the US dollar, you will see an impact on the top line. It cannot be avoided. Approximately one-third of our sales goes in Europe, is invoiced in Europe. The good part of it is that we, as I tried to say, on the operating margin line are practically not impacted by these changes, because our share of sales between the euro and the dollar is about the same as our costs. So in the first approximation, really, as you look at it, our results do not suffer from swings. But of course the top line, there is nothing to be done, would suffer if the euro continued to weaken, which, at the moment, doesn't look that way. It seems to recover a little.

Great. Thank you.

Your next question comes from the line of Shawn Harrison.

Good morning. This is [Gosia Chadry] calling in for Shawn. You had mentioned that the book-to-bill improved in January. I was wondering if you could break that down by region and how that compares to what you typically see for this time of year and maybe compared to last year as well?

Wouldn't know this detail at the moment, but it's a substantial improvement over the situation in Q4. It came somewhat earlier than we are used to. It's quite general. It's from distribution and OEM, so it's a very broad recovery. We've seen Asia, in particular, stronger than we [headed] in the fourth quarter. So I think we are -- the normal cycle is like that in our industry, that we start to see more orders in the first quarter leading then to a good second quarter, so it's the same. It comes early this year and it's remarkably strong.

Okay, great. Then going back to Capella, you know you had mentioned that you will see some improvements as you move through the year. What about the run rate -- I'm sorry, the accretion expectations? Have those changed at all for 2015?

Basically, it will be that at least the present run rate does not give a positive impact to earnings per share. It does not. Cash wise, it is positive but does not give a positive impact to earnings per share but this is due to the amortization of intangibles, which is easy to calculate. I believe that with a good project, which we are pursuing many projects, we will definitely also make them accretive. But we are working on projects.

Okay. Great. Lastly, I might have missed it. I am sorry. Usually you, I think you said for Opto that the gross margin was at 35% for the year?

Yes.

Could you break that down by the quarter? And then there was some, I think, missing information for the Diode segment as well in terms of turns and ASPs, and same for Opto. Could you provide any of that information?

Sure. Definitely. I meant to say it, obviously. Just a second. Let me start out with the Diodes. Just a second. 23% for the Diodes in the year. 23%. Sorry it was not said. What was the other part of the question?

Sure. I was just saying that for Opto, I think you had given it for the year. I was wondering what it was for the quarter. And then --

I said it. Opto for the quarter, I can tell you, was 32%, if I remember right. It was 32% in the quarter but for the year was 35%. It is just a pure volume gain. There is no deterioration out of any other reason.

Okay. Thank you.

Thank you.

(Operator Instructions)

Your next question comes from the line of Matt Sheerin.

Yes, thanks. Good morning, everyone -- or good afternoon. You answered most of the questions, Dr. Paul. Just a couple, regarding the MOSFET or Siliconix cost cutting, you said it was going to start kicking in, in Q1 of next year. So my calculation shows it should be very significant margin leverage next year in that business, right? You should be going from single digits to at least the teens, right, in terms of gross margin?

Better than that. First of all, unfortunately it's the end of the first quarter, which we always said, so we will see the impact in the second quarter happening. The impact is about 8 percentage points. That means we have -- depending, of course, on the situation of the entire market in the business, we have a chance to get slightly over 20% gross.

Okay. You said you had, I think, 5% year-on-year ASP erosion in that business. Are those expectations at least low-single-digit ASP erosion baked in into that?

Yes, because we also have cost reduction, ongoing cost reduction. We hold our variable margin, Matt, despite all this ongoing price decline which we have seen since decades, so to speak, one decade for sure. Quite constant over the years, because we do not only have price decline, we have also substantial cost reduction. It's stated -- this is normal. I think all of my competitors do the same.

Okay. And your commentary regarding pretty significant pick up in bookings at the beginning of the year following a weak December, is your take that there was a little bit of an inventory build in September and customers were just very cautious and now they are starting to refresh a little bit? And your commentary about seasonality going into next quarter, it seems like the set up for your business is pretty strong going into Q2.

I do agree, Matt. That is exactly what has happened according to our information. Inventories levels in distribution, Asian distribution, have really grown and at the moment I think that we had the same statement a quarter ago. Now they work it down, and it's true; at the moment the business situation therefore improves in this respect also.

Okay. And just lastly on M&A, you did a couple of deals last year. Where are you looking this year? Is it both on the semiconductor and the passive side of the business?

It's opportunistic. We are pursuing -- no, pursuing is the wrong word. We are looking on both sides. As we are really looking mainly for speciality businesses, there may be a natural chance higher on the passives, but it is not so that we are only looking for passive acquisitions in general. It's only more likely to find there something.

Okay. All right. Thanks a lot.

Your next question comes from the line of Jim Suva.

This is Mike Cadiz for Jim Suva at Citigroup. My question this afternoon is more theoretical. Given, generally, the volatility in oil and its general price declines and perhaps of other raw materials, how would you see this affecting end demand and, on another level, cost of goods sold? I would imagine potentially higher margins due to lower costs? That's my question. Thank you.

First of all, the energy cost is part of our P&L, right? So how do we benefit, we as Vishay, from lower energy costs? I ask myself the same question. I am not completely unprepared. As a matter of fact, the impact is not so great for us. As a matter of fact, given a reduction which is not unrealistic -- and this depends very much on the country and the contract you have, et cetera. I would suspect for us can be $5 million, approximately. Don't take me literally, but it is a more philosophical question, as you said. Say $5 million. So not that huge. The bigger impact, I do believe, comes from the markets, as you said. I do believe, and I believe America just shows it, that these cheaper energy costs really raise the readiness of people to buy, which naturally helps us. Not only us, in general. So I would agree, this indirectly, for us, lower energy costs should support the year 2015 on the top line. A little bit impact also on the cost.

Okay. Thank you, Dr. Paul.

At this time there are no further questions. I would now like to turn the floor back over to Management for any closing remarks.

Thank you, Susan, and thank you for your interest in Vishay Intertechnology. This concludes our fourth-quarter earnings call.

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