威世科技 (VSH) 2015 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Q4 2015 earnings conference call.

(Operator Instructions)

I would now hand today's call over to Peter Henrici. Please go ahead, sir.

Thank you, Tanica. Good morning, and welcome to Vishay Intertechnology's fourth-quarter and year 2015 conference call. 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 start today's call with the CFO, who will review our fourth-quarter and yearly 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 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. On the Investor Relations section of our website, you can find a presentation of the fourth-quarter 2015 financial information containing some of the operational metrics Dr. Paul will be discussing. Now I turn the discussion over to Chief Financial Officer Lori Lipcaman.

Thank you, Peter, and 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 $566 million. GAAP EPS for the quarter was a loss of $0.93. Adjusted EPS was $0.14 for the quarter. The fourth quarter includes unusual tax charges netting to $152 million, and restructuring charges of $10 million. In December, we amended our credit facility, extending our existing commitment of $640 million through 2020. The new agreement has less restrictive covenants specifically related to share repurchases and dividends. As long as the pro forma leverage ratio is less than 2.25%, the new agreement provides unlimited capacity to pay dividends and to make stock repurchases.

As we discussed many times over the years, despite our $1 billion plus of cash and short-term investments, it is quite difficult to efficiently access that cash, because it is held by our non-US subsidiaries and would be subject to tax upon repatriation. As part of the evaluation which led to the amended and extended credit facility, we evaluated our anticipated domestic cash needs over the next several years, and our most efficient use of liquidity. We have determined that the most efficient use of liquidity is a combination of our revolver and cash repatriation. Consequently, we have reported a tax expense of $164 million in order to repatriate $300 million to the US. This is the book tax amount. The actual cash taxes paid will be significantly less when considering available net operating losses and other tax attributes. We anticipate the effective tax cost of the repatriation will be approximately 15%, which could vary significantly, depending on the timing of the repatriations over the next several years. Revenues in the quarter were $556 million, down by 0.8% from previous quarter, and down by 9.0% compared to prior-year. Gross margin was 22.6%. Operating margin was 5.4%. Adjusted operating margin was 7.2%. EPS was a loss of $0.93. Adjusted EPS was $0.14. EBITDA was $71 million or 12.8%. Adjusted EBITDA was $81 million or 14.6%.

Reconciling versus prior-quarter, adjusted operating income quarter-four 2015 compared to adjusted operating income for prior-quarter, based on $5 million lower sales, or $3 million lower excluding exchange rate impacts, adjusted operating income decreased by $1 million to $40 million in Q4 2015, from $41 million in Q3 2015. The main elements were: average selling prices had a negative impact of $4 million, representing a 0.7% ASP decline. Volume decreased, with a negative impact of $2 million. Fixed costs decreased, with a positive impact of $3 million, primarily due to reduction of amortization intangibles and general belt-tightening measures. Inventory reduction had a negative impact of $3 million. And exchange rates had a positive impact of $3 million.

Reconciling versus prior-year, adjusted operating income quarter-four 2015 compared to prior-year, based on $55 million lower sales, or $32 million lower excluding exchange rate impacts, adjusted operating income decreased by $5 million to $40 million in Q4 2015, from $45 million in Q4 2014. The main elements were: average selling prices had a negative impact of $21 million, representing a 3.6% ASP decline. Volume decreased with a negative impact of $6 million, representing a 2.0 % decrease. Variable costs decreased, with a positive impact of $6 million, primarily due to cost efforts efficiencies, lower metal and material prices, which more than offset the increase of labor costs. Fixed cost decreased, with a positive impact of $10 million. This decrease includes impacts from personnel intangibles and depreciation. And general cost reduction programs and belt-tightening more than offset salary and wage increases. Inventory impacts were positive $3 million. And exchange rate effects had a positive impact of $3 million.

Reconciling the full-year 2015 versus 2014, adjusted operating income for the year 2015, based on $193 million lower sales or $58 million lower excluding exchange rate impacts, adjusted operating income decreased by $46 million, or $39 million excluding exchange rate impacts, to $180 million to 2015, from $226 million for 2014. The main elements were: average selling prices had a negative impact of $70 million, representing a 3.0 ASP decline. Variable costs decreased, with a positive impact of $21 million, primarily due to cost reduction efforts, efficiencies lower metal and material prices, which more than offset the increase of labor costs. Inflationary fixed-related fixed costs were offset by cost reduction and belt-tightening. The 2014 acquisitions had a net negative impact of $5 million. Inventory impacts were a positive $6 million. And exchange rate effects had a positive impact of $6 million. Selling, general and administrative expenses for the quarter were $86 million, lower than expected, primarily due to a positive impact of exchange rates, as well as more severe belt-tightening efforts. For quarter-one 2016, our expectations are approximately $88 million of SG&A expenses, assuming a 1.09 USD-to-euro exchange rate. And for the full year, not more than $350 million.

I would like to give you an overview of our restructuring programs. As announced, we are implementing global cost-reduction programs intended to lower costs by approximately $35 million annually when fully implemented, at a cash cost of approximately $30 million. These programs include a plan to reduce SG&A by $17 million, to be implemented by the end of 2016. We also plan to streamline and consolidate production of certain product lines, which we expect to reduce costs of products sold by approximately $18 million annually, split 50-50 between variable and fixed costs. These production transfers will be completed in steps by the end of 2017. Our strategy in the first phase is to seek volunteers to accept a voluntary separation early-retirement offer. The amount of restructuring expense recorded for these programs during quarter four was $8.1 million, or $13.7 million for the year 2014 -- or excuse me, 2015. More will follow in 2016.

Our other previously announced program in the MOSFETs segment continues as planned. An additional $1.7 million of restructuring expense was recorded in Q4, bringing the total for the year to $5.4 million. As discussed previously, this program is being implemented in steps through quarter-one 2016. Meaningful cost savings are not expected until the program is nearly completed. Savings will start to kick in, in Q2 of 2016. They are expected to be approximately $23 million per year when fully implemented. Restructuring charges are recognized ratably during the implementation period.

The GAAP income tax rate includes unusual items totaling $152.4 million, primarily to record the effect planned repatriation of foreign earnings to the United States following an evaluation of the Company's anticipated domestic cash needs over the next several years, and the Company's most efficient use of liquidity. Excluding these items and the tax effect of the restructuring impairment in tangent explosion charges, the year-to-date normalized tax rate is approximately 32.4%. This mathematically yields a normalized tax rate of 37.3% for quarter four. We expect our normalized tax rate for 2016 to be approximately 30%. This rate is based on an assumed level of 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 the first-quarter 2016, based on the same average stock price as the fourth quarter, is approximately 151 million shares. For a full explanation of our EPS share count and variables that impact calculation, please refer to the 8-K we filed this morning. Cash from operations for the quarter was $92 million. Capital expenditures for the quarter were $60 million. Free cash generation for the quarter was $31 million. For the year 2015, cash from operations was $245 million. Capital expenditures were $147 million, split approximately for expansion of $72 million for cost reduction, $14 million; for maintenance and business, $61 million. Proceeds from the sales, property and equipment were $2 million for the year 2015. Free cash generation was $100 million. These shares consistently generated in excess of $100 million free cash in each of the past 10 years. Cash flows from operations were greater than $100 million for the last 21 years, and greater than $200 million for the last 14 years.

Backlog at the end of quarter four was at $515 million or 2.8 months of sales. Inventory decreased quarter over quarter by $23 million, excluding exchange rate impacts. Days of inventory outstanding were 92 days. Date of sales outstanding for the quarter were 45 days. Days of payables outstanding for the quarter were 32 days, resulting in a cash conversion cycle of 105 days. We had a total liquidity of $1.5 billion at quarter end. Cash and short-term investments comprised $1.95 billion, and unused capacity on the credit facility was $443 million.

During the quarter four, we adopted a new accounting standard. Debt issuance costs, which were classified as a non-current asset, are now presented as an offset to long-term debt. The standard was retrospectively adopted, and the 2014 balance sheet has also been recast to present these items in a similar manner. The caring value of our debt of $437 million is net of the unamortized issuance cost of $13 million. And includes $190 million outstanding on our credit facility, $39 million of exchangeable notes due in 88 years, $221 million of convertible debentures net of unamortized discount issued in three tranches and due in 25, 26 and 27 years, respectively. The principle amount or face value of the converts is $575 million. No principal payments are due until 2020. Now I will turn the call over to our Chief Executive Officer, Dr. Gerald Paul.

Thank you, Lori, and good morning, everybody. The year 2015 for Vishay, like for the entire electronic components industry, has been disappointing. An ongoing weakness in several key markets and a growing skepticism concerning China burdened the economic environment substantially. As a consequence, Vishay in 2015 remains behind its plans for profitability, and also behind the prior-year. We achieved a gross margin in the year of 24% of sales, an adjusted operating margin of 8% of sales, adjusted earnings per share of $0.72, and GAAP earnings per share of a loss minus $0.73. We generated free cash of $100 million in the year, lower than prior years, but still quite respectable, as we think. The fourth quarter did not represent surprises. Gross margin came in at 23% of sales. Adjusted operating margin were at 7% of sales, adjusted earnings per share at $0.14, and GAAP earnings per share at a loss of $0.93.

Let me talk about the economic environment, as we see it. There was an unexpected deterioration of the economic environment after the first quarter of 2015. And since, there was no real recovery, as we see it. Inventories at distributors in the fourth quarter continued to climb slightly by 2%. Distributors in the fourth quarter had a relatively weak POS, which was down by 6% versus prior-quarter, a bigger drop them in prior-year. We have seen low inventory turns at distribution in the quarter -- 3.1 turns worldwide versus 3.3 in the third quarter, 2.0 turns in the Americas versus 2.2 in the third quarter, 4.4 in Asia, on the same level as in Q3. 3.2 in Europe versus 3.5 in Q3. The book-to-bill ratio of distributors in the fourth quarter was principally encouraging, though it was at 1.02.

There are microeconomic concerns for China, and during the quarter, they became more severe, with stock markets taking a harsh decline. The American market continues to show a mixed picture. Automotive continues healthy. We see a very weak energy sector, which continues to burden the industrial segment, which in general, shows a relatively normal economy. Europe in the fourth quarter, like during the entire year 2015, remains stable -- of course, supported by a weaker euro. Automotive remains strong worldwide -- maybe in future, somewhat lower growth rates to be expected than we have seen in the last years. The industrial segment is stable in Europe, okay in the US, except for the energy sector. Infrastructure projects, mainly in China and India, start to support the Asian industrial segments. Computers in general continue to fall short of all expectations. The smart phones market is flat, with Chinese producers gaining share. Fixed telecom is expected to pick up, due to investments in 4G, mainly in developing countries like India. In the consumer segment, variables in gaming support the business. Military remains flat, whereas the medical segment continues to be friendly in particular, also in China.

Coming to our business development, excluding exchange rate impacts, sales came in close to the midpoint of our guidance. In the fourth quarter, we achieved sales of $556 million versus $561 million in prior-quarter, and $611 million in prior-year. Excluding exchange effect, sales in the quarter virtually were on the level of the third quarter, but down by $32 million or 5% versus prior-year. Sales in the year 2015 were $2.3 billion versus $2.49 billion in 2014, a decrease of 4%, excluding exchange rate effects and acquisitions. Book-to-bill in the quarter was 0.97, 1.02 for distribution after 0.96 in the third quarter, 0.91 for OEMs after 0.96, 0.94 for Actives after 0.98, 1.02 for passives after 0.94, 0.92 for the Americas after 0.92 -- same level, 0.98 for Asia after 0.99, 1.00 for Europe after 0.96. Our backlog decreased slightly to 2.8 months -- 2.7 in actives and 2.9 in passives. Euro cancellations remain at a normal level. We have seen some price increase of the price pressure, some increase of the price pressure versus prior-year vis-a-vis prior-quarter year minus 0.7%, but minus 3.6% versus prior-year. For the actives vis-a-vis prior-quarter, we have seen a decrease of 1.3% versus prior-year, a decrease of 4.3%. And for passives, prices were stable vis-a-vis prior-quarter, but there was a decrease of 2.7% versus prior-year.

Some highlights on operations -- we, in the year 2015, again were able to offset the impact of inflation and of price decline on the contributive margin. SG&A costs in the quarter came in at $86 million, better than expectations, also due to quite effective belt tightening. SG&A costs for the year were at $362 million, $5 million or 1.4% below prior-year at constant exchange rates and excluding the impact of acquisitions. Manufacturing fixed costs for the year were $491 million, $7 million or 1% above prior-year, excluding the impact of exchange rates and acquisitions. So Vishay in 2015 was able to compensate the effect of inflation on its total fixed costs by cost reduction. Total employment at the end of 2015 was 22,435 people, slightly below prior-year. The fixed headcount went down by 45 heads in the year, and more reductions obviously are to come. Excluding exchange rate impacts, inventories in the quarter were reduced by $23 million, and inventory turns in the fourth quarter were 3.9. In 2015, inventories increased by $9 million, whereby the required build-up of safety stocks for MOSFETs cost an increase of $20 million. Inventory turns for the year were at 4.0, according to our expectations.

Capital spending in 2015 was $147 million versus $157 million in prior-year. We spent $72 million for expansion, $14 million for cost reduction and $61 million for maintenance of business. The major expansion projects were for power inductors, diodes and tantalum polymer capacitors. For 2016, we expect a CapEx of approximately $140 million, in line with midterm requirements of our growth plan. We generated in 2015 cash from operations of $245 million versus $297 million in prior-year. And we generated in 2015 free cash of $100 million versus $143 million in prior-year. Naturally, the required build-up of our MOSFETs safety stock burdened our performance last year, but this will be reduced going forward.

Coming to our product lines, and starting with resistors and inductors. Vishay's traditional and most profitable business basically continues on a good level, but in 2015, also experienced a general weakening of the economy. With resistors and inductors, we enjoy a very strong position in industrial, auto and Mil markets. And HiRel is very well-positioned in the medical segment. We continue to see opportunities for growth in the Asian -- predominantly in the Chinese -- market, especially in the industrial segment. Regardless, some present cooling of the economy there.

Sales in the quarter were $166 million, down by 3% versus prior-quarter, and down by 6% versus prior-year, excluding exchange rate impacts. Year over year, resistors and inductors grow slightly by about 0.4%. The book-to-bill ratio in the quarter was 1.03 after 0.95 in prior-quarter. And we increased our backlog in this product line to a solid level of 2.9 months. Gross margin was at 28% of sales in the quarter after 29% in prior-quarter, due to lower volume. And gross margin for the year came in at 30% of sales. Inventory returns in the quarter were at 4.2, as compared to 4.3 for the year. The price decline was small vis-a-vis prior-quarter, 0.3%, but increased slightly year over year; it came to 3.1%. Coming to -- well, one word more. We continue in resistors and inductors, in the area, we continue to invest to expanding manufacturing capacities in power inductors and in [sin-fune] resistors. And the acquisitions in specialty product some years ago -- [hunting] and HiRel and [energy B] -- maintain to be quite successful. We, in the year 2015, despite the weaker euro, achieved sales of $95 million, and an improved gross margin of 27%.

Now I come to capacitors. Our business with capacitors is based on a broad range of technologies, with a strong position in American and European market niches. The capacitor business presently suffers severely from a decline of the oil and gas sector, the weakness in computers, and the general economic softening in Asia. Sales in the fourth quarter were at $82 million, slightly below prior-quarter, but 14% below prior-year, which excludes exchange rate effects. The book-to-bill ratio in the quarter was 0.99 after 0.93 in previous quarter. The backlog remained stable at 2.9 months. The gross margin for capacitors was at 19% of sales in the quarter, up from 16% in the third quarter, due to better efficiencies. The gross margin for the year 2015 was at 19% of sales. Inventory turns in the quarter were at 3.4 as compared to 3.4 for the whole year. The price decline was normal. We had slight price increases vis-a-vis prior-quarter of 0.5%, and prices were down by 1.9% versus prior-year. For the midterm, we remain confident for capacitors, in view of our opportunities in Asia in power capacitors, and for polymer tantalum capacitors in map technology, which we started to sell in the fourth quarter.

Coming to the Opto line. Vishay's business with Opto products consists of infrared emitters, receivers, sensors and couplers, as well as LEDs for automotive applications. The business with infrared Opto products represents one of Vishay's opportunities for growth, especially the segment of sensors. The acquisition of Capella, a design house for chips used in optoelectronic sensors, will strengthen our position and our potential for expanding this promising business further, by having owned competence in the field of chip design. Sales in the quarter were $68 million, 3% below prior-quarter but 1% above prior-year, which excludes exchange rate impact and acquisitions. Book-to-bill in the quarter was 0.91 after 0.95 in prior-quarter. Backlog decreased slightly to 2.7 months. Gross margin in the quarter reduced to 28% of sales after 33% in prior-quarter, due to lower volume, a less favorable product mix and some temporary inefficiencies in manufacturing. All this leads still to a quite satisfactory level of 32% gross margin for the year. This product line has quite excellent inventory turns of 6.0 in the quarter, as compared to 5.6 in the year. Price decline was modest -- 0.9% decline versus prior-quarter, 1.2% decline versus prior-year. The newly created subdivision Sensors grows nicely, with sales in the year of $134 million, which is a growth of 13% on a pro forma basis, excluding exchange rate effects.

Coming to diodes. Diodes represent a broad and growing commodity business, where 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. The business in the quarter, in general, was impacted negatively by the Asian slowdown. We reached sales of $135 million, 9% above prior-quarter, but 2% below prior-year, excluding exchange rate effects. Please be reminded that the third quarter has been handicapped by the explosion in the Port of Tianjin. The book-to-bill ratio of 0.97 in the quarter after 1.05 in the third quarter. The backlog reduced to 2.7 months. The gross margin in the quarter improved to 23% of sales after 22% in prior-quarter, which leads to a solid gross margin of 22% in the year. The inventory turns were very satisfactory -- 4.3 in the quarter, as compared to 4.3 in the year. Some acceleration we have seen of the price decline versus prior-year, minus 1% versus prior-quarter, declined minus 4.8 versus prior-year.

Coming to the MOSFETs. Vishay continues to be one of the market leaders in MOSFET transistors. Business continues to suffer from the weakness of the computer segment and of the Asian economy, in general. Over the last years, we developed a quite good position in automotive, which helps to stabilize the performance. Sales in the quarter were $104 million, 5% below prior-quarter and 6% below prior-year, excluding exchange rate effects. Book to bill remains low -- 0.9 in the fourth quarter versus 0.91 in prior-quarter. The backlog was reduced to 2.6 months. The gross margin in the quarter was 13% of sales after 15% in prior-quarter, because of lower volume in combination with less inventory build. The gross margin in the year was 14%. Inventory turns of 3.1 in the quarter we have seen as compared to 3.4 in the year. There's an accelerated price decline, which continues to burden results -- minus 1.8% versus prior-quarter, 5.7% versus prior-year. We are approaching the full implementation of our major cost reduction project, according to plan, by the end of the first quarter, which will positively impact the results in the second quarter.

Let me summarize. 2015 for Vishay clearly contained disappointments concerning the development of the business, leading to financial results not in line with our expectations. On the other hand, Vishay continued to show respectable results, and remained a reliable supplier of free cash. We, in 2015, achieved substantial progress in vital projects. We continue to control tightly our fixed costs, initiating another Company-wide restructuring program. We implemented various programs for improving efficiencies in manufacturing, in particular at MOSFETs. With the help of our Capella acquisition, we've started to grow sensors even faster, and are in-process to penetrate the tantalum polymer market. We also increased further our selling efforts in China, which undoubtedly will pay off in the future.

Based on our operational strength and good financial position, we enter 2016 with confidence. In particular, we believe in an eventual turnaround of the Chinese economy, especially of the interesting industrial segment. We continue to focus on shareholder value. And by repatriating foreign earnings, we improved our ability and flexibility for paying dividends, for buying back stock and for acquisitions in the United States. For the first quarter, we guide to a sales range between $540 million and $580 million, and a gross margin between 22% and 24% of sales. Thank you very much.

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

(Operator Instructions)

Ruplu Bhattacharya, Bank of America.

Dr. Paul, to start off with --

Hi, Ruplu.

-- maybe if you can comment a little bit more on inventory in the channel? I think you said inventories in distribution went up 2%. Overall, how do you see inventory in the channel? Do you think that we are at the point where distribution can start restocking inventory, or are the end markets still weak? If you can give your viewpoint on inventory?

This increase of inventory in the fourth quarter was a surprise to us, to a degree. It's not the end of the world, but we had predicted and expected a decline of the inventories in the fourth quarter. It came differently, but we are not talking about a dangerous situation of the pipeline. Which, the whole thing may delay a real upswing a little, but altogether, I think this reduction, which we expect, will take place in the first quarter now.

Okay, that's helpful. And then you talked about price declines. They seemed to be a little bit on the higher side this quarter, and especially in the Opto segment. You also talked about some manufacturing inefficiencies. Can you just talk about what you are seeing in terms of price declines for 1Q, and just elaborate a little more on what you saw in the Opto segment?

For most of the product lines, we have seen in the fourth quarter an accelerated price decline vis-a-vis prior-year. I have different reasons. In the past, it's just very often customer mix. So as soon as you sell more to Asia, you take incremental business at lower variable margins -- somewhat lower variable margins. Which, as they are assets incremental, it is good to do, but as a matter of fact, shows that effectively as a price decline. I wouldn't take this seriously.

It's different in the case of our actives. In our actives, we see indeed on the market more competitive situation than, say, a year ago. This is clear, because the economy at the moment does absolutely not view this effect. The economy is not strong at the moment. And of course, by nature of things, this accelerated price decline will go to the other side, and we have less price decline in times of economic recovery. This is not really targeted or restricted to one product line. We have seen that in diodes, we have seen it in the MOSFET arena. And on MOSFETs, we have now Capella, and they have more price decline per se than the traditional Opto division had. In Opto, well, basically, they had to tune down the volume. And if you tune down volumes in manufacturing, it can happen for a relatively short time there are some inefficiencies, because you want to tune down the volume somewhat faster than you can adapt to people. And there was some ambition here, maybe too much ambition, to bring down the inventory quickly. And this caused some really temporary inefficiencies.

Okay, that's helpful. Thanks for the color, and that makes sense. Maybe the last one from me. You've announced the repatriation of the cash. Maybe if you can just talk about your sense for the cadence of that, how fast do you think you're going to do that? And just overall -- I was unclear on this, but was it more efficient for you to repatriate the cash versus taking on more debt? Or did you have to do that at this point based on accounting reasons? And maybe just talk about your priorities for cash?

It was indeed the best possibility. But I think I'll hand over to my CFO.

Good morning, Ruplu. As Dr. Paul said, it was our most efficient option at this point in time. And we plan to repatriate over several years, because that is the method to drive the cash tax of the repatriation down, is to spread it over several years.

Right, okay. So are we looking at two or three years for all of it to come in and for you to be able to maintain that 15% cash tax rate?

It would be -- we plan a little bit more than two to three years. I would say, three to five years, approximately.

Three to five, okay, that's helpful. And the last thing was your priorities for cash? I think on the press release, you talked about dividends and share buybacks and acquisitions, but do you have any preference for one or the other?

Ruplu, this is an opportunistic choice that we have to make. We have done basically all of it. We have paid dividends -- we are paying dividends, continue to do so. We have bought back stock. And we have acquired in the US. So indeed, we have basically done everything of it, and it's hard to predict what we want to do. It is an opportunistic thing, and this decision is a decision of the Board, which we will be taking.

Okay, thank you so much. I appreciate you taking my questions.

Thank you.

Harlan Sur, JPMorgan.

Morning, thank you for taking my question. In answer to the previous question, it seems like you are still anticipating continued inventory draw-down in the channel, maybe this being offset by some return to consumption in certain segments. So the net impact is flattish growth here in the March quarter. Dr. Paul, could you help us understand what end markets or geographies are still burning inventories, and what segments are driving some of the growth to offset that decline here in March?

Well, as a matter fact, I would have said the easy answer is always: it's Asia. And to a degree, it is also Asia. On the other hand, looking into January, orders are not bad at all. And they come also from distribution Asia, so I should be careful with my statements. I think we will see some reduction of inventories in the US. This is our observation, that distributors in the US may come to the conclusion that it's also opportunistically better for them to reduce their inventory levels, to a degree. This is what I would say.

Okay. And then nice job on controlling the SG&A spend in the December quarter. It looks like you're going to keep SG&A relatively flattish off of the Q4 runway through all of 2016. How is the team going to be offsetting the normal inflationary increases this year?

Well, we do have some restructuring programs on the way. And the impact of the restructuring programs, as we said before, are really able to offset the impact of the rate increases. This is why we project this during the [coming set].

And the diode in the MOSFETs space, there's some ongoing M&A activity, primarily on the part of China to acquire competencies in diodes and low- and high-voltage MOSFETs. How do you think longer term about the economics in your discrete business if China becomes a bigger player in this segment of the market?

Well, everybody has to run, so to speak, and so have we. We cannot fall behind. And we are also manufacturing in China, so there is no God-given cost advantage of Chinese companies. So I think we had to compete in the past, we will have to compete in the future. I am confident in that.

Thank you, Dr. Paul.

Jim Suva, Citi.

Thank you, and congratulations to you and your team. The additional realms of restructuring that you announced or discussed today, have those been in the works for a while? Or has something like the macro economy or end markets or local production costs caused those additional realms to be announced?

The two major programs that are still ongoing is the MOSFETs restructuring program, which was announced some time ago, more than a year ago, far more than a year ago. And really had to defend our profitability in this most endangered line, our most competitive line, MOSFETs. This is underway and will come to fruit in the second quarter. The other one, the general fixed-cost reduction program, was influenced, of course, by less than sector development of the economy. But we implemented, and I believe we will not suffer from that. We are very shy to let technical people go, so to speak, so we concentrate on non-technical people. And also, this one, I am absolutely certain that this will become a success, as we announced. It will take some time. It's a combination of SG&A, really, and of manufacturing. SG&A will be finalized this year. And for the manufacturing moves which announced, for the major part, it will take a little longer, because moving manufacturing is a more time-consuming effort. But you are right. The second step has been determined by the economy, to a major degree, no question.

Okay. And then on a follow-up regarding inventory, you gave some color about inventory. Could you clarify -- was the inventory situation more in the channel, or more of the company-wide getting pushback from the channel? Or what inventory had to be adjusted, and when should we have those adjusted?

Sorry, I didn't get through. We are talking two completely different things. Number one, internally speaking, within the Vishay, we had to build inventory in the context of the move of manufacturing from plant A to a plant B. Our main customer required safety stocks, and this was due for an internal increase of $20 million in the year 2015. The other part was relating to the channel. In this case, we saw in the fourth quarter that distribution inventories worldwide went up by 2% -- vividly in the opposite direction of what we expected. We expected a certain decline, and it happened to be a certain increase. So two different things.

Right. But my question is, when will they be resolved, and when should we think about that and working through that?

Well, the internal part of it is just, as it is a safety stock, it's not the ambition to sell it overnight. We couldn't. But I would say half of the $20 million will be sold in 2016. And then it will take another one year, 1.5 years to sell it completely. The customer is committed to take this inventory -- that's number one. Number two, concerning the inventory reduction at distribution, it's not in our hands; it can only be an expectation. I believe a part of it will obviously now really happen in the first quarter. And as I see it, maybe it's even enough -- maybe the first-quarter reduction is enough. But I cannot really know that.

Okay. And then finally, can you help us on gross margins, how we should think about gross margins for Q1 and all of the quarters of the year? Is it pretty steady? Are there some flows up and down with production and right-sizing and moving things around, and with your restructuring? Thank you.

Basically, we have guided to, for the fourth quarter, to a range between 22% and 24%, depending on sales. And it's always very much depending on sales. Our contributive margin is relatively high, and the impact of volume is very high on the gross margin percent. Of course, we do have improvement programs on the way. On the other hand, there is, of course, also price decline. So I would expect no dramatic changes from the gross margin levels through the year.

Thank you, and congratulations to your team.

Also let me add to that. On the MOSFETs, I think there will be some improvement. We planned for that. But overall, the picture -- sorry -- should be stable. Thank you.

Thank you, and congratulations to your team.

Thank you.

Steve Smigie, Raymond James.

Great, thanks a lot, guys. Dr. Paul, I was hoping you could talk a little bit more about auto? You know, [teams], like most semi guys, have been putting out pretty good numbers, but there has been some worry out there that might slow. You seem to -- your [tones] seem to indicate that maybe you were seeing some weakness finally start to come into auto a little bit. I was just hoping we could get some more color there on what's concerning you?

It sounds a little like a broken record. I'm always -- every year, I am somehow skeptical about the continuation of growth in automotive, and for the last five years, I was wrong. We always expected some decline of growth, and it always was the same -- one record after the other. I believe maybe that now, it's more realistic. There is no indication that things would fall off and there would be shrinkage or so. But there are some indications from leading customers in this field, that they themselves do not expect the same growth rate anymore -- still growth of course, but not the same as they have seen in the last, say, five years. So this is what drove me to my statement, as a matter of fact. Am I certain about it? Of course not. It can definitely be good again. But we are not talking about a decline, for sure, now. At least, nobody expects it.

Okay, great. And then on the book-to-bill on the MOSFETs, is the weakness there related mostly to PC, or is it broad-based?

It is a wide combination. It really comes from Asia, for the most part, not from the automotive sector. The automotive sector continues strong. But it's really the combination of computers and telephones which hurts us at the moment. And not only us, obviously.

Okay. And then I'm not quite sure I understood your answer to the gross margin question before. So the gross margin, we should assume for the rest of the year, is roughly the same as the March quarter -- is that what you were saying?

Well, as a matter of fact, in principle, you have to figure in, of course, our cost-reduction programs. On the other hand, there is price decline. There is more cost reduction than price decline. There may be somewhat -- but it's very much depending on volume. At the same volume, we talk. At the same volume, dependency should be to somewhat higher gross margins. But the basic project is taking place in one area, and this is MOSFETs. In this case, we're going to see better gross margins, yes.

Okay. And then just on the cash repatriation, there has been some talk about the US allowing some repatriation. Maybe that doesn't happen until after the elections or something. But in the event that, that were implemented, would you guys be able to go back and sort of reset some of the future repatriation, so you'd get maybe a better, more favorable tax ruling or implementation? If that were to happen, say, six, nine months out, or something like that?

So at the moment, we have recorded a book tax expense to enable us to make this repatriation. We haven't executed it yet. So if anything were to happen in terms of changes in requirement by the federal government, we would be able to revisit the issue and take the most favorable approach.

Okay, great. My last question is just on the Capella. Any color on any new potential -- I mean, you guys talked about some possible designs, I think, coming. And I was curious -- any more color on how that's gone?

Sorry. I didn't catch the question quite. I'm sorry, could you say it again?

For the optical sensors, I think, there had been some indication, I think, on the Capella side about potentially some opportunities coming down the road that you saw (multiple speaks).

Oh, yes, I just didn't understand it. Yes, of course. First of all, we combined -- I think with good reasons, we combined, at the moment in my comments, the two businesses. The traditional sensor business and Capella's business is one subdivision. Because Capella more and more works, of course, for -- this was the intention from day one -- for our existing business, which is more in industrial and in automotive. And you see -- and I looked very carefully before I wrote it down and said it -- really on an apples-to-apples basis, we have year-over-year increase of 13%. We would not have had this 13% if there hadn't been a Capella. And this is really -- pro forma, it's apples-with-apples comparison, so it takes out the effect of the acquisition. So as a matter of fact, we believe that going forward -- I mean, it's clear that Capella was a very expensive acquisition. But going forward, its really an enrichment for Vishay, and will help us to grow these sensors. If you are in discrete components, you are not really spoiled by too great a growth rate from the market. The sensors are totally different; they really grow. And I think we can participate in that through Capella. Many projects on the way.

Okay, great. Thanks very much.

Shawn Harrison, Longbow.

This is [Gosias Havery] calling on behalf of Shawn. If I could revisit the cash return question. So understanding that you will be opportunistic, do you foresee doing it in large chunks in terms of a buyback? Would that be done in large chunks, or constant amount over a year? And then also, for the dividend, do you have a dividend growth goal in mind?

For the cash repatriation, we announced that we would spread it over several years, because that's where we're optimizing the cash tax expense. We don't plan to do it in large chunks or in a one-time go. Does that answer your question?

Yes, okay. And the same with dividend growth, do you have a goal in mind?

You know, we pay a dividend, and potentially changes will have to be decided by the Board. And for sure in our next Board meeting, we will talk the same subject again. But there is no firm plan in that sense, obviously, which I can share with you.

Okay. And then regarding the book-to-bill, I'm just wondering here through January if it had stayed at the same level or has improved? And by region, if there has been improvement as well?

January has started encouragingly, but it's just January, so to speak. It is a month. So we're substantially above one, where we are satisfied, but again, I don't over-interpret it. It's a good start into a year. That is it.

Sounds good. Thank you.

Matt Sheerin, Stifel Nicolaus.

You gave a lot of color on demand in your margins, but I just wanted to revisit that a little bit. On your revenue, you've been basically bouncing around the bottom here for -- you know, the March will be three quarters in a row at about the same level. And so fairly depressed. Are you expecting growth at all this year? Because you're going to be starting off down 5% or so year over year, with some FX obviously impacting that. But are you getting a sense, if distribution comes back, that you should start to see growth resume, and that you can grow the business this year?

Matt, as you know, I'm in this business for a long time. It's not a revolutionary business in the sense that you can expect two-digit grow so easily. But as a matter of fact, we went into the year -- and I have no reason to change my mind that this year will be better than prior-year. But it's a prediction based on my experience of my feeling, on talks I have. But miracles will not happen. But I do believe that sales this year -- on the same exchange rate basis, of course -- will be better than the year before. But again, who am I?

Sure. And on the margin, I think you could -- with that MOSFET program, you're going to be looking at about a $5 million savings run rate a quarter kicking in, in the June quarter. That's like 50 basis points or so of gross margin right there. So you would think that gross margin could expand, even with ASP erosion?

That is true. This was our target. You know, we have always said our target is a 20% gross margin, and I'm absolutely fine with this number still.

Okay. And then operating margin, too, should improve with the SG&A cuts?

Of course, yes.

Okay. And just further on your M&A strategy and the cash, just update us? I know you have been looking at more niche acquisitions. What areas are you looking at? And then just also from a strategic standpoint, I'm sure that the Vishay Board has not overlooked the massive consolidation going on within the semiconductor sector. A lot of your peers in the semiconductor space, particularly in power semiconductors, have been consolidating. What's Vishay's Boards' thoughts about looking at maybe doing a bigger acquisition, or maybe partnering with a larger company in terms of a sale?

Matt, indeed, we have not overlooked that. It was really a -- were quite enormous movements. On the other hand, looking at financial scope of that, this would have not been for Vishay, as a matter of fact. Too big. Plus I think our focus has been and will be more in acquiring specialty businesses. And I don't want to highlight too much, but passives normally closer to our thinking than actives. So as a matter of fact, it's an opportunistic business. To announce it even, is wrong like that. There can also be an actives business, which is interesting for us. Look at Capella. Capella, for us, is a nice addition, but it is, for us -- in reality, it was a technologically driven acquisition which would enable a specialty business to grow faster. So this is something which is closer to us than a broad commodity business, as a matter of fact.

Okay. And then from the other standpoint, in terms of a potential bigger buyer coming in and interested in either parts of your business, or all of your business?

Well, it's always a matter of price, of course, and a matter of a decision of the Board. I cannot say it differently. But we are more towards acquiring them, toward selling them. I must admit that also.

Okay, fair enough. Okay, thanks, and best of luck this year.

Thank you, Matt.

At this time, there are no further questions.

Thank you very much for being on the call, and thank you for your interest in Vishay Intertechnology. I wish you all a good day.

This concludes today's conference. Thank you for joining. You may now disconnect your lines.