威世科技 (VSH) 2020 Q2 法說會逐字稿

Good morning and welcome to Vishay Intertechnology's Second Quarter 2020 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'll start today's call with the CFO, who will review Vishay's second quarter 2020 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 second quarter 2020 financial information containing some of the operational metrics Dr. Paul will be discussing.

Now I turn the call 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 Q2 of $582 million. EPS was $0.17 for the quarter. Adjusted EPS was $0.18 for the quarter. During the quarter, we completed the cash repatriation program we initiated in response to U.S. tax reform. We repatriated $104 million to the United States and paid withholding and foreign taxes of $16 million. These taxes have been included upon enactment of the U.S. tax reform in 2017. The payment of these taxes is reflected as an operating cash flow on the statement of cash flows.

During the quarter, we repurchased $75.8 million principal amount of our convertible notes due in 2025, using some of the repatriated cash and recognized a U.S. GAAP loss on extinguishment. Similar to Q1, we have identified certain COVID-19-related charges, net of certain subsidies, which are incremental to and separable from normal operations. These items were insignificant to Q2 but are added back in calculating our non-GAAP adjusted EPS for comparability purposes with Q1. I will elaborate on these transactions in a few moments.

COVID-19 continues to have an impact on our business. While some of our factories had been temporarily closed and some are operating at levels less than full capacity, substantially all of our manufacturing facilities have been able to continue operating. However, the overall macroeconomic effects of the pandemic have driven our financial results. As I stated in the introduction, we have identified certain COVID-19-related charges, net of certain subsidies, which are incremental to and separable from normal operations. This includes: Wages paid to manufacturing employees during government-mandated shutdowns, additional wages and hardship allowances for working during lockdown periods, cost of cleaning and disinfecting facilities, cost of additional safety equipment for our employees and temporary housing for employees due to travel restrictions. The quantified COVID impacts I just described only include costs directly attributable to the outbreak and exclude indirect impacts, such as general macroeconomic effects of COVID-19 on our business and higher shipping costs due to reduced shipping capacity. Dr. Paul will elaborate further on the impact of COVID-19 on our operations and on our expectations for future results in a few moments.

Revenues in the quarter were $582 million, down by 5.1% from previous quarter and down by 15.1% compared to prior year. Gross margin was 22.5%. Adjusted gross margin, excluding COVID costs, was 22.6%. Operating margin was 7.0%. Adjusted operating margin, excluding COVID costs and restructuring, was 7.2%. EPS was $0.17. Adjusted EPS was $0.18. EBITDA was $78 million or 13.4%. Adjusted EBITDA was $80 million or 13.7%.

Reconciling versus prior quarter, adjusted operating income quarter 2 2020 compared to adjusted operating income for prior quarter, based on $31 million lower sales or $31 million excluding exchange rate impacts, operating income decreased by $9 million to $42 million in Q2 2020 from $51 million in Q1 2020. The main elements were: volume decreased with a negative impact of $17 million, equivalent to a 5.2% decrease in volume; fixed cost decreased with a positive impact of $15 million, primarily due to lower personnel and traffic costs; inventory impact with a negative effect of $6 million.

Reconciling versus prior year, adjusted operating income quarter 2 2020 compared to operating income in quarter 2 2019, based on $104 million lower sales or $100 million lower excluding exchange rate impacts, adjusted operating income decreased by $38 million to $42 million in Q2 2020 from $79 million in Q2 2019. The main elements were: average selling prices had a negative impact of $16 million, representing a 2.7% ASP decline; volume decreased with a negative impact of $39 million, representing a 12.7% decrease; variable costs decreased with a positive impact of $9 million; increases in labor and logistics costs and metal prices were more than offset by cost reductions and lower material prices; fixed costs decreased with a positive impact of $6 million, primarily lower -- due to lower travel costs.

Selling, general and administrative expenses for the quarter were $89 million, which includes a net benefit of $0.7 million for subsidies in excess of identified COVID costs. SG&A costs came in lower than our expectations, primarily due to continuing lower travel costs related to the pandemic. For Q3 2020, our expectations are approximately $92 million of SG&A expenses and approximately $375 million for the full year using the current exchange rate of USD 1 equals EUR 0.87 for the second half of 2020.

During the quarter, we completed the cash repatriation program we initiated in response to U.S. tax reform. We repatriated $104 million to the United States, net of withholding and foreign taxes of $16 million. Substantially all of these amounts have been utilized to pay down our revolving credit facility to 0 and to repurchase $75.8 million of convertible notes. Since the enactment of U.S. tax reform, we have repatriated over $1 billion net to the U.S. at a cash tax cost of approximately $211 million. Substantially all amounts have been allocated or utilized to: pay down the outstanding balance on our revolving credit facility to 0, repurchase convertible debt instruments, settle intercompany debts, fund certain capital expansion projects and pay the U.S. transition tax.

During the quarter, we were able to repurchase $75.8 million principal amount of our outstanding convertible notes due in 2025. We were able to repurchase the notes at an average of 93% of face value. U.S. GAAP loss on extinguishment is primarily due to the write-off of unamortized issuance costs. By reducing our fixed-term debt, the repurchase of the convertible notes provides us with future flexibility to better utilize our revolver and to adjust our debt levels as necessary. We continue to be authorized by our Board of Directors to repurchase up to an additional $124 million of convertible notes due 2025 as well as the remaining $3 million of convertible debentures, subject to market and business conditions, legal requirements and other factors.

We had total liquidity of $1.4 billion at quarter end. Cash and short-term investments comprised $757 million and the usable capacity on the credit facility is approximately $620 million. Our debt at quarter end is comprised of the convertible notes due in 2025 and the remaining convertible debentures due in 2040 and 2041. The principal amount or face value of the converts totaled $527 million, $524 million related to the notes due in 2025 and $3 million related to the remaining debentures. The carrying value of $438 million is net of unamortized discounts and debt issuance costs. There were no amounts outstanding on our revolving credit facility at the end of quarter 2, however, we do expect to utilize the revolver in Q3 and from time to time, including for additional repurchase of convertible notes and the payment of the next installment of the U.S. tax reform transition tax in Q3. No principal payments are due until 2025, and the revolving credit facility expires in June 2024. We expect interest for Q3 to be approximately $7.7 million, excluding the impact of any additional convertible note repurchases in Q3.

As announced last year, we are implementing global cost reduction programs. A small adjustment to the amounts recorded in Q3 and Q4 in 2019 was recorded in Q2 2020. All participants in the programs are now identified. The programs are intended to provide management rejuvenation and lower costs by approximately $15 million annually when fully implemented by the end of 2020.

The year-to-date effective tax rate on a GAAP basis was approximately 21%. The year-to-date normalized tax rate was approximately 23%. For the quarter, this mathematically yields a GAAP tax rate of approximately 16% and a normalized rate of approximately 18%. Our GAAP tax rate includes the unusual tax benefit related to the settlement of some of the convertible debentures. Our normalized rate excludes the unusual tax items as well as the tax effects of the identified COVID costs, a restructuring charge and a pretax loss on the extinguishment of debt. Our consolidated effective tax 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. We now expect our normalized effective tax rate for 2020 to be between 23% and 25%. Our assumed mix of income in lower tax rate jurisdictions versus higher tax rate jurisdictions is proportionately higher than we assumed at the end of Q1. We continue to evaluate the provisions of the U.S. tax laws, particularly aspects of the GILTI and BEAT taxes. Generally, at lower levels of pretax income, GILTI and BEAT have a larger proportional effect and thus increase our effective tax rate but higher levels of income in the U.S. reduced the amount of GILTI and BEAT taxes, which was the case in Q2.

Total shares outstanding at quarter end were 145 million. The expected share count for EPS purposes for the third quarter 2020 is approximately 145 million. 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 $90 million. Capital expenditures for the quarter were $25 million. Free cash for the quarter was $66 million. For the trailing 12 months, cash from operations was $286 million, capital expenditures were $135 million, split approximately for expansion, $90 million; for cost reduction, $7 million; for maintenance of business, $38 million. Free cash generation for the trailing 12-month period was $151 million. The trailing 12-month period includes $35 million cash taxes paid related to cash repatriation. The next installment of the U.S. tax reform transition tax of $15 million was deferred until Q3 as permitted for company -- all companies by the IRS in response to COVID-19.

Vishay has consistently generated in excess of $100 million cash flows from operations in each of the past 25 years and greater than $200 million for the last 18 years. Backlog at the end of quarter 2 was at $914 million or 4.7 months of sales. Inventories decreased quarter-over-quarter by $10 million, excluding exchange rate impacts. Days of inventory outstanding were 91 days. Days of sales outstanding for the quarter were 48 days. Days of payables outstanding for the quarter were 31 days, resulting in a cash conversion cycle of 108 days.

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

Thank you, Lori, and good morning, everybody. Vishay's worldwide business in the second quarter has been massively influenced by COVID-19. There were substantial restrictions for the citizens of many countries, which burdened the global economy. We successfully adapted to this generally unfriendly environment by cutting production capacities and by substantial belt-tightening in fixed costs. With sales at the high end of our guidance, we managed to beat expectations for the quarter. We achieved gross margin of 22.5% of sales, gross margin adjusted of 22.6% of sales, operating margin of 7.0% of sales and adjusted operating margin of 7.2% of sales. Earnings per share were $0.17; and adjusted earnings per share, $0.18.

By decreasing inventories and by reducing CapEx to the actual requirements quickly, Vishay continued to generate free cash also in this difficult quarter. We achieved $56 million higher than in prior year.

A few remarks concerning the economic environment. As indicated, global economy in the second quarter has been slowed down by COVID-19 remarkably, but market sectors suffered to a very different degree. In general, automotive has been hurt the most, whereas POA remained strong. Asia started to recover, whereas Europe and the U.S. were weak. Backlogs and lead times continue to normalize. There is no real shortage of supply. We see low price pressure in general. And we expect for the third quarter some weakening of POA, but also a noticeable recovery of the automotive sector.

Going through the geographic regions. Americas had a soft second quarter, with a significant deterioration of the automotive and commercial avionic sectors' distribution build inventory. Europe did exceptionally poorly, also due to COVID-related plant shutdowns in automotive. Industrial markets in Europe were giving a mixed impression. The recovery of Asian markets continues despite corona problems, the fact that corona problems still exist. There was growth in automotive in China, and there's also tailwind for medical and computer equipment. The inventory built at Asian distribution apparently was a preparation for an expected better third quarter.

Coming to distribution. Global distribution suffered in the second quarter, with POS declining by 12% versus prior quarter and by 13% versus prior year. POS decreased versus prior quarter in the Americas by 25% and in Europe by 19%, whereas POS in Asia was flat versus prior quarter. Inventories at distributors in the second quarter increased by $29 million after a reduction of $63 million in the first quarter. In the second quarter, inventory turns in distribution decreased to 2.7 from 2.9 in the first quarter, 2.5 turns were achieved in prior year. In the Americas, there were 1.4 inventory turns after 1.8 turns in the first quarter and 1.5 turns in prior year. In Asia, 4.1 turns after 3.8 in Q1 and 3.2 in prior year. In Europe, 3.0 turns after 3.7 in Q1 and 3.0 the prior year.

Let me comment on the industry segments. In the second quarter, the automotive industry, in general, and in particular in the Western Hemisphere, due to COVID impact, experienced a historical drop of their business. A bright spot was Asia, namely China, where the business already came back in the course of the second quarter. With most plant closures now behind us, the industry clearly has started to recover. Also, the industrial segment suffered in the second quarter, but the picture is very different in the various sections of this broad business. Industrial equipment as well as oil and gas were weak, whereas power supplies, smart metering and renewable energy performed reasonably well. Pandemic-related equipment provided an upside whereas government spending on power and transportation projects quite often is delayed. Remote learning and work at home continues to push the telecom and computer markets. The overall medical market continues strong. And also military markets remain positive and steady, but commercial avionics is in a substantial crisis.

Let me talk about our business development. Q2 sales, excluding exchange rate impacts, came in at the high end of our guidance, with POA stronger than expected. We have achieved sales of $582 million versus $613 million in prior quarter and $685 million in prior year. Excluding exchange rate impact, sales in the second quarter were down by $31 million or 5% versus prior quarter and down versus prior year by $100 million or by 15%. Book-to-bill in the second quarter was 0.82 compared to 1.17 in the first quarter, driven, like in the first quarter, by distribution. Some detail: 0.75 book-to-bill for distribution after 1.3 in the first quarter; 0.93 for OEMs after 1.04 in the first quarter; 0.81 for semis after 1.27 in the first quarter; 0.83 for passives after 1.08; 0.81 for the Americas after 1.08 in the first quarter; 0.86 for Asia after 1.29; 0.78 for Europe after 1.13.

Backlog in the second quarter decreased to 4.7 months from 4.9 months, 4.7 in semis and 4.8 in passives. We see low price pressure. There was no price decline versus prior quarter and minus 2.7% versus prior year. We see price decline slowing down for semis, minus 0.2% versus prior quarter and minus 4.5% versus prior year. There was virtually no price decline at passives, slightly higher prices, 0.3% versus prior quarter; and slightly lower prices, 0.9% versus prior year.

Some comments on operations. In the second quarter, we again offset the normal negative impacts on the contributive margin, overcoming also the consequences of capacity cuts and increased logistics costs. With only minor exceptions, all Vishay plants currently can operate in a normal fashion. Adjusted SG&A costs in the second quarter came in at $90 million, noticeably better than expectations, predominantly due to lower-than-anticipated travel costs. Manufacturing fixed costs in Q2 came in at $124 million, slightly below expectations also. Total employment at the end of the second quarter was 21,555 people, which is 2.4% down from prior year. Excluding exchange rate impacts, inventories in the quarter decreased by $10 million, by $3 million in raw materials and by $7 million in WIP and finished goods. Inventory turns in the second quarter were at a satisfactory level of 3.9, down from 4.2 in prior quarter. Our target in turns remains at greater 4 turns.

Capital spending in the second quarter was $25 million versus $34 million in prior year, close to expectations; $19 million for expansion, $1 million for cost reduction and $5 million for the maintenance of the business. For 2020, we expect CapEx of approximately $110 million in accordance with the requirements of the market.

Concerning cash flow. We generated cash from operations of $286 million on a trailing 12-month basis, including $35 million cash taxes for cash repatriation. And we generated free cash of $151 million on a trailing 12-month basis, including the same $35 million cash taxes for cash repatriation. I think we can say we remain to be a very reliable producer of free cash.

Coming to the product lines, and I'll start with resistors. With resistors, we enjoy a very strong position in the auto, industrial, mil and medical market segments, and we do offer virtually all resistor technologies. Vishay's traditional and historically growing business currently suffers in particular from the weakness of the automotive market sector. Sales in the quarter were $135 million, down by $24 million or by 15% versus prior quarter and down by $28 million or 17% versus prior year, all excluding exchange rate impacts. Book-to-bill in the second quarter was 0.73 after 1.05 in prior quarter, which had been supported by strong orders from distribution. Backlog in the quarter remained flat at 4.4 months. Gross margin in the quarter declined to 23% of sales after 28% in prior quarter, practically due to lower volume. Inventory turns in Q2 were at 3.7 after 4.2 in prior quarter. Again, the expectation also for resistors remains to be above 4 turns. We have seen low to normal price decline -- no price decline versus prior quarter and minus 2.1% versus prior year. We continue to see significant opportunities to further expand the resistor business in the midterm.

Inductors. The business consists of power inductors and magnetics. Exploiting the growing need for inductors, in general, Vishay developed a platform of robust and efficient power inductors, and we lead the market technically. With magnetics, we are very well-positioned in specialty businesses, showing steady growth since years. Also in inductors, we currently experience a temporary slowdown, mostly driven by the present weakness of the automotive market.

Sales of inductors in the second quarter were $65 million, down by $9 million or by 12% versus prior quarter and down versus prior year by $12 million or by 15%, all excluding exchange rate impacts. Book-to-bill in the second quarter for inductors was 0.96 after 0.98 in prior quarter. Backlog in Q2 has grown to 5.3 months from 4.8 months in prior quarter. Gross margin in the second quarter remained at a very good level of 31% of sales, a better customer mix and some limited inventory build helped. Inventory turns in the quarter reduced to 3.8 after 4.6 in prior quarter, the target also for inductors remains above 4 turns. We are seeing stable selling prices in inductors, an increase of 1.2% versus prior quarter and a slight decrease of 0.5% versus prior year. Inductors continue to carry our highest confidence for growth within the passives portfolio.

Capacitors. Our business with capacitors is based on a broad range of technologies with a strong position in American and European market niches. We enjoy increasing opportunities in the field of power transmission and of electro cars, namely in Asia, respectively in China. Also capacitors experience the present general market weakness. Sales in the second quarter were at $84 million, 10% below prior quarter and 24% below prior year without exchange rate effects. Book-to-bill in the second quarter was 0.90 after 1.2 in prior quarter. Backlogs increased to 5 months from 4.6 in the first quarter, mostly due to lower volume and no more inventory build. Gross margin in the second quarter decreased to 18% of sales after 22% in prior quarter. Inventory turns in the quarter dropped to 3.3, below acceptable levels, just to recollect. Stable and increasing selling prices we have seen, plus 0.1% versus prior quarter, plus 0.8% versus prior year. We will continue to benefit for capacitors from strong mil markets and the ongoing need for grid expansions, mainly in China.

Opto. Vishay's business with Opto products consists of sensors, infrared emitters, receivers, couplers and LEDs for automotive applications. Sales in the quarter were $49 million, 9% below prior quarter and 19% below prior year without exchange rate impacts. Book-to-bill in the quarter was 0.96 after 1.4 in prior quarter. The backlog is at a very high level of 6.1 months after 5.6 in the first quarter. Gross margin in the quarter was at 24% of sales after 27% in the first quarter. Lower volume and temporarily increased inefficiencies in the context of COVID-driven plant closings were the reasons. In fact, the Opto business in Q2 in terms of manufacturing suffered the most. [Fab finishing] plants had been closed for weeks. There are good inventory turns at the Opto business of 4.9 in the second quarter as compared to 5.7 in quarter 1. Price decline for Opto is normal, we have seen minus 0.3% versus prior quarter and minus 2.1% versus prior year. We are confident that Opto products going forward will contribute noticeably to our growth, and we are in process to modernize and to expand our Heilbronn fab in Germany.

Diodes. Diodes for Vishay represents a broad commodity business where we are largest supplier worldwide. Vishay offers virtually all technologies as well as the most complete product portfolio. The business has a very strong position in the automotive and industrial market segments and kept growing steadily and profitably since years. Presently, diodes suffer from the weakness of its main market and a relatively high inventory level in the supply chain. Sales in the quarter were $124 million, up by 8% versus prior quarter, but 12% below prior year without exchange rate impacts. Book-to-bill was low in the quarter, 0.61 after 1.36 in Q1, all driven by distribution. Backlog decreased to 4.5 months from 6 months in prior quarters, but this is still high. Gross margin in the quarter improved to 20% of sales as compared to 17% in Q1 due to higher volume. Inventory turns remained at a good level of 4.2 after 4.1 in the first quarter. Price decline has normalized for diodes. We have seen higher prices of 0.9% versus prior quarter and a decline of 3.9% versus prior year.

Last but not least, the MOSFETs. Vishay is one of the market leaders in MOSFET transistors. With MOSFETs, we enjoy a strong and a growing market position in automotive, which in view of an increasing use of MOSFETs in automotive will provide a successful future. Sales in the quarter were $119 million, 2% above prior quarter and 7% below prior year excluding exchange rate effects. Book-to-bill ratio was 0.97 in the quarter after 1.12 in the first quarter. Backlog remains at 4.4 months as compared to 4.5 months in Q1. Gross margin in the quarter was 23% of sales, slightly below Q1 at 24%. Inventory turns in the quarter were at 3.7 as compared to 3.6 in the first quarter. There's relatively normal price decline for MOSFETs, minus 1.3% versus prior quarter and minus 6.0% versus prior year. MOSFETs, without any doubt, remain key for Vishay's growth going forward.

Let me summarize. No doubt, this unprecedented pandemic currently impacts very many segments of the world economy, also electronics. However, there are clear reasons for confidence. First of all, we seemingly have reached the bottom, and the fundamentals of electronic growth remain completely intact. Vishay has proven its ability in dealing with temporary economic downs numerous times and will master the challenges of this crisis as well. And I believe that the first half of 2020 has already shown that. We will continue to focus on profitability and cash generation, while neither neglecting our essential long-term strategies nor, of course, safeguarding the health and well-being of our employees. For the third quarter, we, assuming an exchange rate of $1.15 to the euro, guide to a sales range of between $580 million to $620 million and a gross margin of 22.8% plus/minus 70 basis points.

Thank you very much. Peter?

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

Our first question comes from the line of Ruplu Bhattacharya with Bank of America.

Dr. Paul, can you talk a little bit more about the inventory at distribution? I mean book-to-bill was down to 0.75. And you said the POS was down. What are you seeing on a regional basis? And in the past, you've quantified how much excess inventory you think there is at distribution. Any updates to that? So just your thoughts on inventory at distribution would be helpful.

Yes. Sure. Distribution, you remember, was a problem a year ago. We identified it as a problem, and then the distribution worldwide started to reduce inventory. And after quarter 1, we were able to classify practically this distribution -- this inventory level at global distribution as more or less normal. So they had reduced in the first quarter substantially the inventory. And now rebuild half of it, what they have reduced in the first quarter. I believe the inventory level is not yet a problem really. I think they are better off than, say, a year ago. The inventory built in Asia, we have reason, I try to say it, we have reasons to believe at least that a part of the inventory build was really aiming at a better future in quarter 3 and quarter 4. So at this point in time, I would not be concerned. It may be a little different from product line to product line. There are some where, I would say, no problem and others where we have to watch. On the other hand, I believe the situation in -- concerning inventories is, as I said, better than it has been.

Got it. Maybe for my next question, if you can touch on what you're hearing from your automotive customers with respect to demand coming back. In the second quarter, you obviously had inefficiencies both from COVID-related demand as well as from automotive shutdowns. But do you anticipate the same level of inefficiency? Or do you think that gets better? And how do you see demand recovering in the third quarter?

The feedback we get and already seen partially is that the automotive industry is coming back. No question about it. And the best way to judge that is to look at the pulls from consignment stocks. In this case, you see it, it's really directly the demand, you can see it like that. And it really dropped this demand -- these pulls dropped in the -- in April and May to 50% of normal, 50% of normal, Q2, the shutdowns. Already in June, it recovered nicely, and they promised us, so to speak, the forecast for the third quarter at the normal level. So in that sense, we get back to normal. Of course, it has to be proven that these cars can be sold afterwards, which, on the other hand, I think they will.

Okay. And maybe for my last question, Lori, you repurchased about $76 million of the convertible notes. These were long-dated notes. So just -- I'm trying to understand like why did you do that? What was the reasoning behind the repurchase? And do you expect to repurchase more debt going forward?

So the last part first. We are still authorized by our Board of Directors to repurchase an additional $124 million of these same debentures as well as $3 million of the original notes that were out there. Then the idea was to make it a little bit more flexible in terms of our debt and to pay down our revolver so we can make a better use of it in the future. And the market conditions were appropriate so that we could repurchase them at 93% of face. That was -- Interest rate crossed a bit now.

Your next question comes from the line of Karl Ackerman with Cowen.

Two, if I may. I first wanted to focus on just manufacturing utilization. I know in the second quarter, you faced some -- several manufacturing challenges from COVID-19 implementations. I may have missed it, but are your facilities now fully open? And then secondly, one of your peers located in Taiwan recently indicated that their manufacturing utilization was in the 60% range in Q2. I'm curious whether your manufacturing facilities are above or below that range and if you expect to return to full utilization to the end of the year. And I have a follow-up.

You can see directly from our sales level that our manufacturing sites cannot be fully utilized. And in our case, we have a very heterogeneous program. It's not so easy to give a complete number for all Vishay. But of course, in the second quarter, there have been plant shutdowns of our customers really, and we reacted by short work, by having -- putting ahead holidays, et cetera, so we reacted to it. And I was proud to say that except basically minor effects, the plants at Vishay managed that without major inefficiencies, as a matter of fact. Of course, the situation looks better now with automotive reopening their plants. So -- and as it relates to inefficiencies, I'm quite positive that we are going to improve there and make up for this little negative we had in the second quarter. But altogether, I was very pleased with the reaction of our plants. They did quite nicely. And it was a sharp drop, as you know.

In Europe, we went on short work, as I said, which was a good instrument, relatively cheap. And you could keep your workforce because we do expect, and rightly so, a recovery of all that. So we have the people that can react. Did I answer your question?

Yes, that's helpful. Yes. I know it's all the moving parts of COVID-19. It's a bit challenging to how you guys forecast the entire automotive market. However, I was hoping you may speak to your content opportunities for electric vehicles over the next 12 to 18 months. I ask because that primary market has effectively doubled since the start of the year, so your comments there would be helpful.

Yes. It's a small share still. Small share. But I completely agree that this provides a nice chance for the components industry. It's obvious that the electronic content would be very favorable for us in electric cars. And it's also true that in Europe, at least, and I believe also in the U.S., electric cars get funding -- public funding. So I do expect a positive impact. But for the next 12 months, I don't think it will change the world. So it will be helpful, but it will not change the world. Longer term, it helps us, no question.

Your next question comes from the line of Shawn Harrison with Loop Capital.

Dr. Paul, I want to dig into, I guess, how you parse through these numbers where you've got extremely weak book-to-bills, but backlogs are greater than typical and just kind of the ability to forecast out 3 months, maybe even 6 months and just parsing through the volatility you're seeing in book-to-bills, but still healthy backlog and what that really tells you about your customers right now.

We also track the shippable backlog, of course, not only the total backlog. But of course, we have quite a share of consignment stock, which it's hard to be forecasted. But we watch it very much in detail these days, and the pulls from consignment from automotive, which is really for the most part automotive, is coming up sharply, so it helps us. But I must agree, of course, these are not the times of stable outlooks, as a matter of fact. And you know we have been too pessimistic, obviously, slightly, too pessimistic in quarter 2. I believe we are realistic in quarter 3. But I completely agree if this was a question that, of course, forecasting at this point in time is not the easiest, as a matter of fact. But we are -- we were not so far off up to now, I believe.

In the dynamic of, I guess, we're through July here, you've seen any normalization either in kind of the POA dynamics, the backlog and the book-to-bills, so you're not that far below parity in many of these business lines?

Sorry, I didn't catch you. This was POA distribution decrease?

I was either looking at POA distribution for July, your book-to-bills for July. Just are you seeing some normalization [in threshold], parity in book-to-bills?

July shows a backlog closer to 1, close to 1, actually. So in that sense, if you want to interpret it as no -- stabilization, I can agree. Sure, July is more balanced, close to 1.

Okay. And then lastly for me. Lori, just the repurchase of the debentures. Is that kind of the best way you think right now to utilize the cash versus the buyback? Is that a more efficient way to get the share count down here in the near term?

Yes, but the real driver was the flexibility in the usage of our revolver. So yes, we do think it was most effective.

Your next question comes from the line of Matt Sheerin with Stifel.

Dr. Paul, I wanted to just follow-up on your commentary regarding the automotive recovery. Could you talk about what you're seeing by region? Your peers are talking about relative strength in Asia and China, continued weakness in U.S. and then Europe, holiday shutdowns. Could you tell us what you're seeing there?

I can follow my competitors, as a matter of fact, my colleagues. Asia has never dropped off. Asia was strong, also in quarter 2 in automotive was quite strong. Europe closed a lot of plants. And Europe, may I say that dropped like a stone in automotive in quarter 2. And here, it's clear, completely clear to be seen that the plants have opened. The pulls in consignment stocks are back to normal nearly, so as a matter really of July. America remains relatively weak at this point, that is very true.

And are you expecting December then to be an up quarter in all your regions from what you can tell now in automotive?

I don't know how it will go in the U.S., as a matter of fact. I believe that Asia will continue to be strong. I believe Europe is back to halfway normal with the restriction that these cars still have to be sold at the end, of course, but will happen, I believe. And the U.S., I have a scattered picture. So indeed, it would -- in automotive, would the third quarter be better than the second, is obvious.

Okay. And I wanted to ask about the relative strength you're seeing in your MOSFET business, would seem less worse, if you will, than your other markets. Is that a function of content gains or share gains or they are least connecting?

It's content gains. No, you're absolutely right. We believe in content gains. We have quite a success with MOSFETs in quite a few automotive customers, which we didn't have before, these automotive customers. So we are gaining content, no question.

Okay. And lastly, regarding your CapEx and capacity expansion. I know the company's strategy has been to add capacity even in tough times because you want to get ready for the next upcycle. Could you tell us where things stand there?

Okay. Well, we were at a run rate of $3.2 billion in 2018, has been -- and part of the year. I believe for next year, we at least will have this capacity in terms of sales back because we invested. And in the meantime, I do not believe there will be a shortage of capacity. I don't think so for next year, but we expect next year up, of course, but there's enough room.

Your next question comes from the line of David O'Connor with BNP Paribas.

Great. A couple on my side. Maybe firstly, Dr. Paul, you talked about on your prepared remarks, on capacitors, inventory turn is 3.3x, below the acceptable levels. Just wondering what kind of actions are you taking there to get that back on track compared to the rest of the segments?

No revolutionary actions. We want to be above 3.5 also in capacitors. There are certain reasons why capacitors will never be the product line with record inventory turns, technical reasons. But 3.3 was too low, and we are bringing down certain raw materials, we watch once more the weighing process. So look, we had a massive decline of the business, and the plants were not able yet, and I emphasize yet, to follow completely in terms of inventories, so we don't need a revolution. We will work on it, and I'm sure we will get back to the 3.7 or whatever we had.

Okay. Got it. And then maybe as -- for my next question, can you talk slightly about bookings in Europe? You said in July, I think on the previous question, that and approaching parity. Was that across the industrial segment as well in Europe or is that still quite a miss?

I cannot answer for July. Peter, have you looked at the regional split of the orders in...

No, we only give out the book-to-bill for the total company, and it's close to parity, not by region and not by segment.

But the major recovery in Europe will come from automotive in quarter 3. There's no question. The problem is that you won't see that so easily in book-to-bill. It's mostly from consignment stock which, by nature, won't leave a big tracing book-to-bill. It's sales -- orders and sales at the same time, right? This is the definition of consignment. So it would not be too helpful to look at book-to-bill, I believe, in Europe alone because it is automotive that is concerned. This is getting better vis-à-vis Q2.

Okay. Understood. And maybe as my last question, just on the backlog. Did you do any specific cleaning of the backlog in Q2? And could you just elaborate more on your previous comments that you're tracking shippable backlog, what you're seeing or what exactly do you mean by that?

Well, normally, I'm quoting only the total backlog. But of course, you know when these parts of the backlog are due to be shipped and for the -- for instance, if you can say, the next 4 weeks, next 13 weeks, we watch normally the shippable backlog of the next 13 weeks additionally to the total backlog. So it's quite normal, I think if you put it as that. And as a matter of fact, this only does not have the pulls from consignment stocks completely included. And so I don't see the complete picture at the moment. We expect the improvement from consignment stocks through automotive. Sorry, I missed your question maybe. Could you?

Yes. No, that's helpful. And maybe just on the backlog, did you do any specific cleaning of the backlog?

No cleaning. No, no, no. No cleaning. No. No activity.

Okay. And there are no further questions at this time. I'll turn it back over to you for closing remarks.

Thank you, Dorothy. This concludes our second quarter conference call. Thank you for your interest in Vishay Intertechnology.

Thank you, ladies and gentlemen. That does conclude today's conference call. You may now disconnect.