Vishay Intertechnology, Inc.
Q1 2009 Earnings Call Transcript

Published: 28 Apr 2009

[Operator:]

At this time, I would like to welcome everyone to the Vishay's first quarter 2009 earnings results conference call. (Operator Instructions) Thank you. Dr. Yahalomi, you may begin your conference.

[Lior Yahalomi:]

Thank you. This is Loir Yahalomi, the Chief Financial Officer. Good morning, ladies and gentlemen, and welcome to Vishay's first quarter 2009 earning call. On the line with me today are Dr. Felix Zandman, Vishay's Executive Chairman and Chief Technical and Business Development Officer; Dr. Gerald Paul, Vishay's President and Chief Executive Officer; and Lori Lipcaman, Vishay's Executive Vice President of Finance and Chief Accounting Officer. Before I start, Bill Clancy, Vishay's Senior Vice President and Corporate Controller, will read our customary opening statement. Bill?

[Bill Clancy:]

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 risk and uncertainty that could cause actual results to differ from the forward-looking statement. 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 SEC.

[Lior Yahalomi:]

Thank you, Bill. I will make summary comments. Dr. Paul will add a more detailed analysis of our first quarter 2009. And finally, Dr. Zandman will update our R&D and acquisition activities and will make summary remarks. For the first quarter of 2009, Vishay reported revenues of $450 million, 22% lower than the fourth quarter of 2008 and 39% lower than the first quarter of 2008. The decline in our revenues is attributed to the significant and rapid downturn in virtually all Vishay's end market. On a GAAP basis, our consolidated gross margins for the quarter were 15.1% as compared to 14.8% for the fourth quarter of 2008 and 23.5% for the first quarter of 2008. This was mainly the result of lack of overall volume. SG&A expense for this quarter was $87.5 million, a decline of over 10% compared to $98 million for the fourth quarter of 2008 and a decline of 26% compared to the $119 million for last year's first quarter. Restructuring and severance costs in our first quarter of 2009 were $18.9 million. Total cash paid out for restructuring during Q1 2009 was $16 million. Our income for the first quarter of 2009 consists mainly of $1 million of interest income and $11.8 million of foreign exchange gains. Despite our pre-tax losses, we recorded a tax expense for the first quarter. This is attributable to the fact that a significant portion of these losses occurred in low tax jurisdictions where we recognize no substantial benefit. Capital expenditures for the quarter were $11 million compared to $53 million in our fourth quarter of 2008 and $26 million in the first quarter of 2008. Depreciation and amortization for the quarter were $54 million, the same amount as in our fourth quarter of 2008 and in the first quarter of 2008. As announced in our press release, Vishay reported a loss from continuing operations of $0.16 per diluted share for the first quarter of 2009. A loss of $0.08 is attributed to the after-tax impact of the restructuring and severance cost of $18.9 million. The adjusted net loss is $0.08 for the first quarter of 2009 as compared to adjusted net loss per share of $0.07 for the first quarter of 2008 and adjusted net earnings of $0.16 for the first quarter of 2008. As previously disclosed, Vishay was required to adopt two new accounting standards on January 1, 2009, which required retrospective adjustment of previously issued financial statement. The retrospective application of FSP APB 14-1 increased previously reported interest expense by $6.1 million or $0.03 per diluted share for the first quarter of 2008. Vishay had a total debt of $361 million and cash and cash equivalent of $365 million as of March 28, 2009. The debt to be repaid within five years was $253 million, of which $112.5 million of term loan maturing on July 1, 2011, with payments spread over the next two-and-a-half years with interest rate of 30-day LIBOR plus 2.5%; $125 million of revolving debt maturing on 2012 with an interest rate of 30-day LIBOR plus 1%. At quarter-end, $125 million of the revolving credit commitment of up to $250 million were not drawn upon. And $15 million of long-term loan maturing on 2014 with payment spread over five years with interest rate of 30-day LIBOR plus 3.45%. Additionally, we have $105 million of exchangeable and secured notes with 100 years maturity due on 2102 with interest rate of 90-day LIBOR plus 0%. Total available credit line, including the $125 million unused revolver in the U.S., was $167.8 million at March 28, 2009. Vishay's total available liquidity measured by cash plus all available credit lines as of March 28, 2009, was $533 million. Some other key summary financials are

[Gerald Paul:]

Thank you, Lior. Good morning, everybody. Well, as you've heard, Vishay's first quarter results in a major way have been impacted by the present global economic crisis. Operating profits and earnings per share were negative due to a continued dramatic and broad decline of volume. But thanks to our quick reaction, drastic measures and a good discipline in Vishay, we continue to generate free cash, quite respectable as I believe, $42 million in the quarter. Fixed costs and inventories have been brought down ahead of our announced plans. Let me talk first about economic environment as we see it. The world economy in quarter one continued to be in an extremely deep recession, hurting all geographies and virtually all market segments. What we live through is an unprecedented crisis I believe since World War II. Nevertheless, for the electronic industry, the sequence of events of the recession is quite familiar. The recession started in Asia at commodity products, mainly in distribution. We know that. Then Americas and Europe, they followed with a certain time lag in the industrial segment. We also know this one. What is really unusual this time is that automotive was hit so hard. This is unusual, but principally speaking, the sequence of events is quite familiar. It's only the recession is deeper. Distribution in the quarter, we have seen low inventory returns, 2.7 worldwide; and the Americas, 2.5; and Europe, 3.0; and Asia, very low at 2.8. On the other hand, during the quarter, inventory at distributors have been reduced quite substantially, we estimate, by about 10%. And this starts to support the POA already. Since March, we have seen some signs of recovery, mainly in Asia. The short-term orders for instance were increasing recently. On the other hand, Europe and the U.S. are still slightly deteriorating. In total, I think we have reached the bottom. This is quite likely. Let's talk about Vishay's business. Vishay in the first quarter has experienced the historical low for sales and orders, as we expected it to be. All regions and virtually all market segments were depressed. Industrial has followed consumer down relatively quickly. There was a steep decline of automotive also in Europe and Asia, which was unprecedented. Military on the other hand holds up quite nicely, and infrastructure programs around the world helped selectively. We achieved sales of $450 million in the quarter versus $575 million in prior quarter and $733 million in prior year. Excluding exchange rate effects, sales versus prior quarter were down by $124 million or 22% and down versus prior year by $262 million or 37%. Book-to-bill improved to 0.89, coming from 0.74 in Q4 '08, but of course it was still below 1. Now, in April, it appears that we are approaching the 1 book-to-bill. Some details for the quarter. Book-to-bill was 0.84 for distribution, 0.93 for OEMs, 0.96 for actives, 0.84 for passives, 0.81 for the Americas, 0.88 for Europe and 0.97 for Asia. So what you can see from these numbers is clearly some signs of stabilization, maybe a slightly recovery in Asia for the actives in particular. But on the other hand, for passives in Europe and the Americas, they are still quite depressed. Backlog, it was at 2.7 month, measured of course at the present low sales levels. The low level of price decline for Vishay at least continues. In total, vis-à-vis prior quarter, we have seen a price decline of 1.0% versus prior year of 2.2%. For the passives, we have seen price increases to 0.8% vis-à-vis prior quarter and 0.6% vis-à-vis prior year. For the actives, there has been price decline 3.1% versus prior quarter and 5.4% versus prior year. There is some acceleration of ASP decline for the actives, but we feel it's still quite moderate. Let me talk about the reconciliation of results of the quarter vis-à-vis prior quarter. Based on $126 million lower sales, $124 million lower excluding exchange rate impacts, the adjusted operating margin decreased by $8 million namely from minus $11 million to minus $19 million. The main elements were relatively low price decline of $5 million, the substantial loss in volume impacting the P&L by $45 million, much lower costs, mostly fixed costs of in total $30 million down, vis-à-vis prior quarter, and $12 million positive impact from a combination of exchange rate impacts and inventory impacts vis-à-vis prior quarter. If you look at the comparison vis-à-vis prior year, we see the following picture. Based on $284 million lower sales, $262 million lower excluding exchange rate impacts, the adjusted operating margin decreased by $73 million from $54 million to minus $19 million. Main elements, again, are very modest price decline of $10 million, substantial volume loss impacting the P&L by $109 million, better costs, mainly fixed costs, of $45 million. These are the main elements of this development. Coming to some highlights in operations for Vishay, well, after adaptation of the manufacturing capacities to current record low demands in the fourth quarter, an inventory reduction program has been started in the first quarter. Excluding the exchange rate effect, inventories in the quarter decreased by $27 million by $11 million in raw materials and by $16 million in WIP and finished goods. Due to the lower cost of goods sold, inventory turns dropped to 2.8, but we do expect to come back to historical sales levels of between 3.5 and 4 in the course of 2009 mainly by further inventory reduction. Capital spending in the quarter has been dramatically reduced to $11 million versus $53 million in prior quarter and versus $26 million in prior year. We expect 2009 spending at about $50 million as compared to $152 million in 2008. During the quarter, 2,650 employees were let go, equivalent to more than 10%, including 360 fixed heads, about the same reduction as we had already in the fourth quarter 2008. Since September 2008, therefore approximately 20% of all employees and more than 10% of all fixed heads have been reduced, and more terminations are going to come. Continuing, we are continuing with short-time work and plant shutdowns for every client. We also announced the closing of two smaller facilities into U.S. We will consolidate the manufacturing volume into existing plants. And we have started to consolidate opto products' packaging within Asia. All-in-all, we are in process to define further consolidations, but we continue to expect cash costs of $50 million for all restructuring in 2009. We generated $53 million cash from operations in the quarter as compared to $76 million in prior quarter and to $38 million in prior year. And we generated, as I said, quite respectable, $42 million free cash in the quarter as compared to $30 million in prior quarter and to $13 million in prior year. Well, last time I talked to you, I presented a plan for restructuring and rightsizing within Vishay in view of the deep crisis we are in. And I would like to update this program and talk about the status. Let's start with inventory. We talked about a target to reduce within the year inventories by $50 million to $100 million. As you will remember, we have already reduced $27 million in the first quarter. And from a target standpoint, we raised the target to more than $100 million reduction this year. So instead of $50 million to $100 million, we want to be above $100 million reduction in inventories this year, which helps the cash, of course. The other target was to reduce capital spending to below $70 million in quarter one. You will remember we spent $11 million. For the year, the outlook has been decreased to $50 million. Most important, we wanted to reduce all fixed cost at Vishay by $150 million year-over-year. In the first quarter, we already have reduced $54 million vis-à-vis the first quarter of prior year, $22 million from manufacturing fixed and $32 million from SG&A. The outlook is higher than we had before. Also, the target was raised to reduce $200 million of fixed costs year-over-year with $95 million in manufacturing fixed and $105 million reduction in SG&A, which means that we would defend the present run rate. Finally, we wanted to limit the cash cost for restructuring to $50 million. We have spent cash by $16 [billion] in the first quarter, and our outlook remains at the level of $50 million. Let me come to the various product lines, and I would like to start with resistors and inductors. This traditional and successful business of Vishay suffers substantially in volume, but it defends quite a decent level of profitability. Sales in the quarter were down to $110 million sales, 20% below prior quarter and 32% below prior year. Book-to-bill ratio in the quarter was weak, only 0.87. The backlog was at 2.6 months. Despite a very low volume, gross margin improved to 23% of sales. The reasons were excellent efficiencies and the major reduction in fixed costs. No ASP decline in resistors and inductors. Prices were slightly up vis-à-vis prior quarter and prior year. The inventory turns remained at a good level of 3.5. Capacitors also suffered and started to suffer in a major way from the economic crisis. A good product mix, fixed cost reductions, selective price increases on the other hand helps defend the profitability also in capacitors. Sales in the quarter were $105 million, down by 12% versus prior quarter and prior year; book-to-bill ratio weak at 0.76; backlog at three months. Gross margin improved to 18% of sales despite the low volume. No price decline also in capacitors. Prices were up by 1% versus prior quarter and prior year. There was a substantial inventory reduction, but due to lower cost of goods sold, the inventory turns declined to 2.7. All our factory closings are on plan, and more consolidation especially in capacitors is going to come. Coming to Measurements Group, Measurements Group is also impacted severely by the downturn which for this business is quite unique. Nevertheless, the group maintains an excellent level of profitability due to substantial cost improvements. Sales in the quarter were $35 million as compared to $43 million in prior quarter and to $51 million in prior year. Measurements Group has a backlog of 2.4 month and shows the book-to-bill ratio in the quarter of 0.94. Despite a very low volume, again, gross margin also in this line has improved to 32% of sales. The inventory turns on the other hand of only 1.9 suffered from low cost of goods sold. Coming to the actives, and I would like to start there with diodes and opto products. This business continues to suffer severely from the weakness at Asian consumer and European automotive. Asian distributors on the other hand processed to lower inventory levels. Sales in the quarter were $115 million, 24% below prior quarter and 46% below prior year. Book-to-bill was at 0.90, which is an improvement from 0.74 in the fourth quarter. Backlog of this group is at 2.5 month. Due to very low volume and despite major activities in cost reduction and fixed cost reduction namely, gross margin dropped to 9% of sales. Inventory turns remained quite good at the level of 3.1. The pressure on the ASPs was normal, I would say, 1.7% decline vis-à-vis prior quarter and 3.9% vis-à-vis prior year. Also, for this group, we are evaluating additional plant closings and further consolidation. Finally, Siliconix. Siliconix is the market leader in low voltage MOSFETs. They suffered the most of all Vishay businesses, which I think is typical for the industry segment that is geared towards mobile phones and notebooks. On the other hand, there are first signs of a recovery since March, as distributors were reducing inventory. The inventories are down by 25% for Siliconix products since November. Profitability suffered in an unprecedented way from historically low volume. Further reductions of fixed costs are on the way for Siliconix and will already impact the second quarter. Sales in the quarter were $84 million, down by 31% versus prior quarter and down by 51% versus prior year. Book-to-bill ratio was at 1.03 in the quarter, but April we have seen above 1.3. The backlog of Siliconix is at 2.7 month. Gross margin dropped to only 3% of sales. Price decline was increased, but we would say still normal. We see a level of 7% to 8% year-over-year. The inventory turns due to low cost of goods sold dropped to 2.5. Well, a lot of detail. Let me summarize and give you an outlook. Like the global economy and our entire industry, Vishay currently lives through a very severe economic crisis, there is no doubt. But having reacted quickly to this unprecedented challenge, we were able to minimize the impact on Vishay's performance to the greatest possible extent as we believe. We are ahead of our program to cut $150 million fixed costs and factors you heard. We are going to achieve more, have reduced capital spending to a minimum and are reducing inventories after having adapted our worldwide manufacturing capacities already in the fourth quarter. Doing so, we in the quarter have generated $42 million of free cash and limited operational losses to $19 million or $0.08 per share. Our business in the first quarter '09 seemingly has bottomed out. Actives already show first signs of recovery, whereas passives with their strong exposure to automotive and to industrial in Europe may still decline slightly. We will continue our programs, expecting strong free cash generation even in this year of recession, and target at an improved business model for Vishay based on a substantially reduced breakeven sales level. So all-in-all, we are confident and remain confident for the future. Thank you. May I transfer to Dr. Zandman?

[Felix Zandman:]

Good morning. I would repeat more or less the same thing Gerald said, maybe in a different context. The electronic industry is subject to a very severe recession, so is Vishay, as everybody knows. However, I am pleased to see that in spite of the violent drop in orders, we have responded fast, adjusting our operations with the strategic focus on creating free cash. This was the key and is the key. We achieved in Q1 free cash of $42 million, and our available liquidity is $533 million. That's the most important. This way we are secured for the future. It shows that the company is disciplined and is performing in an excellent way in spite of the recession. We start to see some uptick in orders in our Siliconix division and hope that the market is now stabilizing. In past recessions and we had several of them, we have seen always the same pattern. It's that the first to drop in orders are semiconductors, especially the advanced semiconductors like Siliconix, followed later by passives. The recovery has also the same pattern. First, semiconductors recover, followed by passive, and that's what's we hope will happen now. Let's hope that it is our start in recovery or at least that everything is stabilizing now. The negative P&L of $0.08 per share is regrettable, but not catastrophic. The most important for us is free cash generation, and that was achieved, $42 million in a quarter, which we consider a substantial number. Our R&D programs are on target. We have postponed some long-term programs which do not impede presently our day-to-day introduction of new products. As soon as the recession is over, the long-term programs will be re-evaluated, and Vishay again will plan an aggressive R&D with long-term benefits. Our activity in acquisition stopped temporarily. We will restart vigorously again acquisitions once the recession is over. A small summary here. In spite of catastrophic statements about the state of the economy, as reported daily by the media, TV and newspapers, everybody is exposed to that, Vishay handles itself well. Free cash generation is the most important in situations we live in now, and this we handle quite well. Also, our operations are handled very well in spite of lower volumes of orders. Once the recession is over, we will emerge stronger than ever. I feel optimistic about the future. Thank you. Well, I think we probably should pass now to questions. Hello?

[Operator:]

(Operator Instructions) Your first question comes from the line of Matt Sheerin.

[Matt Sheerin:]

Yes, thank you. So, Dr. Paul, you gave somewhat of a vague outlook, and I appreciate the fact that visibility is limited. But it sounds like you expect your semiconductor business to be up slightly and the passive business to be down slightly. So, are we to sort of conclude that you are looking at sort of flattish overall sales?

[Gerald Paul:]

Yes. Principally this is what we expect. But as you said, this is a time of maybe already some kind of recovery. Predictability is relatively low. But principally, this is the mechanic. We would say actives should be up very likely, and passives show still some signs of decline, especially in Europe.

[Matt Sheerin:]

And in automotive, are you seeing any light at the end of the tunnel there? Are you seeing any signs that you're seeing a little bit of a pickup, inventory restocking or anything like that?

[Gerald Paul:]

Unfortunately, at the moment, automotive, I see mainly Europe, as you can imagine. There are no too encouraging signs unfortunately. This is the case.

[Matt Sheerin:]

Okay. And then on the margin front, well, two questions. One, are you expecting margins to be flat or up because of continued cost cutting? And you talked about a lower revenue level for breakeven. Could you tell us what that revenue level would be for breakeven?

[Gerald Paul:]

Didn't want to be that quantitative, but as you can imagine, we were bringing down fixed costs quite dramatically in the first quarter, as we announced it really. And we wanted to work for it. When things get better, we will be very careful to add back any fixed costs, you understand? So therefore, it's really an easy prediction in that sense. We are going to lower the breakeven point of Vishay by hundreds of millions of U.S. dollars. I don't want to be more specific, but I think I am clear enough.

[Matt Sheerin:]

Okay. So, you are expecting a little bit of one of these margins to be flat up then?

[Gerald Paul:]

Yes. For the profitability standpoint quarter-over-quarter, I didn't give any guidance, but you should understand the following. If the economy will develop the way I expected, we are going to have a somewhat bad mix impact, because some specialty products in passives, especially in Europe, will be relatively down, whereas actives with somewhat lower contributive margins will be up. So, on the other hand, we are going to continue to work on our costs in general. So anyway, as you said, we expect them flattish.

[Matt Sheerin:]

Okay. And just one more question, if I may. Your balance sheet certainly is improving. Your cash position is going up. Vishay is historically is an inquisitive company? What is your outlook in terms of acquisitions? Are you just focusing on kind of getting the business on track or also looking at acquisition opportunities?

[Gerald Paul:]

Well, I think, Felix, you should answer, but first before you say it, I just wanted to emphasize what our Chairman has said. At the moment, our focus is on cash. But as you also said, Vishay always looks like for acquisition. So, Felix, maybe it was your question.

[Felix Zandman:]

We are not looking actively to acquire large companies or small. But if something comes along the way which is a very good situation, quite cheap, we may look at it. But there is no major effort now, no major spanning of whole companies what to acquire, how to (inaudible) and so on. So, at this point it's kind of quiet in this area.

[Operator:]

Your next question comes from the line of Steve Smigie.

[Steve Smigie:]

Great, thanks. I was hoping you could talk a little bit about Siliconix's gross margin and what it takes to get that back up? And what happened that it got to where it is? I mean is it just you guys have been adding capacity, because that's generally pretty solid business and didn't want to cut back or could you just talk about that a little bit?

[Gerald Paul:]

Yes. I think as I explained before, Siliconix's performance, which of course is very bad at the moment, a 3% gross margin, no discussion, is really only and exclusively impacted by the low volume, 50% down year-over-year. Like other semiconductor makers also, I think it's typical for people in this industry at the moment. On the other hand, as I also tried to say, Siliconix has a good variable margin. So, when sales come back nearly 50%, not quite, but close to 50%, flow to the bottomline automatically. And on top of everything, we are going to continue to cut fixed costs in Siliconix. And also history shows that Siliconix's recoveries are always deep, unfortunately also declines. It's the nature of the beast as it looks in semiconductors. Siliconix will have, you will see, a steep recovery when volume comes back, especially in profits.

[Steve Smigie:]

And is it more the computing side or the handset side that's driving the book-to-bill above 1?

[Gerald Paul:]

Well, at the moment, it's basically the computing side, which drives it up. But in reality, the following happens. At the moment what we see clearly is a normalization in the distribution channel. Distribution, as you know, at the beginning of this unprecedented downturn was stuffed with inventory. And since November, as I tried to say for Siliconix, inventories dropped the distribution by 25%. Therefore, what we see at the moment is also partially a normalization.

[Steve Smigie:]

Okay. Assuming that we've sort of bottomed here and let's just say we had some sort of seasonal uptick in September and you guys had a little bit more industrial mix or maybe it's not as much as seasonal uptick in September quarter. But just in general, if we see any sort of recovery, with all the cost cutting you've done, what kind of fall-through would you expect to see on the gross margin line in recovery period?

[Gerald Paul:]

Vishay historically has close to 50% variable margin, close to. That means this is what definitely will fall through, because as I said before, we will be very careful adding back fixed costs.

[Steve Smigie:]

And in terms of the fixed costs reduction, can you talk a little bit about how you think about your facilities? You have a large number of facilities. And admittedly, you've had a number of acquisitions. And I guess I'm just trying to understand what makes the most sense for you guys in terms of footprint to try to consolidate facilities or do you just have certain R&D talent in multiple regions so you can't really do that? Can you just talk about how you think about that?

[Gerald Paul:]

Well, historically, as you indicated, we are sitting on a lot of plants. But this is of course partially also because of the fact that we have lots of specialty products. So, this is connected, and specialty products have the advantages. So what we do since years and of course we do it now even in an accelerated way, we try to consolidate volumes. On the other hand, there are limitations. The bug of the cost reduction comes really from cutting down resources, as a matter of fact. So the cost reduction by consolidating plants, by nature of things, is a longer-term program. And this is what we do. We continue to do. But we don't want to lose business doing so. So we go step-by-step.

[Steve Smigie:]

Okay. And my last question was this. Basically, just where are we now in terms of headcount and where do you think we are going?

[Gerald Paul:]

There will be still reductions first of all on the variable side, variable, direct to access. We adapt to the need. So we do it partially by layoffs, partially by short-time work, partially by plant shutdowns. In this case, we adapt to the volume, including our target of inventory reduction which we have. So, this one goes automatically. Of course, we have to work for it. On the fixed cost side, I am going to continue, maybe not at the same speed as we had in the first two quarters, but we are going to selectively also reduce fixed cost personnel further going forward, yes, but not at the same speed as in quarter four and one.

[Steve Smigie:]

Can you give us like a specific headcount where you are currently?

[Gerald Paul:]

Yes, we do, but I don't want to give it out and talk in public.

[Operator:]

Your next question comes from the line of Jim Suva.

[Jim Suva:]

Great, thanks very much. On the profitability, you've made a lot of progress on reducing SG&A. I believe it went down about $15 million in the March quarter compared to December quarter. Given that it seems like you're going to reduce some employees some more and a little bit more restructuring actions, can you give us a little bit of help as far as what we should expect out for the June and kind of outlook quarter run rates since it's been declining so much?

[Gerald Paul:]

Well, as a matter of fact, we were by far faster than we thought. This is also why I said before our targets for the year in comparison to last year, it was raised from $150 million to $200 million savings. Just to keep the present run rate already will bring us there, so to speak. And on top of that, we will have some more moderate, but moderate cuts. So basically, just defending the run rate brings us to the $200 million. But you shouldn't be misled. A part of these savings which we had up to now is by nature temporary, right? That means short work and plant closings, et cetera. So, along the way, we have to replace these temporary measures by permanent measures. Do you understand?

[Jim Suva:]

Yes. But in doing so, a lot of the cuts in Q1, I imagine, were nonlinear, meaning they didn't take effect for the entire quarter.

[Gerald Paul:]

You are right.

[Jim Suva:]

So that should we expect SG&A to come down again in the June quarter?

[Gerald Paul:]

Well, again, it's a combination of temporary and permanent measures. Not all the temporary measures can be made permanent immediately. So we count basically first of all on defending this quick progress which we had between the fourth and first quarter.

[Jim Suva:]

But on the flat sales rate, would we expect SG&A to be down slightly then?

[Gerald Paul:]

Only slightly.

[Jim Suva:]

Okay. And then on the other income line, you had a foreign exchange benefit of about $11.8 million. Is there anything special in that line item that we should expect going forward or should it revert back to a more normalized level?

[Gerald Paul:]

Lior, do you want to answer? Lior?

[Lior Yahalomi:]

This is Loir. We would expect more normal level moving forward.

[Gerald Paul:]

Yes.

[Operator:]

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

[Shawn Harrison:]

Hi. Good morning. Getting back to the cost reduction program, I know when it was initially announced, there was the final goal of a certain percentage being permanent. Now that that number has been increased to $200 million, what percentage of that do you see being permanent reductions in terms of your fixed cost?

[Gerald Paul:]

A major portion of it, obviously. So, we are still working on additional plans. You can imagine the economy turned down super dramatically, and we had to cut left and right as fast as we could. And by nature of things, a few things had to be temporary. It had to be implemented quickly. In Europe, if you want to lay people off, it takes time. Short work and things like that go fast. So, this is why we combined it like that. Now we are working on a plan to convert as much of the temporary into permanent cuts, but this is on the way. I do not want to be completely specific, but we want to maximize the permanent portion. Last time, I said two-third is permanent and one-third is fixed. You can work from the assumption that more than two-third is permanent.

[Shawn Harrison:]

Okay. And then trying to maybe drill down on the cost of goods sold line in terms of the incremental benefits there, is it safe to assume that exiting 2009, given the uptick in actions that you've implemented, you should be at least breakeven, given if revenues don't recover from here? Is that a safe assumption?

[Gerald Paul:]

Well, if revenues stayed at the same level, we would be close to breakeven, yes. Closer to breakeven, not completely, I think. But we haven't calculated it that way.

[Shawn Harrison:]

Okay.

[Gerald Paul:]

May I add to that? We in the first quarter also have enjoyed some positive mix effects, as I tried to say during my presentation on the passives, which may also not completely be repeatable all the time. But your assumption is right. We are approaching breakeven on the same sales level. That is true.

[Shawn Harrison:]

And that positive mix benefit was just primarily due to seeing better relative sales in the passives business and the specialty business versus --?

[Gerald Paul:]

No. In the lines, particular in capacitors, we have sold more specialty products.

[Shawn Harrison:]

Okay. And then turning to Siliconix, now what was the pricing on a sequential basis? I think year-over-year you said it was down 7% to 8%.

[Gerald Paul:]

Yes. It was down by I think 4% or something. Yes, 4% down quarter-over-quarter, but you have to see that in quarter four, between quarter three and quarter four, we had price increases on a sequential basis. So there must have been some yearend effects that some accruals were released, et cetera. This is why I reduced my statement to the level year-over-year. But in principal, I have Ken look it up. It's close to 5% if you took seriously close to 5% quarter-over-quarter.

[Shawn Harrison:]

So, it seemed more --?

[Gerald Paul:]

But this is after a quarter when prices have gone up, which is not typical for Siliconix.

[Shawn Harrison:]

It seemed more like normalization and your competitors are getting negative on price?

[Gerald Paul:]

On the other hand, to say it also clearly, as soon as recovery will come about and it will come about first at Siliconix, that's for sure, we will see more price pressure. There is no question about it.

[Shawn Harrison:]

Okay. And then just in terms of the dynamics you are seeing here in April, with the book-to-bill above 1.3 in April, it seems like you're stating most of that is a restocking and not underlying demand comeback through distribution or am I reading that correctly?

[Gerald Paul:]

It's a combination. What I wanted to point out is that the restocking, the normalization in the supply chain, plays an important role and cannot be forgotten in this context. But as well, it's on both sides.

[Shawn Harrison:]

Okay. So, the point of sale versus the point of forward purchases is essentially reaching equilibrium here in April on the active components business?

[Gerald Paul:]

Yes, I think the whole industry was depressed before quite heavily through this sudden downturn that everybody wanted to get rid of this inventory.

[Operator:]

At this time, there are no further questions. Dr. Yahalomi, do you have any closing remarks?

[Lior Yahalomi:]

Thank you. I would like to thank you for participating in our call. We appreciate the interest in Vishay, and we look forward to your continued interest in the future. Thank you all.

[Operator:]

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