Vishay Intertechnology, Inc.
Q3 2014 Earnings Call Transcript

Published: 28 Oct 2014

[Operator:]

Good morning, and welcome to the Vishay Intertechnology third quarter earnings conference call. My name is Crystal, and I will be your conference moderator today. [Operator Instructions] I will now turn the conference over to Mr. Peter Henrici, Senior Vice President, Corporate Communication. Thank you. You may begin your conference, sir.

[Peter G. Henrici:]

Thank you, Crystal. Good morning, and welcome to Vishay Intertechnology's Third Quarter 2014 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 our third quarter financial results. Dr. Gerald Paul will then give an overview of our business and discuss operational performance as well as segment results in more detail. Finally, we'll reserve time for questions and answers. This call is being webcast from the Investor Relations section of our website at ir.vishay.com. The replay for this call will be publicly available for approximately 30 days. You should be aware that in today's conference call, we will be making certain forward-looking statements that discuss future events and performance. These statements are subjected -- are subject to risks and uncertainties 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 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 Q3 2014 financial information containing some of the operational metrics Dr. Paul will be discussing. Johan Vandoorn, our Executive Vice President and Chief Technical Officer, will be presenting Tuesday, November 18 at the Mizuho Conference in New York. Now I turn the discussion over to Chief Financial Officer, Lori Lipcaman.

[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 Q3 of $638 million, within the range of our guidance. Exchange rates negatively impacted the top line by $6 million quarter-over-quarter. GAAP EPS for the quarter was $0.17. The third quarter includes charges of $3.5 million related to our previously announced cost reduction program and $15.6 million related to our U.S. pension settlement charges. Excluding the effect of these items and the related tax impact, adjusted EPS was $0.26 for the quarter. During quarter 3, we completed 2 partial settlement transactions related to our U.S. qualified pension plan. We settled the obligations approximating $59 million, funded entirely with plan assets. The primary purpose of these actions were to reduce investment and interest rate risks associated with our pension plans, although we do expect some future cost savings as a result of the successful completion of these transactions. As a direct result of these actions, in Q3, we recorded a noncash special charge of $15.6 million representing previously unrecognized actuarial items. In September, we acquired an 88.95% interest in Capella Microsystems through a successful tender offer. Capella is a fabless IC design company specializing in optoelectronic sensors. It is listed on Taiwan Stock Exchange. We expect to acquire the remaining shares by a merger vote of shareholders that is expected to be completed by January 2015. We funded the acquisition with $53 million of borrowings on our revolving credit facility and $127 million of cash on hand. The borrowing on our revolving credit facility allowed us to achieve a legal entity structure, which provides optimal future flexibility. The planned acquisition for the remaining 11% through merger vote will be funded with approximately $22 million of cash on hand. Capella had cash and short-term investments of approximately $50 million on the date of acquisition. The total acquisition price net of cash is expected to be $152 million. Capella has been included in Vishay's consolidated financial statements since the completion of the tender offer, with the 11.05% interest that we do not own presented as noncontrolling interest. Our consolidated balance sheet reflects our preliminary purchase accounting, which will be refined during the fourth quarter. A significant value has been ascribed to amortizable and tangible assets. Based on the preliminary purchase accounting allocation, we expect the yearly amortization cost to be approximately $10 million. Capella contributed approximately $3 million of revenues to the quarter for the period subsequent to the successful tender offer. The EPS impact was negligible. Revenues in the quarter were $638 million, down by 0.6% from previous quarter and up by 5.9% compared to prior year. Gross margin was 24.8%. Operating margin was 7.1%. Adjusted operating margin was 10.1%. EPS was $0.17. Adjusted EPS was $0.26. EBITDA was $89 million or 14.0%. Adjusted EBITDA was $108 million or 17.0%. Reconciling versus prior quarter, adjusted operating income for quarter 3 2014 compared to adjusted operating income for prior quarter, based on $4 million lower sales or $2 million higher excluding exchange rate impacts, including acquisitions of $5 million, adjusted operating income decreased by $2 million to $65 million in quarter 3 2014 from $67 million in Q2 2014. The main elements were

[Gerald Paul:]

Thank you, Lori, and good morning, everybody. The third quarter for Vishay has been a fairly solid one. Operational results stabilized on the good level of the second quarter, whereby, in particular, contributive margins held up nicely. We, in a considerable way, generated cash, and we started to integrate the respectively closed 2 strategically important acquisitions, quite in line with our growth plan. Vishay in the third quarter achieved a gross margin of 25% of sales, adjusted operating margin of 10% of sales, adjusted earnings per share of $0.26, GAAP earnings per share of $0.17 and free cash of $61 million. Let me talk about the economic environment as we see it. In the third quarter, the general climate in our market remained fairly friendly, although some political and macroeconomic turbulence has started to impact the high confidence level felt still in July. Distribution, mainly in Asia, despite virtually flat POS levels, started to react in view of their increased inventory levels and reduced orders to their suppliers. Inventory transit distribution reduced to 3.4 after 3.6 in prior quarter. Some regional detail. In the Americas to 2.3 after 2.4 in the second quarter; in Asia, 4.5 after 4.8; and in Europe, 3.5 after 3.8. The U.S. market presently appears relatively stable. Macroeconomic conditions in Europe indicate reduced growth. The Asian market continues to grow faster than Europe and the U.S., with some pressures in selected areas. Automotive remained strong in all regions, but the rapid growth rate of several recent quarters is likely to slow down to a degree. Industrial sees modest growth in the Americas, a mixed picture in Europe, but continued strength in Asia. Mobile phones are expected to be up by 20% year-over-year, with Chinese manufacturers gaining share. Notebooks, for now, seem to have stabilized. Fixed telecom, driven by 4G, continues to be a long-term growth market. The consumer segment remained soft in general, but with growing opportunities in new product areas such as variables. Depending on the program, military continues to be slow, whereas medical remains solid. Business development of Vishay. Sales in the quarter came in slightly below the midpoint of our guidance. A strengthening U.S. dollar and lower-than-expected shipments with distribution impacted our top line. We achieved sales of $638 million in the quarter versus $642 million in prior quarter and $603 million in prior year. Excluding exchange rate effect and acquisitions, sales were marginally down vis-à-vis prior quarter by $2 million or 0.3%, but up versus prior year by $29 million, over 5%. Book-to-bill ratio in the third quarter was 0.91 versus 1.0 in the second quarter; 0.86 for distribution after 1.03 in the second quarter; 0.97 for OEMs, same number last quarter; 0.88 for actives after 1.06 in the same quarter; 0.95 for passives after 0.94; 0.92 for the Americas after 1.05 in the second quarter; 0.87 for Asia after 1.01; and 0.95 for Europe after 0.97. Looking at all these numbers, again, we see, I would call it, seasonal cautiousness of Asian distributors impacting predominantly our actives. Backlog during the third quarter decreased to 2.8 months, 3.0 months in actives and 2.6 in passives. Order cancellations remain at a low level. The price pressure we have seen in the third quarter was normal. We experienced some ASP decline of 0.9% versus prior quarter and of 2.6% versus prior year. There was a normal ASP decline for the actives, with 1.4% versus prior quarter and 4.2% versus prior year. And there was a low ASP decline for the passives, with 0.3% versus prior quarter and 0.8% versus prior year. Let me give some highlights of our operations. Contributive margin in the quarter came in within our traditional range of between 46% and 48% of sales. SG&A costs in the quarter were at $94 million, according to our expectations when excluding exchange rate effect. Manufacturing fixed costs for the quarter were at $131 million like in the second quarter and according to our expectations. Total employment at Vishay virtually remained unchanged despite the Capella acquisition. Headcount reduced slightly to 23,060 heads from 23,080. Inventory turns in the quarter remained at a satisfactory level of 4.2. Excluding the impact of exchange rate, sent-off [ph] acquisition inventories in the third quarter reduced marginally by $2 million. Capital spending in the quarter was $37 million versus $44 million in prior year

[Operator:]

[Operator Instructions] Your first question comes from the line of Shawn Harrison.

[Shawn M. Harrison:]

First question, I guess, on the guidance. So if we look back to last quarter, you saw a dip in the book-to-bill ratio during July. You had some confidence at the time of the earnings call, and yet you saw a shortfall, particularly in Asia, exiting the quarter. What gives you the confidence in terms of the guidance for this quarter given the low book-to-bill ratios?

[Gerald Paul:]

Well, as a matter of fact, we guide below the third quarter. And the picture is not dissimilar from last year altogether. And we do believe that distribution will continue to reduce some inventories, but not endlessly. So I do believe that the number we are guiding to is a realistic one.

[Shawn M. Harrison:]

I guess too then, how has the book-to-bill ratio tracked through most of October here relative to what you witnessed last year?

[Gerald Paul:]

Better than on average of the third quarter.

[Shawn M. Harrison:]

Okay. Second question has to deal with Capella. Could you give us an update on both the revenue run rate of the business, where it is right now versus your expectation for '15? And then also, what you would expect for either dilution or accretion from the business on an earnings basis.

[Gerald Paul:]

Okay. Capella, in the fourth quarter, is expected to be at $10 million sales. Altogether, in 2014, we will be slightly under $40 million, so it's substantial below prior year. We are -- Capella achieved $63 million. On the other hand, the reason is clear. Their main customer has difficult times itself. We expect for next year an improvement and a recovery to $50 million to $60 million, so close to the levels they have been in the year 2013. I think what we can say about Capella at this point, their breakeven point's relatively low, so they start to make money already, above $25 million to $30 million, so we do believe that, that will contribute partially.

[Shawn M. Harrison:]

Okay. So breakeven is $25 million to $30 million of revenues?

[Gerald Paul:]

Yes.

[Operator:]

Your next question comes from the line of Steve Smigie.

[Jonathan Steven Smigie:]

I was hoping you could give a little bit of color. If I'm looking at the math right, it seems like consumer was somewhat weak. I think you touched on it a little bit, but telco was a little bit strong. So can you give a little bit more color on each of those markets and what drove those?

[Gerald Paul:]

You mean the comment on the third quarter on the markets?

[Jonathan Steven Smigie:]

Correct, yes, for consumer and telco, yes.

[Gerald Paul:]

Well, automotive, as you -- as I expressed, continues strong. I know that there are some hesitations around, but all the feedback we get is that there is no reduction in automotive. We see it continuously strong. Maybe this explosive growth over the last years through, say, several quarters, will not continue to the same extent, but we do not foresee a weakening really of automotive at all. Industrial is a different story. In America, and especially in Asia, it's going well. In Europe, so-so. It depends on the country. But the overall situation of industrial in Europe is definitely worse than at the beginning of the year. I think we have to state that. Mobile phones are running well. I said it. China takes share, the Chinese manufacturers. Notebooks, not a good year, of course, but no endless drop as what -- as was feared for a year ago, I think. Fixed telecom is okay. It's fine. It's a growth market. Consumer is relatively weak, which impacts Asia, but there are some opportunities, as I said. Military, it's not really bad, but relatively slow. And medical is strong. This was our judgment.

[Jonathan Steven Smigie:]

Okay, great. And just a follow-up on Europe. So you guys overall probably have the best -- the most meaningful exposure of any company that I follow anyway. And just given your strong relationships there, is it your feeling that this softness is more temporary? You've got, obviously, the European Central Bank's being pretty aggressive on liquidity. Do you sense that the concerns around Ukraine and Russia are significant? Or what's -- what are you feeling in terms of how long the softness may last?

[Gerald Paul:]

Well, in that sense, I maybe not -- I don't know the future itself. But as a matter fact, you see, Europe and industrial has 2 faces like in many other industries. We have a very strong position in Central Europe, Germany, Scandinavia, and a very weak situation in the southern countries of Europe. So what is slowing down at the moment, unfortunately, is the strong part of it, this is Germany, Central Europe, but still working on a high level. So don't be misled. The countries, essentially European countries, have nearly full employment, and this would not be possible without reasonable industrial -- industry situation. So what we are talking is a slowdown on a high level. How long this will last? And of course, there is some impact of the turbulences which we see. On the other hand, as far as I know, the Russian business is not so important for the sensitive [ph] European countries as somehow newspapers sometimes claim. So I would say, what we see, the fundamentals haven't changed. I would expect that this industrial in Europe will recover -- say, if I had to give a time, I don't know, of course. But if I had to give a time, in half a year, it looks different.

[Jonathan Steven Smigie:]

Okay. And similarly, on the Asian distribution, I mean, it seems like that could be just a temporary issue there because it sounds like your tone on Asia overall is pretty good, and if you look at your OEM book-to-bill, it's still pretty close to 1. So yes, just curious, a little bit more detail on Asian distribution there.

[Gerald Paul:]

Internally speaking, we build it now into our budget cycle. It's now the third time in a row that it happens. It is always in the third -- second half of the third quarter that Asian distribution becomes concerned about the inventories. They reduce the inventories in the fourth quarter and part of the first quarter, and then they restart ordering. So this has been now the third time in a row. So I'm not concerned because, as a matter of fact, the POS of distribution is not bad. So it's an inventory correction, which has obviously an end -- will have an end.

[Jonathan Steven Smigie:]

Great. And last question was just on the currency. I mean, obviously, you had some hit here. But assuming, as you say, Europe starts to regain traction in a few months -- you, in the past, have typically also had a big pop to the upside as that gets recovered. Any reason to think we wouldn't see that sort of currency tailwind as we get into better times?

[Gerald Paul:]

No, I don't know. If I understood your question right, the currency changes, and we are talking dollar vis-à-vis the euro, I guess. The currency changes only impact our top line. And of course, it's obvious because we are selling and we are invoicing in euro and in U.S. dollars. So a weak euro reduces our top line. But it reduces also our costs in Europe, and it happens to be that effectively, in a first approximation, operating margin in Vishay is independent of the euro-dollar exchange rate.

[Jonathan Steven Smigie:]

Right. The question is sort of on the top line. As -- if we were to see the euro strengthen again, as you say, since you invoice in euros, you would expect to see the revenue benefit from that?

[Gerald Paul:]

But of course, but of course. Approximately 1/3 of all our sales, maybe 30%, is in euros, so it's obvious.

[Operator:]

Your next question comes from the line of Harlan Sur.

[Harlan Sur:]

On the Asia disti in Q3, obviously, as you've mentioned, and several people have mentioned, it looks exactly like the same pattern that you saw last year. But similar to last year, was Asia disti weakness more centered around notebooks and consumer? Can you just help us understand what are the end markets that drove the inventory workdown in the channel in Asia in Q3?

[Gerald Paul:]

It was -- we never could -- it was notebooks the year before, it's true. But this time, we -- I would not put any emphasis on any of the segments, as a matter of fact. Notebooks, again, is part of it, for sure, but it's a little general. There's no real focus as far as my judgment goes.

[Harlan Sur:]

Okay, okay. And then your guidance for revenues is down about 3% sequentially at the midpoint. Is it just more follow-through from disti workdown in Asia? Or is there a bit of a broadening out of the weakness into other geographies?

[Gerald Paul:]

I think the most important impact of our guidance is the expected lower shipments to distribution in Asia again, yes.

[Harlan Sur:]

Okay. And then just my last question, I appreciate it. Despite the inventory workdown in Asia, I think you mentioned that POS was actually okay. So as you've tracked the quarter here through the first month of Q4, have the POS trends also remained about in line with what you would normally expect?

[Gerald Paul:]

We are not tracking that on a monthly basis really, but we have no reasons to assume it will be different. No reasons.

[Operator:]

Your next question comes from the line of Matt Sheerin.

[Matthew Sheerin:]

A couple of questions for me, Dr. Paul. Your commentary on the order book, book-to-bills in Asia, does that have anything to do with lead times? I know there was some stretching of lead times for certain products earlier in the year. Have they come in? Could you just broadly talk about lead times and how that might have been impacting order rates from distribution?

[Gerald Paul:]

I'm not aware of significant longer lead times in the first half. We do have certain -- as it relates to Vishay, indeed, we did -- we do have certain innovative packages in semiconductors, SMD packages mostly in Diodes, where our lead times are relatively long. But Matt, I would not quote this as a reason for the present situation. It's again the same thing. Inventories came up too much for our -- for the taste of our partners, and now they correct. This is my picture.

[Matthew Sheerin:]

And it sounds like -- I mean, you just talked about the fact that here we are, 3 years in a row of missing your estimates for the third quarter based on Asia distribution and inventory. So is there just a different seasonal pattern? And perhaps, when you get your order book in Q2, you sort of have to question what the true sell-through is going to be?

[Gerald Paul:]

Yes. I do not disagree with you. We're 3 -- it's the third time in a row. But it doesn't have to be always the same, as a matter of fact, and -- our longer history indicated different stories, but now it's a third time in the row, yes.

[Matthew Sheerin:]

Got it. And regarding Capella, I know they've got a customer issue right now. But obviously, the company's got a lot of interesting design activity and footprint within the sensor market. Could you talk about Vishay's presence in sensors overall? I know in other parts of your business, you've got sensor technology. Could -- so could you talk broadly about your strategy around sensors?

[Gerald Paul:]

We have a relatively successful Opto business. To say it modestly, it's one of our best businesses, which comprises also of sensors. And in the last years, we saw this segment of sensors growing nicely vis-à-vis other parts of the Opto business, which, to a degree, came into a phase of more saturation. Sensors is a very broad and nice opportunity. But historically, the acquisition we made to get into opto did not have the possibility to design certain chips. And this, in a way, hindered us also in expanding this business historically because our partner in this industry, you can imagine, very often -- also had other priorities as -- which is understandable to a degree. And now we do believe, and this is the major reason for me, that Capella brings in this capability into Vishay, which, of course, by nature, things will take some time to make these 2 parts work closely together. But I do believe this is the real future of our Opto business, to go in this direction and we had to fix, may I say, this hole, and so we did.

[Operator:]

Your next question comes from the line of Jim Suva.

[Jim Suva:]

A couple of questions on Capella. First, did you say it was $10 million in the September quarter or December quarter? And the run rate...

[Gerald Paul:]

This is the December quarter, the December quarter. It is not dissimilar in the September quarter. It's about the same.

[Jim Suva:]

Okay. And the customer issue surrounding Capella, were you aware of that at the time of acquisition, that was built into the proceeds or the purchase price?

[Gerald Paul:]

The fact -- I cannot talk about names. But the fact that their main customer does not have a great year, this was known to us, yes.

[Jim Suva:]

It was known to you, correct?

[Gerald Paul:]

Yes, very much so. But as I try to explain before, the Capella acquisition is not an opportunistic acquisition for a quick success. It's a very strategic acquisition, which we had to make to support our best business, and this is the Opto business, after resistors maybe. To support it in a relatively foreseeable future, we had to do it, no question. So the fact that its major customer has good times or bad times does not impact -- it did not have -- it did not impact our decision.

[Jim Suva:]

Right. And then can you help us a little bit about with -- about the SG&A operating expense outlook as you have Capella acquisition coming in? You also have some restructuring going on as well as alignments. What should we expect for SG&A?

[Gerald Paul:]

Well, we are having $98 million. We project $98 million for the fourth quarter. As I think some -- well, it's $98 million for the fourth quarter, at present exchange rates, of course. This is -- has to be said always in the case of Vishay because we do have substantial amounts of SG&A costs in euros. So at present exchange rates, it's $98 million. And for next year, you have to take -- it's a combination. You have to take into account the inflation, of course. You have to take into account also the fact that we had some carryover from our cost reduction program. So I would suspect, we did not budget it completely, the whole thing, but it includes now Capella. I think we should be between -- in the year, between $400 million and $410 million roughly, including Capella and including also, of course, the amortization of intangibles of Capella.

[Jim Suva:]

Great. Last question on the distribution adjustment in Asia, which has happened for the past several years, have those also added incremental pricing pressure on the company and...

[Gerald Paul:]

No. It's a very good question. It's not the case simply. It's just a correction of order rates and it returns. Then you come to beginning of February and the whole thing comes back, and this will be the same thing. There was no impact on pricing.

[Jim Suva:]

And I was going to say, and also on market share, also no impact on market share?

[Gerald Paul:]

No, not to speak of. I think this present weakness of Asian distribution will not only be seen at Vishay.

[Operator:]

[Operator Instructions] And your next question comes from the line of Ruplu Bhattacharya.

[Ruplu Bhattacharya:]

We've had a lot of questions on the Asian distribution, but maybe I'll ask again. Dr. Paul, in the press release, you talked about a temporary slowdown. I'm just trying to see, when you say temporary, do you think it's just that in the December quarter disti might -- in Asia might reduce their inventories? Or do you think this could also last into the first quarter?

[Gerald Paul:]

Yes. If I take the last 3 years as an example, then it will last during the fourth quarter and in January, and then it will come back. Yes, this is -- and if you make a little calculation, what kind of terms they would like to have, our partners, and we can estimate always at constant POS how the inventory of distribution is likely then to go down, then I think you come to the same conclusion

[Ruplu Bhattacharya:]

Okay. And in 3Q, if I understand correctly, the POS was flat, but inventory and distribution went down, at least in Asian distribution. Is that correct?

[Gerald Paul:]

Yes. Flat -- go down [ph]. But really, what we project is the fourth quarter, assuming constant POS and the sales level to the POA, which we expect, and then you come to certain reductions. And you can put this in relation to a potential target in the heavy [ph] terms. And so you come to this consideration. That would be normal in their own eyes and to peak after January, say.

[Ruplu Bhattacharya:]

Okay, got it. Just a couple of more quick questions. When we look at your manufacturing fixed cost, how should we think about that in 2015? What are some of the things that can drive it up or down?

[Gerald Paul:]

First of all, you have, of course, some inflationary impact. Then, we have, first of all, depreciation. Depreciation is more or less constant, I would say, because we invest more or less on the same level. This is out of the manufacturing fixed costs. If -- of course, the depreciation portion, which is constant. Then on the people costs, you have the inflation. The inflation is principally 3% per year approximately, as an average, it's our average over the world. And then, of course, you do have some efficiency gains there, so I would not count on the full inflation. And then you have all the other fixed costs, which is energy, supplies, et cetera. Then we also would expect to be -- a little bit low inflation. So you would expect an impact, say, a slight increase, as a matter of fact.

[Ruplu Bhattacharya:]

Okay. In terms of Capella, you talked about $50 million to $60 million for the full year of 2015. Is there any seasonality to that business? Or should we just take maybe $10 million, $15 million per quarter?

[Gerald Paul:]

No, there is seasonality. We start lower than that. We start lower than that. No question. And it's a project business. We are not super experienced in this business, as a matter of fact. It's -- in this case, in their business, it's a project business. It really is -- it depends on how these projects kick in. But I think it's not an unreasonable assumption that it grows through the year, and we expect the total between $50 million and $60 million.

[Ruplu Bhattacharya:]

Okay. And the last one for me. I think at a recent conference, you or Johan, I think, spoke about a long-term target growth of 5% year-on-year organically. I was just wondering if you can frame that in terms of what your expectation is for the market growth to be. And then I think, related to that, you also talked about including acquisitions of growth of 6% to 8%. When we think about 2015, is Capella factored into that 6% to 8%? Or was that -- is that being counted as organic?

[Gerald Paul:]

No, Capella is an acquisition. There's no question. No question. Capella's an acquisition. You thought because we use it for our Opto -- for our existing Opto business. But this one, this helps to support our existing Opto business. It does not take place overnight. We are working in automotive there very often and this has qualification time. So even in the best case, it will take 2 to 3 years until you see the impact of Capella on our traditional business. But we have to think long term there, I think.

[Ruplu Bhattacharya:]

So just to clarify, where do you think the market is growing versus the -- versus your 5% growth?

[Gerald Paul:]

I would say probably between 3% and 4%.

[Ruplu Bhattacharya:]

Okay, okay. And Capella would be -- that add-ons, the -- in addition to your 5% growth, it will be factored into the 6% to 8% growth?

[Gerald Paul:]

Yes. If you want so, yes, sure.

[Operator:]

[Operator Instructions] And your next question comes from the line of Shawn Harrison.

[Shawn M. Harrison:]

Two brief follow-ups. On a sequential business, how much of an impact is FX going to have on sales for the fourth quarter?

[Gerald Paul:]

I didn't catch it. I'm sorry.

[Shawn M. Harrison:]

Euro depreciation, how much of an impact on revenues will that have sequentially into the fourth quarter?

[Gerald Paul:]

In the fourth quarter, we assume the same exchange rate as it has been in the third quarter. We always do it like that. But between the second quarter and the third quarter, it was an impact of say, $10 million or something -- I'm corrected -- $6 million. $6 million.

[Shawn M. Harrison:]

Okay. And then just a clarification, the inventory correction at Asian distribution, are you speaking solely of distributors based in Asia? Or are you encompassing within that global distributors such as the Arrows and Amnets?

[Gerald Paul:]

Also including those, yes.

[Operator:]

And at this time, there are no questions in queue. I will now turn the conference back over to the presenters.

[Peter G. Henrici:]

Thank you very much for your interest in Vishay. This terminates our Q3 conference call. And I turn the call back to you, Crystal.

[Operator:]

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