Release Date: May 08, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Vishay Intertechnology Inc (VSH, Financial) reported Q1 2024 revenue of $746.3 million, within the guidance range and slightly above the midpoint.
- Aerospace and Defense market segment showed strong performance with a 13.6% increase compared to the previous quarter and a 34.2% increase year-over-year.
- Automotive revenue grew by 1% compared to the first quarter of the previous year, with increased design activity and wins focused on ADAS and e-mobility.
- The company received a significant order worth $77 million from a European industrial customer for a multiyear grid project, indicating strong design activity and growth in infrastructure projects.
- Vishay Intertechnology Inc (VSH) is actively expanding capacity and engaging in new design projects, positioning the company well for future demand in key markets such as e-mobility and sustainability.
Negative Points
- Sequential revenue decline of 5% due to ongoing inventory digestion, particularly in semiconductor products.
- Industrial customer revenue declined by 6.2% from the previous quarter and 23.9% year-over-year, influenced by economic uncertainties and inventory adjustments.
- Medical market segment revenue decreased by 4.3% compared to the previous quarter and 18.3% year-over-year as demand normalized.
- Revenue from computing, telecom, and consumer segments declined both sequentially and year-over-year, reflecting continued inventory digestion and pricing pressures.
- The company faces challenges with the Newport acquisition, including a projected gross margin drag and the need to manage decreasing production volumes from the previous fab owner.
Q & A Highlights
Q: Regarding the gross margin guidance, how should we think about that as we get through the year and you start to see some sequential growth as the cycle recovers?
A: David E. McConnell, Executive VP & CFO of Vishay Intertechnology, explained that the second half of the year is expected to be better than the first half, primarily driven by increased demand from aerospace, defense, and automotive sectors. He noted that ASPs are expected to be fairly stable for the rest of the year since OEM contracts are already in place from quarter 1.
Q: What is the new normal for inventory weeks at distribution, and how many more quarters of inventory correction do you expect?
A: Joel Smejkal, President & CEO, mentioned that 26 weeks is about where they see the inventory level stabilizing. He anticipates that the inventory correction for passives will continue through Q2 and normalize in the second half of the year. However, for semiconductors, the inventory correction is expected to extend into Q3, with normalization potentially in Q4.
Q: Can you provide some guidance on how long or the shape of the Newport gross margin headwinds?
A: Joel Smejkal indicated that the previous owner of the Newport fab is gradually reducing their volume, which will impact margins as their business diminishes in Q3 and Q4. Vishay is expediting technology transfers to begin production in the first half of 2025 to offset this. David McConnell added that for Q3 and Q4, the sales impact from Newport is expected to be minimal, with a closer to 170 basis points impact on the margin.
Q: You mentioned an industrial win of $77 million. How should we think about the time frame for revenues coming in for that project?
A: Joel Smejkal responded that the volume of business expected in 2024 from this project is around EUR 18 million to EUR 20 million as the program begins, with peak years being 2025 and 2026. He highlighted this as a significant industrial smart grid design project moving into production.
Q: In terms of cash conversion cycle and free cash flow, how should we think about these metrics for the June quarter and subsequent quarters?
A: David McConnell stated that no material changes are expected in the cash conversion cycle, with inventory remaining fairly flat quarter-on-quarter. He also mentioned that the guidance for free cash generation this year is slightly negative, consistent with what was presented at their Investor Day.
Q: One of the strategic growth levers shown is increasing the technical headcount. Are you done with that, or is there more head count that you would like?
A: Joel Smejkal explained that the engineering technical headcount will continue to increase, particularly in the Americas, Europe, and Asia, in response to customer demands for closer technical assistance. This increase in headcount is expected to slightly raise SG&A expenses in the second half of the year but is seen as valuable for enhancing customer engagement and project advancement.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
