Vishay Intertechnology, Inc. (VSH) Q2 2013 Earnings Report, Transcript and Summary

Good morning. My name is Kathy, and I will be your conference operator today. At this time, I would like to welcome everyone to the Vishay Quarter 2 2013 Earnings Conference Call. [Operator Instructions] I will now turn the conference over to your host, Peter Henrici. Please go ahead.

Thank you, Kathy. Good morning, and welcome to Vishay Intertechnology Second Quarter's 2013 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 second 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 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. We expect to file our Form 10-Q for the second quarter this evening. On the Investor Relations section of our website, you can find the presentation of the Q2 2013 financial information containing some of the operational metrics Dr. Paul will be discussing. Now, I turn the discussion over to Chief Financial Officer, Lori Lipcaman.

Thank you, Peter. Good morning, everyone. I'm 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 $598 million, above the midpoint of our guidance, although gross margin percent came in slightly below. GAAP EPS for the quarter was $0.21. The second quarter includes an adjustment of $1.8 million related to performance-based stock compensation for certain former executives. Excluding the after tax effect of this item, adjusted EPS was $0.20 for the quarter. On June 13, Vishay completed the purchase of MCB Industrie S.A., a specialty resistor company located in France. The purchase price was approximately EUR 17.3 million or $23.0 million. For the fiscal year ended March 31, 2013, sales of MCB were approximately EUR 22.6 million or $29.1 million. In Q2, MCB contributed $2.5 million sales to Vishay. We expect MCB to be accretive to earnings in Q3 and going forward. Cash generation returned to more normal levels following a slow start in Q1 with free cash flow of $46 million in Q2. Revenues in the quarter were $598 million, up by 7.8% from previous quarter and up by 1.6% compared to prior year. Gross margin was 23.9%. Operating margin was 8.7%. Adjusted operating margin was 8.4%. EPS was $0.21. Adjusted EPS was $0.20. In Q2, we recorded an adjustment of $1.8 million related to performance-based stock compensation for certain former executives following a determination that the achievement of the 3-year performance targets was no longer probable. These costs have been originally reported as a separate line item upon cessation of employment of these executives in 2011, and accordingly, this adjustment is also reported as a separate line item. Reconciling adjusted operating income of Q2 2013 compared to operating income for prior quarter based on $43 million higher sales or $46 million higher excluding exchange rate impacts, adjusted operating margin increased by $5 million or $46 million in Q1 2013 to $50 million in Q2 2013. The main elements were: Average selling prices, which had a negative impact of $7 million, representing a 1.1% ASP decline. Volume increased with a positive impact of $23 million. Variable cost had a negative impact of $4 million. Fixed cost had a negative impact of $5 million. We discontinued the temporary cost containment measures of quarter 1 and implemented the previously delayed salary increases impacting both fixed and variable costs. Reconciling adjusted operating income quarter 2 2013 compared to prior year based on $10 million higher sales or $8 million higher excluding exchange rate impacts, adjusted operating income decreased by $11 million from $61 million in Q2 2012 to $50 million in Q2 2013. The main elements were: Average selling prices, which had a negative impact of $19 million, representing a 3.1% ASP decline. Volume increased with a positive impact of $14 million. Variable cost decreased with a positive impact of $4 million. Fixed cost increased with a negative impact of $9 million. This is higher than inflation. However, quarter 2 of 2012 include temporary cost containment measures that were not repeated in Q2 of 2013. Selling and general administrative expenses for the quarter were $93 million as expected and as previously announced on our quarter 1 earnings call. For the remainder of 2013, our expectations are approximately $96 million of SG&A expenses per quarter, which includes the impact of the acquisition of MCB. We expected normalized tax rate for the year, excluding unusual items, is approximately 32%, up from the approximately 31% recorded in quarter 1. This increase of the expected annual tax rate to 32% resulted mathematically in an effective tax rate of 33% for quarter 2. The increase rate is based on an assumed mix of income among our various taxing jurisdictions. A shift in income could result in significantly different results. Please note that the year-to-date GAAP tax rate continues to include the onetime $1.3 million benefit recorded in Q1. This benefit is a discrete item not included in our normalized tax rate. Our year-to-date effective rate for GAAP is approximately 30%. Total shares outstanding at quarter end were 144 million. The expected share count for EPS purposes for the third quarter of 2013 is on the same average stock price as in quarter 2 is approximately 152 million shares. 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. Looking at selected key metrics. Cash from operations for the quarter was $70 million. Capital expenditures for the quarter were $27 million. Proceeds from the sale of assets was $3 million. Precash generation for the quarter was $46 million. For the trailing 12 months, cash from operations was $287 million. Capital expenditures were $150 million split approximately $78 million for expansion, $14 million for cost reduction, $58 million for maintenance of business. Proceeds for the trailing 12 months from the sale of the property and equipment were $7 million. Precash generation was $144 million. Vishay has consistently generated an excess of $100 million free cash in each for the past 7 years. Cash flow from operations were greater than $100 million for the last 18 years and greater than $200 million for the last 11 years. Backlog at the end of quarter 2 was at $648 million or 3.3 months of sales. Inventories increased quarter-over-quarter by $26 million, or by $24 million excluding exchange rate impacts. $9 million coming from the acquisition of MCB. Days of inventory outstanding were 86 days. Days of sales outstanding for the quarter were 46 -- excuse me, 43 days. Days of payables outstanding for the quarter were 29 days, resulting in a cash conversion cycle of 100 days. We had a total liquidity of $1.4 billion at quarter end. Cash and short-term investments comprised $1,028,000,000 and unused capacity on the credit facility of $420 million. The breakdown of our debt of $405 million was $100 million outstanding on our credit facility; $95 million of exchangeable unsecured notes due in 90 years; $210 million of convertible debentures, net of unamortized discount issued in the 3 tranches and due in 27, 28 and 29 years, respectively. The principal amount or face value of the converts is $575 million. No principal payments are due until 2015. Now I will turn the call over to our Chief Executive Officer, Dr. Gerald Paul.

Thank you, Lori, and good morning, everybody. In the second quarter, the general economic recovery from a difficult second half of 2012 continued. Vishay's sales volume benefited from this development, but operational results were impacted by a few adverse and temporary effects. We achieved gross margin of 24% of sales, adjusted operating margin of 8% of sales and adjusted earnings per share of $0.20. We are on track in terms of free cash generation. As Lori indicated, we generated $46 million in the quarter and $50 million year-to-date. Let me talk about the economic environment as we see it. After a very slow fourth quarter, our margins began to recover in the course of the first quarter. This trend has continued also in the second quarter, driven by moderate restocking and distribution, and by an overall improving end-customer demand. Growth is positive in America. We see normal seasonal trends in Asia, and no major changes in Europe with central Europe doing well and Southern Europe suffering. This sounds a little bit simplified, but it's the truth of the matter. Automotive continues to perform well, driven by ongoing growth in vehicle sales in Asia and America and by high-end vehicle sales growth worldwide. The industrial market worldwide continues to improve further. Computing remains weak in particular for notebooks. For consumer, we continue to expect a normal seasonality this year. Distribution started to restock moderately. Inventories during the second quarter increased by 6%. Distribution turns improved further to 3.9 worldwide versus 3.7 in quarter 1, 2.6 in the Americas versus the 2.5 in Q -- in quarter 1, 5.3 in Asia versus 4.8 and 4.1 in Europe versus 4.1, so no change in Europe. The POS is up by 4% versus the first quarter. A positive book-to-bill ratio of distributors to the customers can be reported, 1.06 in the quarter, which appears to be quite healthy. Let me talk about our business development in the second quarter. Sales came in well within our guidance. We had $598 million in the quarter of sales versus $554 million in prior quarter and $588 million in prior year. Excluding the exchange rate effects, sales were up versus prior quarter by $46 million or 8%, and up versus prior year by $8 million or by 1%. Again, we saw a strong book-to-bill ratio in the quarter, 1.08 in total, 1.13 for distribution, 1.01 for OEMs, 1.12 for actives and 1.04 for passives, 1.02 for the Americas, 1.14 for Asia and 1.06 for Europe. Again, recovery continues in particular for actives at Asian distribution. The backlog of Vishay has grown to 3.3 months, 3.4 months in actives and 3.1 in passives. Order cancellations continued on a very low level. We have seen quite a normal development of the selling prices in the second quarter. For Vishay in total, we have seen minus 1.1% versus prior quarter and minus 3.1% for prior -- versus prior year. The decrease is primarily due to actives, as always may I say, minus 1.5% versus prior quarter and minus 4.2% versus prior year. On the other hand, there is relative price stability in passives, minus 0.7% versus prior quarter and minus 1.7% versus prior year. Let me talk about operations. After a quite excellent first quarter, the contributive margin of Vishay in the second quarter suffered from various incidents, for the most part a fever of temporary in nature. We have seen some startup inefficiencies at the major foundry from negative valuation effects, growth [indiscernible] in the results, the palladium price has increased and some unfavorable mix shift -- product mix shifts took place. The contributive margin in the second quarter came in below our traditional range of between 46% and 48%. SG&A cost continued to be well under control, $93 million in the quarter according to expectations. Manufacturing fixed cost in the quarter were $123 million, again, according to our expectations. Increase of total fixed costs quarter-over-quarter was due to the end of temporary fixed cost-savings measures, which we had in the first quarter. For the employment at Vishay at the end of the second quarter was 22,450, an increase of 350 heads, 240 out of that came from the acquisition of MCB in France. The inventory returns in the quarter were on a good level of 4.2. Excluding exchange rate impacts and the addition of MCB, inventories in the second quarter increased by $15 million, 1 5, $4 million from raw materials and $11 million from WIP and finished goods, all driven by further increased production rates. Capital spending in Q2 was $27 million. We expect capital expenditures of approximately $170 million in 2013, following the midterm requirements of our growth plan. We have seen the traditional split. We will see the traditional split. More than $100 million, we will spend for expansion and cost reduction. We, in Q2, generated cash from operations of $70 million like in prior year and generated, again in Q2, free cash of $46 million versus $45 million in the prior year. On a trailing 12-month basis, Vishay generated cash from operations of $287 million and free cash of $144 million. So I think we can say that Vishay remains a very reliable generator of free cash. Let me come to our main product lines and I'll start out with resistors and inductors. Vishay's traditionally most profitable business has continued to recover. We enjoy a very strong position in the industrial and mill markets and are intensively penetrating the medical segment. Sales in the quarter were at $171 million, which is 4% above prior quarter and 3% above prior year. Book-to-bill was 1.04 in the quarter after 1.07 in prior quarter, and this indicates an unbroken positive trend of this business. The backlog has increased to 3 months, which represents a quite confident level. The gross margin is at a satisfactory 32% of sales on the level of prior quarter. There was relative price stability minus 0.5% versus prior quarter and minus 1.5% versus prior year. The inventory turns were at excellent 4.7. We are in process to integrate MCB, the recently acquired manufacturer of specialty resistors and sensors in France. The run rate of sales of this acquisition of $30 million to $35 million is $30 million to $35 million at the gross margin before restructuring of about 25%. This acquisition expands our European market position in the industrial segment and will synergize well with our successful Spanish division, a most welcome acquisition. Let me come to capacitors. The business is based on a broad range of technologies with a strong position in European and American market niches. It has bottomed in the course of the first quarter and since then, is in a phase of recovery. Sales in the quarter were $112 million, 6% above prior quarter but still 4% below prior year. Book-to-bill in the quarter was 1.05 after 1.06 in prior quarter. The backlog is in a normal level of 3.2 months. The gross margin development has been disappointing in the quarter. It was down to 19% of sales from 23% despite substantially increased sales. The performance was negatively impacted by higher palladium prices, some valuation effects, the normal repetition of the quarter 1 inventory build and the strong Israelic currency, a strong shaker. We do expect improvements in the third quarter. The price decline at Capacitors is back to normal. We have seen minus 1% versus prior quarter and minus 2% versus prior year. The inventory turns were at 3.3. We remain confident for the midterm development of Capacitors in view of increasing power and clean energy applications. Coming to Opto products. Vishay's Opto business consists of infrared emitters and receivers, infrared sensors, couplers and LEDs that are mainly for automotive applications. It contains a substantial share of customer designed products mainly sold to automotive and industrial markets. We enjoy a leading position with innovative infrared emitters and receiver solutions for remote controls, phones, et cetera. The business has shown a high degree of stability during the recent downturn and had recovered to the full extent already in the first quarter. Sales in the second quarter were $58 million, 4% above the prior quarter and on the same level as prior year. Book-to-bill was 1.0 after 1.08 in prior quarter. The backlog of this business is at a normal 2.9 month level. Gross margin declined slightly to 33% of sales, mostly due to inventory related effects. Quite excellent inventory turns at this business of 5.4. Normal ASP declined year-over-year. We have seen with some acceleration versus prior quarter, minus 2.3% versus prior quarter and minus 2.6% versus prior year. Coming to Diodes. Diodes represent a broad commodity business where we, Vishay, are the largest supplier worldwide. Vishay offers virtually all technologies, as well as the most complete product portfolio, and we are leading, in particular, in power applications. After a steep recovery in the course of the first quarter, also in Q2, business conditions remained very good. Sales in the quarter were $141 million, 13% above prior quarter and 4% above prior year. The book-to-bill ratio continues quite strong at 1.17 at 1.28 in prior quarter. The backlog has grown to 3.6 months. We are in process to increase manufacturing capacities there. The gross margin came in at 22% of sales, slightly improved considering prior quarter but impacted by inventory related effects and higher manufacturing fixed costs after the end of our temporary fixed cost savings program. Inventory turns were quite excellent 4.8, and we have seen, for this product line in the quarter, a relatively modest price decline of minus 1.2% versus prior quarter and minus 3.1% versus prior year. MOSFETs, the next product line. Vishay continues to be one of the market leaders in the segment of low-voltage MOSFETs, and we are in process to complete our product offering also in high- and medium-voltage products. The predominantly Asian business with customers in computers and phones in quarter 1 has started to benefit from the recovery of Asian distribution, which continues. Sales in the quarter were at $116 million, 15% above prior quarter and 4% above prior year. Based on continued strong book-to-bill ratio of 1.11 after 1.22 in prior quarter, the backlog is at a comfortable level of 3.4 months. Gross margin in the quarter was at 14% of sales, 1% improved versus prior quarter. The performance of this product line still suffered from inefficiencies related to the start of new platforms and technologies at our foundries, and we do expect to see substantial improvements in the third quarter. Inventory turns are at a satisfactory level of 3.9. The price decline in the quarter was normal, minus 1.3% versus prior quarter and minus 6.3% versus prior year. Let me summarize. Vishay has delivered a principally acceptable second quarter with results not quite in line with our expectations though. While sales benefited from a continued friendly economic environment and of course from the traditional strong market position of Vishay, contributive margins, mostly due to temporary cost effects, suffered. Still, the quarter came out below our traditional range and below our expectation. Fixed costs were under control, as always may I say. We are very confident that Vishay in the third quarter will show major improvements based on further increased sales, fixed costs in line with our plans and recovered contributive margins. We also will continue to work steadily on our growth plan by extending manufacturing capacities in critical lines, by strengthening R&D and designing efforts, by expanding our sales presence in Asia and by acquiring specialty businesses like recently MCB of France. For the third quarter, we guide to a range of $605 million to $645 million sales at improved gross margin percent and operating margin percent. Thank you very much.

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

[Operator Instructions] The first question comes from the line of Steve Smigie. Jonathan Steven Smigie - Raymond James & Associates, Inc., Research Division: I was wondering if you could talk a little bit about what gross margin percent and EPS would have been if you haven't had the foundry impact.

We did this calculation, if you can imagine, so we would have come out right according to guidance to make it very simple. We would have cost -- we would have had -- we would have been instead of $0.20 at $0.22. Jonathan Steven Smigie - Raymond James & Associates, Inc., Research Division: Okay, great. And if I look at your September revenue guidance, can you talk a little bit about how much we should be thinking the acquisition contributes there if I just sort of take the -- maybe an average, maybe $5 million. Even assuming that, it seems like your guide's still a decent amount ahead of at least in my...

The sales impact of this new acquisition would be $5 million to $6 million approximately. Maybe that's -- okay, $7 -- let's say $7 million would be the best guess, I think, $7 million and the gross million of around 25%. Jonathan Steven Smigie - Raymond James & Associates, Inc., Research Division: Okay, great. And then if we look at the color you gave on what's working well, it seems like distributors are ordering, but then you also had some decent end-demand, it sounded like. So can you add a little bit more color on what type of book-to-bill for distribution should we be worried about, or restocking? And then on the portion of end-demand recovering, is it just kind of modest recovery or a little bit weaker or a little bit stronger type of recovery? How should we think about that?

Normally, obviously, we ask ourselves the same question as you can imagine. Really the business with Asian distribution was completely underground in the fourth quarter. So it affected half of last year, and it started to recover already in quarter 1 and continued now. But the inventory levels Asian distribution has is -- are very reasonable. They were very low in the first quarter still. They're catching up to normal, and as you have heard, the POS in particular, the POS is up by 4% in general, and more so in Asia. So I'm not worrying at this point in time. Of course, if you -- we'll have to keep an eye on it, but at this point in time, I would not say that any inventory increase, neither the one that happened in quarter 2 or the other one, which were modestly foreseeable for quarter 3, is in dangerous a situation. Jonathan Steven Smigie - Raymond James & Associates, Inc., Research Division: And just the color on the relative strength of end-demand? Is it low [indiscernible] and then it picked up, or is it just kind of...

No, no. It is end-demand pick up as far as we can judge.

Your next question comes from the line of Chris Danely. Sameer Kalucha - JP Morgan Chase & Co, Research Division: This is Sameer Kalucha calling in for Chris Danely. Just hoping you can add a little more sort of color on the end market trends, particularly in Asia, and maybe you can tell us a little bit more about China. What you're seeing over there, the talks of maybe potential slowdowns and how do you see the economic trends in China right now?

Well, everybody talks like that. On the other hand, even a 7% growth is more than you Americans [indiscernible]. It's the indication that really Europeans can dream about, so to speak. So Vishay is not suffering from that, not foreseeably, I believe. But of course, you never know. We are trying to extend our market position in China. Even we are putting more sales people on the ground because we do feel that we are underrepresented there. So we do feel that there's a chance to improve our market share especially in industrial, which is the strength of Vishay in Europe and in Americas in particular, and this is really our weak spot in Asia. So we are working on that. So we want to look ahead, and we're not so afraid if the economic growth in China goes from, say, 9%, or 10% down to 7%. So we will try the best, and I think Vishay has major chances to grow its market share. It's just not an overnight thing, unfortunately, but we work on it. Sameer Kalucha - JP Morgan Chase & Co, Research Division: Okay. Okay. It makes sense. And how's the linearity of the orders during the quarter? Was it stable?

They're very steady. Very steady. Sameer Kalucha - JP Morgan Chase & Co, Research Division: Okay. And then in the last quarter, you mentioned there was some slight lead time extension in between the active components. I was wondering how that has trended during the quarter. Has it been addressed, or you're still working to address the lead times?

Yes, we do. As a matter of fact, we are putting capacity online. We are putting capacity online in critical product lines. So this is just also in line with what we wanted to do for the growth plan anyway to keep lead times under control better than we managed and maybe the whole industry managed to do so in 2010, where we really created a mess, we producers of components. I think this time we will be more successful. But of course, if demand shoots up like in Diodes unexpectedly within a few weeks, there is a lead time extension, and we fight it. We do our best. Sameer Kalucha - JP Morgan Chase & Co, Research Division: But then, did the lead times extend this quarter or they are at similar levels or lower as compared to what you saw last quarter?

No, no. The backlog went up. So lead times went up. But no comparison to what we have seen a few years, in 2010.

Your next question comes from the line of Shawn Harrison.

This is Gausia Chowdhury calling on behalf of Shawn. I have a question about the $0.02 figure that you've quoted. Was that an all-in gross margin impact of the onetime items? Or what was the cumulative impact of the palladium in mix had been...

We add it thoroughly together, and it really gave additional variable cost impact, additional variable cost, which had a negative impact if you bring it down -- if you brought it down to the bottom line of $0.02.

Okay. All right. And then my second question was just a little bit more on end-demand. What has your view been on the ramp or a possibility of a ramp for Siliconix in the third quarter? Specifically you mentioned computers improving a little bit, so is there any PC recovery expected at all?

In terms of if we expect this recovery, we have it already in the books, obviously, in the order books, and we are prepared from a manufacturing standpoint. So I do have no doubt that Siliconix will improve sales in this current quarter. It's not an easy thing.

Your next question comes from the line of Ruben [indiscernible].

This is Ruben Acherio [ph] from Bank of America. Dr. Paul, I wanted to start by asking a big picture question. So as we go into the second half of '13 and when you compare that to the second half of '12 and second half of '11, I mean, how would you categorize the end markets especially in autos, for example, in Europe? Are you seeing the same level of shutdowns that we typically see, or how are the end markets versus the last 2 years?

First of all, in the last 2 years, the second half was always a major disappointment vis-a-vis the first half. But we saw this happening already in May, historically. It became really evident in May. Orders broke down in 2011 and in 2012. This is absolutely not the case this year, really not. So the orders remained on this improved level, which we have seen building up in the first quarter. They remain throughout the second quarter and continue also now. That means the picture -- if you want to have a global view, the picture for the second half is much better than in the recent 2 years, and we do believe that this year will not provide us a surprise, a negative surprise is the last 2 years and I believe also that Vishay is not alone in this judgment.

Right. Right. And the same question is you talked about some mix effects that affected margins this quarter. Can you just be a little bit -- can you elaborate on that? What was that mix, and do you see that improving in the next quarter?

I can give you an example, at least, because Vishay's product portfolio is very broad. See -- I'll take tantalum capacitors. Tantalum capacitors in Vishay is not an unimportant product line and consists of commodity products, as well as of highly specialized products. We, in the second quarter, have seen a drastic swing to the commodity products, but we know already from the order book that, in the third quarter, the opposite will happen. So it's just -- it happens. It happens, and we don't have a big influence on that. So well this is -- I make an example, but it happened in a few product lines like that. May be not as drastic as in tantalum caps, but still.

Got it. Got it. And the last one for me, can you just give us what the book-to-bill is now currently?

Slightly above 1. I have to ask even for a slightly above 1.

Your next question comes from the line of Jim Suva.

A quick question on margins. You've mentioned, first of all, operating margins should improve quarter-over-quarter. Is that a function of gross margins improving quarter-over-quarter, or is there something also with SG&A that we should be conscious of?

No, no, no. It's really -- it boils down to the variable margin even. We expect to return in terms of various contributive margin back to our normal level of between 46% and 48%, and this was -- this quarter was below out of this. Singularities in variable costs, and this is the reason of the whole thing. Neither in all the fixed cost segments, there will be no surprises. We will not squeeze further. We just feel we have a better performance in terms of sales, which we guide to. And we also, in terms of contributive margin percent, totally return to normal if you want so.

Great. And then my follow-up question is on gross margins. Is that primarily -- when you mentioned an improvement quarter-over-quarter, is that primarily due to this quarter? Just for quarter, Q2, was it softer than expected, or is it more a function of sale connects and other items doing better? Or what specifically are you controlling that causes the gross margin improvement?

First of all, you have more sales, more volume helps. And secondly, we are going to see, as I said, a better contributive margin percent, and all this leads to a better gross margin.

Your next question comes from the line of Matt Sheerin. Matthew Sheerin - Stifel, Nicolaus & Co., Inc., Research Division: So your typical -- your margin contribution, contributive margin is in the mid-40s. And that's what you're expecting?

Yes.

Okay. And I'm trying to get a gauge of seasonality on both businesses. Of course, the last 3 or 4 years, we really haven't seen seasonality because of all these swings in the markets, et cetera. But typically, your passives business is flat to down because of the European exposure and the automotive exposure, and industrial and then Asia is up. It sounds like you feel a little bit better on both sides of the business. So are you still expecting those seasonal patterns, or a little bit better than that?

No. First of all, you're right. These are the main drivers and the normal seasonality, which we have seen for many years. But a little bit remark on that one. The last 2 years, we had a little breakdown everywhere, across the board. This is not to be seen this year. It's just the opposite. It continues strong. But now from a segment standpoint, the geographic segment, Asia will show, as it appears, its full seasonality. That means you will have a better second half than first half. This is very normal and seems now to come back in this year. And Europe is not doing so badly especially in Central Europe. The automotive industry continues very strong, very strong. So we also hope that in passives, it maybe a little better than normal in the second half. You're right. And America is steady, by the way. America is steady, never has shown some big seasonality. Matthew Sheerin - Stifel, Nicolaus & Co., Inc., Research Division: Okay. And then looking at the end markets in Asia, and you talked a little bit -- the computing market certainly is unique. What gives you confidence there? And then also could you talk about the Siliconix or the power MOSFET exposure to the mobility segment? Where can you see the BRICs [indiscernible] be very volatile right now?

Well, as a matter of fact, I believe in Asia we do not expect miracles for the second half. We believe that maybe have been brought down in the last 2 years in particular by Asian distribution stepping on the BRICs territory. This is not exactly the case this year. But of course, whatever you said is true. That means our left [indiscernible] business, we do not expect a major recovery there. But of course, there are differences between even in an adverse situation, which we have seen in the -- [indiscernible] step on the BRICs scenario, which have seen the last 2 years. So I'm not super confident that the laptop business will improve again like it was. It may never come back to that extent. But just the normalization in combination with what we want to do in the Chinese market on the industrial side should give us a better outcome. Matthew Sheerin - Stifel, Nicolaus & Co., Inc., Research Division: Okay. And then in terms of the smartphone and tablet exposure there?

Asian exposure of course, but we expect a more normal picture than in the last 2 years. Matthew Sheerin - Stifel, Nicolaus & Co., Inc., Research Division: Okay, great. And just lastly, on the commentary about the execution issues with the foundry ramping for you. Could you be more specific about those issues, and what gives you confidence that that's going to work out this quarter?

What gives me confidence is the fact that it's going better already now, so to speak. So we started something, and it happens from time to time in real life that when you start something new, that in the beginning your views are not right, the productivity is not right. And it has improved through the quarter, so I'm confident that, based on what we see today, things in the third quarter will look more decent.

[Operator Instructions] We do have a follow-up question from Steve Smigie. Jonathan Steven Smigie - Raymond James & Associates, Inc., Research Division: Dr. Paul, in Q3, is there anything unusual that would happen to inventory or obsolescence that would change potential gross margin?

You mean in Vishay? Really no. Nothing to Vishay. Jonathan Steven Smigie - Raymond James & Associates, Inc., Research Division: Okay. It seems there was a thinking about tax rate as we get into next year. Would you expect that to sort of remain at the same or sort of more basic type level, or would that potentially go down?

I think I should pass this on to my CFO. Just a second.

So as we said several times, tax rate is obviously influenced by the mix of our income in the various taxing jurisdictions. So as the -- in particular, the MOFSETs segment would improve, we will expect a reduction in those tax rates. Jonathan Steven Smigie - Raymond James & Associates, Inc., Research Division: Okay. And do you think the MOSFET improvement -- how much of that is Vishay doing a better job versus I think corporate [indiscernible] for account has emphasized computing less? So how much of it is sort of action they're taking? How much of it is seasonality, or maybe better computing versus or folks maybe focusing more on the business.

So you say to which -- maybe I didn't follow completely. You said that most of MOSFETs' situation is a seasonal thing you ask? Jonathan Steven Smigie - Raymond James & Associates, Inc., Research Division: I'm just asking -- you said that you thought maybe MOSFETs have been improving such that tax rate could can go down. And that assumption about improving MOSFETs, what's driving that?

First of all, it is exactly these new platforms, which we are producing, which we are bringing to production, which brought us some negative variable impacts -- cost impacts this quarter, which carry our trust for you. It's the next step of development, right? As a matter of fact, you know that we are on the way to introduce high-voltage sales, talked about it quite often. But there are also new generations of a low-voltage MOSFETs, and this was just the starting point, which will give us a better profitability, very simple. But secondly, also Siliconix, we expect the volume to come up as we go. We have seen very low volumes in the last, say, 3 quarters, and we do believe that based on what we have done at Siliconix that we will see better market shares, better sales and also better margins, therefore. And this will positively impact, or might positive -- should positively impact our tax rate as explained before. Jonathan Steven Smigie - Raymond James & Associates, Inc., Research Division: Okay. And then just a look at order patterns. I'm sorry if I missed this. But did you give any comments yet on how orders have been so far this quarter versus the last quarter?

Yes in the first quarter you mean? Jonathan Steven Smigie - Raymond James & Associates, Inc., Research Division: Correct.

The continuation of the second quarter, continuation of the second quarter, and you see our guidance. It fully supports the guidance.

At this time, there are no further questions. I will now turn the call over to Peter Henrici for closing remarks.

This concludes our call. Thank you for your interest in Vishay Intertechnology. Kathy?