Vishay Intertechnology, Inc. (VSH) Q1 2017 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by and welcome to the Vishay Intertechnology First Quarter 2017 Earnings Conference Call. Today's call is being recorded and will be available for replay. During the presentation, all participants will be in a listen-only mode and the floor will be open for your questions following the presentation. [Operator Instructions] It is now my pleasure to hand our program over to Mr. Peter Henrici. Please go ahead.

Thank you, Kirsten. Good morning and welcome to Vishay Intertechnology's first quarter 2017 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 first 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. On the Investor Relations sections of our website, you can find a presentation of the first quarter 2017 financial information containing some of the operational metrics Dr. Paul will be discussing. On June 6th, Johan Vandoorn, Executive Vice President, Chief Technical Officer and Deputy to the CEO will present at the Stifel Technology, Internet & Media Conference in San Francisco and we will be presenting on May 9th at the Jefferies Technology Conference in Miami. Now, I turn the discussion over to Chief Financial Officer, Lori Lipcaman.

Thank you, Peter. Good morning everyone. I am sure that most of you have had a chance to review our earnings press release. I will focus on some highlights and key metrics. Vishay reported revenues for Q1 of $606 million. GAAP net income for the quarter was $0.24 per share. Adjusted EPS was $0.28 for the quarter. The first quarter includes a loss on disposal of equity affiliate of $7.1 million and restructuring charges totaling $1.5 million. During the first quarter, we did not repurchase any additional shares of our common stock pursuant to the 100 million share repurchase program announced last May. The total for the program was 1.75 million shares for $23.2 million. We will continue to evaluate attractive stock repurchase opportunities, so any future purchase remains subject to approval by our Board of Directors. Revenues in the quarter were $606 million, up by 6.2% from previous quarter and up by 6.2% compared to prior year. Gross margin was 26.5%. Operating margin was 10.7%. Adjusted operating margin was 10.9%. EPS was $0.24. Adjusted EPS was $0.28. EBITDA was $96 million or 15.9%. Adjusted EBITDA was $105 million or 17.3%. Reconciling versus prior quarter, adjusted operating income Q1 2017 compared to adjusted operating income for prior quarter based on $35 million higher sales or $39 million higher excluding exchange rate impacts. Adjusted operating income increased by $25 million to $66 million in Q1 2017 from $41 million in Q4 2016. The main elements were average selling prices had a negative impact of $8 million, representing a 1.3% ASP decline. Volume increased with a positive impact of $24 million equivalent to an 8.4% increase. Inventory build had a positive impact of $9 million. Versus prior year, adjusted operating income Q1 2017 compared to prior year based on $36 million higher sales, or 42 million higher excluding exchange rate impacts. Adjusted operating income increased by $19 million to $66 million in Q1 2017 from $47 million Q1 2016. The main elements were average selling prices had a negative impact of $19 million, representing a 3.1% ASP -- 3.1% ASP decline. Volume increased with a positive impact of $31 million, representing 11.3% increase. Variable cost decreased with a positive impact $9 million, primarily due to cost reduction efforts, which more than offset the increase of labor costs. Fixed cost increase was a negative impact of $4 million. Although salary increases were offset by the impact our restructuring efforts total fixed cost increased mainly due to higher incentive compensation expenses. Selling, general and administrative expenses for the quarter were $95 million, in line with expectations. For Q2 2017, our expectations are approximately $94 million of SG&A expenses and approximately $373 million for the full year. I would like to give you an overview of our cost reduction programs. During Q1, we recorded approximately $400,000 of restructuring expenses related to the extended MOSFETs enhanced competitiveness restructuring program announced in November. This program is expected to result in additional cost savings of approximately $8 million to $9 million when fully implemented at the end of 2017. Our other previously announced ongoing global cost reduction programs are progressing as planned. As part of these programs, we intend to lower cost by approximately $35 million annually, when fully implemented at a cash cost of approximately $30 million. These global programs include a plan to reduce SG&A by $17 million, which was substantially implemented at the end of 2016. We also plan to streamline and consolidate production of certain product lines, which we expect to reduce cost of products sold by approximately $18 million annually, split 50-50 between variable and fixed cost. These production transfers will be completed in steps by the end of 2017. The amount of restructuring expense recorded for these programs during Q1 was $1.1 million or $24.8 million for the programs to-date. Total cash restructuring payments in 2017 was approximately $5 million. The effective tax rate on a GAAP basis was approximately 27%. This tax rate includes the quarterly premeasurement of the cash repatriation deferred taxes, a benefit of $1.0 million for Q1. The normalized rate which excludes these unusual tax items and the tax effects of the restructuring expense was approximately 25%. The normalized rate also reflects the non-deductibility of the loss on disposal of equity affiliate. We expect our normalized tax rate for 2017 to be approximately 28%. The normalized rate for the full year and therefore the remainder of the year is expected to be higher than the rate for Q1 due to the non-deductibility of the Q1 loss on disposal of the equity affiliate. This rate is based on an assumed level and mix of incomes among our various taxing jurisdictions. A shift in income could result in significantly different results. Total shares outstanding at quarter end were 146 million. The expected share count for EPS purposes for the second quarter 2017 based on the same average stock price as the first quarter is approximately 153 million shares. For full explanation of our EPS share count and variables that impact the calculation, please refer to the 8-K we filed this morning. Cash from operations for the quarter was $44 million. Capital expenditures for the quarter were $17 million. Free cash generation for the quarter was $28 million. For the trailing 12 months, cash from operations was $319 million. Capital expenditures were $132 million, split approximately for expansion $67 million; for cost reduction, $13 million, for maintenance of business $52 million. Proceeds from the sales of property and equipment were $1 million for the quarter and $7 million for the trailing 12 months. Free cash generation was $195 for the trailing 12 months. Proceeds from the sale of property and equipment includes insurance proceeds for assets destroyed in the Tianjin explosion. Vishay has consistently generated in excess of $100 million free cash in each of the past 11 years. Cash from operations were greater than $100 million for the last 22 years and greater than $200 million for the last 15 years. Backlog at the end of quarter one was at $937 million or 4.1 months of sales. Inventories increased quarter-over quarter by $17 million, excluding exchange rate impacts. Days of inventory outstanding were 80 days. Days of sales outstanding for the quarter were 44 days. Days of payables outstanding for the quarter were 35 days, resulting in a cash conversion cycle of 89 days. We had a total liquidity of $1.6 billion at quarter. Cash and short-term investments comprised $1.1 billion and unused capacity on credit facility was $473 million. The carrying value of our debt of $379 million is net of the unamortized issuance cost of $10 million and includes $163 million outstanding on our credit facility and $226 million of convertible dentures, net of unamortized discount issued in three tranches and due in 23, 24 and 25 years respectively. The principal amount or face value of the converts is $575 million. No principal payments are due until 2020. However, the convertible debentures may be redeemed if certain stock price thresholds are met. At the end of Q4 and continuing at the end of Q1, the convertible dentures due 2042 are redeemable for the next quarter. Accordingly, we have reclassified the difference between carrying value in the principal amount for those dentures from stockholder's equity to a separate line between liabilities and equity on our consolidated balance sheets. If the debentures are converted, we would fund the principal amount with variance on our revolving credit facility and net share subtle amounts in addition to principal amount. This criteria is measured quarterly and the amounts presented as temporary equity will revert to regular equity if the criteria are not met. Now I'll turn the call over to our Chief Executive Officer, Dr. Gerald Paul.

Thank you, Lori and good morning, everybody. The first quarter for Vishay was very successful, actually the best in terms of profitability since five years. We were carried by an unexpected sharp upturn of demand, while maintaining good efficiencies across the Board. Vishay achieved a gross margin of 26.5% of sales. Adjusted operating margin of 11% of sales. Earnings per share GAAP of $0.24 and adjusted earnings per share of $0.28 and we continue to generate free cash on a very satisfactory level. Let me talk about the economic environment. Markets in the first quarter not only remained friendly, but surprised our industry with very substantial orders increases across virtually all product lines. The high order level in Q1was driven by distribution in particular in Asia and Europe. Some tangible shortages of supply and stretching lead time seemed to raise concerns for the mid-term. Semiconductors apparently were more concerned than [indiscernible]. Let me talk about the reasons as we see them -- the regions as we see them, the American market improved versus quarter four with the recovery in the broad industry segment thereby the oil gas sector is stabilize. In Europe, a weak Euro continues to support manufactures in general. Automotive and industrial markets continue to drive growth. Over ordering by quite nervous customers has let to fairly exceptional POS increases. Despite in historically perspective, modest growth rates in Asia and in particular China the business environment for electronic components remains friendly with good opportunities in power transmission and in e-cars. Talking about distribution. Distribution in Asia and Europe, drove the upturn of the orders in the first quarter. At the same time, also POS was strong. In the Americas, it was up 11% versus prior quarter and was virtually on the same level as prior year. In Asia, approximately on the same level as in prior quarter and 17% up versus prior year. In Europe, 28% up versus prior quarter and 9% up versus the prior year. Inventory turns of distributors worldwide were at a good level of 3.6 versus 3.3 in prior quarter and also 3.3 in prior year. In the Americas, 2.2 turns after 1.9 in quarter four and 2.2 in prior year. In Asia, 4.9 turns after 4.9 also in quarter four and 4.2 in prior year. In Europe, 4.3 after 3.3 in quarter four and 3.8 in prior year. So let me emphasize that there is no inventory built at distributors at this point. Also orders on distributors worldwide are very strong in quarter one, 9% above prior quarter and 14% above prior year. Automotive remains strong, manufacturers projects continued growth in the 10% range and as I said e-cars support is close. Industrial markets are stable, respectively improving on a worldwide basis. Drivers are factory automation, infrastructure programs, alternative energy and Internet offerings centering. Computers remained sluggish there's the continued market shrinkage. Some confidence exists for mobile phones based on product innovation. There is various opportunities in consumer markets, medical grows steadily and military market may return to growth in due of the plans of the new American administration. Let me talk about Vishay’s business development in the first quarter. Driven by strong orders, sales in quarter came in above the midpoint of our guidance. We achieve $606 million sales in the quarter versus $571 million in prior quarter and also $571 million in prior year. Excluding exchange rates effects, sales in the quarter were up versus the prior quarter by $39 million or by 7% and up versus prior year by $42 million or so 7%. Book-to-bill of 129 in the quarter was exceptionally strong. 1.43 for distribution after 1.16 in the fourth quarter 1.11 for OEM’s after 1.04 in quarter four. 1.36 for actives after 1.14 in Q4. 1.23 for passives after 1.06 in quarter four. 1.21 for the Americas after 1.03 for the quarter four before. 1.37 for Asia after 1.17. 1.25 for Europe after 1.08. Due to extending lead times, backlog increased dramatically to 4.9 months after 3.4 in prior quarter, 4.5 months in actives and 3.8 in passives. We sensed decrease in price decline in general of minus 1.3% versus prior quarter minus 3.1% versus prior year. For actives, minus 1.6% versus prior quarter and minus 4.0% versus prior year and for passives minus 1.1% versus prior quarter and minus 2.1 versus prior year. Some highlights of operations. In the first quarter, again were able to offset the negative impact of inflation and price decline on the conservative margins by cost reduction and innovations. SG&A costs in the quarter came in at $95 million in line with our expectations, manufacturing fixed costs in the quarter $118 million again according to expectations. Total employment at the end of the quarter was 22,625 hits approximately 2% up from prior quarter which reflects the higher manufacturing volume. In the first quarter, our fixed headcount is part of the total obviously went down further by 20 hits. In preparation for raising production levels inventories in quarter one increased by $17 million excluding exchange rate effects. Raw materials went up by $3 million and ripped and finished goods by $14 billion. Inventory turns in the quarter improved to 4.5 from 4.4 in prior quarter. Capital spending in Q1 was $17 million versus $20 million in prior year For 2017, we expect CapEx of about $165 million, satisfying increase short-term requirements by advancing expansion projects. We in the first quarter generated cash from operations of $44 million versus $20 million in prior year, $319 million on a trailing 12 months basis. We generated in Q1 free cash of $28 million compared to just $1 million in prior year, $195 million on a trailing 12-month basis. I think we can say that cash generation at Vishay remains fairly excellent. Let me talk about the product lines and that starts with resistors and inductors. Vishay's traditional and since years most profitable business continues to grow steadily. With resistors and inductors, we enjoy a very strong position in the industrial, auto, medical market segments. Since a few years, we started to concentrate on the Asian, predominantly Chinese industrial market, and did achieve an increase of this business by 50% in four years. We're encouraged. Sales in the quarter were $199 million, up by 9% versus prior quarter and up by 11% versus prior year excluding exchange rate impacts. Book-to-bill ratio in quarter for resistors and inductors was 1.22 after 1.08 in prior quarter. Backlog went up to 3.6 months. There were basically increase lead-times for power inductors, metal strip, and chip resistors. Gross margin for resistors and inductors increased to 30% of sales in the quarter from 28% in prior quarter, mainly due to higher volume and some inventory build versus an inventory reduction in Q4. Inventory turns in the quarter were at a very satisfactory level of 4.2 -- 4.7 excuse me after 4.5 in prior quarter. We have seen a normal level of price decline of minus 1.3% versus prior quarter and minus 2.6% versus prior year. We continue to invest for increasing manufacturing capacities at power inductors, metal strip resistors, and resistors chips. Coming to capacitors, our business with capacitors is based on a broad range of technologies with a strong position in American and European market niches. We enjoy increasing opportunities in the field of power transmission and of e-cars, namely in Asia, especially China and entered the polymer tantalum capacitor market. Sales in Q1 were at $90 million, 13% above prior quarter and 4% above prior year, again, excluding exchange rates effects. The book-to-bill ratio in the quarter was 1.25 after 1.03 in Q4. Backlog in Q1 increased substantially to 4.2 months from 3.9 in Q4, with an increasing share of long-term orders for power transmission. Gross margin in Q1 increased to 21% of sales from 17% in Q4. This is mainly because of higher volume and some inventory build. Inventory turns in the quarter were at 3.9 coming up from 3.8 in prior quarter. There is a low price decline for this line minus 0.8% versus prior quarter and minus 1.1% versus prior year. We continue to see numerous opportunities for capacitors in Asia for growing this business further. Coming to our Opto products, Vishay's business with Opto products consists of infrared emitters, receivers, sensors and couplers, as well as LEDs for automotive applications. The business represents one of Vishay's opportunities for growth especially the segment of sensors. Sales in the quarter were $66 million, 4% below prior quarter, 6% above prior year, again excluding exchange rate impacts. Book-to-bill in the quarter was 1.16 after 0.99 in Q4. Backlog increased slightly to 3.9 months from 3.2 months in prior quarter. Gross margin in the quarter came back to a more traditional level of 34% of sales after 32% in prior quarter. It was supported by lower manufacturing fixed costs and some inventory build. There were quite excellent inventory turns of 5.5 in the quarter after 5.8 in Q4. Price decline was normal minus 2.2% versus prior quarter and minus 2.3% versus prior year. We remain confident for this line growing steadily and profitably. Coming to diodes, diodes for Vishay represent a broad commodity business, where we are largest supplier worldwide. Vishay offers virtually all technologies, as well as the most complete product portfolio. We in particular are leading in power applications. The business has a strong position in the automotive and industrial market segments and keeps growing steadily and profitably since years. Sales in the quarter were $145 million, 8% below prior quarter and also 8% above prior year, without exchange rate impacts. We have seen an exceptionally strong book-to-bill ratio of 1.44 in the quarter after 1.22 in Q4. There were perceived shortages obviously of supply which drove orders from distribution. Backlog increased drastically to 4.8 months from 3.7 months in prior quarter. Gross margin in the quarter increase to quite excellent 26% of sales from 21% in the fourth quarter due to higher sales, better efficiencies, and a slight inventory build versus a substantial inventory reduction in prior quarter. Inventory turns were at a very satisfactory level of 5.1 after 5.0. We see somewhat lower than normal price decline minus 1.3% versus prior quarter and minus 3.6% versus prior year. We currently are expanding manufacturing capacities for diodes. Finally MOSFETs, Vishay continues to be one of the market leaders in MOSFET transistors. MOSFET over the last years developed a strong and growing position in automotive. We have seen a surprising upturn of the whole business recently. Sales in the quarter were $106 million, still somewhat limited by foundry capacities, 4% percent above prior quarter and 5% above prior year. Book-to-bill also for MOSFETs was very strong in the quarter was at 1.37 after 1.14 in Q4. We see the similar picture to diodes. We have seen strong orders in particular from distribution in Asia. Obviously, there are perceived shortages of supply. The backlog went up quite dramatically to 4.4 months from 3.4 months in prior quarter. Gross margin in the quarter improved to 20% of sales after 17% of sales in the prior quarter due to higher sales, better efficiencies, and due to the fact that no further inventory reduction took place. Inventory turns increased to a satisfactory level from 3.9 coming from 3.7. Price pressure we see reduced minus 1.5% versus prior quarter and minus 5.5% versus prior year. We are in process to increase the manufacturing volume with foundries and to maximize the output of our own [fab eight-inch] in Germany. We continue to implement our announced extended restructuring program. Let me summarize. Supported by unexpectedly strong orders for most of our product lines and based on good efficiencies across the Board, Vishay had a very successful first quarter. Financial results were substantially better than in prior quarter and in prior year and came in above our expectations. We currently work on maximizing the output of plants, foundries, and subcontractors. We're defending an acceptable service level and for further improving margins. Doing so, we will remain cautious in adding fixed costs and capital equipment. Despite the required increase of CapEx versus prior year in plant, we expect another year of very satisfactory generation of free cash. We will further increase our efforts to better penetrate automotive in industrial markets in Asia and particularly, in China. We are encouraged by the results of our projects of recent years. For the second quarter, we guide to our sales range between $610 million and 650 million with gross margins between 26% and 28% of sales. Thank you. Pass is back to Peter Henrici.

Thank you, Dr. Paul. We'll now open the call to questions. Kirsten, please take the first question.

Thank you. Our first question comes from Shawn Harrison with Longbow Research.

Hi good morning. This is Gausia Chowdhury on for Shawn Harrison. So, there are some great gross margins this quarter, could you provide some more color on where the upside came from, in particular, was it mainly from the MOSFET and diode line or anything else that I'm missing?

Really virtually all the manufacturing lines went better. The business went better than we anticipated. But of course it's very true the commodity products like diodes really had the lion's share. So, it was -- as you see from the book-to-bill quite a surprise, we didn't expect that. And well it was leading to higher sales and as you will have noticed before, we also expect an even better second quarter.

Great thanks. And then due to the strong book-to-bills, does that pose a risk that demand might correct later in the year? And during if the book-the-bills are as high through early May as well?

Well, clearly, I don't think -- at the moment, we have a backlog of over four months. This is not our history. Our backlog depending on the business we are in is more like three to three and a half months and it's obvious that sooner or later, this will normalize. But we have to work now on maximizing our sales to exploit the situation.

Okay. Thanks. One more from me if you don't mind. In terms of the long lead times or semi products and in particular for some of our products, are there concerns that they are stuck outs for any components or concern of double ordering occurring in the channel?

You can never exclude that, but at the moment, it's very clear that there is demand there is no inventory build the distribution I would like to emphasize, that means its overall a good sign that the market really demands these products. No question at the moment, I don’t see any inventory increase in the pipeline to the extent I can touch it.

Great. Sounds good. Thank you so much.

Our next question comes from Jim Suva with Citi.

Thank you very much. I have two questions and I'll ask them both at the same time. You mentioned increasing backlog and lead times in demand, but I also believe your inventory went up. Why would the inventory grow up or was it just the shift of the products that you had versus the order? And then my second question is with the increased backlog in demand and book-to-bill is there an opportunity for Vishay to see better average selling prices or less of a normal erosion in pricing as we look ahead? Thank you.

Jim, let me answer the first. First, we did have some very modest inventory built, but you will remember may be that in quarter four we had a substantial inventory reduction of more than what was increased in the first quarter. So if you go up to higher production rates per day, you automatically have to fill the pipeline, as a matter of fact there's no way out and this is what has happened. Overall for the year, we do not expect substantial inventory increases, but you have to fill the pipeline which was relatively empty let's say not empty but at least reduced in the fourth quarter. Concerning the prices, I think we can work for it. We would expect is stabilization. We do not plan for price increases but some stabilization of prices we would like to see and I guess this is not unrealistic.

Thank you so much for the details.

Our next question comes from Ruplu Bhattacharya with Bank of America.

Yes, good morning. Dr. Paul, I was just wondering how much of your auto revenues are tied to the U.S. and what are you baking in terms of auto production growth in the U.S. and how does that impact you?

I know that there are some concerns around automotive in the U.S. But you see we are selling to companies that supply to the automotive industry that export to the whole world. So we are not only dependent or even to a lower degree dependent on the U.S. market. We are more dependent on the car sales with high electronic content which is really more the European and partially the Japanese cars. So as a matter of fact, of course, we watch the situation but on automotive in general worldwide I see a picturize at this point in unchanged form -- completely unchanged.

And then for my follow up, if I can ask on the capital return plan. Can you give us an update on how much cash you have repatriated so far? And any thoughts on a dividend increase and Lori, I think you said you didn't do any buybacks this quarter but any thoughts on buying back stock so? So in general, what do you plan for your cash balance and any M&A thoughts if you can give us guidance?

Okay. So at the end of 2015, we announced repatriation program for $300 million and up to now we have repatriated approximately $50 million -- $46 million something like that. And we would plan to make another repatriation this year and we spread it over several years to optimize the level of tolling taxes from foreign sources. Any new or additional program is too premature for us to establish one because we're waiting to see what will happen in the discussions between Congress and President of America to see what the opportunities might be in the future. So, at the moment, we would not change that program, but of course, it could become interesting to realign even the previously announced repatriation program depending on what comes out of these discussions between Congress and the President in U.S.

Okay, great. And sorry the last one from me just Dr. Paul in terms of growth. So the first half for Vishay is going to be strong in terms of year-on-year growth, do you think given what you know then markets. Is it reasonable to expect the same kind of growth in the second half of ‘17 as well?

As a matter of fact, our second half historically tends to be somewhat lower than the first half and we normally do not guide beyond the second quarter -- the next quarter. As a matter of fact, we started well into the year. I personally think strict extrapolation would not be appropriate but I think we're expecting a good year, no question?

Okay. Thank you very much.

Our next question comes from Matt Sheerin with Stifel.

Yes, thanks and good morning. Yes, I mean in terms of just following up some of the questions on the high bookings level and in your backlog, we haven't seen that in a few years, Dr. Paul are you in terms of lead times and able to keep up with that. It sounds like the MOSFET situation is probably the most dire in terms of not being able to keep up with demand. So could you talk about lead times in MOSFETs now and then in the other areas where there are extended?

Well you're absolutely right, Matt. We have long lead times not only in MOSFET, but also in MOSFET’s. At the moment, it depends a little bit on the pipe but overall 20 weeks is not uncommon at this point in time for a commodity product in general. The difference to MOSFET as in this case we have to rely also on outside suppliers on foundries and we work on these foundries, we qualified one additional ones on the way but we need more than that. So otherwise, we are adding capacity as fast as we can possibly. And this is not only hiring people sometimes, it's even equipment and this is also you may have seen it we are going to increase to a degree advancing actually certain capital programs which we have in mind anyway, but we do need now faster this comes to this higher CapEx rate this year. Altogether, we do our maximum but I know that the market at the moment is cannot be totally satisfied with many of our lead times, but this is basically, we do what we can so to speak.

And then in the outside of the actives area in the passive components, are you seeing extended lead times on capacitors and resistors as well?

Yes, we see it on resistor chips, even traditionally nearly on power inductors and basically we see it in capacitors or some tantalum capacitors, yes also.

Okay. And then just a little…go ahead.

I just wanted to say we are somewhat overwhelmed with orders in quarter one really as a matter of fact.

Yes well that certainly sounds like a good problem. And then just for Lori on just OpEx, it looks like you were generally in line with your guidance given the higher your gross profit projections in higher sales activity, are you expecting sort of to maintain that range or will that be higher?

No, actually, we're expecting $94 million for Q2 and for 2017 approximately $373 million at today's exchange rates.

Okay, I missed that. Okay. Thanks very much.

Okay.

Our next question comes from Harlan Sur with JPMorgan.

Good morning and thank you for taking my question. Good to see the strong results of the business. Given the strong book-to-bill in distribution and just the overall strong dynamics in your backlog, just wondering, if you could give us a little bit more color in terms of end market demand? I know that I think your industrial business was up about 15% sequentially, looks like auto was up about 10% sequentially. Any color you can give us in terms of within those two segments some of the sub-segment demand trends which area is stronger and which area is a bit weaker?

Now it's obvious that automotive for us is strong across the Board. Our customers mainly the four big ones to do very well at this point in time and their projection is I try to say is a continued up for the foreseeable future. So, no changes to trend maybe even some acceleration in, but I cannot qualify it -- it’s all okay in all segments. Despite some concerns for the auto market in the U.S. which I appreciate but we don't see that -- we don't see that. Then on industrial also it has been quite good and increasingly good last year if you remember. What has -- but this is not a dramatic change, obviously the situation in the United States has improved from the quarter four to quarter one and in particular the oil gas segment of that has stabilized at least, maybe you can even see certain improvement there. But we are not talking major drastic changes between quarter four and quarter one as it relates to the economic environment. Computers on the other hand, they continue to shrink I mean, so I see principally speaking, obviously, there was a lot of caution in the end of the year and there's some catch-up incurred in combination I believe with some shortages of supply in certain segments which came up, which obviously do the same thing, did times go out which increases the interest for ordering more etcetera, etcetera. So if it happens -- it happened what -- how it always was the case.

Thanks for the insights, Dr. Paul. And then, on the supply shortages obviously it seems like the demand profile has caught the team a little bit by surprise here. But I'm just wondering in your view is this is much of this more Vishay specific or do you think that the supply shortages are pretty much industry wide and primarily across and I'm talking about primarily across to market and dire product lines?

I cannot comment on the competition but I know we know for sure I think most of us knew for sure they have been distinct shortages of supply in quarter, which really got to be temporary by the away and of course, this has for sure accelerated our order intake. no question about it.

Thank you.

And that would include our Q&A session for this morning’s call and I’ll hand the program back over to Peter Henrici for any additional remark.

Thank you. This concludes our First Quarter Conference Call. Thank you for your interest in Vishay Intertechnology.