Good morning and welcome to Vishay Intertechnology's Fourth Quarter and Year 2017 Conference Call. With me today are Dr. Gerald Paul, Vishay's President and Chief Executive Officer; and Lori Lipcaman, our Executive Vice President & Chief Financial Officer. As usual, we will start today's call with the CFO, who will review our fourth quarter and year 2017 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 will reserve time for questions and answers. This call is being web cast from the Investor Relations section of our web site 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 SEC. 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 web site, you can find a presentation of the fourth quarter 2017 financial information containing some of the operational metrics Dr. Paul will be discussing. Now I turn the call over to Chief Financial Officer, Lori Lipcaman.

Thank you, Peter. Good morning everyone. I am sure that most of you have had the chance to review our earnings press release. I will focus on some highlights and key metrics. Vishay reported revenues for Q4 of $674 million. Our GAAP results reflect the significant effect of the U.S. Tax Cuts and Job act and we report a GAAP net loss for the quarter of $1.23 per share, due to a $235 million charge related to the U.S. tax reform. Adjusted EPS was $0.37 for the quarter. The fourth quarter includes restructuring charges totaling $6.1 million and a gain related to the favorable resolution of contingencies associated with our sale of an equity affiliate in Q1. During the fourth quarter, we repurchased approximately 120,000 shares of our common stock for approximately $3 million, pursuant to the $150 million share repurchase program announced in August 2017. Since year end, we have not purchased any additional shares pursuant to this program. The stock repurchase program does not obligate the company to acquire any particular amount of common stock. Revenues in the quarter were $674 million down by 0.5% from previous quarter and up by 18.2% compared to prior year. Gross margin was 26.2%, operating margin was 10.8%, adjusted operating margin was 11.7%. EPS was a loss of $1.23, adjusted EPS was $0.37, EBITDA was $114 million or 16.9%. Adjusted EBITDA was $119 million or 17.7%. For the full year 2017, revenues were $2.604 billion, up by 12% compared to prior year. Gross margin was 26.9%, operating margin wireless 12.0%, adjusted operating margin was 12.4%. EPS was a loss of $0.14, adjusted EPS was $1.43. EBITDA was $464 million or 17.8%, adjusted EBITDA was $481 million or 18.5%. Reconciling versus prior quarter, adjusted operating income quarter for 2017 compared to adjusted operating…

Thank you, Lori, and good morning everybody. 2017 for Vishay has been a very successful year, showing an accelerated improvement of our financial performance. Throughout the year, we were carried by a very high level of demand in virtually all market segments. Historically high order rates, high backlogs and long leadtimes characterized the year as well as for a [indiscernible] beginning of 2018. We keep increasing manufacturing capacities and output of our key product lines. Vishay in 2017 achieved a gross margin of 27% of sales as compared to 25% in 2016, and adjusted operating margin of 12% of sales versus 9%, and GAAP EPS loss of $0.14 due to U.S. tax reform related changes versus a gain of $0.32 last year, and adjusted earnings per share of $1.43 versus $0.85 in the year 2016. We generated in 2017, free cash of $200 million which is the best performance in six years. The fourth quarter was practically in line with our performance of the entire year. We achieved a gross margin of 26% of sales, adjusted operating margin of 12% of sales, a GAAP EPS loss of $1.23 and an adjusted earnings per share of $0.37. Let me talk about the economic environment; the economic environment during 2017 has been fairly excellent and exceeded our expectations substantially. This is, in particular true, for our key markets, automotive and industrial. Market demand exceeded and continues to exceed available capacity in several product areas, mainly in semiconductors, forcing continued allocation and creating some supply concerns with our customers. During the entire year and in particular in the fourth quarter, high order levels are driven by distribution in all regions. The economic environment offers the opportunity for more stable pricing. Let me talk about regions; all regions in 2017 did well. We have…

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

[Operator Instructions]. Your first question is from the line of Jim Suva.

Great. Thank you so much. It's Jim Suva from Citi. The details are greatly appreciated. When you gave the CapEx guidance for 2018, it looks like it's up pretty materially. Can you help us understand the timeline of what's being installed in the revenue contribution of that and will there be a gross margin headwind, as that CapEx has turned a ramping, or is it not going to be your gross margin challenge? Just kind of curious, about how the CapEx and revenues and margins fold in? Thank you.

First of all, a part of this investment, we would have liked to make already in 2017. But the leadtimes of the equipments were long and stretched out, like the leadtimes of our product. Secondly, they come piece-by-piece, as a matter of fact, it goes over the whole year, and concerning gross margin, there is no concern on that. And also, what we invest is really covered by long term plans. We just accelerate the plans we had before. We do have products that grow fast, and we accelerate that, driven by the market, but concerning gross margins, we don't have to be concerned. Altogether, this really enables us once more to increase our capacity substantially, vis-à-vis 2017.

Great. And my follow-up is then, that capacity, since the leadtime of equipment has extended, and you would have liked it to come in, in 2017 or 2018, when do the revenues really start to come on materially? Is it like mid-year, is there a step function or is it folded into --?

No, no, it's a continuous increase vis-à-vis prior year. It goes not exactly at the same rate, but you will see quarter-after-quarter, obviously an increase versus prior year, which of course was an increase in itself. So the first quarter 2017 was below the fourth quarter 2017, and we grow then continuously as the equipments are installed, and people are hired.

Okay. And then my last question is, you mentioned this quarter had a gross margin challenge with the singularity. Was that like a work shift change or like a product transition change or how can we have confidence the singularity doesn't come back again?

Jim, it was actually the non-repetition of positive singularities in Q3 that Dr. Paul explained, particularly for the --

Okay, I understand. So Q3 had a positive one that didn't repeat in Q4, as opposed to a negative item in Q4? Okay. Thank you.

Your next question is from the line of Shawn Harrison.

Hey good morning. This is Gausia Chowdhury on behalf of Shawn Harrison. The first question is just about the guidance; at the midpoint, it still looks to be lower than seasonal, but the book-to-bills keep pushing up. I understand there is capacity constraints, but can you explain the disconnect, if there is anything else we should be thinking about?

I don't think there is a disconnect. If you compare to the first quarter last year, it's a substantial increase, and it's really the reflection also of the equipment available at the working days in the first quarter. So that's approximately what we can do.

Okay, great. And then, the higher SG&A for the year, can you talk about the cadence of the year, and any particular factors behind the step-up please?

Of the year 2017?

Yes -- no, sorry, for 2018, the guidance?

Approximately flat cycle. We said $400 million, it's $100 million per quarter, roughly.

Okay. And that's a step up from 2017, correct? So can you --

Inflation. You have wage increases really. The wage increase is [indiscernible] as a matter of fact. You have 3% around the world, I would say as an average, and this is what drives the cost up.

Okay, all right. And then lastly, just about the gross margin question again, how much impacted -- I know there were singularities, positive ones in the third quarter. But looking forward, how much of an impact does it have on the guide, just based on your guidance for the first quarter, will you see that negative impact permanently throughout 2018, or how should we think about --?

No. A part of the gross margin that -- indicative impact on the gross margin had some training issues of new people, increase of capacity, to a degree, as we continue to increase our capacity, you will continue to see it. But at the lower rate, I would say. We have taken quite a few people in.

Thank you.

And your next question is from the line of Ruplu Bhattacharya.

Hi. Thanks for taking my questions. Dr. Paul, I mean, Vishay is capacity constrained, you are adding capacity. The book-to-bill is still unusually high, I mean, at distribution, I think you said 1.4; and OEM book-to-bill is also high. So obviously, the two questions are, what's the danger of double ordering, and once you have added your capacity and your competitors are adding capacity, what's the danger that the industry goes into an oversupply situation in the second half of 2018? So just your thoughts on these two things?

Ruplu, I expected the question somehow, I must admit that. So as a matter of fact, it's very true what you say. We do have enormous orders. On the other hand, it's clear that there is some double ordering, absolutely clear, has to be, which does not mean, that when things normalize, we would see any impact really on our sales, as a matter of fact. And concerning the danger that we invest too much, and that we expand too much and then afterwards suffer, it's very unlikely, because you know, there is a price decline if the market grows anyway. And we do invest in lines, which historically grow, and we expect them to grow according to our plans also. We just accelerate programs, we don't invent new programs, we just accelerate programs, which we would have had anyway. And I believe, the danger that we do too much, depends of course, if really a crisis comes, it can happen for the short time. But principally speaking, there is no capacity, that according to my recollection, that we invested in the last say 20 years or so, I even say it like that, that we could use later on. So the danger is very low.

And I think on the call you mentioned that there is a shortage in semiconductors. How about resistors, inductors and capacitors? Are you adding capacity there, is there a shortage of capacity?

Okay, it was -- I didn't say it's not in passives, it's also in passives, only in semiconductors it's stronger. In diodes and the MOSFETs, it's really strong, I cannot remember such a demand that we see now. And in passive, since you ask it, it's the same one, well it's not quite the same, but the same direction. In resistor chips, very conventional products. In resistor chips, in power, inductors, for instance, to a degree also in tantalum, as a matter of fact, also in passives, you see the effect, but not as strong as in semiconductors.

Okay. And then maybe just for my last question, switching to buybacks and repatriation, I think on the call, you talked about a measured pace of repatriation. Could you just remind us on what authorization -- what amount of authorization is left? And if you can give us any guidance on what that means in terms of measured pace? Like how should we think about -- how much or how soon you can bring back the cash and your plans for dividends increases or buybacks?

Well Ruplu, it's early to answer. These changes are quite recent, and at a measured pace, really means mainly, that we don't jump with both feet into something, which we haven't analyzed before. And we are in process to analyze our new freedom which we have, and it exists, you are right it exists. But of course, this requires some discussion internally. So at this point in time, forgive me, I don't think I can give details, we have to discuss that internally, we have to talk to our board, as is [indiscernible], and then we will come to conclusions. But you are right, we have a new degree of freedom, which we are going to use.

Okay. Thank you for taking my questions. Appreciate it.

Your next question comes from the line of Matt Sheerin.

Yeah thanks. This is Matt Sheerin with Stifel. So Dr. Paul, you have been pretty helpful here. But as you said, it looks like 60% to 70% of your product portfolio is in short supply, and we have seen leadtimes at 20 weeks, 30 weeks plus. So I guess the issue without you being specific about capacity, how much revenue capacity is coming online? Looks like you are pretty much capped here in terms of revenue, for at least the next two to three quarters, and then margins obviously, there seems to be some incremental costs relative to ramping that revenue. So trying to figure out, what could move the numbers here from where they are? Looks like your contribution margin year-over-year is going to be in the 30% range, which is below your 40% plus target. So just trying to figure out, is there much more -- aside from the capacity you are bringing online, it looks like you are capped out here. Is that one way to look at it?

Two remarks I would like to make; number one, we take into equipment -- that comes in as I said before, quarter-by-quarter. So altogether, if you really try to quantify, which is not completely easy, how much sales we can generate based on this new investment year-over-year comparing 2017 and 2018, you come to 8% --

8% for this year. Okay, okay.

So if you really calculate that, of course it's not an exact calculation, but it's a direction. I think it's a good estimate. And secondly, from a variable margin standpoint, this is what you refer to, we have unbroken our variable margin, our contributive margin all along. Only, there were some effects between quarter three and four, partially because quarter three contained singularities, which did not repeat themselves in quarter four, and we knew that, we said it. And secondly, you also have of course, increased training needs. Last year, we had to train a lot of people, as you can imagine, and there is of course some losses, I mean you take into people until they learn, and they are quite nicely ahead of our schedule. So we can expect some improvements there.

Okay. And then why are we not hearing about price increases, some of your competitors, both on the semi and the passive side, resistors, capacitors, haven't put price increases through, and it doesn't sound like you folks have, although you are seeing a less pronounced decline in ASPs. I know during the last cycle, you did have some price increases, particularly in the form of expedited shipment, so why are you not increasing prices or are you?

Matt, we actually do increase prices. The point is only, 50% of our business roughly is with OEMs and most of them is based on contracts, longer term contracts. We keep our contracts. It means, in this case, in these contracts, you have price decrease anyway. And you cannot change that, you honor your contracts. And overall, we hardly have any -- we have the whole price decline, or in some cases you may have heard, it was even constant. That means we do have some price increases, yes we do, otherwise the price decline overall wouldn't be explainable.

So that's primarily through distribution then, right?

Right.

Okay. That's helpful. Just then, as this capacity comes online, right, and leadtimes come in, in theory that six-seven month backlog, which we have really never seen here from Vishay, a lot of that will just disappear, right, as leadtimes come in?

I could imagine that it has to be like that. They will normalize. But it does not mean that we necessarily see an impact of the sales line. It's just -- [indiscernible] ordering in the markets, no question about it. And if this, the way I call it, [indiscernible] go away, this does not mean that our development as a company would suffer to any degree.

Okay. And just, regarding -- I mean, you seem to have a good read on distribution sell-through or the POS. Are there signs that your OEM customers, which can get all the product they want from you, they are ordering from distribution, and a concern there that actually bring in more inventory that you would see, cuts there, maybe later in the year?

I wouldn't reconfirm that. We -- of course we are watching the situation at distribution, especially as the leadtimes are long, especially as they order so much. So the inventory is very reasonable [indiscernible], that OEMs order more from distribution now. I cannot exclude it, but I don't have -- no tangible observations now.

Okay. Just last question for me, maybe for Lori on the -- you said that the margin was impacted somewhat by incremental environmental costs or cleanup costs. Could you tell us what that was related to and how long that's going to be going on for?

So as you know, we have been downsizing our activity in Santa Clara. And that's part of the cleanup, as we are moving out of the facility, we had an additional environmental charge that we needed to take in quarter four.

Okay. And that won't repeat this quarter?

At the moment, we think we are fully accrued. But of course, we view it several times during the year. All of our sites [indiscernible]. Normally at this point of time, we feel that we are fully accrued.

Okay. All right. Thank you.

Welcome.

And your next question is from the line of Harlan Sur.

Good morning and thank you for taking my question and congratulations on a strong 2017. Capacitor revenues were up sequentially in Q4, which seem sort of against -- sort of the normal seasonal trend for the business. Can you just help us understand some of the drivers there? Did you guys bring on some additional capacity, or are able to ship to the strong backlog, or were there some end market strengths that drove the quarterly trends?

It was a good quarter in general. But there was one real event. We shipped the major portion of power caps. I mean, I tried to say it indirectly, that we got a much stronger foothold into the energy transmission applications in China, and there were large shipments in the fourth quarter.

Great. Thanks for that. And then, on the gross margin front, it seems like opto, was the big driver of the slightly lower than expected gross margins. But they dropped pretty significantly. I think it was like about 800 basis points drop to 30%, and that's a level that we haven't seen in like over four quarters. And so I want to make --

Opto is our -- from a relative profitability standpoint of baseline [ph], as you know, very consistent. But 38% which we showed in quarter three, was really driven by singularities, which we said at the time. And now, it would have normalized anyway, and then on top of everything, they had some inventory movements, I can assure you that opto year-over-year was a nice improvement, and it will continue to improve next year. So as a matter of fact, we are not worried whatsoever. In that sense quarter four, came in especially in comparison to an excellent quarter three as a -- it's kind of disappointing too. But this doesn't mean anything for the future.

So do you expect gross margins in opto to start to grow starting here in the March quarter?

Yeah, yeah. As a matter of fact, the 30% was relatively low for opto conditions. This is more like, 32%, 34%. There is no [indiscernible].

Great. And then my last question, as you think about the CapEx profile for this year, and you layer on top of that, equipment leadtimes, which I would agree, are getting extended. Can you help us think about how you are going to prioritize adding capacity for the different product lines?

You mean, the time cycle or however it comes?

Well, how are you going to prioritize the CapEx versus the different product categories and you know -- timeline on bringing that on?

I cannot [indiscernible], but approximately, the center of our investments is clearly in diodes and in resistors clearly. This is where the need is especially strong. Also MOSFETs, we will get a portion of the investment -- a strong portion of the investment. But in this case, we work through foundries. So not directly -- so this is why it's not as big. But really, the most part goes into diodes, which is the biggest line anyway, and into resistors, where we see an enormous demand in the market for resistor chips, and in also inductors. So this is where we spend most of the capital. Of course, we could break it down further, but that is really -- and hasn't changed. So the focus of our investments over the last years hasn't changed. We just accelerate what we wanted to do in future anyway.

Great. Thank you, Dr. Paul.

And there are no other questions at this time.

This concludes our fourth quarter conference call. Thank you for your interest in Vishay Intertechnology.