Vishay Intertechnology, Inc. (VSH) Q3 2021 Earnings Report, Transcript and Summary

Good day, and thank you for standing by. Welcome to the Vishay Q3 2021 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to one of your speakers today, Mr. Peter Henrici. Please go ahead.

Thank you, Vic. Good morning, and welcome to Vishay Intertechnology's Third Quarter 2021 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 Vishay's third quarter 2021 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. On the Investor Relations section of our website, you can find a presentation of the third quarter 2021 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 a chance to review our earnings press release. I will focus on some highlights and key metrics. Vishay reported revenues for Q3 of $814 million. EPS was $0.67 for the quarter. Adjusted EPS was $0.63 for the quarter. The only reconciling items between GAAP EPS and adjusted EPS are tax related. There were no reconciling items impacting gross or operating margins. Revenues in the quarter were $814 million, down by 0.7% from previous quarter and up by 27.1% compared to prior year. Gross margin was 27.7%. Operating margin was 15.2%. There were no reconciling items to arrive at adjusted operating margin. EPS was $0.67, adjusted EPS was $0.63. EBITDA was $162 million or 19.9%. There were no reconciling items to arrive at adjusted EBITDA. Reconciling versus prior quarter, operating income quarter 3 2021 compared to operating income for prior quarter based on $5 million lower sales or flat sales, excluding exchange rate impacts, operating income decreased by $2 million to $124 million in Q3 2021 from $125 million in Q2 2021. The main elements were: Average selling prices had a positive impact of $10 million, representing a 1.3% ASP increase; volume decreased with a negative impact of $4 million, equivalent to a 1.3% decrease in volume. Variable costs increased with a negative impact of $12 million, primarily due to increases in metal prices as well as materials and services and not completely offset by cost reductions. Fixed costs decreased with a positive impact of $4 million, in line with our guidance. Reconciling versus prior year, operating income quarter 3 2021 compared to adjusted operating income in quarter 3 2020, based on $174 million higher sales, or $172 million excluding exchange rate impacts, adjusted operating income increased by $62 million to $124 million in Q3 2021, from $61 million in Q3 2020. The main elements were: Average selling prices had a positive impact of $18 million, representing a 2.2% ASP increase; volume increased with a positive impact of $70 million, representing a 23.2% increase. Variable costs increased with a negative impact of $8 million. Volume-related manufacturing efficiencies and cost reduction efforts did not completely offset higher metal prices, annual wage increases and higher tariffs. Fixed cost increased with a negative impact of $17 million, primarily due to annual wage increases and higher incentive compensation costs, only partially offset by our restructuring programs. Inventory impacts had a positive impact of $9 million. Exchange rates had a negative effect of $9 million. Selling, general and administrative expenses for the quarter were $102 million, in line with our guidance, excluding exchange rate impacts. For quarter 4 2021, our expectations are approximately $104 million of SG&A expenses at current exchange rates. The debt shown on the face of our balance sheet at quarter end is comprised of the convertible notes due 2025 net of debt issuance costs. There were no amounts outstanding on our revolving credit facility at the end of the quarter. However, we did use the revolver from time to time during Q3 to meet short-term financing needs and expect to continue to do so in the future. No principal payments are due until 2025, and the revolving credit facility expires in June 2024. We had total liquidity of $1.7 billion at quarter end. Cash and short-term investments comprised $916 million, and there are no amounts outstanding on our $750 million credit facility. Total shares outstanding at quarter end were 145 million. The expected share count for EPS purposes for the fourth quarter 2021 is approximately 145.6 million. Our convertible debt repurchase activity over the past 3 years, together with the adoption of the new convertible debt standard significantly reduces the variability of our EPS to share count. Our U.S. GAAP tax rate year-to-date was approximately 18%, which mathematically yields a rate of 17% for quarter 3. In quarter 3, we recorded a tax benefit of $5.7 million due to the reversal of deferred tax valuation allowances in certain jurisdictions. We also recorded benefits of $8.3 million year-to-date due to changes in tax regulations. Our normalized effective tax rate, which excludes the unusual tax items, was approximately 22% for the quarter, and 23% for the year-to-date period. We expect our normalized effective tax rate for full year 2021 to be between 22% and 24%. Our consolidated effective tax rate is based on an assumed level and mix of income among our various taxing jurisdictions. A shift in income could result in significantly different results. Also a significant change in U.S. tax laws or regulations could result in significantly different results. Cash from operations for the quarter was $136 million. Capital expenditures for the quarter were $57 million. Free cash for the quarter was $79 million. For the trailing 12 months, cash from operations was $436 million, capital expenditures were $171 million, split approximately for expansion, $113 million; for cost reduction, $9 million; for maintenance of business, $49 million. Free cash generation for the trailing 12-month period was $267 million. The trailing 12-month period includes $15 million cash taxes paid for the 2021 installment of the U.S. tax reform transition tax. Vishay has consistently generated in excess of $100 million cash flows from operations in each of the past 26 years and greater than $200 million for the past 19 years. Backlog at the end of quarter 3 was at $2.244 billion or 8.3 months of sales. Inventories increased quarter-over-quarter by $30 million excluding exchange rate impacts. Days of inventory outstanding were 81 days. Days of sales outstanding for the quarter were 43 days. Days of payables outstanding for the quarter were 35 days, resulting in a cash conversion cycle of 89 days. Now I will turn the call over to our Chief Executive Officer, Dr. Gerald Paul.

Thank you, Lori, and good morning, everyone. Also in the third quarter, we operated under quite excellent economic conditions characterized by extremely high backlogs. We continue to expand critical manufacturing capacities in order to prepare ourselves for further growth. During the quarter, we did experience some localized shortages of labor impacting the manufacturing output. There were strong financial third quarter results. We had a gross margin of 27.7% of sales and operating margin of 15.2% of sales. Earnings per share were $0.67 and adjusted earnings per share, $0.63. Vishay in the third quarter generated $79 million of free cash, and we do expect another good year of cash generation. As I said, the economic environment for electronic components remains exceptionally good with backlogs at a historical high. Except for automotive, all markets continue to be in excellent shape and sales are basically limited by the manufacturing capacities. The automotive sector is expected to accelerate again over the next quarters with current supply problems getting resolved step by step. The supply chain continues to be rather depleted in general. We see extremely long lead times and shortages of supply. Price increases are being implemented in general also to offset increased inflationary costs for metals and for transportation. Concerning the various regions, not so many differences. All regions remained exceptionally strong. POS in all regions remains close or above all-time highs, and distribution in all regions remains hungry for products every year, no change. Talking about distribution. Global distribution continues to get overwhelmed with orders. POS in the third quarter continued on a record level of the second quarter, running 34% over prior year. POS increased versus Q2 by 5% in the Americas and by 3% in Europe. Asia was slightly down by 2%. Americas and Europe are at an all-time high. Inventory turns of global distribution in quarter 3 turns was at 4.2 turns, started to normalize from quite extreme 4.4 turns in the second quarter. In the Americas, 2.2 turns after 2.1 turns in the second quarter and 1.5 turns in prior year. In Asia, 6.1 turns after 7.4 turns in Q2 and 4.3 turns in prior year. And in Europe, 4.5 turns in the quarter after 4.6 turns in the second quarter and 3.2 turns in prior year. Coming to the various industry segments we serve. Sales to the automotive market remains dampened by customers' inability to secure ICs. The situation is expected to improve step by step. And as the demand for cars remains on a very high level, you can see that there's money in the bank for 2022. Industrial markets continued strong in all regions, factory automation, alternative energy, power transmission are driving the growth. After record levels in 2020, personal computing shows signs of normalization, but server markets continue growing. Proliferation of 5G technology continues to drive sales in fixed telecom. Military spending remains stable. Commercial aerospace starts to recover slowly. Medical markets are steady, with focus being more and more shifted back to normal hospital procedures. White goods, air conditioning and gaming remains strong and profitable. Coming to Vishay's business development in Q3. Due to local labor shortages, third quarter sales, excluding exchange rate impacts came in below the midpoint of our guidance. We achieved sales of $814 million versus $819 million in prior quarter and versus $640 million in prior year. Excluding exchange rate effects, sales in Q3 were flat versus prior quarter and up by $172 million or by 27% versus prior year. Book-to-bill in the quarter has remained on an extraordinarily high level of 1.26 after 1.38 in prior quarter. 1.29 book-to-bill for distribution after 1.41 in quarter two; 1.23 for OEMs after 1.34 in the second quarter; 1.27 for semis after 1.41 in Q2; 1.26 for passives after 1.35; 1.30 for the Americas after 1.33 in Q2; 1.14 for Asia after 1.29; 1.41 for Europe after 1.54, I think we can speak of a broad continuation of an excellent economical environment. Our backlog in the third quarter has climbed to another record high of 8.3 months after 7.5 in the second quarter, 8.9 months in semis after 8.4 months in Q2 and 7.6 months in passives after 6.7 months in Q2. Price increases become visible in our broad form. We have seen 1.3% prices up versus prior quarter and 2.2% versus prior year. For the semiconductors, it was 2.2% up versus prior quarter and 3.8% up versus prior year. For the passives, 0.3% up versus prior quarter and 0.5% up versus prior year. Some highlights of operations. Despite the continued good level of plant efficiencies, our contributive margin in the third quarter has suffered from inflationary impacts, in particular as it relates to metals and to transportation. SG&A costs in Q3 came in at $102 million according to expectations when excluding exchange rate impacts. And manufacturing fixed costs in the quarter came in at $137 million, below our expectations when excluding exchange rate impacts. Total employment at the end of the third quarter was 22,730, 1% up from prior quarter. Excluding exchange rate impacts, inventories in the quarter increased. By $30 million, $13 million in raw materials and $17 million in WIP and finished goods. Inventory turns in the third quarter remained at a very high level of 4.5 after 4.8 in Q2. Capital spending in the quarter was $57 million versus $22 million in prior year, $41 million for expansion, $2 million for cost reduction and $14 million for the maintenance of business. We continue to expect for the year 2021 CapEx of approximately $250 million for the most part, of course, for expansion projects. We, in the third quarter generated cash from operations of $436 million on a trailing 12-month basis. And also, on a 12-month basis, we generated $267 million free cash. Despite increased CapEx, we also for the current year, expect a solid generation of free cash, quite in line with our provision. Coming to our main product lines, starting with resistors. With resistors, we enjoy a very strong position in the auto industrial, mill and medical market segments. We offer virtually all resistor technologies and are globally known as a reliable high-quality supplier of the broadest product range. Vishay's traditional and historically growing business has returned to record levels. Sales in the quarter were $181 million, down by $12 million or 6% from previous quarter, but up by $35 million or 24% versus prior year, all excluding exchange rate impacts. In the third quarter, in particular, some shortages of labor and limited sales. The book-to-bill ratio in the quarter continued strong, 1.26 after 1.39 in the second quarter. The backlog increased further to 7.8 months from 6.6 months in the prior quarter. Gross margin in the quarter decreased to 27% of sales, down from a peak of 30% in Q2. Main reasons were lower volume and higher metal and logistics costs. Inventory turns in the quarter remained on a very high level of 4.7 after 5.1 in the second quarter. Selling prices continued to increase, plus 0.5% versus prior quarter and plus 0.7% versus prior year. We are in process to raise critical manufacturing capacities mainly for resistor chips and for power wirewounds. And of course, we focus on hiring in the critical places. We expect a very successful year for resistors. Coming to inductors. The business consists of power inductors and magnetics. Since years, our fast-growing business with inductors represents one of the greatest success stories of our company. Exploiting the growing need for inductors in general, which had developed a platform of robust and efficient power inductors and leads the market technically. With magnetics, we are very well positioned in specialty businesses, demonstrating steady growth there. Sales of inductors in the third quarter were $85 million, flat versus prior quarter and up by $5 million or by 7% versus prior year, excluding exchange rate effects. The book-to-bill ratio in the third quarter was 1.11 after 1.21 in prior quarter. The backlog for inductors grew further to 5.4 months from 5.1 in the second quarter. Gross margin continued to run at an excellent level of 32% of sales, slightly down from a peak of 34% in prior quarter. Inventory turns were at 4.6, practically flat versus prior quarter. There is a substantially reduced price decline at inductors, a slight price increase of 0.2% versus prior quarter and minus 1% versus prior year. We are accelerating the next steps of capacity expansion for power inductors in order to get ahead of the demand curve. 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 fields of power transmission and of ECAs, namely in Asia and China. Sales in the third quarter were $116 million, 3% below prior quarter but 25% above prior year, which excludes exchange rate impacts. Shortages of labor, also in the case of capacitors, limited manufacturing output and sales. Book-to-bill in the third quarter for capacitors remained at very strong 1.7 on the level of the prior quarter. Backlog increased to an absolute record of 8.9 months, up from 7.7 months in the second quarter. Gross margin in the third quarter reduced to 21% of sales from 24% in the second quarter. Lower volume meant further increased cost for metals, in particular, [worsen] the results. Inventory turns in the quarter remained on a healthy level of 3.5 after 3.9 in prior quarter. We are steadily increasing selling prices, 0.1%-plus versus prior quarter and 1.3%-plus versus prior year. We expect a solid year for capacitors with growing opportunities in the future. We remain confident for capacitors for the midterm in the light of increasing designed wins that we see. Coming to Opto products. Vishay's business with Opto products consists of infrared emitters, receivers, sensors and couplers. Also in Opto, we see a strong acceleration of demand. Sales in the quarter were $71 million, 6% below prior quarter, but 9% above prior year, which excludes exchange rate impacts. We experienced quite substantial losses of manufacturing output due to COVID-related restrictions in Malaysia. This situation should be resolved, for its resolved after all by all the workforce now has been vaccinated, will not repeat itself therefore. Book-to-bill in the third quarter continued strong at 1.36 after extreme 1.69 in the second quarter. Backlog continued to grow to another record high of 10.9 months after 9.3 months in prior quarter. Gross margin in the third quarter improved further to 34% of sales after 32% in prior quarter. I think we can say Opto continues to perform exceptionally well. We have seen now more normal inventory turns of 5.0 in the quarter after 5.8 in the second quarter. The selling prices are going up, plus 1.9% versus prior quarter and plus 5.0% versus prior year. We modernized and expand our Heilbronn wafer fab and the production should start in the course of Q4, partially Q1 next year. Opto products continue to be a very relevant factor for Vishay's growth. Coming to diodes. Diodes for Vishay represents a broad commodity business where we are largest supplier worldwide. Vishay offers virtually all technologies as well as the most complete product portfolio. The business has a very strong position in the automotive and industrial market segments and keeps growing steadily and profitably since years. Sales in the quarter were $185 million, up by $12 million or by 7% versus prior quarter, and up by $61 million or 49% versus prior year without exchange rate effects. We see a continued strong book-to-bill ratio of 1.31 in the quarter after 1.45 in Q2. Backlog climbed to an extreme high of 8.9 months from 8.5 months in prior quarter. With growing volume, gross margin continued to improve to 25% of sales as compared to 24% in Q2. Inventory turns were at 4.5 after 4.7 in prior quarter. Selling prices keep increasing by 2.9% versus prior quarter and by 5.1% versus prior year. We have started to expand our fab in Taipei introducing the 8-inch technology there. The business with diode starts to exceed pre-pandemic levels. Finally to MOSFETs. Vishay is one of the market leaders in MOSFET transistors. With MOSFETs, we enjoy a strong and growing market position, in particular, in automotive, which in view of an increasing use of MOSFETs will provide a very successful future for this product line. The demand has reached quite extreme levels and increases further. Sales in the quarter were $176 million, 5% above prior quarter and 31% above prior year, excluding exchange rate impacts. Book-to-bill ratio in Q3 was 1.19 after 1.26 in the second quarter. Backlog has grown further to an extreme level of 8.1 months as compared to 7.9 in the second quarter. Higher volume, better selling prices and good efficiencies allowed gross margin to increase further to 31% of sales, up from 28% in the second quarter. Inventory turns in the quarter were at 5.1, virtually flat versus prior quarter. We are implementing price increases plus 1.5% versus prior quarter and plus 2.2% versus prior year. MOSFETs remain absolute key for Vishay's growth going forward. We intend to keep a proper balance between in-house manufacturing of wafers and purchases from foundries. And this in mind, we decided to build a 12-inch wafer fab in Itzehoe in Germany, adjacent to our existing 8-inch fab, which will increase our in-house wafer capacity by 70%, 7-0 percent, within 3 to 4 years. Let me summarize and let me emphasize the following: Clearly we, since a few years, enjoy very favorable economic conditions, and the end of the positive phase of the current cycle is not in sight. But, I think much more important beyond all short-term speculations, the longer-term outlook for electronics and also for components is remarkably bright. We expect noticeably higher growth rates for our products going forward than we have seen them in the past. Vishay definitely is in a good position to benefit from this favorable trend. We enjoy a very broad and strong market position. We are a broad liner, and we are financially solid and therefore, in the position to take the right steps. Results also for the fourth quarter look promising. We guide to a sales range between $805 million and $845 million at a gross margin of 27.7%. Thank you. Over to you, Peter.

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

Your first question comes from the line of Karl Ackerman.

I wanted to first begin with your gross margin guide. I was hoping you could discuss the variables to your gross margin guide. I understand the higher depreciation impact. But are there any end-market impacts that may be impacting your outlook? I ask because favorable pricing and your cost reduction efforts in your MOSFET business appear to be supporting improved profitability.

Yes. In fact, it's all happening, as you say. We have nice volume, which leads to good efficiencies. We are raising prices accordingly, of course, within the contracts we have, of course. And on the other hand, we do see inflationary impacts on our materials and the transportation, which is not new, but the third quarter was another increase vis-a-vis the second quarter in these costs. And in that sense, the variable margin in the third quarter has suffered a little vis-a-vis the second quarter. We will increase prices further as we go forward. And of course, we continue to work further on cost reduction efficiencies. So going forward, I see that we can offset or better than that, the inflationary impacts. Concerning manufacturing fixed cost, there's nothing to report. We came in better than we thought. And also depreciation was not a surprise whatsoever. Of course, we invest more, so there's a slow increase of depreciation. Did this answer your question?

It does. For my follow-up, it's nice to see the growing backlog despite, I think, general investor fears of the moderation in end demand. I'm curious if you could distinguish whether the growth in backlog is coming from OEMs or if it's tied more toward distribution? I ask because I'm trying to understand whether the mix toward OEMs may be less likely to get pushed out or canceled for those who are worried about the growth rate as you look out into 2022?

We see it on both sides. But distribution, in this case, also leads, it’s clear. As a matter of fact, distribution, I tried to say it in my words, is still very hungry for products, and they are running very well. In fact – so it’s both, to summarize again, but the distribution is stronger, in that sense.

Your next question comes from the line of Ruplu Bhattacharya.

Maybe just to follow up on the last question, Dr. Paul. I wanted to ask about inventory in the channel. Some component suppliers have talked about a buildup of inventory. So in automotive, maybe at the OEMs and in industrial, maybe in the channel. Are you seeing any build above inventory in the channel? What are your thoughts on channel inventory? And how do you see that trending over the next couple of quarters?

Ruplu, there is a certain slight buildup of the inventory in the distribution channel, which is partially just from the price side, determined by the price side and not necessarily by more pieces. Concerning the OEMs, you never know exactly. But as a matter of fact their reaction in better terms on big customers, how they react on shortages, how they escalate cases, does not really support the idea that there's a lot of hidden inventory. So my opinion is that also this channel is relatively empty still.

Okay. You mentioned your revenues were impacted because of labor shortages. What was the impact -- what was the negative impact to your revenues from labor shortages this quarter? And do you expect any impact in the 4Q?

Approximately $20 million, approximately. And of course, there are certain points where it hits hard. One of them was Malaysia. And I said, hopefully, this was understood. People are now vaccinated completely in this plant, so this one will not repeat itself. But we have labor shortages in other places also. We work on it. You can never exclude completely that it happens again, but we work on it. And I think we are in better shape now.

Okay. Got it. And just for my last question. Can you talk about your priorities for cash? How -- do you see any opportunities for inorganic growth in this environment, either on the passive side or on the active side? And how should we think about buybacks and dividend, going forward?

Well, first off, yes, Ruplu, I think I said it. We have decided for a major project. This is for the MOSFET internal capacity. It's a big project. And besides that, Vishay is strong, we can definitely handle that, staying cash positive and nothing has changed. We are evaluating and driving at buyback of shares as a decision of the Board. In fact, the decision will be taken beyond the way, so to speak, finally, right?

And M&A, any thoughts on inorganic growth?

Well, we always look around. And there may be opportunities, we see some opportunities, and we are also working on some opportunities. But they are not in a situation that I would like to talk completely about them.

Your next question comes from the line of Matt Sheerin.

Dr. Paul, I just wanted to talk -- just ask about the guidance that you have for the fourth quarter, that range. What gets you to the low end or the high end? Is that really contingent on your ability to staff and to improve the labor issues that you're seeing? Is that really -- is it really just your production capabilities as opposed to end demand?

No, it's really only and exclusively, only and exclusively our ability to manufacture. It's really -- we are together since a long time, Matt. This is such a clear situation. I've hardly ever seen such a clear situation. If I had a magic wand and could produce more, I rightly could sell it immediately and people would love me for that. But there are limitations and there are labor shortages. As I said, we are working on it. Partially, it's COVID-related. In this case, I think in Malaysia, we were able to resolve the situation. But in other plants, you have just local situations, which makes it difficult to get the amount of people in. I think we are getting in better shape as we go. But to be honest, we were missing people in quarter three, no question. But as you're -- answering your question again, it's just the availability of labor, at this point.

Okay. And from where you stand now, are you confident that in terms of the midpoint of that guidance that you should be able to deliver?

Yes. Yes. Well, we were, of course, also convinced otherwise you wouldn't have said it in the quarter three. But as a matter of fact, I think in certain cases, and I'm repeating Malaysia, which was always a pending thing. This is resolved now. So, there are -- it's not everywhere, but in certain places, you have the tendency to be short on labor, but we are working on it. And I believe we are in a better shape in quarter four.

Got it. As you look to Q1, and I know it's hard to look beyond the quarter here given all the various issues going on. But typically, I know you're up sequentially in Europe and in North America. I'm just wondering, is there more capacity coming online? Or do you have the ability to actually fulfill that demand and be up sequentially in the first quarter of next year?

Matt, we expect higher sales in quarter 1 than in quarter 4. Does this answer your question? Short answer, yes, there will be more capacity and also, I think we can progress in staffing, but also more capacity. So we do expect higher sales in the first quarter than we forecasted and guiding to in the fourth quarter.

Got it. And just lastly, I know someone just asked about your capital allocation, particularly share repurchases, and I know that's been a big issue with some of your investors. It sounds like you've got a plan in place. So any time line in terms of when you'll share that?

Well, we are working on it Matt. Save me from a concrete answer, we are working on it. The Board will decide in the foreseeable future.

[Operator Instructions] Your next question comes from the line of David O'Connor.

Maybe one or two, Dr. Paul, on my side. Just firstly, on the -- you called out that the metal price impacted some of the -- of your costs, which fed into the gross margin. What is your ability to pass through greater price increases that you're seeing from your metal suppliers? Give it just -- it sounds like you have been increasing prices, but maybe it's just a timing thing that you're still seeing that as a headwind and is that going to turn as you go through Q4? That's my first question. And then maybe more longer-term, a question on the 12-inch fab in Germany. How should we -- can you help us understand the kind of the big -- the big picture level, what is the overall CapEx required for that? What is the annual revenue capacity that could, that manufacturing end could generate and then fully loaded. Just kind of with an eye on the return on invested capital of that side and how you think about that.

Okay. Well, concerning the price increases first. We have raised prices already in quarter 2 versus quarter 1, and we continue to do so in quarter 3 versus quarter 2. And we will continue like that. You're absolutely right. It's a process. It's a process because we are partially in -- we have contracts with the customers and we do not break contracts. We don't do that. And on the other hand, we have a broad product portfolio. Sometimes, the process could be a little faster. I must admit that. But as a matter of fact, we are underway. We will continue to raise prices and we are forced to do so, because the inflationary effects, especially on metals and transportation are quite substantial. So it will continue. We'll continue at a rate, as you said, approximately, as you have seen in the last 2 quarters, which will help us. Because in parallel to that, we have our efforts on cost reduction, which continue to take place. Was this answering the first part of your question?

Yes, that's very helpful.

Okay. Now to the wafer fab, very important for us. And in fact, our automotive customers, and we are particularly strong in automotive. They expect a certain independence of foundries. We are relatively independent now, but there's enormous growth rates, especially for MOSFETs in automotive, which we foresee and which are forecasted in a believable form, force us also to go to step. We go to Itzehoe because we have a good team there. We have an established operation there, and it will cost us approximately, don't nail me down on the $1 million, $250 million, $260 million over 3 to 4 years. Still, Vishay now is a quite reliable supplier of free cash. We will stay cash positive every year. we foresee we will stay cash -- free cash positive, so we can really afford it. very crucial for us to assure a fast-growing business in automotive MOSFETs. And as you've seen -- as you heard just in this quarter, we have reached over 30% gross. It's also a profitable business. So this was the reason why we took this decision. But to build the fab takes some time and CapEx required is remarkable, but affordable for us. And very important to continue our, I would say, most promising line. Does this answer the second part of your question?

Presenters, there are no further question at this time. Please continue. Actually, we have a question popped up in the queue, one moment. And that question will come from the line of [Lori Packer].

Yes. So I am a private investor, and you clearly are generating enough free cash flow to warrant dividend increases. Your dividend increase has been stable for 10 consecutive quarters now, and I applaud you during the pandemic for maintaining at that. But you clearly are generating enough cash flow to increase the dividend. When can we expect a dividend increase?

Well, as a matter of fact, it's the decision of the Board by nature. But we have increased dividends along the way, and I'm sure we will continue on this route. But in fact, the detail is a matter of the Board. But there is readiness to do so.

Well, you haven't increased it. It's been 2.5 years since you've increased it.

Well, but again, we have maybe for some time, we invested a lot, of course. But we -- there are considerations to do that, okay?

Because what it does, by not increasing the dividend, it's sending a message to your share owner that you don't have confidence that you can increase it and still maintain your CapEx program.

Well, we have -- honestly, we have been a very, very reliable cash producer for all times, so to speak. And we are increasing at the moment. We are talking about everything. We talk acquisitions. We are talking increases of dividends. We are talking stock buyback. And all this will be decided in the right form. But we will continue to generate substantial cash, that's a given.

But that's just lip service. And your stock price performance, frankly, compared to the general market overall, it's been pretty abysmal.

Yes, I understand your critique, but let's be assured that we are going to give money back to the shareholders. We do so, and we will improve that further as we go.

I will hold you to that.

Okay. You can. You can.

Presenters, there are no further questions, please continue.

Thank you. For joining us on today’s call and for your interest in Vishay Intertechnology. This concludes our call. Thank you.

This concludes today's conference call. Thank you for participating. You may now disconnect.