Vishay Intertechnology, Inc. (VSH) Q2 2022 Earnings Report, Transcript and Summary

Greetings, and welcome to Vishay's Second Quarter 2022 Earnings Call. [Operator Instructions] Please note, this conference is being recorded. I would now turn the conference over to Peter Henrici, Senior Vice President and Corporate Communications. Thank you. You may begin.

Thank you, Sherry. Good morning, and welcome to Vishay Intertechnology's second quarter 2022 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 will start today's call with the CFO, who will review Vishay's second quarter 2022 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 discussion of factors that could cause results to defer, 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 second quarter 2022 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 Q2 of $864 million, a quarterly record despite a temporary closure of two key facilities in Shanghai, China for over two months. EPS was $0.78 for the quarter, adjusted EPS was $0.82 for the quarter. We have identified certain charges for the COVID related shutdowns of our facilities in China during Q2. The cost of these government mandated shutdowns in China are incremental too and separable from normal operations. These items impacted cost of goods sold by $6.7 million and selling, general and administrative expenses by $0.5 million and are added that net of tax when calculating our non-GAAP adjusted EPS. We do not include in this amount indirect costs of the pandemic, which are normal cost of doing business in 2022. During the quarter, we repatriated cash from Israel as part of a program we initiated in response to a change in Israeli tax law. We repatriated $81 million to the United States net have paid withholding and foreign taxes of $13 million. We also paid Israeli claw-back tax of $12 million. These taxes had been accrued in Q4 2021 when the new tax law was enacted. The payment of these taxes is reflected in operating cash flow on the statement of cash flows. The repatriated cash is used to fund our stockholder return policy. As we announced in February, Vishay has adopted a stockholder return policy, which calls for us to return at least 70% of annual free cash to stockholders, directly in the form of dividends, or indirectly in the form of stock repurchases. For 2022, we intend to return at least $100 million. During Q2, we repurchased 1.4 million shares of common stock for approximately $26.3 million. We paid $14.3 million for our quarterly dividends for a total stockholder return of $40.6 million. Year-to-date, we repurchased 1.9 million shares of common stock for approximately $36.2 million and paid $28.8 million in dividends for a total stockholder return of $65 million. Revenues in the quarter were $864 million, up by 1.1% from previous quarter and up by 5.4% compared to prior year. Gross margin was 30.3% adjusted gross margin was 31.0%. Operating was 17.5%. Adjusted operating margin was 18.3%. EPS was $0.78. Adjusted EPS was $0.82. EBITDA was $192 million, or 22.2%. Adjusted EBITDA was $199 million, or 23.0%. Reconciling versus prior quarter, adjusted operating income Q2 2022 compared to operating income for prior quarter, based on $10 million higher sales, or $24 million higher sales excluding ex rate impact, adjusted operating income increased by $12 million, to $158 million in Q2 2022 from $146 million in Q1 2022. The main elements were average selling prices had a positive impact of $24 million representing a 2.9% ASP increase. Volume decreased with a negative impact of $1 million equivalent to a 0.1% decrease, primarily due to the COVID related plant shutdowns in Shanghai. Variable costs increased with a negative impact of $15 million, primarily due to higher metals and material prices. Fixed costs were flat quarter-over-quarter, inventory impacts had a negative impact of $1 million, and exchange rates had a positive effect $4 million. Reconciling versus prior year, adjusted operating income Q2 2022 compared to operating income in Q2 2021. Based on $44 million higher sales, or $78 million higher excluding exchange rate impacts, adjusted operating income increased by $33 million to $158 million in Q2 of 2022 from $125 million in Q2 2021. The main elements were average selling prices had a positive impact of $64 million representing an 8.1% ASP increase. Volume increased with the positive impact of $14 million representing a 1.6% increase. Variable costs increased with a negative impact of $30 million, primarily due to increases in cost of materials and services, labor, silicone, metals and logistics not completely offset by manufacturing efficiencies and cost reduction efforts. Fixed costs increase for the negative impact of $17 million, primarily due to annual wage increases, as well as general inflation. Inventory impacts had a positive impact of $4 million, exchange rates had a negative effect of $3 million. Selling, general and administrative expenses for the quarter were $110 million, slightly less than expectations due to foreign exchange effects. For Q3 2022, our expectations are approximately $107 million of SG&A expenses at current exchange rates. For the full year 2022, our expectations are $440 million of SG&A expenses. 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, and $6 million outstanding on a revolving credit facility at the end of the quarter. No principal payments are due until the expiration of the revolving credit facility in June 2024. We had total liquidity of $1.6 billion at quarter end, cash and short-term investments comprised $847 million and $744 million is available on our credit facility. Total shares outstanding at quarter end were $143 million. The expected share count for EPS purposes for the third quarter 2022 is approximately $143 million, excluding any impact of share repurchases. Our US GAAP tax rate for the quarter and year-to-date was approximately 24%. Our normalized effective tax rate which excludes the tax effect of the COVID costs in China was also approximately 24% for the quarter and year-to-date period. We expect our normalized effective tax rate for full year 2022 to be between 23% and 24%. A consolidated effective tax rate is based on an assumed level and mix of income among others taxing jurisdictions, a shift in income could result in significantly different results. Also, a significant change in US tax laws or regulations could result in significantly different rates. Cash from operations for the quarter was $75 million. Capital expenditures for the quarter were $60 million. Free cash for the quarter was $15 million. For the trailing-12 month, cash from operations was $391 million. Capital expenditures were $253 million split approximately for expansion $161 million, for cost reduction of $16 million, for maintenance of business $76 million. Free cash generation for the trailing-12 month period was $139 million. The trailing 12-month period includes $15 million cash taxes paid for the 2022 installment of the US tax reform transition tax and $25 million cash taxes paid pursuant to our Israeli repatriation program. Vishay has consistently generated in excess of $100 million cash flows from operations in each of the past 27 years, and greater than $200 million for the past 20 years. Backlog at the end of quarter two was at $2,425 million or 8.4 months of sales. Inventories increased quarter-over-quarter by $46 million excluding exchange rate impacts. Days of inventory outstanding were 95 days. Days of sales outstanding for the quarter were 45 days, days of payables outstanding for the quarter were 37 days, resulting in a cash conversion cycle of 103 days. Now I'll turn the call over to our Chief Executive Officer, Dr. Gerald Paul.

Thank you, Lori and good morning, everybody. Despite the pandemic and further accelerating rate of inflation globally, the second quarter for Vishay has been even more successful than Q1 that had been one of our best quarters ever. Following the increasing market demand we steadily expand critical manufacturing capacities. In Q2, we achieved quite excellent results in the quarter in Q2 gross margin of 30.3% on the level of Q1. Adjusted gross margin of 31.0% versus 30.3% in Q1, operating margin of 17.5% of sales, versus 17.1% in Q1, adjusted operating margin of 18.3% versus 17.1%, earnings per share of $0.78 versus $0.71 in Q1 and adjusted earnings per share of $0.82 versus $0.71 in Q1. Due to some temporary increase of receivables and inventories in the context of the Shanghai shutdown, free cash generation in the quarter still has been modest $15 million. For the entire year, we again expect a solid performance concerning free cash. Vishay continues to operate under extraordinarily good economic conditions, orders and backlogs at historically high levels. All regions remain principally strong with a currently not transparent situation of the Chinese market. Most of the market segments do very well whereby there is an exception computers and smartphones. Major shortages of supply continue to exist for many product lines. In view of increased inflationary pressures on the cost of manufactures the market continues to accept price increases. Global distribution overall remains in good shape. Their midterm business outlook continues to be strong. POS in the quarter was 13% below Q1 that clearly represented a spike and 2% below prior year. POS in all regions declined from a quite extreme first quarter. Global inventories in the second quarter increased $54 million or by 10% versus Q1, and were 28% above prior year that had been characterized, you remember, by a rather extreme shortages. There is an impact of price increases, indicating a lower increase in terms of pieces in particular versus prior year. Inventory terms of global distribution in the second quarter were at the good level of 3.6 noticeably down from 4.2 in the first quarter, and down from 4.4 in prior year. The Americas showed 2.1 turns after 2.3 in quarter one and 2.1 in prior year. Asia 4.6 turns after 5.6 in Q1 and 7.4 in prior here. Europe 4.3 turns after 4.9 in Q1 and 4.6 in prior year. Summarizing, the extremely lean supply chain of prior quarters is in process to normalize. Coming to the industry segments, automotive customers in general continue to be impacted by shortages of components. Expect the strong demand in the second half as the customers will start to work down the high vehicle backlog based on an improving supply situation. Growth in the automotive market is expected to remain strong midterm with electronic vehicles gaining market share and due to a further growing electronic content in general. Furthermore, significant investment is still to be made in charging infrastructure. Industrial market sectors are expected to show continued growth in view of an accelerated move to clean energy, smarthome automation systems, factory automation and growing investments also in traditional power infrastructure projects. As I said demand for notebooks is declining, but growth is expected to continue in server and storage hardware. 5G continues to provide growth opportunities but some slowdown is apparent due to supply chain issues. Business with smartphones presently is declining. Extraordinary growth we see in military hardware, which can be expected to continue and we also realize an ongoing recovery of commercial aviation markets. The medical business remains on a steady growth trend returning to a more traditional segmentation. The markets for air conditioning and smart TVs presently are in decline. But increasing applications out there in white goods for control and communication. Wearable electronic products and Internet of Things applications continue to drive growth. The second quarter sales of Vishay excluding exchange rate impact came in above the midpoint of our guidance. We were able to mask the quite severe pandemic related issues in China especially in Shanghai of course better than expected. We achieved sales of $864 million versus $854 million in prior quarter and $819 million in prior year. Excluding exchange rate effects, sales in the second quarter were up by $24 million or 3% versus prior quarter, and up by $78 million or 10% versus prior year. Despite historically high backlogs book-to-bill in the quarter was 1.07 after 1.14 in prior quarter. 1.05 For distribution after 1.16 in the first quarter, 1.11 for OEMs after 1.13, 1.07 for semis after 1.14 in Q1. 1.07 Also for passive after 1.15 in Q1. 1.02 For the Americas after 1.24 in the first quarter. 0.88 For Asia after 1.02. 1.35 For Europe after 1.23. Backlogs in the second quarter remained on a record level of 8.4 months close to prior quarter which had been at 8.5 months, 9.5 months in semis after 9.3 in Q1; 7.3 months in passives after 7.6. Quite broad price increases continued to be implemented plus 2.9% versus prior quarter and plus 8.1% versus prior year, which includes a positive effect coming from an unusually high fluctuation of distribution incentives at semis. Semis themselves were plus 4.7% versus prior quarter and plus 12.9% versus prior year. Passives prices came up by 1.1% versus prior quarter and by 3.7% versus prior year. Despite high transportation costs, high material prices and despite further accelerating generate inflation rates worldwide Vishay was able to defend its traditional level of variable margin percent. Further price increases and good plant efficiencies helped. SG&A costs in the second quarter came in at $110 million. Manufacturing fixed costs in the quarter came in at $139 million. Fixed costs in total, both together SG&A, manufacturing fixed costs were according to expectations when excluding exchange rate impacts. Total employment at the end of the second quarter increased to 23,780, 1.5% up from prior quarter. Excluding exchange rate impacts, inventories in the quarter increased by $46 million, $10 million in raw materials and $36 million in WIP finished goods. Inventory increases in WIP and finished goods were caused mainly by interruptions of the supply chains and by factory shutdowns in Shanghai. Inventories will normalize for the most part in the course of the year. Due to the temporary inventory build inventory returns in Q2 decreased to 3.8 as compared to 4.2 in prior quarter. Capital spending in the second quarter was $60 million versus $32 million in prior year, $38 million for expansion, $4 million for cost reduction and $18 million for the maintenance of business. We continue to prepare ourselves for further accelerating growth rates. For 2022, we continue to expect CaPex of about $325 million. We generated into two cash flow operations of $391 million on a trailing-12 month basis, which includes $25 million taxes paid for repatriation of cash. And we generated in the second quarter free cash of $139 million on a trailing 12-month basis again, including $25 million taxes paid for the repatriation of cash. Despite increased CaPex and some inventory and receivables increases we also for the current year, expect a solid free cash generation. Coming to resistors. With resistors we enjoy a very strong position in the auto industry, mill and million 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 is traditional and historically growing business runs at record levels. Sales in the quarter was $230 million, which includes $3 million from our new acquisition Barry Industries up by $11 million or by 5% from previous quarter, and up by $30 million or 16% is the prior year. All this excludes exchange rate impacts. Book-to-bill ratio for resistors in the second quarter was 1.05 after 1.24 in prior quarter. Backlog is at 7.6 months, quite on the level of the first quarter which had been at 7.8 months. Gross margin in the quarter improved to 33% of sales, up from 31% of sales in the first quarter. Inventory returns in the second quarter were at 4.0., down from prior quarter at 4.4. There was some temporary increase of raw materials safety stocks. Selling prices continue to increase plus 1.3% versus prior quarter and plus 3.2% versus prior year. We are continuously raising critical manufacturing capacities mainly for resistor chips and shunts. And we continue to broaden our business with specialty resistors by targeted acquisitions like ATP and recently, Barry Industries. Coming to inductors, the business consists of power inductors and magnetics. Exploiting the continuously growing need for inductors in general, we should develop the platform of robust and efficient power inductors and leads the market technically. With magnetics, we are very well positioned in many specialty businesses demonstrating also in this field steady growth. Sales of inductors in Q2, were $90 million, up by $8 million or by 9% versus prior quarter and up by $6 million or by 7% versus prior year, excluding exchange rate effects. Book-to-bill in the second quarter was 0.97 after 1.14 in the first quarter. Backlog for inductors has decreased to 5.6 months from 6.3 months in prior quarter. Gross margin in the second quarter increased to 33% of sales, as compared to prior quarter at 30% of sales. Inventory returns were at a good level of 4.7 slightly up from 4.6 in prior quarter. Further the price increase is now also become apparent for inductors plus 1.0% versus prior quarter 10 plus 1.9% versus prior year. We continuously expand our manufacturing capacities for power inductors and remain open for acquisitions in particular in the field of magnetics. Particular, I would like to mention that we are establishing a plan for power inductors in Mexico. 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. They also enjoy increasing opportunities in the fields of power transmission and of electro cars, namely in Asia, China. Sales in the second quarter were at $132 million. $7 million or 6% above prior quarter, and $90 million or 7% above prior year without exchange rate impacts. Book-to-bill ratio in the second quarter was 1.17 after 1.02 in prior quarter. The backlog remained at a very high level of 8.1 month. Gross margin for capacitors in the quarter remained at 25% of sales. Inventory turns in the quarter were at 3.2 on the level of prior quarter. Also for capacitors, we see continued price increases, 0.9% versus prior quarter and 5.8% up versus prior year. We are confident for capacitors also in the light of growing global efforts in green energy. In view of a growing mill business and recovery of the oil and gas sector. OPTO products, Vishay’s business with OPTO products consists of infrared emitters, receivers, sensors and copters. Sales in the quarter were $78 million, $1 million or 2% below prior quarter, but up by $6 million or 9% versus prior year, which excludes exchange rate impact. Book-to-bill in the second quarter was at 0.86 after 0.78 in prior quarter. Backlog still at a fairly extreme level of 9.1 months after 9.4 months in the first quarter. Gross margin for OPTO product in the quarter normalized to an excellent level of 34% of sales down from 40% of sales in prior quarter which represented clearly a spike. WE continued to raise selling prices also for OPTO products plus 2.5% versus prior quarter and plus 8% versus prior year. OPTO products continue to be a very relevant element of Vishay’s performance. 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 enjoys a very strong position in the automotive and industrial market segments and keeps growing steadily and profitably since years. Sales in the quarter were $192 million, up by $13 million or 7% versus prior quarter and up by $24 million or 14% versus prior year, again without exchange rate effects. The book-to-bill ratio in the second quarter was at 1.10 after 1.16 in prior quarter. The backlog decreased to 9.3 months from 9.7 months in prior quarter which represented the record. Gross margin in the quarter improved further up to 28% of sales as compared to 25% in the first quarter, positively impacted by better ASPs, a higher volume and some inventory built. Inventory turns in the second quarter were at 4.0, close to prior quarter at 4.2. We continue to raise ASP substantially plus 5.2% versus prior quarter and plus 13% versus prior year. Our large and profitably growing business with diodes is the most relevant part of Vishay’s volume base. Finally, the MOSFETs, Vishay is one of the market leaders in MOSFETs 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 line. Demand over the years has reached extreme levels and is expected to increase rapidly in the years to come. In the quarter, we had sales of $158 million, 13 million or 8% below prior quarter and $6 million or 4% below prior year without exchange rate impacts. Naturally, severely impacted by an extended COVID related plant and warehouse shutdown in Shanghai. Book-to-bill ratio in the quarter was at 1.14 after 1.28 in the first quarter. Backlog increased to another record of 10.1 month from 9.0 months in prior quarter. Gross margin in the quarter increased further to 35% of sales after 34% of sales in Q1 also supported by some inventory built. Inventory turns in the quarter dropped to 3.4 as compared to 4.4 in prior quarter. A substantial but temporarily increase of WIP and finished goods was there as a consequence of the Shanghai shutdowns. We continued to implement price increases in a substantial way, plus 5.3% versus prior quarter and plus 15.3% versus prior year, which includes the major part of the previously mentioned effect on distribution incentives. MOSFETs remain key for Vishay’s growth going forward. And we intend to keep a proper balance between in-house manufacturing of wafers and purchases from foundries. Let me summarize, despite substantially growing political instabilities, a strongly accelerating rate of inflation and ongoing disturbances still caused by the pandemic. We continue to enjoy a very high market demand. Backlogs and lead times remained at record levels. And our industry clearly benefits from an acceleration of the electronification in most of our market segments. The move to electro vehicles is one of the drivers but to a similar extent the move to clean energy and the accelerating automation of factories. We expect this trend to continue long term. Vishay is well positioned and competitive in terms of product range and costs. And we keep investing in new processes and manufacturing capacities. We are confident also for the third quarter and guide to a sales range between $860 million and $900 million at a gross margin of 29.0% plus minus 50 basis points. Thank you very much. And Peter, please.

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

[Operator Instructions] Our first question is from Ruplu Bhattacharya with Bank of America.

Hi, good morning. Thank you for taking my questions. Hi, Dr. Paul. I wanted to ask first on gross margins. Obviously, they came in better than your guidance. And you talked a little bit about the inventory build. I was wondering of the 70 basis points sequential improvement between 1Q and 2Q, how much of that was related to the inventory build? And if you can just talk a little bit more about what this inventory build was? Is it all in distribution? And how do you think -- and how soon do you think that normalizes? And then when we look at the third quarter, you're guiding to 20% to 29%, which is lower than the 31% you reported. But that's on $20 million higher revenues. So just what are the dynamics playing between in gross margins between 2Q and 3Q?

Yes, the inventory build, not only but by far for the most part happened in MOSFETs. Because this was the place when our plant was shut down for eight weeks during the quarter. And you can imagine the primary is in the Western Hemisphere, they produced and were not able to package for the large extent. So this increase happened at MOSFETs not a distribution in-house really in our house, because our supply chain, the internal supply chain had been distorted. We are going to work this down, of course, but the quarter of course, benefited from financially from this inventory build to the extent of $8 million approximately. In the third quarter, the opposite will happen by nature. So we are going to start working this inventory down with objectively than a negative effect of the same magnitude on the results. These are the dynamics.

So sorry, just that 200 basis points of gross margin compression. So how much of that is because of the inventory work down? And how much of that is because of other factors?

It's calculated, the impact quarter-over-quarter is $10 million, if you compare the two quarters $10 million divided by $900 million sales approximately [0.22 point], right.

I see. Okay. Understood. And then maybe can I ask on diode. The margins on the gross margins on the diodes have been trending higher, and they were 28%, which seems very high. Can you just elaborate what is driving the higher margins? And is this level sustainable going forward? Because we typically think of diodes as commodity products. Bu just your thoughts on that.

It's -- it was, first of all, we had better prices, this is number one reason in diodes, better prices, and we had higher volume also. So all this together, including some good deficiencies, which we had gave the 28%, which I agree for a commodity product is not bad. I see if volume remained and prices remained. This, of course can be defended in future. This was no spike. But we will see, but 28% indeed was a good result through.

Understood. And then just for my last question, you repatriated $81 million from Israel. What is the plan for that cash? I mean, do you -- should we expecting any more increased buybacks or is there any thought for a dividend increase? Or increased M&A? So just share thoughts on how you plan to use that $81 million?

Yes, this is Lori speaking. So we identified that we would fund our stockholder return program using this repatriated cash from Israel. And as we announced we plan to return 70% of free cash or minimum of $100 million in either case and we would continue along that same route.

Our next question is from Joshua Buchalter with Cowen and Company.

Hey, team. Thanks for taking my questions and congrats on a pretty stellar set of results in a tough macro backdrop and navigating China issues. My first question, you guys have previously, guided discussed exchange rate to grow roughly 5% this year. And even with FX headwinds, given the print and guide, I think that implies a pretty sharp de-sale in sequential growth in the fourth quarter. Any particular reason why we should be expecting that given the still strong environment? And I guess any changes to that growth expectation for the year? Thank you.

So if I understood you, right, you doubting the outlook of the fourth quarter and ask whether there could be the danger of a downturn, if I understood you, right?

Well, it was more what's the assumption baked in and should we felt it about –

Yes, as a matter of fact, we believe that the year will pull through very nicely. And the deepest reason is, so first of all our responses from customers. But also, if you look at the backlog, the backlog is still sky high. And we have all reasons to believe that this will become a very good year, record sales year for Vishay.

Understand, thank you. And then you maintain the $325 million of CaPex expectations, which also implies sharp uptick.

I recall from the $325 million.

Yes, so I guess it implies some higher spending in the second half. Have you had any troubles in the first half procure --?

Oh, no. As a matter of fact, we do have a cycle, the capital spending in Vishay is always by far higher in the second half than in the first half. And this would not be a difference to a normal procedure, so to speak, in Vishay. Now, we do have I think we can confirm the $325 million CapEx.

Got it. And then given what you're still saying is very strong demand, particularly for your MOSFETs I would imagine. Should we still expect you to have elevated spending in 2023, compared to prior years just for [Inaudible]?

Yes, at the moment, it's not only MOSFETs, it's broader, but MOSFETs for sure, is the hottest demand at the moment of all our products shows the hottest demand in. And what we hear from the market is a further acceleration of the requirements for MOSFETs for the years to come. It's like that, and we are going to prepare ourselves, going forward, we are going to build an additional capacity in Germany in order to follow the lead and to keep balance between own production and purchases from founders. We believe you need to keep a balance there. And we are going to have extra CaPex in the years to come of course. But Vishay’s strong, the cash flow is also strong.

[Operator Instructions] Our next question is from Matt Sheerin with Stifel.

Yes, thank you. Good morning. Dr. Paul, I wanted to just double check some of the numbers that you gave initially on the distribution of POS. I think you said it was down year-over-year and quarter-on-quarter. Could you give me those numbers again?

Sure. Just for a second, I don't know them by heart, obviously. Takes another two minutes.

Yes, and the question there is, sounds like the POS was down, inventories were up a little bit but the book-to-bill was still significantly positive.

Yes. So my papers, you are talking POS?

Yes.

Okay, I have it. The POS for this is book-to-bill what I see here. Here we go. Okay. POS inventory turns. I have inventory turns.

I thought you gave a POS number at the beginning.

This was it. No way. I haven't, it wasn’t in the text, and POS in the quarter was 13% below the first quarter. But the first quarter represented a spike and it was 2% below prior year. So 13% below the first quarter and 2% below prior year. Here you see, this was much closer to prior year, the first quarter was abnormal. They were –

I am just wondering why the book-to-bill was positive if it sounds like the demand from the distributors stabilized or was even down.

But book-to-bill was for distribution 1.05, was 1.05.

Yes, that's right, that I'm trying to figure disconnect there between the positive book-to-bill and the negative sell out.

They are two different comparisons. One compares for the same quarter book-to-bill and the other one with a quarter before.

Okay, but so in other words, you're not seeing any signs of weakness from distribution in terms of orders and backlog?

Well, as a matter of fact, distribution is 1.05. But it's true that Asia at the moment shows some weakness. But this can be attributed to an extraordinarily strong first quarter. And I understand that there were many pull-ins really in the first quarter out of certain uncertainties they had. So altogether, we expect for the third quarter for POS in Asia, an increase vis-à-vis the second quarter, so an increase into, we expect that.

Got it, okay. And then on the pricing, which obviously is benefiting you. Are you done yet? Is are – are there still ASP increases that you're pulling through in any of your areas?

Yes, well, we expect some further price increases but at a slower rate. But it's also true if inflation accelerated, we will increase also our price increases again, but there will be price increases also in the third quarter at a lower rate than we had them in the second quarter.

Okay, I wanted to get back to the previous question just about outlook for the December quarter. Typically, you're up in North America or down. And there's some seasonality obviously, in Asia. Are you looking ahead? Obviously, you've got very strong backlog, your lead times are 50 weeks out. So do you have visibility into December quarter and do you expect it to be more or less seasonal?

No, it's better than the seasonal obviously, the backlog will make it non seasonal. This is our conviction. We do not hear signs from any customer that they want to slowdown ordering or shipments. They don't want to slow down everywhere, ever we -- in our main we are talking automotive in reality, in Vishay, we are talking industrial. These are the two major areas and we do not hear sounds of weakness. In fact, automotive insists on their higher forecast. So and we are adding capacity. So the backlog is there, capacity will be even higher in the fourth quarter and no signs from the customer, I expect from first quarter.

Okay, and then on gross margin, you talked about why it would be down, it still sounds conservative as you look forward and given your expectation for further growth. Can we -- can you get back to that 30% plus gross margin, a number sustainably?

Principally, yes, it's a Meta volume and we are investing in capacities, these are Meta volume. We are not raising fixed, we are not famous for raising fixed costs dramatically. So if the volume comes up, you automatically get to better gross margins, but the 30% which we have shown or 31% even in quarter before this was of course favored by inventory build. And now we see the opposite because we keep our eye on inventory levels so we will reduce them. So it has – which has then quarter-over-quarter disaffect.

Okay, and just lastly for me, Dr. Paul, I know there's a major management transition going on in the next couple of quarters as you pass the baton on and I'm just wondering if you could give us any idea in terms of planning there in the expectation for any significant change in the company's strategy or use of capital or anything else?

I know on all the new people so to speak very well and since many years, I have full trust in all of them. I do not expect that Vishay will change its direction. What we are going to do, we will lay even more emphasis on growth going forward and I believe the markets which we mainly deliver too, makes us very -- can make us optimistic that we are not wrong in this expectation. And I guess I expect guess is too little. I am sure that the expansion of capacities will become a major subject even more than they have been in recent years going forward. This is the direction but principally speaking, we are -- we will follow the track, no question.

We have reached the end of our question-and-answer session. I would like to turn the conference back over to management for closing comments.

Thank you for joining us on today's call. And for your interest in Vishay Intertechnology.

Thank you. This does conclude today's conference. You may disconnect your lines at this time. And thank you for your participation.