This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk02: 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 Laurie Lipkerman, 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.vichet.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 Fichet'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 Laurie Lipkerman. Laurie Lipkerman, Chief Financial Officer, Thank you, Peter.
spk00: Good morning, everyone. I'm sure that most of you have had a chance to review our earnings press release. I will focus on some highlights and key metrics. VCHA 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 67 cents. Adjusted EPS was 63 cents. EBITDA was 162 million or 19.9 percent. There were no reconciling items to arrive at adjusted EBITDA. Reconciling versus prior quarter operating income quarter three 2021 compared to operating income for prior quarter based on five 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 percent 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 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 three 2021 compared to adjusted operating income in quarter three 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 costs increased with a negative impact of $17 million, primarily due to annual wage increases and higher incentive compensation costs only partially offset by 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 a 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 comprise $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 three years together with the adoption of the new convertible debt standard, significantly reduces the variability of our EPS share count. Our US GAAP tax rate, year to date, was approximately 18%, which mathematically yields a rate of 17% for quarter three. In quarter three, 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 US 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. ECHO 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 three was at $2,244,000,000. 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.
spk08: Thank you, Lurie, 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, an operating margin of 15.2% of sales. Earnings per share were $0.67 and adjusted earnings per share $0.63. We share 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 the 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 remain exceptionally strong. POS in all regions remains close or above all-time highs. And distribution in all regions remains hungry for products everywhere, 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 returns of global distribution in quarter three was at 4.2%, started to normalize from quite extreme 4.4 turns in the second quarter. In the Americas, 2.2 turns after 2.1 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 as money in the bank for 2022. Industrial markets continue 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 remain strong and promising. coming to Vichet's business development in Q3. Due to local labor shortages, third quarter sales excluding X 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 a 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 VIP and finished goods. Inventory returns 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 tradition. Coming to our main product lines and start 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. We chase 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 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 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 returns in the quarter remained on a very high level of 4.7 after 5.1 in the second quarter. Selling prices continue 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 wire ones. 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, we 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 returns 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 e-cars, 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 build in the third quarter for capacitors remained at very strong 1.37 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 and further increased costs for metals, in particular, burdened the results. Inventory returns in the quarter remained on a healthy level of 3.5 after 3.9 in prior quarter. There 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 mid-term in the light of increasing design wins that we see. Coming to Opto products, Vichay'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 X-rate impacts. We experienced quite substantial losses of manufacturing output due to COVID-related restrictions in Malaysia. This situation should be resolved, or is resolved after all, by all the workforce now has been vaccinated. It 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 returns 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 modernize 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 Vichet's growth. Coming to diodes. Diodes for Vichet 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 returns 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 diodes 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 X-rayed 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 VeChase 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% within three to four 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 and 845 million at a gross margin of 27.7%. Thank you.
spk02: Thank you, Dr. Paul. We'll now open the call for questions. Vic, please take the first question.
spk01: Your first question comes from the line of Carl Ackerman, Your line is open.
spk06: Yes, good morning. Thanks for taking my question. 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 MASA business appear to be supporting improved profitability.
spk08: Yes. In fact, it's all happening, as you say. We have nice volume, which leads to good efficiencies. We are raising prices, according, 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 efficiency. So going forward, I see... that we can offset or better than that the inflationary impact. Concerning manufacturing fixed costs, 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?
spk06: It does. Thank you. For my follow-up, It's nice to see the growing backlog despite, you know, I think general investor fears of the moderation in end demand. I'm curious if you could distinguish whether the growth and 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. Thank you.
spk08: We see it on both sides, but distribution in this case also leads. It's clear. As a matter of fact, distribution, I try to say it in my words, is still very hungry for products, and they are running very well. In fact, so it's both, as to summarize again, but distribution is stronger in that sense.
spk06: Thank you. I'll see the floor. Okay. Thank you.
spk01: Your next question comes from the line of Rupalu Bhattacharya. Your line is open.
spk07: Hi, thank you for taking my questions. 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 Australia maybe in the channel. Are you seeing any buildup of inventory in the channel? What are your thoughts on channel inventory today? And how do you see that trending over the next couple of quarters?
spk08: 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, the big customers, how they react on screen, 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.
spk07: Okay. Thanks for that. You mentioned your revenues were impacted because of labor shortages. What was the negative impact to your revenues from labor shortages this quarter, and do you expect any impact in the 4Q?
spk08: 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.
spk07: Okay, got it. And just for my last question, can you talk about your priorities for cash? 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 of all,
spk08: 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, we share strong. We can definitely handle that, staying cash positive. And nothing has changed. We are evaluating and driving at buyback of shares. It's a decision of the board, in fact. the decision will be taken. We're on the way, so to speak, finally.
spk07: And M&A, any thoughts on inorganic growth?
spk08: 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 concretely about them.
spk07: Okay. Thanks for all the details.
spk01: Your next question comes from the line of Matt Sheerin. Your line is open.
spk03: Yes, thank you. Good morning. Dr. Paul, I just wanted to 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 manage to improve the labor issues that you're seeing? Is it really just your production capabilities as opposed to in demand?
spk08: No, it's really only and exclusively our ability to manufacture. 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 the magic wand and could produce more, I widely 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 flavor at this point.
spk03: 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?
spk08: Yeah, yeah, yeah, yeah. Well, we were, of course, also convinced otherwise we wouldn't have said it in 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 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 shaping quarter for sure.
spk03: Got it. As you look to Q1, and I know it's hard to look beyond a 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?
spk08: Matt, we expect higher sales in quarter one than in quarter four. Does this answer your question? Short answer. Yes, there will be more capacity online. 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.
spk03: 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. Any timeline in terms of when you'll share that?
spk08: Well, we are working on it. That saved me from a concrete answer. We are working on it. The board will decide in the foreseeable future.
spk03: Okay, fair enough.
spk01: Thank you. As a reminder, to ask a question, you will need to press star 1 on your telephone. Your next question comes from the line of David O'Connor. Your line is open.
spk05: David O' Great. Good morning, and thanks for letting me ask a question. Maybe one or two, Dr. Paul, on my side. Just firstly, you called out that the MECI price impacted some of the 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? It sounds like you have been increasing prices, but maybe it's just a timing thing. You still see that as a headwind. 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 slab in Germany. How should we – can you help us understand the kind of the big – on the big picture level, you know, what is the overall capex required for that? You know, what is the annual revenue capacity that could – that manufacturing engine could generate if I'm fully loaded? Just kind of with an eye on the return on invested capital of that side and how you think about that. Thank you. Okay.
spk08: Well, concerning the price increases first. You know, we have raised prices already in quarter two versus quarter one, and we continue to do so in quarter three versus quarter two. And we will continue like that. You're absolutely right. It's a process. It's a process because we are partially, 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 on the way. 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 two 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?
spk05: Yes, that's very helpful. Thank you.
spk08: 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 this 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 to 260 million over three to four years. Still, we say, you know, it's a quite reliable supplier of free cash. We will stay cash positive every year. We foresee we will stay 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 a FAB takes some time, and the capex required is remarkable, but affordable for us and very important to continue our, I would say, most promising line. Did this answer the second part of your question?
spk01: Presenters, there are no further questions at this time. Please continue. We have a question pop up in the Q1 moment, and that question will come from the line of Laurie Packer. Your line is open.
spk04: Yes, 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 it that. But you clearly are generating enough cash flow to increase the dividend. When can we expect a dividend increase?
spk08: Bill? As a matter of fact, it's a 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.
spk04: Well, you haven't increased it. It's been two and a half years since you've increased it.
spk08: Well, but again, we haven't maybe for some time. We invested a lot, of course. But there are considerations to do that.
spk04: 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.
spk08: Well, honestly, we have been a very, very reliable cash producer for all time, 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.
spk04: But, you know, that's just lip service. And, you know, your stock price performance, you know, frankly, compared to the general market overall, has been pretty abysmal.
spk08: 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.
spk04: All right. I will hold you to that.
spk08: Okay. You can. You can. Okay?
spk04: Okay.
spk08: Thank you.
spk01: Presenters, there are no further questions. Please continue.
spk02: Thank you for joining us on today's call and for your interest in Vishay Intertechnology. This concludes our call. Thank you.
Disclaimer