Vishay Intertechnology, Inc.

Good morning and welcome to Vishay Intertechnology's first quarter 2022 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 first 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.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 Vichay'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 first 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 Laurie Lipkeman.

Laurie Lipkeman 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. Niche reported revenues for Q1 of 854 million, a quarterly record. EPS was 71 cents for the quarter. There were no reconciling items between GAAP and adjusted for Q1, 2022. As we announced in February, Vichy 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. Considering we did not purchase any shares for the first few weeks of the quarter, we are off to a solid start. During quarter one, we repurchased 517,000 shares of common stock for approximately $9.9 million. We paid $14.5 million for our quarterly dividends for a total stockholder return of $24.4 million. Revenues in the quarter were $854 million, up by 1.3 percent from previous quarter and up by 11.7 percent compared to prior year. Gross margin was 30.3 percent. Operating margin was 17.1 percent. There were no reconciling items to arrive at adjusted operating margin. EPS was 71 cents. There were no reconciling items between GAAP and adjusted EPS for Q1 2022. EBITDA was 181 million or 21.2%. There were no reconciling items to arrive at adjusted EBITDA. Reconciling versus prior quarter operating income Q1 2022 compared to operating income for prior quarter based on 11 million higher sales or 16 million higher sales excluding exchange rate impacts. Operating income increased by 24 million to $146 million in Q1 2022 from $122 million in Q4 2021. The main elements were average selling prices had a positive impact of $20 million, representing a 2.4% ASP increase. Volume decreased with a positive impact of $5 million, equivalent to a 0.5% decrease. The P&L benefited from a favorable product mix, mainly in MOSFETs. Variable costs increased with a negative impact of $2 million. Fixed costs increased with a negative impact of $8 million, primarily due to inflation. Inventory impacts had a positive impact of $11 million, and exchange rates had a negative effect of $2 million. Reconciling versus prior year. operating income Q1 2022 compared to operating income in Q1 2021. Based on 89 million higher sales or 109 million excluding exchange rate impacts, operating income increased by 49 million to 146 million in Q1 2022 from 97 million in Q1 2021. The main elements were Average selling prices had a positive impact of $48 million representing a 6.0% ASP increase. Volume increased with a positive impact of $41 million representing a 7.6% increase. Variable costs increased with a negative impact of $19 million primarily due to increases in costs of materials and services, labor, silicon, and logistics. not completely offset by manufacturing efficiencies and cost reduction efforts. Fixed costs increased with a 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 $8 million. Selling general and administrative expenses for the quarter were $113 million. Based on our cost cycle, our SG&A expenses are expected to be at the highest quarterly level in Q1 due to uneven attribution of stock compensation expense in Q1 of each year. For Q2 2022, our expectations are approximately $111 million of SG&A expenses. For the full year 2022, our expectations are $445 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 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 revolver from time to time during quarter one 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 at $1.6 billion at quarter end. Cash and short-term investments comprised $886 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 second quarter 2022 is approximately $145 million, excluding any impact of share repurchases. Our US GAAP tax rate for Q1 was approximately 24%. There were no special tax items recorded during Q1. We expect our normalized effective tax rate for full year 2022 to be between 23 and 24%. Our consolidated effective tax rate is based on an assumed level and mix of income among our various taxing jurisdictions. The shifted 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 $34 million. Capital expenditures for the quarter were $36 million. Free cash for the quarter was negative $2 million. For the trailing 12 months, cash from operations was $433 million. Capital expenditures were $226 million. Split approximately for expansion, $144 million. For cost reduction, $14 million. for maintenance of business, $68 million. Free cash generation for the trailing 12-month period was $209 million. The trailing 12-month period includes $15 million cash taxes paid for the 2021 installment of the U.S. tax reform transition tax. BCS 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 one was at $2,417,000,000, or 8.5 months of sales. Inventories increased quarter over quarter by $70,000,000, excluding exchange rate impacts. Days of inventory outstanding were 87 days. Days of sales outstanding for the quarter were 43 days. Days of payables outstanding for the quarter were 37 days, resulting in a cash conversion cycle of 93 days. Now I will turn the call over to our Chief Executive Officer, Dr. Gerald Paul.

Thank you, Laurie, and good morning, everybody. Despite ongoing pandemic-related issues and an accelerating inflation rate, the first quarter for Vichy has been one of its most successful quarters ever. We continue to enjoy quite unique economic conditions. We keep maximizing production output in all plants, and continue to expand critical manufacturing capacities. I think we achieved quite excellent results for the first quarter, gross margin of 30.3% of sales versus 27.3% in quarter four, operating margin of 17.1% of sales versus 14.4% of sales in quarter four, earnings per share of 71 cents versus 25 cents in quarter four and adjusted earnings per share also 71 cents in the quarter versus 62 cents in quarter four. Free cash in the quarter was negative at two million. For the year we on the other hand expect again a solid generation of free cash. As said before we continue to operate under fairly brilliant economic conditions characterized by record orders, still growing backlogs and lead times, and low inventory levels in the supply chain. Practically all market segments globally do very well. Also, the automotive sector starts to recover from quite extreme shortages of supply, but more slowly than anticipated. The sales volume principally keeps being determined by manufacturing capacities increasingly impacted by logistics issues. Major shortages of supply continue to exist. In view of increased inflationary pressures on their costs, manufacturers continue to raise selling prices and the markets, for the most part, are in acceptance. All regions remained exceptionally strong. There's no decline visible at this point. POS in all regions are above all-time highs and order levels remain high. Talking about distribution, global distribution is in excellent shape. Their business outlook is fairly strong in view of record backlogs and consistently growing POS. POS in the quarter was 18% above prior year, which has been one of the best years ever. All regions run at all-time record levels. Global inventories in the first quarter remained at the level of the fourth quarter and is 19% or 83 million above prior year. There is an impact of price increases during last year, indicating a lower increase in terms of pieces. Inventory returns of global distribution in the first quarter were at the record level of 4.2, up from 3.9 in quarter four and up from 4.1 in prior year. In the Americas, 2.3 inventory turns after 2.2 in the fourth quarter and 1.9 in prior year. In Asia, 5.6 turns after 5.3 in Q4 and 6.7 in prior year. In Europe, 4.9 after 4.3 in Q4 and 4.4 in prior year. I think we can state that the supply chain remains lean. Automotive markets are in process of recovery, but, as I said, at a lower than expected pace. Shortages of supply and pandemic-related issues continue to slow down the segment. We in view of the fact that light vehicle inventory remains depleted nevertheless expect a strong year for automotive. Sales to industrial market sectors continue on historically high levels. General trends towards electrification are driving growth and will continue to do so also in the future. Industrial automation and robotics accelerate So do green initiatives. Oil and gas sectors are getting stronger. We see markets for PCs having stabilized and healthy growth at service. 5G continues to provide major growth opportunities in fixed telecom, which will accelerate. Given the political environment, military applications should see accelerated growth going forward. There's also recovery of commercial aviation markets. We expect steady growth in medical. Wearable electronic products and Internet of Things applications drive growth in the consumer market segment. Gaming and television remains stable. Coming to our business development in Q1, the first quarter sales excluding exchange rate impacts, came in above the midpoint of our guidance, we were able to master pandemic-related issues in China better than we had expected. We achieved sales of 854 million versus 843 million in prior quarter and 765 million in prior year. Excluding exchange rate effects, Sales in quarter one were up by 16 million or 2% versus prior quarter and up by 109 million or 15% versus prior year. Quite remarkable, I think, is that the fact that despite historically high backlogs, book to bill in the quarter increased to 1.14 from 1.09 in quarter four. 1.16 after 1.06 for distribution. 1.13 after 1.15 for OEMs. 1.14 for semiconductors after 1.08 in quarter four. 1.15 for passives after 1.11 in quarter four. 1.24 for the Americas. after 1.10 in quarter four, 1.02 for Asia after 1.0, and 1.23 for Europe after 1.21. I think we can state that we see a broad continuation of the excellent economic environment. Backlogs in the first quarter continued to grow further and reached a new record of 8.5 months after 8.2 months in quarter four, 9.3 months in semis after 8.9 months in quarter four, and 7.6 months in passives after 7.5. There is a broad increase of prices, which was implemented again. We have an increase vis-a-vis prior quarter of plus 2.4%, repeat, 2.4%, and 6.0% versus prior year. In semis, prices went up in the quarter by 3.4% versus prior quarter and by 8.8% versus prior year. And in passives, we saw the prior quarter by 1.4% and by 3.2% versus prior year. Some highlights of operations. Despite ongoing increases in transportation costs, metal prices, and the higher general inflation worldwide, Vichay in the quarter was able to return to traditional levels of variable margin. Price increases and quite excellent plant efficiencies supported the improvement. SG&A costs in the first quarter came in at $113 million, and manufacturing fixed costs in the quarter came in at 144 million. Fixed costs in total, SG&A and manufacturing fixed together, came in according to expectations when excluding exchange rate impacts. Total employment at the end of the first quarter increased to 23,395, 2% up from prior quarter. Excluding Exchange rate impacts, inventories in the quarter increased by 70 million, 29 million in raw materials, and 41 million in whip and finished goods. Impacted by interruptions of the supply chains due to pandemic-related issues, some additions to safety stocks, revaluation impacts, as well as inflation on materials and logistics costs. This inventory increase will normalize for the most part in the course of the year. Inventory returns in the first quarter remained at satisfactory 4.2, slightly down from prior quarter at 4.5. Capital spending in the first quarter was $36 million versus $29 million in prior year, $24 million for expansion, 2 million for cost reduction and 10 million for the maintenance of business. We continue to prepare ourselves for further accelerating growth rates. For the year 2022, we expect capex of approximately 325 million, which is a substantial increase versus prior years, mostly due to our project of building a 12-inch MOSFET fab. In quarter one, we generated cash from operations of $433 million on a trailing 12-month basis. We generated in the first quarter free cash of $209 million, again on a trailing 12-month basis. Despite increased capex and some inventory build, we also for the current year expect a solid generation of free cash quite in line with our tradition. Coming to the product lines and starting as always with resistors. With resistors, as you know, 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. Bichet's traditional and historically growing business runs at record levels. Sales in the quarter were 207 million, which includes 4 million from our new acquisition, Berry Industries, up by 19 million or by 10% versus prior quarter, and up by 27 million or 15% versus prior year, again excluding X rate impacts. Book-to-bill ratio in quarter one was 1.24 after 1.14 in prior quarter, Backlog remained at 7.8 months on the level of the fourth quarter. Gross margin in the quarter was at 31% of sales, up from 29% of sales in Q4. Inventory returns in the quarter remained on a satisfactory level of 4.4, slightly down from prior quarter at 4.5. Selling prices for resistors continue to increase, plus 1.9% versus prior quarter and plus 3.4% versus prior year. We are continuously raising critical manufacturing capacities mainly for resistor chips and for power wire arms. And we continue to broaden our business with specialty resistors by targeted acquisitions like ATP, and recently Berry Industries. 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 in inductors in the first quarter were 83 million, slightly up by 1 million or by 1% versus prior quarter and flat versus prior year, excluding exchange rate effects. The recovery of the automotive sector will accelerate again the growth in inductors. Book-to-bill in the first quarter was at 1.14 after 1.13 in prior quarter. The backlog has increased to 6.3 months from 6.0 months in prior quarter. Gross margin in the quarter increased to 30% of sales as compared to prior quarter at 29% of sales. Inventory returns remained at a good level of 4.6. Some price increases also at inductors. No price increase vis-a-vis prior quarter, but 1.0% price increase versus prior year. We continuously expand our manufacturing capacities for power inductors and remain open for acquisitions in particular in the field of magnetics. 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 also enjoy increasing opportunities in the field of power transmission and of electric cars, namely in Asia. Sales in the first quarter were at 128 million, flat versus prior quarter, but 26 million or 25% above prior year, again excluding exchange rate impacts. The book-to-bill ratio in the first quarter was 1.02%, after 1.04 in prior quarter. And the backlog remained at an extraordinarily high level of 8.1 months. Gross margin in the quarter improved to 25% of sales, up from 22% in prior quarter, mostly due to better product mix and improved productivities. Inventory returns in the quarter decreased to 3.2 from 3.7 in the fourth quarter, there were some safety stocks which were increased to one. We continuously raise prices plus 0.1% versus prior quarter and plus 4.4% versus prior year. We are confident for capacitors also in light of growing global efforts in green energy in view of a growing military business and the recovery of oil and gas. Coming to Opto products, VJ's business with Opto products consists of infrared emitters, receivers, sensors, and couplers. Also in Opto, we continue to see a strong acceleration of demand. Sales in the quarter were 81 million, 3 million or 4% above prior quarter, and 5 million or 7% above prior year, which excludes exchange rate impacts. Book-to-bill in the quarter was at 0.78 after 1.22 in prior quarter. The backlog is still at a quite extreme level of 9.4 months after 10.4 months in quarter four. Gross margin in the quarter increased sharply to 40% of sales up from 34% in prior quarter, mostly due to better selling prices, and a favorable product mix. We continue to raise selling prices, plus 1.8% versus prior quarter and plus 8.9% versus prior year. The production in our modernized and expanded Heilbronn wafer fab has started. Opto products in general continue to be a very relevant factor for Vichy's performance and growth. Diodes. DIODES for Viché represents a broad commodity business where we are the largest supplier worldwide. Viché 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 182 million, down by 9 million or by 5% versus prior quarter, but up by 29 million or 19% versus prior year without X-ray effects. Book-to-bill ratio in the first quarter was at 1.16 after 1.10 in prior quarter. Backlog increased to another record of 9.7 months from 8.8 months in prior quarter. Gross margin in the quarter improved to 25% of sales as compared to 24% in Q4, positively impacted by better ASPs. Inventory returns in Q1 are satisfactory at 4.2 as compared to 4.7 in prior quarter. We continue to raise selling prices, plus 3.2% versus prior quarter and plus 9.3%, versus prior year. This large and profitably growing business with diodes is the most relevant part of Vichet's volume basis. MOSFETs. Vichet 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 line. Demand over the year has reached extreme levels and is expected to increase further in the years to come. Sales in the quarter were 173 million, especially capacity constraint. 2 million or 1% above prior quarter and 22 million or 14% above prior year without X-rayed impacts. Book-to-bill ratio in the quarter was at 1.28 after 1.01 in the fourth quarter. Backlog increased to another record of 9 months from 8.2 months in prior quarter. Gross margin in the quarter increased to 34% of sales after 30% of sales in the fourth quarter, mostly driven by better prices and a better product mix. Inventory turns in the quarter were at a satisfactory level of 4.4 as compared to 5.0 in quarter four. We continue to implement price increases also for the MOSFETs, plus 4.5% versus prior quarter and plus 8.3% versus prior year. MOSFETs remain key for Veche's growth going forward. We intend to keep a proper balance between in-house manufacturing of wafers and purchases from foundries. This in mind, we decided to build a 12-inch wafer fab in Itzehoe, Germany, adjacent to our existing 8-inch fab there. Increasing our in-house wafer capacity by 70% within three to four years, the project has been started. Let me summarize. Despite an ongoing influence of the pandemic, accelerating inflation, and also despite of growing political instabilities, Vichay continues to experience quite stellar market conditions, generating fairly excellent results. Electronification in recent years has gained speed in a major way, impacting positively all markets globally. we do expect this trend to continue longer term. For sure, our business historically is of cyclical nature, and we keep always an eye on the inventory in the supply chain. But at this point, there is absolutely no sign of a short or midterm slowdown. Backlogs are extremely high and still growing. Lead times remain long. Supply chains are fairly lean. and the important automotive sector is just at the beginning of a recovery. Trusting in a bright future, WeShare has accelerated its expansion programs of production capacities, aiming at a 2-3% increase by quarter. Taking into account the present pandemic-related disturbances in Shanghai, which in the second quarter will cost us at least $35 million of sales revenue, We had Q1 rates guide to a sales range for Q2 of 830 to 870 million at a gross margin of 28.1% plus minus 50 basis points. Thank you very much.

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

Thank you. Now, I will take the first question. Before that, I'll just give the instruction here that at this time, we will be conducting a question and answer session. And if you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in a question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset

before pressing the star keys now the first question comes from the line of matt shireen with stifel please go ahead yes thank you uh good morning everyone um a few questions for me uh dr paul just starting on on your guidance um you're talking about 35 million dollars in sales uh impact in shanghai um could you tell us you know what product areas i know you have some mosfet exposure there, but what are some of the product areas that are affected? And, you know, looking beyond the next quarter, are you expecting, you know, back to kind of normal levels in the September quarter there?

First of all, Matt, you hit the nail on the top. It's really for the most part MOSFETs, but also some diodes. But for the most part, it's indeed MOSFETs. And It's hard to predict what happens there, but we do expect and already start to see some improvements of the conditions in Shanghai. So I'm quite optimistic that we will be able to catch up in a way because we have seen the inventory increasing so that it was produced and we are going to reduce the inventory and sell the stuff, obviously, during the year.

Okay. And then in terms of the ASP increases, which are very significant. You're talking 8% to 9% or so across your semiconductor products. When you talk about backlog, is that also factoring in price increases? We're hearing from some distributors and customers that suppliers are coming back and changing pricing of orders that are already in backlog. Are you doing that, and do you expect that to improve you know, and benefit you as you get through the year?

Matt, our backlog includes these price increases, of course. But as a matter of fact, the backlog is so huge, it's a secondary effect, I would say.

Okay. And then you talked about lean inventory levels at distribution. But if you look at some of the distribution customers, specifically the big EMS players, and I know you have exposure there, Their inventories are at record highs. We don't know exactly what's there, but are you concerned at all that there may be an imbalance and some of your components are sitting in inventory and may lead to some correction at some point?

Well, there's no orderly reporting, as you know. In this case, at least at end customers in general, you don't have the same visibility as you have at distribution. As a matter of fact, there is more inventory at EMS, but for us, for Vichay, that distribution matters so much more because the sales to distribution is so much higher than to EMS. But I don't want to deny that indeed there is some increased inventory at EMS. But altogether, I dare to say that the supply chain is still, I would call it lean.

Okay, thank you. And just lastly, I think you just mentioned that you're expecting your capacity to increase 2% to 3% sequentially per quarter. as you're adding capacity. Is that correct, and is that on a unit basis? So given the ASP increases, you should grow revenue even faster than that?

Well, this is really our – it's basically a simulation of cost of goods sold, really. That means we have – a piece is not a piece in our case. We have a broad product spectrum. So it's really our ability to sell more. This represents the ability to sell more, 3% to 4%. at 2% to 3%, excuse me, per quarter.

Okay, thank you very much.

Thank you. The next question comes from the line of Joshua Buchalter with Cowen. Please go ahead.

Hi, guys. Thank you for taking my questions, and congrats on the solid quarter. I wanted to ask about gross margins. Obviously, a huge beat in the first quarter and then the step down in the second quarter. Is this a function of timing increases that are pricing increased timing to match inflationary cost pressures that maybe you ship some parts to higher ASPs before the higher cost wafers went out? Or is there something else in the mix that we should be thinking about regarding multisequential increase in the first quarter and decrease in the second quarter?

Okay. As I tried to say in the presentation, the first quarter benefited from a few singularities. There has been a very positive product mix, and also there were some inventory valuation adjustments. Moreover, I believe that during the quarter, the increase of prices was ahead of rising input costs, raising input costs. So altogether, this will normalize somewhat in quarter two, but still we expect for quarter two a very decent result. But quarter one included, as I said, some positive singularities. Does this answer your question?

Yeah, that's helpful. Thank you. And for my follow-up, is there any – thank you for quantifying the impact of the COVID shutdowns on the top line. Was there any impact of timing and shipments that might have increased inventory a little bit more than you would have expected in the second quarter and then, I guess, As a follow-up, would you expect as we exit the second quarter that we're sort of back to normal, or would you expect any lingering impacts on second-half seasonality? Thank you.

As a matter of fact, we increased finished goods in way and process in the quarter, and this, of course, had to do with the disruption of the internal supply chain. And if you look at our goods in transit, they in particular came up in the quarter. So you can work from the assumption that during the year, this will normalize, of course, and this will turn into sales. Most of that increased inventory will indeed turn into sales as soon as we can ship again in a regular form. And I'm quite optimistic this will take place in the foreseeable future.

Thanks, Perfect Sam. Thank you. I'll hop back in the queue. Thank you.

Thank you. The next question comes from the line of Ruplu Bhattacharya with Bank of America. Please go ahead.

Hi, thank you for taking my questions. Dr. Paul, I was wondering if you can give some more details on the guidance. I mean, 2Q, second quarter is typically the strongest sequential quarter for Vishay. I was trying to understand the press release. It said due to production challenges, COVID lockdowns in April. You're guiding looks like 850 at the midpoint, which is flat with respect to 1Q. So I was wondering, are production sites still down in Shanghai, and do you expect those to remain down throughout the quarter? And what is your expectation for a recovery from that? So just trying to understand where things are right now in terms of lockdowns for your facilities and how you see that trending over the quarter.

Very clear. Yeah. Rupert, the point is, indeed, it's Shanghai. Indeed, it's very much MOSFETs. And indeed, we have two problems. Problem one is that the plant, our main packaging plant there, at the moment is running only at 20% or something of max capacity, which will improve now as a next step. But April was low, and this is reflected in our guidance, of course, for the sales. And then the second one is that we still need to ship, of course, and also the harbor is not easy. But also in this case, we do believe to see improvements in the foreseeable future. Exact timing is, of course, not possible to give, but it's moving in the right direction, say. But this, of course, is the explanation for 35 million less sales, which we otherwise would have had in quarter two.

Okay. Okay, thanks for the clarification. For my second question, if I can ask on margins, the opto-segment gross margins grew to 40%, which seems rather unusual. I mean, I think you said you had a mixed benefit and selling prices were higher. Same on the MOSFETs. I think gross margin reached 34%. How should we think about these two segment margins as we look over the next couple of quarters? Do you think they remain high or do you think they normalize back down?

historically, is a profitable line, a very profitable line, as you know, which had a few quarters of problems, but since quite some time, it's back on course. 40% is for sure a singularity. All the good things came together. Like in other quarters, it happens that all the bad things come together. But indeed, price increases, and we believe that there is still more of it. And positive product mix is tangible and really beefed up the quarter. 40% in opto is not the normal performance. I would exaggerate. In the case of MOSFETs, on the other hand, I see the 34% is, of course, also the result of price increases. And on the other hand, I foresee in MOSFETs for some time shortages, for some time. So I believe in MOSFETs you can produce more even.

Okay. Okay. Got it. And then maybe for my last question, if I can ask – your capital allocation priorities when you look at the current macro environment. Can you give us your thoughts on share buybacks versus any M&A? Do you have any opportunities that you're looking at, or are you considering things in this environment? And then thoughts on a dividend increase.

Okay. Hello, Rupaloo. This is Lori. So as we mentioned, we did begin our show of the return program. and we returned to the shareholders just under 25 million already in Q1, despite the fact that the program actually started being executed late in February. So we have indicated that on the shareholder return policy, we plan to return at least 100 million this year.

Okay. And then any thoughts on M&A? Do you think this is an environment that is conducive for M&A? Is that something you're considering?

We just acquired this very industry and we continue to look. We are out for specialty companies and I believe it's a good strategy. And we continue to look to get or not getting these companies, especially companies, not necessarily has to do with the economy. So we are looking and I think there are opportunities. Okay, great.

Thank you for all the details. I appreciate your help.

Thank you. Again, if you would like to ask a question, please press star 1 on your telephone keypad. The next question comes from the line of Matt Serene with Stifel. Please go ahead.

Yes, thanks. I just had a follow-up question, Dr. Paul, and that's regarding the company's announcement of a CEO succession plan that you announced post your last earnings call and And I was hoping that you could talk about that transition, how that transition is going, what kind of changes at all should investors expect from the company as you get through that change?

I'm here since old times, Matt, as you know. And I guess you know my age, I think it's nothing but natural that you think of an end of the career. I'm very proud having had the opportunity. I know since quite some time that I would take this step, and we do have very good people in Viché, and the two ones announced for my succession as CEO and COO, I know since very many years they are very loyal to Viché, they are very capable, and I believe that Viché under these two will flourish. And I think a few new ideas are always good, may I say it like that.

Okay, very good. Well, thank you and best of luck.

Thank you. A quick reminder, if you would like to ask a question, please press star 1 on your telephone keypad. Ladies and gentlemen, we have reached the end of question and answer session. And I would like to turn the call back to Peter Henrici for closing remarks. Thank you.

Thank you for joining us today on today's call and for your interest in Vishay Intertechnology. This concludes our first quarter conference call.