Vishay Intertechnology, Inc.

Good morning and welcome to Vishay Intertechnology's fourth quarter 2022 earnings conference call. I am joined today by Joel Smakel, our president and chief executive officer, and by Laurie Lipkeman, our chief financial officer. This morning, we reported results for our fourth quarter. A copy of our earnings release is available in the investor relations section of our website at This call is being broadcast live over the web and can be accessed through our website. In addition, today's call is being recorded and will be available via replay on our website. During the call, we will be referring to the slide presentation, which we also posted at ir.vichet.com. 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. We are including information in our press release and on this conference call on various GAAP and non-GAAP measures. We have included the full GAAP to non-GAAP reconciliation in our press release as well as in the presentation posted on ir.vca.com. which we believe you will find useful when comparing our GAAP and non-GAAP results. 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. Now, I turn the call over to President and Chief Executive Officer Joel Smakel.

Thank you, Peter. Good morning, everyone. I'm Joel Smakel, and it is my pleasure to be speaking with you today on my inaugural call as Bichet's new Chief Executive Officer. On today's call, I'm going to open with some brief remarks about my background and my assessment of the company today. Then I'll turn the call over to our CFO, Lori Lipkeman, who will go over our financial results for the fourth quarter, and then the first quarter guidance. After that, I'll share with you our ambitions for the company in the future and our plans for 2023. Let's begin with slide number three. Over the course of my career at Vichy, in my positions in engineering, marketing, sales, operation, and business development, I have worked with colleagues throughout the organization to identify new business opportunities, develop next generation products, and to broaden Vishay's participation across its market segments and business channels, always with a mindset to enable our customers to be successful. From my engineering, marketing, and operational roles, I have worked inside the Vishay organization and gained an understanding of the internal dynamics of the company. In my sales and business development roles, I have seen Vishay from the outside in. I have seen Bichet from the eyes of the customer. Behind the scenes, I have been working to guide a shift at Bichet towards growth, to influence an increase in capacity, to push us forward in our product innovation, the investment in silicon carbide, and to broaden our attention to serving new customers. As such, I have a unique background to lead Bichet in my new position as CEO. to see with a clear view where we have missed opportunities, where we've underperformed, and what we need to do to unleash the potential of Bichet. The customers clearly expect more from Bichet. What else do I see? Bichet is a financially strong company with a broad product portfolio of discrete semiconductors and passive components. Bichet has strong operational disciplines, and a terrific, hardworking, and smart workforce. We have a pristine balance sheet that gives us stability, but also the capability to grow at greater rates. We have a global manufacturing footprint with multiple manufacturing locations for a number of product lines that positions us to meet our customers' need for supply in their region of consumption. And we are a supplier to all market segments with strong technology positions in automotive, industrial, military, avionics, and medical. Supporting the megatrends of electrification, data storage, and wireless communications are critical to our future success. In automotive, where EV and electronic content and new sensing features are rapidly growing, In industrial, where factory automation, renewable energy collection, and energy transmission are propelling greater electronic component demand. In military, where governments are increasing the funding on defense programs and customers are developing more advanced radar systems and missile guidance systems. To commercial aerospace, where dollars are flowing into satellite communications and flight systems and in medical technology where companies are innovating new medical diagnostic equipment, instruments, and implantable devices. One might say that Bechet is a sleeping giant, often capacity constrained with long lead times. We have underinvested in CapEx and technical resources. We have to change and reshape the company to drive growth. and optimize returns and shareholder value. Under my leadership, we're going to reorient Buche. We're going to reorient from an operations focused company to a customer and market focused company. From a cash flow managed business to a P&L driven company while upholding our capital return policy. From a company that fulfills customer orders to one that anticipates customer need and is ready to support, from a company focused on the present to one that is forward-looking, and from a proficient organization to one that's dynamic and rewards risk-taking. In the months leading up to my taking control as the CEO, I spent a great deal of time with Vishay's new leadership team, so that we could collectively hit the ground running on January 1st. It's critical that we start immediately. Externally, I've met with key customers, both distributors and OEMs, to dig deeper into their needs and share where Bechet will be going in this new era. Internally, I've met with nearly 70 senior leaders one-on-one to hear their views on our opportunities to grow and the operational gaps that we must close. I have been injecting new ideas and changes to our business processes using multiple employee communications to start creating a business-minded organization. I've stressed that in order to propel our growth and meet the increasing demand for our products, we must shift our mindset to think customer first in everything we do. I'll provide more detail about what we have planned for the future after Lori has completed her review of the financial results. Lori, please proceed.

Thank you, Joel. Good morning, everyone. I'll start my review of our fourth quarter results on slide four. Revenues for the fourth quarter were $855 million. slightly below the low end of our guidance, reflecting in part the impact of COVID-related absences at our plants in China, and in part lower than expected sales to distribution, reflecting the start of an inventory correction. Distribution inventory at quarter end was 19 weeks compared to 16 weeks for the third quarter. Revenues decreased 7.5% versus the third quarter, Reflecting stable relatively stable pricing and eight point zero percent decline in volume As expected volumes came down from the spike in the third quarter When we were catching up on MOSFET shipments after the shutdown in Shanghai during the second quarter Revenues were 1.5 percent higher than fourth quarter last year on pricing offset by flat volumes EPS was 51 cents per share and Adjusted EPS was 69 cents per share compared to 98 cents per share and 93 cents per share respectively for the third quarter. Adjusted earnings for these two quarters reflect differences in tax expense. I will elaborate further on these items in a few moments. Both the bill for consolidated VCHE was 0.94. Backlog, a quarter end with 7.8 months for passives and 8.3 months for cents. CapEx for the year increased $106.9 million or 49% versus 2021 to $325.3 million in line with our expectation of spending $325 million. nearly all of the increase related to capacity expansion outside of China. We returned a total of $140.2 million to shareholders, well above the target of 70% of free cash flow and well above the 100 million that we anticipated at the time we announced our new stockholder return policy last February. Slide five presents a breakdown of revenues by sales channel and end markets. I want to call your attention to a few data points. Sales to distribution decreased 12.4% from the third quarter. As mentioned earlier, we have started to see indications of an inventory correction. For our two largest markets by revenues, revenues from the automotive market decreased 6.4% versus the third quarter. primarily reflecting the third quarter catch-up in MOSFET's volume out of our Shanghai facility. In addition, automotive OEMs pulled less inventory as they focused on consuming inventory by year-end. Compared to the fourth quarter of 2021, automotive revenues were up 7.1%. Revenues from industrial customers decreased 10.0% versus the third quarter, along with a decrease in distribution revenues. On slide six, you can see the revenue breakdown for the fourth quarter by business segment and by region. Although revenue in Asia declined by 12.8%, TOS in the region declined modestly. Please turn to slide seven. Gross profit was $249.1 million for a margin of 29.1% compared to 31.3% for the third quarter reflecting lower volumes. Compared to our guidance of 30%, plus or minus 50 basis points, gross profit margin was impacted by lower than expected volumes and some input cost inflation. Operating expenses were 113.8 million, above quarter operating expenses of 106.4 million, primarily reflecting the addition of max power. As a result of the reduction in gross profit and higher operating expenses, operating income decreased by $47.8 million to $135.3 million versus the third quarter. Operating income increased 13.7 million or 11.2% over 4Q 2021. Operating margin was 15.8% compared to 19.8% for the third quarter and 14.4% for the fourth quarter of 2021. EBITDA was 171.0 million for an EBITDA margin of 20.0%. During 4Q, we made the determination that substantially all unremitted earnings in Germany are no longer indefinitely reinvested. As a result, we recorded additional tax expense of $60 million. Changing the indefinite reinvestment assertion will provide greater access to the company's offshore cash balances and enable us to sustainably fund our growth plan and our stockholder return policy. With the change in assertion, while the change in assertion provides access to these foreign cash balances, these amounts will be repatriated only as needed. Also during 4Q, we recognized a tax benefit of $34 million upon the release of evaluation allowance. Our U.S. tax rate for the year includes these unusual items and was approximately 28%, which mathematically yields a rate of 46% for 4Q. Our normalized effective tax rate, which includes these unusual items, and for full year 2022 excludes the tax effect of the COVID costs in China in 2Q was approximately 23% for the quarter and 24% for the year. The change in indefinite reinvestment assertion also impacts our assertion on future earnings. Our consolidated effective tax rate is based on an assumed level and mix of income among the various taxing jurisdictions. We expect a normalized effective tax rate for full year 2023 of approximately 30%. On slide eight, we present cash conversion psychometrics. DSOs were 45 days compared to 42 days for the third quarter, as we received payments from several of our customers in Asia shortly after quarter end. Inventory was $618.9 million at quarter end. essentially flat versus third quarter primarily due to exchange rate impacts. Inventory days outstanding were 93 days compared to 90 days for the third quarter. DPOs were 31 days compared to 33 days for the third quarter, bringing the cash conversion cycle for the fourth quarter to 107 days. Turning to slide nine, You can see that VCS continued its track record strong cash flow generation. Cash from operations for the quarter was $165.5 million. CapEx was $153.1 million for the quarter, with $101.5 million invested in capacity expansion, primarily in Mexico. And bringing the total CapEx for expansion in 2022 to $214.6 million, an increase of 52% compared to 2021. Full year total CapEx was 9.3% of revenues compared to 6.7% for 2021. Pre-cash flow for the quarter was $14.1 million, and for the full year was $160.2 million. Under our stockholder return policy, we have committed to return at least 70% of annual free cash flow to stockholders directly in the form of dividends or indirectly in the form of stock repurchases. We announced the policy in February of 2022. We set an expectation to return at least $100 million in 2022. For the fourth quarter, our stockholder return amounted to $42.4 million, consisting of $14.1 million for our quarterly dividend and $28.3 million for share repurchases. We purchased a total of 4.2 million shares at an average price of $19.57 during the year. This brings the total stockholder returns for 2022 to $140.2 million, or 87.5% of annual free cash flow. Total liquidity at quarter end was $1.6 billion, including cash and short-term investments of $916.1 million and $707.1 million availability on a revolving credit facility. As mentioned on past earnings calls, we use the revolver from time to time to meet short-term financing needs. Turning to slide 10 for our guidance, for the first quarter of 2023, revenues are expected to be between $825 million and $865 million, reflecting ongoing inventory correction and stable pricing. Gross profit margin is expected to be in the range of 28.0%, plus or minus 50 basis points. Operating expenses are expected to be between $116 million and $119 million for the quarter, and between $475 million and $485 million for the full year at current exchange rates. For 2023, as mentioned earlier, we expect a normalized effective tax rate of approximately 30%. Consistent with our stockholder return policy, we plan to distribute at least 70% of our free cash flow to shareholders in the form of dividends and stock for purchases. For 2023, we expect to return at least $100 million. And I'll turn the call back to Joel.

Thank you, Lori.

Let's please turn to slide 11. While we work through What we expect will be a narrow inventory correction with our distributor customers. During the first quarter, and likely into the second quarter, we embark on a new era at Bichet. I shared with you earlier my ideas about what Bichet has been and what it has the potential to become. To drive growth and margin expansion, over the next three years, we're committed to investing around $1.2 billion in CapEx, and investing to enhance our operational capabilities. Our strong liquidity means that we can invest more heavily over the next couple of years to position Vishay for greater growth without sacrificing our stockholder return policy and with free cash flow expected to stay around its historical average. 2023 is our first year to drive change at Vishay and stage the company for the future. We know that we need to become a company that anticipates customer need, supports increasing customer demand, and is delivering revenue growth and expanding margins. We are already implementing a number of initiatives in 2023. In 2024, we'll advance many of these initiatives and begin to have increased manufacturing capacity available. Beginning late 2024 and into 2025, will be in better shape to capture the next steps of the growing demand for electrification in our key end markets. Let's take a look at slide 12. Slide 12, I've laid out our near-term initiatives. First, we have many great products across our semiconductor and passive component technologies. We have identified 30 key product lines for growth across each business segment. Most of these product lines serve multiple market segments, application, and business channels. These products are in high demand today, and our customers are telling us they want more. We are developing go-to-market strategies for each one of these product lines, concentrating our resources on improving the technical performance of non-commodity and custom products to better position Bechet to support the megatrends toward electrification and data communication. Second, we're expanding capacity internally and externally. In 2019 and 2020, Bichet somewhat slowed capacity investment, and it is imperative that we make up for past underinvestment to be able to reduce our lead times and drive growth. We're not only planning to spend more, but we're going to spend judiciously on those 30 identified growth product lines. In 2023, we expect to increase capex to approximately $385 million, mostly on capacity expansion projects outside of China. These include our new power inductor site in Mexico, a resistor expansion also in Mexico, diode manufacturing in Taiwan, and the new MOSFET 12-inch fab in Itzehoe, Germany. Today, much of our capacity is committed. MOSFETs and resistors have lead times that extend over one year. Our goal is to continue to grow with established customers, but to also have capacity to sell for new and emerging customers. To achieve that objective and create room for growth, we're identifying opportunities to subcontract production of commodity products and expect to have resources qualified throughout the year. We're also identifying additional foundries to alleviate the most constrained semiconductor product lines. This way, we'll have incremental capacity to allocate to serve more customers in end markets. Third, we're shifting our thinking about channel management. Today, Vishay places a priority on strategic accounts. By growing our capacity and capabilities, We're going to enhance our ability to support all of the business channels of OEM, distribution, and EMS while maximizing the profitability of each one through a focus on high margin customers. Fourth, increasing our technical resources that face customers and also filling gaps internally in market segment coverage and intensifying our activities in R&D. We will see an increase in operating expenses over the next couple of years as we add these engineering talents, fill gaps in our technology, and become a preferred supplier to more customers and more broadly sell our portfolio. The acquisition of MaxPower and its silicon carbide technology last October is an illustration of this increased investment. Fifth, we're moving towards solution selling. Customer engineers look for suppliers who can provide solutions to advance their technologies. Bechet's semiconductor and passives can populate greater than 80% of the components on a circuit board in many applications. We need to be sure we're technically speaking to customer engineers about applications and the performance improvement that Bechet components can bring from the full array of our portfolio. We recently started introducing Bechet solutions At Electronica last November in Munich, Germany, we showed six automotive reference design applications. These were a mix of onboard chargers, converters, intelligent battery management systems, and DC-to-DC converters. To be promoted online for engineers to test and observe the performance of Bechet components in these high-demand solutions. Sixth. we're implementing organizational and structural change at Bichet. Bichet has operated in separate silos between sales and marketing to become a more responsive company that maneuvers and reacts favorably to customer requests. We're fostering collaboration internally and externally, particularly in the functions connected to customer programs. As part of this effort, we're flattening the organizational structure and redefining some leadership roles. We decided in favor of empowering the regional sales leader and our strategic account leaders to drive business growth in their area of responsibility rather than filling the position of executive vice president global sales. We have combined the sales and marketing functions by region under regional sales leaders. bringing together the commercial, technical, and strategic resources to meet our customers' needs. These regional sales heads will report directly to me. Our Chief Technical Officer, Roy Shoshani, is taking on a broader mandate to re-energize our product innovation, grow our preferred supplier status, and develop closely connected to our customer CTOs and understand the direction of their technology. Re-energizing our product innovation to align with our customer technology roadmaps will involve both internal R&D investment and acquisitions, depending on which avenue is most suitable. Finally, our Chief Operating Officer, Jeff Webster, a new position at Bechet, now drives the operations of both passives and semiconductors under one responsibility. This change is designed to break down barriers between passives and semis. Under Jeff's expertise and leadership, we are determined to drive operational excellence, cost reduction, capacity expansion, subcontractor qualifications, all resulting in a greater service by Bechet to our customers. We're pushing down decision-making into the organization to empower our leaders and to facilitate timely action. We will create more speed within Vishay. We're going to reward collaboration, enable forward-looking behavior, and empower risk-taking. And we're going to build accountability, both individual and shared, within the organization by aligning incentive compensation to personal, and company growth and profitability initiatives. These are significant changes for Boucher. The six initiatives I laid out for you are the foundation for our ambitions to unleash the potential at Boucher, realizing the full value of our broad product portfolio and becoming a customer-first serving company, and for our goals of driving top-line growth and expanding margins. Let's go to slide 13. Slide 13 drills down into our goals for 2023. By the end of 2023, we intend to have qualified and signed agreements with a number of subcontractors and completed an evaluation of where to build Bechet's next manufacturing factories as we continue to de-emphasize China in favor of other low-cost locations. designed and implementing our go-to-market strategies for each of the 30 key product lines by region and end market to put more horsepower behind them the third the max power acquisition is progressing well samples of 600 volt and 1200 volt planner technology mosfets will be available to customers in q3 of 2023. We target to release both of these voltages and move them to production in the first quarter of 2024. Our development of the 1200-volt trench technology also moves forward as we continue to engineer and evaluate this product's targeted high competitive performance. Our design and activities in the 1200-volt automotive and industrial applications continue. And finally, We will develop a three-year business plan, which we look forward to sharing with you early in 2024. In closing, the electrification of our world and the need to communicate more data brings exciting growth opportunities for Bichet. We have the right products, a well-established and expanding manufacturing footprint, and the right people to do more for our customers. We're aligning the organization toward faster growth and greater profitability. With a new management team in place, we're setting the stage for substantial growth starting in 2025. And I am excited to be leading Bichet through these changes ahead and into the future. Melissa, we're ready to begin the question and answer session.

Thank you. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd 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. In the interest of time, we ask that you each keep to one question and one follow-up. Our first question comes from the line of Joshua Bookalter with Cowan & Company. Please proceed with your question.

Thank you for taking my questions, and Joel, congratulations on the first earnings call as CEO. I wanted to start with a shorter-term question. Can you walk us through some of the confidence and the assumptions behind the timing of the inventory digestion and wrapping up in the first half of 2023? Are there any particular end markets that you have assumptions for improvement in the shorter term? And it would just be helpful to hear what you're seeing by end market given some divergent trends we're hearing. across the mixed signal space in several of your markets. Thank you.

Okay. Joshua, thanks for the question. In markets, automotive, anything EV, vehicle production or design and EV related for charging stations, this continues to be very strong. Our design activity is strong and also the demand that's pulled through the distributors will help deplete that inventory in the first quarter. Industrial overall is a strong segment for us, as you know. The industrial design and factory automation, robotics, those things towards electrification continue. So that'll help pull through some of our inventory. If we get into industrial where we talk about power tools and things like that, I think there's going to be some slowness there. Military, defense, that continues to be stable to growing. And medical as well, I've met with a couple medical customers and the projections for growth are strong. And this will help us move that inventory. This is why we feel in the first and second quarter, it should move rather quickly. We feel we have a good position in our core market segments. And we also feel because Bichet has had long lead times, that the amount of stock is not so excessive.

Thanks for all the calling there. And then I guess longer term, thanks for the details on the capacity expansion plans. I guess I was trying to square away. It sounds like we're going to outsource more of the commoditized parts. How should we think about what level you're investing and what's your expected total capacity increases over the next few years? And given you're planning to outsource an increased portion of your products, is any of this predicated on FABs? some of your smaller fabs closing while investing in the larger ones? Thank you.

We have a couple approaches here since we're semiconductors and also passives. Let's talk about passives first. There's a number of product lines which are commodity. We have commodity products, non-commodity products, and customs in each of our portfolios. We look at the commodities and we want to qualify subcontractors to help us there. We can qualify subcontractors in 2023. We'll be able to use that capacity to support customer demand on commodities and use our internal capacity on the non-commodity and custom products to also improve the delivery of those products. We've got a number of sub-cons that we're in process of qualifying now. So we see this as an intermediate improvement into our ability to supply products in 2023. On the semiconductor side, you're right. It's about foundries. It's about getting wafer capacity. We have spoken to a number of wafer fabs. We're aligning capacity and starting some qualification steps. As far as investment, we haven't had to make a significant investment. There's capacity that we found available. And this as well will help us with the front end of semiconductors 2023.

Thank you. If I could squeeze one last one in. There were reports of, I think it was a fire at one of your subcontractors happening earlier this year. Did that play at all into the guidance? I just wanted to confirm if there's anything baked in for the subcontractor issue. Thank you.

There was a fire at a plating facility in China. The name is Well New. We have, through Jeff's efforts leading our operation, this is one example of Jeff being responsible for the semiconductors and passives, the complete organization. We have internal plating capacity that we found in one of the diodes facilities. This plating line was supporting MOSFETs, so Jeff was able to move the production to the plating lines in Bechet. And we feel that in the first quarter we'll be able to overcome this issue. And yes, it's included in our guidance. We believe by the end of Q1 we'll have overcome that problem.

Got it. Thank you and congrats on the first earnings call again. Thanks, Joshua.

Thank you. Our next question comes from the line of Matt Sheeran with Stifel. Please proceed with your question.

Yes, thank you very much and good morning. I just want to get a sense of how you see margins playing out this year. You talked about the inventory correction, obviously, you're weighing on volumes and you've also got some investments. It sounds like perhaps some OPEX pruning as well. You're guiding margins down, you know, several hundred basis points year over year on gross margin. Does it bottom here at 28% or should it go lower? you know, particularly if Q2 is down. How should we think about margins?

Larry, go ahead.

Well, okay, so we guided to the 28% plus or minus 50 basis points. We believe margins will be relatively stable throughout the year, with potentially a slight increase towards the end of the year, but relatively flat.

I can add more to that. We have a year of staging Bichet. There's some operational expenses, as you talked about, that are going to be required, and you compared it to prior years. So we've got a year of 2023 to stage Bichet, and OPEX is required to better position the company through some of those operational gaps that I talked about after meeting with 70 employees. We see pressure always on input cost. We see pressure on inflation. We see pressure on wages. So with materials seem to be relatively stable. Our gross margins at this point seem to be flat or stable through the rest of the year because of the activities internally and also be able to maintain our price level. We see the pricing will be stable throughout the year. If we have excessive increases in our input costs, then we're going to have to raise prices as well. But there was quite a large price increase that was done in 2022. So I think overall, as Laurie said, we'll see margins be stable through the forward quarters of this year.

Okay. Thanks for that. And then on the CapEx increase, could you give us an idea of the revenue, you know, generated from that CapEx? Is it one-to-one in terms of revenue? What kind of capacity are we talking about in terms of volumes?

It'll be better than one-to-one. The inductor expansion that we're putting in Mexico, we expect to double our capacity, the inductors. The resistor expansion in Mexico pushes us as well almost to doubling, and that's one of our metal strip technologies. So these capacity increases are going to be quite significant. When we talk about $1.2 billion over three years, It's significant compared to prior history in Bichet of $160 million per year. So you're going to see Bichet positioning ourselves for substantially greater growth.

Is there a concern that there may be too much supply, particularly if we're in a tough macro environment for the next couple of years? And it sounds like you said some of this capacity is already accounted for in terms of customers. So have you been working with customers to ensure you know, that you're going to be able to ship to orders?

Yes. With our backlog now at eight months, that's eight months backlog with the customer base that we call strategic accounts and our distributor partners. We're meeting with a lot of customers beyond that, and they have greater demand for Bichet products. When we talked about these 30 focus products, these are exciting products in Bichet that support multiple segments and multiple applications. So, It's our responsibility to position Bechet to grow, and these products are in high demand. So shifting, we're not concerned about it at the moment because we have a lot of customer demand that's developing, and our design activities are strong. It's really positioning this company for greater growth. There'll be bumps in the road. It's a cyclical business that we're in, but Bechet has a great potential to grow significantly in the future.

Okay, sounds good. Thanks very much.

Thanks, Matt.

Thank you. As a reminder, if you'd like to join the question queue, please press star 1 on your telephone keypad. Our next question comes from the line of Rupulu Bhattacharya with Bank of America. Please proceed with your question.

Hi. Thank you for taking my questions, and congrats on the new role, Joel. Nice to have you on board. In your slide on near-term initiatives, you talked about two things. You talked about enhancing the channel management And you talked about solution selling. So I was wondering if you can elaborate more on that. What do you think needs to change in terms of channel management? And can you give us a sense of like when you say solution selling, what does that bring? What is that exactly? And what is the margin differential between what you sell as individual products versus solutions?

Okay, the enhanced channel management, as mentioned, we had our priorities on the strategic accounts. Many of them were a small set of automotive customers or industrial customers. It could be telecom as well. Distribution is a large part of our business, as you know. It's nearly 60%. We have had long lead times, and we were not supporting the channel of distribution to the level we could have based on the opportunities that were in front of us. The EMS segment. meeting with a number of the EMS, the leading EMS companies, they have significant demand for Vishay. Vishay is well positioned on bill of materials. They try to buy Vishay as one of their first sources, but if our lead times are long and we're not able to support them, they have to shift. They have to look at other suppliers or go back to the OEM and ask for another source to be qualified. So we've not been able to support that business We have the opportunity to do it. Our design and activities at SGA and OEM are strong, but we need to be able to support those design wins through the channel of distribution as well, if it's not direct to customer, and also through the EMS. So it's really supporting all business channels, OEM, distribution, and EMS at a greater rate, having the capacity to enjoy our design wins. Your second question was about solution selling. O'Shea is a quite unique company by having semiconductors through pass-ins. As we go to engineers at our customer and we speak about one technology, we can actually sell many technologies and design in many products to support their solution. In the past, maybe we sold based on a data sheet, a particular product. In the future, we're going to talk about applications and solutions. Silicon carbide, this acquisition is going to be very helpful for Bechet. Silicon carbide is an enabling technology. It's a technology that's in the first discussion with a customer as they talk about 400-volt or 800-volt converter designs. Having Bechet offering silicon carbide puts us in those first discussions with customers, and then it allows us to bring in our discrete semiconductor portfolio and the passives

in that same conversation we feel we're uniquely positioned as one of the few suppliers that can do this okay thanks for the details there um maybe i can ask one for lori um on slide 15 you're talking about the company changed its indefinite reinvestment assertion does that impact your thoughts on share buybacks and how you repatriate cash and Can you just remind us on the priorities for your capital allocation and how should we think about the pace of buybacks?

Okay. So it actually does enable us to bring back in a sustainable manner cash to the U.S. so that we can fulfill our commitment to the shareholder return policy.

Okay. And maybe I'll ask one more for Joel. So you've laid out a 1.2 billion capex plan for the next three years. Beyond what you've stated for fiscal 23, I think 380 something million, should we assume an equal amount in each of the outer two years, 24 and 25? And can you give us some more details on what specifically you're investing in? Like what are some of the areas where, which product lines are you investing in capex and And how should we think about these facilities coming online? Like, how quickly does supply come online based on your investments?

Okay, the capital, as we said, this year is $385 million. When we get into 2024 and 2025, it'll be $400 million or greater in each of those two years. Looking across our products, it goes to these 30 focus part numbers. There's resistor products that require more investment. The inductors we spoke about expanding with a new facility in Mexico. That facility is built, and we're starting to stage the new lines in it now. But there's production space available in the building. So over the next two to three years, that capacity will continue to grow and fill that power inductor facility. Custom magnetics is another part of inductors. of our inductor portfolio. We sell heavily to medical and military, but we need to expand that portfolio because we have more opportunities in automotive and in industrial inverters. Capacitors, we look at the polymer tantalum, and Bechet has a technology that we need to enhance the ability to supply. We know polymer is growing to over $1 billion TAM, and we need to be a bigger player in capacitors. with the polymer tantalum. We move over to optocoupler sensing in automotive and industrial. We've got proximity sensors. We've got sensors for light sensor. We have rain sensors. We've got a number of products for automotive that require us to enhance our offering, increase our capacity on the sensing products. Diodes with silicon carbide diodes, and I mentioned silicon carbide on MOSFETs. we have to invest there as well. So these 30 products, as we put our go-to-market strategies together and the dollars attached to it, that's where you're going to see the products. It's really quite broad across Bichet in this investment.

Okay. Thank you for all the details.

Appreciate it. Thank you. Thank you.

Thank you. Ladies and gentlemen, that concludes our question and answer session. I'll turn the floor back to Mr. Smagle for any final comments.

Thank you, Melissa. And thank you for everyone for joining our call today. I look forward to meeting and talking with you over the coming weeks. And also to speaking with you again in early May, when we report our first quarter 2023 financial results. Thank you very much.