Vishay Intertechnology, Inc.

Good day, and thank you for standing by. Welcome to the Vishay Intertechnology Quarter 3 2025 Earnings Call. At this time, all participants are in listen mode only. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 1 again. Please be advised that today's conference is being recorded. I would like to now hand the conference over to our first speaker, Mr. Peter. Please go ahead.

Thank you, Raven. Good morning and welcome to Vishay Intertechnology's third quarter 2025 earnings conference call. I am joined today by Joel Smekal, our President and Chief Executive Officer, and by Dave McConnell, our Chief Financial Officer. This morning, we reported results for our third quarter. A copy of our earnings release is available in the Investor Relations section of our website at ir.bichet.com. 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 a slide presentation, which we also posted at ir.bichet.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 Richer'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 a full GAAP to non-GAAP reconciliation in our press release, as well as in the presentation posted on ir.cche.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 Smacall.

Joel Smacall Thank you, Peter. Good morning, everyone. Thank you for joining our third quarter 2025 conference call. I'll start my remarks with a review of the third quarter performance and business condition, and then turn the call over to Dave, who will take you through a review of the third quarter financial results and our guidance for the fourth quarter of 2025. After that, I'll update you on the strategic levers we are pulling under Bichet 3.0 as we continue to execute on our five-year strategic plan, and then we'll be happy to answer any of your questions. For the third quarter, revenue grew sequentially 4% to $791 million, 2% above the midpoint of our guidance. Many market segments were up over Q2. Automotive, industrial, computer, and medical were positive. Asia achieved the greatest growth, notably from automotive customers and sales to distributors supporting computing and industrial. Our sales to Asia distribution was positive in Q3 because of a large number of orders placed in Q2 to get ahead of the tariffs. Boucher book to bill in the quarter was slightly below parity. Orders from OEMs were up in all region. Orders from EMS were positive over Q2. Distribution orders in the Americas and Europe were positive above Q2. while Asia distribution orders were lower following the higher order amount in Q2, which was mentioned previously. Both semi and passive book to bill was slightly below one. Book to bill for October is at a run rate of 1.15. Our backlog continues to build at a gradual pace as it has since the beginning of the year. Orders are up 19% year over year. indicating that conditions are improving in automotive, smart grid infrastructure, aerospace defense, and AI-related power requirements. However, a very large portion of these orders are still placed with short-term delivery requests. Turns business, expedites, pull-ins, they all continue in nearly all markets as customers for the most part are still not planning ahead. In Asia, the percentage of short-term delivery orders continues over 50%. This seems to be the new normal for our business at the moment. Our decision three years ago to invest heavily in incremental capacity has positioned Bechet to satisfy nearly all of these quick-turn delivery requests without having to choose one customer over another. Today, Bechet is demonstrating to customers that we can reliably satisfy quick turn demand while still maintaining competitive lead times. At the same time, we remain well positioned to capture the early stages of upturns in market demand and supplying customers as they scale. We are now serving the channels of distribution, OEM and EMS more reliably. Let's turn to a review of the revenue, which is by end market on slide three. Automotive revenue increased 7% versus the second quarter on higher volume in the Americas and Europe. We mentioned in the Q2 call that we saw automotive positive in the second half of 2025. Tier 1 customers increased their pull rates, and we've increased our engagements with more automotive OEMs in Tier 1 now that we have capacity. Automotive customers have audited our UK and Mexico sites, where we have now gained more site approvals. We work closely now with the OEMs in Tier 1 to further approve our product PCN. Our design activities continue in all automotive powertrain, ICE, hybrid, and battery electric vehicle. Increasing our revenue in all automotive applications is our focus as electronic content increases, particularly in traction inverters, ADAS features, safety and smart cockpit application, and electronic braking and power steering. Revenue from the industrial segment increased 2% for the second quarter, driven heavily by our shipment of capacitors to smart grid infrastructure projects for programs led by Europe and China OEM. Q3 seasonality slowed bookings a bit in the Americas and Europe. The industrial market is showing some improvement. There continues to be a pickup and replenishment orders in the channel now that inventories are mostly consumed. As reported each quarter, we see the orders for our high voltage DC power capacitor as an early indicator of the improving industrial business. We continue to win large orders for customers in Europe, Asia, and India, for high voltage DC power transmission to be delivered in 2025. Demand for industrial power management customers will be next to increase as the smart grid transmission lines are put in place. Growing opportunities for Bechet are industrial power for electricity to AI data centers, automotive hybrid EV for power management requirements as well for the AI chip production sites. Our design activity is focused largely on AI power structures and grid improvements, as the build of data centers is driving demand for control systems, which monitor backup power and cooling. Along with power supplies and power distribution management, we also work on designs for industrial automation, robotic platforms, energy storage, and smart meters. In aerospace defense, revenue decreased 2% quarter over quarter as the U.S. Department of Defense was slow to release funding for major programs. Now in this quarter, orders are beginning to pick up with the release of funding to large military contractors and the replenishment of the distribution channel inventory to support defense business. The majority of designs in the US and Europe remain focused on new and legacy weapon systems, communication systems, drones, commercial aerospace and satellite programming. In the medical market segment, revenue grew 2% on increased activity by some of our larger longstanding customers and in support of new programs and increased activity for existing programs in cardiovascular, pacemakers and defibrillators, medical surgical, surgical tools, patient monitoring, and respiratory care, neuroscience for chronic pain and movement disorders, and cochlear hearing applications. Ongoing demand for these applications also drove order growth. Our design activities remain focused on all medical products and applications. Our strategy to cross-sell all Bechet technologies to existing medical customers continues to progress positively. As an example, we have designed in and qualified to supply additional passives for a new project at a long-standing medical customer. This will start in 2026. We're continuing to develop opportunities to sell across our portfolio with this customer and others. Revenue from the other market segment, including computing, consumer, and telecom end markets was up 4% quarter over quarter, reflecting ongoing demand for AI servers and server power. Asia is where these transactions take place. We see increased order flow as new AI server power projects move into production. We continued in the third quarter to increase our customer count and are now supplying more AI customers. At the same time, in addition to MOSFETs and ICs, we design and supply customers with diodes, capacitors, inductors, and resistors to expand our overall part counts. We continue to win qualifications with polymer tantalum, also for magnetics, and current sense resistors. Design activity remains focused on power conversion and power management, including multi-phase DC to DC converters, ultra-low DC resistance inductors, polymer tantalum capacitors for the GPU chipset power, and also AI optical modules. Next generation data centers are requiring higher input voltages in order to deliver more power to each rack with less power loss. These are further opportunities for Bichet's products. Let's move to slide four for revenue by channel. OEM revenue grew 6% quarter over quarter, driven primarily by increased volume with automotive and industrial accounts, plus shipments for smart grid infrastructure projects in Europe and Asia. Order intake increased in all regions during the quarter and is back to levels last seen in 2022. Sales to the EMS channel fell 7%, with reductions in all regions, reflecting mix. Order intake for EMS increased from the second quarter, also reaching the highest level we've seen in three years. As a result, our new investment in incremental capacity, we are in a much improved position to participate in the EMS channel business. We can reliably satisfy increasing demand from EMS customers that are operating in a short-term visibility. We are supplying aerospace, defense projects, automotive, industrial, and AI-related program. Distribution revenue increased 4% with nearly all of the Q3 growth coming from Asia, while Europe and the Americas were more seasonal. AI servers, industrial, and smart grid infrastructure projects supported the Asia increase. Our intake grew in all regions to prepare backlogs as end customers' inventory further normalized. In the Americas, order intake increased significantly, driven primarily by demand from aerospace defense customers. Distribution inventory was flat compared to Q2, while inventory overall is holding steady at 23 weeks. Both POS and POA remain stable in each region. Based on data from our customers, we can see that our initiative to gain share with distributors is working. We continue to add part number SKUs throughout the channel, recently including many new release inductor products, placing more part numbers on the distributor shelves as we deepen engagement with them and position Bechet for further share gains. Turning to slide five in terms of geographical mix, revenue growth for this quarter came predominantly from Asia with a 7% increase in sales. America's revenue was up slightly and Europe was essentially flat due to the seasonal impacts, mostly in August. Before turning the call over to Dave, I'd like to thank the Bechet employees for their hard work and for their continued commitment to Bechet's strategic and financial goals. They put the customer first every day. They embrace a business-minded approach to help the customers when looking for support. In the current climate, they may be asked by a customer to expedite a Boucher delivery or to help prevent a line down due to shortages from another supplier. We work hard to step in and help the customer. Our sales, business development, marketing, operations, and corporate colleagues do everything they can to show Bichet customers that Bichet 3.0 is a transforming company, creating opportunities to satisfy new customers while re-engaging previously underserved customers. Thank you to all the Bichet employees and our reps to show Bichet is a reliable supplier. I'll now turn the call over to Dave for a review of the third quarter financial results. Thank you, Joel. Good morning, everyone.

Let's start our review of the third quarter results with the highlights on slide six. Third quarter revenues were $791 million, up 4% compared to the second quarter, reflecting a 3% increase in volume and a 1% positive foreign currency impact related mostly to the euro. Average selling prices, including tariff adders, were flat versus the second quarter. Nearly all reportable business segments had higher revenues than the second quarter, driven mostly by volume. Compared to the third quarter of 2024, revenues increased 8%, reflecting an 8% increase in volume and a 2% positive foreign currency impact related mostly to the euro. This was partially offset by a 2% reduction in ASPs, including tariff adders. Book-to-bill for the quarter was 0.97, broken down into 0.96 for semis and 0.98 for passives. Backlog in dollars was flat at $1.2 billion and is now at 4.4 months. Moving on to the next slide, presenting the income statement highlights. Gross profit was $154 million, resulting in a gross margin of 19.5 percent, slightly below the midpoint of our guidance, and flat versus quarter two. The margin performance was driven mostly by elevated metals prices as well as modest currency headwinds. The negative impact from our Newport FAB was approximately 150 basis points, slightly better than our guidance. Appreciation expense was 54 million in line with our guidance and of 1 million over quarter two. SG&A expenses were 135 million, slightly below our guidance and down 2 million quarter two on an adjusted basis. GAAP operating margin was 2.4% compared to 2.9% in the second quarter and a minus 2.5% in the third quarter of 2024. Adjusted operating margin was 1.4% in the second quarter and 3.0% in the third quarter of 24, excluding non-GAAP adjustments. There were no pre-tax non-GAAP adjustments in quarter three. EBITDA for the quarter was $76 million, for an EBITDA margin of 9.6%. Adjusted EBITDA margin was also 9.6%, up from 8.3% in the second quarter. Our GAAP effective tax rate remains unmeaningful at these low levels of pre-tax income or loss, as relatively small items such as foreign currency and repatriation taxes have a disproportionate impact on our effective tax rate. As profitability returns, we would expect a more normalized effective tax rate closer to our historical guidance. In the quarter, we recognize 13.7 million in tax expense due to changes in tax laws and regulations in the US and Germany, which is excluded from our adjusted net earnings. Gap loss per share was minus six cents compared to earnings of one cent per share in the second quarter, and a loss per share of 14 cents in the third quarter of 24. Adjusted earnings per share was 4 cents for the third quarter of 2025, compared to a net loss per share of 7 cents for the second quarter of 25, and adjusted that earnings per share of 8 cents for the third quarter of 24. Moving on, slide 8 provides a summary table detailing revenue, gross margin, and book-to-bill ratios across our reportable segments for quick reference. In the third quarter, Newport's results continued to be reported under the MOSFET business segment, reducing that segment's gross margin by approximately 720 basis points, an improvement from the 840 basis points impact seen in Q2. Turning to slide nine, in the third quarter, our cash conversion cycle remained steady at 130 days, reflecting our disciplined working capital management. Inventory increased to $760 million, primarily driven by production ramp-ups and higher metals prices. However, inventory days outstanding improved to 108. Our DSO was stable at 53 days, while the DPO decreased one day from Q2 to 31. Continuing to slide 10, you can see we generated $28 million in operating cash for the third quarter. Total CapEx for the quarter was $52 million, including $43 million designated for capacity expansion projects. On a trailing 12-month basis, capital intensity was 10.8%, relatively flat versus the same period last year. We continued to deploy cash for capacity expansion projects. Due to these investments, free cash flow for the quarter was a negative 24 million compared to a negative 73 million in the second quarter, which included significant transition and repatriation taxes. Stockholder returns for the third quarter consisted of our $13.6 million quarterly dividend. We do not repurchase any shares in the quarter. At the end of the quarter, our global cash and short-term investment balance stands at $444 million, and we remain in a net borrowing position in the U.S., with $189 million outstanding on our revolve. As we've noted in the past, we're required to fund cash dividends any share repurchases, as well as principal and interest payments using our U.S. cash on hand. And we are using U.S.-based equity to fund our Newport expansion and other strategic investments. We have $280 million accessible on our revolving credit facilities at the current EBITDA level. We expect to continue to draw on our revolver to fund our U.S. cash needs. Okay, moving on to our guidance in slide 11. For the fourth quarter of 2025, revenues are expected to be 790 million plus or minus 20 million. Gross margin is expected to be in the range of 19.5% plus or minus 50 basis points, inclusive of tariff impacts and expected continuing higher input costs. Newport is planned to have an approximate 150 to 175 basis point drag on gross margin in the fourth quarter. As we discussed last quarter, We're passing through additional tariff costs to customers, thus tariff adders increase our revenues without impacting our gross profit. The impacts of tariffs are generally limited and incorporated into our guidance for the fourth quarter. Depreciation expense is expected to be approximately $55 million for the fourth quarter and $212 million for the full year 25. SG&A expenses are expected to be $138 million plus or minus $2 million for the quarter. Our gap effective tax rate remains not meaningful at low levels of pre-tax income and loss. As our profitability returns, we expect a normalized tax effective tax rate closer to our historical guidance of 30 to 32%. In quarter four, we expect tax expense to be between four and eight million, assuming a similar profit mix amongst our tax jurisdictions. Finally, our stockholder return policy calls for us to return 70% of our free cash flow to stockholders in the form of dividends and stock repurchases. For 2025, we once again expect negative free cash flow due to our capacity expansion plans. However, we expect to maintain our dividend and opportunistically repurchase shares based on U.S. available liquidity in line with this policy. I'll turn the call back over to Joel. All right. Thank you, Dave.

Let's go to slide 12. Slide 12 will give us an update on the strategic levers we are pulling to drive faster revenue growth, higher margins, and enhanced returns on capital as we execute our five-year plan. Starting with capacity investment, year-to-date we have invested $179 million, and we expect to spend between $300 million to $350 million this year, at least 70% of this capex. for expansion projects at our Newport facility we are in we are on schedule increasing our wafer starts each month during the quarter we completed the installation of all tools for silicon and silicon carbide wafers and we released and started production ramp up for two additional technologies automotive customer audits are continuing in our passive business at La Laguna Mexico We released commercial part numbers for production while continuing to qualify additional part numbers. We've scheduled side audits with many automotive customers. We've completed the IATF certification of our automotive grade inductors, which opens the door to move for more side audits and supplying more automotive OEMs from this facility. We've had more than 20 audits completed at La Laguna. At our facility in Juarez, Mexico, we passed the audits conducted by two of our automotive customers and continue to increase production of commercial products. Through our subcontractor initiative, we now have qualified more than 9,000 part numbers, further expanding our portfolio of diodes, resistors, capacitors, and inductors. As a reminder, this initiative has a couple of objectives. The first one is to create incremental capacity internally for our high growth products by outsourcing commodity products. The second is to broaden our product portfolio and to increase our share of customers' bill of materials. Turning to innovation in our silicon carbide strategy during the quarter, for MOSFETs, We released three additional products, two industrial and one automotive for the Gen 2 1200 volt planter. We plan to release eight devices in Q4 for industrial and eight devices for automotive in Q1. We remain on track to release the 1700 volt and the 650 volt industrial platforms in Q1 and the automotive platforms in Q2. Samples for the Gen 3 1200 volt trench were available in Q3 and on track to release the industrial platform in Q4 and the automotive products in Q1. For silicon carbide diodes, we fully released the industrial and automotive Gen 4 1200 volts and the 650 volts. In closing, Market signals remain directionally positive with increasing demand from automotive, AI server and server power, smart grid infrastructure and industrial power, aerospace, defense, and medical. Our accelerated investments to expand capacity over the last three years positions us to capitalize more on the market up cycles in these high growth segments, meeting quick turn delivery requirements while maintaining competitive lead time. We like the feedback we get from customers about Bechet 3.0. We keep our feet on the ground because we have a journey to complete in this transformation of Bechet. Every day we are demonstrating to the customers that we have the capacity to assure them of reliable volume as they scale production and to supply more part numbers to them. Over the past three weeks, we contacted many global automotive and some industrial and computer customers to offer our support to address their manufacturing line down concerns. Customers appreciated very much that we called them. We now have daily conversations with automotive OEMs and tier ones to cross part numbers and help them manage their risk. Looking ahead, We are intently focused on creating more opportunities to expand our participation in the full market recovery, to better leverage our entire portfolio, and to deepen our engagement with new and existing customers. We are building on our success to gain share with our channel partners in cross-selling products in our portfolio, designing in and supplying a greater share of the customer's bill of materials. We also focus on creating more value for our customers through innovation with our silicon carbide strategy by expanding our portfolio of technologies to better serve their demand and by supporting their technology roadmaps. We remain committed to pulling the eight strategic levers as we execute our strategic plan to accelerate revenue growth, improve margins, and enhance returns on capital. Raven, let's open the call to questions.

Thank you. At this time, we will conduct the question and answer session. As a reminder, to ask a question, you will need to press star 1-1 on your telephone and wait for the name to be announced. To withdraw your question, please press star 1-1 again. Please stand by while we compile the Q&A roster. Our first question comes from Rupu. From Bank of America.

The first one, Joel. In the automotive segment, did Vishay see any benefit or impact from the export restrictions that were put on Nexperia?

Hi, Rupaloo. Nice to hear, Prima. Thanks for the question. This is dynamic. conversation I mentioned in the closing that we are in discussion with many OEMs daily and many tier one. They've asked for support in lying down situations and we have been able to support in some cases, depending on how the part numbers cross. So we, at the moment we're seeing a lot of opportunity developing. We didn't guide or didn't place much of that in our Q4 revenue guide because at this moment it's been shortage quantities just to keep factories moving. So we are in the conversation.

Okay, thank you for that. Can I switch to margins? I mean, it looks like Newport was not as big a negative impact as you had expected on fiscal 3Q margins. But just looking at the gross margin, it was maybe 20 bps below the midpoint of guidance. I think you mentioned the metal prices as one factor. Were there anything else? How was pricing? And when it comes to the metal pricing or prices and cost, are you using the strength of the balance sheet to pre-buy any metals? So just any thoughts on that impact going forward?

Okay, I'll take the first part of that and then Dave can comment on the second part. The items that impact gross margin, metals was one. Whether it's gold, whether it's palladium, platinum, silver, they're all at a very high rate plus copper tariff. Copper tariff is another one. So we're managing the metals and we're preparing to pass costs on to customers. There's a negotiation season now, so we're passing metal costs on as much as possible. Exchange rate, Dave can elaborate on a little bit. There's also operational items. It's not a perfect operation. There's always things that we need to improve on with manufacturing efficiencies. So metals, exchange rate, plus some operational issues is what had the gross margin flat Q3 versus Q2. Dave, you want to talk at all about any of those items or the forward buying of metals?

Yeah, no. So, so Rupal, it's a good question. When you combining the metals and the FX impact, we're looking probably north of 50 basis points on the total. Okay. So it's no small impact. So, I mean, everybody knows what's going on in the metals markets right now. I mean, gold year to date, you know, 48% increase silver 59%. And in October, we're seeing them go up again. Okay. In terms of the FX impact, we're, We're well-balanced with the euro, but we do build parts in some countries where we don't have revenue. Two countries specifically, currency, the shekel and the new Taiwan dollar, strengthened and it hurts our P&L. In terms of the hedging, one thing you have to keep in mind is we don't buy just pure copper and pure gold. We buy pre-manufactured parts a lot of time or semi-finished parts or whip or whatever you want to call it. So our vendors are incurring the extra cost and passing it on to us. So, Joe, you want to talk about the pricing, you can, but I think we're going to approach, we're going to put steps in place to address the metal increases where possible and passing it on to our customers. Yeah, this is in motion now.

Okay, got that. But are you doing any pre-buys? Like, are you using the strength of the balance sheet to buy and store any metals? Is that something you would look into?

We do that to some extent. We have a fairly long pipeline in some of our manufacturing times, and we will place purchase orders out into the future. But as a general purpose, we're not stockpiling metals now. It's expensive. We wouldn't do that.

Okay. Let me ask you another question. Looks like book to bill fell to below one this quarter, and this was the first time this year. When we look at the revenue guide for fiscal 4Q, I mean, that would imply total fiscal 25 revenue growth of about 4% year-on-year. Then when I look at consensus for next year, looks like consensus is modeling an acceleration to 7% year-on-year for revenues. and gross margins to expand to something like 23.6 percent from 19 and a half that you're running at today. So, Joel, just when you look at the environment, when you look at the book to bill, when you look at consensus estimates or fiscal 26, do you see these as reasonable growth and margin expectations and any color you can give on what can drive revenue growth and margin expansion and how you see that trending over the next year?

Okay, the October run rated book to bill I mentioned is 1.15. So even though Q3 was slightly below one, October orders across the products has moved up quickly. When we look at the market drivers, we've got five market drivers in what we see as an improving economy. We've got two of them which are supported by government spending. One is aerospace defense and the other is smart grid infrastructure. Those are two of the five. We've got AI that we're all watching the AI server build and the power requirement. We've got automotive and industrial overall. Auto, industrial, aerospace defense, AI, Medical as well. So we're seeing these market segments lining up. The customer engagements that we have, people are talking about mid single digit growth next year across these segments to high single digit growth. We've done a good job of getting in the customer meetings. I think the October bill is a nice signal for us. We've got some product lines that the customers are placing farther out orders like the high power as the capacitor that we've got programs that we have to deliver in 2026. And that'll continue to develop the industrial business behind that. So I see a growth next year. I've received, like you said, consensus of plus 7%. I think that's in line as we do our budgeting right now, we are developing our budget for 2026 and we're expecting the grow because of these five and market segments, which are showing positive sign. This is kind of a different year we're moving into. In the past, when you looked at how many market segments were aligning to drive an economy, we had the telecom boom in the 2000. We had auto booms in the late 2000s and the pre-COVID years. But now we've got five market segments that Bichet supports. that we see are lining up to be positive in 2026. So I think the revenue growth, what the consensus has put together is in line with what we're hearing from customers. The margin growth you talked about, we've got a plan to get Newport to margin neutral by the end of Q1. So that'll raise our gross margin by one and a half percent, 150 basis points. So we moved to 21% plus the manufacturing efficiency and cost reduction projects we have internally, division by division, passing on the metals cost that we talked about, plus then the volume growth, which we expect to see volume efficiencies on. So I think what you listed there is similar to what we're viewing for 2026. Okay.

Okay. That's helpful. And maybe I'll just throw one more in if we have time. Dave, can you elaborate on the capital return strategy? I mean, how would you prioritize any debt reduction versus buybacks versus, you know, any acquisitions that you might be playing?

Sure. So, you know, our cash balance has been decreasing. I think everybody can see that. And in the U.S., we're certainly in a net borrowing position. We're at $189 million, I think, on the revolver. The Newport CapEx is slowing. but Newport's not up and running completely yet. So we're still needing to fund U.S. money to fund Newport. So we don't see right now, given our current liquidity in the U.S., that we would want to be doing any share buybacks. We are continuing the dividend. Dividend's important to us. But we're not looking right now to purchase any shares.

Okay. All right, thank you so much for all the details.

You bet.

Thank you, Ripley.

One moment for our next question. Our next question comes from Peter Pang with JP Morgan. Your line is now open.

Hey, guys. Thanks for taking my question. You mentioned about some volume growth in the first quarter. Is it right to read into that that you're expecting more Seasonal trends, I think typically your first quarter is, you know, up, you know, somewhere in the low single digit. Is that kind of the way you're thinking about seasonal trends into the first quarter?

Seasonal is an interesting word now. It's hard to say what's seasonal right now. You're right. In the past, Q1 did see some increase because of a Q4. Q4 is just a comment about Q4. It's not a 13-week quarter. It's a 12-week quarter. Customers tell us that they're going to be closing between Christmas and New Year's. So we're really running a shorter quarter to have flat revenue. So we see that we are making a good push. Q1, Chinese New Year's in February. We're watching order activity now based on lead times to see, is the customer going to be bringing in product before Chinese New Year or setting the stage for after? So I would say that's the seasonal effect that's there that is... Common Q1 after Q1 is Chinese New Year. However, industrial programs, aerospace defense spending, the push to replenish the weaponry, I don't think we're in anything that could be considered seasonal. Automotive, with what's happening with shortages and preventing line downs, we're doing our best to support OEMs that are coming to us in Tier 1. So I don't think I could put seasonality on that one. The industrial grid designs and those projects continue to move positively. Plus then medical. Medical has always depended on FDA approval of programs. So if I said seasonal for compute or because of the China New Year holiday, I think that's the only part of seasonal I would consider. We see the better bookings again in October at 1.15 right now, that run rate. If that continues, that sets us up for a better Q1.

And then just going back to the gross margin dynamics, you mentioned that, you know, the Newport headwind is going to roll off in the first quarter, and then you're going to be potentially passing some of the middle classes. And so what's the kind of the right base level to think about the margins, you know, as we kind of look into Q1?

We don't normally guide that far ahead. We're guiding for Q4. We are diligent in our cost improvement projects internally. The negotiation season is now with the large customers that have annual contracts. So too early to say we have a result of what the ASP change might be. I think we need a little more time yet to really dial in what the impact of, in particular, those negotiations, the results of those negotiations is going to be.

Okay. And then last quarter, I think you mentioned about, you know, a change in board configuration, you know, at that large customer and that you guys are working to qualify. Maybe you can provide some update on that progress.

Okay, we are always connected to the AI design centers. I mentioned we have branched out to a number of AI companies and building the hardware. Continuing to talk with the main players, continuing to offer more Vichay products, whether it's MOSFETs and ICs, that's what gets all the attention in the conversation. So we're in design activity there. Plus the passive components. the capacitors, the resistors, the inductors. So we take a large, a wide umbrella, a big toolbox, and we go into the AI leaders, and we promote the broad portfolio. We're gaining good traction. We're getting good design and print position.

Okay. One more, if I may. Just follow up on the experience situation. You know, I know you guys are not baking any revenue, but what's, what's the potential, how mature of an impact could this be to your business? And you kind of, you know, talk to your customers, maybe a sense of what the magnitude is.

We we're crossing part numbers. We're helping automotives with avoiding lined outs. And it's not just for shame. There's other suppliers, our competitors, who are also helping this because we need to make sure the automotives are running and they don't have to do production stops because that impacts more than just Nexperia's volume. It impacts everybody. So I think what I'm hearing on the street is everybody is taking the opportunity to help. Bechet, with the lineup of products, We crossed to the best of our ability, but the automotives have to make decisions on how does the program perform with a Bechet product in it or another competitor's product in it. So it takes some time. We like the conversations we're in. We're being given a great opportunity to tell the automotive OEM and tier one more about Bechet. They like what they hear. They'd like to hear about our footprint. They may not have known much about us in the past, the OEMs. So it's hard to put a number on it at this point. It's so dynamic. Because it's geopolitical, things could change in a moment. We saw what happened with April 2nd and the announcement of tariffs and how that changed the business in a moment. We saw what happened here now with the geopolitical announcements of China and the Dutch about Nexperia. So I think it's too early for us to really put any type of number on it. There's too many moving parts.

Great. Thank you, guys.

Thanks, Peter.

I'm showing no further questions at this time. I would like to turn it back over to management for closing remarks.

All right. Thank you, Raven. Thank you, everyone. Thank you for joining us on our third quarter earnings call. The combination of directionally positive signal and Bichet's capacity readiness is encouraging. We look forward to reporting our fourth quarter results to you in February. Thank you very much. Have a good day.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.