Vishay Intertechnology, Inc. (VSH) is a global manufacturer of one of the world's largest portfolios of discrete semiconductors and passive electronic components. The company has a strong presence across diverse end markets, including automotive, industrial, computing, consumer, telecommunications, military, aerospace, and medical. With a strategic focus on capacity expansion, innovation, and customer engagement, Vishay is well-positioned to capitalize on the growing demand for its products and drive long-term shareholder value.

Financials

In the fiscal year 2023, Vishay reported annual net income of $323.82 million and annual revenue of $3.40 billion. The company's annual operating cash flow stood at $365.70 million, while its annual free cash flow reached $36.29 million. These robust financial results demonstrate Vishay's ability to generate consistent profitability and cash flow, even in the face of macroeconomic challenges.

For the first quarter of 2024, Vishay reported revenue of $746.3 million, slightly above the midpoint of its guidance range. The company's gross profit margin for the quarter was 22.8%, while operating income came in at $42.7 million, resulting in an operating margin of 5.7%. Net earnings attributable to Vishay stockholders for the quarter were $30.9 million, or $0.22 per diluted share.

Segmental Performance

Vishay operates in six reportable segments based on product functionality: MOSFETs, Diodes, Optoelectronic Components, Resistors, Inductors, and Capacitors. During the first quarter of 2024, the company's performance across these segments was mixed, reflecting the ongoing inventory digestion and demand challenges in certain end markets.

The MOSFETs segment reported a 22.7% year-over-year decline in net revenues, primarily due to decreased sales to distributor customers and customers in all regions. Gross profit margin for the segment decreased to 16.6%, down from 36.8% in the prior-year quarter, driven by lower average selling prices, costs associated with the Newport wafer fab acquisition, and lower sales volume.

The Diodes segment saw a 15.1% year-over-year decrease in net revenues, also impacted by decreased sales to distribution customers and industrial and automotive end market customers across all regions. Gross profit margin for the Diodes segment declined to 21.7%, compared to 27.4% in the first quarter of 2023.

In contrast, the Inductors segment reported a 10.3% year-over-year increase in net revenues, driven by higher sales to automotive and military and aerospace end market customers, as well as customers in the Americas region. Gross profit margin for the Inductors segment improved to 30.2%, up from 29.5% in the prior-year quarter.

Capacity Expansion and Innovation Initiatives

To support its growth strategy and meet the increasing demand from customers, Vishay is executing a comprehensive plan to expand its manufacturing capacity. The company is investing $435 million in capital expenditures in 2024, as part of a broader $2.6 billion investment plan for the period 2023 to 2028.

Vishay's capacity expansion initiatives include: 1. Internal capacity expansion projects, such as the doubling of its inductor and current sense resistor production capacities in Mexico, and the expansion of its diode production capacity in Taiwan and Italy. 2. External capacity expansion through partnerships with key foundries in Korea, where Vishay is planning to complete six technology transfers of MOSFETs and ICs in 2024, with the goal of increasing its annualized MOSFET capacity by 11% in 2025. 3. The acquisition of Nexperia's wafer fabrication facility in Newport, Wales, which will serve as a manufacturing excellence center and the home for Vishay's silicon carbide (SiC) MOSFET and diode development and scaling.

In addition to capacity expansion, Vishay is also focused on driving innovation to support the growing demand for its products in key end markets. The company has made significant progress in its SiC technology development, with the launch of its Gen 3 1200V SiC Schottky diodes, which offer improved efficiency and reliability in switching power designs. Vishay is also working to develop 1200V, 1700V, and 650V SiC MOSFET technologies, which it plans to further advance at the Newport facility.

End Market Dynamics and Outlook

Vishay's diverse end market exposure has provided some resilience in the face of macroeconomic headwinds. While the company's industrial and computing segments have faced softening demand due to ongoing inventory digestion, its automotive, aerospace and defense, and medical segments have shown more robust performance.

In the automotive market, Vishay has seen continued strong design activity and design wins, particularly in areas such as ADAS and e-mobility, including battery management systems, traction inverters, and onboard chargers. Despite some near-term moderation in EV demand, the company remains engaged with OEMs and Tier 1 suppliers for next-generation EV projects.

The aerospace and defense market has been a bright spot for Vishay, with revenue increasing 34.2% year-over-year in the first quarter of 2024. The company's presence on the United States Department of Defense qualified parts list has positioned it well to capitalize on the strong demand for military and commercial aviation products.

For the second quarter of 2024, Vishay expects revenue to be $750 million, plus or minus $20 million, with a gross margin in the range of 21.7%, plus or minus 50 basis points. The company anticipates that the ongoing inventory correction will extend through the second quarter, with a recovery in the second half of the year, particularly for its passive product lines.

Liquidity

Vishay maintains a strong balance sheet, with $833 million in cash and short-term investments as of the end of the first quarter of 2024. The company's net cash and short-term investments (debt) position stood at $14.6 million, providing ample liquidity to fund its growth initiatives and capital allocation priorities.

In 2022, Vishay's Board of Directors adopted a Stockholder Return Policy, which calls for the company to return at least 70% of its free cash flow, net of scheduled principal payments of long-term debt, to shareholders annually. During the first quarter of 2024, Vishay returned $26.3 million to shareholders through dividends and share repurchases.

Risks and Challenges

While Vishay's growth prospects remain promising, the company faces several risks and challenges that investors should consider. These include ongoing macroeconomic uncertainties, such as the potential for a global recession, which could impact demand across its end markets. Additionally, the company's capacity expansion and technology development initiatives carry execution risks, and the integration of the Newport wafer fab acquisition could present integration challenges.

Conclusion

Vishay Intertechnology is well-positioned to capitalize on the growing demand for its diverse portfolio of discrete semiconductors and passive electronic components. The company's strategic focus on capacity expansion, innovation, and customer engagement positions it to support the scaling needs of its customers and drive long-term shareholder value. With a strong financial profile, robust liquidity, and a commitment to returning capital to shareholders, Vishay is poised for continued success in the years ahead.