Vishay Intertechnology, Inc. (VSH)

Executive Summary / Key Takeaways

• Vishay 3.0's Capacity Bet Is Showing Early Teeth: After nine quarters of inventory digestion, Vishay finally posted a positive book-to-bill ratio in Q1 2025, with October 2025 run-rate hitting 1.15. This signals the prolonged semiconductor downturn may be ending, but the real story is whether $2.6 billion in capacity investments can capture the coming wave.

• Newport Fab: The 720 Basis Point Albatross: The Newport wafer fabrication facility is crushing MOSFET segment gross margins by 720 basis points in Q3 2025, turning what should be a growth engine into a profit drag. Management's promise of margin neutrality by Q1 2026 is credible but represents the single largest swing factor in the investment thesis—get it right, and overall gross margins expand 150-200 bps; get it wrong, and the Vishay 3.0 narrative collapses.

• AI and Megatrends Create Multi-Segment Tailwinds: AI-related revenue more than doubled quarter-over-quarter in Q1 2025, while smart grid infrastructure wins—including the first U.S. high-voltage DC power transmission program—are driving 20.2% year-over-year growth in capacitors. This diversification across five end markets (automotive, industrial, AI, aerospace/defense, medical) is Vishay's structural advantage over specialized competitors.

• Metals and Tariffs Mask Underlying Earnings Power: Gold prices up 48% and silver up 59% year-to-date, combined with 50 basis points of tariff impact, are compressing margins across all segments. These headwinds are temporary and manageable, but they obscure the operational leverage that should emerge as Newport ramps and volume normalizes.

• Valuation at 0.69x Sales Prices In Transformation Risk, Not Recovery: Trading at $15.20 with an enterprise value of $2.66 billion (0.89x revenue), the market is pricing Vishay as a cyclical commodity player, not a company poised for margin expansion and market share gains in structural growth markets. The risk/reward is attractive if Newport executes and AI demand proves durable.

Setting the Scene: The 60-Year-Old Startup

Vishay Intertechnology, incorporated in Delaware in 1962, has spent six decades building one of the world's broadest portfolios of discrete semiconductors and passive electronic components. What began as a traditional manufacturer of resistors and diodes has evolved into a critical enabler of every major electronic megatrend, from automotive electrification to AI data centers to smart grid infrastructure. The company operates across six functional segments—MOSFETs, Diodes, Optoelectronics, Resistors, Inductors, and Capacitors—serving end markets that represent over $50 billion in combined addressable market.

The pivotal moment came in January 2023 with the launch of "Vishay 3.0," a strategic transformation that committed $2.6 billion in capital expenditures through 2028 to expand manufacturing capacity and reposition the company for the next decade of growth. This wasn't a defensive move; it was an aggressive bet that the industry cycle would turn and that customers would reward suppliers who could guarantee volume and reliability. The strategy centers on a "Think Customer First" culture, leveraging Vishay's breadth to cross-sell across megatrends like e-mobility and sustainability.

For the past two years, this transformation has faced a perfect storm: a prolonged inventory digestion cycle that depressed volumes, soaring metals prices that compressed margins, and the ramp-up costs of the Newport fab acquisition that turned MOSFETs from a profit engine into a loss leader. But as we enter 2025, the signals are shifting. The book-to-bill ratio turned positive for the first time in nine quarters. AI revenue is doubling quarterly. The Newport fab has installed all silicon and silicon carbide tools. The question for investors is whether these green shoots can grow into a forest of profits before the market loses patience.

Technology, Products, and Strategic Differentiation: The "Toolbox" Advantage

Vishay's core competitive moat is its breadth. While ON Semiconductor (ON), Infineon (IFNNY), and STMicroelectronics (STM) specialize in power semiconductors, and Murata (MRAAY) dominates passives, Vishay is the only major player that can supply over 80% of the bill of materials for power applications across both active and passive components. This matters because it transforms Vishay from a component vendor into a solutions partner. When an AI server designer needs MOSFETs for power conversion, polymer tantalum capacitors for GPU chipsets, current sense resistors for monitoring, and inductors for noise suppression, Vishay can offer a pre-qualified, interoperable suite. This reduces design risk, simplifies procurement, and creates switching costs that pure-play competitors cannot match.

The Newport fab acquisition exemplifies this strategy. Purchased to advance Vishay's silicon carbide capabilities, Newport represents a $2.6 billion commitment to capturing the EV and renewable energy markets where SiC MOSFETs offer substantially higher efficiency than traditional silicon. By Q3 2025, all silicon and SiC wafer tools were installed, with production ramp-up initiated for two new technologies. The facility is undergoing automotive customer audits, and IATF certification for automotive-grade inductors was completed at the La Laguna, Mexico facility. This vertical integration—owning wafer fabrication rather than relying on foundry partners—gives Vishay control over quality, capacity, and cost structure, but it comes with a brutal near-term penalty: 720 basis points of gross margin drag in Q3 2025 alone.

The subcontractor initiative, which has qualified over 9,000 part numbers, is the other side of the coin. By outsourcing commoditized production, Vishay frees internal capacity for high-growth, high-margin products like AI-related components and automotive-grade passives. This dual strategy—vertical integration for strategic technologies, outsourcing for scale—positions Vishay to capture both the premium and volume ends of the market.

In AI, Vishay is leveraging its "toolbox" to expand beyond MOSFETs. AI-related revenue more than doubled in Q1 2025, driven by design wins in power structures for AI servers. The company is supplying polymer tantalum capacitors for GPU chipsets, ultra-low DC resistance inductors for multiphase converters, and current sense resistors for power monitoring. This isn't just a MOSFET story; it's a portfolio play that increases Vishay's content per AI server by 3-5x compared to traditional computing.

Financial Performance & Segment Dynamics: The Newport Shadow

Vishay's Q3 2025 results reveal a company in transition. Revenue of $790.6 million grew 8% year-over-year, driven by volume increases and favorable foreign currency impacts. The book-to-bill ratio of 0.97 was the first sub-1 reading in 2025, but October's run-rate of 1.15 suggests this was a temporary dip rather than a trend reversal. Backlog held steady at $1.2 billion (4.4 months), indicating stable demand visibility.

The profit picture is more complex. Gross margin of 19.5% was flat sequentially but down significantly year-over-year, dragged by three factors: metals inflation (gold +48%, silver +59% YTD), tariff impacts (50 basis points net), and the Newport fab drag. The Newport impact improved from 1,000 basis points in Q1 to 840 basis points in Q2 to 720 basis points in Q3, showing operational progress, but this still represents a massive headwind that turned MOSFETs from a growth driver into a margin killer.

MOSFETs: The Battleground Segment
MOSFET revenue grew 13.6% year-over-year to $167.1 million, driven by strong demand from distribution and OEM customers in automotive and computing, particularly in Asia. This should be a victory lap—double-digit growth in Vishay's largest semiconductor segment. Instead, gross margin collapsed to 10.1% from 11.7% a year ago, and segment operating margin is a paltry 3.8%. Why? The Newport fab is running at low utilization as it qualifies new technologies and builds inventory for customer approvals. Management expects Newport to be margin neutral by Q1 2026, which would add 150-200 basis points to overall corporate gross margin. The credibility of this forecast is the single most important variable in the investment thesis. If Newport hits neutrality on schedule, Vishay's earnings power is dramatically higher than current numbers suggest. If it slips to mid-2026 or later, the market will lose faith in the Vishay 3.0 narrative.

Resistors: The Steady Cash Cow
Resistors represent Vishay's heritage and stability. Revenue grew 8.2% year-over-year to $195.7 million, with gross margin of 20.1%. While this is down from 22.5% a year ago due to higher materials costs and lower average selling prices, it remains the most profitable large segment. Vishay is a global leader in resistors, and this segment provides the cash flow that funds the Newport investment. The planned closure of two small facilities in Fichtelberg, Germany and Milwaukee, Wisconsin in 2026 will further optimize the cost structure.

Capacitors: The Smart Grid Winner
Capacitors are Vishay's fastest-growing segment, with revenue up 20.2% year-over-year to $130.6 million. Gross margin of 20.1% is down from 22.9% a year ago, but the growth trajectory is compelling. Vishay won its first U.S. high-voltage DC power transmission program in Q1 2025, securing 100% share of that business. With global smart grid infrastructure spending accelerating—driven by government stimulus in China, India, and the U.S.—this segment is positioned for sustained double-digit growth. Orders for high-voltage DC capacitors are an early indicator of improving industrial demand.

Inductors: The Hidden Gem
Inductors may be Vishay's most underappreciated segment. Revenue of $92 million was flat year-over-year, but gross margin of 30.7% is the highest in the company. The completion of IATF certification for automotive-grade inductors at La Laguna, Mexico opens doors to over 20 automotive OEM site approvals. As automotive electrification increases electronic content by 50% in hybrid powertrains versus ICE vehicles, Vishay's inductor content per vehicle is growing substantially.

Diodes and Optoelectronics: The Mixed Bag
Diodes grew 3.1% year-over-year with stable 20.3% gross margins, while optoelectronics declined 12.1% with 22.9% margins. The opto weakness reflects softness in medical, industrial, and telecommunications markets, particularly in Asia. This segment is a candidate for further outsourcing or potential divestiture if performance doesn't improve.

Outlook, Management Guidance, and Execution Risk

Management's Q4 2025 guidance calls for revenue of $790 million (plus/minus $20 million) and gross margin of 19.5% (plus/minus 50 basis points), with Newport continuing to drag margins by 150-175 basis points. This implies minimal sequential improvement, reflecting typical Q4 seasonality and ongoing metals cost pressures. SG&A is expected at $138 million, with tax expense of $4-8 million.

The more important commentary concerns 2026. CEO Joel Smejkal outlined five market drivers supporting mid-single to high-single digit growth: aerospace/defense (government spending), smart grid infrastructure (government stimulus), AI servers, automotive electrification, and industrial recovery. This is the first time in years that Vishay has had five concurrent growth vectors, compared to previous cycles where only one or two segments drove demand.

The October book-to-bill of 1.15 is particularly encouraging. While Q3's 0.97 reading spooked some investors, management emphasized that orders accelerated sharply in October across all products. If this momentum continues, it sets up a strong Q1 2026, typically a seasonally weak quarter due to Chinese New Year. The key question is whether this represents true demand recovery or just customers pulling in orders ahead of price increases.

On Newport, management's conviction remains high. The fab is on track for silicon carbide pre-production in early 2026, with all tools installed and automotive qualifications progressing. The target of margin neutrality by Q1 2026 is aggressive but achievable if utilization rates reach 60-70% and yield improvements continue. The 720 basis point drag in Q3 represents peak pain; every quarter of progress reduces the headwind and brings Vishay closer to its normalized earnings power.

Risks and Asymmetries: What Could Break the Thesis

The most material risk is Newport execution. If automotive qualifications slip or yield improvements stall, margin neutrality could be pushed to mid-2026 or later. This would extend the period of depressed earnings and could force Vishay to take additional restructuring charges. The $178.5 million of CapEx spent in the first nine months of 2025, with $43 million in Q3 alone for capacity expansion, represents a significant cash burn that cannot be sustained indefinitely without margin recovery.

Metals price inflation is another headwind. While Vishay is preparing to pass these costs to customers through annual contract negotiations, the 48% increase in gold and 59% increase in silver year-to-date is unprecedented. If metals continue to rally, the pass-through may lag, compressing margins further. The 50 basis point tariff impact in Q3 could worsen if trade tensions escalate, though Vishay's exposure is limited (less than 4% of sales are China-origin products sold to U.S. customers).

On the demand side, the AI boom could prove more cyclical than structural. While AI server demand is strong today, it is concentrated in a handful of hyperscalers. If CapEx plans slow or if competitors like ON Semiconductor and Infineon capture more share with superior SiC solutions, Vishay's AI growth could disappoint. The company's silicon-based MOSFETs are reliable but lack the efficiency advantages of SiC in high-power applications.

Geopolitical risks loom large. The Nexperia export restrictions have created short-term opportunities for Vishay to support automotive customers with line-down situations, but these are small, shortage-quantity orders that don't materially impact revenue. More concerning is the potential for broader China-U.S. decoupling that could disrupt Vishay's supply chain or limit access to the Chinese market, which represents a meaningful portion of sales.

The asymmetry works both ways. If Newport achieves neutrality on schedule and AI demand accelerates, Vishay's earnings power could be 30-40% higher than current levels suggest. The combination of 150-200 basis points of margin expansion, mid-single digit revenue growth, and operating leverage would drive significant EPS growth. The market's 0.69x sales valuation doesn't price in this recovery scenario.

Competitive Context: The Specialist vs. The Generalist

Vishay's competitive positioning is unique. Against ON Semiconductor (gross margin 40.3%, operating margin 18.5%), Vishay's 19.5% gross margin looks anemic. ON's focus on power semiconductors and SiC integration gives it superior pricing power in automotive and AI applications. Similarly, Infineon's 41.1% gross margin and 26.3% operating margin reflect its leadership in wide-bandgap technologies and system-level solutions.

However, Vishay's breadth is its defense. While ON and Infineon excel in power semis, they lack meaningful presence in passives. This matters because modern electronic systems require tight integration between active and passive components. Vishay can offer a complete power management solution—MOSFETs, diodes, capacitors, inductors, and resistors—while competitors must partner or leave money on the table. This "toolbox" approach increases Vishay's content per system and creates customer stickiness.

Diodes Incorporated (DIOD) (gross margin 31.6%, operating margin 3.1%) is a closer peer in terms of product mix, but at one-third the revenue scale, it lacks Vishay's bargaining power with suppliers and customers. STMicroelectronics (gross margin 34.6%, operating margin 6.6%) competes directly in MOSFETs and diodes but has less passive exposure.

The key differentiator is Vishay's manufacturing strategy. While competitors rely heavily on foundry partners for advanced nodes, Vishay's Newport fab gives it captive capacity for SiC and silicon MOSFETs. This vertical integration is painful today but could become a significant advantage if the industry faces capacity constraints in the next upturn. The subcontractor initiative, with 9,000 qualified part numbers, provides flexibility to scale without massive capital investment.

Valuation Context: Pricing In the Pain, Not the Gain

At $15.20 per share, Vishay trades at an enterprise value of $2.66 billion, or 0.89x trailing twelve-month revenue of $2.94 billion. This 0.69x price-to-sales multiple places Vishay firmly in cyclical commodity territory, comparable to mature industrial companies rather than technology players with exposure to AI and electrification megatrends.

The valuation metrics reflect the margin compression story. Gross margin of 19.45% trails all major competitors: ON at 40.3%, DIOD at 31.6%, STM at 34.6%, and Infineon at 41.1%. Operating margin of 2.19% is similarly depressed, though this includes the 720 basis point Newport drag. Profit margin is negative at -2.56% due to the same factors.

Cash flow metrics tell a more nuanced story. Price-to-operating cash flow of 20.09x is higher than ON's 12.54x but lower than Infineon's 15.21x, suggesting the market is starting to price in some recovery. However, free cash flow is negative $146.4 million over the trailing twelve months due to the heavy CapEx program, making traditional FCF-based valuation impossible.

The balance sheet provides flexibility. With a current ratio of 2.67 and debt-to-equity of 0.50, Vishay is not overlevered. The $750 million revolving credit facility, with no principal payments due until 2028, provides liquidity to fund the Newport ramp. However, the company is in a net borrowing position in the U.S. with $189 million outstanding on its revolver, which limits near-term share buyback capacity.

Comparing multiples to peers is challenging due to the margin differential. If Vishay achieves Newport neutrality and returns to historical gross margins of 23-25%, the EV/revenue multiple would compress to 0.7-0.8x, making it attractive relative to peers trading at 1.5-3.7x sales. The key is that the market is pricing Vishay as if the Newport drag is permanent, while management's guidance suggests it is temporary.

Conclusion: The Moment of Truth Approaches

Vishay Intertechnology stands at a critical inflection point. After two years of margin compression from inventory digestion, metals inflation, and Newport ramp costs, the company is finally seeing demand signals firm up. The October book-to-bill of 1.15, AI revenue doubling quarterly, and smart grid wins creating 20% growth in capacitors all point to a recovery in progress.

The central thesis hinges on Newport execution. The 720 basis point drag on MOSFET margins represents peak pain, and management's Q1 2026 neutrality target is both aggressive and achievable. If successful, this alone would drive 150-200 basis points of corporate margin expansion, transforming Vishay's earnings power. The risk is that qualifications slip or yield improvements stall, extending the drag and eroding market confidence.

Competitively, Vishay's breadth is its moat. While ON, Infineon, and STM excel in specialized power semis, none can match Vishay's ability to supply 80% of a system's components. This matters more as systems become more complex and customers prioritize supply chain simplification. The subcontractor initiative and vertical integration strategy position Vishay to capture both premium and volume opportunities.

Valuation at 0.69x sales prices in permanent margin degradation, not cyclical recovery. For investors willing to bet on Newport execution and AI demand durability, this creates an attractive risk/reward. The path to 23-25% gross margins and mid-single digit revenue growth would drive significant earnings leverage, likely re-rating the stock to 1.0-1.2x sales, implying 40-60% upside.

The critical variables to monitor are Newport utilization rates, metals cost pass-through success, and AI design win conversion. If these align in 2026, Vishay's 3.0 transformation will transition from promise to profit. If not, the company remains a cyclical commodity player facing structural headwinds. With the stock at $15.20, the market is offering a favorable entry point for those who believe in execution.