Business Overview
Vishay Intertechnology, Inc. (VSH) is one of the world's largest manufacturers of discrete semiconductors and passive electronic components. The company's diverse portfolio of products is essential to innovative designs across a wide range of industries, including automotive, industrial, computing, consumer, telecommunications, military, aerospace, and medical. With a rich history spanning over six decades, Vishay has established itself as a trusted partner, continuously evolving to meet the ever-changing needs of its customers.
Founded in 1962 by Dr. Felix Zandman, Vishay began as a small resistor company in Pennsylvania. Throughout the 1960s and 1970s, the company rapidly expanded its product portfolio and grew both organically and through strategic acquisitions. In 1985, Vishay adopted a new business strategy focused on growth through focused research and development as well as acquisitions, which allowed the company to rapidly expand its product offerings and global footprint over the following decades. A significant acquisition was Siliconix in 1998, which strengthened Vishay's position in the power management and analog semiconductor markets. Despite facing challenges in the early 2000s, including the dot-com bust and the global financial crisis, Vishay navigated these headwinds by maintaining a strong balance sheet and continuing to invest in new technologies and capabilities. In the 2010s, the company expanded further into emerging markets and diversified its end-market exposure beyond the core industrial, automotive, and telecommunications sectors. Today, Vishay operates in six business segments - MOSFETs, Diodes, Optoelectronic Components, Resistors, Inductors, and Capacitors, serving customers globally through its manufacturing sites and sales offices around the world.
Vishay's "Vishay 3.0" strategic plan focuses on expanding capacity, driving innovation (particularly in silicon carbide technology), optimizing its manufacturing footprint, and enhancing operational efficiency and customer engagement. This plan aims to position the company for long-term growth and success in the evolving electronics industry.
Financials
Vishay's financial performance has been solid, with the company reporting annual revenue of $3.40 billion and net income of $323.82 million for the fiscal year 2023. Operating cash flow for 2023 was $365.70 million, with free cash flow of $36.29 million.
During the third quarter of 2024, Vishay reported revenue of $735.35 million, a slight decrease of 0.8% compared to the previous quarter and a 13.9% decrease year-over-year. The decline in revenue was primarily due to lower sales volume and a 4.7% decrease in average selling prices. Net income for the quarter was a loss of $19.30 million, or $0.14 per diluted share, compared to earnings of $23.50 million, or $0.17 per diluted share, in the previous quarter. The company's gross profit margin for the quarter was 20.5%, down from 22.0% in the prior quarter and 27.8% in the prior year quarter, primarily due to lower sales volume, decreased average selling prices, and increased depreciation expense. Operating cash flow for Q3 2024 was $50.56 million, with free cash flow of -$8.96 million.
Performance across Vishay's six product segments varied in the third quarter of 2024:
1. MOSFETs Segment: This segment saw declines in net revenues, gross profit margin, and operating margin compared to prior year periods, primarily due to lower sales volume, decreased average selling prices, and the impact of the Newport wafer fab acquisition.
2. Diodes Segment: Similar to MOSFETs, this segment experienced decreases in net revenues, gross profit margin, and operating margin versus the prior year, largely due to lower sales volume and lower average selling prices.
3. Optoelectronic Components Segment: Results were mixed, with net revenues increasing from the prior quarter but declining from the prior year, while gross and operating margins decreased compared to both prior periods.
4. Resistors Segment: Net revenues were relatively flat compared to the prior quarter but declined versus the prior year, while margins decreased compared to both prior periods.
5. Inductors Segment: Net revenues increased slightly from the prior quarter but remained relatively flat compared to the prior year. Gross and operating margins decreased compared to the prior year.
6. Capacitors Segment: This segment saw decreases in net revenues compared to both the prior quarter and prior year, with margins also lower versus the prior periods.
Liquidity
The company's liquidity position remains strong, with $972.72 million in cash and cash equivalents and a current ratio of 2.81 as of the end of 2023. Vishay's debt-to-equity ratio of 0.39 and interest coverage ratio of 19.99 indicate a prudent capital structure and the ability to service its debt obligations. The company's quick ratio stands at 1.85, further demonstrating its strong liquidity position.
Vishay has a $750 million revolving credit facility, of which no amount was outstanding as of September 28, 2024. The facility has certain financial covenants, with which the company was in compliance.
Recent Performance and Industry Trends
Vishay's performance in the third quarter was impacted by a prolonged period of inventory destocking across the industry, as industrial customer demand remained sluggish. Additionally, the macroeconomic conditions in Europe worsened, leading to reduced orders from automotive customers in the region. However, the company continues to see positive trends in smart grid infrastructure, military and defense, and AI server applications, which are expected to drive future growth.
To address the current challenges, Vishay announced a restructuring program in the third quarter, designed to optimize its manufacturing footprint and streamline business decision-making. The program is expected to generate annualized cost savings of approximately $23 million, including $12 million in SG&A expenses, when fully implemented by the end of 2026.
Strategic Initiatives and Future Outlook
Despite the short-term headwinds, Vishay remains focused on executing its long-term strategic plan, known as "Vishay 3.0". This plan aims to enhance the company's customer-centric approach, expand its product portfolio, and increase manufacturing capacity to capitalize on the growing demand in key markets, such as e-mobility, sustainability, and connectivity.
One of Vishay's key strategic initiatives is its expansion into the silicon carbide (SiC) semiconductor market. The company is making significant progress in commercializing its 1,200-volt planar technology, with plans to release additional SiC MOSFET products in the coming quarters. These SiC-based solutions are expected to play a crucial role in powering the next generation of traction inverters and onboard chargers for electric vehicles, as well as various industrial and renewable energy applications.
Furthermore, Vishay is leveraging its broad product portfolio and customer relationships to increase its share of customer bills of materials. The company has been actively adding new products through acquisitions, such as Ametherm, and partnerships with subcontractors, expanding its offerings in areas like inrush current limiting and temperature sensing. This diversification strategy is designed to position Vishay as a strategic supplier capable of fulfilling a wider range of customer needs.
Vishay's long-term outlook remains positive, as the company's products are essential components in the growing all-electric ecosystem. The global trends towards electric mobility, renewable energy, and smart grid infrastructure are expected to drive increased demand for Vishay's semiconductor and passive solutions. The company's strategic initiatives, coupled with its strong financial position, position it well to navigate the current industry challenges and capitalize on future growth opportunities.
While the third quarter results reflect the ongoing industry downturn, Vishay's management team remains focused on executing its strategic plan, optimizing operations, and positioning the company for long-term success. With its diversified product portfolio, customer-centric approach, and commitment to innovation, Vishay Intertechnology is poised to play a pivotal role in shaping the all-electric future.
Guidance and Future Expectations
For the fourth quarter of 2024, Vishay expects revenue to be $720 million, plus or minus $20 million. The company anticipates a gross margin of 20.0%, plus or minus 50 basis points. Depreciation expense is expected to be approximately $53 million, while SG&A expenses are projected to be $126 million, plus or minus $2 million.
Looking at the full year 2024, Vishay expects a normalized effective tax rate of approximately 31%. The company continues to invest in expanding manufacturing capacity, particularly in the MOSFETs and Diodes segments, to support its long-term growth plans.
It's worth noting that Vishay's third-quarter 2024 performance was in line with their previous guidance. The company reported revenue of $735.4 million, which fell within the range they had provided. However, the gross margin of 20.5% was 150 basis points lower than the previous quarter. SG&A expenses of $128.5 million were in line with their guidance, while depreciation expense of $51 million was slightly under their projection.
Vishay continues to monitor key financial metrics, including gross profit margin, operating margin, segment operating income and margin, end-of-period backlog, book-to-bill ratio, inventory turnover, and changes in average selling prices. These indicators help the company assess its performance and make strategic decisions in response to market conditions and industry trends.