Vishay Intertechnology, Inc. Stock

Good morning, and welcome to Vishay Intertechnology's Second Quarter 2026 Earnings Conference Call. I am joined today by Joel Smejkal, our President and Chief Executive Officer, and by Dave McConnell, our Chief Financial Officer.

This morning, we reported results for our second quarter 2026. A copy of our earnings release is available in the Investor Relations section of our website at ir.vishay.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 refer to a slide presentation, which we also posted on ir.vishay.com. You should be aware that during 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 Vishay'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 and in the presentation posted on ir.vishay.com, which we believe will be 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.

Specifically, as it pertains to our tariff refunds, we are reporting GAAP and adjusted revenue for the second quarter. The second quarter 2026 adjusted net revenues exclude $30.0 million for tariff refunds passed through to customers with no impact on gross profit. The tariff refunds are recognized as reductions of net revenues and cost of products sold in the second quarter 2026 GAAP results.

Adjusted gross margin is calculated using adjusted net revenues. Tariff refunds have not been allocated to a reportable segment, end market, sales channel or region. All following second quarter 2026 measures presented, exclude tariff refunds.

Tariff refunds do not impact any other period presented. On today's conference call, management will refer to adjusted revenues in the analysis of results for the quarter.

Now I turn the call over to President and Chief Executiver, Joel Smejkal.

Thank you, Peter. Thank you, everyone, for joining our call this morning. Let's start the call with a review of the second quarter performance, and Dave will take you through a detailed review of our financial results for the quarter and our guidance for the third quarter of 2026.

After that, I'll update you on the strategic levers we are pulling to drive growth and profitability, and then we'd be happy to answer any of your questions.

For the second quarter, we are reporting adjusted revenue of $919 million, exceeding the top end of our revenue guidance. Revenues are growing faster over the past 5 quarters on strengthening demand, supported by the agility of Vishay 3.0.

Compared to the first quarter, revenue grew 9.5%, 20.5% year-on-year, reflecting continued growth across all Vishay product technologies, our end markets, business channels and regions. Market share gains for both semis and passives came through higher consumption from increasing customer volume and increasing customer count with increasing demand in the industrial segment, AI, aerospace and automotive.

In terms of demand dynamics, our Q2 results are a continuation of Q1. And on a year-to-year basis, our results tell us that Vishay 3.0 is working as designed. With industry lead time stretching, pricing rising and geopolitical tensions remaining, customers are concerned about the availability of products and assurance of supply.

To secure supply, customers are placing orders showing longer visibility. Many customers are forecasting 6 months out with a desire to replenish their own inventories. Demand related to AI applications continues to accelerate, leading numerous customers to place orders beyond 52 weeks to make sure they have a place in our production loading.

Book-to-bill for Q2 was 1.32 with semis at 1.23 and passives higher at 1.40. Q2 is a record high bookings for resistors and inductors. As a result, our total backlog grew 18% to $1.9 billion or 6.1 months.

Having invested $900 million to expand capacity during the recent market trough years, we are reacting much faster than historically to serve more customers. We are demonstrating that we can scale with their volume production while maintaining competitive lead times.

Our book-to-bill is showing us that we are getting turns orders because of the first half '26 improved delivery performance. In the fourth quarter of '25, we began to announce price increases related to increasing cost of metals, materials and logistics.

Price increase announcements continued through Q1 and Q2 this year. At this point, about 1/3 of our running part numbers have announced price increases. We saw some of the price increases land in our Q2 financials.

The attractiveness of our hybrid component business model grows. Our volume manufacturer of both discrete semis and passives helps customers as they search for greater supply of all of these components on their bill of materials. As a reminder, Vishay can populate more than 80% of the components on a board in a power application.

Another point to share, customers are more frequently raising their requests for Western supply of electronic components, which fits very well with our geographical manufacturing footprint and further site optimization projects. Vishay is a technically leading Western located manufacturer. And now with our Vishay 3.0 mindset and customer-serving approach, we can supply them with the product they need.

Let's turn to a review of Q2 revenue, starting with the revenue by end market on Slide 4. All end markets show positive revenue increase with industrial accounting for more than half of the increase.

Industrial revenue increased 16.2% versus Q1 and 30.1% versus prior year, reflecting higher consumption primarily for smart grid, AI power and high-voltage DC projects as well as factory automation.

Bookings increased due to our ability to serve a growing POS through our distribution channel. New programs are launching in the second half of '26 and into '27 with positive demand trends in industrial power for AI, especially as EMS customers accelerate investments in AI-related applications to support data center growth and high-voltage DC transmission. We continued design discussions with customers for humanoids.

To elaborate further on industrial, our bookings increased for industrial power applications for customers who are participating in power conversion and tooling projects for AI data centers. We are increasing our part count on new projects as customers add our passives to AI power management solutions.

Also customers who are not AI-related, that demand is becoming increasingly concerning. These customers need to make sure they have a manufacturing spot in our queue, escalations are increasing.

In automotive, revenue increased 3.6% quarter-over-quarter and 10.1% versus prior year, reflecting ongoing demand as electronic content continues to increase for driver assist and autonomous driving applications, plus the further adoption of hybrid and EV platforms.

Bookings were strong in the Americas as customers are becoming more proactive to share their visibility and backlog placement. In some cases, customers are providing us with forecast for the next 12 to 18 months.

In Asia, we are seeing distributors and OEMs wanting to build safety stocks, but this is challenging in this high-demand market. Aerospace defense revenue increased 4.2% versus the first quarter and 15.4% versus last year, reflecting increasing consumption by U.S. defense contractors related to programs that have been funded, including accelerated replenishment of components to support multiple missile programs.

In Asia and Europe, we are seeing increasing demand from OEM customers and through EMS. Bookings increased sharply from distribution, driven by orders for resistors in preparation for escalating Department of Defense funding.

More products will be needed to support missile programs and also next-generation radar platforms, high-energy weapons for drone defense and drone dominance projects, the Golden Dome, LEO constellations and many more projects.

Healthcare revenue increased 7% versus Q1 and 14.7% versus prior year, with long-standing customers in the Americas ramping production and EMS customers in Asia seeing improving demand and supply assurance uncertainties. We continue to identify opportunities to lever -- leverage the full Vishay portfolio in medical.

In the other category, which includes telecom, computing and consumer, revenue grew 11.3% quarter-over-quarter and 28.4% year-over-year. Share gains, higher consumption drove volume increases for AI-related programs in Asia, as did higher demand for AI optical communication network switches.

In Europe, higher demand for 5G radio projects increased as customers ramp up production. Memory shortages and higher component prices have tempered the consumer segment's demand strength a bit.

Across other end markets and technologies, we continue to proactively tackle a wide array of opportunities to gain share, putting into practice the Vishay 3.0 business-minded approach.

Historically, Vishay underserved or didn't serve high-margin customers during market upcycles. Vishay 3.0 has been working hard to regain these customers where we had the print position but didn't have the capacity to fulfill orders.

I'm pleased to report that we are succeeding at both regaining customers and adding new high-margin growth customers for an overall increase in customer count. We are winning back share and in -- seeing increased design-in and quoting activity.

Let's turn to Slide 5 for a review of Q2 by channel. Revenue by channel was led by distribution, which increased from 55% of the total in Q1 to 58% in Q2. Distribution revenue increased 15.6% versus Q1 and 24.2% versus last year, with gains in each region driven by broad-based consumption momentum and reflecting market share gains.

Based on distribution reports, we are seeing consumption among existing, new and returning customers. Distribution inventory overall decreased to 18 weeks at quarter end from 20 weeks last quarter, and POS increased 4.7% quarter-on-quarter and 20.5% year-on-year with growth in all regions.

Our initiative to expand distributor inventory by part number count and depth during the building of Vishay 3.0 is proving to bring very positive results as we provide strong support in the beginning of this market upcycle. Having a proactive business approach in tune with the availability of product is helping us to win.

Strong bookings by distribution customers, particularly for industrial power, AI-related applications and aerospace defense reflect continued demand momentum, amplified by the need to replenish inventory due to stretching lead times. In the Americas, numerous customers are discussing safety stock programs in support of escalating aerospace defense demand.

Under Vishay 3.0, we are positioning ourselves to provide far more support to more customers, as reflected in our growing POS and increased SKU count. Good customer support opens up more and more new design opportunities for us.

Increasing output to distribution is a top priority, and we are committed to securing share gains and expanding share. Our business unit leaders travel to distributors quarterly to be close to the pulse of the market, gain market visibility and creating more accountability.

OEM revenue was up 1.7% quarter-over-quarter and 16.8% year-over-year, reflecting solid demand related to smart grid and AI server power as well as automotive and medical. EMS revenue increased 3.2% quarter-over-quarter and 10.8% year-over-year, reflecting industrial, aerospace defense and automotive program ramps in all regions, plus strengthening demand in AI.

Let's go to Slide 6 for the regions. Turning to the geographical mix on this slide. Asia accounted for over half of the revenue increase from the first quarter, increased 12.5% from increased consumption.

Sales grew 14.1% in the Americas on increased consumption with orders for passives reaching the highest level we have seen in more than 20 years and semis starting to accelerate as many customers move to volume production. Americas ended the quarter with a book-to-bill of 1.5.

Before turning the call over to Dave, I want to thank the Vishay employees and our reps for their hard work as we continue to transform Vishay to perform positively in this upcycle and to support more customers. Their knowledge and contribution to the success of Vishay 3.0 is well done.

Everyone recognizes that Vishay is growing because of our work as a team. The early stages of this upcycle are here, and everyone is committed to taking full advantage of the opportunities to drive revenue growth and profitability.

Dave, I'll pass the call to you.

Thanks, Joel, and good morning, everyone. Let's start a review of the second quarter results with the highlights on Slide 7. Second quarter GAAP revenue was $889 million.

Adjusted revenue was $919 million, exceeding our guidance range and increasing 9.5% sequentially, driven by strong volume growth of 7% and an increase in average selling prices of 2%.

As a reminder, the difference between the GAAP and adjusted revenue represents the $30 million of tariff refunds received in the second quarter that will be passed through to our customers in the second half of 2026.

Compared to the second quarter of 2025, adjusted revenue increased 21%, driven primarily by an 18% increase in volume and a 2% increase in average selling prices. Favorable foreign currency, mainly from the euro, provided an additional 1% benefit.

Moving on to the next slide, presenting the income statement highlights. Gross profit was $177 million, delivering a GAAP gross margin of 23.3% and an adjusted gross margin of 22.6%. The adjusted gross margin exceeded our guidance and represents an increase versus prior quarter.

Higher volumes and improved pricing conditions drove margin expansion, helping to offset ongoing metals, materials and logistic cost pressures.

Depreciation expense was $53 million, relatively flat with quarter 1. SG&A expenses were $154 million, flat versus quarter 1 and within the line with our guidance. GAAP operating margin was 6%. Operating -- adjusted operating margin was 5.8% compared to 2.6% in the first quarter and 1.4% in the second quarter of 2025.

EBITDA for the quarter was $105 million for an adjusted EBITDA margin of 11.4%, up from 9.3% in the first quarter. Our GAAP effective tax rate is improving as profitability increases, but remains elevated as items such as U.S. taxation of foreign earnings and repatriation taxes continue to have a disproportionate impact on the effective tax rate.

Q2 effective tax rate of 33.7% came in below our guidance range as pretax earnings exceeded expectations. Earnings per share was $0.19 for both GAAP and adjusted compared to $0.05 per share in Q1 and an adjusted loss per share of $0.07 in the second quarter of 2025.

Moving on, Slide 9 provides a summary table detailing revenue, gross margin and book-to-bill ratios across our reportable segments for quick reference. All reportable segments delivered revenue growth quarter-over-quarter and versus prior year.

Turning to Slide 10. In the second quarter, our cash conversion cycle improved to 110 days from 116 days in quarter 1, in part due to our increased sales volume and our continued disciplined working capital management.

DSO improved from 41 days in Q1 to 38 days, primarily due to higher revenues and the impact of our securitization program. Inventory days outstanding improved to 102 days due to increased sales volume.

Overall inventory increased slightly to $807 million, mainly due to the building of safety stock and raw materials and WIP as well as to support the increasing backlog.

Continuing to Slide 11. You can see we generated $105 million in operating cash in the second quarter, which includes the tariff refunds received that were passed through to customers. We continue to deploy cash for capacity expansion projects.

Total CapEx for the quarter was $95 million, including approximately $66 million for our new 12-inch wafer fab in Germany. On a trailing 12-month basis, capital intensity was 10.5%, which is a decrease from 11.3% in the prior year.

Free cash flow for the quarter was $10 million, reflecting the increased operating income as well as the tariff refunds received from the U.S. government and additional net cash inflows related to our accounts receivable securitization program. This compares to the negative $47 million in the first quarter.

Stockholder returns for the second quarter consisted of our $13.6 million quarterly dividend. We did not repurchase any shares in the quarter. During the quarter, though, we completed a public stock offering of 17.25 million shares of common stock and received cash of $830 million net of issuance costs.

At the end of the quarter, our global cash and short-term investment balance was $1.3 billion, and we had $238 million outstanding on our revolver. We used a portion of the proceeds from our public stock offering to repay the outstanding balance on our revolver in July. Our cash and revolver capacity will be used to support an acceleration of our growth initiatives.

At the end of the quarter, we had $423 million accessible on our revolving credit facility at the current EBITDA level. The accessible amount increased to approximately $661 million after the repayment of our credit facility in July.

Moving on to Slide 11 and the guidance. For the third quarter of '26, revenues are expected to be between $945 million and $975 million. At the midpoint, this represents a 21.4% increase year-over-year and a 4.5% increase quarter-over-quarter, taking into account European seasonality.

Gross margin is expected to be in the range of 24.0%, plus or minus 50 basis points, 1 quarter sooner than our goal of exiting the year at 24% quarterly gross margin.

Depreciation expense is expected to be approximately $54 million for the third quarter and $215 million for the full year. SG&A expenses are expected to be $155 million, plus or minus $3 million. We're continuing to invest in R&D and customer-facing activities as the overall business environment improves.

Interest expense is expected to be approximately $7 million for the third quarter. Our GAAP effective tax rate remains elevated at low levels of pretax income and loss. We expect the effective tax rate to become more predictable and in the range of our historical average as earnings grow. For the third quarter '26, we expect the effective tax rate to be between 35% and 40%.

The expected share count for EPS purposes varies based on the average price of our stock during the quarter, primarily due to our convertible debt. Please refer to Slide 21 that displays the range of expected share count for the third quarter.

Finally, our Stockholder Return Policy calls for us to return at least 70% of our free cash flow to stockholders in the form of dividends and stock repurchases. For 2026, we once again expect negative free cash flow due to our capacity expansion plans.

I'll now turn the call back to Joel.

All right. Thanks, Dave. Let's turn to Slide 13 for a review of the strategic levers we are pulling in our efforts to accelerate revenue growth, drive margin expansion and enhance returns.

With the proceeds from our recent equity raise, we have the resources to accelerate our growth plans, allowing us to invest across semis and passive technologies in parallel rather than sequentially.

All of the strategic levers are in play, there are eight of them. Each supports our efforts to accelerate revenue growth and drive margin expansion and enhance returns. We plan to spend between $400 million and $440 million in CapEx in 2026, with about half of that earmarked for the investments we're making in our 12-inch fab in Germany.

At our 12-inch fab in Germany, all of the equipment has been assembled. And we plan to complete installation in the third quarter, so we are ready to start running engineering wafers toward the end of the year. We remain on track with our goal of starting nonautomotive production in mid-2027.

At several foundries, we are now ramping up production, which will give us additional wafer capacity to support AI-related application demand starting in the second half of the year.

To support the front-end wafer investments, we are working on an initiative to have more dedicated Vishay back-end capacity to reduce our dependency on multiple outside subcontractors. On the passive side, automotive qualifications at our La Laguna and Juarez facilities are ongoing.

We are also increasing capacity on our polymer capacitor production by the end of the year, and we will have started an expansion of that capacity in La Laguna. With expanded capacity, we will be able to support more AI and automotive applications.

Through our subcontractor initiatives, we continue to expand our portfolio available for distribution. This positions us to increase our share for the customer bill of materials and outsource low-margin commercial-grade products.

Our equity raise also gives us more resources to expand our research and development activities and to reignite a disciplined, value-accretive M&A process.

In terms of innovation and our new product development work, we are continuing to execute our silicon carbide strategy and development of GaN to participate in the wideband gap market. To accelerate our innovation work, we are stepping up our evaluation of which technologies to acquire.

At the same time, we continue to work on new applications at the component level. This quarter, we have won designs in the area of industrial power management, smart grid battery backup systems, energy storage systems, power modules for industrial heating, solar inverters and ADAS systems.

Our results year-to-date demonstrate the benefits of our Vishay 3.0 initiatives to put the customer first. We continue to work on the gross margin progression toward 30%, the target of our strategic plan.

Channel management and product mix management are main priorities where we proactively and deliberately direct capacity toward higher-margin customers and products to improve mix as part of our business-minded approach under Vishay 3.0. We are no longer simply supporting specific large OEM accounts by taking orders to maximize factory utilization.

In closing, our second quarter and first half results demonstrate that Vishay 3.0 is working and propelling us forward to not only take full advantage of the upcycle, outpacing industry growth rates, gaining market share, but also to lay the foundation for sustained growth, leveraging multiyear demand across these markets and as a new company, expanding margins and enhancing shareholder returns.

Olivia, we are now ready to open the call for the first question.

[Operator Instructions] Our first question comes from the line of Ruplu Bhattacharya from Bank of America Merrill Lynch.

Joel, maybe can you talk a little bit more about the use of foundries? What utilization are your fabs running at today? And what percent of your manufacturing is at foundries? And can you weave in your expectations for the Newport fab in terms of wafers per month you expect by the end of this year? And same for the fab that's coming up in Germany, what wafers per month capacity are you targeting for 2028?

Ruplu, use of foundries, we have spoke previously about putting our technology structures at foundries in Korea. We have two that we're working with. A additional one in China. Those are coming on board here in the third quarter. That's going to help us increase our capacity for AI wafers and AI end products.

The Newport fab, we continue to have the automotive audits. We're well into the single digits of -- 9 of 10 customer audits have been completed, a couple more to go. Getting the customer programs to accept the PCNs is the next step, and this has taken a little time.

We're working with the customer closely. When we get the Tier 1 customer programs approved, the utilization of the Newport fab will increase. We're expecting to see more and more programs approved every month through the end of the year.

By having those programs approved in Newport, we're able to open capacity in the Itzehoe 8-inch fab, which is going to help us. So the capacity increase second half and into the first half of '27 will be: Itzehoe 8-inch; Korea, two foundries; and another foundry in China.

The 12-inch fab, we talk about first qualifying the nonautomotive commercial parts so we can run the fab much faster than Newport was started. That is still on target for mid-'27. As far as wafer counts, we're not ready to share that at this time. We are making good progress with the fabs and capacity.

Okay. We're also getting some -- so there have been some media reports that for AI applications or power applications, maybe some vendors want to use more MLCCs versus polymer tantalum. Can you give us your thoughts on Vishay's exposure to MLCC? And is that something that you would want to increase over time? Or do you think the exposure to polymer tantalum is more important? And what is your current percent of revenue from polymer tantalum and do you plan to expand that? So just MLCC versus polymer tantalum use and your exposure to those?

MLCC, we have products which are more specialized. The MLCCs that we have is more for military and more for medical. We do get some orders for AI or compute programs when the lead times are long for other -- from other MLCC suppliers. We still see the demand for polymer tantalum, polymer tantalum in automotive, polymer tantalum in AI. So I know there's some talk about MLCCs versus polymer, but we're still seeing demand grow for polymer.

We're expanding our polymer output through the end of this year at the current locations that we're in, and we'll be expanding capacity at a new site in La Laguna, Mexico. So polymer will be a growing part of our portfolio. We see very long lead times from competition, but the interest from customers is still very strong to add Vishay to this product set.

Okay. If I can just squeeze one more in, Dave. Can you talk about like CapEx this year and versus next year, how should we think -- do you think CapEx maintains at this level? Or do you see that increasing or decreasing? And your spend on CapEx versus buybacks, how should we think about capital allocation, if you can give a general framework?

Ruplu. So I think we're sticking with the $400 million to $440 million CapEx this year, okay? We're halfway there through 6 months. Next year we're not going to give you a number yet. I think what we would say though is our capital intensity will continue to drop back down to lower levels and not stay at the 11%, 10% range. Absolute dollars, it still may be a fairly high number, but as a percentage, as capital intensity number, it should drop.

Our next question comes from the line of David Williams with Needham.

Congrats on the really solid progress here. I guess, maybe first on the gross margin line. It seems like you've got some better leverage there, as we've kind of inflected. Just kind of curious how you think about the gross margin?

Obviously, we have your longer term targets and you pulled that forward a bit. You said in the script, maybe a quarter on that 24%. But do you think that we have more room here to grow? And how should we think about this margin kind of going forward, what does that trajectory look like? Has it changed? Or are we still kind of where you thought we would be at this point?

We're happy to accelerate that 24% that we said we were going to exit the fourth quarter. We say we could hit that in Q3. We've got a series of initiatives that are going to help the margin. The short term is the volume for sure. The volume helps us with the variable margin.

ASPs, we're increasing ASPs, and that's also helping the variable and gross margin. The channel management, as we look at our backlog and we position our backlog to support higher-margin customers, that gives us an immediate short-term impact. Each division has annual cost savings targets they need to hit. So those will be rolling in quarter-on-quarter. They don't all happen in the first half of the year. It takes some time through the year to go.

Maximizing the Newport fab, we increase the utilization there to carry cost away and make that even more and more accretive quarter-on-quarter with these automotive program approvals. The Itzehoe 12-inch middle of the '27 is going to start helping us there as well, we'll get the economies of a 12-inch wafer.

The back-end semiconductor finishing, putting that in a low-cost country and reducing our dependency on subcontractors. We've got quite a few of them that are building parts for us. So this will be a help. We won't have to pay the margin of the subcontractor, we can have it in with Vishay.

The factory optimization, we talk about footprint optimization, we got a lot of factories. So this is another initiative which begins in '27, aging in '26, starting in '27, '28, which is another one of the eight, which is going to continue to give us the lift in gross margin. We've got many levers to pull here, and all of them are active.

Yes. I think, David, I think to your point, though, I think what Joel has laid out is '28 number is still not accelerating into the beginning of '27, and we're going to reach the 30% from the Investor Day.

And you talked a little bit about the escalations in the script as well. Just kind of curious if you could talk about how broad-based that was? And are there any concerns here potentially getting to a point where we're double ordering or where things maybe are getting a little out of hand? Or do you think we're still fairly rational in the ordering pace that we're seeing today?

I think at this point, it's still fairly rational. We look at items like the POS. The POS is growing for Vishay, so consumption is going out the door of distribution. The weeks of inventory has gone down each of the quarters.

So the distributors, even though they speak about the need to replenish, they haven't been able to do it. People are placing orders further out because of the concern of the high AI demand that they might miss, other market segments might miss the opportunity to get products. So we're seeing those orders for positioning to their programs.

When I talk to a lot of colleagues across the industry, not seeing the double ordering at this point, there's some long lead time products out there. But at this point, it's supporting consumption. It's supporting demand. We're going to watch it every quarter. We're going to keep watching our indices, our metrics. But at this point, we say we're early. We're early in this upcycle.

Great. And if I could squeeze just one last one in. As you kind of think about the strength within the AI data center, how would you rank that in terms of the demand strength that you're seeing today relative to maybe how you entered the year and what your expectations were? Would you say it's significantly higher, about the same? Or just maybe any color around that?

Demand -- yes, demand for AI is growing with the hybrid model of semis and passives. We're getting more and more passives on the bill of materials. So that's growing. The MOSFETs, the diodes, we've been on the bill of materials.

We need to get the Korean foundry moving here in the third quarter with wafers, and then we can support more of the AI MOSFETs and diodes in the later part of the year. So that's growing. I think we're growing at a good rate, pushing for more for sure. There's more that we could support short term. There's continued escalations not just because of Vishay orders, but we also have opportunities where our competitors are not able to supply, and we're getting those escalation opportunities. So AI has continued strong, and we're pushing to be even a bigger player than we are today.

Our next question comes from the line of Melissa Fairbanks with Raymond James.

Joel, you kind of provided a lot of color behind this already, but I was kind of curious, this is a question that's been coming up on a lot of calls this quarter. You did communicate that there have been some price increases. You expect to see some price increases. It may not technically be double ordering yet, but are you seeing any pull forward related to once you communicate these price increases, people are wanting to get the inventory or the capacity locked in?

Yes. We see the intention, but the way we're doing the price increases, we are updating the backlog rather quickly. So to be able to try and get ahead of the queue and have a ship within weeks, we're updating the backlog to the new price. So we don't see that people are able to get ahead of it. We do see Tier 1 automotives trying to put inventory in place.

OEMs are pushing them to get some inventory in place. But even that's a challenge because of the loads that are in our manufacturing lines, plus we believe our competitors, it's quite difficult for somebody to try and build inventory and get ahead of something. It's a pretty dynamic business we're in. It's growing in all market segments. Capacities are being filled quarter-on-quarter.

As new capacities land, those are being loaded very quickly. So I think the price increases are being implemented, and not just a paper price increase. I think they're real. They're coming quick and it's hard for somebody to pull anything ahead.

Okay. Great. I assume increase in [indiscernible] business within the quarter reflects that as well, but that's not happening. And it would be great if the Tier 1 auto guys could have learned a lesson from the last supply chain crisis, but here we are.

Yes, we have this revolving thing going on here, don't we? Yes.

Yes. One last question from me. To the extent that you are expanding the portfolio available for distribution, and that way you're going to capture more content on a board or more content in a design, is there an aspect of demand creation that we may need to think about in terms of impacting the margin? Or is that just negligible as we look at increasing content?

For the most part, it's negligible. Getting the strength of the distributor FAEs with their design registrations is a good benefit. We've got the Vishay FAEs out there, but when we can multiply the headcount with the distributor FAEs and incentivize them to go out and put Vishay on the bill of materials, it's a plus-plus. So the cost is negligible for us.

I am showing no further questions at this time. I would now like to turn the call back over to Joel for closing remarks.

All right. Thank you, Olivia. To sum up today's call, our Q2 and first half results demonstrate that Vishay 3.0 is working as intended and positioning Vishay to fully participate in the industry upcycle, outpacing industry growth while we continue to gain share and to prepare Vishay for long-term sustainable growth.

In the third quarter, we will be attending the Needham Virtual Semiconductor and SemiCap Conference on August 18, and we'll also be in person at the Citi Global Conference on September 9. Hope to see many of you there. Thank you very much for attending our call. Have a great week.

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

Good morning. Welcome to the second day of JPMorgan's 54th Annual Technology and Media Communications Conference.

My name is Harlan Sur. I'm the semiconductor and semiconductor capital equipment analyst for the firm. Very pleased to have the team from Vishay Intertechnology here with us today. Joel Smejkal, President and Chief Executive Officer. We have David McConnell, Executive Vice President and Chief Financial Officer; and Peter Henrici, Executive Vice President of Corporate Development.

Joel is going to kick us off with a brief overview of Vishay and a presentation, and then we'll go ahead and kick off the Q&A. Thank you.

All right. Thank you very much. Nice to have a chance to present to each of you. I want to give you an overview of Vishay. Vishay has got a lot of change in it, and I thought it was appropriate to show you some slides as to what's different about this company, 60-year-old company. We're a new company. We call ourselves Vishay 3.0. Company name is Vishay Intertechnology, but there's a lot of change. We're in the third leadership of the 60 years.

This began in 2023. We call ourselves a new company, capitalizing on a very large customer base that we underserved over the last decades because we were short on capacity. You're going to see a completely different business approach here. Vishay is different than all the other semiconductor companies that you might compare us to. We're a hybrid. We're a hybrid of semiconductors and passives. We can populate 80% of the components on a PC board in a power application. So it's resistors, it's capacitors, it's inductors, it's opto, MOSFETs and diodes. I just want to give you a quick glance.

If you look at the right side of each one of these blocks, you see the year-on-year growth. I spoke in the last earnings call about our growth in all markets, 22% in Industrial, 26% in Other. Other is AI, Computer, Telecom and Consumer. Automotive, 11% growth year-on-year; Aerospace and Defense, 17% growth year-on-year; and Health Care, 11%. We've done a lot of change in Vishay. I'm going to explain it to you on a few slides in the middle of this presentation, what we're doing. If we look at the channel business, distribution for us is up 19%. EMS is up 22%. It's a big part of our focus that was not a focus of Vishay 2.0. OEM, up 14%. I also mentioned that all channels are positive for Vishay. If we look at regions, Europe is up 16% year-on-year, was up 15% quarter-on-quarter. America is up 18% year-on-year, 9% in the quarter. Asia up 18% year-on-year, minus 5% because of Chinese New Year, Lunar New Year in Q1.

Book-to-bill for Vishay is 1.34. If you look at the chart on the right, this is our scale of revenue by quarter. We were as low as $715 million in Q1 of '25, and we're growing quickly quarter-on-quarter because of all of those market segments, because of the channels, because of how we're repositioning Vishay's business approach. Just a comment here. Our gross margin today is 21%. It was 19% a year ago. We are focused on taking the company's business to 30% gross margin with revenue of $5 billion. Annual revenue today is about $3.5 billion. What's different about the company? This is what's really important to understand. It's not the Vishay of old just enjoying the volume market as it comes up.

Vishay 2.0, it was a company that stockpiled cash. We didn't invest the cash. We didn't go after M&A in any significance. We filled orders. We had limited capacity. We were often sold out. We were very internally focused. We weren't focused on the market. A small set of OEMs is what the capacity delivered. It was Tier 1 automotive primarily. And the last one was minimal R&D. We were late to the party with silicon carbide and wide-and gap products. If you go to the right of this slide, it's a completely different business perspective. Revenue growth and margin expansion. We're going to be connected to customers. We have a think business first strategy, which is accelerating that book-to-bill that you saw. The customers are looking for supply assurance. They're looking for customers that can scale -- suppliers that can scale with the customer.

We're very business-minded in how we're going forward. The third bullet, reengage lost customers. There's many. That first slide I showed you, we're going to capitalize on a very large customer base. Customers design in Vishay. We're one of the top suppliers pulled through catalog distributors for engineers. We're on bill of materials. In the past, we couldn't support. So we've invested in capacity. We've reengaged with lost and underserved customers, and that substantiates the growth of the book-to-bill. Having the capacity to serve distribution and EMS, very important, those are high-margin channels. If our capacity historically was to OEMs, we missed out on the higher-margin business and the intensified and focused R&D, we've come out with silicon carbide, MOSFETs and diodes, -- we were 10 years behind 3 years ago.

We're now technology parity with the competition. So we're releasing products to engineers to start creating a foothold for Vishay and wide-and gap. If you look at the line chart here, what's interesting, if you go to the far right, revenue is in red. The past up cycles were '21 and '22. You can see how long it took Vishay to recover or to actually support the business. It took us seven quarters historically to ship the demand that we had. We've accelerated our capacity investment, and we're reacting much faster with the customer. We've got eight growth levers that are going to serve the market. Internal capacity expansion, we've spent just under $1 billion in 3 years on CapEx. When the market was soft, we were in a trough, but we knew the customer needed our product, and we're seeing it now in the book-to-bill.

External capacity expansion, this is subcontractor initiative. We've taken our commercial-grade products, and we've gone to subcontractors to have them build that product under our recipe rather than spending CapEx dollars on capacity for commercial products. Optimizing our global footprint. We've got a lot of factories around the world. We've got to get out of high-cost countries and move to low-cost countries. Increased technical headcount. It's a technical business. Engineers in front of the customer is what it's about, understanding the road map of the customer. We've got engineers positioned all over the globe that we didn't have historically. Enhanced channel management, I just talked about it, focusing on where the margin is, distribution, EMS and OEMs, key OEMs, not utilizing all of our capacity to some very large strategic accounts, which limits our ability to grow.

Innovation, new products, R&D, silicon carbide, GaN plus many new custom magnetics, polymer tantalum, DC link capacitors, -- there's a lot the customer wants, and we're in those discussions today. Vishay Solutions, I showed you that slide in the beginning that said we can support 80% of the components on a board in a power application. We've created reference designs where we can give the engineer a heat pump design for the automotive. We can give them a traction inverter. We can give them a 48-volt to 12-volt DC to DC reference design. So they see all of the Vishay components on the board for quick use. And the last one is M&A. The company began with M&A in Vishay 1.0. There was not much M&A in 2.0. We're going to generate cash in this new program with Vishay, this new approach, and we're going to go after M&A in the next years. Talked about accelerating growth. We're doing it, expanding margins. It's moving upward and enhancing returns for the shareholders.

That's a big priority, which we didn't have in 2.0. I talked about just under $1 billion in the last 3 years. It's on the floor, 70% increase in capacity expansion to go after that print position that we've had and we were never fulfilling. This year, we're looking at about $400 million to $440 million. We have a 12-inch fab that's being completed in Itzehoe Germany. That's the largest part of that $400 million. After that, the capital intensity starts to round off. We've got passive campuses in La Laguna, Mexico, we just opened. Juarez, Mexico has been there for years, and we're filling it. Sites in India, where we're adding more production. We're moving it from sites in high-cost countries to these lower-cost countries. The subcontractors I talked about, overall, a 23% increase in incremental capacity, which allows us to support the customers as they scale.

The customer engagement I talked about being reengaged to win customers. It's been a great success. Customer count is up, distribution share gain as well, positive, driving innovation with new products. Those are the key initiatives that put us on a pace to grow. All right. We got marg -- we got revenue movement. We engaged more customers. Now it's the margin progression. What are we doing in Vishay? It's more than just riding the volume wave and ASP. We've got a fab that we bought in Newport, South Wales, U.K. That fab was bought from Nexperia. And over the last 2 years, we've been qualifying Vishay products.

We want to fully utilize that campus and increase the capacity utilization. We're going through automotive customer calls now. So second half of the year, we're going to see more demand filling that fab. Ramp advanced MOSFET technologies at foundries. We started our silicon carbide designs using external foundries. That will be going into the Newport fab plus also increasing our ability to have capacity to support AI. 12-inch fab, Newport, Germany -- excuse me, Itzehoe, Germany, that's coming. That will be released and online in the middle of 2027. The equipment is landing today. This is going to give us a large amount of capacity in the 12-inch wafer, which puts us on par with our competitors, that are also using 12-inch, increased capacity utilization while driving speed.

That's what the semiconductors is all about. We need to make Vishay relevant in the semiconductor space. We have the technology. We were lacking the capacity. This is coming in the next year and 2. Further gross margin progression, increase our volume and better product management. I talked about optimizing the footprint. We've got 60 factories -- 60 factories that we are going to, I call it restructuring, but people don't like hearing that word, capacity optimization. We're going to get out of high-cost countries and be shifting to lower-cost countries. That's going to generate margin on a lot of the passive products.

And it's not a $300 million, $400 million, $500 million restructuring. It's not that big. It's not like a CapEx investment. We're going to build a back-end for semis. We have a number of locations that are doing back-end semi plus outsourcing. We're going to bring more of that internal, and we're working on a location for that. Volume efficiencies, we're getting that with the book-to-bill. Channel management, I talked about, making sure we're shipping the product to the higher-margin customers, product management, adjusting ASPs. We've adjusted ASPs over the last two quarters, and we're starting to see the ASP benefit in Q2, Q3 this year. And the last one is cost savings projects that every one of the 17 business units have to do.

We've got a broad base here of raising the margin. Innovation it's about being technical in front of the customer. In 2.0, we were a company that just received orders, but we didn't drive demand. It's about having engineers in the field to help the customers see the solutions that we can provide. These are examples of some of the solutions, the reference designs that we put together, 80% of the parts on the board can be supported by Vishay. If the customer takes our reference design and uses it in their application, they've got a solution of high efficiency that they can quickly put into play.

Developing an IC is the third one. We're going to develop a controller that we don't have. This is one of the gaps in our portfolio. We need the controller to match up with the MOSFETs. That is happening and will be released at the end of '27, early '28. Silicon carbide and GaN, I spoke about, other broadening of the passive portfolio, high-frequency applications with much of the optical communication that's starting to develop in GaN -- I mean in the AI servers. We need GaN products for semis. We also need thin-film precision passives for the optical communication in those servers. This was our Investor Day that we kicked off in April of 2024. We said we're going to go after sales. That's a $5 billion number, to go from $3.4 billion, it's going to take us to $5 billion.

We are on pace to do that with the additions and the customer gains that we have and the product releases. The gross margin, we said we want to get to the low 30%. Today, we're at 21%. The gross margin progression that we're putting in place with the fabs plus the optimization of the factory footprint, we believe that's going to take us to the low 30s. Operating margin, you see EBITDA and the intensity on capital you see. This project was kicked off in '24. We said we targeted 2028 as the year. The timing may be a little later. When I say a little, it's because of inventory delay.

The tariff caught us a little unexpected, and it pushed out the orders until the fourth quarter of 2025. There was also some inventory digestion that lasted a little longer. So we are pushing for $5 billion, the margins of 30% end of '28 into '29, it may be off about 6 months to a year, but it's still our plan. Our highest priority in everything we do in Vishay 3.0 is to grow revenue and increase margin. We're a completely different company. I just wanted to take this moment to show you we're a different company than a 60-year-old business because we've got a lot of strengths with product. We've got engagements with customers. We've got new technologies coming. We've got engineers that are in front to get us designed in. Customers are excited, customers count is going up. I'm going to pause there and sit with you, Harlan, and we'll take some questions.

Yes, absolutely. Why don't we -- before I kick things off, that was a great presentation. Thank you, Joel. Do we have any questions from the audience? If you do, please raise your hand, and we'll get a mic over to you. So we followed Vishay for quite some time, and we were very familiar with Vishay 2.0 and all of the characteristics associated with that. And I think you were spot on Vishay 3.0 focused on growth and profitability expansion. The good news is that the inflection curve in the cycle is turning positive.

And so now the team is actually starting to see, I think, the benefits of Vishay 3.0 sort of kicking in. We'll talk about the footprint expansion in a little bit. But the key difference I feel like 3.0 versus 2.0 is strengthening customer relationships, right, offering more reliable capacity, focusing more on sort of higher performance, higher value-added solutions for your customers and focused on growth end markets. So can you discuss some of the benefits that you're seeing in terms of building customer relationships, maybe going back and repairing some of the old customer relationships? How is that coming along so far?

This is coming along very well. The repairing relationships, the first year as me as CEO in 2023, I went on a tour and I apologize to a lot of customers for how they were underserved. They appreciated that transparency. We have engaged each other to grow further. They're opening up their technical road maps to Vishay.

They understand the investments we're making in capacity, and they realize that we're a supplier, we're a new supplier because of our investment, we can scale with them. I could talk about some of the strengths in the market segments. If you take Industrial, Industrial has always been a big part of Vishay's market segments, industrial. Industrial power is required now because of the need for data center power for EVs, the smart grids being completely redesigned. Because Vishay has invested in capacity on the passive side in this case, Customers like Siemens Energy, Hitachi, GE Vernova were sitting in the meetings about the smart grid designs that are going to happen between now and 2030, 2031.

We're in those discussions. We know the programs that are going to be laid out. It could be North America projects it could be Europe, it could be Middle East, could be China. We've been winning a very large share of the capacitor business in these projects because we invested to scale.

And so if you -- those are great examples. And so as you focus on the broad portfolio, semiconductors versus passives, as you mentioned, I mean, in some cases, your opportunity includes 80% of the components on your customers' board. Vishay is approaching it from richening the mix of our portfolio, broadening our portfolio to solutions that customers want. And then there's the demand creation side of it.

You talked about this, right, better strengthening channel relationships. Maybe it's more education of your direct sales force, but also what are you doing from a channel perspective? Are you incentivizing your channel partners for demand creation? And then you also brought up a third dynamic, which is extremely important is, well, our customers don't want to just buy components from us. In some cases, they want to buy a system solution for us. So we're focusing on reference platform. So talk to us about some of these demand creation initiatives.

This is about helping the customer faster. The old style data sheet cell was a product that they had to look at, decide how it fit into the circuit. With the strength of Vishay, semis to passives, we're able to use our mobility team. We have a design team that builds reference designs to already give the customer engineer a head start. Everybody is familiar with reference designs from TI, from ADI and many others. Vishay decided, you know what, we don't build the microprocessor.

We don't build the chip, but we can populate around that with the discrete semiconductors and the passives to actually give the engineer the output of this particular application. They might choose to use it. Vishay is all over the bill of materials by doing that. So that's the help of accelerating the customer with the design. We take those solutions and we give them to our FAEs that are distributors. We also create reference design tools on the web. We're really about education because we know the engineers have to go into our customer and impact immediately, not just deliver some data, but get into the projects.

So it's a training of our Vishay sales team, an upgrade being technical, the distributor FAEs with design registration projects, the tools of reference designs to quickly give the engineer everything they need to try Vishay in their lab and decide if it works.

I see. And -- as a part of all of this new product development, obviously, is extremely important. You set out and you articulated your long-term gross margin goals, right? A big part of it is the manufacturing efficiencies, optimizations, footprint optimizations and so on. But I'm curious, as you look at your portfolio of new design wins, I'm assuming you are going after more higher value-added solutions.

And so as you think about your pipeline of new products and as you see those -- that pipeline and that pipeline turns into revenues, does the product gross margin continue to get better over time? So in other words, as you scale into these new product opportunities, does mix contribute to the gross margin uplift as well?

Mix surely does. Vishay has always been a technology-leading company. We want to lead with technology and be able to then support the rest of the program with the more commodity and commercial parts. We need to have enabling products when we go to the engineer. Silicon carbide, we were 10 years late. We were missing out on the automotive traction inverter designs.

We made an acquisition at the end of 2022 to buy IP from a company called Max Power. We've got their intellectual property for the trench MOSFET in silicon carbide. We released that product in February of this year. Automotive engineers have looked at it. They say we're on par in performance. So Vishay has taken a 10-year gap and quickly released a technology that gets us in the meetings. We have to be in the meetings with the enabling technologies, so we know the projects that the engineers are developing, and then we bring in the rest of discrete semis to fill that board and the passives to fill that board.

So being a technology leader, that's one example. We can talk about DC link capacitors. We could talk about custom magnetics. We look at the products that are enablers, which get us in the meetings early with the customer engineers.

And as you think about your journey from where you sit today from a gross margin perspective to where you want to be low 30s by that 2030-plus time frame, how much of that contribution is manufacturing efficiencies, utilization, filling up of your two new fabs versus mix? Is there any way to sort of help us understand how the team gets there from that perspective?

Well, there's a number of steps. The ASP is the short-term gain. We're raising prices because of metals. We passed that on to customers, so that's the first gain. The volume efficiencies that you're seeing to raise gross margin, we've got the book-to-bill of 1.2 in the fourth quarter, 1.34 in the first quarter, and the second quarter is still there or better. So we're seeing the demand from the customer to bring us to volume short term. Cost savings inside the factories, every one of the 17 business units has cost savings targets for the year.

So those are things that are going to happen short term. Filling that Newport fab is going to take us from a fab that was running at very low utilization to much more efficient because of the volume and the mix. The 12-inch fab will be coming in 2027. That's going to put us on par with the competitors who also have a 12-inch fab. The cost benefit there is about 30% from a 12-inch -- from an 8-inch wafer going to a 12. Plus, if you look at what we're doing today, we're using a lot of foundries.

We're using Tower and Vanguard and others where their margin is in between us and the customer. When we have our fabs qualified, we're going to get that margin gain. New products also, the mix of new products and technologies is going to lift our margin. New products start out at higher margins versus running legacy products that over time, the margins are not so accretive.

How do you manage your -- you've got your U.K. fab, which you're sort of -- you're starting to mix into now. Germany comes online sort of next year. Is it kind of the classical sort of I need -- once you start to build, you need to build that entire capacity out. And then obviously, the onus is on you to then quickly fill that, right? Or is the architecture of these new fabs such that you can modularize it and scale into the volume ramp as your business revenues continues to scale higher, right?

Very automated. -- highly automated fabs.

And are they scalable?

Yes. This 12-inch fab. We have a large manufacturing shell that we built. 1/3 of the fab will be running in the first quarter or early '27, and then we're expanding into the second phase and the third phase. So it's going to be a progression. The demand from customers how to fill it. We've had two automotive -- well, we have two automotive audits coming in the second quarter for Newport. We had four in Q1. We had four in Q4. So we'll be through 10 automotive site audits by the end of Q2.

The automotive then has to decide which programs are going to be loaded to the fab. The BMW Platform 6 or the Volkswagen project. So that will all be coming in to fill that fab because of the work with the automotive. When we release the 12-inch fab, we're quickly going to go after nonautomotive first. We want to fill that fab with commercial, AI, industrial-grade products to start, knowing the automotive qualification is going to take 12 to 18 months. So we're being much smarter in how we launch a facility, what products are in there first, carry away cost with commercial and industrial products first. I will also say this, when you look at Vishay's semiconductor share in the MOSFETs, it's low.

It's not low on the technology side. Engineers want our products. It's because we didn't have the capacity. So with these additions of these fabs, we're going to have the control of the foundry in-house, the wafer build in-house, which allows us to then go target a much greater part of the market where we're already designed in. It's a matter of then fulfilling it.

Yes. Any questions from the audience? We've got a question. Can we get a mic here?

All the strategic initiatives certainly make sense, and I know you can control what you control about the CapEx, et cetera. But this also sounds like a meaningful change in terms of culture. Just how do we get comfortable that you have some pretty good tailwinds now that can cover up a lot of things, but how do we know the organization has changed? I mean you've changed, I mean you like the top has changed, but how do we know that this isn't just a blip?

The excitement in the organization is at the highest level it's been. The motivation to take this company to a new direction is well entrenched. There was some pruning of old people in the first year that just couldn't change. They're stuck in the old ways. They couldn't see it. But the feedback we're bringing to the team, we have an executive and senior leadership meeting every 90 days. We've been doing this for 3.5 years. We all come together, and we're exchanging what's happening in the market based on everyone's responsibility.

And that messaging is then being pushed down inside the organization. The culture change is here. It's done. People are excited. The excitement is really from the customer. The customer count increase and the volume of business that's coming in has really motivated the manufacturing sites. The sales team by having reference designs and in particular, having capacity, the sales team would tell you in Vishay 2.0, in '21 and '22, they stopped going to the customer because their toolbox was empty. It was hard to go to the customer with no capacity. So with the capacity expansion we've done, we've got 23% upside available. The salesmen are energized because they're in the customer and they believe they can succeed.

How much of this increase in revenue would you attribute to kind of the changes in the dynamics you described versus just broad-based price increases across a lot of these components we've seen and I know MLCCs aren't like a huge focus for you, but that's always in the news, pricing is going up a lot there. So yes, if you just talk about that?

I think the increase in volume that we're seeing is because of the change of Vishay 3.0. The ASP has been very, very recent. The ASP is going to fall in more so in Q2 and Q3. The work of the Vishay 3.0 people to excite the customer and increase the customer count, we've got 17 business leaders that are manufacturing leaders. They did not travel to distributors. And from the beginning of Vishay 3.0, the leaders of the operations had to go travel to distributors in Americas, Asia and Europe every quarter. They quickly understood when they met with a distributor where their rank was by supplier, where the price differential was and what they needed to work on, missing products.

This was a tremendous eye-opener to the business units. They were seeing the market, and they were seeing the market they missed. So some divisions went off and they designed the products to replace or expand the portfolio. Some went to subcontractors to quickly qualify the Vishay equivalent with an outside source. We've expanded our portfolio. We expanded our inventory in the channel. It's really getting the leaders in the meeting rooms to have them see how the business develops.

And I think that also goes back to the culture question by having the leaders in the room with the customer, they feel responsible, they feel accountable. They know they're going to go back to that customer and they got to deliver. So there's an intensity where people aren't sitting at their desk. People are in front of the business, and they're also making it move inside the factories.

As you look at the growth profile for 2026, you have quite a few Vishay-specific growth drivers, new automotive design wins, aerospace and defense pipeline getting better, smart grid infrastructure and AI, data center compute-related design wins. Can you just rank order these drivers by expected impact and share? And what gives you the most confidence when you look at the different end market growth drivers for this year?

Okay. This is a good way to segment passives and semis. The passives are really being driven by industrial and aerospace defense. Aerospace and defense, there's a lot of replenishment that has to happen. We all hear about the number of missiles that were shto off, the Patriots, the Tomahawk, Sidewinder, Spyro, all of that. We're in those guidance systems. We're waiting for the primes to place the orders. They haven't done it yet.

That's a book-to-bill of bookings we haven't seen yet, which is going to come. So passives is industrial, aerospace, defense and automotive. Automotive is solid. It's car count is steady and the content continues to grow. If we look at semis, AI, for sure, AI, increasing our print position and capacity. Automotive, more electronic content. Aerospace defense, we're taking automotive-grade products to the military design customers. They like -- they think that's great. It's a certified product, that's how I rank it. Semis with AI and auto and growing in defense, industrial as well, but passives more on industrial and defense.

And then when we look at the cyclical aspects of where we are today, first phase of the cyclical recovery is shipments rising back to the level of your customers' consumption levels, right? Second phase is your customers getting confident. They're seeing their orders improving and then taking their inventories levels to what we call sort of restocking sort of base levels, that's sort of the next leg of growth, right?

You've delivered above seasonal growth over the past several quarters and have discussed inventory replenishment among some customers. But how broad-based is that replenishment today? And -- where do inventory levels stand across your distribution channel and at your direct customers?

The inventory replenishment or buffering at the OEM is just beginning, just beginning. They are concerned about supply assurance. They see the increasing demand of industrial. When I say they, I'm talking about automotive in particular, they see industrial increase. They see aerospace defense coming. They know these products are all built on the same equipment, so they want to get ahead and start to buffer.

When we look at inventory and distribution, we -- globally, we're 20 weeks. We've gone down from 26 weeks a year ago in the first quarter down to 20 weeks. Europe is down to 16 weeks of inventory. Asia is at 18 -- 14 weeks. We've got to replenish. We had POS sequential growth of 11% quarter-on-quarter, and we supplied only a 2% increase in POA. We saw the pull-through. The customers like our products. They like the brand. We have it on the shelf. We've got to replenish distribution now, so we can continue to support customer demand. We don't hold finished goods at Vishay. We use a distributor to do that. So that's all ahead of us is the replenishment.

Got it. Well, we are just about out of time, Joel. Vishay 3.0, a very sound strategy. Look forward to continuing to monitor the team's execution along Vishay 3.0. But thank you very much for participating.

Thanks, Harlan. Yes. I appreciate the time. Thank you. Thank you, everybody.

Good day, and thank you for standing by. Welcome to the Vishay Intertechnology First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please be advised today's conference is being recorded.

I would now like to turn the conference over to your speaker today, Peter Henrici, Head of Investor Relations. Please go ahead.

Thank you, Kevin. Good morning, and welcome to Vishay Intertechnology's First Quarter 2026 Earnings Conference Call. I am joined today by Joel Smejkal, our President and Chief Executive Officer; and by Dave McConnell, our Chief Financial Officer.

This morning, we reported results for our first quarter 2026. A copy of our earnings release is available in the Investor Relations section of our website at ir.vishay.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 refer to a slide presentation, which we also posted on ir.vishay.com. You should be aware that during 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 Vishay'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 and in the presentation posted on ir.vishay.com, which we believe will be 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 Smejkal.

Thank you, Peter. Good morning, everyone. We are excited that you have joined our Q1 earnings call to hear the further progress of Vishay 3.0. On today's call, I'll begin with a review of our first quarter revenue and business performance, and Dave will take you through a detailed review of our first quarter financial results and our guidance for the second quarter of 2026. After that, I'll update you on the strategic levers we are pulling under our 5-year strategic plan, and then we'll open it up for questions.

For the first quarter, we are reporting revenue of $839 million, above our guidance range of $800 million to $830 million, 4.8% higher than the fourth quarter and 17.3% higher than last year's first quarter. Revenue is growing across the board in all of our end markets, in all of our channels and in all 3 regions. Increased consumption, inventory replenishment and Vishay market share gain drove a 5.8% increase in volume with gains in both semis and passives.

Many customer programs in multiple end markets have now started to ramp, while demand for AI-related applications remain strong. Industrial demand is accelerating. Order growth momentum was also broad-based, covering all regions, all channels and in each of our technologies and in all end markets. Clearly, the Vishay 3.0 transformation and our growth strategy is working.

The growth initiatives that began 3 years ago are paying off. To expand capacity of high-growth, high-margin product lines, we put heavy CapEx investment in place and added subcontractors for many technologies to increase our manufacturing flexibility and also to add part numbers to our product portfolio in semiconductors and passives, to move more closer to the customer, to listen to their product technology needs and their growth direction for Vishay to scale with them and to gain market share, to become a more technically supporting supplier with increased FAE involvement for design support and also to offer Vishay reference designs and solutions.

Total company book-to-bill at quarter end was 1.34, up from 1.2 in the [indiscernible]. For semis, book-to-bill was 1.47 and for passives, it was 1.23. As a result, backlog increased 21% to $1.6 billion at quarter end or 5.7 months. Customers are beginning to proactively place orders based on longer visibility, some 1-year forecast for Vishay to scale with them. We're also seeing customers building safety stock like in Asia for AI-related applications as well as in all regions for automotive and industrial demand.

Having positioned Vishay 3.0 to be a reliable supplier to more customers, to be a supplier with expanded capacity ready to scale with them, we intend to live up to our commitment of being a leading growth supplier. For this reason, we are intently focused on turning the backlog faster so that we participate in the market up cycle much more substantially and aggressively than in the past while also maintaining competitive lead times.

We have no intention of backsliding to the business approach of Vishay 2.0. Historically, at this point in the business up cycle, much of Vishay 2.0 capacity would have been sold out on allocation and with lead times longer than 1 year. And because it took too long to fulfill orders, Vishay missed repeat opportunities, and we were no longer a reliable supplier to the customers. Today, as the market up cycle takes hold, we are increasing quarter revenue at a steeper rate to drive margin improvement and realize enhanced returns on our capital investment.

Today, OEMs and Tier 1s are collaborating with Vishay on technology road maps and forward demand planning and giving us the opportunity to scale with them. Previously inactive and underserved automotive and industrial customers are placing orders with us following our efforts to reconnect with them.

So now let's turn to a review of the Q1 revenue, starting with revenue by end market on Slide 3. Automotive revenue increased 2.7% quarter-over-quarter, mostly reflecting solid OEM demand in the Americas and Europe as customers continue to increase electronic content and start hybrid and EV programs. In Asia, revenue was weighed down a bit by Lunar New Year and also customers had started to increase production in the second half of last year to get ahead of the U.S. tariffs.

Order intake increased due to our Vishay 3.0 business approach to support the production ramp-up of new vehicle programs in Europe and China and to be responsive to customer concerns about industry-leading lead times. We're seeing a lot of success from our efforts to position Vishay with automotive OEMs and Tier 1s. For example, Vishay is now the top supplier of resistors to multiple OEMs launching new EV platforms, and we are committed to supplying these customers as they step up production each year through the planned peak in 2028.

Design activity continued to focus on drivetrains for hybrid EV and ICE vehicles, ADAS, battery management and electronic power steering systems, also smart cockpits. Industrial power revenue increased by 6.5% for the fifth consecutive quarter of sequential gains. Demand continued to grow primarily for electrical power transmission and power management, renewable energy and smart metering, factory automation and security systems.

In the Americas, customers are ramping up production for new projects supporting AI infrastructure. And in Europe and China, we continue to supply smart grid programs. Bookings were up sharply in the Americas and Europe due to greater consumption and due to lower inventories while customers increased efforts to establish supply assurance. In Europe, orders were exceptionally strong from smart grid customers for capacitors, and we won 2 new grid development projects in the U.K.

Design activity remains focused on power, power transmission, power management, power supplies for industrial servers, next-generation AI power supplies, power monitoring and control systems, high-voltage energy infrastructure, energy storage and also smart meters. We're also working on designs for 800-volt power management for data centers and other applications.

Aerospace defense revenue increased 14.1% versus Q4 and 16.8% versus last year's Q1 on strong demand from the U.S. government with spending approved to replenish munitions programs and with production ramping up in allied countries in Asia. With funding now available, U.S. defense contractors have just begun to increase orders to support their higher demand, in particular for resistors, capacitors and custom magnetics. Book-to-bill in the Americas at quarter end was 1.4 and has continued to build in Q2. Design activity and the first production ramp-ups are beginning to drive an increase in orders from Europe and continued order intake in Asia. As countries expand defense budgets and as new multiyear programs start this year, we see a long runway to drive growth in this end market.

On the design front, we are focused on U.S. Department of Defense programs involving drones, low earth orbit satellites, radar systems, next-generation communications and hypersonic missiles. Healthcare sales increased 4.5% quarter-over-quarter and 11.1% year-over-year on demand from long-standing customers, particularly the Americas. We are continuing to see success from our efforts to leverage the breadth of our portfolio, cross-selling semis and passives to these customers.

Much of the design work here during the quarter remained around wearables, patient monitoring and implantables such as cardioverter defibrillators and micro implantables for glucose and temperature monitoring. In the other category, which includes telecom, computing and consumer, revenue overall was flat versus Q4, but up 25.8% versus last year's Q1. Demand in China for AI-related applications was flat, reflecting the impact of the Lunar New Year and some shipments that were pulled in into Q4. However, we did continue to receive orders for quick delivery in Asia, mainly for high-voltage MOSFETs used in AI power applications.

Customers are continuing to add our passive technologies and AI power management solutions, including polymer capacitors, power inductors and current sense resistors. We keep sharpening our design components while continuing to work on the next-generation design opportunities in the areas of server power, optical communication modules and in high-bandwidth network switches.

With the Vishay 3.0 expanded capacity, we are seeing demand from telecom and consumer customers, which Vishay did not historically support in volume. For example, in the Americas, we are seeing increasing activity from telecom customers supporting AI optical communication network switches, both 800 gigabits and 1.6 terabits. In Europe, telecom sales increased 33% with customers forecasting higher demand for 2026 versus 2025. Demand is also tied to 5G expansion, and we're starting to receive requests for components for 6G networks.

Let's turn to Slide 4 for a review of Q1 revenue by channel. OEM revenue increased 7.1% and 14.4% over Q1 last year. Strong shipments to large automotive, medical, aerospace, defense customers were the primary drivers of this increase, along with some high demand from industrial OEMs in Europe. Sales from OEMs in China declined due to the impact of Lunar New Year and shipments, again, that were pulled into Q4. EMS sales grew 14% versus Q4 and 21.6% versus Q1 last year. This increase demonstrates the success of our strategy to leverage our expanded capacity to maintain competitive lead times and reliable supply. Then we can enjoy demand momentum from more aerospace, defense and industrial end customer business.

EMS is now the fastest-growing channel in Europe and book-to-bill in the Americas grew 1.45 at quarter end. Sales to distribution were up 2.2% on volume gains in each region while up 18.9% year-over-year. Distribution is seeing higher consumption from industrial, transportation and aerospace defense customers. They also see inventory replenishment by some of their end customers. The pace of bookings growth picked up in the Americas and Europe. In Asia, distributors are increasing backlogs in anticipation of further demand growth, lead time extensions, especially for AI-related products.

Distribution inventory overall decreased to 20 weeks at quarter end from 22 weeks and POS increased 10.7% and 24.9% versus Q1 last year with growth in each region. You may recall, over the last 2 years, we were deliberately increasing our SKU count and inventory levels at the distributors, resulting in an increase in inventory to our target of 26 weeks in Q1 of 2025. This inventory has supported strong demand led by Europe with some customers now replenishing inventories as business conditions improve. The Americas saw a sharp increase in POS as consumption increased in industrial, automotive, aerospace, defense and medical segments. In Asia, POS increased for industrial power and strong demand for AI products. Customers are increasingly turning to distribution for supply assurance and to meet short-term needs.

Turning to our geographical mix on Slide 5. Europe led revenue growth for the quarter, increasing 15.3% and the Americas grew 8.6% due to significant aerospace defense demand for capacitors in addition to strengthening industrial demand. In Asia, revenue grew -- excuse me, revenue fell 4.9%, primarily during the impact of Lunar New Year, offset in part by strong AI product demand.

Before turning the call over to Dave, I'd like to thank the Vishay employees for their hard work to achieve the quarter's strong results and for their commitment to driving revenue and profitable growth as the industry's recovery continues to gain momentum. But Vishay 3.0 has firmly taken hold across the organization and with our external reps. Everyone is aligned with our new business approach and energized to increase customer engagement.

Dave, I'll now pass it over to you.

Thank you, Joel, and good morning, everyone. Let's start our review of the first quarter results with the highlights on Slide 6. First quarter revenue was $839 million, exceeding our guidance range and increasing 5% sequentially, driven by strong volume growth of 6% with only a 1% decline in average selling prices. Compared to the first quarter of 2025, revenue increased 17%, driven primarily by a 14% increase in volume. Favorable foreign currency, mainly from the euro provided an additional 4% benefit, partially offset by a 1% decline in average selling prices.

Moving on to the next slide, presenting the income statement highlights. Gross profit was $177 million, delivering a gross margin of 21.0% and exceeding both our guidance and the prior quarter. Higher volumes drove margin expansion, helping to offset ongoing metals and material cost pressures. We exited the quarter with Newport at gross profit neutral. Depreciation expense was $55 million, relatively flat versus quarter 4. SG&A expenses were $154 million compared to $142 million for the fourth quarter and in line with our guidance. The sequential increase is primarily due to higher stock and bonus compensation expenses.

GAAP operating margin was 2.6% compared to 1.8% in the fourth quarter and 0.1% in the first quarter of '25. EBITDA for the quarter was $78 million for an EBITDA margin of 9.3%, up from 8.8% in the fourth quarter. Our GAAP effective tax rate remains elevated at low levels of pretax income as items such as U.S. taxation of foreign earnings and repatriation taxes have a disproportionate impact on the effective tax rate. Q1 tax expense exceeded our guidance range as pretax earnings exceeded expectations. GAAP earnings per share was $0.05 compared to $0.01 per share in the fourth quarter and a loss of $0.03 in the first quarter of '25.

Moving on to Slide 8, provides a summary table detailing revenue, gross margin and book-to-bill ratios across our reportable segments for quick reference. As a reminder, Newport's results are reported in the MOSFET segment's gross margin. All reportable segments delivered revenue growth quarter-over-quarter, except for inductors, which was relatively flat.

Turning to Slide 9. Our cash conversion cycle in the first quarter, our cash conversion cycle improved to 116 days from 125 days in Q4, in part due to our continued disciplined working capital management. In addition, during the quarter, we further utilized our accounts receivable securitization program as a means of providing efficient funding to support our immediate 12-inch fab equipment purchase needs, which contributed to our DSO improvement from 48 days in Q4 to 41 days at the end of quarter 1. Inventory days outstanding improved to 106 days due to increased volume and sales. Overall inventory increased to $791 million. Finished goods were relatively flat, while raw materials and WIP increased due to the impact of rising metal prices, and we built buffer stock to ensure supply to our customers given geopolitical uncertainties.

Continuing to Slide 10, you can see we generated $64 million in operating cash for the first quarter, which included an additional $63 million from the securitization of our accounts receivable. We continue to deploy cash for capacity expansion projects. Total CapEx for the quarter was $111 million, including approximately $87 million for our new 12-inch fab in Germany. On a trailing 12-month basis, capital intensity was 10.1%, which is a decrease from the 11.3% in the prior year.

Free cash flow for the quarter was negative $47 million, reflecting the high CapEx compared to $55 million in the fourth quarter. Stockholder returns for the first quarter consisted of our $13.6 million quarterly dividend. We did not repurchase any shares during the quarter. At the end of the quarter, our global cash and short-term investment balance was $480 million, and we remain in a net borrowing position in the U.S. with $250 million outstanding on our revolver.

As discussed in the past, dividends, any share repurchases and required debt service are funded through available U.S. liquidity sources. We have $307 million accessible on our revolving credit facilities at the current EBITDA levels. We expect to continue to draw on our revolver to fund U.S. cash needs.

Moving on to the guidance on Slide 11. For the second quarter of 2026, revenues are expected to be between $875 million and $905 million. Gross margin is expected to be in the range of 22.0%, plus or minus 50 basis points, inclusive of increased logistics costs and expected continuing higher input costs, specifically higher metals and material costs as well as inefficiencies due to ramping up of new direct labor heads. Depreciation expense is expected to be approximately $54 million for the second quarter and $216 million for the full year '26. SG&A expenses are expected to be $155 million, plus or minus $3 million. We're continuing to invest in R&D and customer-facing activities as the overall business environment improves.

Our GAAP effective tax rate remains elevated at low levels of pretax income and loss or loss. We expect the effective tax rate to become more predictable and in the range of our historical average as earnings grow. For the second quarter '26, we expect effective tax rate to be between 40% and 50% Finally, our stockholder return policy calls for us to return at least 70% of our free cash flow to stockholders in the form of dividends and stock repurchases. For 2026, we once again expect negative free cash flow due to our capacity expansion plans.

I'll now turn the call back to Joel.

All right. Thank you, Dave. Let's turn to Slide 12 for an update on the strategic levers we're pulling as we execute our 5-year growth plan and set the stage for Vishay's future growth. Slide 12. We are holding to our CapEx plan to spend between $400 million and $440 million during 2026. As a reminder, about half of this year's spend is allocated to the investments we are making at our 12-inch fab in Germany. Nearly all of the 12-inch fab investment will be spent during the first half of 2026, at which point we will reach the capital intensity peak of our 5-year capacity expansion plan.

Starting with semiconductor projects at our Newport facility, we continue to ramp up wafer production, and we completed 4 audits with Tier 1 automotive customers as planned and have 2 additional site audits planned for Q2. Following these site audits, the automotive customers need to approve their programs using the Newport MOSFETs. At our 12-inch fab in Germany, we've started to install equipment during the quarter and plan to finish in the second quarter. Our goal is to start nonautomotive production in mid-2027.

At SK Keyfoundry, we are working towards releasing 2 products to production in the third quarter, which will add capacity to meet demand for AI-related applications. To supplement our investments in capacity expansion, we qualified 2 additional subcontractors, one for rectifiers and the other for aluminum capacitors. Through the subcontractor initiative, we continue to place more part numbers on distributor shelves to increase our share of our customers' bill of materials.

Turning to our silicon carbide strategy. We released to production the 750-volt Gen 2 planner MOSFETs, both the automotive and industrial platforms. We also plan to release the 1,700-volt platforms over the next couple of quarters. With respect to the 1,200-volt trench MOSFET, which we released last quarter using an external fab, we have now started to set up Newport to be an 8-inch wafer fab for silicon carbide.

Our Q2 guidance reflects the broadening opportunities we have created for Vishay through the strong execution of our growth levers and the increasingly positive direction of our high-growth end markets. We are doing what Vishay 3.0 was designed to do to position Vishay to serve more customers, take full advantage of market up cycles and lay the foundation for long-term revenue and earnings growth. With the strengthening book-to-bill and increasing rate of revenue growth, we are showing that we are participating much more so than in the past in the demand momentum, leveraging our capacity investments to drive margin expansion and enhance returns.

Kevin, we're now ready to open the call for questions.

[Operator Instructions] Our first question comes from Ruplu Bhattacharya with Bank of America.

Joel, I have two or three questions. First one is on the current quarter that you just reported. In automotive, did you see benefit from share gains against Nexperia? And how much was the benefit from that in the quarter? And one on margins, did the Newport fab, was that still a negative? And what was the impact on gross margins in the quarter? And I think you heard that it's gotten to breakeven. So are we expecting any negative impact from that fab in the second quarter?

Ruplu, could you repeat your question? We missed out on the first part. The second half was perfectly clear.

Okay. Sure. Just the question was that for the current reported quarter, in the automotive segment, did you see any share gains against Nexperia? And how much was revenue -- how much did revenue benefit from such share gain? And then on margins, was the Newport fab still a negative to gross margins? And how much was the impact in the quarter?

Regarding the share gain, yes, we're gaining share. We've been working very closely on automotive as well as OEMs to make sure there's multi-sources on programs where there may have been previously. There is share gain. We continue to position supplying product out of Itzehoe. And these qualifications that we speak about in Newport are also driven by that. The 4 site audits that we had in Q1 are driven because of the expansion of Newport, but also further share gain to support those automotive accounts. Then 2 more audits coming in Q2. So I would say we're gaining share based on sites we were approved, and we're going to gain more share as we get Newport approved on these programs to become an additional source on their bill of materials from sole source. Second part of the Newport -- go ahead.

Ruplu, it's Dave. I'll take that one. So -- what we had -- at the end of the last quarter, we had said is we would exit the quarter at something close to neutral, right? So we can say that our gross profit is neutral exiting the quarter. But obviously, January, February, we still had costs, okay? So it's not 0 for the first quarter in the results. The issue -- not the issues, but the item that we have talked about is that the Newport results themselves now are co-mingled with the rest of Vishay, right? We have back end elsewhere in Vishay. We have other costs we're adding. So the Newport costs by themselves are not so easily separated anymore. So we're going to stop giving specific guidance on the Newport impact and talking generalities, okay? As Joel said, going into the second quarter, I think your question to follow-up was that we need the automotive qualifications to fill the fab, right?

Okay. Okay. That's helpful. Just going back to the 2024 Analyst Day, right, if we look at your 5-year plan that you presented at that time, between 2023 and 2028, you had an expectation of growing revenues at the 10% CAGR at the midpoint, I think, and then getting to gross margin of 31% and op margin of 20% at the midpoint. And that would imply something like $5-plus EPS. Given that you're at breakeven now at Newport and markets are improving and you have a healthy backlog, Joel, can you tell me like are those targets still reasonable? Can you still do like $5.5 billion of revenue in -- with the footprint that you now have or that you've planned till 2028? And what is like are those margin expectations valid? And should investors think that you can do that kind of earnings?

Yes. The targets are still there. Those are the targets. The timing of the targets was impacted by the inventory digestion that took longer into the first quarter of 2025. And then it was followed quickly thereafter by liberation day tariffs. So Ruplu, the book-to-bill that we saw in Q4 of 1.2 and now the book-to-bill of 1.34 is what we expected to see earlier in 2025. We're confident in our position. We have the capacity in place and being approved. We talked about Newport. We talk about the 12-inch fab coming on board. So we're moving to be able to have in-house capacity to increase our revenue on semiconductors, MOSFETs in particular. There's another step that's later called restructuring, that is part of supporting the gross margin. The revenue, we are very, very confident. The margin is going to be achieved following a restructuring project that is next after we get through this high CapEx investment.

So to answer your question, yes, the target of revenue is still there. Gross margin, yes, still there. The timing of it is delayed a little bit because of inventory digestion and the tariff. Right now, we feel, as we said in the last call, 2026 is our quarter and our year to take off.

Okay. No, that's helpful. I appreciate the details there. And then, Dave, can I ask, given this environment of potential share gains and growth and you're getting to breakeven and the Newport fab, how should we think about capital allocation, right? I mean how much -- you have a dividend? How should we think about increasing the dividend at this share price? I mean, how inclined are you to buy back shares? And then how should we think about CapEx as we go forward? Is there still some spend to be done? So just tell us how you -- when you look out over the next 12 months, how you're thinking about capital allocation in all of these different buckets?

Good question. Ruplu, we obviously started talking internally about this. I think as Joel mentioned, though, we still have some runway to go to finish our CapEx, right? And the cash is down to $480 million. After we're done with the Itzehoe spending, it's going to be lower than that. So we have to finish the fab. We also have to pay for a restructuring plan. So I don't think right now, at the share prices right now, we'd obviously be wanting to look at buying back stock. The dividend is set. The dividend won't be touched. Whether the Board decides to increase it or not is still a decision to be made. And then lastly, we've been fairly quiet on the M&A front the last couple of years, and that's unusual for us in our history. So I think we would like to revisit some of the options possibly in that portion of the allocation strategy.

Our next question comes from Peter Peng with JPMorgan.

Good job on the execution. Just on the gross margin front, you talked about some of the higher material costs and also expedites. What kind of impact does that have on your second quarter guide?

So it's a good question, Peter. Right now, what we have built into the [ 22 ] is our best estimate. I would say the material prices and the ASPs are pretty much cancel each other out.

Got it. And I think there's a lot of tightness in the passive side and then also on some of the AI MOSFET side, and we've been hearing about pricing increases in some of your analog and mix control peers are starting to increase prices. Wondering how are you thinking about pricing for this year?

Peter, we started increasing pricing in the fourth quarter of last year, dependent on the metal impact product by product. We've got 6 main technologies. Some were impacted by metals more so than others. So we had price increases that were announced late fourth quarter, early first quarter and then became effective based on the terms of contracts. So we had a small benefit of price ASP improvement in Q1. It was small. Q2 is better, Dave. The ASP in Q2 about 1.5%...

Yes, on the margin, yes.

1.5% ASPs being effective in Q2 and then further effective in Q3. It was all about the timing. So we have raised pricing on a number of the technologies. It's announced, it's effective, and you'll see that improving in Q2 and Q3.

Got it. Perfect. Helpful. And then just on the AI data center, can you just level set us on what your total AI data center exposure is on both the semiconductor and then on the passive side? And what are kind of your expectations for revenue growth this year?

Last year, we said we were under $100 million. And this year, we'll be well above that. I don't want to put a number on it at the moment. There's some lot supply concerns by some of our competitors where we're gaining -- delivering a nice step-up in growth in 2026, semiconductors, MOSFETs, diodes for sure. And then the passives, as I mentioned, polymer tantalum, the current sense resistors and magnetics products. So we're positioning. We are connected to the ODMs in Asia. We see the programs where Vishay is on the bill of materials, and we're enjoying business there. But we're also backtracking where we see programs that we may be missing a technology or 2 that's not on the bill of materials. We're backtracking to the design house to get Vishay on the bill of materials. So there's a lot of work going multidirection to make sure Vishay is further increasing our participation in AI.

And then just last question for me is, I think was it 90 days ago, you guys still continue to like see a mid- to high single digit. I think obviously, things started to accelerate. Maybe if you can provide an updated view on what are you thinking in terms of industry growth for this year?

Industry growth because of the multi-market segments we're in, well over double-digit growth in AI, and that's going to continue to be a very powerful segment. And we see it's about quick delivery now, who has competitive or leading lead times and product ready to go. So that's definitely high double digit there, 20% for AI. That's going to grow. Automotive car count, we see is pretty stable, but content is going up. So automotive, mid-single digits. Industrial, we're seeing that above 10% with the product mix we have. Passives, we mentioned this a year ago, passives was kind of leading the upturn. And I think this is what makes Vishay unique being a hybrid supplier of passives and semis. We were speaking about the industrial upturn in the fourth quarter of 2024, and we're realizing that quarter-by-quarter, the book-to-bill that we're seeing here is heavily supported by all segments, but industrial is a big part of it.

Aerospace defense, that's going to be a high-growth market segment as well. At this point, the orders for defense are just beginning to come in. So we've got a book-to-bill of 1.34 for the company, and the defense orders are in the very early innings. So that book-to-bill strength is -- we're positioning ourselves to be even greater in gaining orders from the customers and then health care. Health care is positive for us because we've added more materials, and that's mid-single digit. So I think we see it broad-based across the board. If you were throwing a number at it, it's high single digit overall. And our plans from the beginning have been to outgrow the market and gain share.

And I'm not showing any further questions at this time. I'd like to turn the call back over to Joel for any further remarks.

All right, Kevin, thank you very much. Thank you to everyone for joining our first quarter earnings call. As I mentioned in the fourth quarter call, 2026 is the year for Vishay 3.0 to take off. We've invested heavily in expanding our capacity and moving closer -- much closer to the customers. We're starting to realize the returns on our investment. Also, I want to mention that next week on the 18th, we will be at the JPMorgan conference, 18th and 19th. We look forward to seeing any investors there.

We'll talk to you again in August. Thank you again for following Vishay, and we'll then report our second quarter results. Thank you very much. Have a nice day.

Thank you, ladies and gentlemen. This does conclude today's presentation. We thank you for your participation. You may now disconnect, and have a wonderful day.

Good day, and thank you for standing by. Welcome to the Vishay Intertechnology Fourth Quarter 2025 Earnings Call. [Operator Instructions] Please be advised today's conference is being recorded. I would now like to turn the call over to your speaker today, Peter Henrici. Please go ahead.

Thank you, Kevin. Good morning, and welcome to Vishay Intertechnology's Fourth Quarter and Year 2025 Earnings Call. I am joined today by Joel Smejkal, our President and Chief Executive Officer; and by Dave McConnell, our Chief Financial Officer. This morning, we reported results for our fourth quarter and year 2025. A copy of our earnings release is available in the Investor Relations section of our website at ir.vishay.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.vishay.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 Vishay'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.vishay.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 Smejkal.

Thank you, Peter. Good morning, everyone. I'll start my remarks with a review of the fourth quarter revenue and business performance and then turn the call over to Dave, who will take you through a review of the fourth quarter financial results and our guidance for the first quarter of 2026. Then I'll update you on the strategic levers we are pulling under our 5-year strategic plan.

After that, we'll be happy to answer any of your questions. For the fourth quarter, we generated revenue of $801 million, slightly above the midpoint of our guidance of $790 million and 1.3% higher than the third quarter. A growing broad-based business in Industrial Power and AI-related power applications drove this sequential increase. Revenue in all channels grew, led by distribution. Once again, Asia dominated the revenue growth.

We executed well, still in an environment of shortages and escalations by putting our expanded capacity to work to get backlog out the door while generally maintaining competitive lead times. We met urgent supply needs of automotive OEMs and Tier 1s toward the end of last year, exercising our capacity readiness. Our work under Vishay 3.0 is becoming visible in our revenue generation. Orders for the fourth quarter are at a 3-year high across all main product technologies, except capacitors, which reached their 3-year high already in Q2 of '25.

Orders from the channels of OEM, distribution and EMS are also at 3-year highs. Prior to Vishay 3.0, EMS customers ordered much less from Vishay because of our long lead times. Now we have an EMS business as a consistent and growing customer to support our accelerated growth. Overall, our order growth was broad-based in each region, each channel, each of our technologies and each of our growth end markets, Automotive, Industrial Power, Aerospace-Defense, AI Computing and Healthcare.

These markets represent about 95% of our core business. After gradually building backlog each quarter over the first 9 months of 2025, fourth quarter backlog grew nearly 14% with both semis and passives contributing to the increase. In the Americas, industrial and automotive customers drove semi orders and aerospace-defense customers drove passive orders. In Europe, we're seeing a broad recovery of industrial end market segments.

In Asia, strong AI-related demand once again drove order growth. As a result, we ended the quarter with a book-to-bill of 1.2, up from the previously shared book-to-bill run rate at the end of October of 1.15. For semis, book-to-bill at quarter end was 1.27. And for passives, it was 1.13. Backlog at quarter end is $1.3 billion or 4.9 months.

Improving market demand conditions, inventory replenishments and our market share gains are putting us in a good position to grow. Positioning Vishay for greater growth and then achieving greater growth is our strategic plan with many supporting initiatives from the beginning of Vishay 3.0. We are making it possible through our heavy investment over the past 3 years to expand capacity for our high-growth, high-profit products.

Our initiatives to expand and more fully leverage the breadth of our portfolio of semiconductors and passives. And all of our work we put into strengthening customer engagement, reengaging with previously underserved and inactive customers and developing new customer relationships. Customers are responding to the positive impacts of Vishay 3.0 with deeper technical engagements, greater collaboration and their willingness to scale long term with us.

Let's turn to a review of revenue for the quarter, starting with the revenue by end market on Slide 3. Automotive revenue decreased 3.4% versus the third quarter, mostly related to lower pull rates during the end of December holiday weeks in the Americas and Europe. Asia automotive revenue grew in a seasonally strong quarter. Orders for the quarter grew in each region. One of the key drivers of this increase is that we have the capacity to interest customers to use Vishay as a new supplier to mitigate the shutdown risk they were facing.

It also opened the door to several new opportunities with OEMs and Tier 1s to supply more vehicle platforms and to become a more meaningful supplier mid- to long term. New model year production ramp-ups in customer forecast was another driver of strong bookings during the quarter. Design activity in automotive continues on projects related to electronic content increasing, including traction inverters, onboard chargers, ADAS, power steering and infotainment. Industrial Power revenue increased 3.2%, driven in part by increasing shipments of our high-voltage DC power capacitors to many smart grid infrastructure projects, but also multiproduct inventory replenishment in the channel and strengthening market demand for building security power requirements and new industrial programs ramping up.

During the quarter, we won another smart grid infrastructure project in the Americas, which will go into production in the first half of 2026. We're continuing discussions with many customers about industrial smart grid projects that extend through the year 2032. In other Industrial Power segments, bookings were strong in each region. Demand for industrial power management, demand for industrial automation is beginning to recover.

Also, customers are beginning to place orders with longer visibility due to market stretching lead times with diodes and MOSFETs. In the Americas, Vishay 3.0 is gaining previously lost and underserved customers who designed us into the bill of materials years ago, and now we are gaining orders to drive their further volumes. Design supporting AI infrastructure are moving to mass production.

These are all positive indications that for Vishay, industrial is back. Our design activity remains focused on power supplies for industrial servers, power monitoring and control systems, next-generation AI power structures, smart meters and humanoid robots. In addition, many customers are launching new versions of their core product lines.

The Aerospace-Defense end markets revenue was slightly down 1.2%, reflecting the impact of the U.S. government shutdown on billings and some projects with delayed timing in Europe. Orders increased with strong demand, particularly for capacitors as funding is approved for military programs and in anticipation of production ramps forecasted in 2026.

Design activity in the Americas and Europe remains focused on low-earth orbit satellites, drones, missile defense systems as well as munitions. Revenue in Healthcare was flat compared to the third quarter with shipments tied to program -- customer program milestones, sales will fluctuate and for this quarter, revenue declined in the Americas and Asia. Europe, on the other hand, had its strongest quarter in 3 years on demand for hearing aids, implantables and diagnostic equipment. Bookings increased.

In the Americas, we are supplying new programs, which are ramping up in Q1 and winning new business for capacitors to complement our Custom Magnetics business as we continue to fully leverage the breadth of Vishay's portfolio. In addition to continuing design activity on drug delivery systems, defibrillation and advanced patient monitoring, we are now seeing opportunities emerge in the wearable space and are working with customers on heart rate and oxygen monitoring applications.

Lastly, in the other category, revenue grew 10.6% versus the third quarter, primarily as customers ramp up production for new products to support AI power management applications. Order intake grew because of the increased production of AI servers and extended component lead times across the industry. A number of customers are actively adding Vishay to the bill of materials in AI-related applications for both semiconductors and passives.

In addition to the continued design activity in power conversion and power management, including multiphase DC to DC converter modules and chipset multiphase power, AI optical modules, we are also working with customers on 800-volt power management applications. Let's turn to Slide 4 for channel revenue. We'll review the channel revenue here. This quarter, each of our channels, OEM, EMS and distribution grew quarter-over-quarter, led by distribution. OEM revenue increased 1.1% on a seasonally strong period for automotive customers in Asia and some volume gains in Europe from aerospace-defense and industrial customers, which was partially offset by a year-end slowdown in billings.

EMS revenue increased 1.4%, reflecting gains in Asia related to AI power and inventory replenishment, while in the Americas and Europe, year-end holiday shutdowns closed receiving docks and reduced inventory at the end of December.

Distribution revenue increased 1.4%, primarily in Asia due to strong automotive and AI demand in addition to some inventory replenishment. Order intake was strong in each region. In the Americas and Europe, industrial and aerospace-defense customers continue to drive most of the ordering as they prepare for new production starts in Q1. In Asia, bookings are accelerating as distributors replenish backlogs in anticipation of stronger AI demand forecast for 2026 ordering for pre-Lunar New Year in February and in response to extended lead times for diodes and MOSFETs in both Asia and the Americas.

Distribution inventory dropped to 22 weeks from 23 weeks last quarter. POS increased 3%, mainly to year-end demand in Asia. In the Americas, industrial and aerospace-defense demand drove an increase in POS following the strongest POS quarter in 3 years and continued booking records in January. POS in Europe is steady. Based on customer input, our strategy to cross-sell technologies throughout the channel is delivering results.

Turning to our geographical mix on Slide 5. Revenue growth for the quarter came entirely from Asia, which grew 3.6%, while the Americas and Europe was essentially flat compared to Q3 due to the year-end holiday slowdown, while somewhat offset by improved industrial demand. Before turning the call over to Dave, I would like to take a moment to thank the Vishay employees and our reps for their contributions to Vishay's success and accomplishments in 2025.

Their commitment to putting the customer first, reengaging customers, embracing a business-minded approach and increasing our production output and expanding our operations is helping to raise Vishay's level of performance and making Vishay 3.0 a reality. Now I'll turn the call over to Dave for a review of our fourth quarter financial results.

Thanks, Joel, and good morning, everyone. Let's start a review of the fourth quarter results with highlights on Slide 6. Fourth quarter revenue was $801 million, exceeding the midpoint of our guidance and increasing 1% sequentially. The improvement was driven by a 2% increase in volume, partially offset by a modest decline in average selling prices.

Compared to the fourth quarter of 2024, revenue increased 12%, driven by an 11% increase in volume. Favorable foreign currency, mainly from the euro provided an additional 3% benefit, partially offset by a 1% decline in average selling prices, which includes tariff adders. Moving on to the next slide, presenting the income statement highlights. Gross profit was $157 million, resulting in a gross margin of 19.6%, modestly above both the midpoint of our guidance and the third quarter.

Margin performance was driven primarily by higher volumes, which helped offset continued pressure from elevated metals and material costs. The negative impact from our Newport fab was approximately 130 basis points. Depreciation expense was $54 million and flat versus quarter 3. SG&A expenses were $142 million compared to $135 million for the third quarter and to $138 million, the midpoint of our guidance. SG&A was higher, primarily reflecting higher compensation costs, higher R&D spending and legal costs and fees related to accounts receivable securitization transactions, which I will discuss as part of our cash flow review in a moment.

GAAP operating margin was 1.8% compared to 2.4% in the third quarter and a negative 7.9% in the fourth quarter of 2024, which included a goodwill impairment charge. EBITDA for the quarter was $70 million for an EBITDA margin of 8.8%, down from 9.6% in the third quarter. Our GAAP effective tax rate remains unmeaningful at these low levels of pretax income or loss as relatively small items such as foreign currency and repatriation taxes have a disproportionate impact on the effective tax rate.

We had guided that our Q4 tax expense was going to be between $4 million and $8 million, somewhat independent of the earnings level, and our Q4 tax expense was in that range. GAAP earnings per share was $0.01 compared to a loss of $0.06 per share in the third quarter and a loss per share of $0.49 in the fourth quarter of '24.

Moving on to Slide 8, provides a summary table detailing revenue, gross margin and book-to-bill ratios across our reportable segments for quick reference. In the fourth quarter, Newport's results continue to be reported under MOSFETs' business segment, reducing that segment's gross margin by approximately 600 basis points, an improvement from the 720 basis points impact seen in Q3. All reporting segments delivered revenue growth quarter-over-quarter, except resistors, which was impacted by continued delays in U.S. aerospace and defense spending.

Turning to Slide 9. In the fourth quarter, our cash conversion cycle improved to 125 days, down from 130 days in Q3, in part due to our continued disciplined working capital management. But in addition, during the quarter, we securitized certain non-U.S. accounts receivable as a means of providing efficient funding to support our immediate 12-inch wafer fab equipment purchase needs, which contributed to our DSO improvement from 53 days in Q3 to 48 days in Q4.

Inventory decreased to $759 million and inventory days outstanding improved to 107 days. Continuing to Slide 10, you can see we generated $149 million in operating cash for the fourth quarter, which included $62 million from the securitization of the accounts receivable. We continue to deploy cash for capacity expansion projects. Total CapEx for the quarter was $95 million, including $75 million designated for capacity expansion projects.

For the full year, CapEx was $273 million compared to our guidance of between $300 million and $350 million as delivery of some equipment related to our new 12-inch fab in Germany was delayed to Q1. For the year, capital intensity was 8.9%, which is a decrease from the 10.9% in the prior year. Free cash flow for the quarter was $55 million, reflecting the high capital expenditures, partially offset by the securitization of the accounts receivable compared to a negative $24 million in the third quarter.

Stockholder returns for the fourth quarter consisted of our $13.6 million quarterly dividend. We did not repurchase any shares in the quarter. At the end of the quarter, our global cash and short-term investment balance was $515 million, and we remain in a net borrowing position in the U.S. with $219 million outstanding on our revolver.

As discussed in the past, dividends, any share repurchases, required debt service and our Newport investments are funded through available U.S. liquidity sources. We have $254 million accessible on our revolving credit facilities at the current EBITDA levels. We expect to continue to draw on our revolver to fund our U.S. cash needs.

Okay. Moving over to Slide 11 on our guidance. For the first quarter of 2026, revenues are expected to be between $800 million and $830 million. We expect Asia revenue to be lower than Q4 due to the impact of the Lunar New Year with the Americas and Europe regions making up the difference. We also expect to see sequential revenue increases in each of our 5 key growth segments, Automotive-Electronic content, Industrial Power, Healthcare, Aerospace and Defense and AI Computing.

Gross margin is expected to be in the range of 19.9%, plus or minus 50 basis points, including tariff impacts and expected continuing higher input costs. The Newport drag is expected to be between 50 to 75 basis points, and we still expect to exit quarter 1 with Newport gross profit neutral and accretive thereafter. Depreciation expense is expected to be approximately $55 million for the first quarter and $218 million for the full year '26.

SG&A expenses are expected to be $153 million, plus or minus $2 million. The increase versus Q4 is primarily due to the accrual of assumed incentive and stock compensation for 2026 versus the lower level of incentive and stock comp in 2025 and a full quarter of fees on the receivable securitization. We're also continuing to invest in R&D and customer-facing activities.

We expect to [ hold ] the Q1 level of SG&A expenses for each quarter of 2026. Our GAAP effective tax rate is not meaningful at the low levels of pretax income or loss. We expect tax expense to be between $2 million and $4 million in quarter 1, assuming a similar mix amongst tax jurisdictions. Finally, our stockholder return policy calls for us to return at least 70% of our free cash flow to stockholders in the form of dividends and stock repurchases. For 2026, we once again expect negative free cash flow due to our capacity expansion plans. Now I'll turn the call back to Joel.

All right. Thank you, Dave. Let's turn to Slide 12 for an update on the strategic levers we are pulling as we execute our 5-year strategic plan to drive faster revenue growth, raise our profitability and enhance capital returns. For CapEx, we expect to spend between $400 million and $440 million during 2026. A bit more than half of the 2026 plan is allocated for investments at our 12-inch fab, including a carryover from 2025 related to equipment delays.

Nearly all of the CapEx at our 12-inch fab will be spent during the first half of the year and will represent the peak of our 5-year capacity expansion plan. In the second half of the year, CapEx is expected to be coming down from the first half to put the 2026 CapEx into perspective, the average of our 2025 spend at the midpoint of our 2026 plan comes to about $350 million, in line with our annual CapEx spend since we began to invest in capacity expansions in 2023.

At our Newport facility, we continue to ramp up wafer production in the fourth quarter and automotive customers continue to audit the site. We have 4 audits planned for Q1, including 2 new customers. We're also continuing to ramp up production at our Taiwan and Turin, Italy facilities and getting more products qualified there. [Technical Difficulty] Mexico, we have released well over 100 automotive part numbers for production, completed site audits with automotive customers and scheduled others for the first half of 2026.

We continue to execute our subcontractor initiative, which is freeing up capacity for our high-growth products and also broadening our product portfolio to increase our share of the customers' bill of materials. During the quarter, we qualified additional diodes, inductors and capacitor products. Since we began this initiative 2 years ago, we have qualified over 10,000 part numbers, adding many diodes, resistors, capacitors and inductors to our portfolio.

Turning to innovation and our silicon carbide strategy. As planned, we released 8 Gen 2 1,200-volt Planar MOSFETs for industrial use. More importantly, we now have released our first trench MOSFET, the silicon carbide Gen 3 1,200 volts for industrial and for automotive applications. This is a great technology advancement for Vishay, positioning us to design in 800-volt automotive and AI applications. In terms of solution selling, we released 3 new reference designs in Q4, 2 eFuse designs.

One is a 40-amp bidirectional and the second is a 20-amp unidirectional and also an isolated current sensor for high-voltage applications. These reference designs continue our promotion of Vishay products, populating 80% or more of the components on a circuit board in a power application.

Let's turn to Slide 13. Looking ahead at 2026, we are laser-focused on maintaining capacity readiness to fulfill rising demand, growing share at existing customers, reengaging lost customers and attracting new customers, driving innovation and delivering new products and solutions and expanding production in low-cost countries to support our regional competitiveness. Demand for the power requirements in the 5 growth segments is expected to remain directionally positive.

Customer program visibility is improving as shippable backlog is developing at later quarters for each of our key markets. Customers are also ramping up production of new projects. With these developments and business momentum, our factories are being loaded at a greater rate than the last quarter and much more so than in recent years. A solid book-to-bill of 1.2 and a faster rate of backlog development supports our view that revenue will increase each quarter this year.

Customers are looking to secure supply while dealing with some extended lead times. We have made tremendous efforts over the past 3 years to position Vishay to be ready with capacity to assure our customers of reliable supply as they scale production and also to supply more part numbers to them. In summary, 2026 is our year to take off. We are pushing our factories to maintain competitive lead times and to win our customers' trust, positioning us to outperform the market and keeping us on our path to accelerate revenue growth, elevate profitability and enhance our return on capital. Kevin, we are now ready to open up for questions.

[Operator Instructions] Our first question comes from Peter Peng with JPMorgan.

I think last quarter, when you were engaging with your customers, you guys were hearing expectations of mid- to high single digits for the industry. Just given that -- it looks like your book-to-bill has been doing pretty well, bookings are increasing. I guess what's that view now versus 90 days ago?

Peter, thanks for the question. The view is still mid- to high single digits. If we would divide it up by market segment, we've got the 5 market drivers we speak about. Industrial Power, we see as mid- to high single-digit growth. Automotive, a lot of electronic content, car count seems to be flattish, but we'll say Automotive is flat to mid-single digit for Vishay because of semis as well as passives.

Aerospace-Defense, we're saying mid- to high single digit because we think there'll be much more consistent purchasing and program runs in '26. AI, mid- to high single digit. And Healthcare, we're saying mid-single digits. So we're still in that market of mid- to high single digit, and we are pushing to outperform the rate of growth of the market.

Got it. And then a follow-up, if I may. Just on the gross margins. I know you guys are kind of facing some higher material costs and FX pressures. And have you tried to rework that into your annual negotiations? And then what's the right way to think about your gross margins kind of going forward as we progress through the year?

Do you want to take the second one? Or do you want to take...

I'll take the first one. Dave will take the second one. Yes, we had a lot of annual contractual negotiations that happened October through December. The resulting price decrease is much less than what was historical. We still have a price decrease because we were able to gain volume by positioning Vishay for greater share. So in the contractual agreements, less than historical ASP decline. We also went out in October and started increasing prices due to metals.

We were one of the first to do it. Initially got some pushback, but then it was realized across the industry that it's inevitable for everyone. So we raised prices on quite a few products in the fourth quarter. That starts to become effective in early Q1, depending on some contractual terms. And now we look at the metals today, and we continue to polish this. And in some product lines, we will come back with a second price increase. So metals is an important item that we evaluate every day. We've made the adjustments, and we see our ASP decline lower than historical for 2026. Dave, do you want to take the second part?

Yes, yes, sure. So Peter, just to give you some -- our thought process on the guidance of the 19.9% on the margin. So as Joel just mentioned, obviously, the annual contracts all hit in the first quarter, right? So we have ASP push against our volume increase basically cancel each other out. As you -- from my commentary, you'll see the Newport drag has lessened, and it's going to lessen in the first quarter.

So we get some benefit from that. And then the metals is fighting -- is the fourth component that's fighting against that. So when you add those 4 up, we get to the 19.9%. How that progresses through the rest of the year. Obviously, the ASP declines are mostly front-loaded with the annual contracts. Wage increases and such are already built into the first quarter. As Joel said, we have book-to-bill 1.2. So the volume efficiencies we should be generating, we see improvement in the margin as we move through the year. And the Newport -- and as well as the Newport fab continues to ramp up.

[Operator Instructions] Our next question comes from Neil Young with Needham & Company.

This is Shadi Mitwalli on for Neil Young. To start off, I know you guys mentioned auto orders have increased as your guidance capacity has increased. I was wondering what the company is seeing in the overall automotive demand environment?

We've seen a gain of share for Vishay through the negotiations in the quarter, in particular, gaining MOSFET share and diode share because of the geopolitical issue that happened in the fourth quarter, we've seen increasing volumes going into 2026 with the large contractual customers. If we look at Automotive overall, Automotive, we see technology development in 4 areas.

Battery management continues to be one. Infotainment in the car is 2. Electrification is 3 and ADAS is 4. So we're seeing these 4 technology applications really driving a lot of design activity. Car count, people say car count generally flat, but we're excited about platform changes with customers as well as those 4 applications continuing to need the Vishay semis as well as passives. So we see Automotive is flat to mid-single digit depending on program starts.

Got it. And then my follow-up is more of a broad-based question. But have customer conversations changed given the recent increases in pricing for memory?

For memory, yes. It's always a discussion of where will the memory supply land. When you look at the segments that we serve, AI -- memory and AI for sure, memory and consumer products, consumer is quite small for us. Automotive has some memory, not as much of a consumer as AI and compute. So people are watching it closely.

When I was at CES, memory, where is the memory going to be delivered to was a concern. We look at the applications we're in, Industrial Power, the Automotive, Aerospace-Defense, the memory of those is lower in consumption than computer. It is going to be dependent on where the memory lands for sure, but we, at this point, are not forecasting a negative impact to revenue because of the segments we're serving. We believe they will get the small amount of memory that they need.

[Operator Instructions] Our next question comes from Ruplu Bhattacharya with Bank of America.

Can we talk a little bit more about the Automotive segment? Are you seeing any share gains against Nexperia? And Joel, can you talk about your content in different types of vehicles and gas cars versus EVs? And how do you see that content trending over the next couple of years?

Yes. Automotive, those 4 drivers that I mentioned, electrification, infotainment, battery management and ADAS, those are really nice development applications for us. Gaining share, we have done quite well to support the shortages that were in the marketplace in December. We were able to engage the OEMs as well as Tier 1s. We were given opportunities to cross part numbers.

We crossed as many as we could with the equal equivalent match up, and then we went through our wafer stock and any inventory that we might have found or expedited production to keep the automotive customer satisfied. But what also developed with that is the customer really became closer to Vishay. They learned a lot more about us because we were there to support a crisis, but then they wanted to learn more about future engagement. So we are gaining share.

We continue to be looked at differently from the Automotive OEMs than in the past, positively differently. And the Tier 1s gave us opportunities on part numbers and programs that we previously had no share. So we see it as positive, definitely positive for the development and how Vishay responded. The feedback from customers was, Vishay, we road-tested you, you were able to give us product, and we see that Vishay 3.0 is real.

So let's talk about future engagements. Ruplu, regarding the different powertrains, whether it's ICE or if it is hybrid or EV, our content is pretty similar across all 3. EV has the greatest content for sure, because of redundant systems required. So there's more content there. Silicon carbide, as you know, we weren't a player in silicon carbide on EV yet, but now the release of our trench product this month, brings those samples to customer, engineers to be able to now qualify Vishay into these next-generation automotive programs. So we're pretty excited about that. And I think we'll see our automotive content grow because we now are participating in the 400-volt, 800-volt systems of EV. That will be in the future.

Okay. Can I just ask, so you talked about share gains. How much is that benefiting revenues in the March quarter?

It is starting small, and we will see the ramping up beyond the March quarter. Some automotive have to qualify the site. We did the part number across on paper and then they need to qualify the site. So I mentioned there's audits coming in Q1. Once those audits get done, the PCNs get approved, then we'll see the continued ramp-up in later quarters.

Okay. Can I ask for some more details on CapEx spend and on OpEx? What are the areas of spend that you're going to have this year? And in the past, you've kind of put off or delayed CapEx spending. With the spend that you're going to have this year, would you be caught up in terms of how you see demand and would CapEx and your manufacturing capacity be sufficient for future demand? So can you talk about like areas of investment and how you see your overall CapEx plan for the next couple of years?

Okay. The carryover that we talked about, we had intended to spend some of the money in 2025 on the equipment for the 12-inch fab. That's carried over into 2026. So that puts us in the range of $400 million to $440 million. Around $230 million or so is for that. Aside from that, there are capacitor projects, the large DC power capacitor that we talk about for the smart grid, we're expanding production there because of projects that we're speaking about out to the year 2032.

Tantalum polymer is another high order rate product and the tantalum polymer is used in AI, Automotive, Industrial, used in multi-market segments. So there will be expansion there. Our inductor product, the power inductors, we have the La Laguna facility. The inductors was the cornerstone of that site, and they'll be expanding further in Mexico because customers are looking for regional supply as well as non-tariff supply.

So in the passive side, it's very targeted and selective. There's also small spending on semiconductor projects where there may be a tooling requirement for a few million dollars here and there. But I think we come over the peak of our CapEx spending in the middle of '26, and we start to return to a more normal type of spending where we don't have a project that is $100 million, $200 million, those projects would be behind us. Dave, do you have any...

Yes. I'll say, Ruplu, the days of the 9% and 10% capital intensity will be dying, yes, we'll be back down to more normal levels. Obviously, we'll have a higher revenue base, so the absolute dollar of CapEx may be higher, but we'll be back to the 5 and 6s.

Great. Can I ask just one last question, Dave. Just in terms of capital allocation and buybacks, how are you guys thinking about that? And Joel, is this time for any M&A either on the passive side or on the active side?

So on the capital allocation, we have our return policy -- shareholder return policy, which is 70% of free cash flow. And we're predicting because of the 12-inch fab expenditures, our free cash flow will be negative for the year or down to 0, you can ballpark it. So -- but we're going to maintain the dividend. So I think that's the answer from the capital allocation side. I'll let Joel answer from the M&A side.

Yes. Ruplu, M&A is always on the table. We look across passives, and we look across semis with select technology. So it's on the table. We continue to look at it. Nothing to share at this point about a specific technology. But getting over the peak of this capital spending allows Vishay to then get into M&A at a deeper rate as well as continued restructuring of our footprint. We've got manufacturing locations that we still have as the next step to do an optimization and restructuring. So M&A for later spending plus optimization of our footprint.

And I'm not showing any further questions at this time. I'd like to turn the call back to Joel for any further remarks.

Thank you, Kevin. Thank you, everyone, for joining our call in the fourth quarter. We have made tremendous efforts over the last 3 years to have the capacity ready to assure our customers have reliable supply. And I think it's really coming together now with the amount of interaction we have with customers, plus the book-to-bill.

The book-to-bill in Q4 of 1.2. This is really building our momentum and setting this for a really successful year of Vishay 3.0 takeoff. We look forward to talking to you again in May, where we will report the first quarter results. Thank you very much. Have a great day.

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect, and have a wonderful day.

Good day, and thank you for standing by. Welcome to the Vishay Intertechnology Quarter 3 2025 Earnings Call. [Operator Instructions] 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 Smejkal, our President and Chief Executive Officer; and by David 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.vishay.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.vishay.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 Vishay'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.vishay.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 Smejkal.

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 conditions 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 Vishay 3.0 as we continue to execute on our 5-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. Vishay book-to-bill in the quarter was slightly below parity. Orders from OEMs were up in all regions. 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 1. 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 were 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 3 years ago to invest heavily in incremental capacity has positioned Vishay to satisfy nearly all of these quick turn delivery requests without having to choose one customer over another. Today, Vishay 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 3. 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 and Tier 1s now that we have capacity. Automotive customers have audited our U.K. and Mexico sites, where we have now gained more site approvals. We work closely now with the OEMs and Tier 1s to further approve our product PCM. Our design activities continue in all automotive powertrains, ICE, hybrid and battery electric vehicles.

Increasing our revenue in all automotive applications is our focus as electronic content increases, particularly in traction inverters, ADAS features, safety and smart cockpit applications 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 OEMs. Q3 seasonality slowed bookings a bit in the Americas and Europe. The industrial market is showing some improvement. There continues to be a pickup in 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 Vishay 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 U.S. and Europe remain focused on new and legacy weapon systems, communication systems, drones, commercial aerospace and satellite programs.

In the medical market segment, revenue grew 2% on increased activity by some of our larger long-standing 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 Vishay 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 in and supply customers with diodes, capacitors, inductors, 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 multiphase DC to DC converters, ultra-low DC resistant 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 Vishay's products. Let's move to Slide 4 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 level -- the highest level we've seen in 3 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 programs. 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 remained 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 channels, recently including many new released inductor products, placing more part numbers on the distributor shelves as we deepen engagement with them and position Vishay for further share gains.

Turning to Slide 5 in terms of geographical mix. Revenue growth for this quarter came predominantly from Asia with a 7% increase in sales. Americas 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 Vishay employees for their hard work and for their continued commitment to Vishay'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 Vishay 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 Vishay customers that Vishay 3.0 is a transforming company, creating opportunities to satisfy new customers while reengaging previously underserved customers. Thank you to all the Vishay employees and our reps to show Vishay 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 6. 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%, slightly below the midpoint of our guidance and flat versus quarter 2. 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. Depreciation expense was $54 million, in line with our guidance and up $1 million over quarter 2. SG&A expenses were $135 million, slightly below our guidance and down $2 million from quarter 2 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 pretax non-GAAP adjustments in quarter 3.

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 meaningful at these low levels of pretax 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 recognized $13.7 million of tax expense due to changes in tax laws and regulations in the U.S. and Germany, which is excluded from our adjusted net earnings. GAAP loss per share was minus $0.06 compared to earnings of $0.01 per share in the second quarter and a loss per share of $0.14 in the third quarter of '24. Adjusted earnings per share was $0.04 for the third quarter of 2025 compared to a net loss per share of $0.07 for the second quarter of '25 and adjusted net earnings per share of $0.08 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 continue 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 9. 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 1 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 continue 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 did 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 revolver.

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 liquidity 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. Moving on to our guidance on 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, those 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 GAAP effective tax rate remains not meaningful at low levels of pretax 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 4, we expect tax expense to be between $4 million and $8 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 5-year plan. Starting with capacity investments. 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 is for expansion projects. At our Newport facility, 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 2 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 site audits with many automotive customers.

We've completed the IATF certification of our automotive-grade inductors, which opens the door to move for more site 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've passed the audits conducted by 2 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 3 additional products, 2 industrial and 1 automotive for the Gen 2 1,200-volt planar. We plan to release 8 devices in Q4 for industrial and 8 devices for automotive in Q1. We remain on track to release the 1,700-volt and the 650-volt industrial platforms in Q1 and the automotive platforms in Q2. Samples for the Gen 3 1,200-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 1,200 volt and the 650 volt.

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 3 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 Vishay 3.0. We keep our feet on the ground because we have a journey to complete in this transformation of Vishay. 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 3 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 call them. We now have daily conversations with automotive OEMs and Tier 1s 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 road maps. We remain committed to pulling the 8 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.

[Operator Instructions] Our first question comes from Ruplu 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?

Ruplu, nice to hear from you. This is a dynamic conversation. I mentioned in the closing that we are in discussion with many OEMs daily and many Tier 1s. They've asked for support in line 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 conversations.

Okay. Okay. 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 prebuy any metals? So just any thoughts on that impact going forward?

Okay. I'll take the first part of that, and 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. That'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, do you want to talk at all about any of those items or the forward buying of metals?

Yes. No. So Ruplu, 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, 48% increase; silver, 59%. And in October, we're seeing them go up again, okay? In terms of the FX impact, we're well balanced with the Euro, but we do make -- we do build parts in some countries where we don't have revenue, okay? And 2 countries specifically, currency, the Shekel and the new Taiwan dollar strengthened and 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, right? We buy premanufactured parts a lot of time or semi-finished parts or WIP, whatever you want to call it. So our vendors are incurring extra cost and passing on to us. So [indiscernible] the pricing, but 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. This is in motion now.

Okay. Got that. But are you doing any prebuys? Like are you seeing the strength of the balance sheet to buy and store any metals? Is that something you would look into?

We have -- we do that to some extent. We have a fairly long pipeline on 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 to do that.

Okay. Let me ask you another question. So it looks like book-to-bill fell about to below 1 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% from 19.5% that you're running at today. So Joel, just when you look at the environment, when you look at the book-to-bill, and you look at consensus estimates for 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 1, October orders across the products has moved up quickly. When we look at the market drivers, we've got 5 market drivers in what we see as an improving economy. We've got 2 of them which are supported by government spending. One is aerospace defense and the other is smart grid infrastructure. Those are 2 of the 5. We've got AI that we're all watching the AI server build and the power requirements. 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 further out orders like the high-power capacitor that we've got programs that we have to deliver in 2026, and that will continue to develop the industrial business behind that. So I see a growth next year [ receiving ], 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 to grow because of these 5 end market segments, which are showing positive signs. This is kind of a different year we're moving into. In the past, when you looked at how many market segments we 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 5 market segments that Vishay 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 will raise our gross margin by 1.5%, 150 basis points. So we move 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 any acquisitions [ that you pipeline? ]

Sure, absolutely. So 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 is not up and running completely yet. So we still need 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 is important to us. But we're not looking right now to purchasing shares.

[Operator Instructions] Our next question comes from Peter Peng with JPMorgan.

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 up somewhere in the low single digits. 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 the 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. 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 is 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 is always dependent 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, 1.15 right now, that run rate. If that continues, that sets us up for a better Q1.

Perfect. And then just going back to the gross margin dynamics, you mentioned that 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 cost. And so what's the kind of the right base level to think about the margins as we kind of look into Q1?

We don't normally guide that far ahead, right? 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.

Got it. Okay. And then last quarter, I think you mentioned about a change in [ work ] configuration at that large compute 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. We -- 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 Vishay 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. So we're gaining good traction. We're getting good design and print position.

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

We're crossing part numbers. We're helping automotives with avoiding line downs. And it's not just Vishay. 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. Vishay with the lineup of products, we crossed the best of our ability, but the automotives have to make a decision on how does the program perform with a Vishay 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 1 more about Vishay. They like what they hear. They like to hear about our footprint. They may not have known much about us in the past, the OEM -- 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 2 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.

This -- 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 signals and Vishay'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.