Filer: Vishay Intertechnology, Inc.
Pursuant to Rule 425 under the Securities
Act of 1933
Subject Company: General Semiconductor, Inc
VISHAY INTERTECHNOLOGY INC
Second Quarter Conference Call
August 1, 2001
11:00 a.m. Eastern Time
Moderator Ladies and gentlemen thank you for standing by. Welcome to
Vishay's second quarter 2001 conference call. At this time all
participants are in a listen only mode. Later we will be
having a question and answer session. Instructions will be
given at that time. As a reminder this conference is being
recorded.
I would now like to turn the call over to the Chief
Financial Officer, Mr. Richard Grubb. Please go ahead sir.
R. Grubb Thank you for joining us here at Vishay's second quarter
financial conference call. We're sorry for the delay but
you understand that Vishay had a significant announcement
about its potential merger with General Semiconductor.
Yesterday we had the announcement of the closing of the
deal with Infineon and we'd like to cover all those points
plus talk about the financial results for this quarter and
some indications for next year.
Joining me today as usual is Dr. Felix Zandman, Chairman and
CEO of Vishay, our Vice Chairman, Avi Eden, and our merger and
acquisition guy, and Dr. Paul, our President and Chief
Operating Officer. I will go through some of the major points
of the quarter and Dr. Paul, Dr. Zandman, maybe Avi will
elaborate on some of the acquisitions and general conditions
of the industry and our business as we go forward.
As you know today Vishay reported operating earnings per share
of $0.28 per share. This was $0.05 better than the average
first call estimate of $0.23. As previously announced during
last quarter earnings conference we recorded restructuring
charges of $29 million for closing the plants both in the
United States and Europe. We also recorded the charge of $20
million for the write down of market value for tantalum ore.
As explained in our earnings press release we had built up a
reserve of tantalum ore to hedge against shortages in our
China suppliers processing plant. The market value of ore has
come down in recent months to a more normal level therefore we
charge current earnings for that and we do not anticipate any
repeat of this charge down.
Net sales of $383 million for the quarter represent a decrease
of 37% over last year's second quarter. You should also note
that the dollar has continued to strengthen in this quarter as
it did in the first and we had a negative effect on the top
line of $20 million. Gross margins, operationally that is,
excluding charges for the ore, for the quarter were 31.5% as
compared to 41.5% for the second quarter of last year. This is
a little bit better than we anticipated and I think the effort
in our special product divisions enabled us to maintain a
hefty gross margin.
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Selling and general administrative expenses were 16.7% of
sales as compared to 12.1% for last year's second quarter.
This is also cause for the lower sales that we have. Interest
expense for the quarter was $4 million while interest income
was $4.2 million. The effective tax rate we are currently
projecting is 25% for the year. The actual rate applied in the
second quarter is distorted due to non-deductibility for tax
purposes of some of the restructuring charges taken in this
quarter and of course the increase in the rate from 22% to
25%.
As indicated on our news release we will incur approximately
$70 million of total restructuring charge for the year 2001,
which the majority will be non-cash. Our cash balance at June
30, 2001 was $452 million. Our long-term debt of $303 million
consists primarily of the 3% convertible bond issue in May of
this year. Passive components revenues accounted for 66% of
the total revenues for this quarter. Active components for our
semiconductor division's revenues accounted for 34% of total
revenues for this quarter. Passive components operating income
accounted for 79% of the total operating income for this
quarter while our active components our semiconductor division
operating income accounted for 21% of the total income for
this quarter.
Our backlog for June 30th stands at $343 million. Some other
points of interest are grant income continues to be high at $5
million a quarter. On our deferred grant income as of June
30th, this is income that's going to come in over the next
four years, is $54 million. Cash generated from operations was
approximately $50 million and capital expenditures for the
quarter were $42 million. Depreciation and amortization for
the quarter was $43 million.
Total head count as of June 30, 2001: Vishay stands at 18,850
employees down from 22,740 employees at January 1, 2001
reflecting the restructuring that we anticipated in the first
quarter, second quarter and the remainder of this year. We
intend that to be going down further.
Thank you for your attention. I think Dr. Paul wants to go
into some of the more details and of course at the end of
the conference call we will answer all your questions. Dr.
Paul?
Dr. Paul Thank you Dick. I will report about the operation
highlights as usual of another difficult quarter for the
market and also for Vishay. The business continued to be
soft and we saw again a low level of activity in North
America and also in Asia. Europe also started to get
weaker. On the other hand inventories at distributors have
started to reduce since May. Some inventory build still in
the first quarter but since May it's being reduced.
We also saw a reduced level of cancellations. Our specialty
business has continued to hold up relatively well. The
relatively low orders of quarter one impacted the quarter
sales in the quarter negatively. As Dick indicated we achieved
$383 million sales in the quarter versus $559 million in the
prior quarter and $613 million in the prior year. This is
equivalent to a decrease year over year of 37% and versus
prior quarter of 31%.
Also the ASP's selling prices started to decline again. We saw
a weighted average of minus 4% versus prior quarter but the
ASP still were on the level of prior year. As you know only
the commodity product part of Vishay is concerned. The order
level in the second quarter has been suppressed quite
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severely. We only saw $28 million of net orders equivalent to
a book to bill of 0.6. Our specialty part of the business is
part of the whole business of $360 million annualized show a
book to bill of 0.75 doing much better. Altogether the backlog
is approximately three months or $343 million as Dick also
indicated.
June is quite flat again. We see no signs of an upturn or
downturn. I think we can say we've stabilized at the low
level. Commenting on the operation results versus prior year I
would like to say we have achieved an operating margin of $34
million or 9% versus $177 million or 29% in the prior year and
this includes a massive write down of tantalum ore as Dick was
indicating. The ASP's versus the prior year were stable as I
indicated, volume down by 36% and of course we were hurt by
substantially higher costs for palladium and for tantalum
powder.
Bringing down production to more adequate levels we also had
some labor inefficiencies. On the other hand our cost
reduction program started to show the combined fixed overhead
including commissions versus prior year was down by $10
million. If you compare this quarter with the first quarter of
the year 2001 we achieved in the last quarter $124 million
operating margin or 22%. ASP's, I indicated also, were down
versus prior quarter by 4% and the volume was down by 28%.
Also versus the first quarter we had substantially higher
costs for palladium, $2 million, and for tantalum powder, $10
million. We also versus the first quarter had increased
inefficiencies due to the reduction of the production
capacities. The combined fixed costs again including
commissions were lower by $12 million.
Other operation highlights: the inventory returns continued to
be impacted by lower sales and increases in finished goods and
raw materials. We just achieved 1.9 turns and we increased
again our inventory by $21 million, $30 million came from raw
materials and $8 million from process and finished goods. Most
of the increases predominantly came from tantalum caps. The
capacities for commodity product had to be corrected downward
again.
We have reduced the headcount since December 2000 by 12%, the
variable labor by 20% and the fixed overhead by 8%. Of course
we stopped overtime and we reduced hours per shift and we
minimized the utilization of subcontractors.
We are on the way to reducing our capital spending from the
$230 million last year to approximately $150 million. We still
have to spend money for carryovers, cost reduction of course
and new products. Capacities for commodity products are
utilized between 35% and 60% these days depending on the line.
We continue to improve the on-time delivery performance; we
presently run at 90% and we are implementing a further program
to reduce fixed overheads beyond what we have done already. We
have announced a closing of Sanford, Roanoke and Tours, which
will reduce our costs on an annualized basis between $20
million and $25 million. The share of headcount in low labor
countries dropped from 57% to 54% just due to the capacity
adaptations but our restructuring effort will re-enhance the
situation substantially. The target still remains to achieve
70% in low labor countries as a next step.
Going through the various product lines let me start out as
usual with resistors and inductors. They showed also in the
second quarter solid financial performance despite a declining
market. The acquisitions of Spectrol and EFI
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are integrated, I can say that and they are further
strengthening the specialty product segment of our business.
We achieved sales of $117 million, 20% below prior year and
25% below prior quarter. The gross margin of resistors and
inductors continued to run at a respectable level I would say
of 32% of sales, on the other hand 25% below prior year. The
commodity part of the business really suffers from the
downturn in this portion like resistor chips, like chip
arrays, which have a book to bill of 0.5. On the other hand
the specialty part of the business, which is quite strong in
resistors are doing much better, the book to bill was 0.8 but
these products are sold into different markets like
automotive, like industrial segments predominately and also
quite strong to Europe, which was better. Also for these
products as you know we don't see any price pressure normally
and so also not today.
The backlog of the total resistors inductors business is at a
reasonable level of three months. On the other hand the
relatively low orders of the first half will impact negatively
the sales in the quarters to come and our restructuring has to
continue and will continue. Good news is that the material
prices, which went up last year quite substantially for
resistors are approaching again the '99 levels.
Talking about ceramic multi-layer capacitors we must say that
the low orders of the first and second quarters especially in
this line were leading to a substantial drop of sales. We just
achieved $40 million sales, which is 32% below prior quarter
and 18% below prior year. The gross margin dropped to a level
of 24% of sales. The profitability was impacted negatively
versus prior year by the palladium price, which went up 60%
and a substantial drop in the volume of 33%. On the other hand
the selling prices versus prior year were up by 22% but some
were down versus the prior quarter.
Continued cancellations had to be noted and impacted. The
order level in the quarter book to bill was 0.3 only. The low
net orders of the first half also in this case will lead to
some further reduction of revenues in the quarters to come.
The capacity utilization is down to 40%. It's very important
at this step to close Roanoke. The closing of the Roanoke
facility will enhance the profitablities substantially. We
will save fix costs; we will produce more in Israel at lower
costs.
We also will in fact enjoy some reduction of the palladium
price in the fourth quarter and we have introduced to
production an MPO ceramics with only 5% palladium content for
Germany. We are going to expand that program, which will also
help us to save money to a large extent.
Tantalum capacitors continue to suffer. There is a continued
severe downturn of mobile telephones and PC's and this impacts
in particular also tantalum capacitors. There are still
substantial inventories at customers. We achieved sales in the
quarter of $63 million, 54% below prior quarter and 64% below
prior year. Still we have seen cancellations from OEM's, from
distribution and CM's. The backlog is at a level of 2.5%. Book
to bill was weak in the quarter just 0.3 like MLCC's.
The gross margin has been reduced to 24% of sales, which is
85% below prior year but you remember last year for tantalum
capacitors was an unprecedented case. ASP's volume and higher
cost for tantalum powder of course contributed
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to the decline of the profitability but it has to be noted
that the quarter as Dick was mentioning before especially for
tantalum, was burdened by a one time effect of the massive
write off of the ore.
ASP's for mode capacitors started to decline, 17% versus prior
quarter and 11% down versus prior year. On the other hand we
do have substantial price increases for leader tantalum
capacitors and our specialty product the coated tantalum
chips. The closing of Tours and especially the closing of
Sanford manufacturing will substantially enhance the
profitability of tantalum capacitors of this line. On the
other hand we will keep Sanford as a competency center.
Coming to semiconductors I would like to comment on
Telefunken, diodes, transistors and opto products. The
weakness of the economy mainly hits the diodes and transistors
business to a lesser extent opto. Sales were $59 million in
the quarter, 24% below prior quarter and 28% below prior year.
Gross margin came down to a level of 25% of sales. Backlog is
there for approximately three months. The book to bill was
0.8. The ASP's for commodity products are relatively stable.
We just see a decline of 3% versus prior year. We do expect
some increased price pressure especially for small signal
dials in the quarters to come.
The capacities in this product line are also adapted to the
present level of requirement. We utilize approximately 60%.
Very important for this product line is the recent acquisition
of Infineon's infrared business. This will strengthen Vishay's
market position in semiconductors in general. It will also
enlarge the product range by specialties, quite strong in
specialties. And we will also substantially increase the
market share for opto couplers. We were a small player before
in couplers, just 3% of the world market. We will come up to
14% or 15% of the world market by this acquisition.
There are major synergies concerning costs. And there are also
major synergies in technical programs. These synergies we are
going to exploit fast in the quarters to come or very soon.
Concerning Siliconix, still this division suffers very much by
the slowdown of the mobile phones and PC's business. For
Siliconix all the geographical markets are negatively
impacted. They achieved sales of $74 million, 17% below prior
quarter and 39% below prior year. We have seen a reduced level
of cancellations but the order level is still weak. We saw a
book to bill of 0.8 like at Telefunken. The backlog has been
reduced to 2.4 months and also this product line will see
further reduction of the business in the coming quarters.
The capacities are adapted. Utilization are 60%. We minimize
subcontractors. The fixed overhead costs without depreciation
have been reduced by 15% versus prior year and we will
continue to reduce overhead. The gross margin runs at the
level of 28% of sales, which is substantially 63% below prior
quarter, which was the best year ever on the other hand.
Siliconix is a good division. We see unbroken innovation, and
Siliconix is a very good supplier to the market. They have the
respect of their customers. We continue to be sure that the
next upturn will be first seen in Siliconix.
As I said in the beginning we are living through difficult
times but based on our financial strength, the strength of
Vishay and our product portfolio, I'm sure we will weather
this downturn like we have done this before. This is also the
time,
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and I wanted to get this across, to refocus the company and to
streamline for more productivity in all our segments. It's
also the time for increased efforts in the area of product
innovation and the time for synergistic acquisitions like
Tansitor, like Infineon and we are going to talk about General
Semi. I am sure that as usual Vishay will come out of this
downturn even stronger. Thank you.
Dr. Zandman I am Felix Zandman. I am the Chairman of the Board and the
CEO of Vishay. I would like, as is customary, to wrap up
this discussion. You've heard a lot of numbers but I would
rather speak about the strategy of Vishay. I will pick
only these two numbers, one is operationally we made $0.28,
which is not very good but it's not bad either in time of
great distress and our sales of $404 million including the
exchange rate is close to what was expected like $410
million.
The strategy of Vishay from the beginning consisted to make
Vishay a powerhouse concerning passive components. We have
achieved that by becoming the largest, the widest manufacturer
of passive components in Europe and the United States. Three
years ago we decided to enter the area of semiconductors or
discrete semiconductors in particular. To do that we have made
one false start with Lite-on and we saw some profit.
The next thing was terrific for us: we acquired Temic. Temic
was composed of two divisions really, Siliconix and
Telefunken. They had discrete component but also they had a
lot of integrated circuits. At that time the company decided
to sell the integrated circuits to Atmel because we didn't
believe it had a strong presence there and we didn't believe
we could master all that at the same time. But if you remember
we left with us two integrated circuits. One is IRDC, which is
the transceiver used in telephones for connecting for infrared
in a wireless way in all kinds of devices, especially
printers, computers, camera and things like that and also
Power ICs, which was a portion of Siliconix. We didn't want to
sell that because we believed that it also had a future. We
maintained those two fully knowing that it was going to be a
risk but we wanted to try it out.
It turns out now that by our next steps in terms of increase
of the presence in the discrete semiconductors we have
acquired two companies, well targeted. One is Infineon and the
other General Semiconductors. The Infineon Infrared
acquisition not Infineon itself, it's a separate very large
company, but the infrared group we acquired and by doing that
together with what we had before from Temic we became number
one worldwide in transceivers, the largest in the world
including Japan and became number two in opto-couplers, which
are also used in many applications also worldwide. There are
many synergies there like Gerald Paul said and the acquisition
is accretive and we're extremely happy about it.
Concerning the second acquisition, which we announced this
morning, this is General Semiconductors, which also is
accretive. The synergies are tremendous. The company has a
very strong position in the market concerning diodes, special
rectifiers and recently entered also into the area of Power
MOS, which is complimentary to our Siliconix division. By
putting together General Semi and Vishay Siliconix and
Telefunken all of a sudden by looking at the map of different
producers worldwide we will become number one in diodes
worldwide, number one in rectifiers worldwide, number two of
discrete semiconductors also worldwide after Toshiba.
The sales of General Semiconductor last year were $530 million
of course they suffer like everybody else. It's a downturn but
we have no doubt about it that it
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will come back to that and to much higher sales together with
Vishay because of the enormous synergies we can reduce costs
tremendously, our marketing, our PR, our position worldwide. I
think this is just like having gold. The products are
absolutely complimentary.
Concerning Power MOSFETs, also we are very happy about their
presence in this particular area because they have developed
$200 million cells per square inch concerning the Power
MOSFET, which is the most performing unit worldwide. I think
they out performed us. I must admit that. Concerning Power
ICs, it will be addition to our own Power ICs and all of a
sudden Vishay is also in the area of Power ICs will become
somebody and will have a future in this area.
The question probably is what is after that? Lots of time was
spent thinking about it. At this point Vishay becomes a very
strong force in discrete semiconductors, number two worldwide.
We are very strong in passive components. Of course there are
all kinds of areas which we would like to still acquire to get
deeper into the different markets of those components but
there is time now to think also about the next steps, which
quite likely will be in the integrated circuits like IRDC and
Power ICs where we have a base presently.
Now is the time to acquire companies because times are bad,
our financial position is very strong, we have the means to
acquire and we have the desire to do it. I think we have shown
in the past that we know more or less how to handle that and
we intend to continue in that direction. Thank you very much.
We are open for questions.
R. Grubb Okay. Thank you. Questions please?
Moderator Certainly. Our first question is from the line of Jerry
Labowitz with Merrill Lynch. Please go ahead.
J. Labowitz Vishay has always been very sensitive to reducing costs
particularly in a difficult environment as you're doing now
but going forward as Gerald mentioned about streamlining
further if we look out over the next year how much
production can we see from low cost countries compared to
where we are today and how many facilities do you have as a
company right now if we include the two latest, the
acquisition that's pending and the acquisition you just
closed and what would you see going forward a year from now?
Dr. Paul As a matter of fact at the moment we have approximately 60 and
there will be a few plans on top of that. As we know there
will be one for Infineon and there will be as far as I
understand it approximately four, I would say, and as a matter
of fact we continue to move to a low cost labor countries.
Traditionally Vishay goes approximately by 5% of the workforce
per year. Infineon is 100% immediately low labor countries but
of course as I understand we still have to study it of course.
Also General Semi will give us chances to do things like that.
J. Labowitz How much a year employees right now are in low cost
countries roughly?
Dr. Paul Sixty percent roughly. We have 40% level in high labor.
Each acquisition changes the number of employees as you can
imagine. This does not include Infineon. Infineon will
bring the level and high level down of course immediately
because it's only low labor but then comes the next step.
I think a rate of 5% per year is a reasonable rate, which
we can digest in traditional Vishay
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but maybe the acquisitions give us a higher speed.
J. Labowitz Okay. Thank you.
Moderator Our next question is from the line of Sean Severson with
Raymond James. Please go ahead.
S. Severson Good morning gentlemen. Congratulations on your quarter in
a tough environment. I wanted to ask if you had seen any
additional opportunities outside of this discrete
semiconductor area that you had pursued actively. I know
that you had mentioned some but could you expand on what
other areas, you still have a very strong balance sheet, if
you kind of prioritize the top two or three places you want
to be?
Dr. Zandman In principal no. We would like to be in components but in
the components area very often, if you are going to see an
opportunity in an area completely not related we will not
enter despite the fact that we have a strong balance
sheet. There is so much opportunities in our area. The
semiconductor area alone is $146 billion market. It's
enormous. And the passive components is an enormous
market, around $40 billion. Why get out in areas where we
don't know anything about? I'll take this area now but in
this area definitely will continue to look for.
S. Severson Could you give us your best guess, I know it's tough,
but how the selling price erosion is likely to continue
throughout the rest of the year? If you could give us a guess
on what you'd expect in the commodity areas into the third
quarter. If you expect that will be sort of the end of it and
then fourth quarter should be flatter than the third quarter,
a little more color on that sequence.
Dr. Paul Sorry I could hardly hear you but I would say we are coming
back more to normal times. When the market restarts we'll
be at the lower level so we expect for commodities but
again I repeat only for commodities, for specialties, which
is 1/3 of our business more or less it will not happen.
There is no price decline. For this I expect something
like 3% to 5% per quarter for some time.
S. Severson Thank you.
Moderator Our next question is from the line of Thomas Hopkins with Bear
Stearns. Please go ahead.
T. Hopkins Good afternoon everyone. I joined the call late could
you just give me the overall mix of semiconductors and
passives for the quarter and then with Infineon and General
Semiconductor where would you see the mix by say the end of
the year in sales and operating income.
Dr. Zandman Gerald, why don't you answer that.
Dr. Paul Dick gave the numbers before I think.
R. Grubb Let me give you them again. The split between the
revenues for the quarter was passive electronic components,
66%, 34% for semiconductors, and as far as earnings for the
quarter the passive accounted for 79% of the operating income
without the $20 million charge.
G. Paul I think it would be more like one to one. It's a little
bit even more
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semiconductors at the end of the year in terms of sales. In
terms of profits those levels have come very much the same so
I would also suspect that they contribute more or less
equally, somewhat more by semiconductors I would say.
T. Hopkins Okay I just want to be clear. So the operating income in
the quarter was 79% passive and 21% semiconductors?
G. Paul Because of different sales.
T. Hopkins Right.
G. Paul Net sales we catch up to more 50/50 scenario. A little
more semiconductors I would say.
T. Hopkins You think that operating income would be equivalent by the
end of the year between the two segments?
Gerald Hard to guesstimate but this would be my guess.
T. Hopkins Okay. Historically we've seen that price pressure is a
little bit more in the semi area than it is in passives
just because the dollar content of semiconductors is so
much higher for the customer than passives. How do you
think about that going forward with the mix changing?
G. Paul I don't think so to be honest. I see in Telefunken at the
moment a much smaller price pressure than we see in
MLCC's. It really depends. On the other hand it's true
that on Power MOS it's a substantial price pressure. The
only reason why passives could suffer less is that the
share of specialty products at the moment in passives is
higher.
T. Hopkins Okay. Great. Thanks very much.
Moderator Our next question is from the line of Shelby Fleck with Morgan
Stanley. Please go ahead.
S. Fleck I was wondering if you could just compare and contrast this
downturn with a period back in late '98 and the Asian crisis.
Were the book to bills in ceramics and tantalum as depressed
as they are now? How did the pricing pressure compare with
what you're seeing?
Dr. Paul Concerning the downturn, how severe it was, this is more
severe. On the other hand let's also face last years up
turn and the inventory built in the pipeline was also much,
much bigger. I think on the passive standpoint it's better
to compare this scenario with 1995 and 1996, which also was
not as severe but it's more comparable. From a pricing
pressure standpoint we don't know yet. The market hasn't
really restarted yet. I expect practically the same kind
of a price pressure as we have seen typically after such
kind of downturns.
S. Fleck And that would be in the 3% to 5% range for the quarter?
Dr. Paul Yes.
S. Fleck Okay. Thank you.
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F. Zandman I would like to answer something here to the previous
question concerning profitability. What concerns the main
line of Vishay means passive components and most of the
active components is exactly like Gerald said however there
are some segments there whereby the profitability is much
higher than semiconductors especially in Power ICs, IRDC
and MOSFETs. Profitability is much higher but at the same
time the price erosion is much faster and that's the reason
why new products are being introduced much faster in this
area. The business acts somehow differently than in the
main area of commodity products.
Moderator Our next question is from the line of John Harris with UBS
Warburg. Please go ahead.
J. Harris Good morning. In discussing the General Semiconductor deal
could you talk about what incremental product categories
they bring to you, what the overlap is with your existing
business and what the assumptions are underlying your
accretion estimates?
Dr. Zandman What we can say is the following: we produce diodes, and
they produce diodes. General Semi is much, much stronger
than we are in diodes but it's also complimentary because
Vishay is extremely strong in what is called the milk
diodes that's the round devices as opposed to square
devices. In rectifiers we are almost nothing and General
Semi is essentially everything. In Power MOSFETs we are
extremely strong; they are just a supplement for the
future. What concerns synergies are quite obvious is SG&A
and engineering and especially purchasing, tremendous
energies in purchasing. When you put this together the
cost of materials is much less and we just indicated there
that it's going to be strongly upward of $50 million a year
synergies. That's what you can see immediately. But of
course this has to be studied very carefully; step-by-step
as we do it for restructuring and putting people together
and things like that but we believe a minimum of $50
million we are looking at.
J. Harris How about in terms of a revenue contribution going forward?
Dr. Zandman Their sales last year were $530 million. This year like
everybody else is going to drop. If you make an annual
rate we don't know how it's going to end up, probably at
$350 or something like that but this is just a temporary
flash in the pan. It just a matter of synergies turns up
again it's going to come back to this number and higher.
If you look at Vishay last year it was $2.5 billion, they
were $530 million. We have gone down in sales and they
have gone down in sales. In the future both of us will go
up again, there's no question about that. Their products
are used in a very broad area. It's not only telephones.
They are used in power applications, in home appliance
applications, wherever you have a question of converting
the current from your 110 volt or 220 volts from your wall
into any kind of a battery or any kind of device you have
to go through rectifiers, from AC to DC and they are the
strongest in rectifiers in the world, number one,
tremendous. We believe this is very good for them and
absolutely excellent for us.
J. Harris Thank you.
Moderator Our next question is from the line of Eric Gomberg with Thomas
Wiesel Partners. Please go ahead.
E. Gomberg Congratulations on the General Semi acquisition. If you
could just break out, if
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you have it there, the sales by end market and also if you
have it by geography.
R. Grubb We don't have that. We're still putting it all together.
Why don't you give Bob Freece or myself a call later on
after lunch today and we'll have that detail for you.
E. Gomberg Okay. Great. Could you talk at all about the linearity
that you saw in this past quarter, some sense of was it a
sequential fall off month by month or what did it look like?
Dr. Paul In terms of sales or in terms of orders?
E. Gomberg Well both.
Dr. Paul Basically May and June in terms of orders were weaker than
April so it still was declining through the quarter. July now
is kind of a stabilization but on a low level so it doesn't go
down further it's a stabilization, if this answers your
question.
E. Gomberg At this point are you willing or do you have guidance for
the September quarter as far as where you think gross
margins may go and what revenue will look like?
R. Grubb I think again, if you give Bob Freece or myself a call
afterwards we will be guiding [sic] the analysts and the
interested parties this afternoon.
E. Gomberg With the General Semi acquisition should we expect any charges
associated with it in terms of when we're going to see these
synergies? I know it's a little early to be asking but if you
have any thoughts on that.
R. Grubb We have our estimates of the General Semi synergies that
are going to come about and we have our estimates about the
restructuring that's going to have to be performed but all
that will be booked prior to our taking over, the merger
being complete. So it should have no effect on Vishay
going forward other than to be positive.
E. Gomberg Okay. The last question, I know inventories obviously have
come down among distributors do you have any better
visibility or sense as to exactly what's going on with the
EMS companies and their inventory positions and when
they're going to come back into the market and order
product from you?
Dr. Paul No detailed information. We just look at distribution
necessarily. We have good data for distribution but they
still suffer from high inventory. There's no question
about it. I don't have really hard facts.
E. Gomberg Thanks a lot and good luck.
Moderator Our final question is from the line of Jim Rashudy with
Needham and Company. Please go ahead.
J. Rashudy Good morning. With respect to General Semi, they traditionally
have had a very strong presence in Asia Pacific and Japan. I
wonder if you can comment on the benefits that you see with
respect to perhaps expanding your business of your existing
business in Asia Pacific with General Semi?
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Dr. Zandman This is going to be very, very good for us. Any additional
business in Japan is welcome and any additional business in
the Far East in particular is very welcome. We have some 25%
of our business in the Far East. Together with them I think
that we are going to approach the 30% level, which we really
should be. They are extremely strong in Asia and that's very,
very good news for us.
J. Rashudy Felix, what about some of their key end markets. General Semi
has been pretty strong in the automotive market, you guys have
as well but I wonder are there specific end markets where you
think this is going to be a real plus for you?
F. Zandman They're all complimentary really. Additional strength in
automotive is good, in computers is good though the sales
are low now, in white goods and brown goods it's good.
It's all very complimentary. There is one specific market,
product-wise, rectifiers, which we are almost zero. This
is going to open up completely in new areas for Vishay.
It's very important to us.
G. Paul Also Felix if I can add, they are strong in automotives as
said and we in our Power MOSFETs we are not very strong in
automotives we just wanted to start that. I do believe
that there's a possibility.
J. Rashudy Gerald, if I may one other question, you talked about in
response to another question about comparing this downturn
with the previous downturn, what's the risk that the price
pressure is going to be worse than what we're anticipating the
5% to 8% per quarter just given the fact that the downturn is
more severe? Is it the fact that you feel the suppliers have
not added as much capacity?
G. Paul We have added capacity but there's also limit to supplier's
income. There's a limit. I do not believe that it will be
harder price-wise and least it didn't turn out to be up to
now than in the last downturn. You have no guarantee.
There's no guarantee of costs but I think it's unlikely.
F. Zandman There's one thing very good for Vishay though also in this
area that we have no interest to pay, there is no debt to
service in terms of interest, which makes for a situation
whereby the company is strong by itself. There is nothing
bleeding. It's just a matter of restructuring; of getting
less and less people whenever it's necessary and hiring but
we are extremely flexible on how to do that. So people are
prepared as we say to do whatever has to be done.
Dr. Paul Also the inventories of customers are not endless. They also
will have a demand. I'm sure they drive it down quite low with
the experience they just had but then the request for new
product is strong, which then slows down or even turns to the
opposite.
Dr. Zandman Usually traditionally when there is a very big drop there
is a strong rebound. We hope it's going to happen this time
as well.
J. Rashudy Gerald, do you think we're in the early stages of the
European business coming off or where do you think we are
in terms of the European business?
Dr. Paul Europe follows America by half a year. This is the lesson
of my professional life somehow. So far you are correct
Europe is turning down now. The industrial segment of
Europe is still quite strong.
Dr. Zandman Europe does not produce any computers.
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Gerald So I believe in principle yes, Europe is turning down now but
I don't think it will be as a steep downturn as in the United
States and in Asia.
J. Rashudy Okay. Thanks very much. Congratulations on the General
Semi news.
Dr. Zandman Thank you.
R. Grubb Okay. Thank you very much for calling in. As I said
before Bob Freece and myself will be available for phone
calls afterwards and we appreciate the number of people who
participate in this call is large, in excess of 300 people
for telephone lines at least and we look forward to
reporting on next quarter's earnings and any new
developments that happen as we go through we will take care
of getting in touch with people. Thank you very much.
Dr. Zandman Thank you.
Moderator Ladies and gentlemen this conference will be available for
replay starting today August 1st at 1:30 p.m. Eastern and will
last until August 5th at midnight. You may access the AT&T
Executive Playback Service at any time by dialing
800-475-6701. International participants please dial
320-365-3844 and the access code is 594873.
That does conclude your conference for today. We do thank you
for your participation and you may now disconnect.
Additional Information
In connection with the proposed merger of Vishay and General Semiconductor,
Vishay and General Semiconductor will file a joint proxy statement/prospectus
with the Securities and Exchange Commission. INVESTORS AND SECURITY HOLDERS ARE
ADVISED TO READ THE JOINT PROXY STATEMENT/PROSPECTUS WHEN IT BECOMES AVAILABLE,
BECAUSE IT WILL CONTAIN IMPORTANT INFORMATION. Investors and security holders
may obtain a free copy of the joint proxy statement/prospectus (when available)
and other documents filed by Vishay and General Semiconductor with the
Commission at the Commission's web site at http://www.sec.gov. Free copies of
the joint proxy statement/prospectus, once available, and each company's other
filings with the Commission may also be obtained from the respective companies.
Free copies of Vishay's filings may be obtained by directing a request to Vishay
Investor Relations at (610) 644-1300. Free copies of General Semiconductor's
filings may be obtained by directing a request to General Semiconductor Investor
Relations at (631) 847-3000.
Participants in the Solicitation
Vishay, General Semiconductor and certain of their respective directors,
executive officers and other members of their management and employees may be
considered to be soliciting proxies from their respective stockholders in favor
of the merger. Information concerning persons who may be considered participants
in the solicitation of Vishay's stockholders under the rules of the Commission
is set forth in the Proxy Statement for the 2001 Annual Meeting of Vishay
Stockholders filed by Vishay with the Commission on April 23, 2001, and
information concerning persons who may be considered participants in the
solicitation of General Semiconductor's stockholders under the rules of the
Commission is set forth in the Proxy Statement for the 2001 Annual Meeting of
General Semiconductor Stockholders filed by General Semiconductor with the
Commission on March 16, 2001.
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