At this time, I would like to welcome everyone to the Vishay's first quarter 2009 earnings results conference call. (Operator Instructions) Thank you. Dr. Yahalomi, you may begin your conference.

Thank you. This is Loir Yahalomi, the Chief Financial Officer. Good morning, ladies and gentlemen, and welcome to Vishay's first quarter 2009 earning call. On the line with me today are Dr. Felix Zandman, Vishay's Executive Chairman and Chief Technical and Business Development Officer; Dr. Gerald Paul, Vishay's President and Chief Executive Officer; and Lori Lipcaman, Vishay's Executive Vice President of Finance and Chief Accounting Officer. Before I start, Bill Clancy, Vishay's Senior Vice President and Corporate Controller, will read our customary opening statement. Bill?

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 risk and uncertainty that could cause actual results to differ from the forward-looking statement. 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 SEC.

Thank you, Bill. I will make summary comments. Dr. Paul will add a more detailed analysis of our first quarter 2009. And finally, Dr. Zandman will update our R&D and acquisition activities and will make summary remarks. For the first quarter of 2009, Vishay reported revenues of $450 million, 22% lower than the fourth quarter of 2008 and 39% lower than the first quarter of 2008. The decline in our revenues is attributed to the significant and rapid downturn in virtually all Vishay's end market. On a GAAP basis, our consolidated gross margins for the quarter were 15.1% as compared to 14.8% for the fourth quarter of 2008 and 23.5% for the first quarter of 2008. This was mainly the result of lack of overall volume. SG&A expense for this quarter was $87.5 million, a decline of over 10% compared to $98 million for the fourth quarter of 2008 and a decline of 26% compared to the $119 million for last year's first quarter. Restructuring and severance costs in our first quarter of 2009 were $18.9 million. Total cash paid out for restructuring during Q1 2009 was $16 million. Our income for the first quarter of 2009 consists mainly of $1 million of interest income and $11.8 million of foreign exchange gains. Despite our pre-tax losses, we recorded a tax expense for the first quarter. This is attributable to the fact that a significant portion of these losses occurred in low tax jurisdictions where we recognize no substantial benefit. Capital expenditures for the quarter were $11 million compared to $53 million in our fourth quarter of 2008 and $26 million in the first quarter of 2008. Depreciation and amortization for the quarter were $54 million, the same amount as in our fourth quarter of 2008 and in the first quarter…

Thank you, Lior. Good morning, everybody. Well, as you've heard, Vishay's first quarter results in a major way have been impacted by the present global economic crisis. Operating profits and earnings per share were negative due to a continued dramatic and broad decline of volume. But thanks to our quick reaction, drastic measures and a good discipline in Vishay, we continue to generate free cash, quite respectable as I believe, $42 million in the quarter. Fixed costs and inventories have been brought down ahead of our announced plans. Let me talk first about economic environment as we see it. The world economy in quarter one continued to be in an extremely deep recession, hurting all geographies and virtually all market segments. What we live through is an unprecedented crisis I believe since World War II. Nevertheless, for the electronic industry, the sequence of events of the recession is quite familiar. The recession started in Asia at commodity products, mainly in distribution. We know that. Then Americas and Europe, they followed with a certain time lag in the industrial segment. We also know this one. What is really unusual this time is that automotive was hit so hard. This is unusual, but principally speaking, the sequence of events is quite familiar. It's only the recession is deeper. Distribution in the quarter, we have seen low inventory returns, 2.7 worldwide; and the Americas, 2.5; and Europe, 3.0; and Asia, very low at 2.8. On the other hand, during the quarter, inventory at distributors have been reduced quite substantially, we estimate, by about 10%. And this starts to support the POA already. Since March, we have seen some signs of recovery, mainly in Asia. The short-term orders for instance were increasing recently. On the other hand, Europe and the U.S. are still slightly…

Good morning. I would repeat more or less the same thing Gerald said, maybe in a different context. The electronic industry is subject to a very severe recession, so is Vishay, as everybody knows. However, I am pleased to see that in spite of the violent drop in orders, we have responded fast, adjusting our operations with the strategic focus on creating free cash. This was the key and is the key. We achieved in Q1 free cash of $42 million, and our available liquidity is $533 million. That's the most important. This way we are secured for the future. It shows that the company is disciplined and is performing in an excellent way in spite of the recession. We start to see some uptick in orders in our Siliconix division and hope that the market is now stabilizing. In past recessions and we had several of them, we have seen always the same pattern. It's that the first to drop in orders are semiconductors, especially the advanced semiconductors like Siliconix, followed later by passives. The recovery has also the same pattern. First, semiconductors recover, followed by passive, and that's what's we hope will happen now. Let's hope that it is our start in recovery or at least that everything is stabilizing now. The negative P&L of $0.08 per share is regrettable, but not catastrophic. The most important for us is free cash generation, and that was achieved, $42 million in a quarter, which we consider a substantial number. Our R&D programs are on target. We have postponed some long-term programs which do not impede presently our day-to-day introduction of new products. As soon as the recession is over, the long-term programs will be re-evaluated, and Vishay again will plan an aggressive R&D with long-term benefits. Our activity in acquisition stopped temporarily. We will restart vigorously again acquisitions once the recession is over. A small summary here. In spite of catastrophic statements about the state of the economy, as reported daily by the media, TV and newspapers, everybody is exposed to that, Vishay handles itself well. Free cash generation is the most important in situations we live in now, and this we handle quite well. Also, our operations are handled very well in spite of lower volumes of orders. Once the recession is over, we will emerge stronger than ever. I feel optimistic about the future. Thank you. Well, I think we probably should pass now to questions. Hello?

(Operator Instructions) Your first question comes from the line of Matt Sheerin.

Yes, thank you. So, Dr. Paul, you gave somewhat of a vague outlook, and I appreciate the fact that visibility is limited. But it sounds like you expect your semiconductor business to be up slightly and the passive business to be down slightly. So, are we to sort of conclude that you are looking at sort of flattish overall sales?

Yes. Principally this is what we expect. But as you said, this is a time of maybe already some kind of recovery. Predictability is relatively low. But principally, this is the mechanic. We would say actives should be up very likely, and passives show still some signs of decline, especially in Europe.

And in automotive, are you seeing any light at the end of the tunnel there? Are you seeing any signs that you're seeing a little bit of a pickup, inventory restocking or anything like that?

Unfortunately, at the moment, automotive, I see mainly Europe, as you can imagine. There are no too encouraging signs unfortunately. This is the case.

Okay. And then on the margin front, well, two questions. One, are you expecting margins to be flat or up because of continued cost cutting? And you talked about a lower revenue level for breakeven. Could you tell us what that revenue level would be for breakeven?

Didn't want to be that quantitative, but as you can imagine, we were bringing down fixed costs quite dramatically in the first quarter, as we announced it really. And we wanted to work for it. When things get better, we will be very careful to add back any fixed costs, you understand? So therefore, it's really an easy prediction in that sense. We are going to lower the breakeven point of Vishay by hundreds of millions of U.S. dollars. I don't want to be more specific, but I think I am clear enough.

Okay. So, you are expecting a little bit of one of these margins to be flat up then?

Yes. For the profitability standpoint quarter-over-quarter, I didn't give any guidance, but you should understand the following. If the economy will develop the way I expected, we are going to have a somewhat bad mix impact, because some specialty products in passives, especially in Europe, will be relatively down, whereas actives with somewhat lower contributive margins will be up. So, on the other hand, we are going to continue to work on our costs in general. So anyway, as you said, we expect them flattish.

Okay. And just one more question, if I may. Your balance sheet certainly is improving. Your cash position is going up. Vishay is historically is an inquisitive company? What is your outlook in terms of acquisitions? Are you just focusing on kind of getting the business on track or also looking at acquisition opportunities?

Well, I think, Felix, you should answer, but first before you say it, I just wanted to emphasize what our Chairman has said. At the moment, our focus is on cash. But as you also said, Vishay always looks like for acquisition. So, Felix, maybe it was your question.

We are not looking actively to acquire large companies or small. But if something comes along the way which is a very good situation, quite cheap, we may look at it. But there is no major effort now, no major spanning of whole companies what to acquire, how to (inaudible) and so on. So, at this point it's kind of quiet in this area.

Your next question comes from the line of Steve Smigie.

Great, thanks. I was hoping you could talk a little bit about Siliconix's gross margin and what it takes to get that back up? And what happened that it got to where it is? I mean is it just you guys have been adding capacity, because that's generally pretty solid business and didn't want to cut back or could you just talk about that a little bit?

Yes. I think as I explained before, Siliconix's performance, which of course is very bad at the moment, a 3% gross margin, no discussion, is really only and exclusively impacted by the low volume, 50% down year-over-year. Like other semiconductor makers also, I think it's typical for people in this industry at the moment. On the other hand, as I also tried to say, Siliconix has a good variable margin. So, when sales come back nearly 50%, not quite, but close to 50%, flow to the bottomline automatically. And on top of everything, we are going to continue to cut fixed costs in Siliconix. And also history shows that Siliconix's recoveries are always deep, unfortunately also declines. It's the nature of the beast as it looks in semiconductors. Siliconix will have, you will see, a steep recovery when volume comes back, especially in profits.

And is it more the computing side or the handset side that's driving the book-to-bill above 1?

Well, at the moment, it's basically the computing side, which drives it up. But in reality, the following happens. At the moment what we see clearly is a normalization in the distribution channel. Distribution, as you know, at the beginning of this unprecedented downturn was stuffed with inventory. And since November, as I tried to say for Siliconix, inventories dropped the distribution by 25%. Therefore, what we see at the moment is also partially a normalization.

Okay. Assuming that we've sort of bottomed here and let's just say we had some sort of seasonal uptick in September and you guys had a little bit more industrial mix or maybe it's not as much as seasonal uptick in September quarter. But just in general, if we see any sort of recovery, with all the cost cutting you've done, what kind of fall-through would you expect to see on the gross margin line in recovery period?

Vishay historically has close to 50% variable margin, close to. That means this is what definitely will fall through, because as I said before, we will be very careful adding back fixed costs.

And in terms of the fixed costs reduction, can you talk a little bit about how you think about your facilities? You have a large number of facilities. And admittedly, you've had a number of acquisitions. And I guess I'm just trying to understand what makes the most sense for you guys in terms of footprint to try to consolidate facilities or do you just have certain R&D talent in multiple regions so you can't really do that? Can you just talk about how you think about that?

Well, historically, as you indicated, we are sitting on a lot of plants. But this is of course partially also because of the fact that we have lots of specialty products. So, this is connected, and specialty products have the advantages. So what we do since years and of course we do it now even in an accelerated way, we try to consolidate volumes. On the other hand, there are limitations. The bug of the cost reduction comes really from cutting down resources, as a matter of fact. So the cost reduction by consolidating plants, by nature of things, is a longer-term program. And this is what we do. We continue to do. But we don't want to lose business doing so. So we go step-by-step.

Okay. And my last question was this. Basically, just where are we now in terms of headcount and where do you think we are going?

There will be still reductions first of all on the variable side, variable, direct to access. We adapt to the need. So we do it partially by layoffs, partially by short-time work, partially by plant shutdowns. In this case, we adapt to the volume, including our target of inventory reduction which we have. So, this one goes automatically. Of course, we have to work for it. On the fixed cost side, I am going to continue, maybe not at the same speed as we had in the first two quarters, but we are going to selectively also reduce fixed cost personnel further going forward, yes, but not at the same speed as in quarter four and one.

Can you give us like a specific headcount where you are currently?

Yes, we do, but I don't want to give it out and talk in public.

Your next question comes from the line of Jim Suva.

Great, thanks very much. On the profitability, you've made a lot of progress on reducing SG&A. I believe it went down about $15 million in the March quarter compared to December quarter. Given that it seems like you're going to reduce some employees some more and a little bit more restructuring actions, can you give us a little bit of help as far as what we should expect out for the June and kind of outlook quarter run rates since it's been declining so much?

Well, as a matter of fact, we were by far faster than we thought. This is also why I said before our targets for the year in comparison to last year, it was raised from $150 million to $200 million savings. Just to keep the present run rate already will bring us there, so to speak. And on top of that, we will have some more moderate, but moderate cuts. So basically, just defending the run rate brings us to the $200 million. But you shouldn't be misled. A part of these savings which we had up to now is by nature temporary, right? That means short work and plant closings, et cetera. So, along the way, we have to replace these temporary measures by permanent measures. Do you understand?

Yes. But in doing so, a lot of the cuts in Q1, I imagine, were nonlinear, meaning they didn't take effect for the entire quarter.

You are right.

So that should we expect SG&A to come down again in the June quarter?

Well, again, it's a combination of temporary and permanent measures. Not all the temporary measures can be made permanent immediately. So we count basically first of all on defending this quick progress which we had between the fourth and first quarter.

But on the flat sales rate, would we expect SG&A to be down slightly then?

Only slightly.

Okay. And then on the other income line, you had a foreign exchange benefit of about $11.8 million. Is there anything special in that line item that we should expect going forward or should it revert back to a more normalized level?

Lior, do you want to answer? Lior?

This is Loir. We would expect more normal level moving forward.

Yes.

(Operator Instructions). Your next question comes from the line of Shawn Harrison.

Hi. Good morning. Getting back to the cost reduction program, I know when it was initially announced, there was the final goal of a certain percentage being permanent. Now that that number has been increased to $200 million, what percentage of that do you see being permanent reductions in terms of your fixed cost?

A major portion of it, obviously. So, we are still working on additional plans. You can imagine the economy turned down super dramatically, and we had to cut left and right as fast as we could. And by nature of things, a few things had to be temporary. It had to be implemented quickly. In Europe, if you want to lay people off, it takes time. Short work and things like that go fast. So, this is why we combined it like that. Now we are working on a plan to convert as much of the temporary into permanent cuts, but this is on the way. I do not want to be completely specific, but we want to maximize the permanent portion. Last time, I said two-third is permanent and one-third is fixed. You can work from the assumption that more than two-third is permanent.

Okay. And then trying to maybe drill down on the cost of goods sold line in terms of the incremental benefits there, is it safe to assume that exiting 2009, given the uptick in actions that you've implemented, you should be at least breakeven, given if revenues don't recover from here? Is that a safe assumption?

Well, if revenues stayed at the same level, we would be close to breakeven, yes. Closer to breakeven, not completely, I think. But we haven't calculated it that way.

Okay.

May I add to that? We in the first quarter also have enjoyed some positive mix effects, as I tried to say during my presentation on the passives, which may also not completely be repeatable all the time. But your assumption is right. We are approaching breakeven on the same sales level. That is true.

And that positive mix benefit was just primarily due to seeing better relative sales in the passives business and the specialty business versus --?

No. In the lines, particular in capacitors, we have sold more specialty products.

Okay. And then turning to Siliconix, now what was the pricing on a sequential basis? I think year-over-year you said it was down 7% to 8%.

Yes. It was down by I think 4% or something. Yes, 4% down quarter-over-quarter, but you have to see that in quarter four, between quarter three and quarter four, we had price increases on a sequential basis. So there must have been some yearend effects that some accruals were released, et cetera. This is why I reduced my statement to the level year-over-year. But in principal, I have Ken look it up. It's close to 5% if you took seriously close to 5% quarter-over-quarter.

So, it seemed more --?

But this is after a quarter when prices have gone up, which is not typical for Siliconix.

It seemed more like normalization and your competitors are getting negative on price?

On the other hand, to say it also clearly, as soon as recovery will come about and it will come about first at Siliconix, that's for sure, we will see more price pressure. There is no question about it.

Okay. And then just in terms of the dynamics you are seeing here in April, with the book-to-bill above 1.3 in April, it seems like you're stating most of that is a restocking and not underlying demand comeback through distribution or am I reading that correctly?

It's a combination. What I wanted to point out is that the restocking, the normalization in the supply chain, plays an important role and cannot be forgotten in this context. But as well, it's on both sides.

Okay. So, the point of sale versus the point of forward purchases is essentially reaching equilibrium here in April on the active components business?

Yes, I think the whole industry was depressed before quite heavily through this sudden downturn that everybody wanted to get rid of this inventory.

At this time, there are no further questions. Dr. Yahalomi, do you have any closing remarks?

Thank you. I would like to thank you for participating in our call. We appreciate the interest in Vishay, and we look forward to your continued interest in the future. Thank you all.

Thank you. This concludes today's conference call. You may now disconnect.