Peter Henrici - Senior Vice President, Corporate Communications and Corporate Secretary Gerald Paul - President and Chief Executive Officer Lori Lipcaman - Executive Vice President and Chief Financial Officer

Steve Smigie - Raymond James Sameer Kalucha - JPMorgan Shawn Harrison - Longbow Research Jim Suva - Citigroup Matt Sheerin - Stifel Nicolaus

At this time, I would like to welcome everyone to the Vishay Q4 2012 earnings call. (Operator Instructions) Mr. Henrici, you may begin your conference.

Good morning, and welcome to Vishay Intertechnology's fourth quarter 2012 conference call. With me today are Dr. Gerald Paul, Vishay's President and Chief Executive Officer; and Lori Lipcaman, our Executive Vice President and Chief Financial Officer. As usual, we'll start today's call with the CFO, who will review our fourth quarter and year 2012 financial results. Dr. Paul will then give an overview of our business and discuss operational performance as well as segment results in more detail. Finally, we'll reserve time for questions-and-answers. This call is being webcast from the Investor Relation section of our website at ir.vishay.com. The replay for this call will be publicly available for approximately 30 days. 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. In addition, during this call, we may refer to adjusted or other financial measures that are not prepared according to Generally Accepted Accounting Principles. 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 that we also provide. This morning, we filed Form 8-K that outlines the various variables that impact the diluted earnings per share computation. On the Investor Relation section of our website, you can find a presentation of the Q4 2012 financial information containing some of the operational metrics Dr. Paul will be discussing, as well as a presentation on Vishay's growth plan. Now, I turn the discussion over to Chief Financial Officer, Lori Lipcaman.

Thank you, Peter. Good morning, everyone. I am sure that most of you have had a chance to review our earnings press release. I will focus on some highlights and key metrics. Vishay reported revenues for Q4 of $531 million, slightly above the midpoint of our guidance. Revenues for the year were $2.2 billion with an operating margin of 8.5% and an adjusted operating margin of 7.9%, excluding the gain on the sale of our property in Belgium, vacated as part of our past restructuring activities. Our operating income was as we would expect at these low revenue levels according to our business model. EPS for quarter four of $0.14 included a one-time tax benefit of $4 million. Adjusted EPS for quarter four was $0.11. EPS for the year was $0.79 and adjusted EPS was $0.71. Vishay generated free cash of $40 million in the quarter and $147 million in the year. Revenues in the quarter were $531 million, down by 7.4% from pervious quarter and down by 3.8% compared to prior year. Gross margin was 20.5%. Operating margin was 4.1%. EPS was $0.14. Adjusted EPS was $0.11. In quarter four we recorded a one-time tax benefit of $4 million, related to the release of a valuation allowance on a deferred tax asset in Israel. A merger of several of our wholly owned subsidiaries in Israel will allow us for the realization of these tax benefits that likely otherwise would have been foregone. Reconciling versus prior quarter, operating income quarter four 2012 compared to operating income for prior quarter, based on $42 million lower sales, or $48 million lower excluding the exchange rate impact, operating income decreased by $23 million from $45 million in quarter three 2012 to $22 million in quarter four 2012. The main elements were: average selling…

Thank you, Lori, and good morning, everybody. The year 2012, for Vishay, like for the entire electronic components industry has been a rather difficult year due to substantially deteriorating market conditions in the second half. We achieved in 2012 a gross margin of 24% of sales and adjusted operating margin of 8% of sales, adjusted earnings per share of $0.71 and GAAP earnings per share of $0.79. We generated, as Ms. Lipcaman said, $147 million free cash, and I think we can state that we continued our good performance of many years. The fourth quarter as foreseen turned out to be the weakest quarter of the year. We reached a gross margin of 21% of sales, operating margin will 4% of sales, adjusted earnings per share of $0.11, and GAAP earnings per share of $0.14. Let me talk about the economic environment. After a quite promising start, the year 2012 after June suffered from a negative outlook, especially in Asia. Asian distributors held back in view of an anticipated weakness in the consumer markets like television, notebooks, handsets and gaming. Following Asia, in the course of the third quarter, most of our other markets started to decline. There were broad anxieties for the macro economy in view of unresolved problems concerning the Euro, and weak growth perspectives in particular for Europe. While this had a substantial impact on the European industrial market segment, whereas automotive in general remained relatively strong. In contrast to Europe and Asia, the U.S. market in 2012 remains fairly stable. The distribution turns in the fourth quarter decreased slightly from 3.2 on a worldwide basis, vis-à-vis 3.4 into third quarter to 2.3 in the Americas versus 2.4 to 3.1 in Europe as compared to 3.5 to 4.5 in Asia versus 4.7. All this, despite the fact,…

Thank you Dr. Paul. We will now open the call for questions. Operator, please take the first question.

Your first question comes from Steve Smigie

I was hoping if you could talk a little bit about the book-to-bill as we look out here into January, obviously, a very good number. Is this just build ahead of Chinese New Year or do you think orders can have strength throughout the quarter?

First of all, it came in much stronger than we internally have anticipated. And indeed it's quite broad. It's coming from everywhere, so to speak, not only from Asia. But of course, what you mentioned has some contribution to it. No question about it. We see also really improved order rates from distribution and from EMS. But we have realized, especially in the last two to three weeks, two weeks more than three weeks, a substantially improved environment, relatively broad, but as I said, driven by distribution and EMS.

And is there other particular end-markets that are seeing strength?

As I said, this distribution is somewhat anonymous. So it is in general a better situation, I think. There's more optimism, more confidence in the customers.

So if distribution is generally going to be more industrial weighted, say, you've got more orders for MOSFETs or something that will be more direct?

Yes. That is true what you say. Automotive always was strong throughout the year. So it's really the industrial for the most part, you're right.

And have you seen the Chinese buyer of the high-end automotive or high-end autos come back?

Not really. I do not have this information in detail at this point. So we have seen it's predominantly as I said from distribution and EMS.

Let's just take one more in. Just in your presentation, it looks like you twitch something your internal assumptions a little bit. R&D and engineering costs goes from 7 to 6; G&A goes from 2 to 3; fixed cost 4to 3. Could you go through those a little bit? And what those changes mean?

You mean vis-à-vis our growth plan?

Yes.

Well, it's somewhat small. So as a matter of fact, it's not a new strategy, which we follow here. It's just somehow different numbers. It's more rounding than anything else as a matter of fact. This is not a change of direction. In fact, I feel that we really do what we say. This increase of technical personnel at the cost of administrative personnel was our plan. And that's exactly what has happened, but no change in direction, nothing to interpret really.

Your next question comes from Christ Danely.

This is Sameer Kalucha calling in for Christ Danely. My question is on the inventory side of things. How does it compare with the bottom that you guys saw in 2008 and '09 downturn? And then extrapolating that if this is kind of like an inventory snapback, which is maybe pointing to order strength, do you see any signs of or any potential for lead time extending over to next quarter or maybe over to summer?

If the order rate continues like that, we for sure will see longer lead times. We will do the best to minimize it. We have to put in more capacity, as you know, it's part of our growth plan. And we will try to minimize it. Too long lead times don't help anyone and especially for us, it's also a lost business. So we will try to manage it. But it's normal. If things should heat up too much, then by nature of things, we are going to see longer lead times again. The inventory level today is not as low as it has been according to my recollection of as low as it has been at the loop point of peak sizes. So it's still in the more regular form, but it has regulated down quite nicely. So we have it a moment, I think they will know what they do in order to ordering more.

And then you mentioned pricing in Q4 certainly saw a decline, which is maybe a little bit more than normal. How do you expect pricing to evolve during that year? Do you see it seeing more pressure or it stabilizes?

I mean, we are really talking about the MOSFETs in our case. They have really seen that by far the highest price decline. The passives just as were customary mix related or something close to that. So we are really talking to MOSFETs. Of course, the MOSFET situation in the market hasn't been really nice in the quarter four. And as us also hear, orders are coming back. I would suspect that also the price pressure will go down as we go forward.

Your next question comes from Shawn Harrison.

Just the incremental gross margin for the fourth quarter was, I guess, a little bit outside your range. Was that solely because of the pricing dynamics in the quarter or was there anything else at work?

Absolutely, you're right. It was the pricing. It was really not for the fixed cost as you can imagine, it was for the pricing. And you know we work our way back always through cost reduction and innovation. But if prices drop in such a form then you see short-term impacting then. And then we fight it by cost reduction and innovation. Long term we were able for many years to hold the range between 48% and 46%.

And then as a follow-up, I know last quarter you had talked about looking at a potential transaction within Europe. Maybe if you could just discuss the M&A environment in terms of I guess the primary use of your cash flow in '13? And maybe other things you're looking at as well?

So nothing has changed, in fact we want to follow our strategy. And the strategy is to acquire specialty mid-size smaller companies. And in that sense, indeed we are negotiating since quite sometime. In Europe, we won a specialty resistor house, smaller acquisition, mid-size acquisition as you like. But it's Europe. And it's slower here. It takes more time somehow, but we have decided into this direction and for sure, we will continue. The market itself, in an upturn normally is not as good as in the downturn. So we see chances, but this is the concrete one I was just talking about in Europe.

Jim Suva.

Dr. Paul, in your prepared comments, in the press release as well as in the conference call, you gave some very appreciated sales guidance. And then you mentioned gross margins to improve. Just so I can get that correct, I assume you mean, improved quarter-over-quarter?

Yes.

But then my question is if that is true, what about year-over-year because it looks like now you're getting back to the same year-over-year sales levels. So should we be expecting gross margins to go back to that higher level or if not, why?

Jim, it's really like that. It's a matter of volume. Our business model works as soon as volume comes up. We have not added fixed cost as you know. And the variable margin will come back and that is very close to the range, anyway. But will improve as we put move innovation in. Its first quarter was really a certain drop of prices, kind of. It was not quite normal. So we expect more stabilization and we believe that we are going to be back, given the volume to the margins we had before.

Your next question comes from Matt Sheerin.

Most of the key questions were asked, Dr. Paul, but just again on distribution. You had talked about point-of-sale being I think down 9% sequentially. But was your sales' into distribution on a sequential basis down in the fourth quarter?

It was substantially down. It was down more than the 9%.

And the book-to-bill also in distribution, what is it at now?

In January, it came up nicely. It came to the quite positive levels.

And beside from that segment, which is obviously very big, are you seeing more stable orders from the OEM and EMS customers?

It's too early to talk like that, I would say. It's really mostly from EMS and the end-distribution. The sequence distribution and EMS. Automotive, there's no change. They have been strong before. But I think, one of the question before was related to that. As soon as distribution comes up, I think we can expect industrial to come back, which would be very important for Vishay, as you know.

And On Siliconix net gross margin levels, number is obviously very weak. And I haven't seen it there in quite a while, and I know some of the end-markets that segment serves is weak. Do you expect just a gradual recovery in that business?

It also grows with the rate of volume. We all know that the notebook market at the moment is depressed, and it maybe remains depressed. But our ambition is to be stronger in high-voltage. We are working on it. We expand our share in automotive. So we are working against this negative of notebooks. And I am absolutely sure that Siliconix is going to come back to decent profitability levels. We are running at very low volumes at the moment.

And if you can get that number to us, that would be great.

11% down, I just got it.

There are no further questions. I will now turn the call back over to Mr. Henrici for closing remarks.

Thank you for your interest in Vishay Intertechnology.

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