Semiconductor manufacturer Vishay Intertechnology (NYSE:VSH) reported Q1 FY2023 results topping analyst expectations, with revenue up 2.02% year on year to $871 million. Guidance for next quarter's revenue was $880 million at the midpoint, 5.76% above the average of analyst estimates. Vishay Intertechnology made a GAAP profit of $112.2 million, improving on its profit of $104 million, in the same quarter last year.
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Vishay Intertechnology (VSH) Q1 FY2023 Highlights:
- Revenue: $871 million vs analyst estimates of $845.8 million (2.98% beat)
- EPS (non-GAAP): $0.79 vs analyst estimates of $0.56 (41.1% beat)
- Revenue guidance for Q2 2023 is $880 million at the midpoint, above analyst estimates of $832.1 million
- Free cash flow of $84.6 million, up from $14.1 million in previous quarter
- Inventory Days Outstanding: 101, up from 93 previous quarter
- Gross Margin (GAAP): 32%, up from 30.3% same quarter last year
“Driven by sales increases in medical and aerospace/defense along with continued strong demand in automotive, for the first quarter we delivered revenue growth of 2.0% year over year and 1.8% quarter over quarter. We also increased investments in capacity expansion for our 30 key product lines in support of high growth and high return opportunities that meet our customers’ accelerating demand. While 2023 is a staging year at Vishay as we prepare to participate fully in the next step up in demand related to connectivity, mobility and sustainability megatrends, we remain committed to spending approximately $385 million in capex and returning at least $100 million to our stockholders,” said Joel Smejkal, president and CEO.
Named after the founder's ancestral village in present-day Lithuania, Vishay Intertechnology (NYSE:VSH) manufactures simple chips and electronic components that are building blocks of virtually all types of electronic devices.
Demand for analog chips is generally linked to the overall level of economic growth, as analog chips serve as the building blocks of most electronic goods and equipment. Unlike digital chip designers, analog chip makers tend to produce the majority of their own chips, as analog chip production does not require expensive leading edge nodes. Less dependent on major secular growth drivers, analog product cycles are much longer, often 5-7 years.
Vishay Intertechnology's revenue growth over the last three years has been unremarkable, averaging 12.5% annually. And as you can see below, last year has been even less strong, with quarterly revenue growing from $853.8 million to $871 million. Semiconductors are a cyclical industry and long-term investors should be prepared for periods of high growth, followed by periods of revenue contractions (which can sometimes offer opportune times to buy).
While Vishay Intertechnology beat analysts' revenue estimates, this was a very slow quarter with just 2.02% revenue growth. This marks 11 straight quarters of revenue growth, which means the current upcycle has had a good run, as a typical upcycle tends to be 8-10 quarters.
Vishay Intertechnology' appears to be headed for a downturn. While the company is guiding to growth of 1.91% YoY next quarter, analyst consensus sees 4.08% declines over the next twelve months.
In volatile times like these we look for robust businesses with strong pricing power. Unknown to most investors, this company is one of the highest-quality software companies in the world, and their software products have been the default standard in critical industries for decades. The result is an impressive business that is up an incredible 18,152% since the IPO. You can find it on our platform for free.
Product Demand & Outstanding Inventory
Days Inventory Outstanding (DIO) are an important metric for chipmakers, as it reflects the capital intensity of the business and the cyclical nature of semiconductor supply and demand. In a tight supply environment, inventories tend to be stable, allowing chipmakers to exert pricing power. Steadily increasing DIO can be a warning sign that demand is weak, and if inventories continue to rise the company may have to downsize production.
This quarter, Vishay Intertechnology’s inventory days came in at 101, 16 days above the five year average, suggesting that that inventory has grown to higher levels than what we used to see in the past.
Key Takeaways from Vishay Intertechnology's Q1 Results
With a market capitalization of $2.96 billion Vishay Intertechnology is among smaller companies, but its more than $1.03 billion in cash and positive free cash flow over the last twelve months give us confidence that Vishay Intertechnology has the resources it needs to pursue a high growth business strategy.
We were impressed by how strongly Vishay Intertechnology outperformed analysts’ earnings expectations this quarter. And we were also glad that the revenue guidance for the next quarter exceeded analysts' expectations. On the other hand, it was less good to see the inventory levels increase. Overall, we think this was a really good quarter, that should leave shareholders feeling very positive. The company is up 0.66% on the results and currently trades at $21.3 per share.
Vishay Intertechnology may have had a good quarter, so should you invest right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.
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The author has no position in any of the stocks mentioned.