Semiconductor manufacturer Vishay Intertechnology (NYSE:VSH) missed analysts' expectations in Q3 FY2023, with revenue down 7.7% year on year to $854 million. Next quarter's revenue guidance of $790 million fell short, coming in 5.9% below analysts' estimates. Turning to EPS, Vishay Intertechnology made a non-GAAP profit of $0.60 per share, down from its profit of $0.98 per share in the same quarter last year.
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Vishay Intertechnology (VSH) Q3 FY2023 Highlights:
- Revenue: $854 million vs analyst estimates of $864 million (1.2% miss)
- EPS (non-GAAP): $0.60 vs analyst estimates of $0.57 (6.2% beat)
- Revenue Guidance for Q4 2023 is $790 million at the midpoint, below analyst estimates of $840 million
- Free Cash Flow of $55.5 million, up 53.1% from the previous quarter
- Inventory Days Outstanding: 95, up from 95 in the previous quarter
- Gross Margin (GAAP): 27.8%, down from 31.3% in the same quarter last year
“During the third quarter, as expected, revenue decreased from the second quarter on inventory adjustments by our distribution and EMS customers in response to softened demand in industrial markets and contracting lead times. Nevertheless, we once again intentionally increased inventory with our distribution partners as we continued to execute our strategy of broadening our participation in this higher margin channel. The capacity readiness activities we have underway are increasing our value to the distribution channel and reliably supporting our accelerating design activities related to the megatrends of e-mobility, sustainability and connectivity,” said Joel Smejkal, President and Chief Executive Officer.
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.
Analog Semiconductors
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.
Sales Growth
Vishay Intertechnology's revenue growth over the last three years has been mediocre, averaging 13.2% annually. This quarter, its revenue declined from $925 million in the same quarter last year to $854 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).
Vishay Intertechnology had a difficult quarter as revenue dropped 7.7% year on year, missing analysts' estimates by 1.2%.
Vishay Intertechnology's revenue inverted from positive to negative growth this quarter, which was unfortunate to see. Looking ahead to the next quarter, the company's management team forecasts a 7.6% year-on-year revenue decline. Analysts seem to agree that the poor performance will continue, as their estimates for the next 12 months call for a 2.1% drop in revenue.
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Product Demand & Outstanding Inventory
Days Inventory Outstanding (DIO) is an important metric for chipmakers, as it reflects a business' capital intensity 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 DIO came in at 95, which is 9 days above its five-year average, suggesting that the company's inventory levels are higher than what we've seen in the past.
Key Takeaways from Vishay Intertechnology's Q3 Results
With a market capitalization of $3.19 billion, Vishay Intertechnology is among smaller companies, but its $1.17 billion cash balance and positive free cash flow over the last 12 months give us confidence that it has the resources needed to pursue a high-growth business strategy.
It was great to see Vishay Intertechnology beat analysts' EPS expectations this quarter. On the other hand, its revenue missed Wall Street's estimates and its revenue guidance for next quarter underwhelmed. Weak guidance is something we've observed across the semiconductor sector this quarter. Overall, the results could have been better. The stock is flat after reporting and currently trades at $22.9 per share.
Vishay Intertechnology may have had a tough quarter, but does that actually create an opportunity to invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.
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The author has no position in any of the stocks mentioned in this report.