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Vishay Intertechnology (NYSE:VSH) Reports Q3 In Line With Expecations, Inventory Levels Improve


Full Report / November 02, 2022
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Semiconductor manufacturer Vishay Intertechnology (NYSE:VSH) reported sales in line with analyst expectations in Q3 FY2022 quarter, with revenue up 13.6% year on year to $924.7 million. Vishay Intertechnology made a GAAP profit of $140 million, improving on its profit of $97 million, in the same quarter last year.

Vishay Intertechnology (VSH) Q3 FY2022 Highlights:

  • Revenue: $924.7 million vs analyst estimates of $925.1 million (small miss)
  • EPS (non-GAAP): $0.93 vs analyst estimates of $0.84 (11% beat)
  • Free cash flow of $133.1 million, up from $15.2 million in previous quarter
  • Inventory Days Outstanding: 88, down from 97 previous quarter
  • Gross Margin (GAAP): 31.3%, up from 27.7% same quarter last year

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.

Vishay mainly manufactures discrete semiconductors and passive electronic components that can be found in almost any electronic device. Discrete semiconductors are chips that have a small number of transistors and are used for basic functions. Discrete semiconductors essentially exist in an on or off state and function alongside more complex chips in virtually every electronic device.

The company also manufactures passive electronic devices such as resistors, inductors, and capacitors. These components are essential for the operation of electronic devices and work in tandem with more complex parts from other manufacturers. Through the manufacturing of discrete semiconductors and passive electronic components, Vishay is essentially supplying the most basic elements of any electronic device.

Vishay’s peers and competitors include Analog Devices (NASDAQ: ADI) Texas Instruments (NASDAQ: TXN), Skyworks (NASDAQ:SWKS), Infineon (XTRA:IFX), NXP Semiconductors NV (NASDAQ:NXPI), ON Semi (NASDAQ:ON), Marvell Technology (NASDAQ:MRVL), and Microchip (NASDAQ:MCHP).

Sales Growth

Vishay Intertechnology's revenue growth over the last three years has been unremarkable, averaging 8.9% annually. But as you can see below, last year has been stronger for the company, growing from quarterly revenue of $813.6 million to $924.7 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 Total Revenue

This was a slower quarter for Vishay Intertechnology, with revenue growth of just 13.6%, which missed analyst estimates only slightly by 0.03%. This marks 9 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.

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.

Vishay Intertechnology Inventory Days Outstanding

This quarter, Vishay Intertechnology’s inventory days came in at 88, 5 days above the five year average, suggesting that despite the recent decrease the inventory levels are still higher than what we used to see in the past.

Pricing Power

Vishay Intertechnology's gross profit margin, how much the company gets to keep after paying the costs of manufacturing its products, came in at 31.3% in Q3, up 3.6 percentage points year on year.

Vishay Intertechnology Gross Margin (GAAP)

Vishay Intertechnology' gross margins have been trending up over the past year, averaging 29.9%. This is a welcome development, as Vishay Intertechnology's margins are below the group average, potentially pointing to improved demand and pricing.

Profitability

Vishay Intertechnology reported an operating margin of 24.1% in Q3, up 4.3 percentage points year on year. Operating margins are one of the best measures of profitability, telling us how much the company gets to keep after paying the costs of manufacturing the product, selling and marketing it and most importantly, keeping products relevant through research and development spending.

Vishay Intertechnology Adjusted Operating Margin

Operating margins have been trending down over the last year, averaging 16.8%. However, Vishay Intertechnology's margins are inline with the semiconductor industry's norm, as it continues to appropriately manage its operating expenses.

Earnings, Cash & Competitive Moat

Wall St analysts are expecting earnings per share to decline 11.4% over the next twelve months, although estimates are likely to change post earnings.

Earnings are important, but we believe cash is king as you cannot pay bills with accounting profits. Vishay Intertechnology's free cash flow came in at $133.1 million in Q3, up 67.9% year on year.

Vishay Intertechnology Free Cash Flow

Vishay Intertechnology produced free cash flow of $192.5 million in the last year, which is 5.52% of revenue. It's good to see positive free cash flow, and that puts the company in a position to reinvest, but we wouldn't mind seeing cashflow yield improve a little.

Vishay Intertechnology’s average return on invested capital (ROIC) over the last 5 years of 20.3% implies it has a strong competitive position and is able to invest in profitable growth over the long term.

Key Takeaways from Vishay Intertechnology's Q3 Results

With a market capitalization of $3.05 billion Vishay Intertechnology is among smaller companies, but its more than $917.6 million in cash and positive free cash flow over the last twelve months put it in a very strong position to invest in growth.

We were very impressed by the strong improvements in Vishay Intertechnology’s gross margin this quarter. And we were also excited to see that earnings outperformed Wall St’s expectations. On the other hand, revenue growth is overall a bit slower these days. Zooming out, we think this was a good quarter. But investors might have been expecting more and the company is down 1.73% on the results and currently trades at $21.01 per share.

Is Now The Time?

Vishay Intertechnology may have had a good quarter, but investors should also consider its valuation and business qualities, when assessing the investment opportunity. We cheer for everyone who is making the lives of others easier through technology, but in the case of Vishay Intertechnology we will be cheering from the sidelines. Its revenue growth has been very weak, and analysts expect growth rates to deteriorate from there. And while its high return on invested capital suggests it is well run and in a strong position for profit growth, unfortunately gross margin indicate some combination of pricing pressures or rising production costs.

Vishay Intertechnology's price to earnings ratio based on the next twelve months is 8.1x. While we have no doubt one can find things to like about the company, and the price is not completely unreasonable, we think that at the moment there might be better opportunities in the market.

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