Vishay Intertechnology, Inc. — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. This is an annual filing, not a standalone fourth-quarter report; selected Q4 operating metrics are summarized below. Vishay manufactures discrete semiconductors and passive electronic components across six segments: MOSFETs, Diodes, Optoelectronic Components, Resistors, Inductors, and Capacitors.
Financial performance and liquidity
| Metric | 2023 | 2022 |
|---|---|---|
| Net revenue | $3.402 billion | $3.497 billion |
| Gross profit / margin | $974.5 million / 28.6% | $1.059 billion / 30.3% |
| Operating income / margin | $486.1 million / 14.3% | $615.5 million / 17.6% |
| Net earnings attributable to Vishay stockholders | $323.8 million | $428.8 million |
| Diluted EPS | $2.31 | $2.98 |
| Operating cash flow | $365.7 million | $484.3 million |
| Capital expenditures | $329.4 million | $325.3 million |
| Free cash, a company-defined non-GAAP measure | $37.4 million | $160.2 million |
Revenue declined 2.7% year over year, chiefly on a 5.2% volume decline, partly offset by higher average selling prices and favorable currency effects. Net earnings fell 24.5%; gross margin contracted 1.7 percentage points, reflecting lower volume and higher labor, materials, and utilities costs. Adjusted net earnings, another non-GAAP measure, were $342.2 million, or $2.44 per diluted share, versus $454.2 million, or $3.16, in 2022.
Fourth quarter: Revenue was $785.2 million, down from $855.3 million in Q4 2022 and $853.7 million in Q3 2023. Gross margin was 25.6%, versus 29.1% a year earlier and 27.8% in Q3; operating margin was 9.9%. Backlog fell to $1.382 billion from $2.293 billion in Q4 2022. The Q4 book-to-bill ratio was 0.75, up from 0.63 in Q3 but below 1.0.
Segment results were mixed: 2023 revenue increased 2.2% in MOSFETs, 1.3% in Resistors, and 4.9% in Inductors; it declined 9.8% in Diodes, 18.0% in Optoelectronic Components, and 2.1% in Capacitors. Optoelectronic Components had the steepest decline, attributed mainly to consumer weakness and lower volume.
At year-end, cash and cash equivalents were $972.7 million and short-term investments were $35.8 million. Debt, net of deferred financing costs, was $818.2 million; cash and short-term investments exceeded debt by $190.3 million, a non-GAAP measure. The $750 million revolving credit facility had no borrowings outstanding, and $748.6 million was available. The company reported compliance with its covenants, with interest coverage of 17.83x and net leverage of 0.84x. Current assets were $2.297 billion and current liabilities were $691.9 million.
Material changes and capital allocation
- Revenue fell from 2022’s record level; the distributor inventory correction that began in late 2022 continued through 2023 and reduced orders. Volume was the main driver of the annual decline.
- Operating cash flow fell by $118.6 million and free cash by $122.7 million. Management cited lower earnings, higher transition and repatriation tax payments, and increased working capital. Inventory write-offs for obsolescence were $37.4 million, compared with $26.9 million in 2022.
- SG&A increased to $488.3 million from $443.5 million, including inflation, compensation, and costs from the new long-term incentive plan. Stock compensation expense was $16.5 million, versus $6.5 million in 2022.
- In September 2023, Vishay issued $750 million of 2.25% convertible notes due 2030. Proceeds funded repurchases of $370.2 million principal of 2025 notes, repayment of revolving-credit borrowings, a $94.2 million capped-call transaction, and general corporate purposes. The early debt repurchase produced an $18.9 million loss. Remaining 2025 notes had $95.1 million principal outstanding at year-end.
- Vishay paid $55.6 million in dividends and repurchased $78.7 million of common stock in 2023. Its policy targets returning at least 70% of free cash flow, net of scheduled long-term debt principal payments, but the policy may be changed or suspended.
Outlook, management commentary, and risks
Management did not provide specific revenue or earnings guidance in the supplied filing text. It expects to invest approximately $450 million in capital expenditures in 2024 and about $1.2 billion over 2023–2025, primarily in capacity expansion outside China. Projects include a 12-inch MOSFET wafer fab in Germany, expanded diode production in Taiwan and Italy, and resistor and power-inductor capacity in Mexico. Management expects new capacity to become increasingly available during 2024 and to improve its ability to address electrification-related demand from late 2024 into 2025. It also expects elevated operating expenses and depreciation as it expands engineering, R&D, and manufacturing; it does not anticipate material restructuring in 2024.
The planned acquisition of Nexperia’s Newport, Wales wafer fab and operations was valued at approximately $177 million, subject to adjustments, and was expected to close in Q1 2024 pending U.K. government review and customary conditions. The filing states there is no assurance the transaction will close. The company also reported that a MaxPower contingent-payment matter had developments in January 2024; the estimated maximum possible payments were $17.5 million.
Key risks include cyclical demand and further distributor inventory adjustments; order cancellations and backlog rescheduling; execution, ramp, cost, and demand risks from major capacity investments; supply-chain constraints and volatile materials prices; competition and technology changes; foreign-exchange and interest-rate exposure; and geopolitical, trade, and operating risks, including the Middle East conflict and Vishay’s substantial operations in Israel. About 74% of 2023 revenue came from customers outside the United States, and 65.5% of cash and short-term investments were held by non-U.S. subsidiaries.
Other items to monitor include environmental remediation liabilities of $12.4 million and litigation concerning alleged groundwater impacts at a former Hicksville, New York site. Vishay also reached a proposed EPA settlement concerning hazardous-waste handling at its Columbus, Nebraska facility: a $387,000 penalty and quarterly compliance reports for one year; the company said it did not expect a material financial effect and admitted no violation under the agreement. The auditor identified distributor sales-return and allowance accruals as a critical audit matter; the year-end liability was $47.8 million. The financial statements received an unqualified audit opinion, and management and the auditor concluded internal control over financial reporting was effective.
Important facts for investors to verify
- Whether distributor inventory correction and below-1.0 book-to-bill conditions persist, and how they affect revenue, backlog, and margins.
- Progress, costs, timing, and expected returns on the 2023–2025 capacity program, including the Newport fab acquisition and the Germany 12-inch fab.
- Actual 2024 capital spending, operating expense growth, depreciation, and free cash generation versus management’s plans.
- Liquidity and covenant headroom under weaker operating conditions, including cash availability at the U.S. parent and obligations for the 2025 and 2030 convertible notes.
- Potential dilution or cash-settlement requirements from convertible notes, and the effectiveness and counterparty exposure of the capped calls.
- Assumptions behind distributor credits and sales-return accruals, as well as environmental and tax exposures and the effects of geopolitical, supply-chain, and currency risks.