Vishay Intertechnology Inc. reported a 19 percent jump in profits during the recently ended quarter, boosted by a 78 percent drop in restructuring and severance costs that in turn helped offset a decline in sales at the passives component supplier.
Net income for the three months ended April 4, 2015 rose to $30.7 million, or 21 cents per share, from $25.8 million, or 17 cents per share, in the first quarter of 2014. Sales dropped to $593.4 million from $602.4 million with the decline attributable to the strengthening U.S. dollar, which has appreciated significantly against the euro and other major international currencies.
The stronger dollar “negatively impacted” Vishay’s sales by approximately $19 million because “a weaker euro means that both revenues and costs translated into U.S. dollars decrease,” according to Gerald Paul, president and CEO of the company. Vishay’s sales and costs in euro “are approximately balanced” Paul added.
Unlike some other manufacturers that have attributed weaker financial results to unfavorable currency exchange rates, Vishay said the impact of the dollar-euro rates on its results were limited, partly because the company has taken steps to realign its cost structure and improve operating metrics.
“Exchange rate shifts between the two major currencies only have a second order effect on our bottom line and our relative strength in Europe in times of a weakening euro should become even advantageous with European exporters benefiting,” Paul added. “We permanently think of programs to improve efficiencies in variable as well as in fixed costs, and I think we tend to implement well.”
Vishay in the last year instituted a range of cost-cutting and reorganization actions that included offering early retirement to some employees. Even as it reduced costs, however, the company has continued its tradition of making strategic acquisitions, including the $205 million purchase of Capella Microsystems Inc., a Taiwanese manufacturer of optoelectronic products. The transaction, announced last year, was expected to strengthen Vishay’s offerings in the optical sensors market and also help it reduce time-to-market for certain products, according to company executives.
“Our recent acquisition of Capella will strengthen our position and our potential for expanding this promising business midterm in our traditional markets, auto and industrial, as well as in mobile phones, which up to now is Capella’s primary focus,” Paul said during a conference call to discuss first quarter results with financial analysts. “We have started to work on joint projects for industrial and automotive applications between Capella and the opto division, but also between Capella and other divisions active and sensors within Vishay.”
Vishay and other electronic component suppliers are forced to continually review their product portfolios not just to expand offerings to customers but also to ward off pricing declines that can chew deeply into profit margins and erode profitability. The industry is engaged in a never-ending race against product commoditization, the side effects of which sometimes include severe average selling prices (ASP) declines.
In the recent quarter, for example, Vishay’s results were impacted by ASP declines offset by higher volume sales, according to Lori Lipcaman, chief financial officer of the Malvern, PA-based company. ASPs fell almost one percentage point from the December quarter, Lipcaman said, but the decline compared with the year-ago quarter was deeper.
“Versus prior year, average selling prices had a negative impact of $13 million representing a 2.1 percent ASP decline; volume increased with the positive impact of $20 million, representing a 7.5 percent increase; variable costs decreased with a positive impact of $6 million primarily due to cost reduction efforts, efficiencies and lower material and metal prices, which more than offset the increase of labor costs,” Lipcaman said during the first quarter conference call.
Vishay expects second quarter revenue in the range of $600 million to $640 million, “representing an increase of 6 percent sequentially at constant exchange rates – and for gross margins of 24 percent to 26 percent,” according to CEO Paul. “We are quite optimistic for the second quarter, but naturally the visibility for the third quarter already is relatively limited, but we do expect … the third quarter will be a decent quarter.”