Executive Summary / Key Takeaways

• Vishay is actively executing its "Vishay 3.0" strategic transformation, making significant investments in capacity expansion and advanced technologies, particularly Silicon Carbide (SiC), to capitalize on long-term growth megatrends like e-mobility, sustainability, and AI.
• Despite a prolonged industry down-cycle and inventory digestion, recent indicators suggest normalization, with Q1 2025 showing a slight sequential revenue increase and improved book-to-bill ratios, supporting management's expectation for sequential growth in Q2 2025 and a stronger second half of 2025 compared to 2024.
• The company's substantial capital expenditure program ($300M-$350M planned for 2025, with over 70% for expansion) and strategic acquisitions (MaxPower, Newport, Ametherm, Birkelbach) are positioning Vishay as a more reliable supplier with a broader portfolio and enhanced technological capabilities, aiming to gain market share and increase content per application.
• While profitability remains pressured by lower average selling prices, higher fixed costs (including initial drag from the Newport fab), and manufacturing inefficiencies, strategic initiatives like restructuring and operational optimization are underway to drive future margin improvement.
• Key risks include continued macroeconomic uncertainty, potential impacts from new tariffs, and the timing of the market recovery, but Vishay's global footprint and flexible spending approach are intended to mitigate these challenges while maintaining a commitment to shareholder returns through dividends and opportunistic buybacks despite expected negative free cash flow in 2025.

Vishay's Strategic Pivot: Building the DNA of Tech for a New Era

Vishay Intertechnology, Inc. (NYSE:VSH), a cornerstone in the electronics supply chain since 1962, has built its legacy on a broad portfolio of discrete semiconductors and passive electronic components. Serving diverse end markets from automotive and industrial to military and medical, Vishay's components are fundamental building blocks – "The DNA of tech." Historically, growth has been driven by a combination of focused R&D and strategic acquisitions, a strategy that has shaped its extensive product lines across MOSFETs, Diodes, Optoelectronic Components, Resistors, Inductors, and Capacitors.

Today, Vishay is undergoing a significant strategic transformation under the banner of "Vishay 3.0," initiated in early 2023. This ambitious five-year plan represents a pivot towards becoming a more customer-first, business-minded organization, explicitly designed to accelerate revenue growth, improve profitability, and enhance returns on capital. At its core, Vishay 3.0 aims to position the company to fully capitalize on the secular growth megatrends of e-mobility, sustainability, and connectivity. The strategy is underpinned by eight key levers, focusing on expanding capacity, enhancing customer engagement, driving innovation, and optimizing operational efficiency.

Central to Vishay's competitive positioning is its broad product portfolio, which allows it to serve as a "one-stop shop" for many customers, simplifying their supply chains. While competing with specialized players like Murata (MURAY) (strong in capacitors, passive components), TDK (TTDKY) (passive components, semiconductors), and Panasonic (PCRFY) (capacitors, diodes), Vishay differentiates itself by offering a wider array of component types. This diversification provides a degree of resilience against downturns in specific product categories or end markets, a contrast to competitors who may be more concentrated. However, Vishay has recently lagged some peers in overall revenue growth, experiencing a decline in 2024 while some competitors saw modest growth, and faces pressure on profitability metrics compared to some higher-margin rivals. The company acknowledges the need to work around competitors' existing inventory in the channel and actively seeks to gain market share through enhanced customer engagement and a ready supply of products.

Technological Edge and the SiC Imperative

Vishay's ability to compete hinges significantly on its technological capabilities and ongoing innovation. The company highlights specific product advancements that demonstrate its technical differentiation:

• New High-Reliability Isolation Amplifiers boast industry-leading 150 kV/μs CMTI (Common-Mode Transient Immunity) and a low minimum gain error of ± 0.3%, crucial for precision applications.
• An 80 V MOSFET in a compact PowerPAK 8x8SW package offers best-in-class on-resistance (0.88 mΩ typical), 15% lower than competing devices in the same footprint, and an 18% reduction in thermal resistance (RthJC), improving efficiency and thermal performance in industrial applications. Its small size (50% less PCB space than TO-263) and wettable flanks enhance usability.
• A new Automotive Grade Thick Film Power Resistor provides enhanced protection against short transient pulses, offering 30% higher energy absorption than the standard version, leading to more stable operation and potentially reducing component count.
• New Rectifiers in the DFN33A package include industry-first standard devices in this size (up to 6A) and industry-best current ratings for TMBS devices (up to 9A). The package is significantly smaller and thinner than conventional options, while optimized design allows for superior thermal performance.
• New SiC Schottky Diodes offer the best trade-off between capacitive charge (Qc) and forward voltage drop in their class, with a low forward voltage drop down to 1.36V and low Qc down to 56nC, enabling high-speed switching and efficiency in high-frequency applications.
• Expanded Frequency Control portfolio with new surface-mount crystals and oscillators offers smaller packages (up to 40% cost reduction vs. larger packages) and improved temperature stabilities (+/-20ppm or better for crystals, +/-25ppm or better for oscillators), enhancing performance in demanding environments.

A cornerstone of Vishay's innovation strategy is its significant push into Silicon Carbide (SiC) technology, critical for high-power, high-efficiency applications in e-mobility and industrial markets. The company is developing both planar and trench SiC MOSFETs and SiC diodes. Key initiatives include:

• Newport Wafer Fab: Acquired in Q1 2024, this facility is intended to be the hub for SiC development and scaling. As of Q1 2025, 11 SiC tools have been installed, with the remaining 21 expected mostly in Q2 2025, keeping the facility on schedule for SiC preproduction in early 2026. The facility is also being qualified for Vishay's silicon MOSFET structures, with automotive-grade qualifications expected in Q2 2025 for Q3 2025 product release.
• SiC MOSFETs: Vishay is commercializing 1200V planar technology (eight products released as of Q1 2025, with 12 more planned in 2025, including Gen 2 and Gen 2.1 automotive-grade versions). Development of 1700V planar and 650V planar MOSFETs is shifting to a more advanced process, pushing release to early 2026. Samples of the 1200V trench MOSFET are targeted for Q3 2025, with full release in Q4 2025.
• SiC Diodes: The company has fully released Gen 3 diodes (650V and 1250V), including a limited automotive version in Q1 2025. The Gen 4 650V automotive power pack has been released, and the Gen 4 1200V automotive diode is planned for Q2 2025. Additional Gen 4 products are planned for release throughout 2025.

The "so what" for investors is clear: these technological advancements, particularly in SiC, are designed to provide Vishay with differentiated products that command better pricing, enable market share gains, and increase the dollar content per application, especially in high-growth areas like EVs, smart grid, and AI. The e-mobility lab and focus on solution selling (demonstrated by reference designs showing Vishay components can populate over 80% of a power application board) further leverage this technology by offering integrated solutions to customers.

Operational Strength and Capacity Expansion

A critical component of Vishay 3.0 is ensuring the company has the capacity to support customer demand as markets recover and scale. This involves significant capital investment and strategic partnerships. Vishay has committed to a substantial CapEx program, planning to spend between $300 million and $350 million in 2025, with at least 70% dedicated to capacity expansion projects for high-growth product lines, including wafer fab expansions. This is part of a larger commitment to invest $2.6 billion between 2023 and 2028. While the timing of some investments, like the Itzehoe 12-inch fab, has been modulated in response to market conditions and equipment lead times, the long-term commitment remains.

Key capacity initiatives include:

• Wafer Fabs: Building the 12-inch fab in Itzehoe, Germany, to significantly increase in-house capacity (expected ~70% increase by 2028). Ramping up operations at the acquired Newport fab.
• Partnerships: Leveraging the partnership with SK Keyfoundry in Korea to increase annualized MOSFET capacity by 12% in 2025 (25% for advanced split-gate MOSFETs).
• Global Expansions: Increasing capacity for diodes in Taiwan and Turin, Italy, and for inductors and resistors at Mexico facilities (La Laguna, Juarez).
• Subcontractors: Strategically expanding the use of subcontractors to produce commodity products and broaden the portfolio, adding thousands of part numbers (over 10,400 in 2024 alone) and meeting targets for outsourced production percentages (e.g., >4% outsourced passives revenue, >33% outsourced wafer fabs, >20% outside assembly in 2024).

This capacity build-out, coupled with initiatives to deepen customer engagement (adding customer-facing engineers, increasing SKUs at distributors – nearly 28,000 since the program began, 10,000 in Q2 2024 alone), is designed to position Vishay as a reliable supplier ready to capture market share, including re-engaging inactive customers and winning new business like the first-time multiyear silicon MOSFET supply agreement with an automotive OEM and discussions around master supply agreements in aerospace/defense.

Operational efficiency is also being addressed through restructuring actions announced in Q3 2024, including workforce reductions (6% SG&A, 2% manufacturing) and facility closures (one U.S., one Germany, one China), aiming for $23 million in annual cost savings by the end of 2026.

Financial Performance and Outlook

Vishay's recent financial performance reflects the challenging market environment, but with signs of potential improvement. For the first quarter of 2025, net revenues were $715.2 million, a slight increase from Q4 2024 ($714.7 million) but a decrease from Q1 2024 ($746.3 million). The sequential increase was driven by higher volume, partially offset by lower average selling prices (ASPs). The year-over-year decline was primarily due to lower ASPs and reduced volume.

Profitability remains pressured. Gross profit in Q1 2025 was $135.6 million, resulting in a gross margin of 19.0%. This was down from 19.9% in Q4 2024 and 22.8% in Q1 2024, mainly due to lower ASPs and higher fixed costs, with the Newport fab contributing to the year-over-year decrease. Segment operating income totaled $83.5 million in Q1 2025, but after unallocated SG&A ($82.7 million), consolidated operating income was only $0.8 million. This compares to operating income of $42.7 million in Q1 2024. The MOSFETs segment, despite being a focus for future growth, saw a significant decrease in gross profit and operating income due to lower ASPs, higher fixed costs, and the Newport drag. Other segments like Diodes, Inductors, and Capacitors also experienced gross margin and operating income declines year-over-year, primarily due to lower ASPs and volume. Optoelectronic Components and Resistors saw sequential revenue increases in Q1 2025, with Opto showing improved gross margin and operating income.

The book-to-bill ratio improved to 1.08 in Q1 2025 (1.12 for semis, 1.04 for passives), up from 1.01 in Q4 2024, marking the second consecutive quarter above parity and indicating building backlog ($1.12 billion end of Q1 2025 vs. $1.05 billion end of Q4 2024). Inventory levels increased slightly to $712.4 million, resulting in 110 days of inventory outstanding, reflecting strategic SKU adds at distribution and capacity build-out.

Liquidity remains adequate, though the significant CapEx impacts free cash flow. Cash and cash equivalents stood at $609.4 million at the end of Q1 2025. Operating cash flow was $16.1 million in Q1 2025, down from $80.2 million in Q1 2024. With CapEx of $61.6 million, free cash flow was negative $45.2 million in Q1 2025, compared to positive $27.9 million in Q1 2024.

Vishay expects negative free cash flow in 2025 due to the high level of expansion CapEx. The company is in a net borrowing position in the U.S. ($218.0 million outstanding on its revolving credit facility) and expects to draw on the revolver to fund U.S. cash needs, including the Newport expansion and the maturity of the $41.9 million convertible senior notes due 2025 (which will be refinanced via the revolver).

Repatriation of foreign earnings from certain jurisdictions remains challenging due to tax implications.

For the second quarter of 2025, Vishay guides for revenues of $760 million, plus or minus $20 million, representing an expected 3% sequential volume increase. Gross margin is guided at 19.0%, plus or minus 50 basis points, inclusive of an estimated 30 basis point drag from tariffs and expected higher input costs, with the Newport drag estimated at 175-200 basis points. SG&A is expected to be $136 million, plus or minus $2 million. Management notes improving visibility and transparency, with the second half of 2025 expected to develop at a better rate than the second half of 2024.

Risks and Challenges

Despite the strategic initiatives and signs of normalization, Vishay faces notable risks. The primary challenge remains the timing and strength of the market recovery. While inventory digestion shows signs of ending, macroeconomic uncertainties persist, potentially impacting demand across key end markets, particularly in Europe. Geopolitical developments and newly announced U.S. tariffs add complexity, although Vishay believes its direct exposure is limited and its global footprint offers flexibility. The high level of CapEx, while strategic, results in negative free cash flow and increases debt levels, potentially limiting financial flexibility if the market recovery is significantly delayed or if covenant compliance becomes pressured (though currently compliant). The Newport fab, while key to the SiC strategy, is currently a drag on margins and requires successful ramp-up and customer qualification. Development of advanced SiC technologies also faces potential delays due to foundry constraints. Competition remains intense, with peers actively innovating and potentially using pricing strategies to gain share.

Conclusion

Vishay Intertechnology is navigating a complex market environment marked by the tail end of an inventory correction and macroeconomic uncertainty. However, the company is not passively waiting for a recovery; it is actively implementing its Vishay 3.0 strategic plan, making substantial investments in capacity and advanced technologies like Silicon Carbide. This strategy aims to transform Vishay into a more agile, customer-focused, and technologically advanced supplier, ready to capture growth in the e-mobility, sustainability, and AI megatrends.

While recent financial results reflect the industry downturn, with pressured revenues and margins, improving book-to-bill ratios and management's Q2 2025 guidance signal a potential inflection point. The significant CapEx program, though impacting near-term free cash flow, is a deliberate move to ensure Vishay can provide reliable supply and gain market share in the next upturn. Investors should monitor the pace of market recovery, the successful execution and ramp-up of capacity expansion projects (especially Newport), the progress of the SiC strategy, and the effectiveness of initiatives to improve profitability and gain share against competitors. Vishay's commitment to its strategic vision, backed by tangible investments and operational adjustments, positions it to potentially deliver enhanced financial performance and shareholder value as the market cycle turns and its strategic levers bear fruit.