Vishay Intertechnology Inc

NYSE:VSH

Earnings Call Transcript 2022-Q1

[Operator]

Greetings, and welcome to Vishay's Quarter 1 2022 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Mr. Peter Henrici, Senior Vice President, Corporate Communications. Thank you, and over to you, sir.

[Peter Henrici, SVP, Corporate Communications]

Thank you, Hemant. Good morning, and welcome to Vishay Intertechnology's first quarter 2022 conference call. With me today are Dr. Gerald Paul, Vishay's President and Chief Executive Officer; and Lori Lipcaman, our Executive Vice President and Chief Financial Officer. As usual we will start today's call with the CFO, who will review Vishay's first quarter 2022 financial results. Dr. Gerald Paul will then give an overview of our business and discuss operational performance, as well as segment results in more detail. Finally we'll reserve time for questions and answers. This call is being webcast from the Investor Relations section of our website at ir.vishay.com. The replay for this call will be publicly available for approximately 30 days.

You should be aware that in today's conference call, we will be making certain forward-looking statements that discuss future events and performance. These statements are subject to risks and uncertainties that could cause actual results to differ from the forward-looking statements. For a discussion of factors that could cause results to differ, please see today's press release and Vishay's Form 10-K and Form 10-Q filings with the Securities and Exchange Commission.

In addition, during this call, we may refer to adjusted or other financial measures that are not prepared according to generally accepted accounting principles. We use non-GAAP measures, because we believe they provide useful information about the operating performance of our businesses and should be considered by investors in conjunction with GAAP measures that we also provide. On the Investor Relations section of our website, you can find the presentation of the first quarter 2022 financial information containing some of the operational metrics, Dr. Paul will be discussing.

Now I turn the call over to Chief Financial Officer, Lori Lipcaman.

[Lori Lipcaman, EVP and CFO]

Thank you, Peter, and good morning everyone.

I am sure that most of you have had a chance to review our earnings press release. I will focus on some highlights and key metrics. Vishay reported revenues for Q1 of $154 million, a quarterly record. EPS was $0.71 for the quarter. There were no reconciling items between GAAP and adjusted for Q1 2022. As we announced in February, Vishay has adopted a stockholder return policy which calls for us to return at least 70% of annual free cash to stockholders directly in the form of dividends or indirectly in the form of stock repurchases. For 2022, we intend to return at least $100 million.

Considering, we did not purchase any shares for the first 2 weeks of the quarter, we are off to a solid start. During Quarter 1, we repurchased 517,000 shares of common stock for approximately $9.9 million. We paid $14.5 million for our quarterly dividends for a total stockholder return of $24.4 million.

Revenues in the quarter were $854 million, up by 1.3% from previous quarter and up by 11.7% compared to prior year. Gross margin was 30.3%. Operating margin was 17.1%. There were no reconciling items to arrive at adjusted operating margin. EPS was $0.71. There were no reconciling items between GAAP and adjusted EPS for Q1 2022.

EBITDA was $181 million or 21.2%. There were no reconciling items to arrive at adjusted EBITDA. Reconciling versus prior quarter operating income in Q1 2022 compared to operating income for prior quarter based on 11 million higher sales or 16 million higher sales excluding exchange rate impacts. Our premium income increased by $24 million $146 million in Q1 2022 from $122 million in Q4 2021.

The main elements were average selling prices had a positive impact of $20 million representing a 2.4% ASP increase. Volume decreased with a positive impact of $5 million equivalent to a 0.5% decrease.

The P&L benefited from a favorable product mix, mainly in MOSFETs. Variable costs increased with a negative impact of $2 million. Fixed cost increased with a negative impact of $8 million, primarily due to inflation. Inventory impacts had a positive impact of $11 million and exchange rates had a negative effect of $2 million.

Reconciling versus prior year, operating income in Q1 2022 compared to operating income in Q1 2021 based on $89 million higher sales or $109 million excluding exchange rate impacts. Operating income increased by $49 million to $146 million in Q1 2022 from $97 million in Q1 2021.

The main elements were average selling prices had a positive impact of $48 million representing a 6.0% ASP increase. Volume increased with a positive impact of $41 million representing a 7.6% increase.

Variable costs increased with a negative impact of $19 million, primarily due to increases in cost of materials and services, labor, silicon and logistics, not completely offset by manufacturing efficiencies and cost reduction efforts. This cost increased with a negative impact of $17 million, primarily due to annual wage increases as well as general inflation. Inventory impacts had a positive impact of $4 million. Exchange rates had a negative effect of $8 million.

Selling, general and administrative expenses for the quarter were $113 million. Based on our cost cycle, our SG&A expenses are expected to be at the highest quarterly level in Q1 due to uneven attribution of stock compensation expense in Q1 of each year. For Q2 2022, our expectations are approximately $111 million of SG&A expenses.

For the full year 2022, our expectations are $455 million of SG&A expenses at current exchange rates. The debt shown on the face of our balance sheet at quarter end is comprised of convertible notes due 2025 net of debt issuance costs. There were no amounts outstanding on a revolving credit facility at the end of the quarter. However, we did use the revolver from time-to-time during Quarter 1 to meet short-term financing needs and expect to continue to do so in the future. No principal payments are due until 2025 and revolving credit facility expires in June 2024.

We had total liquidity at $1.6 billion at quarter end. Cash and short-term investments comprised $886 million and there are no amounts outstanding on our $750 million credit facility. Total shares outstanding at quarter end were $145 million. The expected share count for EPS purposes for the second quarter 2022 is approximately 145 million, excluding any impact of share repurchases.

Our U.S. GAAP tax rate for Q1 was approximately 24%. There were no special tax items recorded during Q1. We expect our normalized effective tax rate for full year 2022 to be between 23% and 24%.

Our consolidated effective tax rate is based on an assumed level and mix of income among our various taxing jurisdictions. The shift in income could result in significantly different results. Also a significant change in U.S. tax laws or regulations could result in significantly different results.

Cash from operations for the quarter was $34 million. Capital expenditures for the quarter were $36 million. Free cash for the quarter was negative $2 million. For the trailing 12 months, cash from operations was $433 million. Capital expenditures were $226 million, split approximately for expansion $144 million, for cost reduction $14 million, for maintenance of business $68 million.

Free cash generation for the trailing 12-month period was $209 million. The trailing 12-month period includes $15 million cash taxes paid for the 2021 instalment of the U.S. tax reform transition tax. Vishay has consistently generated in excess of $100 million cash flows from operations in each of the past 27 years and greater than $200 million for the past 20 years.

Backlog at the end of Quarter 1 was at $2,417 million or 8.5 months of sales. Inventories increased quarter-over-quarter by $70 million excluding the exchange rate impacts. Days of inventory outstanding were 87 days, days of sales outstanding for the quarter were 43 days, days of payables outstanding for the quarter were 37 days, resulting in a cash conversion cycle of 93 days.

Now I will turn the call over to our Chief Executive Officer, Dr. Gerald Paul.

[Gerald Paul, President and CEO]

Thank you, Lori and good morning, everybody.

Despite ongoing pandemic related issues and then accelerating inflation rate, the first quarter for Vishay has been one of its most successful quarters ever. We continue to enjoy quite unique economic conditions.

We keep maximizing production output in all plants and continue to expand critical manufacturing capacities. I think we achieved quite excellent results for the first quarter gross margin of 30.3% of sales versus 27.3% in Quarter 4. Operating margin of 17.1% of sales versus 14.4% of sales in Quarter 4. Earnings per share of $0.71 versus $0.25 in Quarter 4 and adjusted earnings per share also $0.71 in the quarter versus $0.62 in Quarter 4.

Free cash in the quarter was negative at $2 million. For the year, we, on the other hand, expect, again a solid generation of free cash. As said before, we continue to operate on the fairly brilliant economic conditions characterized by record for still growing backlogs and lead times and low inventory levels in the supply chain.

Practically all market segments globally do very well. Also the automotive sector starts to recover from quite extreme shortages of supply, but more slowly than anticipated. The sales volume principally keeps being determined by manufacturing capacities, increasingly impacted by logistics issues. Major shortages of supply continue to exist.

In view of increased inflationary pressures on their costs, manufacturers continue to raise selling prices in the markets for the most part in acceptance. All regions remained exceptionally strong. There is no decline visible at this point. POS in all regions are above all-time highs and quarter levels remain high.

Talking about distribution, global distribution is in excellent shape. The business outlook is fairly strong In view of record backlogs and consistently growing POS. POS in the quarter was 18% above prior year, which has been one of the best years ever. All regions run at all-time record levels. Global inventories in the first quarter remained at the level of the fourth quarter and is 19% to $83 million above prior year.

There is an impact of price increases during last year, indicating a lower increase in terms of pieces. Inventory turns of global distribution in the first quarter were at a record level of 4.2, up from 3.9 in Quarter 4 and up from 4.1 in prior year.

In the Americas, 2.3 inventory tons after 2.2 in the fourth quarter and 1.9 in prior year. In Asia, 5.6 tons after 5.3 in Q4 and 6.7 in prior year. In Europe, 4.9 after 4.3 in Quarter 4 and 4.4 in prior year. I think we can state that the supply chain remains lean.

Automotive markets are in process of recovery, but as I said at the lower than expected pace. Shortages of supply and pandemic related issues continue to slow down the segment. We, in view of the fact that light vehicle inventory remains depleted, nevertheless expect a strong year for automotive.

Sales to industrial market sectors continue on historically high levels. General trends towards electrification are driving growth and we'll continue to do so also in the future. Industrial automation and robotics accelerate, so do green initiatives. Oil and gas sectors are getting stronger.

We see markets for PCs having stabilized and healthy growth in service. 5G continues to provide major growth opportunities in fixed telecom which will accelerate. Given the political environment, military applications should see accelerated growth going forward. There is also a recovery of commercial aviation markets. We expect steady growth in medical.

Variable electronic products and Internet of Things applications drive growth in the consumer market segment. Gaming and television remains stable. Coming to our business development in Q1, the first quarter sales excluding exchange rate impacts came in above the midpoint of our guidance. We were able to master pandemic related issues in China, better than we had expected. We achieved sales of $854 million versus $843 million in prior quarter and $765 million in prior year.

Excluding exchange rate effects, sales in Quarter 1 were up by $16 million or 2% versus prior quarter and up by $109 million or 15% versus prior year. Quite remarkable, I think, is that the fact that despite historically high backlogs, book-to-bill in the quarter increased to 1.14 from 1.09 in Quarter 4, 1.16 after 1.06 for distribution, 1.13 after 1.15 for OEMs, 1.14 for semiconductors after 1.08 in Quarter 4, 1.15 for passives after 1.11 in quarter 4. 1.24 for the Americas after 1.10 in Quarter 4. 1.02 for Asia after 1.0 and 1.23 for Europe after 1.21. I think we can stated, we see a broad continuation of the excellent economic environment.

Backlog in the first quarter continue to grow further and reached a new record of 8.5 months after 8.2 months in Quarter, 9.3 months in semis after 8.9 months in Quarter 4 and 7.6 months in passives after 7.5.

There is a broad increase of prices, which was implemented again. We have an increase vis-a-vis prior quarter of plus 2.4% and 6.0% versus prior year. In semis, prices went up in the quarter by 3.4% versus prior quarter and by 8.8% versus prior year and in passives vis-a-vis prior quarter by 1.4% and by 3.2% versus prior year.

Some highlights of operations. Despite ongoing increases in transportation costs, metal prices and the higher general inflation worldwide, Vishay in the quarter was able to return to traditional levels of variable margin.

Price increases and quite excellent plant efficiencies supported the improvement. SG&A costs in the first quarter came in at $113 million and manufacturing fixed costs in the quarter came in at $144 million. Fixed costs in total, SG&A and manufacturing fixed together came in according to expectations when excluding exchange rate impacts.

Total employment at the end of the first quarter increased to 23,395, 2% up from prior quarter. Excluding exchange rate impacts, inventories in the quarter increased by $77 million, $29 million in raw materials and $41 million in WIP and finished goods impacted by interruptions of the supply chains due to pandemic related issues, some additions to safety stocks, revaluation impacts as well as inflation on materials and logistics costs. This inventory increase will normalize for the most part in the course of the year.

Inventory turns in the first quarter remained at satisfactory 4.2, slightly down from prior quarter at 4.5. Capital spending in the first quarter was $36 million versus $29 million in prior year, $24 million for expansion, $2 million for cost reduction and $10 million for the maintenance of business. We continue to prepare ourselves for further accelerating growth rates. For the year 2022. We expect capex of approximately $325 million, which is a substantial increase versus prior years, mostly due to our project of building a 12-inch MOSFET fab.

In Quarter 1, we generated cash from operations of $433 million on a trailing 12 months basis. We generated in the first quarter free cash of $209 million again on a trailing 12 months basis. Despite increased capex in some inventory build, we also for the current year expect a solid generation of free cash, quite in line with our tradition.

Coming to the product lines. Since starting as always with resistors, as you know, we enjoy a very strong position in the auto industrial, military and medical market segments. We offer virtually all resistor technologies and globally known as a reliable, high quality supplier of the broadest product range. Vishay's traditional and historically growing business runs at record levels.

Sales in the quarter were $207 million, which includes $4 million from our new acquisition Barry industries, up by $19 million or by 10% versus prior quarter and up by $27 million or 15% versus prior year again, excluding X rate impacts. Book-to-bill ratio in Quarter 1 was 1.24 after 1.14 in prior quarter. Backlog remained at 7.8 months on the level of the fourth quarter.

Gross margin in the quarter was at 31% of sales, up from 29% of sales in Q4. Inventory turns in the quarter remained on a satisfactory level of 4.4, slightly down from prior quarter at 4.5. Selling prices for resistors continue to increase, plus 1.9% versus prior quarter and plus 3.4% versus prior year.

We are continuously raising critical manufacturing capacities mainly for resistor chips and for power wire wounds and we continue to broaden our business with specialty resistors by targeted acquisitions like ATP and recently Barry industries.

Inductors, the business consists of power inductors and mechanics exploiting the continuously growing need for inductors in general. Vishay developed a platform of robust and efficient power inductors and leads the market technically. With magnetics, we are very well positioned in many specialty businesses demonstrating also in this field steady growth. Sales in the inductors in the first quarter were $83 million, slightly up by $1 million or by 1% versus prior quarter and flat versus prior year excluding exchange rate effects.

The recovery of the automotive sector will accelerate again to growth in inductors. Book-to-bill in the first quarter was at 1.14 after 1.13 in prior quarter. The backlog has increased to 6.3 months from 6.0 months in prior quarter. Gross margin in the quarter increased to 30% of sales as compared to prior quarter at 29% of sales.

Inventory turns remained at a good level of 4.6. Some price increases also at inductors, no price increase vis-a-vis prior quarter, but 1.0% price increase versus prior year. We continuously expand our manufacturing capacities for power inductors since remain open for acquisitions, in particular in the field of magnetics.

Coming to capacitors, our business with capacitors is based on a broad range of technologies with a strong position in American and European market niches. We also enjoy increasing opportunities in the field of power transmission and of electro cars, namely in Asia. Sales in the first quarter were at $128 million, flat versus prior quarter, about $26 million or 25% above prior year, again excluding exchange rate impacts.

The book-to-bill ratio in the first quarter was 1.02 after 1.04 in prior quarter and the backlog remained at an extraordinarily high level of 8.1 months. Gross margin in the quarter improved to 25% of sales, up from 22% in prior quarter, mostly due to better product mix and improved productivities.

Inventory turns in the quarter decreased to 3.2 from 3.7 in the fourth quarter. There were some safety stocks, which were increased in Q1. We continuously raised prices plus 0.1% versus prior quarter and plus 4.4% versus prior year. We are confident for capacitors also in light of growing global efforts in green energy, in view of growing military business and the recovery of oil and gas.

Coming to Opto products, Vishay's business with Opto products consists of infrared emitters, receivers, sensors and couplers. Also, in Opto, we continue to see a strong acceleration of demand. Sales in the quarter were $81 million, $3 million or 4% above prior quarter and $5 million was 7% above prior year, which excludes exchange rate impacts.

Book-to-bill in the quarter was at 0.78 after 1.22 in prior quarter. The backlog is still at a quite extreme level of 9.4 months after 10.4 months in Quarter 4. Gross margin in the quarter increased sharply to 40% of sales, up from 34% in prior quarter, mostly due to better selling prices and the favorable product mix.

We continue to raise selling prices plus 1.8% versus prior quarter and plus 8.9% versus prior year. The production in our modernized and expanded Heilbronn wafer fab has started. Opto products in general continue to be a very relevant factor for Vishay's performance and growth.

Diodes. Diodes for Vishay represents a broad commodity business where we are the largest supplier worldwide. Vishay offers virtually all technologies as well as the most complete product portfolio. The business enjoys a very strong position in the automotive and industrial market segments and keeps growing steadily and profitably since years. Sales in the quarter were $182 million, down by $9 million or by 5% versus prior quarter, but up by $29 million or 19% versus prior year without X rate effects.

Book-to-bill ratio in the first quarter was at 1.16 after 1.10 in prior quarter. Backlog increased to another record of 9.7 months from 8.8 months in prior quarter. Gross margin in the quarter improved to 25% of sales as compared to 24% in Q4, positively impacted by better ASPs. Inventory turns in Q1 are satisfactory at 4.2 as compared to 4.7 in prior quarter. Continue - we continue to raise selling prices plus 3.2% versus prior quarter and plus 9.3% versus prior year.

This large and profitably growing business with diodes is the most relevant part of Vishay's volume basis. MOSFETs. Vishay is one of the market leaders in MOSFET transistors. With MOSFETs, we enjoy a strong and growing market position in particular in automotive, which in view of an increasing use of MOSFETs will provide a very successful future for this line. Demand over the year has reached extreme levels and is expected to increase further in the years to come. Sales in the quarter were $173 million, especially capacity constraint, $2 million or 1% above prior quarter and $22 million or 14% above prior year without X rate impacts.

Book-to-bill ratio in the quarter was at 1.28 after 1.01 in the fourth quarter. Backlog increased to another record of 9 months from 8.2 months in prior quarter. Gross margin in the quarter increased to 34% of sales after 30% of sales in the fourth quarter, mostly driven by better prices and the better product mix.

Inventory turns in the quarter were at the satisfactory level of 4.4 as compared to 5.0 in Quarter 4. We continue to implement price increases also for the MOSFETs plus 4.5% versus prior quarter and plus 8.3% versus prior year.

MOSFETs remain key for Vishay's growth going forward. We intend to keep a proper balance between in-house manufacturing of wafers and purchases from foundries. This in mind, we decided to build a 12-inch wafer fab in Itzehoe in Germany adjacent to our existing 8-inch fab there, increasing our in-house wafer capacity by 70% within 3 to 4 years. The project has been started.

Let me summarize. Despite an ongoing influence of the pandemic, accelerating inflation and also despite of growing political instabilities, Vishay continues to experience quite stellar market conditions generating fairly excellent results. Electronification in recent years has gained speed in a major way impacting positively all markets globally. We do expect this trend to continue longer term. For sure, our business historically is of cyclical in nature and we keep always an eye on the inventory in the supply chain.

But at this point. There is absolutely no sign of a short-term, midterm slowdown. Backlogs are extremely high and still growing. Lead times remain long, supply chains are fairly lean and the important automotive sector is just at the beginning of recovery.

Trusting in a bright future, Vishay has accelerated expansion - it's expansion programs of production capacities aiming at a 2% to 3% increase by quarter. Taking into account the present pandemic related disturbances in Shanghai, which in the second quarter will cost us at least $35 million of sales, we had Q1 rates guide to a sales range for Q2 of $830 to $870 million at a gross margin of 28.1% plus-minus 50 basis points.

Thank you very much.

[Peter Henrici, SVP, Corporate Communications]

Thank you, Dr. Paul. We will now open the call to questions. Hemant please take the first question.

[Operator]

[Operator Instructions] Now, the first question comes from the line of Matt Sheerin with Stifel. Please go ahead.

[Matt Sheerin, Stifel]

Yes, thank you. Good morning everyone. A few questions from me. Dr. Paul, just starting on your guidance. You're talking about $35 million in sales impact in Shanghai. Could you tell us what product areas, I know you have some MOSFET exposure there, but what are some of the product areas that are affected and looking beyond the next quarter, are you expecting back to kind of normal levels in the September quarter there?

[Gerald Paul, President and CEO]

First of all, Matt, you hit the nail on the top, it's really for the MOSFETs, but also some diodes, but for the most part it's indeed MOSFETs and it's hard to predict what happens there, but we do expect and already started to see some improvements of the conditions in Shanghai. So I'm quite optimistic that we will be able to catch up in a way because this is - we have seen the inventory increasing. So it was produced and we are going to reduce the inventory and sell the stuffs obviously during the year.

[Matt Sheerin, Stifel]

Okay. And then in terms of the ASP increases, which are very significant, you're talking 8% to 9% or so across your semiconductor products. And when you talk about backlog, is that also factoring in price increases? We are hearing from some distributors and customers that suppliers are coming back and changing pricing of orders that are already in backlog. Are you doing that and do you expect that to improve and benefit you as you get through the year?

[Gerald Paul, President and CEO]

Matt, our backlog includes these price increases of course, but as a matter of fact, the backlog is so huge as a secondary effect, I would say.

[Matt Sheerin, Stifel]

Okay. And then, I mean you talked about lean inventory levels at distribution. But if you look at some of the distribution customers, specifically the big EMS players, and I know you have exposure there, though their inventories are at record highs. We don't know exactly what's there. But are you concerned at all that there may be an imbalance in some of your components are sitting in inventory and may lead to some correction at some point?

[Gerald Paul, President and CEO]

Well, there is no orderly reporting as you know, but in this case, at least the end customers in general, you have - don't have the same visibility as you have with distribution. As a matter of fact, there is more inventory at the EMS, but for us for Vishay, inventories at distribution matter so much more because that the sales to distribution is so much higher than into EMS, but I don't want to deny that. Indeed, there is some increased inventory at the EMS, but altogether they are to say that the supply chain is still, I would call lately.

[Matt Sheerin, Stifel]

Okay, thank you. And just lastly, I think you just mentioned that you're expecting your capacity to increase 2% to 3% sequentially and per quarter as you're adding capacity. Is that correct and is that on a unit basis so from a - and given the ASP increases, you should grow revenue even faster than that.

[Gerald Paul, President and CEO]

Well, this is really our - it's basically - it's a simulation of cost of goods sold really that means we have pieces, not a piece in our case. We have a broad product spectrum. So it's really our ability to sell more, this represents the ability to sell more 3% to 4% - 2% to 3%, excuse me, per quarter.

[Operator]

Thank you. The next question comes from the line of Joshua Buchalter with Cowen. Please go ahead.

[Joshua Buchalter, Cowen]

Thank you for taking my questions and congrats on the solid quarter. I want to ask about gross margins. Obviously a huge beat in the first quarter and then the step down in the second quarter. Is this a function of timing increases that are - pricing increase timing to match inflationary cost pressures that maybe shift some parts of the higher ASPs before the higher cost wafers went out or is there something else in the mix that we should be thinking about regarding multi-sequential increase in the first quarter and decrease in the second quarter?

[Gerald Paul, President and CEO]

Okay. As I tried to say in the presentation, the first quarter benefited from a few singularities. There has been a very positive product mix and also there were some inventory valuation adjustments. Moreover, I believe that during the quarter, pricing - the increase of prices was ahead of rising input costs. So altogether, this will normalize somewhat in quarter two, but still we expect for quarter two, a very decent result. But Quarter 1 included, as I said some positive singularities. Does this answer your question?

[Joshua Buchalter, Cowen]

Yes. That's helpful. Thank you. And for my follow-up, is there any - thank you for quantifying the impact of the COVID shutdowns on the top line. Was there any impact of timing and shipments that might have increased inventory a little bit in - more than you would have expected in the second quarter and then I guess as a follow-up, would you expect as we exit the second quarter that were sort of back to normal. Any - or would you expect any lingering impact from second half seasonality? Thank you.

[Gerald Paul, President and CEO]

Yes. As a matter of fact, we increased finished goods and we're in process in the quarter. And this of course had to do with the disruption with - of the internal supply chain and if you look at our goods in transit, they in particularly came up in the quarter. So you can work from the assumption that during the year, this will normalized of course, and this will turn into sales. Most of that increased inventory will indeed turn into sales as soon as we can ship again in the regular form and I'm quite optimistic this dispute take place in the foreseeable future.

[Operator]

Thank you. The next question comes from the line of Ruplu Bhattacharya with Bank of America. Please go ahead.

[Ruplu Bhattacharya, Bank of America]

Hi, thank you for taking my questions. Dr. Paul, I was wondering if you can give some more details on the guidance, I mean 2Q, second quarter is typically the strongest sequential quarter for Vishay. I was trying to understand the press release, you said, due to production challenges, COVID lockdowns in April, you're guiding 5 - looks like $850 million at the midpoint, which is flat with respect to 1Q. So I was wondering, our production sites still down in Shanghai and do you expect those to remain down throughout the quarter and what is your expectation for a recovery from that? So just trying to understand where things are right now in terms of lockdowns for your facilities and how you see that trending over the quarter?

[Gerald Paul, President and CEO]

Very clear. Ruplu, the point is indeed it's Shanghai, indeed it's very much MOSFETs and indeed we have 2 problems. Problem one is that the plant - our main packaging plants here at the moment is running only at 20% or something a max capacity, which will improve now as a next step, but April was low and this is reflected in our guidance of course for the sales and then the second one is that we still need to ship of course, and even - and also the harbor is not easy.

But also, in this case, we do believe to see improvements in the foreseeable future. Exact timing is of course not possible to give, but we are - it's moving in the right direction. And - but this of course is the explanation for $35 million less sales which we otherwise would have had in quarter two.

[Ruplu Bhattacharya, Bank of America]

Okay, thanks for the clarification. For my second question, if I can ask on margins, the Opto segment gross margins grew to 40%, which it seems rather unusual. I mean, I think you said you had a mix benefit and selling prices were higher. Same on the MOSFETs, I think gross margin reached 34%. How should we think about these 2 segment margins as we look over the next couple of quarters? Do you think they remain high or do you think they normalize back down?

[Gerald Paul, President and CEO]

Historically is profitable line - a very profitable line, as you know, which we had a few quarters of problems, since quite some time it's back on course - for sure a singularity. Every - all the good things came together like in other quarters, it happens that all the bad things come together. But indeed price increases and we believe that take - there is still more of it and positive for that mix is tangible and really beefed up the quarter. 40% in Opto is not the normal performance, I wouldn't exaggerate. In the case of MOSFETs, on the other hand, I see the 34% is of course also the result of price increases. And on the other hand I foresee in MOSFETs for some time, shortages for some time. So I believe in MOSFETs, you can produce more even.

[Ruplu Bhattacharya, Bank of America]

Okay, got it. And then maybe for my last question, if I can ask. Your capital allocation priorities, when you look at the current macro environment, can you give us your thoughts on share buybacks versus any M&A? Do you have any opportunities that you're looking at or are you considering things in this environment and then thoughts on the dividend increase?

[Lori Lipcaman, EVP and CFO]

Okay. Hello Ruplu, this is Lori. So, as we mentioned, we did begin our shareholder return program and we completed, we returned the shareholders just under $25 million already in Q1 despite the fact that the program actually started being executed late in February. So we have indicated that on the shareholder return policy, we plan to return at least $100 million this year.

[Ruplu Bhattacharya, Bank of America]

Okay. And then, any thoughts on M&A, or do you think this is an environment that is conducive for M&A, is that something you're considering?

[Gerald Paul, President and CEO]

We just acquired this Barry Industries and we continue to look. We are out for specialty companies, and I believe it's a good strategy and we continue to look to get. We're not getting these companies, the specialty companies, not necessarily has to do with the economy. So we are looking and I think there are opportunities.

[Operator]

Thank you. [Operator Instructions] The next question comes from the line of Matt Sheerin with Stifel. Please go ahead.

[Matt Sheerin, Stifel]

Yes, thanks. I just have a follow-up question to Dr. Paul and that's regarding the company's announcement of a CEO succession plan that you announced post your last earnings call and I wanted - I was hoping that you could talk about that transition. What kind of - how that transition is going, what kinds of changes at all should investors expect from the company as you go through that change?

[Gerald Paul, President and CEO]

I am here since all times, Matt as you know and I guess you know my age. I think it's nothing but natural that you think of an end of the career. I'm very proud having had the opportunity. I know, since quite some time that I would take to step and we do have very good people in Vishay and the two ones announced for my succession as CEO and COO I know no since very many years, they are very loyal to Vishay, they are very capable and I believe that this year, under these two, we will flourish, and I think a few new ideas, obviously good. May I say it like that.

[Operator]

Thank you. [Operator Instructions] Ladies and gentlemen, we have reached the end of the question-and-answer session and I would like to turn the call back to Peter Henrici for closing remarks. Thank you.

[Peter Henrici, SVP, Corporate Communications]

Thank you for joining us today, on today's call and for your interest in Vishay Intertechnology. This concludes our first quarter conference call.

[Operator]

Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.