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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Ladies and gentlemen, thank you for standing by and welcome to the Vishay Intertechnology Q1 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions]
I would now like to hand the conference over to your speaker today Peter Henrici, Head of Investor Relations. Thank you. You may begin.
Thank you, Dorothy. Good morning and welcome to Vishay Intertechnology's first quarter 2021 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'll start today's call with the CFO who will review Vishay's first quarter 2021 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 a presentation of the first quarter 2021 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.
Thank you, Peter. 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 $765 million. EPS was $0.49 for the quarter. Adjusted EPS was $0.46 for the quarter. The only reconciling items between GAAP EPS and adjusted EPS are tax related. There were no reconciling items impacting gross or operating margins.
Revenues in the quarter were $765 million, up by 14.6% from previous quarter and up by 24.8% compared to prior quarter -- the prior year. Gross margin was 26.5%. Operating margin was 12.7%. There were no reconciling items to arrive at adjusted operating margin. EPS was $0.49 and adjusted EPS was $0.46. EBITDA was $133 million, or 17.4%. There were no reconciling items to arrive at adjusted EBITDA.
Reconciling versus prior quarter, operating income Q1 2021 compared to adjusted operating income for prior quarter based on $97 million higher sales, or $94 million higher excluding exchange rate impacts, adjusted operating income increased by $38 million to $97 million in Q1 2021 from $60 million in Q4 2020. The main elements were: average selling prices had a negative impact of $4 million, representing a 0.5% ASP decline. Volume increased with a positive impact of $44 million equivalent to a 14.7% increase in volume. Variable costs decreased with a positive impact of $12 million, primarily due to volume-related increased manufacturing efficiencies and cost-reduction efforts, which more than offset annual wage increases and higher metal prices. Fixed costs increased was a negative impact of $17 million, primarily due to higher personnel costs related to uneven attribution of stock compensation expense, higher bonus accruals, more working days in Q1, and wage increases partially offset by our restructuring programs. Inventory impact had a positive effect of $5 million.
Reconciling versus prior year, operating income Q1 2021 compared to adjusted operating income in Q1 2020 based on $152 million higher sales, or $131 million excluding exchange rate impacts, adjusted operating income increased by $46 million to $97 million in Q1 2021 from $51 million in Q1 2020. The main elements were: average selling prices had a negative impact of $11 million, representing a 1.4% ASP decline. Volume increased with a positive impact of $60 million, representing a 22.8% increase. Variable cost decreased with a positive impact of $7 million, primarily due to volume-related increased manufacturing efficiencies and cost reduction efforts, which more than offset higher metal prices, annual wage increases, as well as higher freight costs. Fixed costs increased with a negative impact of $6 million, primarily due to annual wage increases and higher incentive compensation partially offset by our restructuring program. Exchange rates had a negative effect of $4 million.
Selling, general and administrative expenses for the quarter were $106 million slightly above our expectations when adjusted for exchange rates due to higher incentive compensation accruals given the favorable 2021 outlook. Based on our cycle, our SG&A expenses are at the highest quarterly level in Q1, primarily due to uneven attribution of stock compensation expense. Directly attributable cost of the pandemic are now part of the new normal operating statement, accordingly they are considered in our normal operating costs.
For Q2 2021, our expectations are approximately $104 million of SG&A expenses. For the full year, our expectations are approximately $420 million at the exchange rates of Q1 slightly above our previous guidance due to higher incentive compensation. We early adopted the new accounting standards for convertible debt effective January 1, 2021. Pursuant to the new standard, our convertible debt is no longer bifurcated into debt and equity components and we are no longer required to amortize the related debt discount as non-cash interest expense.
This means that our reported debt balance has increased to approximately the face value of the convertible notes. It also means that our GAAP interest expense has decreased to approximately the cash coupon on the convertible notes plus the cost under the revolving credit facility.
We expect interest expense for Q2 to be approximately $4.4 million. As described in our annual report on Form 10-K, we took actions to amend the indenture for the convertible notes due 2025 to minimize the EPS dilution of the notes under the new standard. This results in a similar impact on the diluted EPS share count to that which was achieved under the old standard when assuming net share settlement.
The debt shown on the face of the balance sheet at quarter end is comprised of the convertible notes due 2025 net of debt issuance costs. There were no amounts outstanding on our revolving credit facility at the end of the quarter. However, we did use revolver from time to time during Q1 to meet some short-term financing needs and expect to continue to do so in the future. No payments are due until 2025 and the revolving credit facility expires in June 2024.
We do not repurchase any of our convertible notes, due 2025 during Q1, but we continue to be authorized by our Board of Directors to repurchase up to an additional $65 million of convertible notes, due 2025 and subject to market and business conditions, legal requirements and other factors.
We had total liquidity of $1.5 billion at quarter end. Cash and short-term investments comprised $781 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 2021 is approximately 145.5 million. Our convertible debt repurchase activity over the past three years, together with the adoption of the new convertible debt standard, significantly reduces the variability of our EPS share count.
Our US GAAP tax rate for Q1 was approximately 18%. During Q1, we recorded a benefit of $4.4 million, due to a change in tax regulation. Our normalized effective tax rate, which excludes unusual tax items was approximately 23% for the quarter. We expect our normalized effective tax rate for full year 2021 to be between 22% and 24%.
Our consolidated effective tax rate is based on an assumed level and mix of income among our various taxing jurisdictions. A shift in income could result in significantly different results, while a significant change in US tax laws or regulations could result in significantly differ results.
Cash from operations for the quarter was $57 million. Capital expenditures for the quarter were $29 million. Free cash for the quarter was $29 million. For the trailing 12 months, cash from operations was $338 million. Capital expenditures were $128 million, split approximately for expansion $85 million; for cost reduction $8 million; for maintenance of business $35 million.
Free cash generation for the trailing 12-month period was $211 million. The trailing 12-month period includes $16 million cash taxes paid related to cash repatriation, plus $15 million cash taxes paid for the 2020 installment of the US tax reform transition tax. Vishay has consistently generated in excess of $100 million cash flows from operations in each of the past 26 years and greater than $200 million for the past 19 years.
Backlog at the end of quarter one was at $1.731 billion, or 6.8 months of sales. Inventories increased quarter-over-quarter by $32 million, excluding exchange rate impacts. Days of inventory outstanding were at 75 days. Days of sales outstanding for the quarter were 43 days. Days of payables outstanding for the quarter were 33 days, resulting in a cash conversion cycle of 85 days.
Now, I would like to turn the call over to our Chief Executive Officer, Dr. Gerald Paul.
Thank you, Lori, and good morning, everybody. In the first quarter, the steep upturn of our business visible since October of last year accelerated even further. A sharp and effective ramp-up of critical manufacturing capacities allowed Vishay to exceed expected sales for the quarter.
Quite excellent plant efficiencies and our traditional discipline in fixed costs in combination with high sales led to good financial results. Vishay in the first quarter achieved a gross margin of 26.5% of sales, operating margin of 12.7% of sales, earnings per share of $0.49 and adjusted earnings per share of $0.46. We in Q1 generated $29 million of free cash, which I believe is a good start into another solid year of cash generation.
Let me talk about the economic environment we are in. The economic environment for the electronics business continues to be exceptional with sales orders and backlog in the – virtually all markets are in excellent shape, and supply chains have become rather depleted. Despite all efforts to expand manufacturing capacities quickly, lead times for many product lines have stretched out rapidly and massively. We like our competitors try to keep up delivery service to the best we can, but shortages continue to grow. By nature, price pressure presently is fairly low and further reducing.
Sales in the second quarter very often will be limited, mainly by the available manufacturing capacities. All regions enjoyed substantial growth in the quarter. Distribution in all hemispheres is extremely hungry for product. There is a continued strong performance in Asia in general automotive and computing section driving the demand.
Shortages allow for premium pricing opportunities. There's a further accelerating business in Europe, driven by automotive, but also by a sharp improvement of the industrial sector. We see a rebound of the business in the Americas, despite ongoing weakness of oil and gas and commercial avionics.
Global distribution currently gets overwhelmed. They are at a record high since, I would say, it's 15 years. Global distribution expects really an excellent year. POS in the first quarter was 23% over prior quarter and 21% over prior year.
Distribution continues extremely strong in Asia, plus 19% quarter-over-quarter, POS quarter-over-quarter. It started to heat up also in Europe, with 36% POS quarter-over-quarter and in the Americas, plus 16% quarter-over-quarter POS.
Global distribution inventory came down by another $34 million, after a reduction of $24 million in the fourth quarter. Distribution inventories, especially in Asia, approach critically low levels. Inventory turns of global distribution increased sharply to 4.1 from 3 in prior quarter.
In the Americas, 1.9 turns after 1.6 in quarter four and 1.8 in prior year. In Asia, remarkable 6.7 turns after 5.0 in quarter four and 3.8 in prior year. In Europe, 4.4 turns after 3.2 in Q4 and 3.6 in prior year.
Automotive remains remarkably globally with OEMs continuing to struggle for replenishing vehicle inventory. The increase of the electronic content clearly accelerates. Electric vehicle charging programs start to become very tangible. We see also exceptional growth of the industrial sectors which indicates a broad global recovery.
Factory automation and accelerated residential development and government investments in power generation and transmission [Indiscernible] as well as alternative energy systems are driving the demand. Markets for computer and peripheral equipment are holding up well. We see no signs of a slowdown of purchases for work study or shop from home.
5G based station equipment continues to show strong growth in telecom. There are better opportunities now for Western equipment manufacturers, as a consequence of political frictions. Military defense spending continues reasonably strong.
Commercial avionics remains weak. The medical sector continues on a steady growth trend. Consumer market sectors show solid growth in the quarter, driven by high rates of home construction, traditional TV and gaming.
Talking the business development of Vishay. Due to high orders and the rapid increase of our manufacturing capacities, Q1 sales, excluding exchange rate impacts, came in substantially above the upper end of our guidance.
We achieved sales of $765 million versus $667 million in prior quarter and $613 million in prior year. Excluding exchange rate effects sales in Q1 were up by $94 million or by 14% versus prior quarter and up by $131 million or 21% versus prior year.
Book-to-bill ratio in the first quarter accelerated further to 1.67 from 1.44 in prior quarter and from 0.99 in the third quarter of last year. We have seen 1.89 for distribution after 1.89 in the fourth quarter same number, 1.41 for OEMs after 0.96 in the fourth quarter, 1.86 for semiconductors after 1.61, 1.50 for passives after 1.27, 1.42 for the Americas after 1.25 in Q4, 1.86 for Asia after 1.75 and 1.62 for Europe after 1.27.
Backlog in the first quarter climbed to another high of 6.8 months after 5.6 months in the fourth quarter, 7.7 months in semis after six months in the fourth quarter and 5.9 months in passives after 5.1. We see a further decrease in price pressure in general minus 0.5% versus prior quarter and minus 1.4% versus prior year. Of course, we start to see the impact of selective price increases.
Semis -- in semis you have -- we see minus 1% versus prior quarter, minus 2.1% versus prior year. And in passives, we have practically price stability minus 0.1% price decline versus prior quarter and minus 0.7% versus prior year.
Thanks to quite excellent plant efficiencies and despite still high transportation and metal costs as well as continued unfavorable exchange rates, contributive margin in the first quarter improved substantially from the fourth quarter, practically returning to traditional levels.
SG&A costs in Q1 came in at $106 million, $2 million above expectations when excluding exchange rate effects, mainly due to higher bonus accruals. Manufacturing fixed costs in Q1 came in at $140 million, slightly higher than expectations when excluding ex rate effects, mostly due to the maximization of the production output.
Total employment at the end of Q1 was 22,060, 2% up from prior quarter. Excluding exchange rate impacts, inventories in the quarter increased by $32 million, $8 million in raw materials and $24 million in WIP and finished goods. Of course, the consequence of the capacity ramp up.
Inventory turns in the first quarter increased to 4.8 in from 4.6 in prior quarter. Capital spending in Q1 was $29 million versus $24 million in prior year, $21 million for [indiscernible] $1 million for cost reduction and $7 million for the maintenance of business.
In view of the extremely high market demand, we will accelerate midterm expansion programs noticeably. We expect for the year 2021, CapEx of approximately $225 million, required in particular also for the preparation for anticipated higher growth rates of the business in the future.
We generated in the first quarter, cash from operations of $338 million on a trailing 12-month basis. This includes $16 million cash taxes paid for cash repatriation. And we generated in the first quarter, free cash of $211 million on a trailing 12-month basis again including $16 million cash taxes paid for cash repatriation. Despite increased CapEx, we also for the current year expect a solid generation of free cash quite in line with our tradition.
Can I go through the product lines and I start as always with resistors. With resistors, we enjoy a very strong position in the auto industrial and medical market segments. We offer virtually all resistor technologies and are globally known as a reliable high-quality supplier of the broadest product range. Vishay's traditional and historically growing business has recovered completely from a second quarter 2020 low and now starts to exceed pre-pandemic levels. Sales in the quarter were $187 million, up by $24 million or 15% versus prior quarter. And up by $20 million or 12% versus prior year all this excluding exchange rate impacts.
Book-to-bill in Q1 for the systems was very strong 1.50 after 1.24 in prior quarter. Backlog increased sharply from 4.9 to 5.6 months. Due to higher volume and quite excellent efficiencies in the plants, gross margin in the quarter increased to 29% of sales from 25% in prior quarter. Inventory turns in the first quarter at a very high level of 5.1 after 4.8 in the prior quarter. Selling prices have fairly stabilized, minus 0.4% versus prior quarter and minus 1.3% versus prior year. We will increase critical manufacturing capacities for resin chips and for power wirebond substantially. And we also plan to open a new production site in China. The integration of the acquisition ATP progresses and we do expect a very successful year for resistors in total.
Coming to inductors. The business consists of power inductors and magnetics. Since years our fast-growing business with inductors represents one of the greatest success stories of Vishay. Exploiting the growing need for inductors in general Vishay developed the platform of robust and efficient power inductors and leads the market technically.
With magnetics we are very well-positioned in specialty businesses demonstrating steady growth there. Sales of inductors in Q1 were $84 million, up by $8 million or 11% versus prior quarter and up by $9 million or 12% versus prior year excluding exchange rate impacts.
Book-to-bill in Q1 was 1.13 after 1.03 in prior quarter. The backlog is at 4.5 months after 4.6 in the fourth quarter. Mainly due to higher volume gross margin in the quarter increased to excellent 33% of sales from prior quarter at 30% of sales.
Inventory turns in the quarter remained at a very high level of 5.1 as compared to 5.0 in prior quarter. Also for inductors, we see reduced price pressure. In fact the prices went up by 0.7% versus prior quarter and came down by 2.4% versus prior year. We will accelerate the next steps of capacity expansion for power inductors in order to get ahead of the demand curve.
Coming to capacitors, our business with capacitors is based on a broad range of technologies with a strong position in America and the European market. We are mostly acting in niches. We enjoy increasing opportunities in the fields of power transmission and of electro cars namely in Asia and China.
Sales in the first quarter were at $106 million 15% above prior quarter and 9% above prior year which again excludes exchange rate effects. Book-to-bill ratio in Q1 was 1.73 which represents another acceleration from the high level of 1.54 in the fourth quarter. They are excellent business and there is an excellent business environment for virtually all capacitor lines and all this has led to a broad and steep increase of orders.
Backlog increased again to a record level of 7.4 months from 6.2 months in the fourth quarter. Gross margin in the quarter increased sharply to 23% of sales up from 18% in prior quarter. Substantially higher volume in combination with better plant efficiencies and some inventory build was the reason. Inventory turns in the quarter increased to 3.9 virtually on the level of the prior quarter.
Prices were stable to up. No price change vis-à-vis prior quarter and plus 1.7% price versus prior year. We expect a good year also for capacitors driven by large governmental projects in China by a solid mill business and a very friendly business environment in general.
Opto, Vishay business with Opto products consists of infrared emitters receivers sensors and couplers. The business in 2020 experienced significant recovery from a disappointing year before. Currently, we experience a strong acceleration of demand. Sales in the quarter were $78 million, 13% above prior quarter and 37% above prior year which excludes exchange rate impact.
Book-to-bill in the first quarter increased further 1.66 from 1.46 in prior quarter. Backlog moved to an extreme high of 7 months after 5.9 months in quarter 4. Gross margin in Q1 came in at 33% remarkably up from 28% in prior quarter. Higher volume, better plant efficiencies and some inventory build supported this positive development. I think I can say that Opto is back on its historical profitability level.
High inventory returns at Opto of 6.4 in the quarter, as compared to 6.0 in the fourth quarter. Billing prices have stabilized minus 1.3% versus prior quarter and minus 0.2% versus prior year. As I mentioned before, we are in process to modernize and to expand our wafer fab in Heilbronn, Germany. Our confidence in the good future of the Opto product line apparently has been justified. We believe that Opto going forward will contribute notably to our focus.
Diodes. Diodes for Vishay represents a broad commodity business where we are the largest supplier. Vishay [Indiscernible] virtually all technologies as well as the most complete product portfolio. The business has a very strong position in automotive and industrial market segments and keeps growing steadily and profitably these years. Diodes after a few difficult quarters is in midst of a quite extreme strong and broad recovery that currently even accelerates.
Sales in the quarter were $157 million, up by $17 million or 13% versus prior quarter, and up by $38 million or 32% versus prior year, again without exchange rate effects. Extremely high book-to-bill ratio of 1.85 in diodes in the quarter, up from 1.65 in the fourth quarter. Backlog climbed to an extreme high of 7.9 months from 6.2 months in prior quarter. Mainly due to higher volume, gross margin in the quarter went up substantially to 22% of sales as compared to 18% in quarter four.
Inventory turns were flat at 4.8. We see further reduced price pressure, minus 0.4% versus prior quarter and minus 0.7% versus prior year. We decided for a substantial expansion of our in-house fab in Taipei introducing at the same time the 8-inch technology which is relevant for cost reduction. As expected, diodes with a return to more normal volumes start approaching more historical profitability levels.
Last, but really not least, the MOSFETs. Vishay is one of the market leaders in MOSFET transistors. With MOSFETs we enjoy a strong and growing market position in automotive which in view of an increasing use of MOSFETs in automotive will provide a successful future. The demand has reached extreme levels and increases further. Sales in the quarter were $153 million, which is the highest level since 2016, 16% above prior quarter and 29% above prior year, excluding exchange rate impacts.
Book-to-bill ratio may I say jumped to 1.97 in the quarter after 1.64 in the fourth quarter. Backlogs climbed to an extreme high of 7.8 months, as compared to 5.7 months in Q4. Gross margin in the quarter improved to 24% of sales, up from 22% in prior quarter. Inventory turns in the quarter were 4.7 as compared to 4.3 in quarter four. Also for MOSFETs, we see decreasing price decline, minus 1.4% versus prior quarter and minus 4.5% versus prior year and we do expect prices to stabilize further. MOSFETs remain key for Vishay's growth going forward.
May I summarize? No question that our industry, and in particular Vishay, got very well through the pandemic that still has a strong impact on very many economies and on very many personal lives. There is an unstoppable global trend towards electronification that makes our future promising even exciting. We currently experience an extremely steep increase of demand which we, at Vishay, first of all, see as an opportunity that we will exploit to the best we can.
Beyond this, we feel that the challenges of the last year have helped to accelerate electronification worldwide fairly massively from electro cars to 5G. We will prepare ourselves in terms of available machine capacities and will provide the capital required. We will advance existing and well-thought-through programs for our most successful product lines cash paybacks are short and the risks of such investments are very low.
While enjoying higher growth, we will definitely keep our feet on the ground in terms of fixed costs as we always did in the past. And we will do our utmost to remain the same fair and service-oriented supplier close to our customers we are known for. I'm convinced that this is the best and most solid basis for future growth and success. For the second quarter, results are very promising. We guide to a sales range between $790 million and $830 million at a gross margin of 27.3% plus/minus 60 basis points.
Thank you. Peter I give it back to you.
Thank you, Dr. Paul. We'll now open the call to questions. Dorothy, please take the first question.
[Operator Instructions] Your first question comes from the line of Ruplu Bhattacharya from Bank of America.
Hi, thank you for taking my questions. Dr. Paul the book-to-bill remains pretty high and the backlog is increasing. Can you let us know what steps you're taking to mitigate any double ordering? How do you filter that out? And what steps are you taking to counteract that?
Honestly and I said this before in situations like that there is practically no way to filter out double ordering. But on the other hand given the situation of today with this high backlog, the problem of that is very low. We have to accept it. It happens. And honestly there's not much to be done unfortunately.
Okay. Okay. No that's fine. Can I ask you on the CapEx? I think you raised your guidance for this year's CapEx to $225 million. Can you give us some details on which regions and which product lines you're adding capacity? And when do you think that will be fully utilized?
These are always the same lines really. It's going to the MOSFETs to the diodes to the power inductors to resistor chips to power wirewound. And we invest -- continue to invest in the Opto set. And also it means that power -- that means in power film capacitors. As a matter of fact this will be available in steps of course. Fully implemented, I would say by the end of next year.
Okay.
And a little bit also on the delivery times of the equipment.
Okay. Got it. And then lastly, can I ask you about, the priorities for cash in this environment? Do you see any opportunities for inorganic growth either on the passive side or the active side? And then, how should we think about buybacks and any dividend increases, just your thoughts on prioritizing use of cash. Thank you.
Well, as a matter of fact, we are looking for acquisitions always. We just acquired a specialty company. You know that ATP. We are looking always for further opportunities.
And of course, we completely look at further opportunities also. And of course, I can say, and I think, I reconfirmed that, we have considerations here, for approval. Either dividend or cash or stock buyback, we consider that and our Board evaluates all possibilities at this point.
Okay. Thanks for all the details.
Your next question comes from the line of Karl Ackerman with Cowen.
Hi. Good morning. Thank for taking my question. I guess first question, Dr. Paul, given the record bookings, is your outlook for June fully booked today, or will the June quarter require turns business? And I was hoping, you could provide, your view on which end-markets are seeing the most extended lead times at distribution.
Well, first of all, I don't check it on a daily basis but don't be worried. There's always some turns business required, but the back -- the short-term backlog is quite overwhelming.
What really is important in the quarter is how much we can manufacture. That is the -- the emphasis will be on manufacturing the challenge. So I'm not concerned. Really manufacturing whatever we can produce, we can practically sell at this point in time. It's a little sloppy said.
But nevertheless, it's really not a matter of the backlog. We have enough, so no issue. And concerning the lead times, it's very broad. We have in that sense our service in -- like our -- service of our competitors is not so good, in MOSFETs, in inductors.
In many places our lead times are very long and tend to get long these days. So the build continues to be also in April. It continued to be substantially above one. It was at 1.5. I don't know, whether I answered your question.
No. That's helpful. Maybe as a follow-up, Dr. Paul, I'd like to hear your perspective on, where you think we are in the semis cycle. Your outlook for June implies a record level of sales. Distributor inventories are low. Pricing pressure is easing.
At the same time, we are increasing CapEx by 10% this year. So I guess given the fact -- given these factors, what are your thoughts on the sustainability of demand in the second half? Do you think second half demand could be as strong as the first half? Thank you.
We have no reason to doubt that. Talking to our customers there's ongoing optimism. And of course the quarters have a certain history. Some quarters are not as -- do not have as many working days, as others.
But principally speaking, I see at this point in time, no change of the trend, which at a point in time as it always is, it's a cyclical business, will of course come. But at this point in time, I think we are early still in the cycle.
Thank you.
Your next question comes from the line of Matt Sheerin with Stifel.
Yes. Thank you. Good morning. Dr. Paul, I wanted to ask about the strong distribution point of sales or sell-through that you talked about up 23% quarter-on-quarter. Are you getting a sense -- well number one is that the traditional distribution customer are you starting to see your OEM and EMS customers who traditionally buy more direct are also using distribution? And are you getting a sense that the distribution customers are trying to or are building inventory and at some point we see a correction there?
Matt, we are here since a long time. Sooner or later there will be again the pipeline will be filled. But at this point in time there's really tangible facts that inventories go up in the supply chain. I'm not aware of any. Of course, we don't know everything. And you can ask whether OEMs for instance build some inventory, which you can never completely exclude. But overall, I would say, the pipeline, the supply chain is really relatively empty. People are extremely hungry for product. So I cannot see it. This is why I said before, I think it's still early in the cycle. I believe the supply chain is relatively empty. Matt, what was the second part of your question? Excuse me. I…
Yes, it was just in terms of -- I mean are you starting to see your direct customers maybe can't get part? Are they going -- are they using distribution more than normal, which we've seen in prior cycles?
I cannot exclude it, but this is not a driving thing I believe. I don't – sorry, it can happen of course. And these times speak -- it can happen especially in such times, but I don't see a momentum here no.
Okay. And then in the release this morning you talked about the long-term drivers of content growth for Vishay, including 5G EV and other. Could you be maybe more specific about in terms of the content growth what the content opportunity is in EV versus traditional combustible engine and then 5G other examples that we can get comfortable with that capacity add that you're talking about?
Yes. Especially on EV side, I have a number even ready. Normally we -- the electrical content electronic content in a normal car is about $200 opportunity for us. In an electro vehicle this is $700 according to what we analyzed and this does not include the charging stations. So just to give you that example we are quite excited about it of course. And the share of electronic -- of electric cars increases obviously. So this is a major opportunity. And for 5G this is a really broad application and we are a broad liner. It's a nice opportunity for us. So well we have analyzed the needs going forward and we are quite convinced that our capacity expansions are the right decision.
Okay. And then just lastly, in terms of the guidance for up sequentially does that contemplate some inventory build at distribution? And does that also factor in ASP increases?
Both there will be some -- the inventory at distribution is low, especially, in Asia. So we would -- I would expect some increases of inventory at distribution, which would be healthy at this point in time. Also some first impacts of price increases are included.
Okay. All right. Thank you very much.
Thank you.
[Operator Instructions] Your next question comes from the line of Harlan Sur with JPMorgan.
Good morning and congratulations on the strong results and execution. Dr. Paul, on the team's outlook for higher growth rates over the next few years on rising dollar content and electrification, how should we think about the target growth rate relative to your prior view of 3% to 6% revenue growth and 10% to 20% net income growth?
Where do you take the 6% from? I mean 6% is -- the market itself grows by about 2% to 3% historically. We indeed believe now and this can be doubled. That is true.
Double the higher targeted growth rate?
Yes. There are -- as I said, there are lots of opportunities that are ahead of us, ahead of this industry of electronic components. I think we can be very confident for the future. And concerning the EPS growth, let's say, concerning the operating margin growth, you see our variable margin, our contributive margin, is around 45%. And you see the impact of such an increase at relatively constant fixed cost relatively. Of course, you have inflation. You see you can calculate immediately what this means for our results.
Yes, exactly. And on that topic of contribution margins, and I asked this question last quarter too, but your -- the team is still below the 46% level that you guys were driving back in 2018. And you're pretty close to 45%, it feels like in Q1 and Q2, but still slightly below that. So given the continued pricing improvements, would you anticipate contribution margins moving more towards 45% or better as you move through the second half of the year?
I believe what we are going to see is the impact of some price increases. I can hardly speculate on logistics costs, which holds us back at this point in time, not only us, also others. You would assume that with improving situation of the pandemic, there will be more flights and the freight rates will go down again. So there are some positive aspects for the variable margin in the second half I think. True.
Okay. And then, maybe just my last question. Given the strong backlog and I'm assuming lead times are still extending so, it feels like you guys have very good visibility for the second half. And I assume that given the demand environment that second half is shaping up to grow over the first half. Number one is that fair? And given your manufacturing capacity expansion plans, can the team support revenues at or above $850 million per quarter in the second half?
Yes, principally it can. But you may remember last session, when I called our machine capacity, the max capacity at 3.2. And at the moment, we are in process to add. But of course, we have -- the faster we add the more sales we can bring home, no question, at least during such a period like today. We will do our best, but we depend also on equipment manufacturers as you can imagine.
Yes. Okay. Thank you.
Thank you.
At this time, I'll turn the call back over to our speakers for closing remarks. Please go ahead. Are there any closing remarks?
Peter?
I'm sorry. I was muted. Thank you, for joining us on today's call and for your interest in Vishay Intertechnology.
Thank you, ladies and gentlemen. That does conclude today's conference call. Thank you for your participation and may I ask that you please disconnect your lines.