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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.
Good morning, and welcome to Vishay Intertechnology’s Fourth Quarter and Year 2020 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 start today’s call with the CFO, who will review Vishay’s fourth quarter and year 2020 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. This morning, we filed a Form 8-K that outlines the various variables that impact the diluted earnings per share computation. On the Investor Relations section of our website, you can find a presentation of the fourth quarter 2020 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 Q4 of $667 million, higher than our original expectations, partially due to foreign currency effects. EPS was $0.26 for the quarter, adjusted EPS was $0.28 for the quarter. During the quarter, we repurchased $2.6 million principal amount of our convertible debentures due 2041 and recognized the U.S. GAAP loss on extinguishment. I will elaborate on these transactions in a few moments.
COVID-19 continues to have an impact on our business. We see strong signs of recovery during Q4. Similar to the first 3 quarters of 2020, we have identified certain COVID-19-related charges, net of certain subsidies, which are directly attributable to the COVID-19 outbreak. These items were insignificant to Q2, Q3 and Q4 results, but are added back when calculating our non-GAAP adjusted EPS for comparability. Such measures exclude indirect impacts, such as general macroeconomic effects of COVID-19 on our business and higher shipping costs due to reduced shipping capacity.
Revenues in the quarter were $667 million, up by 4.2% from previous quarter and up by 9.4% compared to prior year. Gross margin was 22.8%. Adjusted gross margin, excluding COVID costs, was 22.9%. Operating margin was 9.0%. Adjusted operating margin, excluding COVID costs, was 8.9%. EPS was $0.26, adjusted EPS was $0.28. EBITDA was $95.0 million or 14.4%, adjusted EBITDA was $96.2 million or 14.4%. Revenues in 2020 were $2,502 million, down by 6.2% from previous year. Gross margin was 23.3%. Adjusted gross margin, excluding COVID costs, was 23.4%. Operating margin was 8.4%. Adjusted operating margin, excluding COVID costs, was 8.5%. EPS was $0.85. Adjusted EPS was $0.92. EBITDA was $352 million or 14.1%. Adjusted EBITDA was $364 million or 14.6%. Reconciling versus prior quarter, adjusted operating income of quarter four 2020 compared to adjusted operating income for prior quarter, based on $27 million higher sales or $23 million higher excluding exchange rate impacts, adjusted operating income decreased by $2 million to $60 million in Q4 2020 from $61 million in Q3 2020.
The main elements were, average selling prices had a negative impact of $2 million, representing a 0.3% ASP decline; volume increased with a positive impact of $10 million, equivalent to a 4% increase in volume; variable costs increased with a negative impact of $4 million, primarily due to increased costs for freight, duties and material -- and metals; fixed cost increased with a negative impact of $5 million, primarily due to the acquisition and higher year-end repair and maintenance costs; inventory impact had a positive effect of $5 million; exchange rates had a negative effect of $4 million.
Versus prior year adjusted operating income in Q4 2020 compared to adjusted operating income in quarter 4 2019, based on $58 million higher sales or $44 million excluding exchange rate impacts, adjusted operating income increased by $19 million to $60 million in Q4 2020 from $41 million in Q4 2019. The main elements were, average selling prices had a negative impact of $19 million, representing a 2.8% ASP decline; volume increased with a positive impact of $27 million, representing a 10.3% increase; variable costs decreased with a positive impact of $9 million; cost reductions and lower material prices as well as improved manufacturing efficiencies more than offset increases in labor and freight costs as well as metal prices; fixed cost decreased with a positive impact of $2 million, primarily due to lower travel costs, which more than offset inflation; inventory impact had a positive effect of $4 million; exchange rates had a negative effect of $5 million. 2020 versus 2019, adjusted operating income for the year 2020 compared to adjusted operating income for the year 2019 based on $166 million lower sales or $180 million lower excluding exchange rate impacts, adjusted operating income decreased by $73 million to 2014 and -- 2020 from $287 million in 2019.
Average selling prices had a negative impact of $71 million, representing a 2.8% ASP decline. Volume decreased with a negative impact of $53 million, representing a 4.2% decrease. Variable cost decreased with a positive impact of $32 million. Cost reductions and lower material prices as well as improved manufacturing efficiencies more than offset increases in labor and freight costs and metal prices.
Fixed costs decreased with a positive impact of $15 million, primarily due to lower travel costs and general belt tightening, which more than offset wage inflation. Inventory impacts had a positive effect of $8 million, exchange rates had a negative effect of $5 million. Selling, general and administrative expenses for the quarter were $92 million, which includes a net benefit of $0.6 million of subsidies in excess of identified COVID costs.
Selling, general and administrative expenses for 2020 was $371 million, which includes a net benefit of $1.5 million of subsidies in excess to identified COVID costs. For Q1 2021, our expectations are approximately $103 million of SG&A expenses. The increase is primarily due to uneven attribution of stock compensation expense, incentive compensation accruals and wage inflation, which are not completely offset by the impact of our restructuring program.
For the full year, our expectations are slightly above $400 million at the exchange rates of quarter 4. This increase year-over-year is primarily due to the weakening of the U.S. dollar versus our relevant currencies, increased travel costs anticipated in the second half of the year, and incentive compensation accruals and wage increases, not completely offset by the impact of our restructuring program. Based on our cost cycle, our SG&A expenses will be at the highest quarterly level in Q1. During the quarter, we were able to repurchase the final $3 million principal amount of our convertible debentures due 2041.
Last Thursday, we completed the redemption of our convertible debentures due 2040, of which only $300,000 principal amount is outstanding. These actions complete the programs we have undertaken over the past 3 years to retire the convertible debentures due 2040, 2041 and 2042, which had certain tax attributes which were no longer efficient after U.S. tax reform. We continue to have a series of convertible notes outstanding, which are due in 2025. While we did not repurchase any of our convertible notes due 2025 during quarter 4, during 2020, we opportunistically repurchased $135 million principal amount of the convertible notes due 2025. The average repurchase price for the notes was 95.3% of face value. By reducing our fixed-term debt, repurchase of the convertible notes provides us with future flexibility to better utilize our revolver and to adjust our debt levels as necessary. We continue to be authorized by our Board of Directors to repurchase up to an additional $65 million of convertible notes through 2025, 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 $778 million, and the usable capacity on the credit facility is approximately $730 million. Our debt at year-end is comprised primarily of the convertible notes due 2025. The principal amount or face value of the converts is $466 million. The carrying value of $395 million is net of unamortized discounts and debt issuance costs. There were no amounts outstanding on our revolving credit facility at the end of the year. However, we did utilize the revolver from time to time during Q4 to meet short-term financing needs and expect to continue to do so in the future. No principal payments are due until 2025, and the revolving credit facility expires in June 2024. This year we’ll early adopt the new accounting standard for convertible debt effective January 1, 2021.
For strong to the new standard, our convertible debt will no longer be bifurcated into debt and equity components, and we will no longer be required to amortize the related debt discount as noncash interest expense. This means that our reported debt balance will increase to approximately the face value of the convert. It also means that our U.S. GAAP interest expense will decrease to approximate the cash coupon. We expect interest expense for Q1 to be approximately $4.4 million. The new standard also requires the application of the If Converted Method for EPS share count, which would have added 14 million shares to our diluted EPS share count. In response to this and consistent with our previously-stated intentions to net share settle, we amended the indenture for the convertible notes due 2025, requiring Vishay to pay the principal amount of any converted notes in cash with any additional conversion value settled in shares of common stock. This is similar -- this results in a similar impact on the diluted share count to that which was achieved under the old standard when assuming net share settlements. Total shares outstanding at quarter end were 145 million.
The expected share count for EPS purposes for the first quarter of 2021 is approximately 145 million. For a full explanation of our EPS share count and variables that impact the calculation, especially after the adoption of the new convertible debt standard, please refer to the 8-K we filed this morning and our annual report on Form 10-K, which will be filed in a few weeks. Our global cost reduction programs that were announced in mid-2019 have now been fully implemented, with lower cost of approximately $15 million annually.
The full year effective tax rate on a GAAP basis was approximately 22%. The full year normalized tax rate was approximately 21%. For the quarter, this mathematically yields a tax rate of approximately 19% for GAAP and approximately 11% normalized. Our year-to-date GAAP tax rate includes the unusual tax benefit related to the settlement of some of the convertible debentures from Q1 and Q4 and an adjustment to uncertain tax positions of $4 million in Q4. Our year-to-date normalized rate excludes the unusual tax items as well as the tax effects of the pretax loss on extinguishment of debt, the identified COVID costs and the Q2 restructuring charge. Our effective tax rate for the full year was lower than we expected at the end of Q3 due to changes in certain processes and business practices as we continue to adapt our financial and capital structure in response to U.S. reform.
We expect our normalized effective tax rate for 2021 to be between 22% and 24%. Our consolidated effective tax rate is based on an assumed level of mix of income among our various taxing jurisdictions. A shift in income could result in significantly different results. Also a significant change in tax laws or regulations could result in significantly different results. Cash from operations for the quarter was $126 million. Capital expenditures for the quarter were $53 million. Free cash for the quarter was $73 million. For the year, cash from operations was $315 million; capital expenditures were $124 million; split approximately for expansion, $83 million; for cost reduction, $9 million; for maintenance of business, $32 million. Free cash generation for the year was $192 million. The year includes $16 million cash taxes paid related to cash repatriation, plus $15 million cash taxes paid for the current year installment of the U.S. tax reform transition tax. Vishay has consistently generated in excess of $100 million cash flow from operations in each of the past now 26 years and greater than $200 million for the last now 19 years.
Backlog at the end of quarter 4 was at $1,240 million or 5.6 months of sales. Inventories increased quarter-over-quarter by $1 million, including exchange rate impact. Days of inventory outstanding were 79 days, days of sales outstanding for the quarter were 45 days, days with payables outstanding for the quarter were 31 days, resulting in a cash conversion cycle of 94 days.
Now I will turn the call over to our Chief Executive Officer, Dr. Gerald Paul.
Thank you, Lori, and good morning, everybody. The year 2020 for Vishay and its business partners has been overshadowed by a completely new experience, a global pandemic. During the year, there were several phases of the pandemic impacting our business in very different ways. From numerous plant shutdowns, mainly in Asia and temporary shortages of supply in the early part of year, over drastic negative reactions of many customers, in particular, in the automotive segment in the second quarter, to an extremely steep and broad recovery of orders since October.
Vishay managed to adapt to a fast-changing economic environment fairly well, keeping up efficiencies, minimizing fixed costs, controlling inventories and CapEx. Vishay in 2020 achieved a gross margin of 23.3% of sales versus 25.2% in 2019. An adjusted gross margin of 23.4% of sales versus 25.2%. Operating margin of 8.4% of sales versus 9.8% in 2019. And adjusted operating margin of 8.5% versus 10.7% in 2019.
Earnings per share of $0.85 versus $1.19 in 2019. And adjusted earnings per share of $0.92 versus $1.26 in 2019. The generation of free cash also in 2020 remained on a quite excellent level. We in 2020 generated free cash of $192 million, which includes taxes paid for cash repatriation of $16 million. The fourth quarter, while benefiting from an accelerated economic recovery, suffered from higher-than-expected freight costs and metal prices. Additionally, the U.S. dollar weakened versus practically all currencies in which we just incur costs, but achieve no sales.
Vishay in the fourth quarter achieved gross margin of 22.8% of sales versus 23.7% in Q3. Adjusted gross margin of 22.9% versus 23.7% in Q3. Operating margin of 9.0% of sales versus 9.6% in the third quarter, adjusted operating margin of 8.9% versus 9.6% in Q3. Earnings per share of $0.26 versus $0.23 in quarter 3 and adjusted earnings per share of $0.28 versus $0.25 in Q3. Currently, the economic environment for electronics in general can be expressed as friendly to booming. The pandemic even raises consumption in several market segments, and automotive came back to the full extent. There is some economic recovery was already seen in the third quarter, but now this developed quite drastically in the course of the fourth quarter. In particular, distribution contributed and continues to do so, also driven by some anxieties concerning potentially upcoming shortages of supply. We have realized reduced price pressure across the board and lead times in general are stretching out. All regions enjoyed growth in the quarter, led by automotive and distribution in Europe.
There is a strong continued broad performance in Asia, and growth is also in the Americas to be seen despite the weakness of oil and gas and commercial avionics. Global distribution currently is very confident concerning the short and midterm business outlook. In fact, there is growing nervousness concerning the availability of components, in particular of semiconductors. In the year 2020, POS of global distribution was 3% below 2019, mainly due to a very weak second quarter. POS in quarter 4 2020, on the other hand, was 4% over prior quarter and 9% over prior year. POS in quarter 4 was strong, in particular, in Asia, with 9% above prior quarter. Whereas in Europe and in Americas, POS remained virtually on the levels of the third quarter. Distribution inventories in the fourth quarter came down again by $24 million.
Inventory turns of global distribution increased to 3.1 from 2.8 in prior quarter. In the Americas, 1.6 turns after 1.5 in Q3 and 1.4 in prior year. In Asia, 5.0 after 4.3 in Q3 and 3.3 in prior year. In Europe, 3.2 after 3.0 in Q3 and 2.8 in prior year. What can be stated is that Asian distribution has a very low inventory level currently. Coming to the industry segments. Continued strong orders come from automotive as OEMs attempt to recoup volume lost during the second quarter closures. Production volumes of light vehicles are approaching pre-corona levels. But the electronic content has grown and continues to do so. Advanced driver assist systems, 48-volt hybrid systems, autonomous driving and, in particular, electric vehicle charging programs boost the volume. Industrial continues to provide major growth opportunities despite the present weakness of the oil and gas sector.
Industrial automation, new power generation and transmission systems as well as increased residential development propel growth. The market for computers and related products remains remarkably strong, driven by continued demand for tools to support global work-from-home trends. The AMS sector continues to be burdened by an extremely weak market for commercial avionics will remain healthy. For telecom, we -- for the midterm, continue to expect a major upstream in the context of the introduction of 5G, more short term, 4G systems will continue to grow. Quarantine restrictions favor consumer products in general and medical continues to show stable growth.
Let me comment on our business in the fourth quarter, in particular, mostly due to a high demand from distribution, Q4 sales, excluding exchange rate impacts, came in slightly above the upper end of our guidance. We achieved sales of $667 million versus $640 million in prior quarter and $610 million in prior year. Excluding exchange rate effects, sales in the fourth quarter were up by $23 million or by 4% versus prior quarter and up versus prior year by $44 million or by 7%. Sales in the year 2020 were $2.502 billion versus $2.668 billion in 2019, a decrease of 7%, excluding exchange rate effects. The book-to-bill ratio in the fourth quarter, may I say, jumped really to 1.44 from 0.99 in Q3, mainly driven by Asian distribution. 8 -- 1.89 book-to-bill for distribution after 0.99 in Q3, 0.96 for OEMs after 1.01 in Q3. 1.61 for semiconductors after 0.98, 1.27 for passives after 1.0.1.15 for the Americas after 0.92 in Q3.1.75 for Asia after 1.04 in Q3.And finally, 1.27 for Europe after 1.01 in Q3.
Backlog in the fourth quarter climbed to an extreme high of 5.6 months after 4.3 in quarter 3, 6 months in semis after 4.3 in the third quarter and 5.2 months in passives after 4.4. There is further decrease in price pressure, 0.3% prices down versus prior quarter and 2.8% down versus prior year. In semis, there’s less price pressure due to the current high demand, minus 0.2% prices versus prior quarter, minus 3.9% versus prior year. Passives price decline is on normal levels, 0.5% down versus prior quarter and minus 1.7% versus prior year. Some comments on operations. In 2020, we were not completely able to offset the normal negative impacts on the contributive margin by cost reduction and by innovation, despite good manufacturing efficiencies.
During the year, we suffered from increasing transportation costs, increasing metal prices and, in particular, in the fourth quarter from the impact of a weakening US dollar. Adjusted SG&A costs in the fourth quarter came in at $93 million, $2 million below expectations when excluding exchange rate effects. Adjusted SG&A costs for the year 2020 were at $373 million, $15 million or 4% below prior year at constant exchange rates, mainly due to less traveling and general belt-tightening.
Manufacturing fixed costs in the fourth quarter came in at $133 million, in line with expectations when excluding ex rate effects. Manufacturing fixed costs for the year 2020 were $513 million, flat versus prior year at constant exchange rates. Total employment at the end of 2020 was 21,555, 4% down from prior year. Excluding exchange impacts, inventories in the quarter remained virtually flat. Inventory turns in the fourth quarter improved to 4.6 from 4.4 in prior quarter. In the year 2020, inventories were flat versus prior year. Inventory turns for the entire year 2020 were at a very satisfactory level of 4.3, no change to prior year.
Capital spending in 2020 was $124 million versus $157 million in prior year, $83 million for expansion, $9 million for cost reduction and $32 million for maintenance of business. Some acceleration vis-à-vis previous expectations of programs had been required in view of the sharply increasing orders. For 2021, we expect increased CapEx of about $175 million, required to fulfill a strong demand.
Concerning cash flow, we generated in 2020 cash from operations of $315 million, including $16 million cash taxes for cash repatriation compared to $296 million cash from operations in 2019, including $38 million cash taxes for cash repatriation. We generated in 2020 free cash of $192 million, including $16 million cash taxes for cash repatriation compared to a free cash generation of $140 million in 2019, including $38 million cash taxes for cash repatriation. I think we can say that Vishay also in a year of an unprecedented economic destabilization has continued to live up to its reputation as an excellent and reliable producer of free cash.
Let me go through our main product lines. And I start as always with resistors. With resistors, we enjoy a very strong position in the auto industrial, mil and medical market segments. We offer virtually all resistor technologies. Vishay’s traditional and historically growing business in the second quarter had suffered substantially from the weakness, especially in automotive, but now is in process of a fast recovery. Sales in the fourth quarter were $161 million, up by $15 million or by 10% versus prior quarter and up by $8 million or 5% versus prior year, all excluding exchange rate impacts.
Sales in 2020 of $606 million were down by $56 million or by 8% versus prior year, again, excluding exchange rate impacts. Book-to-bill in the fourth quarter for resistors was 1.24 after 1.06 in prior quarter. And backlog for resistors increased from 4.5 months to 4.9 months. Due to higher volume, gross margin in the quarter increased to 26% of sales from 24% in prior quarter. Gross margin for the year 2020 was at 25% of sales down from 28% in 2019 due to still lower volume. Inventory turns in the fourth quarter were at 4.5. Inventory turns for the full year went at a good level of 4.1. Low price decline for resistors, minus 0.1% versus prior quarter and minus 2% versus prior year. The acquisition of ATP is in process to be integrated. And we do expect a successful year 2021 based on more volume and on an even higher focus on specialty products. 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 a platform of robust and efficient power inductors and leads the market technically.
With magnetics, we are very well positioned in specialty business demonstrating steady growth. Sales of inductors in Q4 were at $75 million, down by $4 million or 6% versus prior quarter and down by $2 million or 3% versus prior year, excluding exchange rate impacts. Sales in 2020 of $294 million were slightly down versus prior year by $6 million or by 2%, again, excluding exchange rate impacts. The temporary slowdown of automotive in 2020 also had an impact on the growth of inductors. Book-to-bill in quarter 4 for inductors was 1.03 after 0.96 in prior quarter. The backlog is at 4.6 months after 4.3 months in prior quarter. Gross margin in the quarter was at 30% of sales down versus prior quarter, which was at 34% of sales, but this has been a record.
Exchange rate and higher transportation costs burdened the performance in the fourth quarter to a degree. Gross margin for the year 2020 was an excellent 32% of sales, virtually on the same level as in prior year. Inventory turns in the quarter were at a very high level of 5.0 as compared to 4.6 for the whole year. We plan for some inventory additions for supporting service. There is some price pressure predominantly at power inductors, minus 1.7% versus prior quarter and minus 3.6% versus prior year. We continuously expand our manufacturing capacitors for power inductors, and we do expect to return to traditional growth rates in 2021 and ongoing financial success with our inductor lines.
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 enjoy increasing opportunities in the field of power transmission and of electro cars, namely in Asia, especially in China. Sales in Q4 were $92 million, 2% below prior quarter and 6% below prior year, which excludes exchange rate effects. Year-over-year capacitor sales decreased from $423 million in 2019 to $362 million in 2020 or by 15% at constant exchange rates. This was strongly impacted by delays of governmental projects and by a nonrepetition of a specific 2019 program, 2 things came together. Book-to-bill ratio in quarter 4 was 1.54 after 0.95 in the previous quarter. We received now a large order -- large orders for power capacitors from China.
The backlog increased substantially to 6.2 months from 4.4 months in Q3. Gross margin in the quarter was at 18% of sales, down from 20%, mostly due to a less favorable mix. Gross margin for the year 2020 was at 19% of sales, down from 22% in 2019 due to lower volume. Inventory turns in the quarter increased to 3.8 as compared to 3.6 for the whole year. Prices were stable, minus 0.2% versus prior quarter and plus 0.4% versus prior year. We do expect increased volume and better profitability in 2021.
Opto products. Vishay’s business with Opto products consists of infrared emitters, receivers, sensors and couplers as well as of LEDs for automotive applications. The business in 2020 experienced a significant recovery from disappointing results in prior year that had been burdened by major corrections in the supply chain. Currently, we see a really sharp increase in demand. Sales in the quarter were $68 million, 5% above prior quarter and 29% above prior year at constant exchange rate.
Year-over-year, sales with Opto products went up from $223 million to $237 million or by 5% when excluding exchange rate effects. Book-to-bill in the fourth quarter was 1.46 after 0.97 in prior quarter. And the backlog increased substantially to 5.9 months after 4.6 in the third quarter. Gross margin in the quarter came in at satisfactory 28% of sales after 33% in the third quarter, which had been a spike. Gross margin for the year 2020 recovered to a level of 28% of sales as compared to 24% in prior year, which had been depressed primarily due to low volume. Very high inventory turns of 6.0 for Opto products in Q4 as compared to 5.5 in the year 2020. Prices were fairly stable, in fact 1.2% up versus prior quarter and minus 1.1% versus prior year. We remain confident that Opto products going forward will contribute noticeably to our growth, and we are in process to modernize and expand our Heilbronn fab here in Germany.
Coming to Diodes. Diodes for Vishay represents a broad commodity business where we are largest supplier worldwide. Vishay offers virtually all technologies as well as the most complete product portfolio. The business has a very strong position in the automotive and industrial market segments and keeps growing steadily and profitably since years. Diodes for a few quarters had suffered from too high inventory levels in the supply chain and from the weakness of its main markets. Now the business has entered a phase of strong recovery. We currently see a fairly dramatic upturn in demand. Sales in the quarter were $139 million, up by $15 million or by 12% versus prior quarter and up by $14 million or 11% versus prior year, which excludes exchange rate effects. Year-over-year sales with diodes decreased still from $557 million to $503 million, a decline of 10% at constant exchange rate.
Book-to-bill ratio in Q4 climbed abruptly to 1.65 after 1.05 in the third quarter. Backlog increased to 6.2 months from 4.7 months in prior quarter. Gross margin in the quarter improved to 18% of sales as compared to 17% in the third quarter. Gross margin in the year 2020 was at 18% of sales, down from 20% in prior year due to substantially lower volume. Inventory turns increased to 4.8 as compared to 4.4 for the whole year. We see a reduced price pressure, stable prices, plus 0.2% really versus prior quarter and minus 3.7% versus prior year. We expect profitability of diodes to return to more historical levels with increasing volume.
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 increased use of MOSFETs in automotive will provide a successful future. We currently experience, like in diodes, a quite dramatic increase in demand. Sales in the quarter were $132 million, 2% below prior quarter but 12% above prior year at constant exchange rates. Year-over-year sales with MOSFETs decreased slightly from $509 million to $501 million by 2%, excluding exchange rate impacts. Book-to-bill went up sharply to 1.64 in the quarter after 0.93 in quarter 3. Backlogs climbed to 5.7 months as compared to 3.7 months in the third quarter.
Gross margin in the quarter was at 22% of sales, no change from prior quarter. Gross margin in the year 2020 came in at 23% of sales, a reduction from 25% in 2019, due to a combination of higher metal prices and inventory reduction. Inventory turns in the quarter were 4.3 as compared to 4.0 for the entire year. Price decline is relatively normal, minus 1.2% versus prior quarter, minus 5.6% versus prior year. But given the high market demand, we expect prices to stabilize going forward. MOSFETs in general remain key for Vishay’s growth going forward.
Let me summarize. I think there is no need to emphasize that 2020 has been a year of unprecedented challenges for the people globally, for the economy in general and naturally also for Vishay. Nevertheless, the following should be highlighted. Electronic components continue their success story also during difficult times. Vishay is a remarkably stable enterprise that reacts quickly and professionally to changes that has a viable business model and pursues its strategies also during times of severe challenges. We remain excited about the fairly overwhelming opportunities electronics increasingly will enjoy in the future. Vishay is prepared to participate to the full extent. Fortunately, concerning the pandemic, there is light at the end of the tunnel and we, despite still existing obstacles, expect a strong year 2021. For the first quarter, we had quarter 4 exchange rates guide to a sales range between $705 million and $745 million at a gross margin of 25.0% of sales, plus/minus 60 basis points.
Thanks for your patience. Peter?
Thank you, Dr. Paul. We will now open the call to questions. Shelby, please take the first question.
Absolutely. [Operator Instructions] Your first question is from Karl Ackerman of Cowen.
My first question is on inventory. Could you characterize the health of channel inventory, given one of the strongest book-to-bill metrics you’ve had on record? I guess are you discounting the $200 million plus in excess bookings above your revenue guide given signs of double ordering? Or is your outlook based simply on what you can ship at the moment?
That is the latter. As a matter of fact, you know that for quite some time, inventory distribution was a concern a year ago or so. And it worked -- and we worked down this inventory level at distribution over this time span of nearly a year. In the meantime, I must say, really in Asia, inventory is low, very low and people yearn for more. Can I exclude double booking? Not really, not exactly. But the book-to-bill is quite overwhelming 1.6. And really, as you said, clearly, we base our guidance on what we can ship.
Understood. I appreciate that. I guess as a follow-up, the last time you exceeded $700 million of revenue, you were able to generate gross margins in the high 20s. I guess what would prevent you from achieving that range over the next few quarters given several cost realignment initiatives you’ve enacted in this 2018? And then, I guess, in addition to that, are you able to achieve $800 million or more of revenue a quarter based upon your existing manufacturing capacity, in the context of your -- and I guess, how that frames your view for CapEx for 2021?
The 800 -- first of all, the $800 million are achievable depends, of course, on the product mix as you can imagine. But in a normal mix, it’s achievable. Secondly, there are a few factors, which at the moment, are a burden vis-à-vis the times you were referring to. Number one, and this is, by far, the strongest. The U.S. dollar became relatively weak, not only vis-à-vis the euro, vis-à-vis the euro, it doesn’t matter because we have a natural hedge. We have costs in euro, and we have sales in Europe. So it balances kind of. But we are producing in many countries in the world, and practically, all of them became stronger vis-à-vis the U.S. dollar. This was also the reason why the incremental performance in quarter 4 was not as perfect as I would have liked it to see. But as a matter of fact, these are things we cannot really influence, but it plays a big role. Furthermore, transportation costs. This is COVID related. No question, transportation costs went through the roof. And of course, they will normalize again as soon as the situation around corona will normalize. And of course, there’s pricing. There has been price decline since the time. I believe there was some price pressure even on the way special price pressure, which I believe we now are in the position to correct a little. Did I answer your question?
Yes, you did.
Your next question is from Ruplu Bhattacharya of Bank of America.
For the first question, I just wanted to follow up on the margin comments. Dr. Paul, in 4Q, the gross margin came in below your guidance. I think you mentioned 3 things: the freight, duties and metals. And the guidance for the next quarter, the fiscal 1Q, is 25% gross margin at the midpoint. So that’s 210 basis points of sequential improvement. Can you help us understand what are the factors that are going into that sequential improvement? How much of that is volume growth? How much of that is your expectation of freight costs going down and metals costs? So just help us understand where that 210 basis points, how that will be achieved?
Ruplu, we do not speculate on the U.S. dollar. So we really didn’t assume any change there. As a matter of fact, it’s not from there. We also did not expect transportation costs to come down significantly somewhat, yes, somewhat. But I believe what really can be stated is a combination of a couple of things. We believe we have reasons to believe that certain purchasing will become more attractive. And of course, for the most part, it’s higher volume, which plays the role. Volume is the key to that improvement.
Got it. For my second question, can you talk about uses of cash? So you’ve had 100 -- over $100 million of free cash flow over many years. How do you see your spend on buybacks versus dividend versus M&A at this point in the cycle? So can you talk a little bit about uses of cash at this point?
Well, first of all, it’s, of course, up to our Board to decide in which direction we go. But I would suspect that we keep our eyes open in M&A. And we also will put -- foreseeably, we have to put more money into equipment going forward as it looks. We pay dividend. Whatever happens to the dividend in terms of increase or no increase, it’s not my decision, it’s the decision of the Board. But in reality, I have some pressure. We keep our eyes open in M&A. Yes.
Got it. And then sorry for the last question, if I can ask. I think you guided higher CapEx for fiscal ‘21 at $175 million. Which are the areas that you’re investing that CapEx in? And do you have any concern that you and if your competitors are also adding CapEx then at some point, the industry can have excess supply versus demand, at least, in the medium term? So your thoughts on industry CapEx as well as where your own CapEx is happening.
Really, it’s an oscillating system. It’s -- I’m here since all times and looking back, there was always a time when the industry had invested somewhat too much. But this was always, always used at a very short time after. But I think in our case, in a situation we are in, you can hardly be wrong. We will put it into MOSFETs. We will put it into diodes, in Opto and especially inductors also. In our case, we have many product lines. The likelihood of being completely wrong in the short term is very little. And so it goes into the main product lines where we have shown growth over years.
Your next question is from Matt Sheerin of Stifel.
Dr. Paul, I’d like to ask another question regarding the book-to-bill ratios, which as you’ve acknowledged, is very high in some areas. And that tends to spook investors, and we’re seeing your stock trade down, I think, on the concern that we may be at peak levels. And at some point, you’re going to see a correction. What’s different? And why should we not be concerned in terms of the booking and backlog? Are you seeing some orders being placed for 1 to 2 quarters out, which is one reason why the book-to-bill is inflated?
I believe -- well, we are watching both. We are watching the shippable backlog and we are watching the total backlog by nature, by like. And there’s urgency in the expectations. The shippable backlog went up in the same form. That means really, people want the product. I believe partially, of course, it’s a catch-up situation. Partially, it’s a certain nervousness to get products. And there are limitations on the market. Certainly, the lead times are long these days. I can -- as I said, I can, of course, not exclude completely that there’s double ordering. In such a situation, there’s always double ordering. But it doesn’t affect, I believe, our sales expectation for the year, which is good.
And do you have any outlook of visibility beyond Q1 where you’re looking at above seasonal growth? Are you expecting the June quarter, which it typically is up for you to be up again? Or is it too early to tell?
Well, normally, we should say it’s too early to tell, but I’m quite convinced that the second quarter will be above the first quarter.
Okay. That’s helpful. And just on the cost side, you talked about some of those headwinds and offsetting that with volume growth, and you’re guiding to a typical margin contribution. Could you talk about the pricing environment? You said ASPs are basically more stable, but you seem to be in a pretty strong position here in terms of leverage, particularly the distribution channels. So should we expect that to help margins as you get through the year as well, the ASPs?
Yes, indeed. And you named it already. Of course, we are never breaking contracts, of course, not. But in the distribution channel, I could imagine that there can be some price increases already impacting -- starting to impact second quarter.
Okay. And then someone asked about your capacity ability right now. And I know you talked about lead times stretched out. But if there’s upside demand in the next 2 quarters, particularly in MOSFETs and diodes where things seem to be pretty tight, I mean, do you have capacity in place to meet that upside?
It depends how big the upside is, but upside for sure. We have in a combination of own resources and foundries, I think we are well positioned.
Your next question is from David Williams of Loop Capital.
I wanted to just kind of get back into the inductor segment and just kind of think about the strength that you had there and with your capacity that you have in other areas. How do you think about the capacity there? And have you been constrained at all, just given that demand?
Well, you hit exactly the point where we have to accelerate, we have to accelerate expansion. We are expanding since many years and it’s never enough. Ironically, it’s never enough. And we are going to do something special also for, especially, this power capacitor line. We always sold out since many years and we never can catch up. But this time, I think we will have special efforts. It’s a big success.
Yes. That’s kind of big from that. Very good. And then maybe regionally, kind of thinking about North America and maybe the Americas region overall. But it’s been fairly soft. But just kind of curious if you’re seeing strength anywhere or maybe any bright spots that you’re looking forward to maybe in terms of growth for 2021?
I think automotive has come around. Medical is steady. Military is strong. So I do not -- it’s Americas like Europe, by the way, is not as booming as Asia is at the moment. Asia drives the show at the moment. But I would say Americas, for us, at least based on our customers, has enough strong spots. We are also confident for the U.S.
Okay, great. And then maybe just one last one. If we’re thinking about lead times on orders, how have they stretched, I guess, in terms of what are you seeing now? Are you putting in the orders for 6 to 12 months? Or are you seeing just longer in terms of weeks, or maybe just anything of the magnitude of the stretch on the lead times every quarter?
It depends very much on the product line, as you can imagine. But you have product lines with north of 2025, it’s the time for people that come new to us. You may even find some data at 30 weeks, but this is not the rule, but it happens.
Your final question is from Harlan Sur of JP Morgan.
On the gross margins, yes, it looks like the contributive margin for Q4 and implied in Q1 guidance is 43%. So it’s below your target of 45%. And then if we look back at the 2017-2018 time frame, you guys were driving about 46% contributive margins. So given some of the positive dynamics that you’ve talked about, do you see the team getting back to 45% contributive margins beyond Q1, assuming a continued strong demand environment?
Of course. The 45% is our normal level of performance. And a couple of things, as I’ve tried to explain, came together in quarter 4. Some of them are really COVID related. Some of them is currency related. There’s not much to be done, but I would expect that, especially also in the combination of some pricing measures, we could -- our target is definitely to come back to the 45%.
Got it. Okay. Book-to-bill, strong in Q4. As somebody mentioned, June quarter is typically seasonally stronger for the team. So first question is, are you still seeing positive book-to-bill trends so far here in Q1? And what end markets are you seeing the most strength?
Generally, it’s like quarter 4. It’s a continuation of quarter 4. So it’s the same thing. It’s really high book-to-bill. Where does it come from? Automotive is strong, yes. But I think distribution is the major part of it. Distribution is a major part of it. And in Asia, if you look at the inventory levels, you understand that they order.
There are no other questions in queue. Do you all have any closing remarks?
No. This concludes our fourth quarter conference call. Thank you for your interest in Vishay Intertechnology.