Vishay Intertechnology Inc Q4 FY2022 Earnings Call

Greetings. And welcome to Vishay Intertechnology’s Fourth Quarter 2022 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Peter Henrici, Investor Relations for Vishay Intertechnology. Thank you. You may begin.

Thank you, Melissa. Good morning. And welcome to Vishay Intertechnology’s fourth quarter 2022 earnings conference call. I am joined today by Joel Smejkal, our President and Chief Executive Officer; and by Lori Lipcaman, our Chief Financial Officer. This morning we reported results for our fourth quarter. A copy of our earnings release is available in the Investor Relations section of our website. This call is being broadcast live over the web and can be accessed through our website. In addition, today’s call is being recorded and will be available via replay on our website. During the call, we will be referring to the slide presentation, which we also posted. 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. We are including information in our press release and on this conference call on various GAAP and non-GAAP measures. We have included a full GAAP to non-GAAP reconciliation in our press release, as well as in the presentation posted on our website, which we believe you will find useful when comparing our GAAP and non-GAAP results. 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. Now I turn the call over to President and Chief Executive Officer, Joel Smejkal.

Thank you, Peter. Good morning, everyone. I am Joel Smejkal and it is my pleasure to be speaking with you today on my inaugural call as Vishay’s new Chief Executive Officer. On today’s call, I am going to open with some brief remarks about my background and my assessment of the company today. Then I will turn the call over to our CFO, Lori Lipcaman, who will go over our financial results for the fourth quarter and then the first quarter guidance. After that, I will share with you our ambitions for the company in the future and our plans for 2023. Over the course of my time at Vishay, in my positions in engineering, marketing, sales, operation and business development, I have worked with colleagues throughout the organization to identify new business opportunities, develop next-generation products and broaden Vishay’s participation across its market segments and business channels, always with a mindset to enable our customers to be successful. From my engineering, marketing and operational roles, I have worked inside the Vishay organization and gained an understanding of the internal dynamics of the company. In my sales and business development roles, I have seen Vishay from the outside and have gained insights from our customers. I have been guiding a shift at Vishay towards growth, to influence an increase in capacity, to push us forward in our product innovation, the investment in silicon carbide and to broaden our attention to serving new customers. As such, I have a unique background to lead Vishay in my new position as CEO. I clearly see where we have missed opportunities, where we have underperformed and what we need to do to unleash the potential of Vishay. The customers clearly expect more from Vishay. What else do I see? Vishay is a financially strong company with a broad product portfolio of discrete semiconductors and passive components. Vishay has strong operational discipline and a terrific, hardworking and smart workforce. We have a pristine balance sheet that gives us stability, but also the capability to grow at greater rates. We have a global manufacturing footprint with multiple manufacturing locations that positions us to meet our customer’s need for supply in their region of consumption. And we are a supplier to all market segments, with strong technology positions in automotive, industrial, military, avionics and medical. Supporting the megatrends of electrification, data storage and wireless communications are critical to our future success. In automotive, where electric vehicle and electronic content and new sensing features are rapidly growing. In industrial, where factory automation, renewable energy collection and energy transmission are propelling greater electronic component demand. In military, where governments are increasing funding for defense programs and customers are developing more advanced radar systems and missile guidance systems. To commercial aerospace, where dollars are flowing into satellite communications and flight systems. And in medical technology, where companies are innovating new medical diagnostic equipment, instruments and implantable devices. One might say that Vishay is a sleeping giant, often capacity constrained with long lead times. We have underinvested in CapEx and technical resources. We must change and reshape the company to drive growth and optimize returns and shareholder value. Under my leadership, we are going to reorient Vishay. We are going to transition from an operations-focused company to a customer and market-focused company, from a cash flow managed business to a profit-and-loss driven company, while upholding our capital return policy. We will become a company that anticipates customer needs rather than merely fulfilling orders and we will transition from being proficient to dynamic and reward risk-taking. In the month leading up to my taking control as CEO, I spent a significant amount of time with Vishay’s new leadership team, ensuring we could collectively hit the ground running on January 1st. It’s critical that we start immediately. Externally, I have met with key customers, both distributors and OEMs, to better understand their needs and share where Vishay will be going in this new era. Internally, I have met with nearly 70 senior leaders one-on-one to hear their views on our opportunities to grow and the operational gaps we must close. I have incorporated new ideas and changes in our business processes using multiple employee communications to create a business-minded organization. I have emphasized that to propel our growth and meet the increasing demand for our products, we must shift our mindset to think customer-first in everything we do. I will provide more detail about what we have planned for the future after Lori has completed her review of the financial results. Lori, please proceed.

Thank you, Joel. Good morning, everyone. I will start my review of our fourth quarter results. Revenues for the fourth quarter were $855 million, slightly below the low end of our guidance, reflecting in part the impact of COVID-related absences at our plants in China, and in part, lower than expected sales to distribution, reflecting the start of an inventory correction. Distribution inventory at quarter-end was 19 weeks, compared to 16 weeks for the third quarter. Revenues decreased 7.5% versus the third quarter, reflecting stable pricing and an 8.0% decline in volumes. As expected, volumes came down from the spike in the third quarter when we were catching up on lost shipments after the shutdown in Shanghai during the second quarter. Revenues were 1.5% higher than last year's fourth quarter on pricing, offset by flat volumes. EPS was $0.51 per share. Adjusted EPS was $0.69 per share, compared to $0.98 per share and $0.93 per share, respectively, for the third quarter. Adjusted earnings for these two quarters reflect differences in tax expense. I will elaborate further on these items in a few moments. Book-to-bill for consolidated Vishay was 0.94. Backlog at quarter-end was 7.8 months for passive and 8.3 months for semiconductors. CapEx for the year increased $106.9 million or 49% versus 2021 to $325.3 million, in line with our expectations of spending $325 million. We returned a total of $140.2 million to shareholders, well above the target of 70% of free cash flow and well above the $100 million that we anticipated at the time we announced our new stockholder return policy last February. Slide five presents a breakdown of revenues by sales channel and end markets. I want to call your attention to a few data points. Sales to distribution decreased 12.4% from the third quarter. As mentioned earlier, we have started to see indications of an inventory correction. For our two largest markets by revenues, revenues from the automotive market decreased 6.4% versus the third quarter, primarily reflecting the catch-up in MOSFET volume out of our Shanghai facility. In addition, automotive OEMs pulled less inventory as they focused on consuming inventory by year-end. In fact, in the fourth quarter of 2021, automotive revenues were up 7.1%. Revenues from industrial customers decreased 10.0% versus the third quarter, along with a decrease in distribution revenues. On slide six, you can see the revenue breakdown for the fourth quarter by business segment and by region. Although revenue in Asia declined by 12.8%, POS in the region declined modestly. Please turn to slide seven. Gross profit was $249.1 million for a margin of 29.1%, compared to 31.3% for the third quarter reflecting lower volumes. Compared to our guidance of 30%, plus or minus 50 basis points, gross profit margin was impacted by lower than expected volumes and some input cost inflation. Operating expenses were $113.8 million, above the quarter's operating expenses of $106.4 million, primarily reflecting the addition of MaxPower. As a result of the reduction in gross profit and higher operating expenses, operating income decreased by $47.8 million to $135.3 million versus the third quarter. Operating income increased $13.7 million or 11.2% over 4Q 2021. Operating margin was 15.8%, compared to 19.8% for the third quarter and 14.4% for the fourth quarter of 2021. EBITDA was $171.0 million for an EBITDA margin of 20.0%. During 4Q, we made the determination that substantially all unremitted earnings in Germany are no longer indefinitely reinvested. As a result, we recorded additional tax expense of $60 million. The change in indefinite reinvestment assertion will provide greater access to the company’s offshore cash balances and enable us to sustainably fund our growth plans and our stockholder return policy. While the change in assertion provides access to these foreign cash balances, these amounts will only be repatriated as needed. Also during 4Q, we recognized a tax benefit of $34 million upon the release of a valuation allowance. Our U.S. GAAP tax rate for the year includes these unusual items and was approximately 28%, which mathematically yields a rate of 46% for 4Q. Our normalized effective tax rate, which excludes these unusual items, and for full year 2022, excludes the tax effect of the COVID cost in China in 2Q was approximately 23% for the quarter and 24% for the year. We expect the normalized effective tax rate for full year 2023 to be approximately 30%. On slide eight, we present cash conversion cycle metrics. DSOs were 45 days, compared to 42 days for the third quarter, as we receive payments from several of our customers in Asia shortly after quarter end. Inventory was $618.9 million at quarter end, essentially flat versus the third quarter, primarily due to exchange rate impacts. Inventory days outstanding were 93 days, compared to 90 days for the third quarter. DPOs were 31 days, compared to 33 days for the third quarter, bringing the cash conversion cycle for the fourth quarter to 107 days. Turning to slide nine, you can see that Vishay continues its track record of strong cash flow generation. Cash from operations for the quarter was $165.5 million. CapEx was $153.1 million for the quarter with $101.5 million invested in capacity expansion, primarily in Mexico, bringing the total CapEx for expansion in 2022 to $214.6 million, an increase of 52% compared to 2021. Full year total CapEx was 9.3% of revenues, compared to 6.7% for 2021. Free cash flow for the quarter was $14.1 million and for the full year was $160.2 million. Under our stockholder return policy, we have committed to return at least 70% of annual free cash flow to stockholders directly in the form of dividends or indirectly in the form of stock repurchases. We announced the policy in February of 2022. We set an expectation to return at least $100 million in 2022. For the fourth quarter, our stockholder return amounted to $42.4 million, consisting of $14.1 million for our quarterly dividend and $28.3 million for share repurchases. We purchased a total of 4.2 million shares at an average price of $19.57 during the year. This brings the total stockholder returns for 2022 to $140.2 million or 87.5% of annual free cash flow. Total liquidity at quarter end was $1.6 billion, including cash and structural investments of $916.1 million and $707.1 million availability on our revolving credit facility. As mentioned on past earnings calls, we use the revolver from time to time to meet short-term financing needs. Turning to slide 10 for our guidance. For the first quarter of 2023, revenues are expected to be between $825 million and $865 million, reflecting ongoing inventory correction and stable pricing. Gross profit margin is expected to be in the range of 28.0%, plus or minus 50 basis points. Operating expenses are expected to be between $116 million and $119 million for the quarter and between $475 million and $485 million for the full year at current exchange rates. For 2023, we expect a normalized effective tax rate of approximately 30%. Consistent with our stockholder return policy, we plan to distribute at least 70% of our free cash flow to shareholders in the form of dividends and stock repurchases. For 2023, we expect to return at least $100 million.

Thank you, Lori. Let’s please turn to slide 11. While we work through what we expect will be a narrow inventory correction with our distributor customers during the first quarter and likely into the second quarter, we embarked on a new era at Vishay. I shared with you earlier my ideas about what Vishay has been and what it has the potential to become. To drive growth and margin expansion, over the next three years, we are committed to investing around $1.2 billion in CapEx to enhance our operational capabilities. Our strong liquidity means that we can invest more heavily over the next couple of years to position Vishay for greater growth without sacrificing our stockholder return policy and with free cash flow expected to remain around its historical average. 2023 is our first year to drive change at Vishay and stage the company for the future. We understand that we need to become a company that anticipates customer needs, supports increasing customer demand and is delivering revenue growth while expanding margins. We are already implementing a number of initiatives in 2023. In 2024, we will advance many of these initiatives and begin to have increased manufacturing capacity available. Beginning late 2024 and into 2025, we will be in better shape to capture the next steps of the growing demand for electrification in our key end markets. Let’s take a look at slide 12. On slide 12, I have laid out our near-term initiatives. First, we have many great products across our semiconductor and passive component technologies. We have identified 30 key product lines for growth across each business segment. Most of these product lines serve multiple market segments, applications and business channels. These products are in high demand today and our customers are telling us they want more. We are developing go-to-market strategies for each one of these product lines, concentrating our resources on improving the technical performance of non-commodity custom products to better position Vishay to support the megatrends toward electrification and data communication. Second, we are expanding capacity internally and externally. In 2019 and 2020, Vishay somewhat slowed capacity investment and it is imperative that we make up for past underinvestment to be able to reduce our lead times and drive growth. We are not only planning to spend more, but we are going to spend judiciously on those 30 identified growth product lines. In 2023, we expect to increase CapEx to approximately $385 million, mostly on capacity expansion projects outside of China. These include our new power inductor site in Mexico, a resistor expansion also in Mexico, diode manufacturing in Taiwan, and the new MOSFET 12-inch fab in Itzehoe, Germany. Today, much of our capacity is committed. MOSFETs and resistors have lead times that extend over one year. Our goal is to continue to grow with established customers, but also to have capacity to sell to new and emerging customers. To achieve that objective and create room for growth, we are identifying opportunities to subcontract production of commodity products and expect to have resources qualified throughout the year. We are also looking for additional foundries to alleviate the most constrained semiconductor product lines. This way, we will have incremental capacity to allocate to serve more customers and end markets. Third, we are shifting our thinking about channel management. Today, Vishay places a priority on strategic accounts. By growing our capacity and capabilities, we will enhance our ability to support all of the business channels of OEMs, distribution and EMS, while maximizing profitability through a focus on high-margin customers. Fourth, we are increasing our technical resources that face customers and filling gaps internally in market segment coverage while intensifying our activities in research and development. We will see an increase in operating expenses over the next couple of years as we add these engineering talents, fill gaps in our technology and expand our preferred supplier status to more customers. The acquisition of MaxPower and the silicon carbide technology last October is an illustration of this increased investment. Fifth, we are moving towards solution selling. Customer engineers look for suppliers who can provide solutions to advance their technologies. Vishay semiconductors and passives can populate greater than 80% of the components on a circuit board in many applications. We need to ensure that we are technically engaging with customer engineers about applications and the performance improvements that Vishay components can bring across our entire portfolio. We recently started introducing Vishay’s Solutions at Electronica in November in Munich, Germany, where we showcased six automotive reference design applications. These included onboard chargers, converters, intelligent battery management systems, and DC-to-DC converters to be promoted online for engineers to test and observe the performance of Vishay’s components in these high-demand solutions. Sixth, we are implementing organizational and structural change at Vishay. Vishay has operated in separate silos between sales and marketing to become a more responsive company that can effectively respond to customer requests. We are fostering collaboration internally and externally, particularly in the functions connected to customer programs. As part of this effort, we are flattening the organizational structure and redefining some leadership roles. We have empowered the regional sales leadership and our strategic account leaders to directly drive business growth in their areas of responsibility rather than filling the position of Executive Vice President Global Sales. We have combined the sales and marketing functions regionally under regional sales leaders, bringing together the commercial, technical and strategic resources to meet our customer’s needs. These regional sales heads will report directly to me. Our Chief Technical Officer, Roy Shoshani, is taking on a broader mandate to reenergize our product innovation, grow our preferred supplier status, and develop closer relationships with our customer CTOs to understand the direction of their technology. Reenergizing our product innovation to align with our customer technology roadmap will involve both internal R&D investments and acquisitions, depending on what is most suitable. Finally, our Chief Operating Officer, Jeff Webster, a new position at Vishay, now drives the operations of both passive and semiconductors. This change is designed to break down barriers between the two sectors. Under Jeff’s expertise and leadership, we are determined to drive operational excellence, cost reduction, capacity expansions, subcontractor qualifications, all resulting in an enhanced service by Vishay to our customers. We are pushing down decision-making into the organization to empower our leaders and facilitate timely action. They will create more speed within Vishay. We are going to reward collaboration, enable forward-looking behavior, and encourage risk-taking. Furthermore, we will build accountability, both individual and shared, within the organization by aligning incentive compensation with personal and company growth and profitability initiatives. These are significant changes for Vishay. The six initiatives I have outlined form the basis for our ambition to unleash Vishay's potential, realize the full value of our extensive product portfolio, and transition into a customer-first serving company while pursuing our goals of driving topline growth and expanding margins. Let’s go to slide 13. On slide 13, we detail our goals for 2023. By the end of 2023, we intend to have qualified and signed agreements with several subcontractors and completed evaluations of where to build Vishay’s next manufacturing facilities, as we continue to reduce reliance on China in favor of other low-cost locations. We will design and implement our go-to-market strategies for each of the 30 key product lines by region and end market to put more resources behind them. The MaxPower acquisition is progressing well. Samples of 600-volt and 1200-volt planar technology MOSFETs will be available to customers in Q3 of 2023. We aim to release both of these voltages and move them to production in the first quarter of 2024. Our development of the 1200-volt FRED technology also moves forward as we continue to engineer and evaluate the targeted high competitive performance of this product. Our design efforts in the 1200-volt automotive and industrial applications continue. Finally, we will develop a three-year business plan, which we look forward to sharing with you early in 2024. In closing, the electrification of our world and the need to communicate more data presents exciting growth opportunities for Vishay. We have the right products, a well-established and expanding manufacturing footprint, and the right people to do more for our customers. We are aligning the organization towards faster growth and greater profitability. With the new management team in place, we are setting the stage for substantial growth starting in 2025, and I am excited to lead Vishay through these upcoming changes and into the future. Melissa, we are ready to begin the question-and-answer session.

Thank you. Our first question comes from Joshua Buchalter with Cowen and Company. Please go ahead with your question.

Thanks for taking my question, and Joel, congratulations on the first earnings call as CEO. I wanted to start with a shorter-term question; can you walk us through some of the confidence and the assumptions behind the timing of the inventory digestion and wrapping up in the first half of 2023? Is there any particular end markets that you have assumptions for improvement in the shorter term and it would be helpful to hear what you are seeing by end market, given some divergent trends we are hearing across the mixed signals space in several of your markets? Thank you.

Okay. Joshua, thanks for the question. In the end markets, automotive, particularly anything related to electric vehicle production or design, including EV charging stations, continues to be strong. Our design activity is robust and the demand being pulled through our distributors should help deplete that inventory in the first quarter. Overall, industrial remains a strong segment for us, with design in factory automation, robotics, and most trends towards electrification continuing. This will help utilizing some of our inventory. However, when it comes to areas like industrial tools, I anticipate some slowness. The military defense market continues to be stable to growing, and medical, I've met with a couple of medical customers, and their projections for growth are also strong, which will help move our inventory. This is why we feel in the first and second quarter, the inventory should move quickly. We believe we have a good position in our core market segments and, importantly, because Vishay has had long lead times, the amount of stock on hand is not excessive.

Thank you for the detailed information. Looking ahead, I wanted to clarify your capacity expansion plans. It seems you may be outsourcing more of the commoditized components. How should we understand your investment levels and anticipated total capacity increases in the coming years? Additionally, since you plan to outsource more of your products, is this related to the closure of some smaller fabs while you invest in the larger ones? Thank you.

Yes, we have a couple of approaches here for both semiconductors and passives. Let’s talk about passives first. There are several product lines which are considered commodities. We want to qualify subcontractors to assist us with these. In 2023, we will qualify subcontractors to help meet customer demand on commodities while using our internal capacity for non-commodity and custom products to improve delivery times. We have a number of subcontractors in the qualification process now. On the semiconductor side, it’s about working with foundries and securing wafer capacity. We are aligning capacity and starting some qualification steps in several wafer fabs. As for investment, we haven’t had to make a significant outlay since we found available capacity, which will help us support the front end of semiconductors in 2023.

Thank you. If I could squeeze one last one in. There were reports of a fire at one of your subcontractors occurring in early 2023. Did that influence the guidance at all, and I just wanted to confirm if there’s anything accounted for regarding the subcontractor issue? Thank you.

There was indeed a fire at a plating facility in China, specifically Welnew. However, under Jeff’s leadership overseeing operations, we quickly shifted production to our internal plating capabilities at one of our diode facilities. This adjustment enables us to mitigate the setback. We expect to be resolved by the end of Q1 and yes, it has been factored into our guidance.

Got it. Thank you and congrats on the first earnings call again.

Thanks, Joshua.

Thank you. Our next question comes from the line of Matt Sheerin with Stifel. Please proceed with your question.

Yes. Thank you very much and good morning. Just want to get a sense of how you see margins playing out this year. You talked about the inventory correction, obviously weighing on volumes, and you also have some investments, it sounds like perhaps some OpEx pruning as well. You are guiding margins down several hundred basis points year-over-year on gross margin. Does that bottom here at 28% or should it go lower, particularly if Q2 was down? How should we think about margins?

Lori, go ahead.

Well, we guided to the 28% plus or minus 50 basis points. We believe margins will be relatively stable throughout the year with potentially a slight increase towards the end of the year, but relatively flat.

Adding to that, we are staging Vishay in 2023 with necessary operational expenses compared to prior years. As such, we anticipate operational pressures on input costs, inflation, and wages. Although material costs seem stable, our gross margins are projected to remain flat through the year due to ongoing internal activities and the ability to maintain price levels. If input costs significantly increase, we will need to raise prices. However, we executed substantial price increases in 2022, so we expect overall margins to stabilize.

Okay. Thanks for that. And then on the CapEx increase, could you give us an idea of the revenue generated from that CapEx? Is it 1:1 in terms of revenue, and what kind of capacity are we talking about in terms of volumes?

It will be better than 1:1. For example, the expansion of our power inductor site in Mexico is projected to double our capacity in that area. The resistor expansion in Mexico will nearly double our capacity, particularly with our metal strip technology. So, the capacity increases will be significant. When we talk about $1.2 billion over three years, that’s a significant increase compared to the historical average of $160 million per year at Vishay. You will see Vishay position itself for substantially greater growth.

Is there a concern that there may be too much supply, particularly if we are in a tough macro environment for the next couple of years? It sounds like you said some of this capacity is already accounted for in terms of customers, so have you been working with customers to ensure that you are going to be able to shift to orders?

Yes. With our backlog now at eight months, we have strong demand from our strategic accounts and distributor partners. We are actively engaged with these customers and confirmed high demand for Vishay products. Our focus on the 30 prioritized products, which address multiple segments and applications, also confirms our responsibility to position Vishay for growth. Although the business is cyclical and there will be bumps in the road, Vishay has great potential to grow significantly in the future.

Okay. Sounds good. Thanks very much.

Thanks, Matt.

Thank you. Our next question comes from Ruplu Bhattacharya with Bank of America. Please proceed with your question.

Hi. Thank you for taking my questions and congrats on the new role, Joel. It's great to have you on board. In your slide on near-term initiatives, you talked about two things: enhancing channel management and solution selling. I was wondering if you can elaborate more on that. What do you think needs to change in terms of channel management? And can you give us a sense of what you mean by solution selling, as well as the margin differential between what you sell as individual products versus solutions?

Regarding enhanced channel management, we previously prioritized strategic accounts that were limited in scope mostly to a small set of automotive or industrial customers, but distribution represents a significant part of our business. With long lead times in our processes, we have not supported distribution to the level warranted based on the opportunities in front of us. The EMS segment has considerable demand for Vishay products, and we want to ensure we support them effectively. Our design activity for OEMs is strong, but we need to support those design wins through the distribution channel as well. Solution selling refers to the unique value proposition we offer by integrating our semiconductors and passives to meet customer needs. In the past, we primarily sold individual products based on data sheets. In the future, we will focus on applications and the complete range of our portfolio to deliver comprehensive solutions to our customers. We are well positioned to engage with customers early in their projects, particularly with the recent acquisition of silicon carbide technology, communicating effectively with engineers to enhance our product justification and draw greater design wins.

Okay. Thanks for the details. Maybe I can ask one for Lori. On slide 15, you are talking about the company changing its indefinite reinvestment assertion. Does that impact your thoughts on share buybacks and how you repatriate cash? Can you just remind us of your capital allocation priorities and how we should view the pace of buybacks?

Okay. It absolutely enables us to bring back cash to the U.S. in a sustainable manner, allowing us to fulfill our commitment to the shareholder return policy.

Okay. And maybe I will ask one more for Joel. So you have laid out a $1.2 billion CapEx plan for the next three years. Beyond what you have stated for fiscal 2023, I think, around $385 million, should we assume an equal amount in each of the outer two years, 2024 and 2025? And can you give us some details about what specifically you are investing in, such as which product lines are you focusing on for CapEx and how quickly these facilities will come online based on your investments?

For capital expenditures, this year, we are targeting $385 million. In 2024 and 2025, we expect the amount to exceed $400 million each year. Our investments will be in these 30 focused product lines. Notable areas include resistor products requiring enhancement, the expansion of our power inductor facility in Mexico which is built and already staging new lines, along with production space available. Over the next two to three years, that capacity will significantly increase. We are also looking into custom magnetics that are heavily used in medical and military sectors. Expanding our polymer tantalum capabilities is essential as we target a larger share of the $1 billion TAM that this market presents. We are continuing to develop our sensing products, such as OPTO couplers, to meet automotive and industrial needs. Diodes with silicon carbide technology are also an area of investment. Thus, these 30 products across various sectors are a key component of our go-to-market strategies.

Okay. Thank you for all the details. Appreciate it.

Thank you. Ruplu, thank you.

Thank you. Ladies and gentlemen, that concludes our question-and-answer session. I will turn the floor back to Mr. Smejkal for any final comments.

Thank you, Melissa. And thank you everyone for joining our call today. I look forward to meeting and talking with you over the coming weeks and also to speaking with you again in early May when we report our first quarter 2023 financial results. Thank you very much.

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