Good day, and thank you for standing by. Welcome to the Vishay Intertechnology First Quarter 2025 Earnings Call. At this time all participants are in listen-only mode. After the speakers’ presentation there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Peter Henrici, Head of Investor Relations. Please go ahead.

Thank you, Jill. Good morning, and welcome to Vishay Intertechnology's First Quarter 2025 Earnings Call. I am joined today by Joel Smejkal, our President and Chief Executive Officer; and by Dave McConnell, our Chief Financial Officer. This morning, we reported results for our first 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 a slide presentation, which we also posted on our website. 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. Thank you for joining our first quarter 2025 conference call. I'll start my remarks with a review of the first quarter performance and business conditions, and then turn the call over to Dave, who will take you through a review of the first quarter financial results and our guidance for the second quarter of 2025. After that, I will update you on the strategic levers we are pulling under Vishay 3.0 as we continue to execute our five-year strategic plan, and then we'll be happy to answer any of your questions. Revenue for the first quarter was $715 million, slightly above the midpoint of our guidance and flat with fourth quarter revenue for both semiconductors and passives. We started 2025 poised for growth based on the strong execution and accomplishments around our strategic levers. And Vishay 3.0 remains in a good position to support a market upturn given the promising indicators we saw in the fourth quarter. These promising market signals continued during the first quarter, and we see indications that much of the channel inventory that overhung the market has normalized, and we are moving past the prolonged period of excess inventory digestion. Book-to-bill continued to improve for semiconductors, crossing over parity to 1.12 and passives held at 1.04. Year-to-date through April, book-to-bill remains positive for both semiconductors and passives. Order intake continued to steadily improve with the strongest demand increase coming from smart grid infrastructure projects and artificial intelligence (AI). Distribution customer point-of-sale was up in all regions after steadily declining over the course of 2024. All of these signals support our decision to guide for a 6% revenue increase for Q2 versus Q1, even with the global economic uncertainties. For tariffs, we have assessed the worldwide impact on Vishay from the evolving tariff picture, both the risks and the opportunities, and on what impact tariffs may have on our Q2 revenue, including the effect on raw material costs and supply chain availability. In terms of revenue, tariffs are not new to Vishay; we have procedures and systems in place since 2018 to pass along tariff adders to our customers as a surcharge or an extra line item on the invoice. What is new, however, is that the tariffs are higher and the number of customers has increased. With respect to tariffs between the U.S. and China, most of our semiconductor front-end supply comes from Germany and Taiwan. Our semiconductor back-end supply comes from Taiwan, Malaysia, the Philippines, and China. Most of our passives are manufactured in Europe, North America, Israel, and Taiwan. We analyze our first quarter from each country of origin to our receiving customers, and we have determined that our exposure to the tariffs, which have gone into effect in April, is limited. Dave will go over the results of this analysis and the assumptions related to the tariff situation that have been factored into our Q2 guidance. Regardless of the direction global trade actions take, our global manufacturing footprint gives us the flexibility to assure customers of reliable supply should they want to shift orders based on country of origin and tariff impact. We are bringing this advantage to our customers, offering them alternative manufacturing locations showing different costs to which they will pay compared to shipments from China to the U.S. So now turning back to the first quarter revenue performance. I'll start with a review of revenue by end markets. Automotive revenue decreased 2% versus the fourth quarter, reflecting lower average selling prices associated with the 2025 OEM contracts that went into effect in January. The Chinese New Year holiday resulted in Tier 1 customers pulling at lower rates in Asia. In the Americas and Europe, Tier 1 customers pulled at normal or, in some cases, accelerating levels with demand for hybrid electric vehicles and electric vehicle platforms remaining strong. We remain well-positioned to drive volume in automotive with increasing electronic content in all price levels of cars and from developing advanced driver-assistance systems that are being adopted by the automakers. In terms of design activity, the shift to increase hybrid powertrains continued in the first quarter with electronic power steering, active safety systems, smart cockpit applications, as well as internal combustion engine platforms with additional electronic features. The shift toward hybrid powertrains is a positive development for Vishay as the electronic content in hybrid powertrains is typically greater than in internal combustion engines by about 50%. Revenue from the industrial market increased 3% from the fourth quarter, led by Europe, which was better than forecasted. We see cases where European customers have overcorrected inventory levels, now resulting in positive book-to-bill for our distributor partners. Demand remained strong for smart grid infrastructure multiyear projects in Europe and Asia. We won two new programs in those regions. We also won our first United States high-voltage DC power transmission program. Orders continue to be positive for smart grid applications. We are in discussions with customers on the next smart grid projects as they address electricity demand for AI data centers and EV charging, which the aging electric grid cannot provide. In the Americas, industrial orders indicate that we are moving up from the bottom as many customers are reporting stronger backlogs from their end customers needing electricity, which should support incremental improvement throughout 2025. New design activity focused on a variety of applications, including high-voltage DC for smart grid, alternative energy generation, EV charging stations, uninterruptible power supplies, and next-generation encrypted communication systems. In aerospace and defense, revenue declined 5% quarter-over-quarter as our distributor partners were managing their inventory. As a reminder, our demand came mostly from U.S. military accounts over the recent years. Now our volume in Europe and Asia has been growing significantly. Book-to-bill for the Americas is above 1. In Europe, distributors also report book-to-bill rates above 1. Commercial aerospace orders remain low due to ongoing issues in their mechanical parts supply chain. Design activity in military remains strong in a broad number of next-generation programs, including missiles, drones, military avionics, communication systems, and low earth orbit satellite programs. In the medical end market, results were mixed. In the Americas, orders from many of our top medical customers improved compared to the fourth quarter and outpaced last year. In Europe and Asia, the order intake was mixed. We're seeing results from our strategy to fully leverage the breadth of our portfolio in the medical market, increasing the number of Vishay technologies at design-in and long-standing customers and developing relationships with new customers. Design activity on a mix of applications includes patient monitoring, drug delivery systems, surgical assist robots. Each of these is creating new business opportunities for Vishay to sell more of our portfolio. Revenue from the other segments, including computer, consumer, and telecom end markets was up 4%, marking the fifth consecutive quarter of sequential growth. This is a good example of the benefits of the investments we made in capacity. We are able to provide supply assurance to these channels, these existing and new customers. For AI, building on the initial volumes we had in the fourth quarter, shipment quantities increased in Q1 to support demand for AI servers and server power projects, particularly in Taiwan and China, where customers consume our products and the distributors build up safety stock. AI remains a quick turn business with Asia contract manufacturers frequently placing spot orders. Much of the design activity was focused around AI chipsets and the architecture of the systems, which supports the integration of new products. We increased our relationships with contract manufacturers to offer product technology advice for power management, as they also design around AI chipsets. In addition, design activity expanded to include AI workstations, edge servers, and AI optical modules and graphics cards. We are continuing to leverage our AI reference design positions with chipset manufacturers to place a greater percentage of Vishay components on the board, creating opportunities for us to demonstrate our technical differentiation and how Vishay can support greater than 80% of the components needed in power application. These product types span MOSFETs, polymer tantalum capacitors, resistors, voltage suppressors, diodes, power inductors, and IC products. Let's now turn to revenue by channel for the first quarter. You can see the distributor revenue grew versus the fourth quarter, and that the distribution growth was offset by lower OEM and EMS revenue. OEM revenue was impacted by the reduction in average selling prices as the annual contracts went into effect. Order intake by industrial OEMs in each region was overall positive, reflecting smart grid momentum, while order intake from automotive customers was flat overall. EMS revenue decreased 7% versus the fourth quarter on market softness in non-AI-related businesses. In Europe, regional EMS inventory remained high, especially for those supporting aerospace defense customers who want to secure supply in this growing demand environment. In Asia, Chinese New Year shutdowns and volume declined as some programs were pushed out to the second half of the year. Distribution revenue grew 3%. Our strategy is working to position Vishay for market share gains and renewed share with our distributor partners, which we started working on two years ago. By adding nearly 50,000 SKUs to our shelves, we entered 2025 with inventory that is well-positioned for point-of-sale growth. In the Americas, increased bookings from multiple point-of-sale customer segments drove order intake higher than the previous four quarters. In Europe, order flow from distribution partners was higher than the second half of 2024. Point-of-sale book-to-bill steadily increased during the quarter as end customer inventory normalized, triggering some replenishment to support a more normal point-of-sale for both passives and semiconductors. In Asia, distributor order patterns were normalizing, and book-to-bill was over one at quarter end. Total distribution inventory weeks came down from 27 weeks to 26 weeks, even as worldwide point-of-acceptance grew 4% on the strength of improved turns business. Worldwide point-of-sale grew 4% over the fourth quarter, reflecting a 4% increase in the Americas, a 10% increase in Europe, while Asia was flat. In terms of the geographical mix, revenue in Europe increased 8% sequentially after lagging the Americas and Asia in the second half of 2024, reflecting inventory overcorrections. In the Americas, industrial sales were soft, resulting in a 6% decline, while Asia was seasonally soft, reflecting the impact of Chinese New Year. Before turning the call over to Dave, I'd like to thank the Vishay employees and also our sales representatives for their hard work and dedication in making consistent progress toward our shared goals for the company and for our customers. Their focus every day to contribute to making Vishay 3.0 real is very much appreciated. Dave, I'll turn the call over to you now for a review of the financial results for Q1.

Thank you, Joel, and good morning, everyone. Let's start a review of the first quarter results with the highlights. First quarter revenues were $715 million, including $3 million attributed to legacy Newport products, above the midpoint of our guidance. Revenues were flat compared to the fourth quarter, reflecting a 2% increase in volume, offset by a 1% decrease in average selling prices as well as some negative foreign currency impacts related mostly to the euro. By reportable business segment, Opto revenues increased $4 million, driven by volume, and MOSFETs decreased $5 million, primarily due to average selling price declines related to annual OEM pricing negotiations. The remaining reportable business segments had more modest fluctuations. Compared to the first quarter last year, revenues decreased $31 million, reflecting a 3% reduction in average selling prices and a 1% exchange rate impact. Since 2018, we have been charging tariff adders to customers to offset our increased tariff costs. The gross profit impact of these is approximately 0, but it does negatively impact the gross margin. Book-to-bill for the quarter was 1.08, comprised of 1.12 for semiconductors and 1.04 for passives, the second quarter in a row with a book-to-bill greater than 1. Our backlog increased by 0.7 months with semiconductors increasing to 4.3 months versus 3.9 in the fourth quarter and passives increasing to 5.1 months from 4.9 in the fourth quarter. Moving on to the income statement highlights. Gross profit was $136 million, resulting in a gross margin of 19.0% and includes the negative impact from Newport of approximately 200 basis points, all in line with our guidance. Compared to the fourth quarter, gross margin was 90 basis points lower, primarily due to lower average selling prices. Depreciation expense was $51 million, relatively flat with fourth quarter. SG&A expenses were $135 million in the range of our guidance for the quarter, up from $132 million for the fourth quarter due to higher incentive compensation accruals for 2025 versus the very low level in 2024. GAAP operating margin was 0.1% compared to minus 7.9% in the fourth quarter and 5.7% in the first quarter of 2024. There were no non-GAAP adjustments in Q1 2025 or Q1 2024. As a reminder, in the fourth quarter we recorded a goodwill impairment charge, resulting in an adjusted operating margin of 1.4%. EBITDA for the quarter was $54 million for an EBITDA margin of 7.6%, down from an adjusted EBITDA margin of 9.3% in the fourth quarter. Our GAAP effective tax rate is not meaningful at low levels of pretax income or loss. As profitability returns, we would expect a more normalized effective tax rate closer to our historical guidance. GAAP loss per share was a minus $0.03 per share compared to a loss of minus $0.49 per share in the fourth quarter and earnings per share of $0.22 in the first quarter of 2024. Adjusted EPS was breakeven for the fourth quarter of 2024. For ease of reference, the presentation includes a table illustrating the revenue, gross margin, and book-to-bill ratios for each of our reportable business segments. Of note, for the first quarter, the results for Newport continued to be reported substantially all in the MOSFETs business segment, weighing on that segment's gross margin approximately 1,000 basis points. Our DSO and DPO remained stable at 53 days and 34 days, respectively. Inventory increased to $712 million, resulting in an inventory days outstanding of 110 days, up one day from the fourth quarter. Total cash conversion cycle for the first quarter was 129 days. We generated $16 million in operating cash for the first quarter. Total CapEx for the quarter was $62 million, including $54 million designated for capacity expansion projects. On a trailing 12-month basis, capital intensity was 11.3% compared to 10.3% for the same period last year. Consistent with the five-year strategic plan we shared with you last year, we continue to deploy cash for capacity expansion projects. As a result, free cash flow for the quarter was a negative $45 million compared to a negative $76 million in the fourth quarter. Stockholder returns for the first quarter amounted to $26.1 million, consisting of $13.6 million for our quarterly dividend and $12.5 million for share repurchases. We repurchased 0.7 million shares during the quarter at an average price of $17.21 per share. At the end of the quarter, our global cash and short-term investment balance was $620 million, and we are in a net borrowing position in the U.S. with $218 million outstanding on our revolver. We are required to fund cash dividends, share repurchases, and principal and interest payments using our cash on hand in the U.S., and we are using our U.S.-based liquidity to fund our Newport expansion and other strategic investments. We have $248 million accessible on our revolver at the current EBITDA level. We expect to continue to draw on our revolver to fund our U.S. cash needs. The footprint of Vishay as a hybrid passives and semiconductor company is significantly different from competitors solely focused on semiconductors. Many tariffs on semiconductors are currently paused, while tariffs related to passives are now substantially higher out of China and newly imposed, but largely insignificant for much of the rest of the world. We are generally passing through additional tariff costs to customers, thus tariff adders increase our revenues without impacting our gross profit. Mathematically, this is estimated to reduce the gross margin by approximately 30 basis points. The tariffs put into effect April 9 will have a limited direct impact on our Q2 and future results. Less than 4% of our Q1 consolidated sales are country of origin China products sold to customers in the U.S., split approximately equally between semiconductors and passives. Conversely, less than 2% of our consolidated sales represent U.S. manufactured goods sold into China. For the second quarter of 2025, revenues are expected to be $760 million, plus or minus $20 million, representing a 3% volume increase and inclusive of additional tariff-related revenue. Gross margin is expected to be in the range of 19.0%, plus or minus 50 basis points, inclusive of tariff impacts of 30 basis points and also expected higher input costs. Newport is expected to continue having approximately a 175 basis point to 200 basis point drag on the gross margin in the second quarter. Depreciation expense is expected to be approximately $52 million for the second quarter and $210 million for the full year 2025. SG&A expenses are expected to be $136 million, plus or minus $2 million for the quarter and for the full year are expected to be between $530 million and $560 million. In addition to the incentive compensation accruals, we are assuming continued investment in R&D, increased spending on enhancing our technology tools, and typical inflationary impacts. If market circumstances change significantly, we will adapt accordingly. Our GAAP effective tax rate is not meaningful at low levels of pretax income or loss. As profitability returns, we expect a normalized effective tax rate closer to our historical guidance of 30% to 32%. Our stockholder return policy calls for us to return at least 70% of our free cash flow to stockholders in the form of dividends and stock repurchases. For 2025, we once again expect negative free cash flow due to our capacity expansion plans. For 2025, we expect to maintain our dividend and opportunistically repurchase shares based on U.S. available liquidity in line with this policy.

All right. Thanks, Dave. Let's turn to Slide 13. During the first quarter, we continued to execute our five-year strategic plan to achieve our 2028 financial goals of faster revenue growth, improved profitability, and enhanced returns on capital. We have put a foundation in place to participate more fully in the next industry upcycle and to capitalize on the megatrends of e-mobility and sustainability. We continue to strengthen that foundation by pulling the eight growth levers displayed on this slide. We remain committed to our long-term plan of increasing Vishay's capacity between 2023 and 2028 to ensure our customers have reliable volume as they scale, while we continue to engage with them about their product and technology road maps and better serve their demand with a broadening portfolio of technologies. We watch our capital spending very closely. Capacity planning and investment is a weekly discussion. We study our capacity utilization of equipment for each of the semiconductor and passive product lines and measure against the delivery time of new equipment purchases and the timing of customer programs. For 2025, we plan to spend between $300 million to $350 million, at least 70% of which will be invested in capacity expansion projects for our high-growth product lines, including our wafer fab expansions. I'll take you through our first quarter activities, starting with our semiconductor capacity expansion projects. At our Newport facility, we continue to receive delivery of the silicon carbide equipment. Through Q1, we have installed 11 tools, with the remaining 21 to be installed mostly in Q2, and we remain on schedule for preproduction in early 2026. During the quarter, we completed the transfer of two silicon MOSFET structures to Newport. Qualification of another four technologies is ongoing. We expect to complete qualifications of automotive-grade components in the second quarter for product release in the third quarter. At SK Keyfoundry, our partner in Korea, we released another automotive MOSFET during the first quarter and plan to release two commercial technologies in the second quarter and two commercial technologies in the third quarter, along with two automotive technologies and one IC. As a reminder, through this partnership, we are able to increase annualized capacity for MOSFETs by 12% in 2025 compared to 2024. More importantly, we will be able to increase annualized capacity for our advanced split-gate MOSFETs by 25% to support new automotive and commercial opportunities. In Taiwan, we have ramped up the volume of commercial diodes and continue to work through automotive qualification processes. In Turin, Italy, the qualification of commercial diodes has been pushed out to the third quarter, and we expect to begin mass production in the fourth quarter. We plan to complete qualification of both the 1,200-volt technology and the 650-volt technology in the third quarter and begin mass production in the fourth quarter. Now for passives, at our two facilities in Mexico, in La Laguna and in Juarez, we continue to qualify more commercial and automotive-grade part numbers. We offer these locations to customers who want to shift supply to avoid China country of origin tariffs as the part numbers line up. During the first quarter, we continue to work directly with automotive customers on part number qualifications and site approval audits at our La Laguna facility and remain on track to qualify the facility for automotive-grade inductors. We are continuing to expand our roster of subcontractors to further broaden our market participation. Subcontractors help us to make our Vishay capacity available for high-growth products and also help us to expand our product portfolio. During the first quarter, we completed the qualifications of one new subcontractor for diodes and added a total of 872 part numbers to our portfolio. Turning to innovation and our silicon carbide strategy. We are making good progress in our plan to commercialize the 1,200-volt planar technology. During the quarter, we released another three products, bringing the total to eight products. We also released a Gen 2 1,200-volt planar for both industrial and automotive applications and plan to release an additional 12 products of different on-resistance and packages this year. Shortly after the quarter closed, we released a Generation 2.1 1,200-volt 45 milliohm automotive-grade silicon carbide MOSFET. With respect to our plan to commercialize the 1,700-volt planar MOSFETs and the 650-volt planar MOSFET, we are shifting to a more advanced process, which will push out the release of these products into early 2026. We plan to have samples of our 1,200-volt trench MOSFET available in the third quarter and are targeting full product release in the fourth quarter. For silicon carbide diodes, we have fully released our Gen 3 diode 650-volt and 1,250-volt product and released an automotive version in the first quarter on a limited basis. We also released our Gen 4 650-volt automotive power pack and still plan to release the Gen 4 1,200-volt automotive diode in the second quarter. Finally, we are planning to release additional products during the year to populate the entire family of silicon carbide diodes, Gen 4, 650 volt, and 1,200 volt. As for our solution selling initiative, during the quarter, we released into catalog distribution one of the reference designs we showed at the electronica 2024 for an automotive application. Several automotive OEMs and Tier 1s are sampling our reference designs. These reference designs are created in our e-mobility lab, where they develop common solutions for automotive, industrial, and AI computer applications. Through the ongoing execution of these strategic levers, Vishay 3.0 is in a better position to participate in a market upturn and to capitalize on demand momentum in AI and smart grid infrastructure. We have the capacity in place to ensure we are a reliable supplier to our customers as they scale production. Equally important, the capacity we have available today allows us to pursue new customers and re-engage inactive customers to further drive revenue growth. Each of our salespeople has a portion of their annual incentive program related to new customer revenue generation. Positive signals during the first quarter and continuing in the second quarter support our optimism for sequential growth. We see the demand for Vishay products more in line with end market consumption than at any time in the past two years of inventory digestion. Beyond the second quarter, customer demand visibility is not crystal clear, and program timing can be dynamic, but we are seeing improved visibility and transparency. The second half of the year is developing at a better rate than last year. Under Vishay 3.0, we are in close contact with our customers to minimize the impacts of macroeconomic uncertainties. We stay close to have an ongoing read on their demand outlook and production timing so we are ready to support them if demand continues to improve, but also to adjust our spending plans where necessary in response to a possible slowdown in order flow. At the same time, we intend to continue executing our growth initiatives, engaging with new and existing customers early in their design pipeline, designing in and supplying a greater share of the components on the board, expanding our product portfolio through innovation and advancing our silicon carbide strategy, all creating more value for the customer with more opportunities to leverage the breadth of our entire product portfolio. Operator, we will now open the call to questions.

Thank you. At this time we will conduct a question-and-answer session. First question comes from the line of Ruplu Bhattacharya with Bank of America. Please go ahead, your line is open.

Hi, thank you for taking my question. Joel, you've been working with distribution to increase the product SKUs that Vishay has at distribution. Can you give us an overall thought on what you're seeing at distribution? I think you said that excess inventory had gone down. But in terms of distribution willingness to pull more product at this time, what are you seeing from them in terms of demand pull? And from your own efforts to try and increase Vishay SKUs of distribution, is that done? Or is there still work to be done?

Ruplu, thank you for the question. There's still work to be done. Division by division, we've got 17 different business units that are working with the distributors in the Americas, in Europe, and also in Asia. There are different programs within each region and each distributor. We are adding SKUs; it will continue to develop. We add products from our subcontractors quarterly, which also continues the discussions with the distributors to add SKUs. The point-of-sale did improve. We saw the point-of-sale improve in Europe and the Americas, and Asia, I mentioned, was flat. Our weeks of inventory, if we look at the regions, our inventory in Europe went down by 3 weeks from Q4 to Q1. The inventory in the Americas went down by 2 weeks from Q4 to Q1. And the inventory in Asia was down about half a week, so essentially flat. What does that mean? We have the right products on the shelf. We were able to support point-of-sale growth. So we continue to strategize with our distributor partners about gaining share and reengaging customers that we have historically been unable to support. So at the moment, we are satisfied with our inventory position, and we're going to continue to expand SKUs. There's still some work to do.

Okay. Can I ask a question on tariffs? So thanks for the impact in Q2. I think you said 1% to 2% increase in revenue. So two questions there. One is, can you go into a little bit of detail in terms of how you came up with that because there's been so much back and forth in terms of rates for tariffs? What have you assumed in terms of tariffs to come up with that, just an overall framework for how you get to 1% to 2%? And then if tariffs remain unchanged from here, can we also think of the full year impact being 1% to 2%? And then maybe one other question on the same topic is, why is the gross profit impact zero or the gross margin impact negative in terms of how does that flow through to the gross margin line?

I'll begin, and then Dave will follow. We conducted a thorough analysis on the origin of our products and sales in Q1. As Dave mentioned, less than 4% of our sales come from products with a country of origin in China that are sold to U.S. customers. Conversely, only 1% of U.S.-origin products are sold to customers in China. We are actively engaging with customers to present alternative solutions regarding products from China, which is a standard part of our sales approach. Our aim is to provide customers with options. The tariff on passive components is a significant 170% increase. Therefore, we are discussing potential manufacturing options in Mexico or Israel with our customers. We are focusing on these fundamentals to ensure that if these tariffs persist, we can provide customers and distributors with viable alternatives. This is how we are working to minimize any long-term impact on Vishay. Dave, please continue.

Yes, thank you for the question. In Q2, we are operating under the rules that were in effect as of April 9 for the entire quarter. We are currently paying 70% on semiconductors from China, with passives facing an even higher rate of 170%. This means our forecast for the entire quarter is based on these tariffs. You mentioned the impact on our margin; to quantify that, if we take into account a revenue of $1 and a cost of $1, passing this through equates to approximately a 30 basis point decrease in our margin. Additionally, the wider economic environment has affected metal prices, which we have already factored into our Q2 projections.

Okay. All right. If I can ask one last question. On the Newport fab, how do you see that fab filling up through the course of the year? And how should we think about the gross margin impact over the next couple of quarters progressing? Thank you.

Okay. The Newport fab, Q1, we were no longer manufacturing the legacy products from the previous business when we acquired the fab. So Q1 utilization was very low. We are qualifying the Vishay structures now, and we will be adding volume quarter-on-quarter, not quite a stair step, but it's going to have increasing volume quarter-on-quarter. The target is for the fab to be gross margin neutral in the first half of '26. We're targeting Q1 is what our push is. Dave, do you have anything else you want to add there?

No. We're sticking with the guidance for the next quarter, the 175 basis points to 200 basis points, Ruplu. And beyond that, we're not ready to guide a gross margin number.

Okay, thank you for the details. Appreciate it.

The next question comes from the line of Peter Peng with JPMorgan. Go ahead, your line is open.

Hey, thank you for taking the question. It's good to see that you guys are continuing to see the positive cyclical recovery trends. Maybe just kind of talk about that a little bit. I think there's been a lot of investor worrying about whether these orders could be a potential pull-in for your customers ahead of this 90-day reprieve. So how do you guys distinguish whether this is actually a possible cyclical recovery order or whether this is just your customer in their build?

Thanks, Peter, for your question. Let's break down our markets a bit. Looking at smart grid programs, which are government initiatives, they are still progressing without much impact from tariffs. We won the first U.S. smart grid project, which is exciting, and we have full share of that business. Development in smart grid will continue regardless of tariff changes. In aerospace defense, similar trends are seen in the Americas, Europe, and parts of Asia, where countries are increasing their defense spending. We are experiencing strong growth in Europe, as well as continued activity in the Americas involving both military projects and low earth orbit satellite initiatives. Regarding AI, significant investment from major companies is expected, with estimates ranging from $60 billion to $80 billion for data centers. The demand remains promising. However, we are mostly seeing spot buys related to specific projects, particularly from those needing NVIDIA chipsets, which has led us to increase our inventory levels. In the automotive sector, scheduling agreements indicate flat signals, with no one adjusting their outlook negatively at this time. Consumer confidence is essential for auto sales, and we noted that the average age of cars has risen significantly, suggesting pent-up demand. We'll be watching how the Federal Reserve's interest rate decisions might impact consumer behavior. Lastly, in industrial markets, which are vital for us, we see improving trends. We are in discussions with customers in the power and electricity sectors, and they are forecasting moderate growth. This optimistic outlook continues despite potential tariff impacts. Overall, while automotive and industrial sectors may face some tariff effects, inventory levels are normalizing, and real-time orders are encouraging as we look toward 2024.

Perfect. Thank you. And then maybe just driving into the AI front. You guys began to ship volume last quarter or so this quarter. Can you give us a sense of the size of this business now and your relative market share position?

Size of the business, our Q1 was more than double versus Q4. Q4, we saw the initial volumes of the, I'll say, first projects for AI. Q1 was more than double. We are adding a lot of products, as I mentioned. It's MOSFETs, it's diodes, it is inductors. And it's not just the big name NVIDIA. We're also talking to contract manufacturers who are designing AI servers. So our design position is quite good because of the breadth of our portfolio; we're bringing in multi-components to the power board. To size up the overall business is tricky because things are moving outward. We were excited about the NVIDIA GB300, which was scheduled to be running in P6 and P7 in June and July, but that got pushed out. So to put a number on it overall, I think we're going to not do that at the moment. We like our design position. We like how our Asia team is working closely with the contract manufacturers to really gain share for Vishay.

Perfect. I think on your prepared remarks, you talked about the second half for this year, potentially a little bit better than what it was in the second half of last year. In the second half of last year, if I look at some of the trends, it looks kind of seasonal. So is it fair to infer that you might be seeing some above seasonal trends for your second half of the year?

Q3 and Q4, we are starting to see the backlog building in the Q3, Q4, and Q1 of next year. We hadn't seen that last year. We weren't seeing backlogs building beyond the next quarter. So we're starting to see three quarters out now. That gives us some confidence and optimism about how we see the second half. Europe in Q3 is a seasonal holiday quarter. It's challenging with the month of August. There's a lot of people that shut down. We're going to be watching the automotive. As I said, we haven't seen the schedule agreements change. Will the automotive factories be running in Europe in the Q3 time frame? At the moment, we don't see anything that shows a decline. So I think there will be seasonal effects in Q3. We like the backlog that's developing. Q4, I guess if you go back to our Investor Day, in 2024, we projected the second half of 2024 to be greater than the first half. We have that same optimism for 2025, the second half to be better than the first half.

Perfect. And one more, if I may. Just on the June quarter outlook. Maybe you can talk to about the gross margins being kind of flattish despite a higher revenue number.

Yes, it's a good question, Peter. So I have the aforementioned math on the tariff impact of the 30 basis points, right? There are still additional average selling prices we have baked in. It is more stable than the first quarter, but there are still some pockets in the second quarter we have factored in. We do have a positive volume impact, and we have positive cost reductions. And just to remind you, the cost reductions take more than one quarter to get in place for the annual renewal of the OEM pricing. So we have some more improvements to go in that area yet, but some of them will come in Q2. But the metal prices that I referred to are baked into the Q2 number.

I'm showing no further questions at this time. I would now like to turn the call back to Joel for closing remarks.

All right. Thank you, Jill. Thank you, everyone, for joining our first quarter earnings conference call. We're encouraged by the market signals that we are seeing that support growth in the second quarter, and we look forward to supplying our customers and continuing to execute on our strategic growth plans throughout the year. We look forward to reporting again with you the Q2 results in August. Thank you very much, and have a good day.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.