Participants

Peter Henrici; Executive Vice President - Corporate Development, Corporate Secretary; Vishay Intertechnology Inc

Joel Smejkal; President, Chief Executive Officer, Director; Vishay Intertechnology Inc

Dave McConnell; Executive Vice President & Chief Financial Officer; Vishay Intertechnology Inc

Presentation

Operator

In May. Good day and thank you for standing by. Welcome to the Vishay Intertechnology Q3 2024 earnings conference call. (Operator Instructions) I would now like to hand the conference over to your first speaker today, Peter Henry C. Please go ahead.

Peter Henrici

Thank you, Alicia, and good morning, and welcome to Vishay Intertechnology Third Quarter 2020 Earnings Conference Call. I'm joined today by Joel Smejkal our President and Chief Executive Officer, and Dave McConnell, our Chief Financial Officer. This morning, we reported results for our third quarter. A copy of our earnings release is available in the Investor Relations section of our website vishay.com. 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 will be making that we will be referring to a slide presentation, which we also posted at IR.Vishay.com. You should be aware that in today's conference call, we will be making certain forward-looking statements that discuss future events and perform. These statements are subject to risks and uncertainties that could cause actual results to differ from the forward-looking statements.
For 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 filing with the Securities and Exchange Commission. We are including information in our press release and on the 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 IR.Vishay.com. 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 may come.

Joel Smejkal

Thank you, Peter, and good morning, everyone. Thank you for joining our third quarter 2024 conference call. I'll start my remarks with a review of our revenue for the third quarter by end market channel and region. Then Dave will take you through a review of the third quarter financial results and our guidance for the fourth quarter. After that, I'll give you a progress report on the 2024 initiatives supporting our five-year strategic plan, and then we'll be happy to answer the answer any of your questions. For the third quarter this year, revenue is held fairly constant, reflecting a prolonged period of inventory destocking as the pace of consumption by industrial customers remains slow.
Backlogs are pushed out and macro economic conditions in Europe worsen automotive customers continue to adjust their forecast sluggish demand in Europe, while order rates appear to be under control in the Americas, despite reported revenue of $735.4 million for the third quarter that was flat with the second quarter. Bookings for smart grid infrastructure, military and high-voltage DC applications has continued to improve, and we saw increasing demand related to a I servers. While the electronics industry remains at a down cycle, we are making the necessary adjustments to manage cost underappreciate 3.0. We are preparing to participate more fully in the next industry upcycle, and we are putting the foundation in place to capitalize on the long term demand of e-mobility and SaaS stain ability. In previous down cycles, the company became unable to support customer demand and just scale because the focus was on conserving cash flow with shelves plans to prepare for the next ups, the customers want more from Vishay. So we are taking a fresh new approach, underappreciate 3.0.
We are intelligently pressing forward with a sense of urgency putting the customer first, working on our list of growth initiatives under our five year strategic plan to restore confidence and win back customers to develop new customer relationships, expand capacity and our product portfolio to ensure we are ready to scale with our customers as demand returns, implementing our silicon carbide strategy and becoming a more business minded organization focused on driving profitability and enhancing returns on capital. Let's take a closer look at third quarter revenue related to the second quarter, starting with a review of revenue by end market on Slide 3.
Automotive revenue increased 4.3% versus the second quarter, although OEM and Tier one customers in Europe and in the Americas continued to pull below their schedule agreements. And EV demand weaken in the Americas and Europe. Government policy in China, however, is boosting demand for EVs and hybrids, which drove strong demand for our Opto products, particularly our rainbow sensors. Design activity remains focused on battery management, traction, inverters and onboard chargers. Discussions around eight U.S. for all vehicles and leveraging a I chipsets for driver assist and autonomous applications are advancing and resulting in many new design starts. As for industrial end markets, revenue decreased $18.5 million from the second quarter, of which the Newport legacy products accounted for $8.5 million of that distributors continue to adjust inventory in response to ongoing more see Europe.
In addition, in Europe, we saw the normal seasonal holidays within the quarter. Also in your US government funding for EVs and consumer incentives for solar and heat pumps is uncertain for the on first for the foreseeable future. As a result, design activity has shifted to industrial automation, along with smart grid infrastructure, renewable energy generation and energy storage. As evident from the large orders we are receiving. We see smart grid infrastructure is a key growth driver for Vishay . For this reason we announced this morning that we are acquiring and vertical Bach, a manufacturer of metallized technical films and a very important supplier to Vishay. We're acquiring this business to ensure supply of metallized fill materials that is used in the high voltage high power film capacitors.
First smart grid infrastructure projects in aerospace and defense revenue was flat versus the second quarter and 20.2% higher than last year's third quarter. Demand from OEMs in the Americas remained strong with the book to bill running over one for most products supporting radar systems munition and replenish payment smart soldier electronic year and unmanned system. Demand for space programs is driving new opportunities for high reliability and specially products such as custom magnetics. In Europe, commercial aerospace, ongoing supply chain issues are there cost, which caused orders to be pushed out. Medical medical revenue declined 6.2%, but was 7.4% higher than the third quarter of 2023, primarily due to delay in orders from one of our larger industrial customers in the Americas. The medical design activity for remote patient monitoring equipment presents a significant upside for Vishay in the Americas to sell our entire product portfolio. We also continue to work on designs for implantable devices. Revenue from other segments, including telecom, computing and consumer was up 3.2% quarter over quarter, but down 32% versus the third quarter last year. There were a lot of puts and takes this quarter. But what stands out is increasing demand for AI servers and server power. In Asia, we're seeing a surge in spot orders related to AI servers from CMS who are coming directly to suppliers for quick delivery.
They're not find a part numbers in stock in the distributor inventory underappreciate 3.0. Our ambition is to quickly fulfill these orders and support the quarters AI. server power power conversion, power management of the AI. chipset for laptops and notebooks, storage networks continue to dominate design activity. In the other segment category. We continue to design more of the V-shape portfolio to put it in place. A greater percentage of your components on the board and to gain with bill of materials as key chip makers are designing in the emerging a market .
Let's go to Slide 4. In terms of channel sales, as shown on slide 4, you see that OEM and EMS revenue was essentially flat with the second quarter. Distribution revenue decreased 1.2% quarter over quarter and 7.2% year over year, reflecting the drag in Europe. While customers in the Americas and Asia are returning to normal order patterns. Customers in Europe are tapping the brakes. I met with many new of these customers in September, and they told me that uncertainties about future demand trends related to geopolitical developments is clouding end market demand. This becomes evident from our POS numbers for the quarter. Worldwide POS decreased 4.7%, weighed down by lower POS. in Europe, again, somewhat seasonally impacted distribution. Inventory of worldwide was essentially flat. Inventory inched up by one week to 27 weeks.
Let's go to Slide 5. Turning to slide 5, you can see that revenue in Europe declined 3.3%, reflecting the weakening macro economic environment and seasonality, which I've mentioned revenue in the Americas, down slightly on lower medical volume, while revenue in Asia increased 2.1% on a pickup in automotive volume, along with the lift from AI. Before turning the call over to Dave, I'd like to acknowledge the contributions made by Vishay employees and their commitment to our business minded approach to increasing customer focus in everything we do, it's great to see new ideas bubbling up from the empowered employees to improve profitability and operational efficiencies.
As decision making is being pushed out into the organization. It's also great to see greater collaboration forward thinking and a willingness to take calculated risks more so than in the past, it very much appreciate the organization and how it's embracing the changes which are taking place as BJ. 3.0. These efforts keep us together on our path to achieving our 2020 financial targets. I'll now pass the call over to Dave for a review of our financial results for Q3.

Dave McConnell

Thank you, Joe. Good morning, everyone. Let's start our review of the third quarter results with the highlights on Slide 6. Third quarter revenues were $735.4 billion, including $8 million attributed to our Newport acquisition and within the range of our guidance, revenues decreased 0.8% compared to the second quarter, reflecting a 1.0% reduction in ASP.s and a 0.8% reduction in volume by reportable business segment. The $6 million decrease in revenues was mainly attributable to an $8 million decrease in mindsets refract, reflecting primarily legacy Newport volume, $4 million decrease in inductors and a $5 million decrease in capacitors. These declines were partially offset by a $10 million increase in our Opto business segments.
Compared to the third quarter last year, revenues were down 13.9%, reflecting a volume decrease net of Newport of 10% and a 4.7% reduction in ASPs. Furlough book to bill for the quarter was 0.88, comprised of 0.79 for semis and 0.97 for passes. Backlog decreased to 4.4 months compared to $4.6 million at the end of Q2. By product category. Backlog for semis decreased to 3.8 months from 4.4 and for passes with had five months versus 4.9.
Moving to the next slide, presenting the income statement highlights 3.9, resulting in gross margin of 20.5% and included a negative impact from Newport of approximately 150 basis points compared to the second quarter. Gross margin was 150 basis points lower, primarily due to lower volume, lower average selling prices and increased depreciation expense. Sg&a expenses were 128,500,000.0, in line with our guidance for the quarter compared to $125 million for the second quarter, reflecting higher R&D expenses and higher stock compensation expense, which was partially offset by lower bonus accruals. Depreciation expense was 51 point was $51 million, slightly under our guidance for the quarter, up from $49 million in Q2 and reflects the additional equipment that has come online.
During the quarter, we recorded restructuring charges of $ 40.6 million designed to optimize the Company's manufacturing footprint and streamline business decision making as we execute over say, 3.0 growth strategy. Inclusive of the restructuring charge, GAAP operating margin was a minus 2.5% compared to 5.1% in the second quarter and 13.5% in the third quarter of 2023. Adjusted operating margin decreased to 3%, in line with the decrease in gross margin and reflecting increase in SG&A expenses that was included in our guidance. EBITDA for the quarter was $30.9 million for an EBITDA margin of 4.2%. Adjusted EBITDA for the quarter was $71.5 million for an EBITDA margin of 9.7%, down from 11.9% in the second quarter. Our GAAP effective tax rate for the year to date period was approximately 36% due to the GAAP net loss for the quarter.
The effective tax rate for the quarter was approximately 21% . Our normalized effective tax rate for the year-to-date period was approximately 31%, which yields an effective tax rate of approximately 32% for the quarter, GAAP loss per share was $0.14 compared to earnings of $0.17 per share in the second quarter and $0.47 per share for the third quarter of 23. Adjusted EPS was $0.08 per share compared to $0.17 per share for the second quarter and $0.6 per share for the third quarter of 2013. Proceeding to Slide 8 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 third quarter results for Newport ever reported substantially all in the Monster business segment weighing on that segment's gross margin approximately 700 basis points.
Turning to Slide 9 and our cash conversion cycle metrics. Our DSO was 53 days, up from 51 days and our DPO was 32 days, up from 31 days. Inventory was slightly, was up slightly to $687 million, resulting in an inventory days as CEO ending of 100 to 6 days, up from 105 days in Q2. Total cash conversion cycle to the third quarter was 127 days. Continuing to slide 10, you can see we generated 51 million and operating cash for the third quarter. Total CapEx for the quarter was $60 million, including 40 million designated for capacity expansion projects. On a trailing 12-month basis, capital intensity was 10.7% compared to 9.7% for the same period last year. Due to the investments in capacity expansion projects. Free cash flow for the quarter was a negative $9 million compared to a negative $87 million in the second quarter, which included sizable tax payments. On a year-to-date basis, free cash flow was negative $68 million.
Stockholder returns for the third quarter amounted to $26.3 million, consisting of 13.6 million for our quarterly dividend and $12.6 million for our share repurchases. We repurchased 0.6 million shares during the quarter at an average price of $21.87 per share. For for 2024, we still expect to return at least $100 million to stockholders. Cash and short-term investments decreased to $657 million at quarter end as we continue to deploy cash to fund our strategic plans at the end of the quarter, we have approximately $25 million of cash on hand in the US. As previously noted, we are required to fund cash dividends, share repurchases and principal and interest payments using our cash on hand in the US. And we are using our US-based liquidity to fund our new port expansion in U.S. other strategic investments.
As a reminder, based on our planned investments and expected payments under our stockholder return policy, we expect to be free cash negative for the year and to draw on our revolver to fill the gap. The revolver also provides us with adequate liquidity to fund operations in the US. The remaining cash and short-term investments are held in our subsidiaries around the world. Outside to repatriate accumulated earnings from these subsidiaries, we must pay foreign withholding taxes, and we have accrued for an estimated tax liability based on our expected timing of future repatriations from certain countries. Most significantly Israel and Germany.
At the end of quarter three, we have approximately $83 million of cash in Israel and $110 million of cash in Germany. Our strategic plan requires significant local liquidity for our expansion projects in Germany. The remaining $439 million of cash and short-term investments are held at and subsidiaries that are locating countries with restrictive regulations and high tax rates for repatriating cash. We're evaluating opportunities to deploy some of this cash for our expansion projects. In Germany, we have not accrued taxes to repatriate earnings because we have deem them indefinitely reinvested. Okay. Moving on to Slide 11. The restructuring programs we announced in the third quarter will result in a 6% reduction in our SEA workforce, the closure of three manufacturing facilities, which will reduce our manufacturing workforce by 2% and various other changes in manufacturing operations and production transfers. We recorded restructuring expenses of $40.6 million during the quarter related to expected cash severance costs.
When the programs are fully implemented by the end of 2026, we expect to realize annual cost savings of $23 million, including $12 million of SG&A expense weeks to realize immediate annualized cost savings of approximately $9 million, including $2 million in the fourth quarter. Cash payments related to restructuring program are estimated to be $24 million by the end of 2025 for the balance due in 2026. Turning to Slide 12. For our guidance for the fourth quarter 2020 for revenues are expected to be $720 million, plus or minus $20 million. Gross margin is expected to be generated.
Newport is expected to have approximately 175 to 200 basis points drag on the gross margin in Q4. Depreciation expense is expected to be approximately $53 million for the fourth quarter and $200 million for the full year. SG&A expenses are expected to be $126 million, plus or minus $2 million for the quarter were $507 million for the full year. Included in full year SG&A guidance is the addition of approximately $15 million related to Newport, which is offset by the favorable benefit of our restructuring programs and our continued cost containment folks. For 2024, we expect a normalized effective tax rate of approximately 31%. And I'll now turn the call back to Joel.

Joel Smejkal

Thank you, Dave. Please turn to Slide 13. I mentioned earlier that even though the industry is contending with an extended down cycle at Vishay, we are pressing forward with our ambitious 5-year strategic plan and remain committed to our 2020 financial goals, including spending$ 2.6 billion in CapEx between 2023 in 2028. For the year 2024, we still plan to invest between $360 million, $390 million in CapEx. As a reminder and displayed on this slide, we are pulling eight growth levers to meet our commitments to scale capacity for our customers, accelerate revenue growth and drive greater returns through the expansion of our markets and our product portfolio.
We are ready for the next upcycle, the mega trends and what's available to sustainability. So let's turn to Slide 15 for our products are not responding to these levers. As a reminder, in 2024, we are focusing primarily on expanding capacity, both internally and externally and on innovation. Starting with semiconductor capacity expansion projects at Newport, we are on target to complete the transfers of three silicon must best structure to now in Q4 and another one in the first quarter of 2025. We remain on schedule to begin production of the industrial technologies in the first quarter of 2025 and to complete the component qualifications of automotive grade components in the second quarter of 2025.
At SK. key foundry, our partner in Korea. We are on track to qualify seven product families by the end of the first quarter of 25, three of which are automotive must face and for our commercial expense. We currently have engineering samples available of four product families and plan to have the other three a vailable in early 2025. Through the partnership, we will be able to increase annualized capacity from US fed by 12% in 2025 compared to 2024. In Taipei, Taiwan, we have internally qualified commercial and automotive diodes and are now shipping some volumes of commercial deals.
We expect to increase annualized capacity by 4.7% in 2024 and to expand capacity of constrained lines by 25% to 40%, depending on the product type. Now for passive components, I'd love to go to Mexico. We remain on track to complete the automotive qualifications for inductors before the end of the year. And continue to expect annualized capacity to increase by approximately 15% in 2024. During the quarter, we received government approval to start production of our amphitheater product line and expect first shipments of sensor products in this quarter.
The Amazon line includes products that support in Russia, current limiting and temperature sensing applications at our Mexico facility and more as we're shipping commercially qualified, current sense, resistors and some automotive products. Our subcontractor initiative is going extremely well as business leaders within the organization embraced the Vishay 3.0 business minded approach to drive profitability. We're using subcontractors to increase our capacity of lower margin commodity products and to add products to our portfolio to best serve customer demand. We added three cost subcontractors during the third quarter, one for diodes, one for resistors and one for inductors. And we added another 617 part numbers to our portfolio, bringing the year-to-date total to nearly 9,000 part number of additions in 2024.
We are meeting the year to date goals to set for the use of external capacity on our path to achieving our 2020 financial targets. For our goal of generating more than 4% revenue from outsource passive, we are at 4.2%. We have met our goal of utilizing outsource wafer fabs at 33% of semiconductor production. Finally, we set a goal of utilizing outside assembly for more than 20% of our semiconductor production. And on a year-to-date basis, we have also met that goal. As for innovation and our silicon carbide strategy, our plans to commercialize the 1,200 volt planner technology in 2024 is advancing well.
We released two products in the third quarter and plan to release seven more products in the fourth quarter, we made substantial progress with our plans to commercialize our 1,200 volt trench technology, the 1,700 volt planner and the 650 volt planner during the quarter. We now have first engineering samples at customers for test. Our plan is to release the 1,200 volt trench milestone in the first quarter of 2025. The 1,700 volt planner must set in and they're 50 volt planner must fit in the third quarter of 2025. These silicon carbide must set components support traction, inverter projects and onboard charging opened doors for us with the automotive OEMs.
We continue to hold technical meetings with automotive OEM customers about their silicon carbide roadmaps. We have also started to receive silicon carbide equipment at our Newport facility and are on schedule to meet our production plan in early 2026. Finally, at Electronica this year, we will release nine that reference designs, which showcased shape content on greater than 80% of the components of the Board for automotive. There is a high voltage Intelligent Battery shut sensor, an 800 volt 22 kilowatt bidirectional onboard charger, an 800 volt 48 volt DC to DC converter, a power distribution units with the share silicon carbide on it in other technologies and other market segments like industrial and telecom customers will have a reference design for auxiliary power. Slide converter for solar, which uses our 1,200 volt and 1,700 volt silicon carbide and appreciate transformer, a 3.2 kilowatt DC to AC inverter featuring our Gen five silicon must bets a 1.2 kilobyte DC-to-DC converter for telecom.
This is a 72 volt, 48 volt, 12 volt DC to DC converter, also an energy Harvester, which is using our super capacitors and our photodiodes. And finally, a design for AI, a multi-phase power board that incorporates smart, safe stage power ICs, vertical mount inductors and polymer tantalum capacitors. These designs are examples of how Vishay can support our customers' total application using reference designs as solution selling are making progress on these 2020 for specific initiatives. But we're also executing dozens of other initiatives behind the scenes to shape the organization towards supporting Vishay 3.0, enabling the organization to outperform outperform historical results in the industry upcycle and putting us on firm footing to execute our strategic plan and achieve our 2020 financial targets.
We are broadening our portfolio to participate in markets we previously did not serve and to increase our share of our customer bill of materials, supported by the incremental capacity that has landed over the past two years. With our distributors, we have their need and positioned Vishay to win an increased share of their turns business . Since this program began, we have added nearly 28,000 additional SKUs to our distributors. We've added products to our portfolio through acquisitions like Amazon, creating new business opportunities for in Russia, current and temperature sensing in automotive and industrial markets. We continue to add products through our partnerships with subcontractors and resellers. We are positioning Vishay to be a supplier with even a broader product port folio.
We're leveraging our broadening portfolio through our intense focus on customer engagements in medical markets. For example, many customers are using Vishay for only one product. Our medical leader now is increasing our alignment with customers and may not which may not have viewed Vishay as a strategic supplier discovering opportunities for us to supply even more products of our portfolio. We're increasing our field engineering resources that engage customers about their technology and product roadmap. We're creating design opportunities that increase our share of the customer bill of materials, and we're ensuring that we're ready to meet their future demand. As a result, we're positioning appreciate to participate even greater in the emerging a market along with other next generation demand drivers. While we are intensifying customer engagement, we are also restaffing about one-third of our customer facing positions, adding experienced talent to ensure the organization is driving in the same direction toward our strategic and financial goals. In terms of enhancing operational efficiency, we're optimizing our manufacturing footprint with our decision to close three manufacturing facilities, which Dave mentioned. one is in the United States.
one is in Germany, and one is in China, cementing Vishay 3.0 through the execution of these initiatives is progressing according to the time line we outlined last April at the Investor Day. Although we're still in the early innings of implementing our strategic plan, customers, partners and employees already recognized 3.0 is becoming a vastly different organization. The feedback we hear from our stakeholders aligns with our conviction that we are on the right path to assure customers for reliable supplier, working with them to meet their needs over time and to enhance our financial profile.
We are moving forward with determination, and we are confident in our ability to drive faster revenue growth, improved profitability and expand the return on invested capital. Look forward to reviewing our 2020 for progress on our Q4 call next February and sharing with you our goals for 2025 as we continue to execute our strategic plan fallacious. Let's take the first question.

Question and Answer Session

Operator

Thank you. At this time we will conduct the question and answer session. (Operator Instructions)
First question comes from the line of Ruplu Bhattacharya from Bank of America. Ruplu, please go ahead.

Hi, and thank you for taking my questions. John, I wanted to start by asking you how do you see the inventory of Vishay products at distribution arm? What innings are we in terms of your outreach to distribution and expanding the line card, V-shaped products, add distribution? And when do you think when do you expect distribution to start pulling product and growing inventory again?
Hi, Ruplu Thanks for the question.

Joel Smejkal

The inventory at distribution is nearing a normalized position for passives. I think we're very close on passives. The semiconductors in the channel overall is going to take a little more time. It's not necessarily the over inventory of Vishay. It's the over-inventoried of our competitors who have stuff some of the distributors' shelves, the Asia inventory, we're running at about 18 weeks. Europe inventory were at 22 weeks. The Americas is longer. It's good in the low 50, 50 week range, but part of that is catalog distribution. So we see that we're positioning this inventory.
I mentioned we're at 27 weeks because of those additional skews that I talked about. We're broadening our portfolio. So the inventory dollar looks larger, but it's covering more part numbers. An interesting comment that's happening in the environment now, Ruplu is customer visibility is quite low, and we're seeing orders in Asia where 50% to 60% of the orders are for quick delivery. And the CM is not finding the product in stock at the distributor. So we're seeing different partners come into play. So I think overall, to kind of sum it up, normalization of passives is in the moment we're in now in this quarter. And semiconductors will be into Q1.

Okay. Thanks for all the details there. The knee, actually another question. As we look into 2025, what areas of growth do you see for Vishay? Meaning which product lines do you think grow the fastest, which product lines growth slower? And how should we think about the region mix of revenues over the next few quarters?

Joel Smejkal

I've shared on the past two quarterly calls that we're now seeing the smart grid infrastructure programs accelerating. We received additional large orders to support programs in Saudi Arabia. We mentioned in the last call about smart grid for Europe, and we've talked previously about China. So the smart grid infrastructure is now moving at a faster pace and we're expanding. This is the large as the capacitor to mention that product line. There's also other resistors that are involved in these applications. So the industrial grid is good. That's positive. AI.
We're seeing there opportunities in a I we have reference design position on chipsets that are coming from the large, a microprocessor design companies were following that into Asia. It can be a I for servers, it can also be a I for automotive, we're seeing that pickup and that covers Moss fits that covers power inductors, current sense, resistors, polymer, tantalum. So there's quite a few Vishay products that are designed and also one of our ICs. So we are following that.
Naturally, there's multiple competitors are share military for sure, aerospace military defense book-to-bill stays positive. We continue to see orders for replenishment. We also see orders for new military programs that will be positive in 2025. Space space exploration space programs with low earth orbit satellites continues to show positive signs for us. We like high technology products in those environments. Automotive, when we look at automotive were now with the negotiation season for 2025, negotiating the contract, the LOI. quantities we see for 2025 or increasing over 2024. So that's a positive. And that covers many of the shade division. Most of the positives, Ruplu going into 2025.

Okay, great. Thanks for all the details. Let me ask you one quick question and then I'll have one for Dave as well. Can you talk about the pricing environment and looking at Slide 17, where you have the mix of commodity products versus custom products. Do you think that mix shift as we go into next year in the year being kind of do you think that the mix of commodity products can decline over time based on your strategic focus on on changing the mix and adding different product categories? So if you could just talk about the current pricing environment, do you see any opportunity to raise prices are lower prices? And how do you see the mix of products trending ?

Joel Smejkal

The current pricing environment is consistent with what we spoke about in the last call or two. There's spot opportunities out there where there's higher volume, where it requires us to be a little more aggressive on pricing. So we take those opportunities to win that share. We're in the quarterly negotiated were in the quarter to negotiation season now for our large strategic accounts. Pricing in that is consistent with what we've seen in past negotiation, significantly different from prior years. As far as ASP. down for productivity in exchange for higher volume. So nothing dramatic.
There regarding the product mix by adding these subcontractors, we're expanding our commodity portfolio. So I am going to be clear that we're going to see growth in commodities as well as in the specialty products. It's important that we are viewed as a full-service supplier with all of the products. So I wouldn't say you're going to see commodities go down. I think you're going to see both of these increase as the overall revenue increases in good shape.

Okay. Okay. Thanks for the depot. Fair, Dave, can I ask you one question on on priorities for use of cash? As you think over the next 12 months, how would you prioritize acquisitions forces, maybe a dividend increase versus more buybacks versus you doing anything with the capital structure? So so if you can give us your thoughts on the best use of cash are you so much.

Dave McConnell

I was expecting that question from the room. So you know it out if there's a so we've done several small acquisitions in the last year and Newport, right? We continue to return$ 100 million to our shareholders, and we're committed to it already this year will reset target easily this year. So I think that the most important focus for us at the moment is the strategic plan and making sure we meet the objectives we set for the strategic plan and to do that without any capital.
The Newport, as I said in my speech, as I said, Newport's funded mostly from the U.S. So we'll be borrowing. So I don't think we want to jeopardize that five year plan the strategic plan. So we're going to stick that being the main focus.

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

Joel Smejkal

Thank you.

Operator

As a reminder, in order to ask a question, please press star, one mine and mill shutdown.
Okay. It looks like I am showing no further questions at this time. I would now like to turn it back over to management for closing remarks.

Joel Smejkal

All right. Thank you very much.
Thank you again for attending our Q3 earnings call. We are very excited about what we are doing in Vishay to set Vishay on a new course for growth. And as you've seen in the statements today, who we are accomplishing initiatives that we put forward. So thank you again, and we'll see you on the next earnings call in three months.