Vishay Intertechnology Inc (VSH) Q2 2021 Earnings Call Transcript

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Vishay Intertechnology Inc (VSH 2.40%)
Q2 2021 Earnings Call
Aug 10, 2021, 9:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by and welcome to the Vishay Q2 2021 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions]

I would now like to hand the conference over to your speaker today, Peter Henrici. Thank you. Please go ahead, sir.

Peter Henrici -- Senior Vice President-Corporate Communications and Corporate Secretary

Thank you, Ashley. Good morning, and welcome to Vishay Intertechnology's second quarter 2021 conference call. With me today are Dr. Gerald Paul, Vishay's President and Chief Executive Officer; and Lori Lipcaman, our Executive Vice President and Chief Financial Officer.

As usual, we'll start today's call with the CFO, who will review Vishay's second quarter 2021 financial results. Dr. Gerald Paul will then give an overview of our business and discuss operational performance as well as segment results in more detail. Finally, we'll reserve time for questions and answers. This call is being webcast from the Investor Relations section of our website at ir.vishay.com. The replay for this call will be publicly available for approximately 30 days.

You should be aware that in today's conference call, we will be making certain forward-looking statements that discuss future events and performance. These statements are subject to risks and uncertainties that could cause actual results to differ from the forward-looking statements. For discussion of factors that could cause results to differ, please see today's press release and Vishay's Form 10-K and Form 10-Q filings with the Securities and Exchange Commission.

In addition, during this call, we may refer to adjusted or other financial measures that are not prepared according to Generally Accepted Accounting Principles. We use non-GAAP measures because we believe they provide useful information about the operating performance of our businesses and should be considered by investors in conjunction with GAAP measures that we also provide.

On the Investor Relations section of our website, you can find the presentation of the second quarter 2021 financial information containing some of the operational metrics Dr. Paul will be discussing.

Now, I turn the call over to Chief Financial Officer, Lori Lipcaman.

Lori Lipcaman -- Executive Vice President and Chief Financial Officer

Thank you Peter. Good morning, everyone. I am sure that most of you have had a chance to review our earnings press release. I will focus on some highlights and key metrics.

Vishay reported revenues for Q2 of $819 million, a quarterly record. Our EPS was $0.64 for the quarter, adjusted EPS was $0.61 for the quarter. The only reconciling items between GAAP EPS and adjusted EPS are tax related. There were no reconciling items impacting gross or operating margins.

Revenues in the quarter were $819 million, up by 7.1% from previous quarter and up by 40.8% compared to prior year. Gross margin was 28%. Operating margin was 15.3% There were no reconciling items to arrive at adjusted operating margin. EPS was $0.64. Adjusted EPS was $0.61. EBITDA was $163 million or 19.9%. There were no reconciling items to arrive at adjusted EBITDA.

Reconciling versus prior quarter, operating income quarter two 2021 compared to operating income for prior quarter based on $54 million higher sales or $55 million higher excluding exchange rate impacts, operating income increased by $28 million to $125 million in Q2 2021 from $97 million in Q1 2021. The main elements were; average selling prices had a positive impact of $8 million, representing 1.0 ASP increase. The volume increased with a positive impact of $22 million, equivalent to a 6.1% increase in volume. Variable costs remained flat in total. Cost reductions and volume related efficiencies offset increases in materials, services and metal prices. Fixed costs remained flat in total, in line with our guidance.

Reconciling versus prior year, operating income quarter two 2021 compared to adjusted operating income in quarter two 2020 based on $237 million higher sales or $215 million excluding exchange rate impacts, adjusted operating income increased by $84 million to $125 million in Q2 2021 from $42 million in Q2 2020. The main elements were: average selling prices had a negative impact of $2 million, representing a 0.3% ASP decline; volume increased with a positive impact of $101 million, representing a 36.4% increase.

Variable costs decreased with a positive impact of $6 million, primarily due to volume-related increased manufacturing efficiencies and cost reduction efforts, which more than offset higher metal prices, annual wage increases and higher tariffs. Fixed costs increased with a negative impact of $19 million, primarily due to annual wage increases and higher incentive compensation partially offset by our restructuring programs. Inventory impacts had a positive impact of $5 million, exchange rates had a negative impact of $6 million.

Selling, general and administrative expenses for the quarter were $104 million, in line with expectations. For quarter three 2021, our expectations are approximately $104 million of SG&A expenses. For the full year, our expectations are approximately $420 million at the exchange rates of quarter two.

The debt shown on the face of the balance sheet at quarter end is comprised of the convertible notes due 2025 net of debt issuance costs. There were no amounts outstanding on a revolving credit facility at the end of the quarter. However, we did use the revolver from time to time during Q2 to meet short-term financing needs and expect to continue to do so in the future. No principal payments are due until 2025 and the revolving credit facility expires in June 2024.

We had total liquidity of $1.6 billion at quarter end. Cash and short-term investments comprised $856 million and there were no amounts outstanding on our $750 million credit facility.

Total shares outstanding at quarter end were 145 million. The expected share count for EPS purposes for the third quarter 2021 is approximately 145.5 million. Our convertible debt repurchase activity over the past three years, together with the adoption of the new convertible debt standard, significantly reduces the variability of our EPS share count.

Our US GAAP tax rate year-to-date was approximately 19%, which mathematically yields a rate of 20% for Q2. We recorded benefits of $3.9 million for the quarter and $8.3 million year-to-date due to changes in tax regulations. Our normalized effective tax rate, which excludes the unusual tax items, was approximately 24% for the quarter and 23% for the year-to-date periods. We expect our normalized effective tax rate for the full year 2021 to be between 22% and 24%. Our consolidated effective tax rate is based on an assumed level and mix of income among our various taxing jurisdictions as shift in income could result in significantly different results. Also, a significant change in US tax laws or regulations could result in significantly different results.

Cash from operations for the quarter was $117 million. Capital expenditures for the quarter were $32 million. Free cash for the quarter was $85 million. For the trailing 12 months, cash from operations was $365 million. Capital expenditures were $135 million, split approximately for expansion $86 million, for cost reduction $9 million, for maintenance of business $40 million.

Free cash generation for the trailing 12-month period was $230 million. The trailing 12-month period includes $30 million in cash taxes paid for both the 2020 and 2021 installment of the US Tax Reform Transition Tax. The 2020 installment was paid in Q3 2020, whereas the 2021 installment was paid in Q2. Vishay has consistently generated in excess of $100 million in cash flows from operations in each of the past 26 years and greater than $200 million for the past 19 years.

Backlog at the end of Q2 was $2.050 billion or 7.5 months of sales. Inventories increased quarter-over-quarter by $31 million, excluding the exchange rate impacts. Days of inventory outstanding were 76 days. Days of sales outstanding for the quarter are 43 days. Days payables outstanding for the quarter were 33 days, resulting in a cash conversion cycle of 86 days.

Now, I will turn the call over to our Chief Executive Officer, Dr. Gerald Paul.

Gerald Paul -- President and Chief Executive Officer

Thank you, Lori. And good morning, everybody. Also in the second quarter, the steep upturn of our business visible since October of last year continued. We keep ramping up critical manufacturing capacities, increasing revenues and profits further. Quite excellent plant efficiencies, the impact of price increases and our traditional discipline in fixed cost support the financial results.

Vishay in the second quarter achieved a gross margin of 28% of sales and operating margin of 15.3% of sales, earnings per share of $1.64 and adjusted earnings per share of $1.61. We, in the second quarter, generated $85 million of free cash and we do expect another solid year of cash generation.

The economic environment for the electronics business continues to be exceptional with sales and backlogs at a historical high. Virtually all markets are currently in excellent shape and supply chains continue to be rather depleted. Despite all efforts to expand manufacturing capacities quickly, lead times for many product lines have stretched out rapidly and massively. Price pressure presently is very low and selected price increases are being implemented, partially required to offset increased costs for metals and transportation.

Commenting on the regions. We see continued strong performance in Asia and in the Americas. Europe is somewhat lagging due to temporary supply problems in the automotive sector caused by a lack of ICs. The Industrial segment drives demand in all the regions. Distribution in all hemispheres continues to be extremely hungry for product.

Talking about distribution, global distribution continues to get overwhelmed with orders. We see a record high since at least 15 years. POS in the second quarter was 5% over prior quarter and a remarkable 45% over prior year. After massive increases in the first quarter, POS increased further in all regions; by 3% in the Americas, by 6% in Asia and by 5% in Europe.

Global distribution inventory has stabilized on very low partially critically low levels. Inventory turns of global distribution increased to quite extreme 4.4 from 4.3 in prior quarter; in the Americas, 2.1 after 1.9 in Q1 and 1.4 in prior year; in Asia, 7.4 turns after 6.7 in Q1 and 4.1 in prior year; 4.6 turns in Europe after 4.4 in Q1 and 3.0 in prior year.

Talking about the various industry segments we serve. Automotive continues strong globally with OEMs continuing to struggle for replenishing vehicle inventory. The increase of electronic content clearly accelerates. There are some temporary supply programs leading to some artificial slowdown of the industry. Still expect previously forecasted growth of 10% versus prior year in terms of vehicles. We see an exceptional growth of the industrial sectors, which indicates an ongoing broad global upturn.

Factory automation and accelerated residential development, governmental investments in power generation and transmission systems as well as alternative energy systems are driving the demand. Markets for computer and peripherals equipment are holding up well. 5G base station equipment continues to show promising growth in telecom. Military spending continues reasonably strong commercial aerospace showing first signs of recovery. The medical sector stabilized on a high level and consumer market sectors continued to show growth, driven by high rates of home construction, traditional television and gaming.

Coming to the business development for Vishay. Due to high orders and backlogs and based on the continued increase of manufacturing capacities, Q2 sales excluding exchange rate impacts came in at a record and above the midpoint of our guidance. We achieved sales of $819 million versus $765 million in prior quarter and $582 million in prior year. Excluding exchange rate effects, sales in Q2 were up by $55 million or by 7% versus prior quarter and up by $215 million or 36% versus prior year.

Book-to-bill in the second quarter remained on a very high level of 1.38 after 1.67 in prior quarter, 1.41 for distribution after 1.89 in quarter one, 1.34 for OEMs after 1.41, 1.41 for semiconductors after 1.86 in Q1, 1.35 for passives after 1.50 in quarter one, 1.33 for the Americas after 1.42 in the first quarter, 1.29 for Asia after 1.86 in Q1, 1.54 for Europe after 1.62 in Q1.

Backlog in the second quarter climbed to another record high of 7.5 months after 6.8 months in Q1, 8.4 months in semis after 7.7 months in quarter one and 6.7 months in passives after 5.9 months last quarter. There's practically no price decline, in fact there are some increases quarter-over-quarter. Vis-a-vis prior quarter, we saw a price increase of 1% and versus prior year a slight loss of 0.3%. In semis, these numbers were an increase of 1.5% versus prior quarter and a slight decrease of 0.7% versus prior year. For passives, price increases plus 0.4% versus prior quarter and plus 0.1% versus prior year.

Some highlights of operations. Thanks to continued excellent plant efficiencies and despite still high transportation and metal costs, contributive margin in the second quarter improved further, returning to traditional levels. SG&A costs in the second quarter came in at $104 million according to expectations when excluding exchange rate effects. Manufacturing fixed costs in the second quarter came in at $141 million and according to expectation without ex tax rate effects.

Total employment at the end of the second quarter was 22,500, 2% up from prior quarter at 22,060. Excluding exchange rate impacts, inventories in the quarter increased by $31 million, $11 million in raw materials and $20 million in way-in-process and finished goods. Inventory turns in the second quarter remained at a very high level of 4.8. Capital spending in Q2 was $32 million versus $25 million in prior year, $20 million for expansion, $2 million for cost reduction and $10 million for the maintenance of business.

In view of the extremely high market demand, we are accelerating mid-term expansion programs noticeably. We now expect for the year '21 capex of approximately $250 million. We generated in the second quarter cash from operations of $365 million on a trailing 12-month basis. We generated in the second quarter free cash of $230 million, again on a trailing 12-month basis. Despite increased capex, we also for the current year expect a solid generation of free cash, quite in line with our tradition.

Let me come to our product lines and I start as always with resistors. With resistors, we enjoy a very strong position in the auto, industrial, military and medical market segments. We offer virtually all resistor technologies and are globally known as a reliable and high quality supplier of the broadest product range. Vishay's traditional and historically growing business has recovered completely from the pandemic running at record levels now.

Sales in the quarter were $195 million, up by $8 million or 4% versus prior quarter and up by $47 million or 32% versus prior year, all excluding exchange rate impacts. Book-to-bill ratio in the second quarter continued strong at 1.39 after 1.50 in prior quarter. Backlog increased further to 6.6 months from 5.6 months in prior quarter.

Due to higher volume and quite excellent efficiencies in the plants, gross margin in the second quarter increased further to 30% of sales from 29% in prior quarter. Inventory turns in the quarter remained at a very high level of 5.1. Selling prices are increasing plus 0.5% versus prior quarter and plus 0.6% versus prior year. We are in process to raise critical manufacturing capacities for resistor chips and for power wirebond substantially, opening also a new production site in China. And we do expect a very successful year for resistors.

Coming to inductors. This business consists of power inductors and magnetics. Since years, this is our fastest growing business we have in passives and represents one of the greater success stories of Vishay. Exploiting the growing need for inductors in general, Vishay developed a platform of robust and efficient power inductors and leads the market technically. With magnetics, we are very well positioned in specialty businesses, demonstrating their steady growth. Sales of inductors in the second quarter were $86 million, up by $2 million or 3% versus prior quarter and up by $19 million or 29% versus prior year, all excluding exchange rate effects.

Book-to-bill ratio in the second quarter increased to 1.21 after 1.13 in prior quarter, backlog grew to 5.1 months from 4.5 in Q1. Gross margin reached a quite excellent level of 34% of sales after 33% in the first quarter. Inventory turns normalized to a level of 4.7, down from 5.1 in the first quarter. We see a reduced price pressure. We see price increases of 0.8% versus prior quarter and a decline of 2.2% versus prior year. We are accelerating our next steps of capacity expansion for power inductors in order to get ahead of the demand curve.

Capacitors. Our business with capacitors is based on a broad range of technologies with a strong position in American and European market niches. We enjoy increasing opportunities in the fields of power transmission and of electro cars namely in Asia, especially in China. Sales in the second quarter were $120 million, 13% above prior quarter and 36% above prior year without exchange rate effects.

Book-to-bill ratio in the second quarter remained at a high level of 1.37 after 1.73 in prior quarter. Backlog increased to a record level of 7.7 months from 7.4 months in Q1. Gross margin in the quarter improved further to 24% of sales coming from 23% in Q1. Inventory turns in the quarter remained at 3.9. Selling prices are increasing, plus 0.2% versus prior quarter, plus 1% versus prior year. We also expect a good year for capacitors driven by large governmental projects in China by a solid mill business and a very friendly business environment in general.

Opto products. Vishay's business with opto products consists of infrared emitters, receivers, sensors and couplers. The business in 2020 experienced a significant recovery from disappointing results in prior years. Also in opto, we see a strong acceleration of demand. Sales in the quarter were $76 million, 3% below prior quarter, but 47% above prior year without exchange rate impacts.

Book-to-bill in the second quarter remained at a very high level of 1.69 after 1.66 in the first quarter. Backlog continued to grow to an extreme high of 9.3 months after 7 months in Q1, partially due to COVID-related restrictions of manufacturing capacities in Malaysia. This is the only place we incurred such restrictions. Gross margin in the second quarter remained at an excellent level of 32% of sales after 33% in the first quarter. I think we can say that opto is back to its historical profitability level. We see more normal inventory turns of 5.8 in the quarter after 6.4 in Q1. Also in the case of opto, selling prices are going up, plus 1.7% in prior quarter and plus 1.5% versus prior year. And we are in process to modernize and expand the Heilbronn fab in Germany.

Diodes. Diodes for Vishay represents a broad commodity business where we are the largest supplier worldwide. Vishay offers virtually all technologies as well as the most complete product portfolio. The business has a very strong position in the automotive and industrial market segments and keeps growing steadily and profitably since years. The business has started to exceed pre-pandemic levels. Sales in the quarter were $175 million, up by $18 million or by 11% versus prior quarter and up by $47 million or 36% versus prior year without exchange rate effects.

There is a continued strong book-to-bill ratio of 1.45 in the quarter after 1.85 in the first quarter. Backlog climbed to an extreme high of 8.9 months from 7.9 months in prior quarter. Gross margin continued to improve to now 24% of sales as compared to 22% in Q1. Inventory turns were at 4.7 after 4.8 in prior quarter. Also for diode, selling prices are increasing by 1.7% versus prior quarter and by 0.2% versus prior year. We decided for a substantial expansion of our in-house fab capacity in Taipei introducing at the same time the 8-inch technology relevant also of course for cost reduction. As expected, diodes with a return to normal volumes has reached the pre-pandemic profitability levels.

MOSFETs. Vishay is one of the market leaders in MOSFET transistors. With MOSFETs, we enjoy a strong and growing market position in particular in automotive, which in view of an increasing use of MOSFETs in automotive will provide a successful future. Demand has reached extreme levels and increases further. Sales in the quarter were $168 million, a record level, 10% above prior quarter and 39% above prior year excluding exchange rate effects.

Book-to-bill ratio for MOSFETs in the quarter was 1.26 after 1.97 in the first quarter. Backlog remained at an extreme level of 7.9 months as compared to 7.8 in Q1. Due to a combination of higher volume, better prices and even better efficiencies, gross margin in the quarter increased noticeably to 28% of sales, up from 24% in prior quarter. Inventory turns in the quarter increased further to 5.0 from 4.7 in Q1. We see decreasing price pressure. We have indeed increases of prices reasonably prior quarter of 1.2% and minus 2.5% versus prior year, much lower than normal. MOSFETs remain key for Vishay's growth going forward.

Let me summarize. Our industry and also Vishay continues to operate in a quite excellent economic environment. There is an unstoppable global trend toward electronification that makes our future promising. We are exploiting the present high demand to the best we can. But beyond this, we expect a mid-term acceleration of the electronification worldwide.

We are preparing ourselves in terms of available machine capacities and will provide the capital required. While enjoying higher growth, we will definitely keep our feet on the ground in terms of fixed costs, as we always did so in the past. But we do plan to increase further our technical presence in the markets and we will increase critical R&D resources. We will do our utmost to remain the same fair and service oriented supplier close to our customers we are known for. The results for the third quarter look promising. We guide to a sales range between $810 million and $850 million at a gross margin of 28.3%, plus/minus 15 basis points.

Thank you very much. Return the call to Peter.

Peter Henrici -- Senior Vice President-Corporate Communications and Corporate Secretary

Thank you, Dr. Paul. We'll now open the call to questions. Ashley, please take the first question.

Questions and Answers:

Operator

And your first question comes from Karl Ackerman with Cowen.

Karl Ackerman -- Cowen -- Analyst

Yes. Thank you very much. Appreciate the question, Dr. Paul. Dr. Paul, maybe a question for you first. One of your peers last week at an Analyst Day articulated they will deemphasize these great products that could expand your TAM, I think, in excess of $500 million. Does your third quarter outlook include some initial benefit from that opportunity? And if not, what sort of engagements have you had that might allow you to gain a stronger foothold as your industry peer deemphasizes areas of overlap for you?

Gerald Paul -- President and Chief Executive Officer

First of all, we live in times when the market opportunities do not really determine the sales level. At the moment, it is indeed the manufacturing capability that determines the sales level. This is really the case at the moment. It's not always so, but in this phase of our business, that's clearly the case. So really it's manufacturing that determines the level.

Of course, we are broad line [Phonetic] as you know and we are also proud to be in practically all relevant market sectors present. And I think I said it, we are going to increase further our technical representation there. So we are going to add engineers in the fields, which we have done so a couple of times, it's not new, but we want to increase further in order to participate in all these various programs in all these industry segments, but we are very well represented in automotive especially. I think we are very close to the pulse of the industry and I think we are well-positioned. So whatever happens will benefit Vishay.

Karl Ackerman -- Cowen -- Analyst

I appreciate that. For my follow-up question, you indicated that you would be spending a little bit more on capacity expansion. I think rightfully so given backlog is extending closer to nine months for at least diodes and opto products. At the same time, you've got nearly a record level of cash on the balance sheet. I also believe, in the last call, you had indicated you would be firming up your capital allocation strategy around this timeframe. And so, I was hoping you might address that today, whether how are you thinking about share buybacks and/or perhaps dividend, this can be the record amount of cash as you have today as well as what appears to be a very strong outlook not just for the third quarter but in the interim period as well? Thank you.

Gerald Paul -- President and Chief Executive Officer

Okay. Well, first of all, it's not the answer to your question really but just to lay the groundwork. This higher capex which we are showing this year is very likely to continue for a few years as a matter of fact. So we have to spend capital, exploiting the chances which we, I think, undoubtedly have in the future, undoubtedly. Concerning what you said what we want to do with all the cash produced which still will be left over, but that's no question. And you are not mistaken, we are indeed, I admit so for discussion how to return more to the shareholders as a matter of fact. A final decision has not been taken in which way we're going to do it, but the Board in particular will deal with that in the very foreseeable future. I cannot say more at this point in time.

Karl Ackerman -- Cowen -- Analyst

Thank you.

Operator

Your next question comes from Ruplu Bhattacharya with Bank of America.

Ruplu Bhattacharya -- Bank of America -- Analyst

Hi. Thank you for taking my questions. My first question is on gross margins. Can you help us quantify the 150 basis points of improvement that you saw in the second quarter? How much of that was volumes? How much of that was mix or FX or commodity costs? If you can just help us quantify like what are the different impacts that you've had that helped the 150 basis points.

Gerald Paul -- President and Chief Executive Officer

As a matter of fact, the biggest impact in our case is always volume [Indecipherable] principally the case. On top of that, I think we also had additional efficiency gains that helped to offset costs, which are high at the moment in metals and grew further and also in transportation, which are on a high level. These are the major issues.

I think, this is basically -- the prices, of course, helped. We were increasing some prices. Our industry is -- the industrial price decline in a way and our cost reduction must be faster than that, which normally is at least compensating that. As soon as the price declined, the pressure of price decline mitigates. And this is the time where we can see that as announced. Then of course, the cost reduction wins so to speak and you see a better performance overall. So, I believe it's the volume, it's the prices and the efficiencies.

Ruplu Bhattacharya -- Bank of America -- Analyst

Yes. Thanks for that. That makes sense, Dr. Paul. I just have a couple of quick follow-ups. In response to one of the prior questions, I think you said capex should also remain high in the next couple of years, given you want to add capacity and take advantage of that. So, I think you guided $250 million for fiscal 2021. Should we expect the same level in the fiscal '22?

Gerald Paul -- President and Chief Executive Officer

I would say, on our base business, as a matter of fact, we would expect it to be on the same level. We have not finalized any budget in this case. But I would suspect, if we didn't do any special projects on top of everything, I believe the $250 million is a good guess for Vishay next year also.

Ruplu Bhattacharya -- Bank of America -- Analyst

Okay. And if I look at this year, so far you've done about $60 million of capex. And so, the $250 million for the full year, like you said, is an acceleration in 3Q and 4Q. How should we -- when do you think that capex comes in? When do you think there'll be completely [Phonetic] that capacity?

Gerald Paul -- President and Chief Executive Officer

First of all, this is always a disease that during the year the capex really is more toward the end of the year. We know the effect, it's obviously the same every year. But I am pretty sure that we are going to spend this. And I think concerning capacity, we are adding capacity. I think people go into the new year for all Vishay is a 5% higher capacity and we will go a year later into the year '23 then with a 15% to 18% higher capacity.

Ruplu Bhattacharya -- Bank of America -- Analyst

Okay. That's helpful. Appreciate that. And just for my last question, if I can ask about price increases, it's encouraging after many quarters you've had sequential price increase this quarter. Do you think that can sustain in the September and the December quarters? Do you think prices can definitely go up?

Gerald Paul -- President and Chief Executive Officer

Yes, we do. We clearly do. I would suspect that what happened in Q2 will also happen in Q3 again.

Ruplu Bhattacharya -- Bank of America -- Analyst

And is that a response to cost increases or is that just because the end market demand is higher or both?

Gerald Paul -- President and Chief Executive Officer

The possibility of course comes from the demand but also is driven and required partially by higher costs in particular on the metals and also in transportation as a matter of fact.

Ruplu Bhattacharya -- Bank of America -- Analyst

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

Operator

[Operator Instructions] And your next question comes from Matt Sheerin with Stifel.

Matt Sheerin -- Stifel -- Analyst

Yes. Thank you. Good morning, everyone. Dr. Paul, I wanted to ask about the strong distribution sales both in and the point of sale and sell through in distribution. I guess, one question is, it looks like distribution inventories are still lean, but do you have a sense of the distributor customers' inventories, whether they're starting to build inventory or that's flushing through in terms of their end products?

Gerald Paul -- President and Chief Executive Officer

Well, you know very well, Matt, we don't have a reporting there. So it's our impression at best. Inventory is very lean, as you indicated, so lean as I personally cannot really remember having seen it like that. Concerning the end customers, I can only give you our impression, of course, we are discussing that. Is there a hidden inventory build somewhere? And really we don't see it. We don't see it. As a matter of fact, in automotive in particular, we have 50% of everything through consignment stocks. And the temptation to build in-house inventories therefore is much lower. But even in the other product lines, we are not under the impression that inventory builds at OEMs as a matter of fact at this point.

Matt Sheerin -- Stifel -- Analyst

Okay. And then, I saw that your automotive segment was down roughly 5% sequentially, in line with some of your peers. Is that just a function of the issues you talked about in terms of production? And as you look into the rest of the year, do you see that picking up? Is sort of June marks the bottom, if you will? And do you expect a revenue there to pickup?

Gerald Paul -- President and Chief Executive Officer

Well, it exactly concerns us too. So we had some discussions with the large customers. And as a matter of fact, let me reconfirm. It is clearly and only the lack of ICs which they have. As a matter of fact, the demand for cars is there, the lead times are long and they really wait for a better supply in ICs. So, it's as simple as that. And we do expect that all these cars that are on order will have to be built in as soon as this shortage is over. When this will be? I don't know. We expected it to be already better in the second quarter -- in the course of the second quarter, third quarter, but obviously it's another delay. I would suspect this will drag into quarter four at least.

Matt Sheerin -- Stifel -- Analyst

Okay. And just lastly, I'm concerning on your commentary about book-to-bills and backlog. It looks like backlog in most of your product areas are at record highs, yet the bill is coming in a little bit. Is that just a function of the higher sales levels that you're on or is there anything to read into that?

Gerald Paul -- President and Chief Executive Officer

No, I think the lead times have come to a point that it's quite useless to put on top of it orders with a book to -- creating a book-to-bill of close to 2 -- 1.5 to 2. It's just a normal effect of really full capacities, I believe. The business is as hot as it was. It was kind of misleading in a way.

Matt Sheerin -- Stifel -- Analyst

Okay. Very good. Thank you.

Operator

[Operator Instructions] And at this time, there are no further questions.

Peter Henrici -- Senior Vice President-Corporate Communications and Corporate Secretary

Thank you for joining us on today's call and for your interest in Vishay Intertechnology. This concludes our second quarter 2021 call.

Operator

[Operator Closing Remarks]

Duration: 46 minutes

Call participants:

Peter Henrici -- Senior Vice President-Corporate Communications and Corporate Secretary

Lori Lipcaman -- Executive Vice President and Chief Financial Officer

Gerald Paul -- President and Chief Executive Officer

Karl Ackerman -- Cowen -- Analyst

Ruplu Bhattacharya -- Bank of America -- Analyst

Matt Sheerin -- Stifel -- Analyst

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