Semiconductor manufacturer Vishay Intertechnology (NYSE: VSH) met Wall Street’s revenue expectations in Q2 CY2025, with sales up 2.8% year on year to $762.3 million. On the other hand, next quarter’s revenue guidance of $775 million was less impressive, coming in 0.9% below analysts’ estimates. Its non-GAAP loss of $0.07 per share was significantly below analysts’ consensus estimates.

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StockStory’s Take

Vishay Intertechnology’s second quarter faced notable headwinds, leading to a negative market reaction following the earnings release. Management attributed the company’s results to persistent margin pressures, ongoing manufacturing inefficiencies in its MOSFET (metal-oxide-semiconductor field-effect transistor) segment, and the continued impact from the Newport wafer fab expansion. CEO Joel Smejkal highlighted that while revenue grew across all segments and regions, “manufacturing inefficiencies” and lower average selling prices offset volume gains, particularly in semiconductors. CFO Dave McConnell pointed to increased operating costs and the drag from the Newport facility as key contributors to the quarter’s underperformance.

Looking ahead, Vishay’s forward guidance reflects a cautious approach as management anticipates only modest improvement in demand and continued external challenges. Smejkal emphasized that backlog growth in both semiconductors and passive components signals a potential market upturn, but noted, “customers are still not so forward-looking” and remain focused on quick-turn orders. McConnell added that gross margins are expected to remain under pressure due to ongoing input cost inflation and the transition costs from capacity expansion projects, especially as the Newport fab ramps up preproduction activities into next year.

Key Insights from Management’s Remarks

Management cited broad-based volume growth across all end markets but emphasized that margin pressures and operational challenges weighed on overall profitability.

• Automotive demand recovery: Automotive revenue improved on new ADAS (advanced driver-assistance systems) launches in Europe and higher volumes in Asia. Management highlighted ongoing electrification and smart cockpit projects as drivers of new design activity.

• Industrial and AI infrastructure strength: The industrial segment benefited from normalized customer inventories and increased demand for smart grid infrastructure and AI-related power applications. Smejkal referenced large orders for high-voltage DC power transmission, particularly in Asia and Europe, as contributing to growth.

• Aerospace/defense and medical expansion: Improved military application demand and new low earth orbit satellite programs supported aerospace/defense revenue, while medical segment growth was driven by implantable and diagnostic equipment orders. Design wins in these markets are expanding Vishay’s bill-of-materials content per customer.

• Distribution channel momentum: Distribution revenue grew as inventory correction cycles ended and new Vishay products were added to distributor shelves. Inventory weeks at distributors dropped from 27 to 23, indicating increased consumption and faster sell-through.

• Capacity expansion and Newport impact: Significant ongoing investment in capacity, especially at the Newport wafer fab, continued to weigh on margins. The transition and preproduction costs from this facility remain a drag, with normalization expected as production scales into 2026.

Drivers of Future Performance

Vishay expects ongoing margin headwinds and only gradual demand improvement, as the company navigates capacity expansion and evolving customer order patterns.

• Capacity readiness focus: Management is prioritizing investments in high-growth product lines and capacity expansion, especially for silicon carbide and MOSFETs, in anticipation of increased demand from automotive, industrial, and AI-related applications. These investments are expected to position Vishay to capitalize on a market upturn but will continue to pressure free cash flow and margins in the near term.

• Tariff and input cost dynamics: The company is generally able to pass through additional tariff costs to customers, minimizing direct profit impact. However, input cost inflation and the operational drag from the Newport facility will likely continue to constrain gross margin recovery until capacity utilization improves.

• Order visibility and quick-turn demand: Backlog growth in both semiconductors and passives is a positive sign, but customers remain reluctant to provide long-term order visibility. Smejkal noted that a high proportion of orders are for short lead times, especially in Asia, making demand forecasting and operational planning more complex.

Catalysts in Upcoming Quarters

Our team will be monitoring (1) progress on ramping up production and reducing margin drag at the Newport wafer fab, (2) further signs of demand stabilization or acceleration in automotive, smart grid, and AI infrastructure markets, and (3) the pace of inventory normalization and increased sell-through at distribution partners. Execution on new product qualifications and the ability to improve manufacturing efficiencies will also be critical milestones for Vishay in the coming quarters.

Vishay Intertechnology currently trades at $14.77, down from $16.01 just before the earnings. In the wake of this quarter, is it a buy or sell? The answer lies in our full research report (it’s free).

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