AVX Corporation (

AVX

)

F2Q 2012 Earnings Call

October 26, 2011 10:00 a.m. ET

Executives

John S. Gilbertson - CEO and President

Kurt Cummings – CFO

Analysts

Matt Sheerin - Stifle Nicolaus

Shawn Harrison - Longbow Research

Jim Suva – Citi

Presentation

Presentation

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Good morning. My name is Alicia, and I will be your conference operator today. At this time, I would like to welcome everyone to the second quarter earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question-and-answer session. (Operating Instructions). Thank you. Mr. John Gilbertson, CEO and President, you may begin your conference.

John Gilbertson

All right, thank you very much. Good morning. I’d like to thank you for attending the AVX conference call regarding the results for our second fiscal year quarter that ended in December – pardon me, it ended in September. I’m John Gilbertson, and with me today is Kurt Cummings, AVX’s Chief Financial Officer.

The September quarter was a dynamic quarter, and matched all the macro uncertainty that we were seeing around us. Our revenues were hurt to a degree by the typhoon in Hong Kong, where AVX has a major distribution center. We might have had an additional 4 or $5 million of revenue had we not been shut down those days very late in the quarter.

But, good news is the margins held up well across many product segments, even with weakness in the distribution channel. The major influence on the quarter revenue was the hesitation by most major distributors to inventory above and beyond that tie directly to orders on their books.

The OEM and CEM channels were impacted but not as deeply as distribution. There continues to be uncertainty regarding the general economy in that area. September wasn’t a normal month due to all those moving targets, including currency swings and speculation about the strength of the holiday sales. The end-market demand appears to have stabilized and some categories be increasing.

The good news is the continual strength of the Smartphones was offset by a weakness in feature phones. The handset business will probably be better during the holiday than originally thought. But the mix will be dramatically different than previously anticipated.

Inventory levels at all customers are being watched closely until the ultimate demand picture becomes clear. Instead of September being an indicator month, it appears that October will be more of an indicator for the holiday build period.

Automotive, especially in Europe, continues to be strong. And in many ways seems to be acting outside of the rest of the users of components.

The sales in the quarter were $404.8 million. This quarter the distribution channel represented approximately 38% of our overall shipments, down from 42% last quarter, reflective of the conservative inventory position I mentioned.

For the distributors, we are seeing increasing activity in October, and a reduction in their months of inventory based on improving POS, driving down the months in some categories.

As regard to market segments. More specifically related to the overall markets, the PC computing market is going through a transition. We’re seeing more growth in tablets versus both desktops and notebook PCs. Tablet shipments were expected to rise to 60 million units in 2011, up from 17.5 million in 2010.

The tablet growth is driving component activities in the higher CV Ceramic Capacitors, and also in Polymer and low ESR tantalums. Additionally, more are using wireless connectivity to both Internet and the Cloud-based services. This drives the need for additional network infrastructure to support the additional bandwidth channel. The component count in a tablet is almost two times that of a notebook, and is usually a much smaller more sophisticated device.

In the Aerospace and Defense markets, defense spending on major programs appears to be moderating. However, there is increasing activity in commercial avionics and satellite programs that partially offset slowing defense-related spending.

The automotive market, as I mentioned earlier, continues to be active for AVX with demand for safety and fuel efficiency electronics, and the need for more integrated solutions. We expect further growth in these types of programs, and increased our manufacturing capability and footprint in Europe and the Americas, and now are expanding more in China in the connector area.

As mentioned earlier, in the mobile phone handset market, the fastest growing segment of this market continues to be the Smartphone. The worldwide Smartphone market will reach a total of 475 million units in 2011. This is up from 305 million units shipped in 2010. Smartphone’s will make up the largest share of total mobile phone shipment each year. And by the end of 2011, Smartphone’s are expected to account for 31% of all mobile phones shipped as compared to 22% share last year.

This important for us due to the content AVX has in each device. Typically, in Smartphones, AVX could have 500 ceramic capacitors, over twice what you would normally see in a standard mobile phone handset. The same is true for the account in Tantalum Capacitors, RF filters, and fine pitch connectors.

In the consumer segment, the typical seasonal uptick in the television market has not materialized. We are still seeing overall production flat quarter-to-quarter, but the use of passive components has increased in the individual units.

The flat panel display uses about two to three times the number of components over a normal CRT-type television, and requires higher reliability and functional components.

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