AVX Corporation (



F3Q2012 (12/31/11) Earnings Conference Call

January 25, 2011 10:00 AM EST


John Gilbertson – CEO and President

Kurt Cummings – CFO


Matt Sheerin – Stifel Nicolaus

Joe Wittine – Longbow Research

Jim Suva – Citi



Good morning. My name is Chris and I will be your conference operator today.

At this time, I would like to welcome everyone to the third quarter earnings conference call.

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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).

I will now turn the call over to John Gilbertson, CEO and President. Please go ahead, sir.

John Gilbertson

Yes, thank you, Chris. Good morning. I’d like to thank you for attending the AVX conference call regarding the results for our third quarter that ended in December. I am John Gilbertson, and with me today is Kurt Cummings, AVX Chief Financial Officer, and Peter Collis, our Worldwide Tantalum Operational VP.

I hope you’ve had a chance to review our earnings release that was issued this morning. The December quarter was a challenging quarter. The global economic uncertainty combined with an inventory level correction up and down the supply chain but affected the orders and sales pattern. The supply disruption in Thailand had some impact as availability of other products limited production at several of our customers. But these impacts were overshadowed by inventory concerns as many customers were reluctant to take any product beyond the immediate need.

The quarter revenues were most impacted by actions at major distributors to reduce their inventory levels and limit shipments at the end of the year. The OEM market channel saw less impact which we believe indicates likely improvement going forward, despite continued uncertainty regarding the general economy as you all well know. Inventory levels at all customers are being watched closely until the demand picture becomes clear. The feedback from our customers is that inventory correction will be complete by the end of the March quarter and demand should accelerate in the second half of the calendar year. January activity has been encouraging, but the unknown is if the inventory correction will persist into the June quarter.

Automotive, especially in Europe, continues to be strong. And as indicated in the last call, in many ways seemed to be acting apart from the rest of the users of components. Another major area, the phone market, continues with good news regarding the continual strength of smartphones, but has been offset by some weakness in the feature phones which many of our customers are moving away from in favor of the newer smartphones. In general, other end-market demand appears to have stabilized and in some categories to be increasing.

The sales in the quarter were $341 million. In this quarter, the distribution channel represented approximately 35% of our overall shipments, down from 38% in the last quarter and 42% in the quarter previous to that, reflective of the conservative inventory position I mentioned earlier. For the distributors, they appeared to be seeing stable activity with their customers and a continuing reduction in their months of inventory in some categories.

To summarize the market segment, automotive remained strong in all three regions, with Europe leading the way. As the electronic systems become more complex and smarter, we are seeing more components and increasing overall unit growth. Some of our acquisition efforts are concentrated in the automotive sector, especially in Asia. Power film capacitors associated with power storage in hybrid and electric vehicles and transient voltage suppressors in the vehicle electronic systems are creating opportunities for additional new products in automotive.

As mentioned earlier, the mobile handset market is continuing to see a shift from feature phones to smartphones at a more rapid rate than anticipated. Already at 26% of the overall handset market, up from 21% a year-ago, the smartphone will most likely continue to be the main growth driver in cellphones. The increase in functionality of these smartphones increases the need for AVX components. Smartphones typically have twice the number of components than a traditional cellphone, but also are putting more pressure on bandwidth requirements.

The increase in demand for more bandwidth at the network operator is driving the need to upgrade existing wireless broadband and telecom infrastructure. Everyone is pushing for more bandwidth, and this should result in growth for this market in the next couple of years. This will increase the component count as the need for features and efficiencies converge. The latest base station utilizes more sophisticated electronic solutions to support the increase demand in bandwidth. We anticipate traditional defense spending to be restrained this next year, although at the current time we have not seen a significant impact. Some projects are active like the unmanned aerial vehicles and increased satellite activity.

In the consumer market, the 3D television has not created the growth in the market as originally expected. At the 2012 CES Show in Vegas, it was reported new TV with both 4K and 8K resolutions were very impressive. These newer features could expand the use of current product offerings.

In the medical area, we have seen some recent improvements in this area. Pacemakers continue to show growth, while defibrillators are moderating. Growth in the newer neuro stimulation devices for pain continues strong. AVX has a strong presence in these devices through our high-reliability miniaturized capacitors and other components. We believe that we will continue to see the number one – to be the number one component supplier by a wide margin in the medical business.

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