Is Vishay Intertechnology's Q2 Earnings a Buying Opportunity Amid Inventory Challenges?

Vishay Intertechnology's Q2 2025 earnings report paints a mixed picture for investors. While the company posted sequential revenue growth and positive market signals, it also grappled with margin compression, inventory inefficiencies, and cash flow pressures. The question for investors is whether these near-term challenges overshadow Vishay's long-term strategic positioning in a semiconductor industry poised for a generative AI (gen AI)-driven upcycle.

Q2 Performance: Growth Amid Margin Headwinds

Vishay reported Q2 revenue of $762.3 million, a 6.6% sequential increase and 2.8% year-over-year growth. This outperformance in a still-fragile market is encouraging, particularly given the broader industry's inventory normalization phase. However, the gross margin of 19.5% fell short of the 22.0% recorded in Q2 2024, primarily due to the integration of the Newport wafer fab. The acquisition, while strategic for long-term capacity expansion, has introduced a 160-basis-point drag on margins, a headwind expected to persist into Q3. Operating margin also declined to 2.9% from 5.1% in the prior-year period, despite a $11.3 million benefit from a contingency resolution.

The company's adjusted loss per share of -$0.07 underscores the profitability pressures, but management's Q3 guidance of $775 million ± $20 million in revenue and a 19.7% gross margin (± 50 bps) suggests confidence in stabilizing performance. This guidance, however, still accounts for a 160–185 bps negative impact from Newport integration, indicating that margin normalization will take time.

Inventory and Cash Flow Challenges

Vishay's inventory levels remain a critical concern. Total inventories stood at $754.866 million as of June 28, 2025, with $192.393 million in finished goods and $326.575 million in work-in-progress. These figures reflect ongoing struggles to align production with demand, particularly in volatile markets like automotive and industrial applications. The company also recorded $17.456 million in inventory write-offs for obsolescence in the first half of 2025, a trend consistent with the broader industry's shift toward AI-driven components.

Cash flow from operations turned negative at -$8.8 million in Q2, while free cash flow plummeted to -$73.2 million, driven by $64.6 million in capital expenditures. The cash conversion cycle lengthened to 130 days, signaling inefficiencies in working capital management. Over the six months ending June 28, Vishay's cash and cash equivalents declined by $116.426 million, raising questions about liquidity flexibility.

Industry Context: A Semiconductor Sector on the Cusp of Recovery

The global semiconductor industry is entering a pivotal phase. With 2025 chip sales projected to reach $697 billion, driven by gen AI demand, Vishay's long-term growth prospects are tied to its ability to capitalize on this upturn. The company's $2.6 billion capital expenditure plan from 2023 to 2028, including $320 million in 2024 alone, underscores its commitment to scaling silicon carbide (SiC) production and AI infrastructure components. These investments align with secular trends: the EV market is expected to grow at a 22% CAGR, while AI server infrastructure demand is surging.

Vishay's Vishay 3.0 strategic plan aims to achieve a 9–11% revenue CAGR and gross margins of 31–33% by 2028. While these targets are ambitious, they are achievable if the company successfully executes its restructuring efforts, which are projected to generate $23 million in annual savings by 2026. The focus on high-growth markets like EVs and AI positions Vishay to outperform in a sector expected to grow at a 15.4% CAGR through 2032.

Balancing Near-Term Risks and Long-Term Potential

The key question for investors is whether Vishay's near-term inventory and margin challenges justify a discount to its intrinsic value. On one hand, the company's Q2 results highlight operational inefficiencies and cash flow strain. On the other, its strategic investments in SiC and capacity expansion are well-aligned with industry tailwinds. The integration of Newport, while dilutive in the short term, is a necessary cost to secure long-term market share in high-margin segments.

Vishay's Q3 guidance, while conservative, reflects management's cautious optimism. The company's backlog of 4.6 months and a book-to-bill ratio of 1.02 (with passive components at 1.06) suggest a stable demand pipeline. Moreover, the broader semiconductor industry's shift toward advanced packaging and AI-driven design tools could enhance Vishay's competitive positioning if it leverages its R&D capabilities effectively.

Investment Implications

For investors with a medium- to long-term horizon, Vishay's current valuation may present an attractive entry point. The stock has underperformed the broader semiconductor index over the past year, as reflected in . However, the company's disciplined capital allocation, restructuring efforts, and alignment with AI and EV growth sectors could drive a re-rating as the industry upcycle gains momentum.

That said, investors should monitor key metrics:
1. Margin normalization: Progress in reducing the Newport integration drag and improving gross margins to 2024 levels.
2. Inventory efficiency: Reduction in write-offs and a shorter cash conversion cycle.
3. Capital discipline: Balancing CAPEX with free cash flow generation to avoid liquidity constraints.

If Vishay can navigate these challenges while maintaining its focus on high-growth markets, it could emerge as a compelling long-term investment. However, near-term volatility and operational risks remain, making this a speculative bet for those with a higher risk tolerance.

In conclusion, Vishay's Q2 earnings highlight both the challenges and opportunities inherent in its strategic transformation. While the near-term inventory and margin pressures are real, the company's long-term positioning in a recovering semiconductor cycle and its disciplined approach to capacity expansion warrant a closer look. For investors willing to stomach short-term volatility, Vishay could offer a compelling reward as the AI and EV megatrends gain full traction.