Semis & AI: VSH (NR) meetings reflect positive industry dynamics, plus idiosyncratic improvements.

Research evidence excerpt

Semis & AI: VSH (NR) meetings reflect positive industry dynamics, plus idiosyncratic improvements.

nd higher profitability. Management explained that, under

the current CEO's tenure, the company's focus is to maximize the value of its

assets more broadly (i.e., product IP, and industry relationships). This approach

includes significant capacity investments, the establishment of subcontractor/foundry

manufacturing agreements, an increased focus on product development, and a shift

in sales focus to higher-margin channels and end markets. This approach accepts

more cyclical (including episodic negative) cash flows in return for faster growth and

higher profitability through the cycle.

Next, let's transition to VSH's industry-wide observations

• Broad based end market strength. VSH noted that its book/bill and backlog have

been increasing over the last few quarters, reaching 1.34 in CQ1, and suggested that

such elevated levels are persisting into Q2. Management noted particular strength

in substantially all of its end markets, most notably in healthcare (medical devices),

industrial, aerospace/defense, and even automotive. It's impossible for us to dissect

how much of this strength is related to idiosyncratic factors described above, and

how much is related to cyclical dynamics. Management's description of customer

discussions reveals that both factors are contributing.

• Derivative reads support strength across our semis/AI coverage... VSH

management's demand commentary is consistent with our recent feedback from

industry contacts (component buyers/sellers) that led to our sector upgrade, and

feedback from other recent corporate access events from Arrow (ARW, Buy), TTM

(TTMI, Buy) and our Phoenix area bus tour. This is quite supportive of broad based