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Vicor Corp. (NASDAQ:VICR)

Q4 2008 Earnings Call

March 10, 2009; 5:00 pm ET

Executives

Richard Nagel Jr. - Vice President, Chief Accounting Officer

Patrizio Vinciarelli - Chairman, President and CEO

Mark Glazer - Vice President, Treasury Services

James Simms - Chief Financial Officer, Secretary, Director

Analysts

John Dillon - JB Associates

Richard Baxter -Ardour Capital

Don McKenna - D.B. McKenna & Company

Daniel Gorman - HighBeam Research

Jim Bartlett - Bartlett Investors

Robert Katz - Senvest

Ron Opel - Marston Capital Management

Operator

Good day, ladies and gentlemen, and welcome to the Vicor 2008 Fourth Quarter Earnings Conference Call. My name is Eric, I will be your audio coordinator for today. Now at this time, all participants are in a listen-only mode, and we will facilitate the question and answer session at the end of the presentation. (Operator instructions) I would now like to turn the presentation over to Mr. Dick Nagel, Chief Accounting Officer. Please proceed.

Richard Nagel Jr.

Thank you. Good afternoon and welcome to Vicor's quarterly conference call. I am Dick Nagel, Chief Accounting Officer and with me today is our Chief Executive Officer, Patrizio Vinciarelli, and Mark Glazer our Vice President of Treasury Services. Jamie Simms, our Chief Financial Officer is under the weather and unable to join us today. Earlier this afternoon, we issued a press release outlining our financial results for the quarter and year ended December 31, 2008.

This press release is available on the Investor page of our website, www.vicorpower.com. We also have filed the Form 8-K with the Securities and Exchange Commission in association with issuing this press release. Before we begin, I remind all of you, today's conference call is being recorded and is the copyrighted property of Vicor Corporation. Any rebroadcast, reproduction or other transmission of this conference call in whole or in part without the prior written consent of Vicor is prohibited.

In addition, I also remind you various remarks we may make during this call about future expectations, trends, plans, and prospects for the company and its business constitute forward-looking statements for purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995.

Forward-looking statements are denoted by such words as will, would, believe, should, expect, outlook, estimate, plan, anticipate, and similar expressions that look toward future events or performance. These forward-looking statements merely reflect our current beliefs, expectations and estimates, which we share with you during our quarterly conference calls.

Forward-looking statements are based on current information that, by its nature, is dynamic and subject to rapid and even abrupt changes. Our forward-looking statements are subject to risks and uncertainties, which may cause actual results to differ materially from those projected or implied in our statements. Such risks and uncertainties are discussed in today's press release as well as our most recent reports on Forms 10-K and 10-Q filed with the SEC.

A replay of this conference call will be available beginning shortly upon its conclusion through March 25, 2009 by calling 888-286-8010 and using the pass code 74581850. In addition, a webcast replay of this conference will be available on the Investor Relations page of the company’s website beginning shortly upon its conclusion.

However, the information provided during this call is accurate only as of the date of this call. Vicor undertakes no obligation to update any of the statements made during this call, and you should not rely upon them after the conclusion of this call. Patrizio and I have prepared remarks, after which we will take your questions. Patrizio?

Patrizio Vinciarelli

Thank you, Dick. Good afternoon everyone and welcome to our fourth quarter and year end conference call. As stated in this afternoon press release, revenues for the 12 months ended December 31, 2008 increased by approximately 5% to $205 million for 2008, from $196 million for 2007. Our net loss for 2008 was $3.6 million or $0.09 per diluted share compared to net income of $5.3 million or $0.13 per diluted share for 2007.

Turning to the fourth quarter of 2008, our revenues of $51.3 million fell short of the $53.9 million for the corresponding period a year ago. We have essentially unchanged from third quarter $51 million. Gross margin in dollars decreased to $20.10 million for the fourth quarter as compared to $21.3 million for the corresponding period a year ago, and $21.9 million for the third quarter of 2008.

Gross margin as a percentage of revenue increased to 40.5% for the fourth quarter of 2008, as compared to 39.4% for the fourth quarter of 2007, and decreased on a sequential basis from 42.7% for the third quarter of 2008.

Our net loss for the fourth quarter was $3.5 million or $0.08 per diluted share, compared to net income of $1.5 million or $0.04 per diluted share for the corresponding period a year-ago and net income of $610,000 or a $0.01 per share for the third quarter of 2008.

While sequential quarterly revenue was probably unchanged, our book-to-bill ratio for the fourth quarter of 2008 was 0.9321 as compared to 1.2021 for the third quarter of 2008. Backlog at the end of 2008 was $52.7 million as compared to $56.4 million at the end of Q3. As we cautioned before our quarterly book-to-bill ratios and backlog levels are not necessarily accurate for the sequential quarterly performance.

Out third quarter 2008 bookings were uncharacteristically high because a few customers accelerated the booking of all this that we had anticipated would be received over subsequent quarters. Similarly, our backlog is at a healthy level because even though the placement of certain orders was accelerated, the shipment of some portion of the associated product has not yet occurred.

Despite the irregularity of our booking trends, we believe that our fourth quarter bookings were influenced to some degree by the further deterioration of general economic conditions. We felt the impact of the driving economy most directly during the quarter in our consolidated gross margin, which was significantly lower in the fourth quarter versus third quarter due to unfavorable changes in product mix and charges associated with establishing or increasing reserves for inventories we had built up in anticipation of forecast sales that had not materialized that’s been canceled or being reduced.

Our operating income for the full year and for the fourth quarter was reduced by high expenses particularly marketing, accounting and legal expenses. In addition, in the fourth quarter, we incurred a higher income tax provision as, so there is subsidiary in which we all the minority interest experienced a profit that we could not offset through the companies net operating loss carry forward.

As I said in the prior calls, we are addressing our expenses and progressing on returning Vicor to consistent profitability. Our most significant step toward this goal was the reduction in force completed in January. We are proceeding with a number of projects to re-engineer some or at least efficient business processes enough to see results from these efforts later this year.

Now, we will turn to the fourth quarter performance and outlook for each of our business units. Revenue from our Brick Business unit remained steady, increasing slightly sequentially over the third quarter of 2008, but decreasing by approximately the same amount from those achieved in the fourth quarter of 2007.

The Brick unit experienced approximately 21% decline in orders for the fourth quarter, but I again caution listeners do not interrupt at this decrease not its magnitude, as we indicate our official revenues for the reasons discussed earlier.

We do not disclose the share of any particular market we compete in, but I can highlight that the Brick Business unit is sustaining business unit is sustaining its market position domestically. However, our international business showed further signs of weakness during Q4. While we also do not disclose profitability by individual business unit, the brick unit continues to perform relatively well. Our mass customization strategy, manufacturing flexibility and emphasis on cost reduction allows us to maintain significant profitability.

Our comment to the past regarding the effect of the recession our customers or in-turn our accounts receivable. We’re not yet concerned about the quality of our receivables nor with the ability of our customers to pass on time. While we did receive a few more requests for payment accommodation in the fourth quarter and in the third quarter.

Our DSOs are steady and we’ve not yet experienced a meaningful change in the quality or ageing of our receivables. I’ll now turn to our V-I Chip unit, which continues to make progress with component products enabling Factorized Power architecture. I've discussed on the last three earnings calls, the status of some high volume shipments that have been delayed by a major customer.

The revenue ramp that we expected to start in mid-2008 had been pushed out into 2009 and our bookings reflect this push out. While V-I Chips fourth quarter total revenues decreased approximately 24% sequentially on a year-over-year basis of approximately $15 million. V-I Chip was approximately 59% per head in 2008, compared to 2007 revenue levels.

V-I Chip’s initiative with our brick unit to design a market VI BRICKs maintained this momentum during the fourth quarter. As we’ve discussed, VI BRICK incorporated have innovated their chief technology to form a factor that offers the mechanical and thermal management flexibility of the traditional upgrade.

In addition, complementary certainly can be added to the package to enable innovative high-performance integrated solutions. While doing so in the smallest footprint available. Engineering and marketing teams from our big Brick Business unit had been identifying new opportunities for VI BRICKs and who will be rolling out a range of innovative VI BRICKs later this year.

Turning to Picor, I'm pleased to report that they continued to make progress on the execution of its synergistic strategy, while still in the early stages of evolving to a merchant supplier model, Picor is experiencing positive trends. Picor is rolling out new products that complement V-I Chips and early adopters of Vicor Power are seeing the advantages of incorporating Picor’s for management products into comprehensive power system solutions.

I will conclude in my formal remarks by reminding listeners that Vicor remains well capitalized and well positioned to make it through the present recessionary environment. Also with our efficient brick business model and the momentum we are seeing in these rapid technology products pioneered by Vicor and V-I Chip. We are well positioned for long term growth and long term profitability.

I will now turn the call over to Dick Nagel who will address our P&L and balance sheet in some detail. Dick?

Richard Nagel Jr.

Thank you, Patrizio. As Patrizio has addressed both consolidated and unit level revenue, I will focus my remarks on expenses, profitability, and liquidity. Vicor’s consolidated gross margins was $20.8 million for the fourth quarter of 2008, compared to $21.3 million for the corresponding period a year-ago and $21.9 for the third quarter of 2008. Gross margin as a percentage of revenue increased to 40.5% for the fourth quarter of 2008, compared to 39.4% for the fourth quarter of 2007 and decreased on a sequential basis from 42.7% from the third quarter of 2008.

As Patrizio stated earlier, when speaking to the performance of our individual business units, the brick unit’s gross profit margin was down slightly from the third quarter to the fourth quarter reflecting a change and mix of products sold.

Returning to the consolidated income statement for the quarter, we generated an operating loss of $1.673 million in contrast with the operating income of $399,000 generated in the third quarter. Our operating loss was largely a consequence of the lower gross margin and higher operating expenses particularly marketing and legal expenses.

Research and development expense which is largely associated with our V-I Chip unit increased 2.6% sequentially from $7.8 million in the third quarter to $8 million in the fourth quarter and which represents a 5.8% increase over the $7.6 million expense for the fourth quarter of 2007.

As a percentage of consolidated revenues, research and development increased from 14% for the fourth quarter of 2007 to 15.6% for the current quarter, primarily due to increases in compensation expense. We expect to spend a similar dollar amount on R&D in the first quarter.

Selling, general and administrative expenses increased 5.6% sequentially and $13.7 million in the third quarter to $14.5 million in the fourth quarter. In addition, SG&A expenses for the quarter increased $2 million or 16.5% over the $12.4 expense for the same period in 2007.

As a percentage of consolidated revenues, SG&A expenses increased to 28.2% for the current quarter from 23% for the fourth quarter of 2007. A significant portion of the Q4’07 to Q4’08 increased and SG&A expense was associated with increased compensation cost due to new hires in the V-I Chip unit in our Japanese unit and increases on legal expense.

Turning to interest income. Cash returns on our investments for the fourth quarter of 2008 totaled only $353,000. Well such income in the fourth quarter of 2007 was $990,000. Vicor generated cash from operations with approximately $2.5 million, up 92.3% from the $1.3 million generated in the third quarter of 2008.

Capital expenditures for the fourth quarter totaled $1.7 million, down approximately $700,000 from the third quarter of 2008. As Vicor paid a semi annual dividend during the quarter, our cash and cash equivalents balance ended the quarter at $22.6 million.

As announced, we indefinitely suspended payment of the cash dividend on our common stock in January this year. The company’s total cash inclusive of restricted cash in short-term investments amounted to $24.6 million. When combined with our auction rate securities at the carrying value, our cash and investments totaled $60.2 million at the end of the year. We have no debt and we believe that we have more than adequate resources and liquidity to fund our operations.

I’ll now update listeners on our investments and auction rate securities. As has been well documented and discussed during the prior quarter’s call, Vicor has approximately $38.2 million at par value invested in auction rate securities that are currently illiquid as the broker dealers through which the company invested in the securities stops supporting the auctions in early February 2008. I invite listeners to review our Form 10-K for extensive discussion on these investments and our valuations thereof.

For the fourth quarter, we impaired the value of these securities by an additional amount bringing the total aggregate impairment to approximately $5.6 million. Because we accepted a settlement proposal from UBS AG, one of the broker dealers through which we had purchased $18.3 million of auction rate securities. We changed the treatment of these securities and recorded a charge through our P&L, related to the other than temporary impairments of their value.

However, we recorded a gain roughly offsetting the charge approximately equal to the value by which we impaired the securities. The gain was associated which received a contractual right in effect of put auctions allowing us to sell the securities in question to UBS at par during a period beginning June 30, 2010.

As such, in most respects our path to liquidity for the UBS auction rate securities is well defined and resolved. In contrast, we do not have such a path for liquidity for the auction rate securities we purchased through Bank of America.

As we have discussed in the past, we treat the impairment of these securities totaling $20 million at par, as temporary as it is our intention to hold these securities until they are redeemed or can be sold at par. Such temporary impairment of approximately $3.3 million does not reflect a charge to our income statement, but it’s recorded as unrealized loss net of tax, and accumulated other comprehensive income or loss in the shareholders equity section of our balance sheet.

This concludes managements prepared remarks. So, we are happy to take your questions. Operator shall we open the call to questions please.

Question-and-Answer Session

Operator

(Operation Instruction). Your first question comes from John Dillon - JB & Associates.

John Dillon - JB Associates

Hi Patrizio, I was wondering if you can give us an update on the LCD market?

Patrizio Vinciarelli

Not at this time, but may be later in the year.

John Dillon – JB Associates

So no update with the lever?

Patrizio Vinciarelli

Nothing I can really talk about at this point of time.

Operator

Your next question comes from Richard Baxter - Ardour Capital.

Richard Baxter – Ardour Capital

Hi I am Swaghat for Richard Baxter from Ardour Capital. Can you please elaborate on the higher marketing and legal expenses like what was driving them this quarter and will they be reoccurring?

Patrizio Vinciarelli

Sure, on the marketing front we participated with relatively major prices, a couple of goods at Electronica in Munich. We will show at International sales meeting. So there were a number of events that drove up marketing expenses within the quarter, you may be aware also, we had a pending litigation that led to a jury award in the fourth quarter. And as you might imagine that there was significant flow through these legal expenses at that point in time.

Operator

Our next question comes from Don McKenna - D.B. McKenna & Company.

Don McKenna – D.B. McKenna & Company

I just want to go back to the workforce reduction that when the press release came out on that, it indicated that was going to be completed by the end of January and you would identify at this conference call what the anticipated expenses were going to be? And during the last conference call, I think we talked about where the bulk of that was going to come from and it was, if I remember right, out of the R&D section that you identified the R&D expenses to be approximately the same in the first quarter as in the fourth? Can you give me some clarity on those issues please?

Patrizio Vinciarelli

Yes. So we are currently estimating the cost of the workforce reductions that to be approximately $3.1 million and that will be booked in the first quarter and obviously impact our first quarter bottom line.

Don McKenna - D.B. McKenna & Company

What were the annual savings beyond that?

Patrizio Vinciarelli

I’m not going to share an estimate with respect to that at this point in time. But the expense is approximately 2.1, with respect to 2 where the impact of that comes from, it is really the result of looking throughout the enterprise, it doesn’t particularly relate to R&D. I think if we go back to the earlier comments I made with respect to our overall level of operating expenses you might recall that I commented that, they are well above our long-term model for profitability having been in recent quarters upwards of 40%.

As we look more finely within that. I don’t even see that the R&D expense is 15%, 16% to be particularly high. I think given our general business model, those happen to be in the right ball park, where there is greater opportunity and significant opportunity is within SG&A where we could envision significant reductions coming in the future.

Operator

Your next question comes from Daniel Gorman - HighBeam Research.

Daniel Gorman - HighBeam Research

Yes sir, on the you had a just wanted a quick update, I know there was a discussion that their emotions that where going to be made in some of the trail quarter, may be completed in the PL files or some of the product level or is it still in front of the trial judge?

Patrizio Vinciarelli

The judge very recently has ruled on the trail motions, he made decision to reduce the jury award by $4 million, and the case is now right before at PL’s presumably from both sides.

Daniel Gorman - HighBeam Research

And was that from $13 million and sort of the $9 million or what was the number?

Patrizio Vinciarelli

It was from $17.3 million to $13.3 million.

Operator

Our next question comes from Jim Bartlett - Bartlett Investors.

Jim Bartlett – Bartlett Investors

You said the 2% plus reduction in the gross margin sequentially, what part of that was product mix and what type of mix elements they are in, what part of it was inventory reserved increases?

Patrizio Vinciarelli

There was a little bit of both, roughly comparable part to this. So let’s say approximately 1% in product mix and the rest of it having to do with some additional reserves that were deemed to be appropriate under the circumstances.

Jim Bartlett – Bartlett Investors

And what is the outlook in 2009 to the gross margin?

Patrizio Vinciarelli

With respect to gross margin, well, I think that’s going to be very much a function of the top line. I wouldn’t pay particular attention to the change in gross margin from the third quarter to the fourth quarter, either itself with the top lines being very similar, the particular change is not all that significant obviously it is something that’s relating to inventory reserves was influenced by the economic environment, but the part of this do with product mix is just one of those random changes that they place quarter-after-quarter. So getting back to where the margins are going to be as the year progress that’s very much going to be even by demand in our key end markets of the stable economy, the largest influence is those and based on that manufacturing efficiencies in our factories.

Jim Bartlett – Bartlett Investors

Another question, relative to the last conference call you’ve talked about the AC-DC product delay over 2009, could you sort of give us an update on the status of that and with the V-I Chip and Brick products.

Patrizio Vinciarelli

So there is no release product yet, but we believe that we are getting very close and in that way I answered an earlier question with respect to the LCD-TV market opportunities. So there are opportunities out there, they are obviously dependent on the release of products that have been in the pipeline but are not completed yet.

Jim Bartlett – Bartlett Investors

And then could you give us any updates on what‘s happening in the sever market, it is both with reference to the earlier doctor and the other potential OEMs?

Patrizio Vinciarelli

Well, we see growing opportunities in that market and I think that’s all that I can say at this point in time.

Operator

Our next question comes from Robert Katz - Senvest.

Robert Katz - Senvest

I have a question, what do you feel, what does the market looks like say what are booking orders look like we are already into March, I think I’m leveling out or is it still spotty or try to reach the bottom, you think?

Patrizio Vinciarelli

Okay. I wish I knew the answer to that question. I think it’s very hard to tell, I think that we are very tough to take it away and see at it with respect to that, and that of the recession or whatever you want to call it. I think it’s fair to say that particularly with respect to what we call the base level business of which is made out of little like thousands of customers and applications. The impact of the current economic environment is visible, we haven’t seen the same thing with respect to that the larger orders, which obviously are much fewer, but those being fewer and less statistical can vary from time-to-time in ways that are difficult to forecast or so.

As we look at it in terms of the large orders on one end and the smaller orders on the other, you can clearly see in the smaller order the impact of the current economic environment in terms of significant reduction and demand. We have not seen that with larger orders but those are ones that are in a way harder to forecast going forward.

Robert Katz - Senvest

Your larger orders are typically more comp-focused, communications focused from markets.

Patrizio Vinciarelli

They are in various markets and so far so good in terms of them having held up and done relatively well, better than [inaudible] and we might have anticipated that had we known what was about to happen in the environment at large.

Robert Katz - Senvest

And where do you anticipate seeing a recovery from, is it the new V-I Chip finally taking hold or are you basically at the mercy of the industry economy turning around?

Patrizio Vinciarelli

I will say that there is no escaping from the economic environment, we are not privileged in that regard, I think we are to some extent as you put it at the mercy of the economies as just about every company is, I think, what we have going for us on a royalty basis is that with our newer products in V-I Chips in particular, we have growth opportunities that are subject to the customers applications getting rolled out on plan, should mitigate in a worse economic environment.

So, I would say that on a royalty basis, we are better off than most companies because of unit growth opportunities. Obviously, with their chip of $15 million last year on a $200 million revenue base, the percentage is more enough that the growth opportunity will be a chip. In the short-term it isn’t going to make that much of a difference, but it is a difference for development.

Robert Katz - Senvest

So that being said, do you feel you have cut back enough in your business to right-size the company in this downturn or are you still not sure how deep it gets there, may be more right-sized?

Patrizio Vinciarelli

No, we think we’ve done what we needed to do under the circumstances, we feel comfortable with that. And again, it’s not the end of our effort to reduce costs, but we think we’ve done what needed to be done on a company wide basis. And now we’re looking at opportunities in effect function-by-function to better more specifically tailored to areas where opportunities for efficiency improvement could come about.

Robert Katz - Senvest

Is there a level of losses that you are sort of holding a line on saying, on that color my P&L deteriorate beyond the certain point?

Patrizio Vinciarelli

Yes, I would say the zero line. I think we really want to get back to our financial model that has us deliver margins in the 50% ball park with total operating expenses, either below 30%. Obviously, we got quite a bit of work to do to get there particularly in view of the current economic environment where the top line growth for well is going to be under pressure.

Robert Katz - Senvest

So given the current economic environment that will be quarters ahead of us where we will be below the zero line.

Patrizio Vinciarelli

Well, I don’t think I’d be saying anything I shouldn’t be saying in suggesting the existing quarter is going to be in that range here in $3.1 million expense for it’s actually workforce, right?

Robert Katz - Senvest

On a run rate though I’m just trying to get a better feel or have you right sized the company for its Q2 or the same as Q1.

Richard Nagel Jr.

Well, I think that’s going to be very much a function of how things evolve over the next few months on the demand side. I think that we back at the beginning of this year, took a very hard look given our visibility at that point in time and that visibility needs to be in effect updated by evolving circumstances.

So, depending on the wide range of possibilities in terms of the depth and length of the recession, a wide range of atoms are possible ranging from a growth scenario in a more optimistic economically environment that which I personally do not anticipate at the other end of the spectrum should the economy take quiet some time to recover, which is where I would tend to expect things to come out in more difficult situation to deal with we are achieving our franchise goal that might take a little longer.

Operator

Next question comes from Ron Opel - Marston Capital Management.

Ron Opel - Marston Capital Management

Patrizio, I think last time you gave the number of licensees, it was three. Has that changed at all, and are there in spite of the economic environment, are there continuing conversations concerning licensing?

Patrizio Vinciarelli

We are still a cap that see licensees with the potential for more, and that’s all I can say at this point in time. But, given as you’ve heard me say in the past that given the opportunities with the technology in a variety of markets both large and small, we vision this part of our longer term model for profitability to be able to drive a significant contribution from licensing income.

Ron Opel - Marston Capital Management

But at early, has there been any licensing that V-I Chip related license revenue, so far?

Patrizio Vinciarelli

Dick, do you have a comment about that ever.

Richard Nagel Jr.

Not meaningful, we’ve through our arrangements we have some support-type service revenue that’s being amortized.

Patrizio Vinciarelli

But over a long time scale given, the nature of these licensees got out 15 years.

Ron Opel - Marston Capital Management

Correct. The shift towards market that was held up last year is promising that you’ve achieved some design in situations there and is that moving forward?

Patrizio Vinciarelli

Yes. We are doing well from a designing perspective, but the test equivalent market is for operating purposes that is that in this country, that in Japan, it’s scary, the empty factories lay offs. So it is not a market where from the top line growth perspective we can look forward in the near-term to any significant pick up, because your things are going towards to get back in shape in those markets to drive capital equipment investment and test equipment investment, but first we will be able to see the fruits of significant designing effort that has taken place and is ongoing.

Ron Opel - Marston Capital Management

And following up indirectly on a question on TVs, not wanting to ask a question directly at all, but in a general sense are you still, do you still believe that there is significant potential for factorized power application of V-I Chips in consumer products?

Patrizio Vinciarelli

Yes. I think we are all aware of the fact that in flat-panel displays there has been a brutal development in terms of both selling prices, company is exiting the business. It’s nowadays a very, very difficult market for obvious reasons. But having said that, given the compelling attributes of the technology and technological trends with respect to in particular flat-panel displays, we see major opportunities in that channel area.

Ron Opel - Marston Capital Management

And just one final one, given the emphasis of the current administration or the perforated emphasis anyway on the development on efficiency of energy, could that possibly have any effect with respect to accelerating progress with the automobile companies?

Richard Nagel Jr.

Well, Nagel speaking. Yes, it’s hard to pull the value on that but I think if I have to say that we like efficiency, we like alternative strategies that rely on hybrid or pure electric solutions as they raise the value proposition with respect to power conversion within an automobile. So, all those initiatives is long-term as they might be board well for the business opportunity again unfortunately the long term.

Ron Opel - Marston Capital Management

This may be target companies that are going into bankruptcy.

Richard J. Nagel Jr.

Among other things be careful not to invest development in their own companies.

Operator

Your next question comes from Jim Bartlett - Bartlett Investors.

Jim Bartlett - Bartlett Investors

Could you give us an update of rough percentages at mid-market segments specifically IT, Datacom, [inaudible] aerospace, telecom, industrial.

Richard Nagel Jr.

I’m not going to disclose specific percent of GSA, I can tell you that there hasn’t been as of this moment any fundamental shift in the make up from recent times. Obviously, going back a long time to the 2000 timeframe, we had a major shift away from communications prior to that timeframe. Over 60% of our business was in communications and now it’s a much, much smaller percentage, but the seasoned and the tonic shift there hasn’t being any significant change in the makeup.

Obviously, going forward as opportunities in those markets some of which we talked about early in this phone call as those opportunities may realize that there is going to be some significant change in the make up, but no significant change in recent years.

Jim Bartlett – Bartlett Investors

And how does the year end up in terms of percentage exports and can you just give us a little more flavor on the U.S.?

Patrizio Vinciarelli

As mentioned earlier, in the fourth quarter, we saw particular weakness in the international markets and relative strength, I’ll discard the word relative in domestic markets.

Jim Bartlett – Bartlett Investors

So both Europe and Asia being considerably weaker?

Patrizio Vinciarelli

Yes, Japan, in particular is in a very, very difficult situation as we speak, it is in the same general ball park.

Operator

Your next question comes from Don McKenna - D.B. McKenna & Company.

Don McKenna – D.B. McKenna & Company

I have noticed that Intel recently has been identifying some new in a greater circus that they have been putting on out that are much reduced power consumption levels. Does that take away from your V-I Chip that the consumption on an operating basis for some of these larger main frames is going to be that much reduced with the benefits of the V-I Chip would have for power management on as great as they had been before?

Patrizio Vinciarelli

Well. I would think of Intel is being more progressed in the mobile lower-end of the market than mainframe. So in the general area, what we see is that truly there is a desire for greater efficiency for lower cost in terms of computing power per unit of electrical power., but that desire is offset by the thrive to deliver more computing power. So net-net, we don’t see that the power consumption going down at least in the higher end markets.

And because of other trends in terms of operating voltages becoming lower and currents becoming much larger, we see a very good fit for factorized power and the V-I Chip technology in particular. So generally speaking, the trends in [IAM] computing very much favor and align themselves with our component power bearings in power distribution architecture.

Don McKenna – D.B. McKenna & Company

Thank you. And I also noticed your open market purchases recently in the announcement of your 10b5 program. Can you give us details of what the terms of that were?

Richard Nagel Jr.

I’d be fool if I did and so I won’t, except for saying that I have a program, that’s all I can say.

Operator

Your next question comes from the line of John Dillon - JB Associates.

John Dillon – JB Associates

I’m wondering if you can talk about, are you seeing new design wins even in the downturn, and especially in the V-I Chip or VI Brick area.

Patrizio Vinciarelli

We are very busy in many ways through a variety of initiatives with V-I Chip products that with Vicor products and big products based on the V-I Chip insight strategy in pursuing these new kinds of opportunities.

John Dillon – JB Associates

Are you still prioritizing the opportunities then?

Patrizio Vinciarelli

I’m sorry, I’m still, what?

John Dillon – JB Associates

Prioritizing the opportunities.

Patrizio Vinciarelli

Well, I think you are referring to the fact that with V-I Chips in particular and the V-I Chip market strategy as I comment in the past that we have in effect a lot more opportunities than it would be sensible to support and invest at one time. So we have to be very selective with respect to which opportunities to pursue and we are very keen on doing that in terms of having a very focussed key account strategy in pursuing to achieve opportunities in particular.

John Dillon – JB Associates

And do you see growth as V-I Chip business this year?

Patrizio Vinciarelli

Some, but modest, under the general environment and afraid to say that under most seasonal scenarios we are really looking at this point up 2010 is being the much more significant time for growth.

John Dillon – JB Associates

And then before you have talked about when you are working with some of the server companies or the computer companies that they were adopting the complete factorized power architecture, are they still moving forward with that?

Patrizio Vinciarelli

Yes.

Operator

Your last question comes from the line of Ron Opel – Marston Capital Management

Ron Opel – Marston Capital Management

I saw something here recently that described a demonstration or a couple of demonstration that the consumer electronic showed involving 3D displays, 3D television displays either with or without glasses I think different parties are working on different approaches and it occurred to me, that probably has to be a pretty computational and perhaps pretty power intensive kind of capability and a possible fit for factorized power architecture. Could you tell me if I’m barking up the wrong tree?

Richard Nagel Jr.

I think you are barking up the wrong tree, but don’t take it personally. I am not aware of any V-I Chip designing or participation in 3DTV, but I think it is from a job prospective possibility that will come to my mind, but from my visibility, I am not aware of any engagement.

Operator

We are actually showing no current questions in queue.

Richard Nagel Jr.

Thank you. Talk to you soon.

Operator

Thank you for your participation in today’s conference. This concludes our presentation. You may now disconnect. Have a good day.

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