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Vicor Corporation (NASDAQ:VICR)

Q1 2013 Earnings Call

April 25, 2013 05:00 pm ET

Executives

James A. Simms – Secretary and Chief Financial Officer

Patrizio Vinciarelli – Chairman, President and Chief Executive Officer

Analysts

John Dillon – JB Associates

Operator

Good day, ladies and gentlemen. And welcome to the Vicor Earnings Results for the First Quarter ended March 31, 2013 Conference Call hosted by James Simms, CFO and Dr. Patrizio Vinciarelli, CEO. My name is Sheila and I’m your event coordinator. You are in the presentation. Your lines will remain on listen-only. (Operator Instructions) I’d like to advice all parties this conference is being recorded for replay purposes.

And now I’d like to hand over to James. Please go ahead.

James A. Simms

Thank you, Sheila. Good afternoon everyone and welcome to our conference call for the first quarter ended March 31, 2013. I’m Jamie Simms, Chief Financial Officer and with me here in Andover is Patrizio Vinciarelli, Chief Executive Officer, as well as Rich Nagel, our Chief Accounting Officer. Today we issued a press release summarizing our financial results for the quarter. This press release is available on the investor page of our website vicorpower.com.

We have also filed a Form 8-K with the Securities and Exchange Commission in association with issuing this press release. I remind all of you today’s conference call is being recorded and is the copyrighted property of Vicor Corporation. I also remind you various remarks we may make during this call may constitute forward-looking statements for purposes of the safe harbor provision under the Private Securities Litigation Reform Act of 1995.

Our forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those explicitly set forth or implied in our statements. Such risks and uncertainties are discussed in our most recent forms 10-K and 10-Q filed with the SEC. Please note the information provided during this conference call is accurate only as of the date of the 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 the call. A replay of the call will be available beginning at midnight tonight through May 10, 2013. The replay dial-in number is 888-286-8010 and the listener passcode is for 44260860. In addition a web cast replay of the conference call will be available on the investor relations page of our website beginning shortly upon it’s conclusion.

I'll start this evening’s call with a review of our financial performance for the first quarter and Patrizio will follow with his comments after which we will take your questions. As was the case last quarter we have chosen not to present non-GAAP pro forma financials that we have require a non-GAAP pro forma presentation in our filings in associated reconciliation to our GAAP financial. This is because we do not believe that fourth quarter non-cash charges as described below will be recurring. However we do want to provide investors an apples-to-apples comparison of actual operating performance and my comments today reflect this instead.

As set forth in this afternoon's press release, Vicor reported an after-tax loss for the first quarter of just under $5 million, representing a net loss of $0.12 per share. First quarter reported net loss and EPS are very close to the net loss of $4.8 million or $0.12 reported for the fourth quarter of 2012, but the prior loss reflected certain year-end charges for inventory reserves and goodwill impairment, totaling on a pre-tax basis approximately $3.4 million, a gain of approximately $2 million associated with the settlement of insurance litigation and the write-off of deferred tax assets associated with the state level activity of 1.5 million, which was reflected in our fourth quarter provision for income taxes.

As such the first quarter’s loss was much more related to operational inefficiencies brought about out by much lower production activity and fewer shipments during the period rather than the non-cash accounting charges that impacted fourth quarter results.

Likewise, consolidated revenue for the first quarter of 2013 declined 16.8% sequentially to approximately $42 million from the $50.4 million recorded for the fourth quarter of 2012.

The first quarter figure compares to revenue of $59.7 million for the first quarter of 2012, representing a year-over-year quarterly decline of 29.7%. The first quarter’s revenue decline was expected as we have stated in prior communications, given the prior quarter’s sharp decline in bookings across all business units.

The Brick Business Unit, our largest experienced a 12% sequential decline while V*I Chip, which has much greater customer concentration experienced a 49% sequential decline.

Turns revenue, meaning those orders booked and shipped within the quarter increased to 47% of the first quarter, the highest level in recent memory, but we believe this reflects an increase in urgent orders postponed by customers during the fourth quarter.

While as stated, consolidated revenue declined 16.8%, our domestic shipments fell more than our international shipments on an absolute basis and relative basis, reflecting pronounced uncertainty in important industrial transportation and defense electronics markets during the fourth quarter.

International revenue decreased 11.5% quarter-to-quarter and represented 54.1% of total revenue, an increase from 50.8% for the fourth quarter of 2012, and 53% for the first quarter of 2012. Keep in mind, for financial reporting purposes, we segregate customers by the address to which we ship. With the exception of Vicor Japan, all of our subsidiaries sell in U.S dollars, and all of our products again with the exception of those manufactured by Vicor Japan are exported from the U.S. As our customer base shifts to domestically based OEMs that use offshore contract manufacturers, international bookings and shipments are increasing. Because such OEM orders typically are much larger and vary in frequency, the ratio of international activity to total activity will bounce around as it has over recent quarters.

However, as we implement our OEM strategy, over time we expect the ratio of international bookings or shipments to increase, even though the actual purchase orders are placed domestically.

Asia-Pacific is the region with the most attractive growth, which is why we are investing in personnel and infrastructure in the region, particularly in China. Revenue from Asia-Pacific rose sequentially as robust growth in China and Hong Kong was offset by declines elsewhere, notably Taiwan, where the majority of the contract manufacturers supporting the OEM customers of V*I Chip are located.

When both Japan and India are included in the definition of Asia-Pacific, revenue increased approximately 7.5%. European revenue declined 17% sequentially, but bright spots included Germany and Russia, which both showed growth in revenue and order flow.

Recognized sell through revenue for the quarter associated with shipments by our stocking distributors, Future Electronic and DigiKey fell by 5.3% representing our first quarterly decline, but reflected the overall weak demand of the fourth quarter.

Recognized sell-through revenue totaled $945,000 for the first quarter, compared to $1 million for the fourth. Consolidated bookings increased 24% sequentially, but declined 5.3% year-over-year, and remained below levels of the initial three quarters of 2012.

During the first quarter of 2013, we received several large OEM orders, primarily for V*I Chip solutions that have been expected in the fourth quarter. Domestic non-OEM bookings increased, but ordering activity continues to reflect the broad uncertainty in the U.S. economy, which is illustrated by yesterday’s really disappointing March durable goods report.

International orders including the large OEM orders that will be shipped to Asian contract manufacturers include a far faster phase than domestic bookings, reflecting import, the early traction of our new Chinese distribution partner, New Power, which has offices in Beijing, Nanjing, Shanghai and Shenzhen, complimenting our own expanded presence in Hong Kong and Shanghai.

A promising rebound in certain European countries, notably the UK and Germany contributed to the improved bookings for the quarter. Total backlog at the end of the first quarter was $37.9 million, compared to $31.4 million at the end of the fourth quarter, 73% of this backlog is scheduled for shipment in the current quarter.

Reported consolidated gross margin was steady for the first quarter at 39.6%, compared to 39.9% for the fourth quarter. Although the last quarter’s figure reflected a $1.4 million charge to cost of goods sold associated with increased inventory reserves for V*I Chip. A more normalized gross margin would have been in the range of 42% for the fourth quarter.

The current gross margin is heavily influenced by capacity and utilization pressures and not by pricing or mixed considerations. Consolidation of operating expenses as reported for the first quarter, but excluding a $1.4 million charge for severance, declined $600,000 or sequentially 2.5%. This decline was driven by lower consumption of pre-production and prototype materials, reflecting the advanced stage of development of many of our new products, lower commissions a result of lower revenue and lower compensation a result of the reduction enforced.

A broad range of other operating expenses declined including travel and advertising. I should point out the decline in operating expenses would have been much greater but for the accounting and legal fees associated with our annual audit that takes place during the end of the fourth quarter and into the first quarter. And our recent tender offers, we are focused on controlling our discretionary spending and continuing our efforts to identify opportunities to improve efficiencies and lower costs. Total headcounts stood at 989 as of March 31, compared to 146 as of December 31.

For the first quarter our consolidated operating loss was $8.5 million, compared to the prior quarters operating loss of $4.3 million. This quarter’s figure included the aforementioned $1.5 million severance charge, while last quarter’s figure included the $1.4 million inventory charge to cost of good sold, the charge of approximately $2 million for the impairment of good will and the offsetting $2 million gain from the settlement of insurance litigation.

For the first quarter, we recorded an income tax benefit of $3.5 million based on a potential net operating loss carry back for federal income tax purposes and the recognition of the full federal research and development tax credit for 2012. Because Congress had not renewed the research and development tax credit at the year-end, we incurred over $500,000 in additional taxes for the year. However Congress did pass the American taxpayer relief act on January 2, although because it occurred in 2013, we are recognizing the entire 2012 credit in the first quarter along with a portion of the 2013 credit.

Cash flow from operations for the first quarter was a deficit of $1.6 million, reflecting the $5 million net loss and the non-cash deferred tax benefit of $2.3 million offset by depreciation of $2.5 million to $1.4 million severance accrued during the quarter and $1.5 million favorable swing in net working capital.

Capital expenditures for the quarter declined to $1.2 million from the prior quarter's $2.6 million, truly reflecting maintenance activity. Based on our current production forecast we do not anticipate increasing capital expenditures in the coming quarters beyond the recent range of maintenance expenditures.

Cash declined by $13.2 million for the quarter primarily due to completion of the tender offer we initiated in November of last year, the cost of which was $10.4 million. We will be communicating tomorrow morning, the final results of our more recent tender offer which expired on Monday, April 22. As we stated in our press release of April 23, Computershare Trust Company, the depository for the tender gave us a preliminary count of 1,344,585 shares that potentially could be purchased at a price of $5 per share purchasing these shares with cost approximately $6.7 million excluding fees and expenses.

Turning to the consolidated balance sheet, our receivables portfolio remains in excellent shape with day sales steady at 49 days. Consolidated inventories quarter-to-quarter were stable with no additional reserves taken. Annualized inventory stood at 3.9, unchanged from the fourth quarter.

As of March 31, we have $71.4 million of cash and equivalent down from the prior quarter's $84.6 million. We also hope long-term investment securities carried at an estimated fair value of $6.6 million included in this long-term total or auctioned rate securities with a par value of $6.1 million carried at a book value of $5.0 million representing 82.5% at par.

After the quarter ended we received another small redemption of $100,000 at par. After the settlement of the tender offer tomorrow, we will have approximately $65 million of cash and equivalents.

That concludes my prepared remarks regarding our financials and now I will turn the call over to Patrizio.

Patrizio Vinciarelli

Thank you, Jamie. As you may refer from Money Mart this afternoon's press release, I'm balancing the concern regarding our performance over the remaining quarters of 2013 with enthusiasm for the implementation of our OEM strategy, which is based on exciting new products, that either are already being sampled or would be introduced later this year.

This strategy gives Vicor the opportunity to take meaningful market share, in what appears maybe an expanded low growth environment. Clearly uncertainty continues to reference domestic demand for our products, particularly in our traditional markets.

The sequestration appears to have the chilling effect beyond defense electronics, with broader demand across industrial, instrumentation and transportation segments yet to recover to level of late 2011 or early 2012.

While fourth quarter bookings appear to be an anomaly caused by the chaos in Washington, confirm about the bounce back in the first quarter has not yet seen the details of a broad robust recovery of sustained demand. While these direct relationship between cash and Pentagons project and reduce all this for our military grade products. These have lasted active relationship between cash in non-defense fellow spending and stayed at municipal level spending and reduced all this four our traditional commercial grade products.

For example, reduce cost budges and lower long-term commitments to infrastructure, effect demand for our transportation products that go into railway and construction applications. Similarly, the cash to research and development whether via government research labs, university labs or founded product research affect demand for products targeted of sophisticated instrumentation, which is the industry segment that remains U.S. based.

I could offer other examples in commercial aviation, robotics and medical equipment and most notably supercomputers. Given the pervasive impact of government spending on the U.S. economy, I am concerned we may not see a recovery of our domestic business for several more quarters or at least until Washington provides some evidence of a solution to the budget crisis.

Our decision to shift to an OEM strategy certainly measure manufacturers in networking and computing segments among other two new segments is being validated by order flow and overall designing activity coming from this segments. This OEMs are globally and much of their demand is now U.S., although we have experienced delays in anticipated order flow, we are confident the consumer network we made to implement this strategy would be paying off.

As Jamie stated we received a number of seven-figure orders during the quarter that we are anticipated will be placed last year. These were both for Intel based server applications as well as for supercomputing platforms.

As Jamie indicated, the Asia-Pacific region is the primary focus for us, with new operations in Shanghai, complementing our longest average presence in Hong Kong. Interestingly our momentum today is across the region, notably in China has been with our traditional BRICK Modules. I like this because Vicor has translated these markets with legacy products of high reliability and severe performance taking share from numerous indigenous vendors of commodity products in industry and transportation segments.

As we roll out our new solutions, our expanded infrastructure of sales personnel feel that engineers and distribution partners should be able accelerate this transaction broadening in to include Chinese OEMs, as it is clear Vicor is compelling different cash on highly commoditized market place.

Turning to these new solutions, Vicor received a positive reception of the March April 2015 conference of which I believe I will address formally introducing our new packaging technology. Chip which are not going for convertor housed in packet. Chip technology enables small and large convertor products with functionalities ranging from the PFM, AC-DC Convertor and with our Vicor production, the DCM, full AC-DC conversion. The BCM isolated bus conversion, and the VTM point-of-load (inaudible).

Chief Technology represents the power module packaging which substantially lowers the manufacturing cost of our modules, well below the cost of first generation VR chips. Acknowledging that to be refractive volume oriented customers we add provide differentiated performance of the compelling cost per watt figure merit.

We stand at first two years for (inaudible) packaging concept and along the way we find unique components, the announced performance of our conversion engines within chips. Our initiative is the as a break through means of allowing designers faster time to market for development of full power systems and our power management solutions leveraging power component (inaudible).

Chips offer unprecedented levels of performance in terms of our advantage and high efficiency while providing a level of manufacturing cost effectiveness necessary for vital to succeed in cost sensitive high volume applications. At this report we have received our first purchase order for chip modules even before our first formal chip volume production.

For those (inaudible) interesting learning more of our chips and our product offering several maps, please visit the website. So on the one hand, I am cautious about the companies performance in the near-term, based on booking trends and market visibility, I do not believe Vicor will be profitable in the second quarter, although I do expect improvement over first quarter performance.

Based on expectations our requirements from server, supercomputer and defense electronics products in which we already involve. We could receive significant target this quarter. However, we also know that projects of this kind have been pushed out before, so we will not be expecting to see further delays.

On the other hand, I’m hopeful improvements in our results will accelerate as we innovate these products, new of new products introduced later this year. Trip modules in combination with Vicor Chips and Vicor system level products, fulfill our commitment to provide the most technological advanced solution for power management from the AC source to the point-of-load.

The markets inception of our new products, in our near-term product roadmap has been encouraging confirming our fire components by AM vision. Although these products are early in the design and sales cycles and there are fake it would be revisit by prolonged economic uncertainties.

Nevertheless I know Vicor ease on their correct path to long term success, as we have the technology, the product roadmap and the vision necessary to serve the needs of our targeted customers. We have redefined our go to market infrastructure expanding our whole wide capabilities and partnering with well positioned to see with us.

Unfortunately, we continue to face strong economic headwinds just as we are delivering on our new product commitments. This concludes managements prepared remarks and we will now take questions from listeners. Operator?

Question-and-Answer Session

Operator

Thank you. So ladies and gentlemen the question and answer session will now begin. (Operator instructions) Okay, the first question comes from the line of Ben Alexander. Please go ahead, Ben.

Unidentified Analyst

Yes, thank you. For somebody looking at your company for the first time, could you quantify in some fashion the opportunity that you see, and what type of operating performance you might be able to achieve looking, let’s say out to 2014? What’s going to drive that?

Patrizio Vinciarelli

So what is going to drive long-term growth is the new power platforms that we’ve been talking about. These new power platforms are from the likes of our Picor subsidiary focusing on system-in-a-package power management and power conversion solutions, and the likes of chip products from our V*I Chip division.

These are products which in their own domains advance the sales with respect to key convertor attributes including density, efficiency and overall performance. While at the same time, providing a level of cost effectiveness that our plastic products never achieve, that in and of itself should lay irrational foundation for growth opportunity even in the first relatively slow growth environment as we might try to experience in the next several years. Does that answer your question?

Unidentified Analyst

Well, it does it is helpful, but I know that the environment is uncertain, and you are feeling the impact of U.S. government raining in their spending and so forth, but if we assume the environment is going to remain pretty much the same, very muddled through with government cutbacks and things of that nature, what type of upside or long-term profitability do you think is possible or likely looking at a little longer-term when your products might gain some traction in the marketplace?

Patrizio Vinciarelli

Well, I think you can tell, I suggested in earlier conference calls and in our meetings, we have highest [perfection] because with our products, we address very large market opportunity, that is already thirsty for solutions with that aggressive attributes of density, efficiency and cost effectiveness. And we believe that making products with this attributes available into our marketplace will bring about a change from solutions that historically have been handicapped by a custom measure or custom developments which are eminently not scalable. Two, the vision that we have been pursuing of a building block base methodology, lego blocks if you will for power systems.

So you can refer from that, that the growth opportunity is very substantial, obviously Vicor is well [authenticated] in a very large market that the market in and of itself is large enough not to present a practical limit with respect to growth.

Our ability to grow is going to be very much dependent on execution with respect to two key objectives of achieving a complete portfolio of products that is critical in terms of advancing complete solutions from the all practical point of growth as well as delivering those products with the requisite cost effectiveness, but with those elements in place, the growth opportunity is, I believe very, very large.

Unidentified Analyst

Well, does the company have in mind like an operating model, and what I mean by that is…

Patrizio Vinciarelli

We do, but that’s not one that we would want to quantify in detail here, and that could be risk as you can imagine for a number of reasons. I think it’s fair to say that we’ve had disappointments in recent years regarding earlier projections, and this is a point that were to a larger degree was about by events beyond our control, ranging from large constellations of supercomputing products to severe cutbacks in the defense market, and that’s an indication of our carriers, the operating environment is, so stick your neck out with any kind of the detailed prediction of top line and bottom line performance into timeframe, as you suggested 2014 would be a very useful position that we’re not prepared to take, but the range of outcomes is obviously relatively wise, and I believe again that these exact deal offside.

Unidentified Analyst

Thank you.

Patrizio Vinciarelli

Thank you.

Operator

The next question comes from the line of Jim Buffet. Please go ahead your line is now open.

Unidentified Analyst

When you mentioned the potential significant orders in the second quarter, could it be – what area are those orders?

Patrizio Vinciarelli

In some of the new markets that we had targeted, and about which we told you about in earlier conference calls. So in computing, potentially supercomputing applications, as well as a communications applications.

Unidentified Analyst

But these are not related to the new chip product line, is that correct or is that still…

Patrizio Vinciarelli

We expect to start shipping chip products later this year, and we already have lot of designing activity for these products in these same end markets, and other markets. So but not anything of significance in terms of bookings for chip products this quarter, even though. I mentioned in our prepared remarks that we would actually began to get some actual purchase for these products. There’s lot of activity already, because we’ve been – even though there hasn’t been a formal product announcement, we only had an introduction of the chip technology platform as a packaging platform at APAC about a month ago.

We have been sharing with some key customers, some of the product opportunities and these – I got your interest with respect to these products, and the kind of performance they’re enabling in certain applications with OEMs in the targeted markets.

Unidentified Analyst

But the design end time on that’s probably similar to past experiences like 12, 18 months, two years?

Patrizio Vinciarelli

Yeah, there is no instant gratification with respect to OEM products of the kind we make. So I think to your point a reasonable expectation for the beginning of significant contribution from chip products would be 2014.

Unidentified Analyst

In late 2014?

Patrizio Vinciarelli

No. I think we’re going to see some action starting at the end of 2015, but they in and of itself is not going to be assuming that it comes in without delay, so which is always necessary carriers right? But even if it were to act an on time, because the customer program is on target, you will not be although substantial in 2015, but as we get into 2014, there are other programs and more activity involving a variety of chips, and so the celestial base gets to be more relevant, and I think it’s seasonal to expect we’re going to see significant contributions next year, likewise there has been already some significant level of activity for Picor chips, and some of these initiatives may turn into contribution to the top line in 2014.

Unidentified Analyst

When you are looking at 2013, could you just give us an update on what the opportunities are for revenue increases, one from future and DigiKey as the decline this quarter? But how you see that progressing, and then add on to that your new distribution partner in China, as well as what’s happening in the IT space and given the SynQor suit and just give us an update on what’s happening in that regard given their latest action?

Patrizio Vinciarelli

And it is more than a mouthful, but let me take it in small parts. So regarding your first question, I think again without getting quantitative, we do expect a progress through (inaudible) this year in terms of top line.

Regarding the bottom line, our bottom line is least as known, it is. So dependent on the top line, given a fixed cost ratio that in our ability to be profitable, we will pretty much depend on raising the revenue level to levels at least comparable to the levels of the earlier part of 2012.

There is an opportunity for that as this year accounts to close and we think there is an opportunity for considerably better than that as we get into the 2014.

Regarding the second part of your question with respect to the trends, it precede in connection with the SynQor litigation. SynQor has been aggressively asserting its patents against the so called (inaudible) and defendants in a first litigation in Texas, and aggressively asserting pretty much the same patents against us and Cisco in a second litigation also brought in Texas.

As you reference, SynQor is called a victory in terms of being able to add the fellow circuit up on – in a world of damages in the adjacent case without changing any of the parameters of the other world, they declare victory in their context and issued a press release including statements that are from our perspective mostly characterizing their monopoly of so called IBA.

We believe that SynQor did not invent idea – SynQor is not entitled to any IBA patent, and by that I mean the power distribution architecture that has become norm as IBA. All that SynQor did back in 1997 is to invent a lifeline to AC to DC Converter, and through a long saga, which has not yet come to an end, they manage posthumously to redefine that which they have invented representing other than what it is.

And having done that, in the past office, there were success in a certain – modest clients against defendants that from our perspective were very healthy and to put it blindly some more demand for defending ourselves, that will not be the case with us.

And in fact so far, we’ve taken the initiative in the client office with each and every SynQor talent, and as of today, if this were a boxing match, it would be five to zero against SynQor in that. Each and everyone of their patents has been found to be not valid.

All the clients are certain against us, have been found by different examiners in the client office is not having the requisite novelty to warrant a patent void. In fact what has happened in the context is that, it is SynQor that is now appealing the finding of the examiners as opposed to what happened, the accusing case where the accused and defendants were appealing a judgment against them.

So it’s going to be – we have to seek her to try and do by the action of their patents which has been taking place. But beyond that even if somehow this balance were to be found valid, they are not impeached by our products, because our products are fundamentally different from the products in the accusing case.

Any person looking at a distance at this products, and comparing them with one other can tell their fundamental is different in terms of technology, as SynQor has in order to get their patents issued in the past offices since you guys disclaim that the class of converters that our products represent. So there is a long list of reasons why number one, the patents are invited to begin with, number two yes they were valid, it does not apply against our products.

But that has not deterred as SynQor that’s because they are to make false claims, traveling customers with litigation in order to carry on their crusade in order to collect to shake out money from competitors and customers and we’re patiently waiting to play all this out to spill in the plant office and in the cards.

Unidentified Analyst

And what has happened to your IBC audit, any other way down from what you expected and at last I heard that it sounds like you should be getting some at level, but some increasing orders in 2013 is that is that been the case or not?

Patrizio Vinciarelli

Vicor through that perhaps has at least up to this point succeeding holiday back the ma, the wavier interest that many customers had most identified problems and we obviously all do them accountable for that. But, as I ah that I can say that we may progress in spite of that because sophisticated customers can tell the clients are without irrational from their side and are attracted to our products because of the superiority, the higher efficiency that cost effectiveness. So in spite of all this Vicor apps we have been able to make progress and commit progress in that regard.

Unidentified Analyst

Thank you.

Operator

Thank you. And the next question comes from the line of John Dillion. Please go ahead. Your line is open.

John Dillon – JB Associates

JohnPatricia.

Patrizio Vinciarelli

Hi, John.

John Dillon – JB Associates

Patricia, first of all thank you for that explanation of the law suit, that was incredibly helpful and for me to hear you explain that in the detail that you did, thank you. My question is on bookings. Bookings were up pretty substantially and that’s great, but I am just wondering in this current macro environment, do you see that curve continuing to go up for bookings in the foreseeable future?

Patrizio Vinciarelli

Well, I think I’, acknowledging the headwinds and the flexibility accounts with that. The short answer would be yes, we do see progress as the year progresses. Again subject to two potential upside coming from Viro, France, but if your passionate is that there is going to be a booking growth sequential bookings growth and sequential revenue growth as the year progresses.

John Dillon – JB Associates

Great.

Patrizio Vinciarelli

And definitely that will result in a change in the sign of the bottom line.

John Dillon – JB Associates

Great. And with that, do you have any plans to bring back some of the workers that were paralleled or haven’t them brought back?

Patrizio Vinciarelli

None have been brought back and not we have a near-term plan to bring it back pragmatically looking these kinds of decisions difficult as they are and agonizing as they’re because of all the effect they have. It would be foolish to make such decision in the first place with the impact of bringing the people back in the near time horizon. We are practically having taken the decision looking at doing the utmost in order to improve our productivity, reduce our cost structure so as to improve the level of portfolio ability we are going to be able to sustain once the top line improves.

John Dillon – JB Associates

Okay. And you’ve talked about the improvement in the communications market a number of times, I’m just wondering, can you give us a little bit more color in that, because it sounds like that there’s a bright spot for you, even you still have some hurdles, because of the losses?

Patrizio Vinciarelli

So, I think to some extent we talked about this. We had significant challenges with about by SynQor, perhaps those types recently been renewed and they’re first clients, they particularly vis-a-vie our products. It caused damage to us. But again, the damage is to some degree limited by their field of products and the fact that certain customers have learned how to deal with this kind of an issue and find the products compelling enough to want to use them or design them into new applications.

John Dillon – JB Associates

So, do you see consistent growth in that market going forward?

James A. Simms

We see growth in the communication space and as I mentioned in past conference calls, we see growth in that space, not just for bus converters, but particularly for other Vicor products that have caught the attention of key OEMs in that space. Once they became better aware of our technological capabilities, which was made evident by the superiority of our bus convertors.

So as these casting for our calls, parts of our strategic decision to enter the bus converter market with products that compete within the standard Brick but do so with much more advanced technology was not just to capture the market opportunity that was being created by SynCor’s initial win. I guess the competitors, copy cat competitors. But also significantly in order to make evident to key customers in that space that Vicor is uniquely equipped with much more advanced technology which can be leveraged in realizing more advanced systems. So more and more we are making new roles with these customers not with IBI solutions or it could be bus or (inaudible) solutions, but with other kinds of products ranging from point of load, multipliers to AC to DC product opportunities.

John Dillon – JB Associates

Great, great. A question to Jamie, a quick one for Jamie, Don McKenna asked a very interesting question last conference call, and it was basically a treaty about some of the stock options the other guys have, any sales guys that were brought on.

So Jamie, I want to ask you a similar question, the bulk of your stock options are at $12 to $13 a share, what makes you hang around because obviously you hang around for more than the salary, so can you give us a little insight as to what motivates you to hang around, and what you see us can drive Vicor so you can profit smart?

James A. Simms

I’ll make sure you say that working for me, such a (inaudible). Can you point out the treaty is hard charisma, look I think we have tremendous opportunity here, I’m not going to deny certain level of disappointment that I share with the investors on this call but I think to turn your question sort of inside out, I think you should take some degree of comfort that we do retain, the employees, the leaders of the company because we all have a shared vision with Patrizio that this is a tremendous opportunity.

Now, I’ve said before that when I arrived here five years ago, more than a few of the problems that we were facing were of our own designs, whereas, five years later, we are executing on what we can do internally. What had happened is we’ve run into the much discussed macro issues and we’ve run into the challenges of transitioning our model and we’ve run into the litigation, which inhibited progress in a very promising market. So I think that to the extend that you look to – why I stick around I think it’s very clear that it’s because of the long-term opportunity to really redefine as Patrizio calls it the power paradigm.

John Dillon – JB Associates

Great, thanks very much guys. Thank you.

Patrizio Vinciarelli

Well, Jamie is going to figure out long after I’m gone.

John Dillon – JB Associates

I hope so. Thank you folks.

Patrizio Vinciarelli

Any other questions?

Operator

Yeah, the next question comes from the line of Alan Hicks. Please go ahead. You are live in the call.

Unidentified Analyst

Yes, good afternoon. I had a question about the supercomputing market I know you are a strong player there in the past, but how does that look for you and imagine that’s going to be lumpy, but do you have big opportunities like you’ve had in the past?

Patrizio Vinciarelli

Yeah, we do and I think what’s happening with respect to that is that new opportunities are coming about from new major players in that market, so as you might know our use of transaction was very much focused on one major player, another larger and I think of late we’ve seen significant progress elsewhere and this is really driven by the compelling nature of our solutions that the fact that more and more invest base given competitive challenges key OEMs are driven to go on leverage the best of power technology in order to make their products more competitive.

So this is a case where the current difficult environment is catalyzing and your top process on, on several fronts including with companies that historically were really changed to a commoditized power methodology so that speaking out of box they see that the user volume position. I’ve been recently in trips that have been very encouraging in terms of new opportunities.

Unidentified Analyst

Okay. So you tell you have about new opportunity but it hasn’t come together yet?

James A. Simms

Well, I think these are new designed activities so the same comments apply as earlier May, with respect to time for fruition I think at the first one of these opportunities the 2014 event.

Unidentified Analyst

And also on the new packaging technology as that began to ship already?

James A. Simms

We sampled it to a number of customers but there has been no production shipments yet there has been no formal product introduction yet, but I suggested earlier a number of this new opportunities have to do with woodchip products.

Unidentified Analyst

Okay, that’s somewhere in the second half of the year?

James A. Simms

While the first one was scheduled to go into production is in the second half of the year with more opportunities, more designing activity in 2014.

Unidentified Analyst

Okay, thank you very much.

James A. Simms

Thank you.

Operator

Thank you. The next question comes from the line of John Dillon. Please go ahead. You are live in the call.

John Dillon – JB Associates

Just a quick one guys, Patrizio what’s the new packaging technology, if you guys truly have a cost card compared with other power supply technologies and then on top of that you have all your benefits on top of it?

Patrizio Vinciarelli

Yes, so it’s game changer in terms of the cost-effectiveness of the platform, it's also game changer with respect to (inaudible) and what they mean by that is that unlike our first-generation V.I Chips made into cavities, so that in effect a new power line would require a new significant tooling to support that new power line. The whole of formal technology platform which we have marketed and branded as chip technology is that it’s seriously highest scalable, it goes while this fundamentally manufacture is not a device, but an array of devices.

And so throughout the manufacturing process what is being made is not in affect a single chip, but an array of chip, their chip can comprise anywhere from really few to as many as approximately 100s of them in one panel. So this is for power and power components what if you will away from methodology for silicon chips in that. As with wafers, you can have in effect a general platform that will be in a certain wafer geometry defending on the chip size can provide a larger or smaller number of devices and that’s highly scale oriented you can without significant inter metal tooling cost accommodate application reformers for larger or smaller chips.

Well that’s same methodology applies with our CHIP Technology. We have a senior level color body. So these things are bought again across the effectiveness because nothing goes to waste. Unlike the case for first generation V*I chips we’re quite development of the cost where in effect sank in terms of materials due to inefficiencies in the power.

And the equipment measure of that process for each type of V*I Chip, with chips much more scalable nothing goes to waste we can rapidly scale up or scale down as needed to be. Our engines within this package address general power deployments ranging from less than 100 watts or even less than that all the way out to several kilohertz in fairly large chip, so it’s a technology platform, we would like once again it’s going to take time but and obviously there has been a lot of time already invested in this. Would we have very strong IP foundation for this technology. We have basically if you’re getting a long-term expectations for it’s contribution at the top and bottom line.

John Dillon – JB Associates

It sounds great. Thanks, looking forward to next conference call.

Unidentified Company Representative

And with that if there are no other calls we look forward to talking to you again in a few months. Thanks very much and good night.

Operator

Thank you. So ladies and gentlemen, that now concludes your conference call for today. You may now disconnect. Thank you for joining, and enjoy rest of your day.

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