Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)

Vicor Corp. (NASDAQ:VICR)

Q3 2013 Results Earnings Call

October 22, 2013 5:00 PM ET

Executives

Jamie Simms - Chief Financial Officer

Patrizio Vinciarelli - Chief Executive Officer

Analysts

John Dillon - JB Associates

Don McKenna - D.B. McKenna & Co.

Operator

Good day, ladies and gentlemen. And welcome to the Vicor Corp. Earnings Results for the Third Quarter ending September 30, 2013 Call. My name is Dennis, and I’ll be your operator for today. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session. (Operator Instructions)

As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today Mr. Jamie Simms, CFO of Vicor. Please proceed.

Jamie Simms

Thanks, Dennis. Good afternoon, everyone. And welcome to our conference call for the third quarter ended September 30th. I am Jamie Simms, Chief Financial Officer and with me here in Andover, Massachusetts is Patrizio Vinciarelli, CEO.

Today, we issued a press release summarizing our financial results for the third quarter. This press release is available on the Investor page of our website, vicorpower.com. We also have filed a Form 8-K with the SEC in association with issuing this press release.

Once again, I remind listeners this 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 provisions 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. We undertake no obligation to update any other statements made during this call and you should not rely upon them after the conclusion of the call.

A replay will be available beginning at midnight tonight through November 6th. The replay dial-in number is 888-286-8010 and the pass code is 17835749. In addition, a webcast replay of the call will be available on our IR page shortly upon the conclusion of the call.

I will start this evening’s call with a review of our financial performance for the third quarter and Patrizio will follow with his comments after which we will take your questions.

As set forth in this afternoon’s press release, Vicor reported an after-tax loss for the third quarter of $932,000, representing a net loss of $0.02 per share. This compares to the second quarter after-tax loss of $4.6 million, which represented a loss of $0.12 per share. For both the second and third quarter we used the basic share count of 38,538,000 to calculate EPS.

Vicor’s consolidated revenue for the third quarter increased 17.6% sequentially to $55.1 million from the $46.9 million recorded for the second quarter of 2013. The third quarter figure compares to revenue of $53 million for the third quarter of 2012, representing a year-over-year quarterly increase of 4.1%.

The Brick Business Unit, our largest, recorded a 5.3% sequential increase in revenue, coincidently the second consecutive quarterly increase of 5.3%, while V*I Chip also repeated it’s prior quarter’s performance, again nearly doubling revenue up 98% sequentially.

All of our businesses experienced improved revenue for the quarter, reflecting the rebound in bookings during the second quarter. The third quarter’s revenue came in slightly ahead of our own forecast.

Turns revenue, meaning orders booked and shipped within the quarter declined again to approximately 38% of revenue for the third quarter, down from 41% for the second quarter and 47% for the first quarter, the highest level in recent memory.

This decline largely reflects the increase in V*I Chip shipments of orders to be shipped across more than one quarter. Given that we built order and our lead times to delivery range by product from three weeks to 12 weeks, a lower dependency on turns revenue implies greater visibility in our forecast.

Backlog totaled $53.9 million as of September 30th of which 71% was scheduled for shipment during the current quarter. Recognized sell-through revenue for the third quarter associated with shipments by our stocking distributors increased over 44% to $2.1 million from the prior quarter’s $1.5 million.

As I state every quarter, please keep in mind for financial reporting purposes, we segregate customers by the address to which we ship, with the exception Vicor Japan, all of our subsidiaries sell in dollars and all of our products, again with the exception of those manufactured by Vicor Japan are exported from the U.S.

International revenue rose to 61% of total revenue for the third quarter, up from 58% for the second. The increase in V*I Chip shipments which primarily go to Asian contract manufacturers working for our domestic OEM customers was the primary contributor to the increased percentage of total consolidated revenue represented by international activities.

BBU exports were flat sequentially while VJCL dollar revenues recovered from the second quarter’s low point. If V*I Chip shipments to contract manufacturers are not considered, shipment across the Asia-Pacific region excluding Japan were unchanged or declined slightly from country-to-country, reflecting softer second quarter booking patterns. Our largest market in the region, China, inclusive of Hong Kong and Shanghai operations experienced to 9% decline in shipments for the quarter.

As stated last quarter, our definition of Europe going forward for purposes of these conference calls includes Northern Europe, Southern Europe and Eastern Europe, inclusive of Poland, Russia and the Ukraine. We are segregating Turkey and Israel which had been included in the Southern Europe when we discuss the region.

As a whole European shipments declines 9% sequentially, despite continued double-digit expansion in Russia, which is quickly become a major market for us. Historically, important markets for us such as the U.K. continued to be weak reflecting poor conditions in defense electronics. After a brief disruption earlier in the year due to a transition in distribution partner, Israel recovered the customary levels and show signs of sustained growth.

Turning to new orders, third quarter bookings declined 6.7%. However, recall bookings increased 24% and 26%, respectively for the prior two quarters. Second quarter bookings included orders associated with a V*I Chip design win in the data center space, as well as a significant defense electronics order for BBU. If this single defense electronics order is not considered all other booking activity actually increased approximately 5% reflecting an increase in order flow for V*I Chip data center solution, continued growth in Russia, a recovery of bookings in key markets notably China and Germany, and a 20% increase in orders from our stocking distributors.

The data center volumes are schedule to be shipped well into the first half of 2014 based on current backlog and the defense electronics order begins meaningful shipments in the first quarter.

As this been the case for some time, the BBU continues to experience varying demand for its modules and configurable products. We hope macroeconomic conditions firm at some point, but we anticipate real recovery for the BBU will be based on new solutions enabled by the chip modules Patrizio will be discussing in a moment.

Turning to the income statement, consolidated gross margin improved to 41.7% for the third quarter, up from 39.4% for the second. The improvement was largely the result of improved capacity utilization and overhead absorption notably in V*I Chip which recorded a record gross profit margin.

Total operating expenses declined 4.4% on an as reported basis. During the third quarter we did not incur any notable or irregular operating expenses in contrast of the prior quarter, during which we recorded $1.1 million of charges associated with the stock option exchange we completed in June, a training initiative and an anomalous bad debt charge due to a customer bankruptcy filing.

While commissions did increased this quarter as expected with the rise in revenue and we continue to expand our Asian footprint with an office in Soul, South Korea established during the quarter, other operating expenses, including legal fees were steady for the period.

Total headcounts stood at 993 as of September 30th compared to 997 as of June 30th, a year ago total headcounts stood at 1044.

Until we achieve robust profitability we will continue to closely scrutinize discretionary spending. However, we are not going to find our way to profitability through expense reduction.

We had established a marketing and sales infrastructure capable of supporting significantly higher volumes of business, so there is a chicken and egg aspect to our cost structure.

While we can be prudent in accessing incremental expense, achieving profitability through cost reductions or cutting back investment in our future would be the wrong trade-off.

In addition we continue to spend heavily on product development given the opportunities presented by our product roadmap. As such, the top line will drive profitability in the next year as we leverage our considerable long-term investment in our future.

Turning to taxes, in the third quarter, we recorded an income tax benefit of approximately $406,000 based on our forecast for full-year taxable loss. I want to highlight the possibility and I emphasize possibility the company at some point in the coming quarters may need to increase the valuation allowance we applied to the deferred tax assets we carry.

Increasing the valuation allowance would represent a non-cash charge to earnings and given the circumstances such a charge could be material. We have a net federal deferred tax asset balance of approximately $11.3 million as of September 30th.

We also have a valuation allowance totaling approximately $11.5 million, the majority of which offsets state level deferred tax assets which have been fully reserved. Significant management judgment is required in determining whether deferred tax assets will be realized in full or in part.

Every quarter we assess the amount of the valuation allowance offsetting the value of these assets. For the third quarter, our conclusion was based on our assessment of all available evidence, both positive and negative. The company met the more likely than not standard regarding the likelihood sufficient profit would be generated in the future to utilize the net federal deferred tax asset carried.

Elements of this assessment include projected future taxable income, tax planning strategies, scheduled reversals of deferred tax liabilities if any and income in the carry-back period. Recall that when we went through this quarterly exercise for the fourth quarter of 2012, we concluded we would be able to utilize the net value of the federal deferred tax asset carried.

But we determined we would not be able to use the state deferred tax asset carried due to idiosyncrasies and the use of carry backs and carry forwards at the state level. At the same time, we fully reserved against the value of these remaining state deferred tax assets taking a non-cash charge of approximately $1.5 million.

Going forward, due to our consecutive quarterly losses and uncertainty regarding our timeframe to sustain profitability, we will closely evaluate the likelihood sufficient profit will be generated to fully utilize the net federal deferred assets, excuse me -- tax asset balance.

If we determine the more likely than not, standard will not be met then the valuation allowance may need to be increased and such an increase could result in material non-cash charge. Having said this, I should also point out that the valuation allowance door swings both ways and that sustained robust profitability could lead management to conclude some or all of the valuation allowance should be released, thereby creating a non-cash tax benefit which could be material.

Recall that during the third and fourth quarters of 2010, the company recorded non-cash tax benefits of $5.2 million, or $0.12 per share and $1.2 million or $0.03 per share, respectively due to the release of portions of our valuation allowance against deferred tax assets.

Turning to cash flow. Cash flow from operations for the third quarter recovered to a positive $1.5 million from the second quarter deficit of $2.5 million. Despite the increase in shipments in production, we did not experience a meaningful swing in working capital for the quarter.

Capital expenditures for the quarter were steady at $1.5 million. We still anticipate beginning the build out of our chip production capabilities during the fourth quarter but also anticipate the actual dollar investment for the quarter will be lower than the originally forecast $5 million with more design in purchase order activity than actual spending, which will be recorded in Q1 and Q2 of 2014. As earlier discussed, we expect our total investment for chip build out to exceed $10 million.

Turning to the consolidated balance sheet, our receivables portfolio remains in excellent shape with day sales declining to 43 days from the prior quarter's 45 days. Consolidated inventories quarter-to-quarter declined for the fourth consecutive quarter, driving annual turnover to just over four for the first time in recent memory. There were no meaningful charges or changes to reserves.

Cash at quarter end stood at $61.2 million, up from $60.8 million last quarter. We also hold certificates of deposit carried at their face value of $1.2 million and long-term investment securities with a par value of $6.0 million carried and an estimated fair value of $5.0 million, representing roughly 83% par value.

Turning to our expectations for the fourth quarter, we're forecasting relatively little sequential change. We do not anticipate reducing, excuse me -- we do anticipate reducing our net loss slightly but based on current backlog, booking patterns and expense trends, we will breakeven at best.

We expect a further increase in revenue and steady margins but we also expect any improved product level results will be offset by step-up in resources and legal fees related to IP litigation. We also are expecting increased R&D and engineering expenses as we rollout our new chip and SiP product lines.

This concludes my prepared remarks regarding our financials. Now, I’ll turn it over to Patrizio.

Patrizio Vinciarelli

Thank you, Jamie. As Jamie has described the third quarter was characterized by performance improvement in V*I Chip substantially doubling its manufacturing volume to a new record of production units. This is very encouraging as we are confirming V*I Chip operating assumptions which would be applicable to our new chip products, the manufacturing of which leverages the lessons learned from first generation V*I Chips.

As a reminder, ChiP is an acronym for converter housed in package. What we refer to as Power Molded packages during development phase. The power density, high efficiency, scalability of ChiP modules make them attractive to market leaders seeking to the franchise that own next generation systems.

We expect to be transitioning during the second quarter of 2014 to production of ChiPs that we’ll spend upon the first generation via ChiPs that provide the initial penetration of OEM service and data center solutions. While our first generation solution consists of V*I Chip PRMs and VTMs, our next generation solution consists of SiP PRMs and ChiP VTMs providing derivative efficiency and density at a considerably lower cost for the coming generation of Intel via standards beginning with VI ‘12 which would be rolled out next year.

While our 2014 production efforts will be focused on expanding ChiP capacity, we ill continue to produce first generation V*I Chips as their use in certain application continues. While we do not have visibility into demand within the super computing segment as federal finding remains quite uncertain.

We have other applications for first generation V*I Chips. Disappointment associated with the fate of this super computing business is more than offset by enthusiasm for the acception of ChiP modules and SiP regulators have received across the range of applications. Design in activity is accelerating with an expanding lease of well known large scale enterprise computing manufacturers, test and measurement vendors, communication OEMs and defense electronics contractors.

ChiPs and SiPs have been designed to platforms that should ramp in the second half of 2014. Our ChiP platform is expected to dramatically capture the manufacturing costs per watt over modules, well below the cost of first generation V*I Chips. Our vision of a broad market for factorized power is predicated on breakthrough performance of a competitive cost, providing a compelling value position especially for the high volume VM customers which are critical to our growth strategy.

First generation V*I Chips were already differentiated but the manufacturing cost limited their acceptance to special key applications where performance tramped cost. Our vision is to enable scalable, modular power system methodology using Chips, delivering high performance of very compelling sense per watt levels.

Our near-term strategy is to establish Vicor in that ChiP and SiP based solutions with high profile customers while also driving broader market penetration. A subsequent [expansion] phase will leverage a Chip inside strategy across the fragmented -- market segments that’s traditionally been served by the BBU and its units.

We’ve developed a detailed plan already been executed upon to expand the V*I Chip manufacturing lines to accommodate Chip production. As Jamie mentioned, we earlier thought we’d be spending uppers of $5 million this quarter on the equipment, but we’ve been able to expand near term capacity through productivity improvements, thus providing additional time for pivotal investments in capital equipment.

We still anticipate a subsequent safer expansion in 2014, requiring an additional investment of at least another $5 million. Despite the enthusiasm we have for promising new opportunities, many challenges remain. As Jamie addressed, we expect results to improve this quarter and likely for just short of profitability.

We’ve been pleased with the efforts to control working capital growth, particularly with increased shipments and are pleased to -- they’ve have been generating cash. While we may consume cash for capital expenditures, we have sufficient liquidity to fund the near term needs. At the risk of repeating myself quarter-to-quarter, I’m confident Vicor is on the right path to long-term success.

As we have division, technology and proper roadmap to serve the needs of our power system marketplace, seeking higher performance modular, scalable and cost-effective solutions. We’ve redefined our go-to-market infrastructure, expanded our worldwide capabilities and have partner with well positioned distributors. While, we continue to face economic uncertainty, I see us delivering on the prior commitments that will enable and define our future.

This concludes our prepared remarks and we will now take questions from listeners. Operator?

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from John Dillon. Please proceed.

John Dillon - JB Associates

Congratulations on a really good quarter. In particular, it looks like your bookings and revenue were up pretty significantly. I do have a question on the next quarter. It sounded like you are going to have basically a breakeven or a slight loss. How about the bookings in revenue? Do you expect those to continue to go up?

Patrizio Vinciarelli

Yeah. We see capital partners of modest growth into topline and corresponding levels of bookings. We see a little bit of a dull period prior to a significant step up, starting likely in the second quarter. But this outlook is fluid dependent. As I mentioned earlier on a deal designing activity that could surprise us potentially in terms of earlier activity and potentially on the flipside in terms of delays.

John Dillon - JB Associates

And then have you recalled a lot of the people were furloughed while back? Does it include our shipments?

Patrizio Vinciarelli

I’m sorry. But you are coming through with difficulty. Would you mind repeating the question? We could not -- Jamie or I could understand.

John Dillon - JB Associates

Sure. Are you bringing back us, some of the people that were furloughed, the manufacturing people?

Patrizio Vinciarelli

Well, we have been running additional shifts. But our focus has been primarily to increase productivity as I mentioned earlier. And we've been able to make stride in that channel area. So obviously the lower activity in the factory has increased substantially, as you can expect with a V*I Chip shipments is doubling quarter-to-quarter for couple of quarters.

So we are obviously a lot busier than we were, only few quarters ago when some downsizing was realize, particularly in V*I Chip operations. Just before a measures that prompt inactivity leading within the last quarter to a record number of units. So we are still as explained in the past with particularly V*I Chip and even more so chip products in an early phase where the business is not as statistical as we would like it to be.

We don't have yet the broader customer base that we just probably enjoyed with big products. It is only when we get to level of increased transaction that will cause the revenues to be made up and I’m referring to V*I Chip revenues and Picor revenues without a substantial number of customers and substantial level of diversification that our rational needs and capacity would become more predictable.

But I’m delighted with the way which our operations and all the people contributing to the success of the VI shipment, the pricing in terms of margin capacity from a dealer perspective and in terms of units wise, had been able to respond to the sudden increasing demand.

John Dillon - JB Associates

Okay. That sounds really good. So you are running on -- were you running one shift initially and you shifted, changed to two shifts or are you running three shifts now? How many shifts you are running?

Patrizio Vinciarelli

We are not running, generally speaking three shifts. But the level of activity has increased considerably. We still have capacity, capability beyond requirements over the next couple of quarters. And as I mentioned earlier in the prepared remarks through the productivity improvements, we’ve been able to take a little bit more time to make purchases of additional equipment which we are getting close to make, particularly in support of chip production rates.

John Dillon - JB Associates

Thanks. Great. Congratulations on that. On the last conference call I think you mentioned there was an AC to DC opportunity with the PFM. Is that’s still a viable opportunity, has that progressed and are you seeing any revenue from PFM now?

Patrizio Vinciarelli

So we made significant sizes both in terms of a broad customer base in small to medium volumes and more recently with a particularly significant opportunity in Asia for our PFM product. And that’s been based on an early generation PFM, that as you might have heard me say before, is about to be significantly improved to a new generation of devices that raised the power, the efficiency, the density and most significantly reduced the software watt of the cost matrix considerably so.

I’m happy that the key attributes of density, low profile efficiency of the first-generation PFM are giving us traction not just with less cost savvy customers, but to some degree with more cost savvy customers and looking forward to a near timeframe in which the introduction all more advanced PFMs that are based on our chip platform will change our metrics in terms of cents per watt and density in the right direction, opening up the PFM market opportunity considerably.

John Dillon - JB Associates

Yeah. I mean, it sounds from the outside that it looks like the PFM market is humongous. I mean, everything that you see is just such a wide variety of products out there with the cost of dispersion. Do you have any kind of forecast on what you may be able to do in that product line alone in the coming years that you would share with us?

Patrizio Vinciarelli

Yeah. Well, we do have evolving forecast and what I can say is that, developments in the general area are becoming more and more exciting. Again because of early traction with a first-generation TFM, which at least based on first generation V*I Chip technology is I think expensive proposition.

We are going to be able to change schematics of performance and costs to a level where when we are looking at it, a key parameter of goodness will be doubling. And then we are now developing the first chip TFM are approaching volume production.

We are now developing a further generation of AC-DC capabilities that will further raise the bar with respected to performance efficiency and most importantly, cents per watt cost reduction. That will get us into very much of the mainstream of AC-DC application from a cost perspective.

Jamie Simms

But, John, to answer your question, yes we have a forecast, but, no, we are not going to share it with you.

Patrizio Vinciarelli

Right.

John Dillon - JB Associates

All right. Thank you, again. And I’ll get back in the queue but congratulations. It looks like things are really poised to take off here soon. Thank you.

Operator

Our next question comes from Don McKenna. Please proceed.

Don McKenna - D.B. McKenna & Co.

Hi guys. I was, excuse, I got a little bit of laryngitis here, but…

Patrizio Vinciarelli

You are coming so loud and clear.

Don McKenna - D.B. McKenna & Co.

Okay. Great. On the Intel VI trial, how many approved vendors are there and if you know and/or what percentage of the demand that they are going to have? Do you expect to be asked to fulfill?

Patrizio Vinciarelli

So, I think, a little bit of technical, but not so technical, but actually in order to give you a better sense of the market opportunity. The lion share of VR12 and with respect to the lion share VR12.5 applications are going to be continued to be powered from a 12-volt BUS. This is not the area in which we play.

Our opportunity has to do with the Factorized Power System where we first got significant traction in high-end server application which had to do with different kinds of processors, not Intel processors. And within the last couple of years has expanded now to Intel sockets that a move from 12 volt to 48 volt power distribution because of a number of performance advantages that result in fundamentally lower TCO, total cost of ownership by data center users.

These are trend that is accelerating. We are -- have engaged with major players that in fact making use their own data center infrastructure, which are seeing the benefits of a 48-volt backbone and a Factorized Power Solution where in effect we are enabling a significant reduction in footprint in the motherboard, giving an action of both capacitors at the point of load, a significant improvement in point of load efficiency, Intel system efficiency and all this results in significant savings for companies that got to pay the electricity bills, year after year. So that’s the value proposition that is gaining traction.

We have been able to establish it with first generation V*I chips which I suggested over and over again are relatively expensive devices. We are going to be essentially cutting the cost in half in terms of cents per watt with chip-based solutions and Vicor-based chip type solutions. And if you can imagine that we are going to expand the market opportunity for these devices.

In a universal Intel application, again this field going to be largely dominated by 12-volt systems where we don’t play. But the good news for us is that there is a great growth opportunity in the 48-volt portion of this market which is rapidly growing because of significant performance and cost benefits.

Don McKenna - D.B. McKenna & Co.

Yeah. I had recently read that 10% of the U.S. consumption of electricity is in those data centers.

Jamie Simms

I actually think it’s greater than that.

Patrizio Vinciarelli

Yeah. And obviously there is a lot of talk about taking our own responsibility with respect to a greener world but is significantly the green back element in terms of actual operating costs and cost savings is a driving factor, as you can imagine, the profitability model of large data center uses is dependent on being able to achieve lower operating costs.

Don McKenna - D.B. McKenna & Co.

Sure. And could you just speak a minute to the increased litigation expenses you anticipate next quarter, just…

Patrizio Vinciarelli

Yeah. We anticipate a significant step up in litigation expenses. We recently retained additional team of six lawyers working on the case and we are making investments necessary to ensure we are going to prevail.

Don McKenna - D.B. McKenna & Co.

Is this to defend yourself on suits that have been issued against you or is it to still go after some of the patents that you always questioned?

Patrizio Vinciarelli

Well, this is to defend ourselves against a suit has been brought against us with fundamentally baseless allegations of infringements. And the questions will -- allegations of validity. So we believe that the patents have been assert against us are neither valid nor in particular infringed by our technology which is fundamentally different, fundamentally superior, unlike the earlier case in which the plaintiff was able to specially assert claims against a large contingent of Asian companies with tradition of copying American technology. In our case the products, the clients are fundamentally different, fundamentally superior and we believe they do not come close to infringing any valid claim of patent that this company holds.

But, the reality, the situation is that the plaintiff was able in first round of litigation against Asian lot of companies for lack of better words to establish a momentum in effects of this record which they were then able to carry through to the Federal Circuit and more recently they were able to carry through from the Federal Circuit to the parent board in successfully giving in a resignation by one of the opposite defendants in the early litigation.

Whether we are able to reverse the findings of the examiner would agreed one of four different examiners, will agree that the patents that were invalid and without merit. So this has been what you might call a dominant fact in that the plaintiff is cleverly corralled a group of helpless copycat companies and they have been able to leverage their action through successive wins at different levels. We are intending to stop their progression and I think we have merit on our side and the resources to issue that [amendments].

Don McKenna - D.B. McKenna & Co.

Historically you have drawn the line in the sand a few times, with some success, with some failures, but you really feel confident on this one?

Patrizio Vinciarelli

Well, I think we have had a good deal of experience litigating IT as a plaintiff against defendants and we are generally speaking won on asserting claims against defendants only those patents. This is a case of patents really are without merit. And in any case even if they were valid, are not infringed by our products, which again are fundamentally different, fundamentally superior. I think a late person probably also thank that. So I think it is a very fundamentally different situation from the one faced by the opposite defendants and we are equipping ourselves to deal with it.

Don McKenna - D.B. McKenna & Co.

Thank you.

Operator

(Operator Instructions) Our next question comes from [Elaine Hicks]. Please proceed.

Unidentified Analyst

Yeah. Good afternoon. I had a question about Picor and how that business is doing and also how does that complement the rest of your business?

Patrizio Vinciarelli

So I would say Picor is doing very well. I think execution there has been stellar. There is a very comprehensive way of new products. I think they have played an instrumental role with respect to our data centers, first data center cash from the win. They are playing an instrumental role with additional data center applications migrating to 48 volts.

Their role is to provide the more silicon centric path of our Factorized Power System solutions where they have successfully integrated regulator to a device that is smaller, more efficient and a lot more cost effective than our first generation V*I Chip.

So, it’s a good match for certain of our engines and building blocks particularly the regulator blocks. So they have sampled to key customers they advanced regulators, PRM type regulator products. They have also sampled initial product line of ZVS backed products which are step-down regulators. They will soon have boost regulators in the expanding product family of very compact and cost effective and high-performance products that leverage our proprietary ZVS and ZCS engines.

So they play a very key complementary role to the chip activities. As you might imagine for certain of the building blocks of Factorized Power Systems in more complex packaging technologies needed, given from a functionality and other functionalities that need to be integrated within the package.

The divide and conquer strategy that we have with Picor is to do with implementing certain functions, in particular, the other functions through a system in a package -- packaging technology that is mainstream and more generally available. So the value proposition with Picor is very high silicon content within a common denominator SiP package and that’s to be differentiated from the chip and V*I Chip portion of the challenge which has to do with other engines that require a much higher level of our compliant integration with magnetic and other types of functionalities.

Unidentified Analyst

With still a negligible part of your business, what’s going to take…?

Patrizio Vinciarelli

Well, it won’t be negligible that long because as we get into the middle of next year with designs wins have taken place, they are going to be shipping very substantial quantities of SiP regulators. So as we look at second half of next year and entering the beginning of 2015, Picor would be in double digit in terms of millions of dollars per year.

Unidentified Analyst

Do you expect that gain traction by the second half of next year?

Patrizio Vinciarelli

This is going to be a big step-up starting in the middle of 2014 and further growth as we progress into earlier part of 2014 and 2015.

Unidentified Analyst

And other question on -- well couple of questions, one, what are your prospects in the super computing business and also the auto industry?

Patrizio Vinciarelli

So we’re making progress into super computing business with -- without our customers and we’re seeing generally speaking increased adoption of our 40 evolved infrastructure in supercomputing platforms made by customers added and original customer in that space. And again this is to do with the total cost of ownership perspective that is becoming more prevalent, not just with conference to make and operate on data centers but also with computing product makers and supercomputing product makers. So we’re getting significant transaction of at least two other accounts in that space that will present tremendous opportunity for us in years to come.

Unidentified Analyst

On the auto industry?

Patrizio Vinciarelli

On the other industry, as I warn in the past, that’s the long haul as we’ve recognized but we are actively pursuing opportunities that will result in significant revenues but we all need to be very patient with respect to that. That’s not a near-term opportunity but to give a little bit more flavor with respect to that.

The density efficiency and cost attributes of chip modules is a match made in heaven for other module applications. So we are refining our thought offering in that space to advance the performance and cost attributes and make the chip inside solution for automotive power systems particularly electric and active vehicles, a very compelling solution but this a long-term play.

Unidentified Analyst

Okay. It sounds like you are back -- back in a growth curve and thank you very much.

Patrizio Vinciarelli

You’re welcome.

Operator

Our next question comes from John Dillon. Please proceed.

John Dillon - JB Associates

Hi Patrizio. You’ve talked a number of times about how your design wins are up. I’m wondering if you can give us some metrics. I mean, they are 10%, 20%, can you give us a rough estimate of what you’re talking about there?

Patrizio Vinciarelli

I am not going to give you a number. I can tell you that if I look at major customers, the major customers that have been personally visiting, let say in California on the west coast, in the southern states, Texas, have been growing in exponential right. There is greater and greater interest in our technology because of differentiated capabilities particularly regarding the benefits of factorized power and 40 volt infrastructure and (inaudible) duplication to the point of load and that’s gaining traction not just in computing but also in communications applications.

John Dillon - JB Associates

Excellent. An exponential interest, that’s big, I means that’s a lot?

Patrizio Vinciarelli

I think we’re happy with the level of interest that we’re getting. I don’t think we could -- we could ask for more in terms of the deal of the products, products that would be shifting as well as products that we’ve shown to key customers that are on our product roadmap.

John Dillon - JB Associates

You’ve mentioned a couple of times about the big step-up in the second half of next year. Again what is the big step-up mean, can you put in kind of metrics to that?

Patrizio Vinciarelli

Well, I am not to trying and quantify because of the uncertainties I was referencing earlier but let me put this way given the visibility that we have, we anticipate that over the next couple of years, so we should break past the ceiling of revenues that have capped our historic performance. And I think as that happens, you should get very excited. So we see the interest in the products, the applications and the opportunities to support this detection.

And again, we have now for the first time, sales and marketing infrastructure as well as the operational infrastructure to support some exciting growth that frankly we haven’t seen in a long time. On average, I mean, we’ve gone up, we’ve gone down because of certain setbacks.

We’ve had some recall worry but frankly, going up and down, a little lower, a lot more on a roller coaster ride is not the kind of excitement that we are looking for. We are looking to get to new levels and build on those. And we think of that, the $200 million flash investment we have made in chip technology and fiber chip technology will pay off the time.

John Dillon - JB Associates

Great. Great. Okay. So what I think I’m hearing is that with sometime in the future -- near future, starting in the second half, sometime after the second half of next year you expect record revenues and then sustain growth on top of that.

Patrizio Vinciarelli

I hesitate to give you a precise road map with respect to record revenue arrivals and the like.

John Dillon - JB Associates

Right.

Patrizio Vinciarelli

I think I’ll repeat in different words what I just said, which is that our visibility with respect to products, customers and applications supports levels of revenues that we’ve never achieved in the past and continue to grow beyond that and that’s what we are very much focused on.

John Dillon - JB Associates

And that continued growth is more of us -- a little bit more steady than we’ve seen in the past, more of a…

Patrizio Vinciarelli

But I think the savviness will come about as we sort of diversifying the customer base.

John Dillon - JB Associates

Absolutely.

Patrizio Vinciarelli

So we are, as I mentioned over and over again, not delighted with the fact that with new products and a new technology platform in the early going, we’ve had -- if you will excess dependency under a really few customers. But those are changing. More and more motivation in the marketplace for building factorized power and that’s a very fast development for us.

Also, as I mentioned early in answer to a question regarding AC-DC products, with chip technology, we are enabling much more cost effective solution to provide a level and present the connectivity for the AC wall plug all the way to the point of load by way of 48 volt task to proprietary engines and proprietary product distribution architecture that I think addresses the demands of a power system marketplace is starting for better solutions.

John Dillon - JB Associates

Thanks. You have mentioned 48 volts a number of times, what about -- you had some I think 350 or 380 volts? You are also seeing new applications in that arena.

Patrizio Vinciarelli

Yeah. We are seeing applications in arena. We are also seeing our applications in AC power systems. And again we are uniquely equipped to, I like the analogy of airlines because in a fact, enabling a power system is a little bit like taking people from destination A to destination B by way in some instances of intermediate stop and that may make sense for variety of reasons depending on unique power system requirements.

We believe to be and aligned with unique capabilities in terms of connectivity from any source to any load by whatever midpoint is appropriate given the unique requirements of that particular power system.

John Dillon - JB Associates

Congratulations. It sounds like it’s pretty exciting there. So, thank you very much.

Patrizio Vinciarelli

Thank you.

Operator

Our next question comes from Don McKenna. Please proceed.

Don McKenna - D.B. McKenna & Co.

Following-up on some of those questions. Back at the end of 2011 or beginning of 2012, I’m not really sure, when it was. You had a goal of tripling the size of the company in five years. And I know this wasn’t contended to be a straight line effort, but it seems like we got off a little bit of a slow start on that but what’s going on now, do you see that as a possibility again?

Patrizio Vinciarelli

It’s more than possibility, that’s what we are focused on achieving it and to clarify for the audience the fact that we have setback with respect to the timing of that objective. As you might recall as I’m sure you recall, there were two specific developments that handicapped us for a while.

One was setback with supercomputing applications, particularly the cancellation of the Bluewater project which cost us 10s of millions of dollars in revenues. Also well as dinging on the in the defense market, historically Picor has had a significant dependency on defense applications and I will tell you what’s been happening in the general space.

So this has been a purpose form of source that hit us over the last year in particular. And as we had too much do in the past like go back to the time of the bursting of the telecom bubble where we have 70% dependency son communications applications. So with DC-DC converter bricks and we have to make and have a nice appraisal of where we would go from there.

We’ve been through a similar evolution of late and that’s why you have heard this talk about application environments that is now part of historical make up, supercomputing. There are central applications, high end servers, Intel sockets. Intel sockets are getting more and more cost effective as well as transaction of test equipment, other computing applications.

Automotive is slow as that is going to be. So we are looking broadly at the universe of electronic systems, focusing on those markets that are aligned with our unique modular for component capability. And leveraging their capability with a near term goal of three by five and longer-terms goals that go beyond that.

Don McKenna - D.B. McKenna & Co.

Great. Thank you.

Operator

At this time, we have no further questions.

Patrizio Vinciarelli

Well, thanks very much. And we would be talking to you in three months. See you next quarter. Bye-bye.

Operator

This concludes today’s conference. You may now disconnect. Have a great day.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Vicor's CEO Discusses Q3 2013 Results - Earnings Call Transcript

Check out Seeking Alpha’s new Earnings Center »

This Transcript
All Transcripts