Vicor Has 48 Volt Solutions To Electrify Your Portfolio

| About: Vicor Corporation (VICR)

Summary

Alphabet and Facebook are working together to promote a 48V rack design to the OCP, Open Compute Project.

The OCP has over 100 members including Alphabet, Facebook, Microsoft and many others.

Automobiles are transitioning from 12 to 48V.

Vicor has the best 48V solution and will benefit from the shift to higher voltages in servers and cars.

I remember driving with my father when I was a young boy and seeing power lines. My father would explain to me that the cables carried very high voltage because it was the most efficient way to transport electricity and to minimize voltage drops. 50 years later, this simple lesson helped me understand why Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL) has utilized this concept by using Vicor's (NASDAQ:VICR) technology to save millions of kilowatt hours in their data centers.

The Open Compute Project:

Vicor has pioneered the trend toward quadrupling the voltage in data centers in order to provide a more efficient power train for servers. Google has been using the Vicor technology for over 5 years in their data centers and they are encouraging others to follow their lead by joining the Open Compute Project, OCP. Facebook (NASDAQ:FB) started the OCP in order to promote energy efficiencies in data centers, and they publish designs that enable the most efficient hardware for others to follow. Google is actively working with Facebook on a 48Volt OCP rack design and the final plan will be published shortly.

Companies involved in the OCP include Facebook, Intel (NASDAQ:INTC), Alphabet, Nokia (NYSE:NOK), Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), Seagate (NASDAQ:STX), Dell (NYSE:DVMT), Rackspace, Ericsson (NASDAQ:ERIC), Cisco (NASDAQ:CSCO), Juniper (NYSE:JNPR), Goldman Sachs (NYSE:GS), Fidelity, Lenovo, Bank of America (NYSE:BAC) and others.

The science behind higher voltage:

Alphabet claims that switching to 48V resulted in a 30% improvement in energy efficiency. The science behind this phenomenon is represented by Ohm's law.

Ohm's law is pretty simple. It is: I (Current or Amps) = V/R (V = Volts, R = Resistance) and it basically states that if you double the voltage you can double the current with the same amount of resistance. Here is a link to an Ohm's calculator.

What is really interesting is that if you go from 12 to 48V with 10 ohms of resistance, your current quadruples from 1.2 to 4.8amps, but your power increases by a factor of 16 and goes from 14.4 to 230.4 Watts! Higher power processors are requiring more power; it is getting harder to deliver the wattage required to the processors with a 12V power train, and that is another reason for the switch to 48V.

With the Vicor "Factorized Power Architecture," FPA, a customer can quadruple the voltage to 48V and deliver 16 times the wattage with the same resistance. This saves considerable energy and therefore produces less pollution. This is why Google is so interested in promoting this architecture.

The Vicor FPA also eliminates a voltage conversion step by going directly from 48V to sub 1V at "the point of load." They eliminate the intermediate step of 12V. Here is a link to a Facebook video, at 1:58 into the video an engineer explains how important it is to eliminate conversions steps in the data centers power train.

It is very important to deliver the 48V as close to the processor as possible. If the "point of load" power converter is placed an inch away from the processor, additional power loss of 25 to 56 watts can occur.

It is a challenge to put a converter close to a processor, because of the size and the electromagnetic noise. Vicor has very small and quiet converters that are placed directly inside a processor's package. This involves a very intimate technical and business relationship with the processor's manufacturer.

Another advantage of placing the converter inside the package is the processor can be closer to the memory. Therefore, the interconnect distances are shorter and data transfers are quicker and the server is faster.

Open Power Foundation, OPF:

The Open Power Foundation is like the OCP but it is based around the IBM (NYSE:IBM) power processor. Here is a link to a Google presentation at the OPF. Google is building a Power 9 server platform with Rackspace based on a 48V to POL solution. This server will have 32 DDR4 DIMM sockets. That is a lot of memory rails that need to be powered.

Supercomputers:

The supercomputer market also uses higher voltages in their architecture. Here is a link to the supercomputer application that uses Vicor's technology.

48V and Automobiles:

Autos are on a similar path to 48 Volts, and the mild hybrid is accelerating the industry to 48V. With autos the gains are bigger because of the increasing electronics inside modern cars. The 48V allows the power cables to be thinner, therefore weigh less. Weight is a big issue when trying to minimize the energy use in an automobile. Vicor's 48V solution can be up to 1/5th the size and weight of competing products.

Mercedes-Benz is investing in 48V.

Autos are trending more toward autonomous driving, and autonomous driving requires very high performance computing. Tesla (NASDAQ:TSLA) is using Nvidia (NASDAQ:NVDA) processors in their cars.

Other auto manufacturers are also considering Tesla for autonomous driving.

The Vicor products are perfect for this autonomous driving application. Here is a link to a nice article on autonomous driving and Vicor's DCM and CHIP power solutions.

The auto market is bigger than the Data Center market for Vicor.

Competitors:

EDN had a great article regarding 48V in the data center. The article lists several of the 48V power supply manufactures and their solutions. The article includes Vicor, STMicroelectronics (NYSE:STM), Maxim (NASDAQ:MXIM) and Intersil (NASDAQ:ISIL). Another competitor is Monolithic Power (NASDAQ:MPWR). Here is a link to their solutions.

As stated in the EDN article, Vicor has the best 48V solution on the market. Here is some additional confirmation that the Vicor technology and their resulting products are truly unique and superior.

Risks:

Vicor is the pioneer in the 48V to POL technology and has invested hundreds of millions of dollars in this technology. Convincing established markets to change is fraught with danger and can take considerably longer to develop than expected. The automobile market, in particular, has been talking about higher voltage systems for over 20 years.

Vicor has a history of pushing out the inflection point of increasing revenues that they now claim is coming in 2017. Vicor has been a very volatile stock. In the past, they have not been successful in diversifying into enough markets to provide for steady revenue growth.

There are many competitors in this field as I have indicated above. In addition, nothing in the OCP specification specifically specifies the Vicor parts.

Gallium Arsenide GaAs products are on the horizon. It should be noted that Vicor will be able to convert their designs to GaAs when appropriate.

Microsoft is sticking to a 12V solution, and has recently published early specifications of their solution with the OCP. They claim that with a 3-phase 110V AC system they don't need 48V.

Recently there has been considerable insider selling at Vicor.

Business Indicators:

In my previous Seeking Alpha article I noted that Vicor has several data center design wins with the Intel Skylake/Purley platforms. The Skylake has started shipping to select data center customers and Vicor, as of their last conference call, had received million-dollar purchase orders from their customers. In addition to powering the processors, Vicor had design wins for the memory rails. They are successful in securing design wins for lower power memory rails since they have driven the cost out of their CHIP and SIP products.

Vicor has been advertising for 1st, 2nd and 3rd shift machine operators on their website and on Monster.com. It appears that some of these positions have been filled, because ads for the 1st shift are no longer posted.

A longtime Vicor Investor (Waveform) provides a weekly update in the comments section of my previous Seeking Alpha article, "Vicor is a Fang Play Without the Crazy Multiples," regarding the number of cars in Vicor's Andover parking Lot on Sundays. He calls this the APLI, Andover Parking Lot Indicator. The number of cars present on a Sunday gives us a good indication of the manufacturing activity at the Vicor factory. The APLI has gone from 0 cars to over 40, and has been consistent at around 40 cars for the last couple of months. This is the best indicator of Vicor's activity.

Vicor has a relatively new product line call VIAs, and they are shipping production quantities to customers.

Summary:

Vicor is well positioned to take advantage of the trend toward 48Volts. They have invested over $300,000,000 to produce superior parts. The EDN article and the awards Vicor has won provide us with independent confirmation of their superior technology.

Patrizio Vinciarelli, the CEO, was cautious regarding revenue for Q4 in the last conference call. The APLI did not start to tick up until later in November (we had Thanksgiving and Christmas holidays to make up for), and the help wanted ads did not start until the middle of December, so I am not expecting much revenue growth for the past Q. I expect a very good booking number and I believe that is the number to focus on. I expect a FY 2017 that reflects the inflection point that we have long been waiting for. We should hear more in the Q4 conference call on February 23rd.

The stock has backed off a bit from its high for the year. If we get a good bookings number from the 4th quarter report, the stock will react very positively.

Disclosure: I am/we are long VICR.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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