Vicor Corp (VICR) 2003 Q3 法說會逐字稿

Welcome to Vicor Corporation's third-quarter earnings conference. My name is Christie, and I will be your coordinator for today. At this time, all participants are in listen-only mode. We will be facilitating a question-and-answer session toward the end of the conference. (OPERATOR INSTRUCTIONS) As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the meeting over to your host for today's call, Mr. Mark Glazer. Please proceed, sir.

Thank you. Good afternoon, and welcome to Vicor's quarterly conference call. I'm Mark Glazer, Chief Financial Officer, and with me is our CEO, Patrizio Vinciarelli.

Before we began, we would like to remind all of you that today's conference call is being recorded, and is the copyrighted property of Vicor Corporation. Any rebroadcast, reproduction, or other transmission of this conference call in whole or in part without the prior written consent to Vicor is prohibited. We'd also like to remind you that various remarks that we may make during this call about future expectations, trends, plans, and prospects for the company and its business constitute forward-looking statements for purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. These forward-looking statements merely reflect our current beliefs, expectations, and estimates, which we share with you during our quarterly conference calls, and we cannot assure the future results or outcome of the matters described in any of these statements. Actual results may differ materially as a result of risks and uncertainties, including those discussed in that MD&A Part 1 and Legal Proceedings sections included in our quarterly and annual reports filed with the SEC on Forms 10-Q and 10-K.

A replay of this conference call will be available beginning shortly upon its conclusion through 5 PM on October 27th, 2003, by calling 888-286-8010 and using the pass code 66811853. In addition, a Webcast replay of the conference call will be available on the Investor Relations section of the company's web site at www.vicorpower.com/irwebcast beginning shortly upon its conclusion. However, the information provided during this call is accurate only as of the date of this call, and investors should not assume the information remains accurate at any later time. We undertake no obligation to revise or update any of the statements made during this call in order to reflect events or circumstances that may arise after this call, and you should not rely upon them after the conclusion of this call.

We're now ready to begin the Q&A portion of our conference. I would ask that you limit yourself to up to two questions at a time so that everyone gets a chance to ask his or her question. You may, of course, get back in the queue to ask additional questions. Christie, we will now take the first question.

(OPERATOR INSTRUCTIONS). Mas Siddiqui, Jefferies & Company.

I guess the first question I would ask is if you could give us a little bit of color on why the shipments for the quarter were so soft?

The book-to-bill in the second quarter, as you might remember, was a little bit below 1. Also, the booking pattern within the third quarter was more heavily weighed towards the other part of the quarter. Those were the two factors.

Okay. And I guess coming back to that a little bit -- given some of the spending we're seeing in some of the other industries, can you comment a little bit on -- is this a surprise? Is this unexpected? And what does this mean sort of for the fourth quarter?

Well, again, if we look at the book-to-bill the second quarter, they did not vote for increases in revenues in the third. The slight improvement within the third quarter -- particularly the end -- suggests an improvement in the top line as we get into the fourth quarter.

Okay. I guess the second question I'd ask -- just can you give us a little bit of color on the layoff-related costs, and maybe a little bit of idea of where some of the savings are going to come from in the layoffs? What the levels could be?

The impact of the separation costs in the third quarter was below the materiality thresholds. And given that, we're not going to disclose it. We expect to see savings going forward, and we're not prepared to quantify what those are. But you can draw your own conclusions from the fraction of the factory work force which is no longer with us.

You should bear in mind that we have reinstated the full workweek for all the employees that are still with us. So that will significantly diminish the impact that would have been there without that effect.

Will there be any factory closures or anything associated with this?

No.

Ron Opel, Moors & Cabot.

Guys, congratulations on the new agreement with Celestica.

Thank you.

I'd like to ask the same question a slightly different way. The sequential decline in the third quarter -- is it accurate to say that it was a result of continuing soft demand for the OEM products that you are already designed into, plus third-quarter seasonality?

Well, these effect always of third-quarter seasonality -- with our old product line, what we've seen in the third quarter is lacking of demand for our first-generation products with a relatively stronger demand for second-gen. And it's obviously still too early for VI Chips.

Do you -- I think you said in the last conference call, Patricio, that you thought that in the second quarter of next year, there might be some significant contribution of the new -- of the chips to the top line? Do you recall saying that? And do you still expect that that might be the case?

Yes, we expect that would be the case in developments, possible developments within the third quarter support that expectation.

Craig Irwin, First Albany.

Could you share with us a little bit your thought process for entering the non-exclusive licensing agreements with Celestica, and licensing them your proprietary technology?

Yes, I think that thought process was already articulated in the last conference call. It has to do with primarily the realization that the industrial (ph) market -- its (ph) and VI Chip technology -- is very, very large. It spans the broad range of the electronic marketplaces, from communication to IT to consumer and transportation markets. It is such a large investable market that anyone one company could not do justice with the opportunity.

We believe that licensing select licensees with the right attributes and the right approach to particular parts of the marketplace will results in an amplification of the market opportunity and an increase of the rate of penetration any market opportunities. And Celestica is a great candidate for that. You know, we have known over the last four or five months to respect the people that we have dealt with; we're very impressed with them. We think they're well-attuned to the power system needs of flux-rate customers -- in particular, in the communications and information technology end-markets.

I think Celestica is being itself, a leader with respect to high-quality, low-cost bricks and isolated, point-of-load converters in the same markets. They understand the limitations of distributed power and the intermediate bus architecture. They understand the conductive nature of the VI Chip technology and factorized power. And we think that they have an opportunity, and they think they have opportunity to build a very substantial and profitable business based on the VI Chip.

So we see this as a win-win opportunity. We think they're going to do well, and we are going to do well with them. We see an opportunity to expand our sales and presence in key accounts -- particularly, again, in communications and IT. We have had already a number of customers in those end-markets come to us and ask us to set up alternate sources. They're very attracted to the product and the opportunity with the product in a variety of applications. But they are concerned for our business -- it's about depending on just one company and one source for their critical needs. So those are some of the reflections that go on into this decision.

Okay. And can you give us some sort of an indication on whether or not the other power supply manufacturers out there that have licensed your proprietary technology in the past have expressed interest in licensing the VI technology?

We are in discussions -- in negotiations with other entities. And beyond that I can't really give you any more details. But we have had interest with respect to these technologies from different directions. And we see opportunities in different directions -- with emphasis on approaching the market in a way that is complementary; that builds, in effect, coverage, and that builds opportunity for our concern.

Okay. And are the financials of this agreement pretty similar to your past licensing agreements?

The financials of this agreement reflects a number of factors. First of all, they reflect the great market opportunity that exists for VI Chips. They reflect the high level of intellectual property that we have in the technology. And they reflect the high-margin opportunity that exists for the products due to convenience, low-cost, and competitiveness.

So I think that -- that's as much I can share with you. The particular parameters of our agreement with Celestica are subject to the (technical difficulty) decisions, so we're not at liberty to disclose.

Okay. And then the beta customers that you mentioned last quarter that were testing the VI technology chips. Have you had any orders from those customers to date?

We've had a number of orders from a variety of customers. Bear in mind that the world didn't know about VI Chips and factorized power until April, and the effect of first product transaction followed in -- was it June or July? So, in effect, the third quarter was our first quarter in which there was an opportunity to be active with respect to sampling customers, having customers assess on their own the nascent technology and initial products. We've been developing follow-on products. We have now a number of products in the pipeline getting ready to be put in the marketplace, and we expect to see our works coming.

Is it still fair to say that you expect to see begin production at Vicor of the VI Chips in the fourth quarter?

Well, we have started limited production at Vicor. We did so as of several months ago. This still in very small volume, because we are not in any kind of volume production. That will not happen until probably January, with first opportunities that should get into production. We are looking again at Celestica's coming up to a point of being able to also manufacture and market it.

So you're not expecting volume production to begin until January, which would be the first quarter now?

Between now and there, we are going have increasing rates. But I want to make sure that we understand that, as discussed in the past, these products, given the nature of being products for OEM applications, have a just specialty in the marketplace -- that these substantial typically measured in the better part of the year. So getting to production as early as January of next year, which is a little early -- six months after our first product was introduced is at the very low end of the professional (ph) scale in terms of time to market.

Steve Smigie, Raymond James.

Yes, thank you. I was wondering if you could talk a little bit maybe about the mix of first- and second-generation products in your backlog? I guess I'm trying to get a sense of what might happen to gross margin in the fourth quarter.

As mentioned earlier, the particular order pattern within the third-quarter showed relative weakness with the first-gen, and relative strength with second-gen. I would not draw any dramatic conclusion out of that particular order pattern. I think as we look more broadly over the time span within the last year, it is fair to say that there might be a small decline with respect to first-gen products. But it's not all that significant, and I would not expect any significant decline with respect to first-generation products. In other words, it could be that when we say the third quarter was just a seasonal blip, and therefore, that one might be able to forecast the fourth quarter might show the first generation products coming back up.

I think the state of the economy -- particularly the end-markets were first- and second-generation products being relatively stronger -- will have a significant influence on that, and in that regard, that will point to end-markets such as cardio equipment, ATE in particular, defense applications. Those were some of the markets where first- and second-generation products played relatively speaking particularly in recent times a more significant contribution to these instruments.

Okay. Could you give a breakout of revenues in the third-quarter by first and second generation, and also I guess by end-market as well?

I could, but I really do not want to get into those figures. Suffice it to say that the second-gen products grew to a level exceeding a third of total demand.

Okay. And what about end-markets?

No particular change in pattern with respect to end-markets. Defense was actually not that strong in the third-quarter. Again, I wouldn't draw any significant inference out of that beyond the fact that you know it's just a one-quarter event.

Okay. I'm just wondering -- you mentioned also in your press release that you believe your architecture will be certainly very competitive with other distributed power architecture solutions and non-isolated point-of-load solutions. I was just wondering what roles you see for those two architectures -- distributed power architecture and non-isolated point-of-load -- going forward? And you obviously are not starting your ramp with the VI Chips until January. What sort of timing do you see in terms of maybe decline in these others, if any?

The sequence of the question is that with the VI Chips and factorized power, we're going to be able to do everything that distributed power in intermediate bus architecture can do -- better. But the converse of that statement does not apply. In other words, with the bricks of distributed power and the ripples of the intermediate bus architecture -- you cannot do what VI Chips can do in terms of efficient power processing with extreme power density and fast transit response at the point of load.

So we have the flexibility to roll into every traditional application as it has been served by bricks and isolated point of load converters. The converse is not true. And we think that ultimately they will make factorized power the winner in this contest.

Have you heard any rumors out there at all of maybe some other silicon companies coming in and putting in new products into the DC to DC market -- even into the bricks -- that you see as some sort of competitive threat currently?

There has been no particular development that I would want to point to that is particularly noteworthy. I think that the industry has been focused on pursuing known approaches. There's a continued evolution of the big paradigm continuing to in effect divide the brick that Vicor pioneered 20 years ago in half, but we believe that's a dead-end road. It doesn't have the performance attributes, the cost-effectiveness that measurement (ph) markets demand. And within the last few years, there has been a bandwagon developing with respect to the use of an intermediate bus architecture and non-isolated point-of-load converters.

We also believe for technical reasons that that is an approach with severe limitations in terms of being able to keep up with forever decreasing voltages in microprocessor applications, forever increasing currents in microprocessor applications, forever increasing dynamic load needs by a variety of state-of-the-art loads -- microprocessors, again, being an example of that, but not the only one.

So we think that evolution that the industry has been undergoing is one that is incapable -- the unit's incapable of dealing with the challenges that vase on (ph) markets have been dishing out. And we believe the factorized power in VI Chips and the VI Chip technology is the answer.

Great -- last question here. Could you mention any possible geographic impacts on the quarter? And, if possible, a geographic breakout?

There wasn't any particular pattern within the third quarter that is worth mentioning. We may need to take a question from somebody else. If you want, you can get back and ask additional questions.

Alan Mitrani, Copper Beech Capital.

Could you tell us what capital spending and depreciation and amortization were in the quarter, and what your expectations are for the full year?

It was, Mark, about the million --

Yes, the capital adds in the quarter were $1.3 million. Depreciation was $5.5 million

Okay. And for the full-year, your expectations?

I would assume we probably have another $2 million of adds in the quarter to bring our total to about $6.6 million for the year. And I would assume another $5.5 million of depreciation.

Okay. And also R&D -- is there a target for R&D? Is there a reason why it hasn't come down, even though some of the chipsets that you've been developing now are starting to come to market? Do you expect that come down now that that's the case? Or is there a certain target as a percent of revenue that we can use?

We are in the investment phase. So the R&D expenses will continue to go up in absolute values. We expect them to, before too long, come down on a percentage basis, and we do expect to see great return on investment with respect to R&D. So --

Okay. Do you expect to be profitable in 2004? Because it's closing -- it's not going to happen this year, obviously. I'm just wondering if next year, you expect next year to be a profitable year?

Well, we are not in the business on making forecasts of a particular specificity, particularly when it comes to the bottom line. It should be clear from everything we said that we see improving demand, we see improving margins, and the net result of all that -- and there are other factors as well; you just raised the question with respect to depreciation. As we look into next year, I can comment that we're going to start seeing a decline in the level of depreciation due to the investments we have made in Caviar (ph) equipment beginning to be fully depreciated. All of these factors will lead to profitability. Exactly when? It's a function of demand with respect to our older products, and the rate of takeoff with respect to the VI Chips.

Okay. Also, you guys seem to have good cash control. Cash keeps going up, and inventories seem to be at almost the lowest level in years -- along with receivables, as well, at the lowest levels. Can you just give us a sense of the inventories -- whether you think they've bottomed out, or whether -- how the inventories stack out, and relative -- whether you can reach demand over the next few quarters? Maybe break it down in your mind, just percent of inventories for old chips versus new chips?

I would not expect to see the continuation of the decline in inventory that you've seen over the last couple of years. I think we have done a pretty good job of managing our assets. We have though, I think, reached a level where as -- topline expense, and we are stocking on a short-cycle time, but nevertheless stocking materials in support of growing demand -- going to be seeing before too long some increases in inventory levels.

Okay, and the one other quick question, if I can. I appreciate the time you are spending. If you could explain -- what is the NOL -- the net operating losses left on your books to be able to cover any taxable income that you start generating? Mark, is there a dollar amount?

I don't have that dollar amount with me.

Okay, I will follow up with you. And also -- lastly, just to understand -- the legal expenses -- I know you've been suing everybody who you licensed -- some of your licensees over the last couple of years for patent infringement --

Sorry to interrupt you, but that is not the case. We have not sued licensees. We sued infringers.

Excuse me, I apologize for that. Can I assume then that for the VI Chip, you're not going to be licensing to any infringers? Anybody who still has a case against you, you will not license the product to?

I think that would be a fair assumption.

Robert Katz (ph), Vicor Corporation.

Hi, Patrizio and Mark -- it's Robert Katz from Sunvest. I have two questions, one of which is about the gross margins -- and they're down quite a bit this quarter. Where do you see them going over the next two quarters, and what gets them there? And my follow-up question is going to be on the VI Chip.

Okay, let's take care of the first question. The reduced shipments and the reduced productivity associated with -- the reduced throughput has a lot to do with the temporary decline in margins. We also have some particular inefficiencies in the third quarter -- in part relating to the activity to convert second-generation products toward the fast-track platform. Some of this work -- excuse me, and parts of that work in terms of converting to our full custom chips took place within the third quarter. So all of that negatively impacted the third-quarter performance in terms of margins. Those factors are behind us.

So do you expect Q4 to be more similar to Q2 margins?

We expect to see an improvement. The precise --

Was pricing any part of the margin deterioration -- pricing pressure?

There's been no particular pricing pressure effect in the margins in the third quarter. Is that right, Mark?

As far as I am aware, right.

Okay, good. Secondly, about the VI Chip. My understanding is the initial use of the Vicor Chip -- in the VI, whatever, the VI Chip, would be -- you would sort of look at incompatible solutions where you can take that platform and sort of do -- sort of low-end of the market -- go after existing sockets with the Vicor -- the VI Chips and then later, go after platform change --

Let's clarify a few things. First of all, the Vicor chips contained within the VI Chip, but the VI Chip is a VI Chip, it's not a Vicor chip. Second, the VI Chips isn't in itself -- either itself a pin-for-pin compatible device with anything out there in the market. And obviously, being five times smaller than anything else at the same power level, it couldn't be.

You could put that in packaging, though, that would emulate --

However, we have a strategy for making VI Chip products that are pin-for-pin compatible with existing bricks and other products in the marketplace. So before too long you're going to see VI-Chip-based solutions that are capable of retrofitting existing products and flowlines and that will offer performance advantages at a very competitive cost.

How long do you think design end cycle for that type of product would be?

The design end cycle for the so-called brick replacement products -- brick replacements utilizing VI Chip technology within them, specifically even I say VI Chips -- is relatively short, because by definition they are replacement products that can go in and improve the existing solution given advantages in terms of power handling capability at lower costs. The design end, on the other hand, with respect to VI Chips themselves, where the customer takes full advantage of key attributes of VI Chips in terms of, again, their much higher density, the better efficiency, the faster transient (ph) response, the lower noise, the lower cost and total system cost -- those requiring development on the part of the OEMs with respect to their products, and take full advantage of these attributes have got a longer gestation period.

So our strategy is two-pronged. On the one hand, we'd be going after the good old brick sockets with the superior VI Chip solution. On the other hand, we'd be planting seeds for the longer term, more leveraged utilization on the part of the OEMs for the VI Chips themselves. Those would get longer gestation period.

So for the VI Chip platform, you need (technical difficulty) sort of tape (ph) out more of the chip set to get that going if they're going to design a whole board around your chips. And for the --?

Well, that can depend on the application. In some applications, the few models that were introduced or models that we're going to be soon introducing may be enough. In more complex systems, a large complement of devices may be needed obviously in the system to operate off-line. VI Chips that operate offline will also be needed. So it depends on the specifics of the application and its nature.

Sort of the number of voltages on board? Is that one of the issues?

Well, the complement of voltages, power requirements, and the nature of the power source -- those are all the factors that apply.

Would Celestica be doing -- helping you out with your first strategy on going after existing sockets or brick replacement?

We're going to be going with gusto after a variety of applications to marketplace with Celestica's help.

And do you think that will start to happen in Q1?

There will start happening within the next week.

This next week. And with the brick replacement, would that have any effect on your own second-generation, first-generation products -- that you can go and sort of start putting a cheaper VI Chip somewhere that you were doing a second-generation chip?

Yes, we are looking at that opportunity as well.

Ned Hemorrad (ph), Bethan (ph) Capital.

Yes, you have sort of actually actively managed your cash; you're up to $112 million, and I noticed you didn't buy any stock back this quarter. What is going to -- and you still have I guess $26 million of potential. What is going to inspire you to move in that direction?

Well, it's not a matter of inspiration. I think it's a matter of focus on the growth of the business. The nature that we have, the wherewithal to conservative finance what is an extremely exciting opportunity. The company has never had to change the industry.

And that's been the focus -- not to repurchase stock; particularly timing with the market seems to be picking up and stock prices were moving higher. Should the conditions in the market change -- as long as it is a conservative step, we may once again take the step of investing in our equity, which we believe to be relatively cheap.

Well, your cap-ex this year is only $6.6 million apparently, and do you expect that to increase substantially in '04?

There are scenarios where that number could start picking up quite a bit. And that's part of the reasoning behind being fiscally very conservative in terms of managing cash and keeping radio (ph) flexibility.

One last question. It appears to me that the dollar orders in the third quarter were actually below that of the second quarter. Is that correct?

No, they were slightly higher.

Mas Siddiqui, Jefferies & Company.

Just have a quick clarification -- I am not sure I caught the answer. Can you tell us -- regarding end-markets, you didn't break it out in a lot of detail, but -- should we imply that everything was weak across the board? And was defense and government still the largest end-market for your product?

We did not do as well as we thought in the third quarter in the defense market. Again, I wouldn't draw any dramatic conclusion out of a one quarter event. But there was one noteworthy change in pattern, at least from one quarter to the next.

Okay -- let me clarify the question again. Again, did the weakness reside primarily in defense -- understanding that we shouldn't draw an inference from it, and that it seems that it might have been more of a one-off event -- was it defense that was the weakness? Or again, were other sectors weak as well?

I cannot cite any particular other pattern. Nothing comes to mind.

Okay, thank you.

Ron Opel, Moors & Cabot.

Yes, Patrizio, the road to break even on second-generation has been long and arduous. I am inferring from everything you're saying that it is probably going to be a lot faster with respect to the chip products. Is that a reasonable inference?

I think that's a very reasonable inference. I think one of the lessons we learned with second gen was that we pushed the envelope in terms of integration, packaging technologies on a number of fronts and compounded our risks in terms of the complexity of the product. We have taken notice of that lesson, and in the architecture and the realization of the VI Chips, we have gone exactly the opposite directions -- leveraging of what is great technology with dramatic advantages at its core, we did not need to in effect take any chance with respect to packaging or other aspects of bringing the product together. And that is reflected in the relative ease of manufacturing VI Chips.

I guess I'm also guessing that, based on again everything that you've said, that once the chip products begin to ship, the slope of the ramp could be fairly steep?

The slope of the ramp should be fairly steep, but recognize that in early days of this -- and we're still in the very early days, because the product was only introduced about six months ago -- not even, five months ago. We are not to going to be able to take advantage of a statistical customer base. We are looking at some major opportunities, but the particularly timing of the first and second or third opportunity will have so much of a non-statistical impact on the early going that, by its nature, it would make it somewhat unpredictable.

Okay. And the aspect of the new technology that is most proprietary is the isolation at the point of load; the voltage conversion out of the point of load. Is that correct? And will the company have more to say about the nature of that technology here over the next several months?

Well, there is many, many unique and proprietary aspects to the technology. Just to give you a quick summary -- the factorized power architecture is itself proprietary. The conversion engines, the power conversion engines for the VTM on one hand and for the PRM (ph) on the other hand are proprietary. We have control architectures for controlling these engines that are proprietary, and so on and so forth, and the package itself is proprietary.

So there are many layers of proprietorship with this technology. And once again there, we learned from past experiences; we learned from the experiences with our first-generation technology, the infringement of the technology -- that technology, or some of that technology by some third parties that we had to take very seriously erecting a very comprehensive intellectual property barrier this time around. And fortunately, because of the nature of the technology and the many breakthroughs that we were able to achieve, we've had an opportunity to do that. The story with respect to the technology in its many constituents will continue to roll out. There is actually meant to be another Leading Edge article coming out I think within the next week on the VTM engine, so to speak -- its unique power processing technology, and there's going to be more coming out in the future.

And you will be announcing the licensees as the agreements are finalized?

You'll be the first to know. Just at the same time as everybody else.

Ben Houston (ph), Aion Partners.

Hi, Patrizio. A couple of questions -- the first question is -- sort of as a backdrop, in light of the fact that you're typically the first power company to report. I remember a couple conference calls ago, dating back to the March quarter, you thought that, based on some input from your marketing people, that you thought that throughout the course of this calendar year, we'd see some -- 10 percent sequential growth quarters from Vicor. And some of these publicly-traded power companies, the other pure plays that have come out with their June quarters -- they all saw really nice recoveries in the range of, you know, 10 to 20 percent topline sequential growth in June, and Vicor hasn't seen that. And I'm just wondering -- why do think that is the case for Vicor? It seems like these other power companies have had a pretty decent recovery.

Well, I think it would be good to look at it with a time span that encompasses the peaks and the valleys and the fraction of peak revenues that power supply companies in particular have experienced through their declines. I think that it's fair to say that Vicor is not being impacted by the difficult times of the last three years nearly as much as any power supply company that I am aware of. We have been fortunate to retain a significant fraction of our peak revenues. We've been fortunate to retain a much greater fraction of our peak employee population, and I think we've been fortunate to avoid hundreds of millions of dollars of write-offs as experienced by some of the traditional power supply companies.

So we're pretty satisfied with our performance. Again, we manage the company with a long-term view. We're not ones to take an opportunistic view in any respect with respect to trying to make things look better than they really are. What you see is what you get. We're pretty excited about our prospects.

Alright. And Patrizio, this second question -- in a research piece put out in the last week or two by a buy-side analyst -- he describes the VI Chip opportunity as -- I think he said that it was lukewarm at best, quote unquote.

Are you happy at this point with the market acceptance of the VI Chip? Are you where you think you need to be, as far as the market being aware of the technology? And are you excited about where you guys are at this point?

Yes, we're very excited. I don't think that the commentary is a fair commentary. I think I know what you are referring to. It is a commentary put out by Stevens. It might be good to point out that Stevens has had a very large interest in Power-One. I believe there are conflicts of interest in terms of their coverage of the industry, and I think that the partisanship of their commentary is quite transparent. So I would not believe a word, indeed, in their commentary. What you should point to is what the trade press has said with respect to the technology, and you can get a sample of that at the Vicor website.

Yes, I've seen them all.

From the U.S. trade press, the European trade press, I think there is a universal acclaim of the achievements of the VI Chip technology thus far -- and we're just at the beginning. You'll see a lot more.

Don McKenna (ph), DB McKenna.

Patrizio, you mentioned earlier that the third quarter was skewed from an order and pointed to the September period. Can you give us an idea what percentage of the quarter came in -- new orders came in in September? And do you see that carrying through this month as well?

And then the second thing -- if you would address for me, too, is that for a couple of years, you used to report design wins -- you know, first and second generation, and I always found that to be quite helpful. Could you put that back into place and include the new chip with that as well?

Okay. let's take the first part of the question first. As I mentioned earlier, we had the strong month in -- the relatively strong month, I should say, in the third quarter was October -- September, and we have seen in October a good start. We are ahead of the plan for the month to date. How that progresses -- it's anybody's guess. I think -- you might I remember that I commented in the past, that within the last year, year-and-a-half and earlier through these difficult times, that we dealt with a very unpredictable pattern with a good deal of urgency on the part of buyers and making commitments. And they refined that heart (ph) -- as time has progressed in terms of playing it very close to the vest, and minimizing their own inventory exposure and their commitments in terms of power components in particular.

We are still seeing that -- I think there is still a pattern that rules in the marketplace, even though there's been improvements. There's been without question an improvement in the general level of demand, and the general tone, and some lead times are moving up. But I remind (ph) that this is certain amount of urgency.

As to the second part of your question -- the specifics with respect to design wins -- we did not report this quarter because we did not want to begin to create a precedent with respect to VI Chip's design wins. We think that to some extent there is subjectivity with respect to what constitutes a design win. Ultimately, what matters is the orders and progression from sample orders to product production to volume production. In up times, it's hard to convert the one into the other, or predict when that conversion is going to take place. We decided not to quote this particular number for that reason.

Okay, thanks.

Ray Unger, Unger Capital Management.

It may be a little bit of a general question. I'm just curious as to what the end products of the VI Chip will be used for? And if you've got some kind of a market size that the VI Chip will be addressing. Also, the price points.

Well, the immediate cost effectiveness and immediate scalability of the VI Chip pro line makes it suitable to address the broad market for electronic products. That includes the communications marketplace, information technology, industrial, medical, consumer electronic applications -- not every kind, but at least those kinds of applications that value some of the key attributes of high-performance VI Chips, specifically, again -- density, efficiency, speed, low noise. Transportation applications are another example of the broad market reach of VI Chips.

So the market opportunity is measured in a multiple of tens of billions of dollars. Realizing that market opportunity, or -- excuse me, a fraction of that -- is what it is all about. It we believe we have a strategy to accomplish that. It's a strategy that has evolved from the strategy -- the marketing strategy that we deployed in connection with the first generation of products. And obviously, it's going to take time to begin to see tangible results, but we're very excited about the opportunity.

And did you say what kind of price points that you're going to have?

Well, we've advertised the products at price points that are as low as about 10 cents per watt. And that makes them cost-effective in most mainstream applications.

(technical difficulty) do you have any idea that is Celestica to going to be the first of several, or --?

Well, as we've mentioned, we have had a number of parties approach us with interest in a license. We're at various stages with different parties. Our strategy is to pursue complementary dimensions for reaching the market, amplifying the market opportunity, increasing the rate of penetration of the market. There is no specific forecast with respect to additional licensees. We're going to take it one step at a time. We are glad to have accomplished with the Celestica people this first month -- and again, we're very excited about this. We know they're excited about it, and we think that we are going to work very well together in the marketplace.

Christie, we will take one more question.

Jim Bartlett, Bartlett Investors.

Yes, could you give us an update on the legal status?

Things are going to be -- I think you are referring to the infringement lawsuits relating to one of our first generation patents where we said pending (ph). That case is going to come to a head in the middle of next year. It is in front of the full circuit for review of claim construction (ph) issues that have been posed by the district court rulings on [tank construction.] There are pending appeals and cross-appeals involving ourselves and other parties. We just filed a brief last week. That process should come to fruition sometime in the second quarter next year.

One additional question -- if you look at the web site, there -- to be announced, talking about tree (ph) regulator module, a new FDA product. Could you give us any time frame on those announcements?

I cannot give you a specific date, but I can tell you that we made great progress, and that those products are forthcoming. So we expect to have a very comprehensive lineup of products to address market needs in the near future.

Thank you. The next time we speak will be with our year-end numbers, and it should be the beginning of February. So we will talk to you then. Thank you very much.

Thank you.

Thank you for your participation in today's conference. This concludes the meeting. You may now disconnect. Good day.

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