Vicor Corp (VICR) 2004 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the Vicor third quarter results conference call. My name is Anne-Marie 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 towards the end of this conference. (OPERATOR INSTRUCTIONS)

I would now like to turn over to your host, Mr. Mark Glazer, Chief Financial Officer. Please proceed.

Thank you. Good afternoon and welcome to Vicor's quarterly conference call. I'm Mark Glazer, Chief Financial Office. And with me is our CEO, Patrizio Vinciarelli. Before we begin, 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 of Vicor is prohibited.

We'd also like to remind you that various remarks that we may make during this call of our 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. We cannot assure the future results or outcome of the matters described in any of those statements. Actual results may differ materially as a result of risks and uncertainties including those discussed in the MD&A Part One 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 October 26, 2004 by calling 888-286-8010 and using the pass code 84782464. In addition the Web cast replay of it will be available on the Investor Relations section of the Company's web site at www.Vicorpower.com\IR Web cast, beginning shortly upon its conclusion.

However, the information we will provide during this call is accurate only as of the date of this call and investors should not assume that 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 and would ask that you limit yourself to two questions at a time so that everyone gets a chance to ask his or her question. You may of course get back into queue to ask additional questions.

Anne-Marie? We will now take the first question.

(OPERATOR INSTRUCTIONS). Steve Smigie (ph) of Raymond James.

Thank you very much. It's just a quick question on the revenues. One, given the weaker backlog and drop in the book to bill just curious if you'd expect some sort of sequential decline going into the fourth quarter and if you could just quantify that as a magnitude of drop (ph).

We have seen, as suggested in the last conference call, a difficult environment in some traditional markets; in particular some conductor cable equipment, IT, and to some extent also in the defense market. We saw in the last few months it appears that there's been some relocation of expenditures away from equipment into other spending opportunities.

There is cause to allow in the level of demand there.

We see that the part of the business that relates to semiconductor activity, in particular, rate of increase in that since the equipment and ATE (ph) businesses on continuing growth for semiconductors. We see that continuing to be challenged for a while, not just through the fourth quarter, but the first quarter of next year and possibly longer.

It depends on how things evolve. So with that background, we see, in the short-term, some headwins at least in some markets segments.

Looking at other markets, we're doing well in going with the economy in a number of significant market segments. We are doing very well in some, such as the all patch (indiscernible) that's been up substantially. Maybe is doing okay. We've seen small upticks in communications and in some industrial markets.

So when you add it all up I would say that the outlook in the short-term is typically flat. We are still some distance away from significant contributions on the top line and bottom-line from via trips (ph). And that gives you the flavor of the outlook.

You did have a pretty nice increase in gross margin again, despite the weaker revenues. I was wondering if you could comment on where that came from. And if you could give us some sense of where the first generation products might be, is that over 40 percent now. And second generation is that moved up as well? Thank you.

The primary driver behind the improving margins been continued to be cost reductions with all the generational products. We were actually able to achieve improvements in the third quarter in spite of the fact that the top line and so the capacity (indiscernible) was not what we had hoped for.

That's the rules of improvement in the margin; and where (indiscernible) has commented in earlier conference calls that there's further opportunities there to a large extent as commented earlier. Those opportunities depend on top-line growth; but I guess have seen are missing in the third quarter there's opportunities for improvement even with revenue's (ph) sluggish sales.

Okay, but you also commented that the improvement wasn't quite clear I guess you said some of the older technologies --

The book essential totality of our top line at this point consists of all the generations of products. Products that are in effect at a mature state but were, in spite of their relative maturity, these continuing opportunities for cost (indiscernible) action in a variety of ways. Improvement in yields, improvement in manufacturing efficiencies, and that's what's behind the improving margins.

Ron Opel. Moors & Cabot.

If we were out in (technical difficulty) three quarters with comparable overall demand conditions but you had made two to three quarters of progress with respect to the I-chip products. Do you expect that having made the expected progress during that time that the demand picture would be different?

I would say that, first of all, dealing with the older products that if we look out two or three quarters, there's good reason to believe improving overall demand and I'll say that with some level of caution because obviously there is sources of unpredictability. But the average scenario would be one of improvement to with respect to what you might call baseline business of mature products.

In terms of VI-chips we had a lot of progress, both in terms of bringing to fruition some key elements of the product line and pinch hitting some customers with those products. So as we look out three or four quarters into the second half of next year, these significant opportunities of various kinds, what you may call base level business. Statistical accounts that begin to be appreciable in terms of contributions to total revenues in that time frame.

There are then prioritized business opportunities and big builds which are obviously hard to forecast and some somewhat speculative but as we look at the combinational involved, as we look at the second half of next year we see some of the opportunities with their chips.

What is your rationale in assuming that the baseline business demand level might be better two or three quarters out?

Well if we listen to what -- let's say R&D or some heavy equipment customers that tell us, they are forecasting this quarter and next quarter, sluggish demand, that demand from first half of this year is really collapsed. But they are forecasting recap starting second quarter. I don't know whether it -- those are wishful thinking that could be; but, because as I look at other inputs (indiscernible) capacity has been building up. And it may be, as we get into later next year, exceed demand but at least what the customers are telling us is that they're seeing exceptional demand, significant demand five or six months out.

Jim Barlett. Barlett Investors.

Could you tell us a little bit more about the show electronic and UNIX and how you plan to do the introductions? And what you expect out of the show?

Well, this is a big show. It takes place once every two years. It is a show that is not just attended by Europeans. It is attended from worldwide OEMs from Asia, the U.S. It is an important opportunity to showcase (inaudible) and for that reason we pick that as the opportunity to introduce big bricks and UPLM (ph) model and some V-Cams (ph) so if you are interested in the (indiscernible) line as well as any of the big bricks (indiscernible).

And is this something where you make a major marketing effort in terms of a lot of people over there? Spending a lot of money on the show as well?

We have a significant presence; and there's an entire coverage of this plan. So we expect this to be a significant event.

Would this also be a significant event the introduction of the PLMs now that you've got (indiscernible) with the last call was only having one shoe on, now you are not barefoot, you have two. One, licensees and, two, people who have been sampling the product to go forward.

Well, it is sure nice to have two shoes to walk with, isn't it? Yes, we are at that point and that gives us a lot of opportunities. With all of the potential, the actions that you alluded to.

One other question could you comment on the impact of Scholastica selling its Power Division to CMD (ph)?

I really don't have yet enough information to be able to comment on that. I guess it's a recent development and opportunity to be fully formed as to implications.

Craig Irwin of First Albany.

Just wanted to understand the modest weakness in the quarter. Was there any geographic area than the others?

Well in this -- market segments being showing weakness and particularly, as an example, the weaknesses throughout the whole world in international in the U.S.

Was there the normal seasonality in Europe in the third quarter. Or was this slightly normal and consistent with the sequential decline?

I don't think that development is one of a seasonal nature. I think it has to do with some overcapacity in the semiconductor-related segments. It translates into lack of demand. Therefore, for equipment -- because with the adequate capacity in place there is simply no need to (indiscernible) equipment. Enhance the level of sales of conferences to make a quick cent including conversers comes to an official screeching halt. And that's what it has been in the last few months and that's, as I committed earlier, likely to be the case for at least a few more months. Maybe longer than that.

So, is it fair to paraphrase that this looks like an inventory adjustment on the part of your customers with them sort of ratcheting down their expected growth rates and bringing their inventory in line? Or is this something different?

I think inventory adjustment is perhaps applicable in some other areas, but I wouldn't characterize what is going on in the semiconductor equipment in IT as an inventory adjustment. I would characterize it more as a temporary overcapacity that leads it to below demand for (indiscernible) equipment.

Then on your last call, I think you said that you disputed wage increases and I guess that probably was a drag on even the decent improvement you showed this quarter in the gross margins. Would you care to comment on that and maybe quantify the impact?

We've had a solid increase that was fully effective in the third quarter. So yet there was -- it was not a positive contributor exactly to the financial performance within a quarter. But it was well recently motivated. I think we're delighted to say that in spite of the best environment in -- resulting in topline performance which was not overly achieved a certain level of improvement in terms of margins and do okay on the visibility front.

And then just last question if I may. Your comments on the modest weakness in the military market are pretty consistent with some of the other suppliers out there. I was just wondering if you saw this weakness more among the consumables like smart weapons and other consumable electronics vs. some of the other actual physical long life equipment?

What I can tell you is that we are told the programs are there; the programs are funded; the buyers are going to take place and to start taking place pretty soon. In November, December -- but the facts are at they are being delayed for a few months now. And I can't correlate the particular type of equipment. It seems to be widespread and it's best interpreted as a temporary relocation of spending which is when we're due to close relatively soon. So as commented earlier we are seeing soon. And that we seeing that business coming back in the next 30 days. Like the semiconductor-related business.

Gary Steph (ph) of John Gates Securities.

I have an Uncle Mickey who was over in Bayonne, New Jersey and he had a saying. It was, 'You could slice baloney a million ways and in the end it is still just baloney.'

Every time I hear your repurchase program that phrase suddenly comes into my head. What is your repurchase program? Why is it so inactive or has been so inactive?

Well, with a little slice that took place this past quarter we did buy back some stock.

How much?

About $.5 million worth. I think that what is going on in the market and (indiscernible) financial market, our customers markets (indiscernible) market to some extent is a -- manifestation of the reason for caution, with respect to planning the repurchase program --

But you still have $110 million in cash.

Correct and (MULTIPLE SPEAKERS) show in the past that we do not hesitate to buy (technical difficulty). I point out the (indiscernible) accumulatively over $100 million worth of its stock. So that's a pretty long salami and there were some pretty fat slices that were taken in particular. But part of our responsibility here is to be prudent and judicious and make the move when we see we can do it in a way that is very conservative.

So we decided to do some buybacks this past quarter and that's in spite of the fact that the economic environment wasn't in the (MULTIPLE SPEAKERS)

You're supposed to (inaudible) buy it back.

Yes.

Every time I get asked an excuse -- I get laryngitis, it's leap year. Nobody's in the office, it's summer vacation. I get every (MULTIPLE SPEAKERS)

Well again (MULTIPLE SPEAKERS) if you want to look at the facts.

50,000 shares is peanuts.

Well the facts are the Company has put back $100 million plus worth of stock. I don't think that is something that contradicts (indiscernible) with respect to valuing the Company stock, to the contrary.

Fred Rambert of M.S. Howell.

I want to ask you a question on the patent that has expired on your Zero voltage switching custom devices. You have manufactured that device in-house for quite some time and now with the likes of Ohm (ph) Semiconductor, Texas, and national all are now participating with your competition on that particular slot. How are you addressing that?

I think you are referring to an old Vicor patent that is back to the early '80s. And one that we have used and continue to use in the first and second generation products. Your point with the suggestion of (indiscernible) it now a number of semiconductor companies have facilitated a more general use of that technology that came out with SX chips to facilitate application of that particular piece of technology.

We are not, really, at this point interested in that any longer. The patent has expired and the technology is old. And as of this point with VA-chips (ph) in terms of capabilities. So we have new technology that has been the subject of major developments going about 40 years at this point, which manifests itself in the (indiscernible) chips and in this new technologies of enabling levels of power density, efficiency, speed and low noise. That's all this technology could not attain.

So I would say more power to them; and to the extent that it brings the market before (indiscernible) it's good that somebody is going after them, but we don't regard this as technologically competitive with our state of the art.

Yes I understand that but Zero Voltage switching was one of Vicor's claims over the years and now you're not the only supplier.

Well I don't want to in a sense get into too technical a discussion here, given the forum. But suffice it to say that there's (indiscernible) switching and then there there is switching. The particular patent in question has to do with an active clamp circuit for zero (ph) switching. Our new technologies leverage new kinds of zero voltage switching and a bunch of other things to achieve new levels of performance.

And, again, the older products and their level of technology, which is 20 years old, can't keep up with the capabilities of new enabling technology. Just to give you a couple of quick numbers as figures of merit. With the older zero switching technology, so to speak, on the order of 100-150 watts per cubic inch can be achieved. That's about the limit.

With the new technology, we can do several times greater density, much better efficiency, and achieve higher level performance, more cost-effective.

So, the short answer to the question is that's old technology. This new technology that we've developed which is the subject of extensive intellectual property protection. We are not going to worry for another 15-20 years about patents expiring.

Steve Smigie.

Just a follow-up and I hope I didn't miss this but in electronic you are mentioning in your press release you're going to be introducing some of the bricks with the VI technology on it, I believe, the VI bricks. Just wondering what would the time period for that ramping to safe production you'd probably be a little bit faster than VI chips themselves. Is that correct?

Well, yes and no. Time will tell.

The factor, suggesting that the market of opportunity would be closer at hand would be that big bricks don't like VI Chips sell into an existing market for existing sockets. These are products that was compatible with competitive products offer higher performance at a lower cost. So to the extent that there are existing actions for this product and there is obviously quite a bit of market for that. The big bricks play into this opportunities but that's not to say that the VI Chips would be necessarily behind them.

We obviously started marketing the VI Chips earlier. We are further along in many accounts and many opportunities. And also to some extent the leverage associated with the VI chips is great in terms of potentially very high volume applications whereas the (indiscernible) are more lenient in terms of size of the opportunity.

So. There are many factors at play. This strong rationale for paying out a big brick card at this point in addition to the obvious, which is going after an existing market opportunity. It is a way to display the capabilities of the VI Chips and facilitate designing of VI chips by customers that they use to bricks and can make the one for one comparison of big brick against old technology alternative.

Right so for a designer making a decision process about what technology to use and this is a little bit back to the previous individual's question is with technologies out there. Would it be pretty easy for them just to buy the big brick instead for newer application or is that a possibility that for a slight you maybe already have somebody with products from inner cell or whomever on a brick could just as easily use that competitor's brick then instead of yours or would they necessarily want to go to the Vic (ph) brick?

Well I think the earlier question had to do with semiconductor makers introducing controls chips to facilitate our old clamp CVS (ph) technology. While that may play a role with respect to certain applications by OEMs or classified companies, I don't think that short-term factors with respect to the brick market. I don't understand if that answers your question.

Ron Opel, Moors & Cabot.

Will the Vic brick models or models to be introduced in Munich be suitable to some commodity applications in telecommunications?

We believe so. They are priced to be very cost-effective in addition to offering significant performance advantages and overall power, particularly current delivery advantages to issuing products up to 100 amps (indiscernible) and that's very much state of the art and they would be priced aggressively.

Given the fact that they're being introduced in November would there be availability reasonably soon thereafter?

We've arranged samples of a few select customers with these products.

And you can (indiscernible) manufacturing quickly.

We believe we can, yes.

On the subject of additional licensees, does there continue to be a strong level of interest on the part of people in that category?

Yes. Yes. We've had further inquiry and the (technical difficulty).

Walter Nasdeo of Ardour Capital.

Good afternoon. I have a question about the backlog that you ended the quarter with at 38.7 million. How much of that is expected to hit in the fourth quarter?

(inaudible)

Probably -- I don't remember the exact number. But it's half of it, I think, would be scheduled for the fourth quarter.

It's a relatively normal pattern.

Yes, there's nothing unusual about the percentage.

What's your expectation for additional revenue to be picked up during the quarter?

Well, we have relatively spent the patents business within the quarter and, depending on, I guess, your perspective on the dynamics over the next few months, if you believe that what has been going on is an inventory correction as suggested in an earlier call then you might think that as OEMs have quite the brakes on purchase orders and cut down inventories they might need product in a hurry as demand exceeds what the absence of last inventory. Or that may not (technical difficulty) they might need it to greater terms business opportunities as the inventory adjustment runs its course. Or if it turns out it is more (indiscernible) it may not. But year-old patent is not that unusual.

We believe that the key is the obvious which is, some (technical difficulty) progress in this market segment have been doing well and in the cap in the few that have been adversely impacted by various forces. In particular, again, semiconductor equipment related.

And if you can quickly tell me what the days sales outstanding were for the quarter?

I think they were approximately 46 to 47.

Craig Irwin of First Albany.

Just wanted to come back to sort of the end market outlook and, potentially, what we could be looking at over the next few quarters. You mentioned that I guess the EMP guys are doing pretty well. Certain industrial, certain communication customers. And I guess you had expressed optimism about the military returning to more normalized growth patterns in the next 30 days.

What are your thoughts as far as the market potential in '05? Is this likely to be a growth year compared to 2004 on a consolidated basis?

I would say that in general, yes, again barring major disasters. But if we assume that the expected happens, in general, most markets should be doing well. The one I'm worried about as suggested earlier is semiconductor market. Because there we see that there was a lot of buildup for capacity and unless demand really picks up it's going to be a while before companies want to invest in additional capital equipment.

(indiscernible) front end and the back end. So that is the one market that would be concerned about the next year. It's suggested earlier, the customers are telling us not to worry; business is going to come back in the second quarter.

But I'm not so sure that is going to be the case. There's more confidence I think with respect to the current defense business.

Okay, if we were to look at the communications market you did express that this is one that is doing well. Where are you seeing the relative strength there? Is this more on the wireless side or are we seeing a little bit more strength on the broadband side or potentially on the traditional wireline? Can you give us a little more color there?

Well because of the dynamics of our business over the last four or five years, we've gone from being very well penetrated across the communications market to -- because of the commodity big business, and all that good stuff, being somewhat relegated with our traditional bricks into pockets of opportunity.

That's all going to change with VI Chips and the Vic bricks and the like. But the present that we're really planning for modeling in some pockets overseas (indiscernible). Casting equipment being an example of that.

Just another question this time about the VI Chips. Was wondering if maybe you could help us understand your plans for products on the VI Chips line and how you see the product line taking shape. And, roughly, how long it would take to completely fill out this market?

We have coming to closure with respect to complete for Vic (indiscernible) line for 40 A volt input but wide range as well as narrow range, servicing and communications, applications, and other kinds of applications either with factor (indiscernible) power which is obviously (indiscernible) proprietary system to Vicor and its licensees.

But also with alternatives to commodity products in those kinds of input ranges. So that's the full big family of PLM and BTM products. We are close to competing the first (indiscernible) and we both saw samples customers with off-line VI chips. It's opened up all kinds of attractive opportunities in markets for (indiscernible) systems. Systems that if I convert power from the world plug, to a variety of (indiscernible) of 48 or 12 volts passes (indiscernible) applications of communications applications or consumer applications.

Should we expect any more major pieces of the factorized power architecture or is this now essentially complete?

You shouldn't expect significant new developments for quite some time because discussed in the past to fully realize the opportunity we needed to not only complete the full Vic metrics but also deliver (indiscernible) bricks and as I mentioned well along with respect to the very first (indiscernible) with a big initial product but it would be going beyond that capability of the underlying technology is very scalable and cost effective at power levels down to fraction of wonderful Vic products scalable to deliver. Either in terms of power which is as much as the (indiscernible) in terms of current which is (indiscernible). Whatever the 50 impair the (indiscernible) Vic in the future and we will be going off from there.

And then just one last question. Receivable stayed pretty flat and that was great but there was a build inside. Is there a potential for a liquidation of that inventory in the current quarter to potentially contribute to cash in the the year?

No. We don't play those kinds of games. We manage our inventory quite well and as you might have noted we really haven't had write-offs or any of that stuff. What you seeing happen this past quarter is simply a fraction of the fact that there was a slowdown. And, obviously, the slowdown took place with enough suddenness to make it difficult to correct for it promptly in terms of integer (ph) materials but that's already in the works. So we should see that raw material inventory and (indiscernible) material inventory.

(inaudible) raw materials.

Yes getting we have solved pretty soon, we have several material basis so there is very little risk of obsolescence.

Robert Katz of Sunvest International.

Have a few questions. One, can you reiterate what your revenue guidance and gross margin guidance will be in the upcoming quarter (inaudible).

We're really not the business of providing guidance for a variety of reasons. Not less of which (technical difficulty) there is a certain level of visibility in --

Do you expect that your gross margin will maintain at this level or go up from this level or is that a function of capacity utilization? Or is it more of a mix shift going to newer products in Vic bricks?

There is continuing opportunities with respect to cost reduction, unit cost reduction due to improved deals and improved efficiencies. And to some extent reduction in raw material cost. So that's fundamental force (indiscernible) operations group in that area.

How far along the efficiency curve are we? How much better can margins get?

Unit costs can get a lot better so to that extent that (indiscernible) opportunity. And that's a very positive factor, particularly when it gets coupled with the opportunity for greater utilization to improvements in (technical difficulty) and to some extent that theme (ph) can come from the older generation of products or it can come from the VI chips. Because we're able to apply investments we made in earlier years in manufacturing equipment to some extent to make VI chips. So one or the other, it doesn't matter.

(indiscernible) to the factory leads to improvements in the margins.

How did revenues break up between first gen, second gen, and VI chips this quarter?

The VI chips are still on the level that doesn't really make it into the financial statement and Mark has first gen and second gen.

Second gen. That's still in the 30 percent range that it has been for the last number of quarters -- the total revenues.

Right and can you talk a bit about some of the design activities you're getting with the new VI chips? And also with the VI bricks or the brick chips?

Well it's very very early with respect to the Vic bricks. Those have been provided as better samples at this point in a very select set of circumstances. Despite VI chips, there's a breadth of opportunities ranging from all-out leverage in factorized power systems to more conventional uses involving either bus conversion type architectures or PLM, BTM combinations forming a classic (indiscernible). So we see that there is, depending on the customer and the application and the degree of leverage that the customer wants to achieve with very flexible part components, better opportunities from in effect (ph) do it in smaller volume. Do it with surface mount components that are more (indiscernible) to apply than old generation bricks to more advanced.

And can you talk about some of the applications in terms of new markets it brings the Company into? Especially in the higher -- especially in the higher volume check applications?

Well let's start first with the old markets. There was a lot of talk earlier about some of the (indiscernible) in ITs not been going all that (indiscernible) in terms of topline but there's a lot of design activity going on in that area. So one example that comes to mind is, largely in that sector making a very advanced use of VI chips for PLMs and BTMs for a large system.

Going to new kinds of markets and into all new kinds of opportunities I guess the most notable examples would be the customer consumer electronics. In transportation. In the transportation area it's (technical difficulty) And larger type of kinds of (indiscernible) ranging from high-voltage to low voltage for ideal opportunities.

Would you be going into PCs, servers, (inaudible) displays, all of the above?

I think that the VI chips technology lends it to all of the above. Where we're going to go, time will tell and to some extent, it doesn't depend on us. But to -- as significant as (indiscernible) does and we're driving it I believe in the right direction in terms of bringing it together, products that represent great opportunities for those kinds of applications.

Anne-marie? We will take one more question.

Dick Sullivan of Monarch (ph) Capital.

Also focused on the VI chips. You indicated that in the coming year, perhaps in the second half even start to see some significant volume. What would be the gross margin implications of VI chips compared to first and second gen?

We see good margins, opportunities with VI chips. We think that one of the earmarks of great technology is cost-effectiveness. And performance in VI chips and the cost effectiveness attributes required and supports good margins.

We are, though, going to be I guess enterprising the products because learning from past experiences from past generations of products, we want to make the most of this opportunity. And we think it's a great opportunity. And we think that it meets our going forward for the market share.

So would it be fair to say that for the VI to live up to your high expectations it's going to be necessary some time whether it be in '05 or '06 to have a few large customers?

Absolutely. As mentioned earlier, the mix of customers is going to include the attrition (ph) of (indiscernible) base of historic (indiscernible) business as well as larger volume of opportunities. And then very big deals. And, obviously, the big deals are speculative by the natural, extremely hard to forecast. But they're potentially big drivers in terms of cost reduction and overall market. And that's why it is good to pursue them for mix with the lower volume opportunities, ranging all the way down to our classic statistic account of business as we refer to it internally. entirely. Because those are different kinds of trade-offs and part of our strategy is to in effect blend the classic market opportunity with new kinds of opportunities that are quite far away from the store model of items.

So if I'm reading what you're saying, you will except somewhat lower gross margins to obtain large volumes something that you have not done necessarily in the past, whether this be by choice or design. On a blended basis if we were to look out a couple of years would margins be back into historic peaks?

I think that's as commented in the past, there's an opportunity. Again, I believe that if you have very technology you've got to show (indiscernible). It can't just be (technical difficulty) financial performance so that we're able to achieve that with first generation products. We are making progress with the second gen but we obviously made this pretty significant mistake in that regard. We think we learned some useful lessons and with VI chips we're back leveraging great technology at its core and looking to make the most of the opportunity with (indiscernible) big margin opportunities, big volume opportunities. And the two are not necessarily inconsistent to one another.

One last question on the same topic. With regard to the large volume opportunities. To what extent could capacity play a role here and to what extent are you considering with large volume opportunities a licensing strategy?

I mentioned in the past that licensing and partnering are very much part of the grand plan. And there would be factors with respect to very big deals.

I want to thank everybody for your participation and we will be speaking to you on the year end numbers sometime in the beginning of February. Take care.

Thank you for your participation in today's conference. This does conclude the presentation. You may now disconnect. Have a nice day.

Vicor has not participated in nor authorized the preparation of this transcript nor reviewed it for accuracy or otherwise and disclaims all responsibility for any inaccuracies that may appear herein.