Vicor Corp (VICR) 2006 Q1 法說會逐字稿

Good day, ladies and gentlemen. Welcome to the Vicor Corporation first-quarter results conference call. My name is Shanik, and I will be your coordinator for today. At this time, all participants are in a listen-only mode. We will conduct a question-and-answer session towards the end of this conference. (Operator Instructions). As a reminder, this conference is being recorded for replay purposes. I would now like to turn the call over to Mr. Mark Glazer, Chief Financial Officer. Please proceed, sir.

Thank you. Good afternoon and welcome to Vicor's quarterly conference call. I'm Mark Glazer, Chief Financial Officer. 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 would 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. Actual results may differ materially as a result of risks and uncertainties, including those discussed in our quarterly and annual reports, filed with the SEC.

A replay of this conference call will be available, beginning shortly upon its conclusion, through May 8, 2006 by calling 888-286-8010 and using the pass code 66520892. In addition, a Webcast replay of the conference call will be available on the Investor Relations section of the Company's Website at www.Vicorpower.com\IRwebcast, beginning shortly upon its conclusion.

However, the information we provide during this call is accurate only as of the date of this call. We undertake no obligation to update any of the statements made during this call. You should not rely upon them after the conclusion of this call.

We are now ready to begin the Q&A portion of our conference. I would ask that you limit yourselves 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. Shanik, we will now take the first question.

(Operator Instructions). [Andrew Muro], Ardour Capital.

I have a question about the backlog for 2006 -- wondering how much of that was planned to be delivered in 2006.

Well, just about all of it.

All of it?

Yes.

Okay. Will you be offering any guidance for the year, assuming that there will be some growth in revenue from the V-I Chip? For the end of the year, we are looking for some definite improvement and wanted to feel how you were on with that.

I think we should take it one quarter at a time. As we look at the second quarter, we see the revenue growth being up from the growth we experienced in the first quarter. It isn't going to be tripling or quadrupling in terms of growth rate; it will be going up. It will be about twice the rate as in the first quarter. We will give you some update at the end of the second quarter.

Ron Opel, Moors & Cabot.

Congratulations on a strong quarter. The relative content of V-I Chips in the 56 million in bookings. Can you disclose that?

The bookings with V-I Chip, while increasing, are still not material. So, what you're looking at in terms of growth in bookings and backlog at this point in time is primarily due to the progress with the brick business.

That's remarkable. The outlook for V-I Chips for '06 and '07 in general in terms of units and shipments, has that changed at all since the last conference call?

Not in any significant way. There are some new prospects. There are some very significant prospects, while the time were -- as programs get closer to going to production, there is some changes that are taking place at least with some. But overall, we are quite encouraged with the progress with respect to V-I Chip programs.

Steve Smigie, Raymond James.

I wanted to add my congratulations on a nice quarter as well. Just to follow up on a previous question, the twice the growth rate that you mentioned, are you suggesting if Q1 was about 3.5% sequential growth, then you'd see something roughly like 7% sequential growth in revenue in Q2 in total revenue? Am I understanding that correctly?

Something approaching that, maybe a little less than that but in the general ballpark.

Then in terms of revenue from Picor, is there anything in there? You just seem to have quite a few references in the press release. Could you give us a headcount for Picor as you did for Vicor (multiple speakers) for V-I Chips I mean?

I would rather not account for Picor. There are some very early generation Picor products that are beginning to be on the radar screen in terms of revenues. But, we are still dealing with immediate contributions to the top-line picture.

Then, could you give a split between say what first-gen and second-gen as a percentage of revenue? Then, I will jump back in queue.

I don't have a precise split. But I can tell you in general terms that we've had particular growth with second-gen and all of it at this point is in the fast track platform.

Dick Feldman, Monarch Capital.

Once again, good quarter. In previous calls, you have talked about investing or losing approximately $7 million pretax per quarter as a result of both the V-I Chip program and Picor. With the headcount rising in the most recent quarter, is that still a good number, or did the losses grow a bit?

No. I think it's still a pretty good number. It's in that ballpark. I should emphasize that the growth in headcount isn't really all that significant. We've had something of the order of magnitude in terms of headcount working in support of V-I Chip activities for a while. Now, what happened recently is that we have formally hired into V-I Chip to lay the foundation for setting it up as a separate entity. We've also been hiring some key people from the outside. So, the 130 people is now a more formal count. It was in the past a number maybe a little lower than that but a little harder to really get your arms around would have applied.

But, overall, in terms of accounting, there hasn't been growth certainly for the Company as a whole. We've actually been through the productivity improvements been able to use overall account in the areas of novel opportunity, particularly Picor and V-I Chip. While there has been some growth, it's been relatively modest and owing to some contribution in terms of revenues or absorption of fixed costs, particularly in the V-I Chip area. We have been able to keep and we expect to be able to keep the burn rate for these new entities, up approximately 7 million per quarter figure that you pointed to.

Did I hear you correctly earlier in the call; you have completed the transition of the second-gen to the fast track?

Yes.

You did say in the text of your release however that you continue to see improvements sequentially in margins if you got better volume. Where would those improvements come from?

Well, continued productivity improvements, resulting from a variety of initiatives. You should not assume that having converted essentially all of the second-gen products to fast track, the avenue for further productivity improvements is closed. We have a number of areas of opportunity. But in terms of material cost reduction and further unit cost reduction, better amortization of fixed costs and so on, so forth that should result in a continuation of the kind of improvements in terms of margins that we have been seeing quarter to quarter.

Andrew Muro, Ardour Capital.

I just wanted to follow up a little bit with the employment and your comment in the press release about select talent hired from industries with complementary core competencies. Can I get you to expand on that a little bit, maybe a little more detail on the industries and if you've been able to higher in and keep people in sales for the V-I Chip?

Yes. We recently hired a Vice President of Sales and Marketing for the V-I Chip organization. We will be putting out an announcement in the next couple of weeks. We've also hired a Vice President of Platform Development for V-I Chips, and the person has usually been promoted to a bigger role within the V-I Chip organization. So, we will be putting out some announcements with respect to these key hires.

Any information on what industries they come from?

The power management team industry. I will not make reference to specific companies (multiple speakers) issue, but they would be names you would recognize.

All right, so there will be more information coming then?

Yes.

Ron Opel, Moors & Cabot.

Patrizio, I'm wondering about the elasticity of demand of the OEM products that the V-I Chips will be going into or are going into now. If energy prices remain high throughout the remainder of this year and into next year, could this have a dampening effect on V-I Chip shipment volume vis-à-vis the expectations that you've had recently?

I don't see a first order correlation around -- between the cost of energy and the market opportunity for V-I Chip.

Well, they are consumer markets -- consumer electronic products markets -- discretionary spending and so forth.

I guess without dealing my hand with respect to the kinds of programs that our opportunities consist of, I don't see a first-order correlation actually. As we look to the longer term, as we look to timeframing, which summer transportation applications may come to fruition, then I would say in that scenario which is not a short-term scenario but is several years out, I think higher energy costs and more emphasis on more fuel efficient vehicles would probably play in favor of some of the V-I Chip opportunities.

On capital spending, I think Mark said in the last conference call that you were looking at the vicinity of 10 to $12 million for this year. I think the number for Q1 was 1.6 million. Has that been scaled back for the year?

No. We're still looking at about 10 million for the year.

Steve Smigie, Raymond James.

I was wondering if you could comment if any of the revenue you have been anticipating getting from V-I Chip this year have been delayed or pushed back at all.

There are some changes that take place. We're not going to be commenting with respect to the specific of any particular engagement. But, there are some opportunities that are moving forward that were unexpected, some other opportunities that may be delayed a quarter or two as a function of certain programs that are going into production. But, overall, as a point of reference, I can tell you in the first quarter, we shipped about 70 or 80% of what we shipped in terms of V-I Chips in all last year. This quarter, we are looking at roughly doubling that rate. So, there is good progress with respect to V-I Chip opportunities.

Could you comment on consumer applications for gaining systems? Is it necessary for them to have to use both of your chips from the V-I Chip architecture to make it work? Or is it possible they could use one or the other of the chips and just what your sense of what total powered-on content might be on a gaming system in general?

Okay. The answer to the first question, which is, what is the typical requirement? Does it require both kinds of chips? Just for clarity for everybody else on the call, I presume you're referring to the VTM engine on the one hand and the PRM engine on the other hand, and those are the two building blocks, a very general level for factorized power in V-I Chips.

The answer to your question is that there are opportunities that call for both engines planked together as a power system, and then there are opportunities that only call for one or the other. In terms of the second half of your question, relating to the typical power level, that can range from relatively low power levels in the 100 watt category to very high-power levels in the 10s of kilowatts. So, there is a great range and breadth of opportunities when it comes to power level and also in terms of the implementation of the V-I Chips at the architectural level, either in combination or stand-alone.

Okay, I guess one of the questions too is, can you talk about how much dollar content you might receive on an average gaming system?

On an average gaming system?

Right, so--?

Would you care to elaborate? I'm not sure that I really understand your question.

Like on a PlayStation 2 or an Xbox 360, how much power dollar content might there be and what would be your opportunity as a percentage of that?

I'm not going to comment with specific -- with respect to particular applications, such as you are describing because anything along those lines would relate to unique customer applications. So, I really can't comment with respect to that.

Jim Bartlett, Bartlett Investors.

First, a couple of questions for Mark. What is your anticipation for the tax rate for the year and why was other income as high as it was?

Okay, as we said in the press release, the first quarter was based on our best estimate for the year, which is the 17%. As far as the interest or as far as the other income, interest income was up slightly from the fourth quarter and the foreign exchange losses that we experienced last year basically went away in the first quarter. So, we had an improvement there.

I don't understand why the tax rate would be that low.

Well, because we had operating loss carry-forwards that we can start to use.

How long does that continue?

Well, right now, we're basing that on just this year.

We anticipate using those up in this calendar year.

Right.

In this calendar year. When would you expect generation 2 to pass a generation 1 or approach it?

Well, are you assuming that has not happened already?

Well, if it has that, we would tell.

I don't have a precise breakdown to give you. But, you can reasonably assume that generation 1 while holding its own, you know it's obviously at this point in time a 25-year-old product in terms of conception. So, while it's enjoying its maturity and it's having a great life, that's not where the opportunity going forward is. Second-gen is where the growth has been coming from.

Right, I assume that. But I was just trying to get an idea of when generation 2 -- the growth rate of that would make it equal to or pass gen 1.

Let's do that since I'm really not prepared to answer that question this time. We will make a note of it, and we will see whether we can provide you with an answer to that question on the next call.

I appreciate that. How would you categorize the margins now of generation 2 versus generation 1 -- the gross profit margins?

Well, the margins have been improving. Based on the answer to your other question, which is that the growth has been coming from second-gen, and based on the fact that the margins have been steadily improving, you can infer that that must mean that the second-gen margins are doing quite well and getting better all the time.

Are they anywhere close to the first-gen as of yet?

I don't want to -- I don't want to give you a very detailed answer to that question for a variety of reasons. But, let's put it this way, they are getting better and better. In general terms, I can tell you that our expectations that with fast track, we could achieve very high yields, much better level of manufacturability and enjoy the benefits in terms of reduced product costs and improved margins. They are all coming to fruition. I realize it took longer than anticipated, but it is happening.

Congratulations on an excellent quarter.

Dick Feldman, Monarch Capital.

I'd like to focus on the strong bookings during the quarter. Were there any particular end markets that stood out or was it across the board and I guess both in terms of industry and geography?

Okay so let's deal with the geographic part of the question first. We're seeing a significant strength for a change in the US market. It has to do with in particular end markets, such as transportation, medical, some portions of the communications market, ATE semiconductor in particular, system level test, government defense, industrial, homeland security. These are areas of relative strength. Large capital equipment on the other hand has not been strong. Going back to the geographic picture, Europe has had certain challenges. Asia has been relatively better on the international scene. But, overall, we say that we have seen for a variety of reasons relative sense in the domestic market.

Andrew Muro, Ardour Capital.

I wanted to ask a question about the V-I Chip and its dependence obviously on silicon and the prices that have been obviously very high and fluctuating, then come down off their peaks. But how do you foresee your cost structures going forward with that if you have any hedging going on to kind of control (multiple speakers) --

Hedging with respect to what?

Silicon costs?

Just as clarification, it's not V-1; it's V-I. So, with respect to the cost structure, we have a plan to improve the cost structure of the product and that has to do with its material cost component; absorption of the significant fixed overhead as volumes build further improvements with respect to manufacturability, even though we're already enjoying particular models that are in initial production yields in the 90s, which are quite good for a product at this stage in terms of its lifetime.

We are not wasting anytime with respect to readying ourselves for further manufacturability improvements that will ultimately support a very cost-effective structure for this product. That comes through a combination of initiatives to reduce material costs in particular and specifically on the front of the semiconductor content. You are right in that the content of control silicon and power silicon is a very significant cost factor. But, we believe we already have a very good strategy in place to deal with those costs.

We are largely relying on unique type of power devices that have among other things a significant cost advantage relative to alternatives. With respect to control silicon, working with Picor as a primary source, we've been able to achieve cost-effective solutions. So, while generally speaking, semiconductor costs is an essential part of the overall cost picture for these kinds of products. We believe that we have a good strategy in place. Again, it's not a static strategy. It's one that is evolving in terms of looking around the corner at where we need to be over the next several years in terms of meeting the expectations of very high-volume customers.

Yes, I guess that's my -- kind of what I was getting at. You know the shortage of silicon that is affecting not just your industry but another a number of other industries is a concern. If your supply of silicon was to you know be diminished or disappear you know 6 months from now, I just wanted to maybe get some clarification on your contingency plans for that or other relationships for other places you can get that silicon or would hope to.

We think in general terms that we have a good plan in place in terms of our supply pipeline with respect to in particular, the silicon content of V-I Chips.

As far as your overall gross margins, do you have a number that you are shooting for, like the end of the year? Is there something that you are kind of -- you've been doing a really good job of bringing these costs down over the course of the last five quarters. Are you looking for a particular number at the end of the year?

As suggested in the press release, we're looking for a continuation of the trend that has been in place for quite some time. There isn't going to be certain set functions. There should be steady improvement coming from --

I'm sorry. You said they would not be steady (multiple speakers) --

There should not be large discontinuities one way or the other. We expect to see a steady improvement in the margins, subject to the realization of continued growth in demand, better amortization of fixed costs. This --

So would it be realistic (multiple speakers)?

You get amount of capacity that is still to be tapped within our facility with equipment that is already in place and largely fully shaded. So, there are economies of scale and a variety of factors at play with respect to these continuing improvements in margins. I would expect a continuation of the trends has been in place approximately the same way.

Would you say that a 5% increase over 2005's 40% would be conservative?

Well, I think if we look at what has happened in the last four quarters, we have been able to improve margins by about 5 percentage points, hovering around 1% per quarter improvement. At this point in time, I do not see anything that would prevent us from continuing to accomplish that over the next several quarters.

Could I just get -- do you have a DSOs, days outstanding number?

I think it's about 51.

[John Dillon], Private Investor.

Congratulations; great quarter. I had a question, last conference call, I think what I heard was you expected approximately 7 to $9 million in revenue for the V-I Chip. I'm wondering if you're still -- is that still correct? Is that still about the target?

I don't think I cited a specific number. I think I pointed to the fact that we expect this year for the first time to have V-I chips make a meaningful contribution, heavily weighed to the second half of the year and that's still the expectation.

Okay, so you still expect significant V-I contributions (multiple speakers)?

Yes, it's not like a V-1 --

I know; sorry. I understand the sense of (multiple speakers) --

It stands for voltage and currents and the other is power.

Now, does that include -- what about the license fee? When do you expect to start incurring some license fees on the V-I Chip?

I think I alluded in the last conference call to the possibility that that could begin to happen in early '07, and that is still the expectation.

So you are not going to see any significant licensing fees until the early '07?

We don't see that happening at this point in time.

Thanks and congratulations, great quarter.

Randy Heck, Goodnow.

Patrizio, can you comment on the licensee -- the status of licensees? Are there other names to be announced in the near future, and does it remain a hurdle for you in order to get material business that you need an additional licensee or additional licensees? Then, secondly, do you expect licensee revenue this year from the V-I Chip?

I just -- to deal first with the second half of your question when I addressed -- in answering the earlier question -- clearly said that at this point in time, we don't see licensee income this year. Nothing has changed with respect to that. As suggested in the last quarterly conference call, we do in the same scenario suspect to see licensing income starting early next year.

Now, insofar as the question, do we need additional licensees in order to broaden the market opportunity for V-I chips? Absolutely. Do we have candidates for that? Yes, we do. Do we have an [embarrassment] of choice with respect? Yes, we do. Do we want to make judicious choices? Absolutely, because these are in our opinion to be long-term relationships and it's important to in effect get married with the right partners. You know we have discussions underway.

To close on this, you asked the question, is there any imminent pronouncement to be made? I really can't answer that question beyond saying that once we have come to closure with an additional licensee or additional licensees, we will be making an announcement. But, it is very much part of our overall strategy. It is something that we don't believe will take away in any way from the opportunity -- will enhance it in a variety of ways. We're committed to it and we've made commitments to some key customers to put alternate sources in place. But, we're going about it in a methodical and judicious way.

Then just one other item. Mark, can you give us a rough number of what the NOL is right now -- tax NOL?

I believe it's about 11.5 million. That was from the end of 2005.

Ron Opel, Moors & Cabot.

Patrizio, when you referred to manufacturing yields for V-I chips in the high 90s, does this refer to the final assembly process as distinct from the earlier subassembly process as you're used to with second-generation products to make the distinction between those two?

No. That is the cumulative yield. It's the ratio of what comes out divided by what goes in.

Great. You have referred earlier today to VTMs and PRMs. In the last conference call, you referred to the PFM as having a role in certain -- potential role in certain consumer products. Could you in layman's terms explain the functional difference between the PRM and the PFM?

Okay. So, assuming we all know what the VTM does and the PRM does, which may not be a proper assumption, but I can go into that if you care in a moment. If this is explained what the PFM does because in effect, it's a combination of the PRM and VTM function in one package. It's a combination that is specifically tailored to AC input applications, such that in drawing power from the AC wall plug, one can deliver an output voltage while extracting the power from the AC line in a way that maximizes the efficiency of drawing power from the AC source.

There's something in the trade called power factor correction that is part of the PFM functionality. That's why the PFM is called the PFM; it is a power factor module. But, its engines, the means by which power is taken from the AC line -- it is isolated, it is down-converted, it is fed to PRM stage that provides power factor correction optimal regulation to deliver an output. This functionality is essentially the functionalities of a VTM a PRM.

Is this a double VIC?

The initial product is in a double-deck package. Now, to be clear, the PFM has only at this point been sampled to some key customers. It is not a released product yet. It is getting closer to that stage, but it is not there yet.

As I mentioned in the past, it's a product that will find to your point primary applications in some consumer electronics products for mobile applications or special applications involving products that can benefit from the unique cartridges of the PFM in particular. The fact that it's a complete off-line power supply, it is very thin, it is very dense and highly efficient.

Steve Smigie, Raymond James.

Can you comment a little bit on SG&A and R&D for the coming quarter and balance for the rest of the year?

Let's start with the R&D line. That's obviously very significant of around 16% in the last quarter. Looking at it in terms of dollars as opposed to percentages, we believe that we can get our job done, including continuing to innovate at the level that we have been able to innovate and perhaps beyond that level, without having to grow the level of investment in R&D beyond the current dollar levels.

So, now obviously, that is not a statement that will apply forever. But, in the foreseeable future, certainly over the next 12 months, we think it is low leverage in the infrastructure that were already put in place. By being savvy and careful about it, we think that there is a lot that can be done in terms of new product introduction with infrastructure that we have in place. So, as the top line grows, the level of investment in R&D measure in terms of percentage of top line should come down progressively below the levels of recent quarters. Mark, would you care to comment about the SG&A?

Well, the SG&A, specifically the S piece of it, the sales, and under that the marketing, I would expect that piece will continue to increase because commissions are in there, we are making investments in the sales and marketing area for V-I chips, Picor will probably be making some sales and marketing investments. So, I think in the future quarters, I would expect to see some continued growth there. Hopefully, as a percentage of revenues, it starts to flatten out and come down. But, I believe the dollar amount will increase.

Essentially flat R&D dollars, some growth in the SG&A infrastructure, particularly relating to the front end of the business -- sales and marketing -- and particularly relating to the new product lines and the new entities.

Could you also please walk through the rationale for splitting into say Vicor, Picor, and V-I Chip, why you might separate those as [MTs] and just sort of a rough timeline of when and how that might happen?

Well, not much has changed with respect to that. These questions came up in a prior conference call. The rationale fundamentally has to do with the fact that with a common technology base, there is different market opportunities that are best pursued by different entities with somewhat independent missions and independent management and independent focus.

The common technology base has to do with power conversion, power management and control, and to some extent unique power semiconductors. The opportunities in the marketplace range around the spectrum in connection with your traditional Vicor big business, that -- the Vicor bricks business. Over time, that could leverage V-I chips and other components as part of high-level systems.

So, I want to emphasize that the market opportunity for Vicor is going to be one that will grow over time, again leveraging this common technology base but used separate from -- in many ways in terms of the character of its customers, the nature of the applications, which tend to be small to medium volume, very diversified with Vicor doing business with 7,000 or 8000 customers around the world with particular kinds of characteristics.

Those kinds of applications and customers -- in effect the brand name, the recognition, the assets and liabilities if you will of that. They are different from that which is needed in pursuing opportunities in the power management space, which is a primary focus for Picor; or in high-density, higher power V-I Chip components, which is the [power] mission for V-I Chip.

Jim Bartlett, Bartlett Investors.

What was your total headcount for the quarter? Also, out of the 130 V-I Chip people, how many of those are new hires?

Well, for the quarter, we were down 9 people from the reported 1,100 we had in the 10-K. As far as the new hires for --

We've added people. I made reference earlier to the fact that notably, we've hired two Vice Presidents for the V-I Chip organization within the last 6 months. Those are not the only hires. There have been a number of other hires. But as also mentioned in the press release, there's a core expertise that comes from what used to be Vicor employees and that's essentially the mix -- very heavily weighed by what I characterized in the press release as Vicor Presidents with the [precious] expertise in power conversion and many of the key aspects of V-I Chips complemented with some new talent relating to complementary core competencies.

You mentioned that PFM is only sampled now to key customers, and it will be coming out for a general release fairly soon. What are some of the other milestones in new product developments that we should be looking for? I know you're going to lower power versions, etc. But, if you could just share with us some of the other things -- other milestones.

Okay, well, we're going to have a lot of exciting opportunities that will involve V-I Chip products, Picor products. But, I should note at this point in time in effect preannounce these exciting opportunities -- what we would rather do is wait until the products are ready to go. At that point in time, we will make an appropriate announcement. But, I can tell in general terms that we have many ways to leverage the proprietary technology that is at the heart of V-I Chips in a number of different directions. We're very diligently pursuing those opportunities that make the most sense in terms of market potential, given the kinds of focus in key markets that I've described in the past. Some of those particularly aimed at higher power applications are the ones that are aimed at lower power applications. So, there is a blend of power capabilities at play as well.

There are no additional questions at this time.

Thank you, everyone, for participating. We hope we see you at our annual shareholders' meeting, which this year will be Thursday, June 22nd. If not, we will be talking to you at the end of July. Thank you very much.

Have a good day.

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