Vicor Corp (VICR) 2007 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Vicor 2007 first quarter earnings results conference call.

At this time, all participants are in a listen-only mode.

We will conduct a question-and-answer session towards the end of the conference.

(OPERATOR INSTRUCTIONS).

I would now like to turn the conference over to 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, and with me is our CEO Patrizio Vinciarelli and [Dick Nagle], our Chief Accounting Officer.

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 Provision 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 10th, 2007, by calling 888-286-8010 and using the passcode 75803060.

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.Vicorpowered.com\IR webcast 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 and 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 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.

[Lacey], we will now take the first question.

(OPERATOR INSTRUCTIONS)Walter Nasdeo.

Ardour Capital.

Could you possibly give a little bit of or have a little discussion on the geographic development, how you are seeing the markets develop overseas?

Kind of like near-term and then maybe how things are developing out over the next quarter or two, please?

Your question is with respect to the Brick Business?

Yes sir.

Yes.

No fundamental change in that regard.

We are seeing a steady level of demand, which has been -- relatively speaking -- subdued since the middle of last year.

We haven't seen any significant change in that relatively slow pattern.

Okay.

The -- so and then but here in the States everything is still pretty much moving along the way it has been?

Yes.

It's still pretty steady, I guess?

Yes.

Dick Feldman.

Monarch Capital.

In the discussion, you made reference to margins improving due to better capacity utilization yet sequentially dollar revenues were down a bit.

Could you elaborate on this?

I think that we've had try speaking productivity improvements -- continued productivity improvements.

I think that various factors are at play from quarter to quarter.

Overall, the trend has been to improve our productivity through the factory.

And that's the state of that comment.

So one shouldn't take it in the (inaudible) more in terms of an overall trend?

That's correct.

Yes.

And I think the implication is that to the extent that we can in the future achieve better capacity [action], that's the key to margin improvement.

You made reference also in your comments that in 2008 you are looking forward to significant V-I Chip sales.

And in terms of percentage of the total how would you define significant?

I guess that's a little bit of a touchy question because we are not prepared to spell out what the topline contribution of V-I Chips is going to be.

There is still uncertainty with respect to that, but generally speaking we see growing opportunities.

We are ontrack with respect to our plan for this year.

Bookings have been coming in, as projected, if anything slightly ahead of projections.

And as we look at the balance of the year, things appear to be in order to support the plan for the year.

Looking into next year we see a continuation of a significant growth rate from last year, which as we discussed most recently month and a half ago, in connection with the end of the year, our conference call was (inaudible) to our earliest [expectations] because of some major programs having slipped significantly a couple of times.

So starting from what is a very low base in '06, we are seeing in '07 a significant increase of the order of 400% in the V-I Chip total revenues.

Looking into next year, we see roughly speaking a continuation of very significant growth to the point where it would make it a significant contribution to the topline.

The tall Vicor topline.

But beyond that I don't want to spell out what that means because of past consideration.

So if we were to look at the V-I Chip and Vicor in the current quarter would it be fair to say it continues to be roughly in terms of its profit contribution in line what it's been previously in terms of loss?

There is no profit contribution.

It is obviously a bracketed out item.

It is very much in the red.

We are still making investments to the tune of something, rough, magnitude $100,000 a day or many millions of dollars per quarter, $25 million per year or thereabouts.

But as the topline begins to get to levels that make a difference, we expect that number to start going down.

Ron Opel.

[Marsten Capital].

Yes.

I think I heard you say, Patrizio, in your answer to Dick that there has -- another way of saying it might be that there hasn't been any fundamental change in the outlook for this year and next for both V-I Chips and also for legacy products.

So did I hear that right?

For V-I Chips certainly.

Maybe I can finetune the message a little bit when it comes to the Brick product.

I think that the outlook for our Classic Bricks because of continued depression, in at least some of the end markets, may not be as robust for this year as we might have thought; but the flip side is we are beginning to see complete opportunities further into the future for reinvigorating the Brick Business here at the revenue line.

And I guess the good news there is that, we see ways to expand the Brick Business opportunity and more dynamically, in the future, it is not something that is going to make a difference this year.

So rather than being slightly up as you -- I think those are the words you used in the last conference call it might be that the outlook for Brick Business might be flat for this year?

No, I think it is still going to be up -- up in single digits and time will tell whether it's the upper end of single digits or not.

Close to double digits, but it's too early to say within the year.

Any new developments on the licensing front?

Any licensing revenue in the quarter?

There were no licensing revenues in the quarter, but there have been positive developments on two separate licensing front.

And if I may, just a couple of quick housekeeping questions for Mark.

Were there any non-recurring items in the other income?

In the first quarter?

No.

The first quarter if you recall -- if you recall the fourth quarter, we had one non-recurring item.

The impairment of the investment.

But that's why it is up about $1.2 million over Q4.

And do you have an expected approximate tax rate for the current year?

Not necessarily for the current year, but we are looking between 5 and 6% at least for Q2.

Each quarter we have to review the tax rate in minute detail.

So each quarter has to stand on its own.

Jim Bartlett, Bartlett Investors.

Yes.

Just on the legacy business would you say that to Gen 2, year-over-year, does that still show growth in the first quarter?

I don't have the precise figure in front of me.

But generally speaking there is modest growth that is containing, there is no fundamental change in pattern in that regard within the context of an environment, which is not buoyant in terms of overall level of demand.

On the last conference call you were talking of [VIC] inside the Brick and talking about a product that you were holding in your hand and made the comments that within months, there could be some significant activity on that front.

Could you update us on the status of the VIC Inside product?

Things are progressing along and that's the product line that I was referencing earlier in my [cryptic] comments with respect to seeing significant opportunity for reinvigorating the Brick Business Unit going forward.

Again, as suggested a minute ago I would urge caution with respect to not reading into that any short-term upside in terms of Brick Business.

It is something that is going to take a considerable time period in order to bring about significant growth in topline, but we do see ways to accomplish that.

So this might be a product that would be introduced this year or should should be introduced (multiple speakers)

It's a product that is going to begin to be introduced this year and that as usual, with a cycle of this kind of products, we will take typically something on the order of 12 months to turn into production out of this.

Could you just update us on the -- the order that was delayed twice last year?

And you said on the last conference call that you had been giving some orders on that.

Is that something or a product that has been introduced or is still yet to be introduced?

No.

I think what you're making reference to are products that have actually been in production for quite some time; and the opportunities relating to that are recurring opportunities where demands show up from time to time.

I was referring to the large order that was twice delayed last year.

And that's what I'm talking about.

Okay so it's not like -- it's not a brand-new product that needs to be introduced by your client?

No.

These were seeds that we literally planted years ago.

I see.

So -- okay.

Just something in that regard.

A large OEM that you would work with or big blue-chip companies that you had been working with in part of your original strategy of going after V-I Chips customers.

And there has been publicity on IBM and obviously the license on Sony.

Could you share with us how many other large blue-chip companies have you been working with where you might see revenue either in 2000 or 2008?

You mean '07 or '08?

Yes.

2007 work 2008.

Well these -- these are growing numbers.

You know, we had a team in the Far East as recently as a week ago and a different team in other parts of the Far East a few weeks earlier.

And that's an example of opportunities for new engagements that appeared to be promising in certain of these actions.

Domestically we are seeing that the early wins in certain end markets are paving the way for corresponding opportunities in the same market.

So we are both expanding within a particular end market to other key customers as well as from market to market in terms of broadening the base of opportunities for V-I Chips.

So not just IM Servers, but other interesting markets for this class of products.

Paul [Civit].

Capital [Flows].

My question has been answered.

Thank you.

Bill Richards.

Gabelli and Co.

I got on a little bit late, but I had a question.

Could you give us a little bit color with regard to some of the challenges in the V-I Chip?

I know it was announced in 2003.

I'm just trying to get a sense for, I guess, what's taking so long I guess for it to contribute to the topline.

Well, it's revolutionary technology.

I think in hindsight, it's not all that surprising that there's a long design cycle that sends to some extent out of the truly revolutionary aspects of this technology and that might (inaudible) in a variety of ways.

So, in a nutshell, that is the answer to your question.

As the products not been as radically different, novel, capable of enabling.

That's power systems solutions that require customers to take full advantage of the opportunity to in effect go out of their standard ways of doing this kind of business, it would not have taken as long.

There's another factor to do with a readiness of a product line, a comprehensive product line as we have discussed in the past that encompasses both types fundamental types of V-I Chips and VTMs and PRMs.

It's not been all that long that both of these kinds of components have been available so that has been a factor as well.

So it is a combination of factors that ultimately related to the novelty of the technology, the products and the customers' perceptions with respect to what to do with them.

Is your sense then, just I heard that you -- there is some expectation that there will be a contribution from this product in 2008.

Is your sense that some of these hurdles have been sort of -- you have passed them now?

Is that it or --?

Yes.

To be clear there's going to be a contribution this year.

The significance of that is to some extent subjective, depending on where we draw, in effect, the line of significance.

But in a certain way, looking at this year it's very significant in terms of the progress, in terms of growth rate, and additional customers and applications.

It's just that in terms of the overall contribution, the overall impact to Vicor's topline, it isn't going to be significant by some measure until we expect next year.

Is that the same with the cost of goods sold?

Do you expect those to come down in 2008 or 2007 as well?

Well our cost of goods sold nowadays for V-I Chips is really a picture of very significant fixed cost and the need to absorb those costs across much greater volumes.

So as the topline grows, then the cost per unit comes down.

That's the first step.

The next step is (inaudible) actions and other economies of scale.

So there is going to be a sequence of steps that are going to get the cost per unit down and the profitability of the V-I Chips business up.

One other quick question I have is with respect to the litigation with Ericsson, has that been globally settled now?

I know there is a settlement number of 50 million -- a [fortune] which is paid by insurance, but was that -- is that -- I believe you had third party claims in there and indemnity claims.

Have those -- are those -- were those part of like all one settlement or are those third party indemnity claims still alive?

Well to be clear.

the insurance contribution has not been what you said.

The insurance company, I think as we had disclosed has reimbursed a fraction of the $50 million settlement.

That's what I thought.

So otherwise I think the disclosures we made speak for themselves with respect to this complex litigation.

There's still some litigation ongoing and I would refer you to (inaudible) disclosures to get all development detail with respect to this.

It is not something that I can in a minute summarize here.

Ron Opel.

Marsten Capital.

Patrizio, as you are getting further into the V-I Chips era, are you finding that there are any changes with respect to the advantages of the products to the people, the perspective customers that you are talking to?

The efficiency, the density, the heat management, tje noise and so forth -- is the order of importance of these -- I'm sure it varies from customer to customer, but are you seeing any shifts or are there any surprises here?

No.

I think the vision is intact.

I think the benefits are as advertised and the challenge of the procession is that it takes time to realize them.

But I think that with respect to each of the benefits that you alluded to or others, speed and other benefits that arise out of deploying V-I Chips in a variety of ways.

The mining of the opportunity and the attraction of customers in key end markets that we have pointed to in the past are for what they have been described in the past.

And I don't think that a question has been asked here recently or at least within the last conference call or two about how things are going, prospects are looking in the automotive market.

Are there any developments there?

Well that's been one that as we discussed in the beginning as a very long gestation period, as I mentioned in past conference calls.

It's not been at the top of our list, in terms of (inaudible).

I think the order of opportunity as we've described numerous times is in our end servers so Information Technology (inaudible) first.

Consumer electronics is second and the other one is the marketplace with its long gestation period and unique needs coming a distant third.

Is it possible that there might the revenues from automotive in '08?

I would doubt it, but anything is possible but I would not count on that.

Robert Katz, Synvest.

I have a question.

Where do you think we are in the cycle?

I mean it sounds like a lot of other companies are reporting that Q1 was sort of the trough and besides the increased demand.

Are you seeing a similar type of requests or activity in your end market?

I'm not sure I want to speak (inaudible) on that question.

Last year we were blindsided we saw, based on first quarter and were disappointed later in the year.

And you've seen what the book to bill and bookings (inaudible) increasingly were in the first quarter.

We are kind of taking it one part at a time.

You're all forecast for the year.

It is up, I think I characterized it as a modest increase and that's based on the prior conditions.

If things were to improve in terms of key end markets, it might get somewhat better.

But I think a balanced view of these (inaudible) along the lines as described.

Was this quarter pre linear?

Was January soft and rebounding in February with March getting incrementally better and sort of continuing at a steady-state now or has it just been pretty flat?

I think it has been pretty steady.

I think if you draw a line over our topline over the last few years what you would see, I would (inaudible) through little valleys and peaks, is a very modest growth trend.

And as I suggested in the comments, as we shared with the press release my personal belief is that it will take significant contributions from new products to break out of that trend line, which is a trend line of very modest quarterly and year-to-year growth.

A few more questions.

If you look at the V-I Chips opportunity it sounds like you have highlighted automotive and high-end servers being two markets that you talked about early on.

And I think over the past few quarters you insinuated that there are portable computing opportunities.

Consumer electronic-like gaming opportunities.

What would the dollar content be in these various markets from the high-end sort of core networking type products to more consumer-oriented products?

In dollar content?

In terms of V-I Chips power systems?

Per box?

Yes.

Well it can be all over the place ranging from many, many hundreds of dollars to -- at the other end of tje spectrum.

You know a fraction of $100 and it could be a relatively small fraction of $100.

So in a (multiple speakers) high-powered system you can have a large multiplicity of V-I Chips in a consumer electronics product.

Let's pick as an example flat panel displays.

The value preposition be much much lower for this reason is because of the price line associated with those kinds of products.

So and the power consumption isn't nearly as high.

So there are many parameters that make a difference with respect to the value proposition depending on the particular type of system power level and so on and so forth.

Are there specific drivers, let's say, in the flat panel side that create adoption for V-I Chips whether it be LED backlining or changes in lighting system or --?

Well the LED opportunities, one significant opportunity, V-I Chips are adept at driving LEDs.

Marginally speaking, in terms of flat panels the low-profile needs of flat panel displays recognize the value proposition to share with (inaudible) power systems solutions based on V-I Chips.

So the thinness of the V-I Chips makes it a good candidate for those kinds of applications that value low-profile.

So going back to an earlier question Ron asked with respect to density, efficiency, low noise, you know he did not mentioned thinness, which is an attribute somewhat independent of density.

Because you can have something dense that you know so as not to be able to fit in something that needs to be very thin.

Thinness is yet another attribute that can make another difference with respect to a product being attractive for certain class obligations.

And this would apply both to monitor and [PD] effect?

For flat panels?

We are viewing things that need to be hanged on a wall without (inaudible) worth of PowerDraw and want to be as thin as they can be as great market opportunity for V-I Chips technology.

And what's the difference in price between your solution and the conventional solution?

Well I think the answer to that question is very much dependent on when I give out the assumptions relating to volume and what factors into the cost matrix so I can't -- I'm not trying to evade that question but I can't give it a very simple answer that, generally speaking, is the proper conditions are in place.

Its logical solution leveraging V-I Chips technology can be as cost-effective as alternatives.

On some key engagements we have been able to demonstrate that, under the right conditions, V-I Chips technology can deliver all of its technological advantages with a cost cut that can actually be lower than garden variety competitive alternatives.

And does it makes sense to use V-I Chips in portable computing as well like laptops and what not?

There may be opportunities in that area.

There may be?

There may be.

But that's not something you are taking on or --?

We are not banking on that this year but there's interest in that general area.

Finally What percent of revenues were second gen versus first gen?

Is that one of the reasons for margin improvement, was an improvement to your second gen efficiencies or --?

Well generally speaking with our plastic mix we are improving productivity and efficiency across the board.

We are not advertising displays that there has been any fundamental change in that general area.

It's steady as she goes.

Have you given more thought to going offshore with production?

On the V-I Chips front?

Yes.

Well, nothing fundamentally has changed with respect to that, but there are licensing developments that lead to that.

And on your first and second gen you are staying onshore mostly or mainly for your production?

Yes.

Our business model with respect to plastic (inaudible) is predicated on high mix, lower volume strategy that sits very well with domestic manufacturing models.

And what end market will have to be down?

Does it still (inaudible) what happened to rebounds for you to see the big upswing in your first and second gen parts?

Could that possibly be the biggest driver for revenues?

In a test equipment, you know capital equipments in general.

Those are key end markets.

(inaudible).

What -- roughly.

what revenue will you need in the V-I Chips to reach Company average gross margins?

A very large amount of (inaudible) revenues.

So that's still a while out.

It's not 2007.

It's not 2008.

I think it's a little further along than that and it will be intent on a variety of factors at play and again I don't mean to be evasive, but it's hard to spell out all the factors at play.

So obviously part of it is either sell price is a big part of it.

As we get to larger volumes, there's going to be a cost of little material.

Playing to that is what economies of scales we can bring to bear on that front, leveraging some licensing opportunities that we are pursuing.

So over time we expect to, as I said repeatedly, be able to deliver with the achieved technology, the kinds of margin that a highly proprietary, highly intellectual property-protected product with the kinds of benefits of V-I Chips bring should deliver.

Just as we have done historically with our big technology.

But (technical difficulty) it takes other things to fall in place and we are working all over the board.

And the CapEx plans for this year are what?

We are looking at between $8 million and $10 million.

We just did a little over $2 million in the first quarter.

So is that a step up from where you had been planning say on the last call?

Yes.

I think what we said in the last conference call was 7 to 9 or 6 to 8.

But no major change.

And before that CapEx, the '07 CapEx, your manufacturing capacity for V-I Chips is what today?

We have the (inaudible) in place through investments we have a ready-made (inaudible) and to some extent it is the combination, it is our connectivity from the wall plug to the point of load with 8% of capabilities throughout that hold food chain or power conversion, power delivery chain that optimizes the overall opportunity for V-I Chips technology and (inaudible) power.

So all of these things relate to one another and in some cases the customer's opportunities for one or the other.

But in other cases it will be the ability to go from one end to the other end that will make the difference.

Do you anticipate any AC DC business in '07?

We are going to start seeing based on current expectations some AC DC business in the latter part of this year.

But I think we should be patient with respect to that.

It is honestly part of the -- it's opportunity and it's not significant in the shorter sense.

But I think as we get into next year and the year after that, I would expect it to become progressively much more significant.

Jim Bartlett, Bartlett Investors.

I believe it was late summer early fall last year when you talk about really marketing the opportunity through your traditional channels as opposed to the large account channels.

And I (inaudible) obviously from the V-I Chips inside Brick opportunity.

Could you give us an update on how that marketing (inaudible) many customers and smaller orders, how that is progressing and are you seeing any impact of that yet?

So typically on that front really two kinds of opportunities.

One relating to channel and the other relating to products; and they have an interdependency as you might imagine.

So let me talk first about the product.

As I mentioned, I think most recently in the last part of a conference call on the concept of making Brick out of V-I Chip.

We had a little bit of a false start.

The particular input we gathered on that front did not turn out to be leading us in the right direction in terms of delivering the mechanical internal capabilities that are needed within the big paradigm to leverage V-I Chips the appropriate way in that round.

So as I suggested most recently in the last quarterly conference call, more recently we had a revisiting of the concept of making Bricks out of V-I Chips that addressed speaking as a gain, a great deal of momentum.

This field momentum in terms of development and initial marketing plans.

It doesn't (inaudible) play yet into any prior introduction but I started to begin to generate actual interactions later this year and gain further momentum to contribute this significant incremental product and with that market opportunity for Bricks and V-I Chips within Bricks.

In there it is the mention of the channels and to some extent there are two.

There has been a little bit of a wait and see attitude for a variety of reasons and leading to dependency with respect to Brick-like product opportunities.

And I expect that as we progress in the second half of this year, we should be getting momentum in that dimension as well.

With this (inaudible) more are traditional Brick channels which are a higher mix typically much lower volume into penetrate traditional Vicor customers with V-I Chips opportunities.

Either as V-I Chips or through Brick-like products.

We will take one more question.

Dick Feldman, Monarch Capital.

My question has already been answered.

Okay.

We look forward to -- thank you for joining us.

We look forward to speaking with you again in July and we also look forward to having you at our annual shareholders meeting which will be Wednesday, June 20, this year.

That's a change from the normal Thursday that we have.

Thank you very much.

Have a good day.

Thank you for your participation in today's conference.

This concludes your presentation.

Good day.

You may now disconnect.