Vicor Corp (VICR) 2007 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to your Vicor 2007 second-quarter earnings results conference call.

My name is Rob and I will be your operator today.

Throughout this conference, all lines will be on listen-only.

(OPERATOR INSTRUCTIONS).

At this time I would like to turn the conference over to your host, Mr.

Mark Glazer.

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 Nagel, 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.

In addition, as stated in the press release, the financial results being presented and discussed today are preliminary for the reasons disclosed in that press release.

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 August 14, 2007 by calling 888-286-8010 and using the pass code 73411523.

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 and you should not rely upon them after the conclusion of this call.

We're now ready to begin the Q&A portion of our conference.

I would ask that you limit yourselves to up to two questions at a time so that everyone gets a question to ask his or her question.

You may, of course, get back in the queue to ask additional questions.

Operator, we will now take the first question.

(OPERATOR INSTRUCTIONS).

Ron Opel, Moors & Cabot.

Good afternoon, gentlemen.

Patrizio, your comment in the press release, that bookings for the I Chips have been ahead of plan and I think it also says that you are up sequentially by 100%.

Does this mean that you might surpass the quadrupling of the I Chip shipments for this year that you over last year that you referred to at the annual meeting?

Yes.

I think the outlook at this point for the V-I Chip bookings revenue plan for the year is ahead of plan.

It's been consistently ahead of plan for a number of quarters now.

And as far as our visibility I would say I have a plan for the balance of this year.

And the expansion of capacity with incremental investments in equipment, is that vis-a-vis a recent plan that you had?

Well, we've taken a fresh look recently at the capacity plan in light of the bookings and in light of potential upsides.

And we are making additions, selective additions for the time being to the line and beginning to plan for a second line.

Great, thank you.

(OPERATOR INSTRUCTIONS).

Jim Bartlett, Bartlett Investments.

Yes.

Do you have any idea of the order of magnitude of the additional CapEx that you would be looking at?

And what was the CapEx for the quarter?

The CapEx for the quarter was in the press release.

It was $1 million and through the first six months, we were at $3.1 million.

So beyond that, for the short term, there is, as I mentioned a moment ago, some select addition to the existing line.

We have recently reset the line to provide for incremental capacity by facilitating the addition of a few pieces of equipment [and ask] that at some point in time would represent otherwise a bottleneck with respect to capacity expansion.

As I mentioned a moment ago, that's obviously within the context of a first line and we are now looking at plans for a second line in Andover.

We are also working with a partner with respect to [action] manufacturing capacity in 2008.

And the second line in Andover, if you did, that would be in 2008?

Or would that be --?

The second line in Andover would also be in 2008.

For the second half of this year, the increments of capacity that are being planned are confined to select elements within the line.

We are potential capacity bottlenecks would take place.

Okay, and has this strengthened any particular area in bookings that you are seeing?

Well, I think as you know, our early penetration with V-I Chip was in high-end and EDP and that's continuing to strengthen.

We are getting traction in other market segments that have been part of the overall marketing plans, including in particular, test equipment.

We are working on some major programs in consumer electronics.

We are seeing some early interest in some specialty type of automotive applications, but that's very far in the future.

But another area that we've been discussing for quite sometime would present in long-term a significant area of growth for the V-I Chip part of that.

Would I be correct in assuming that the V-I Chip bookings were approximately $1 million?

No, they were far, far above that.

They were far, far above that?

Yes.

So the 6% improvement, you said there was a 6% sequential improvement in --

That was in brick bookings.

The 6%?

Yes.

The V-I Chip bookings were slightly above $3 million.

Slightly above $3 million?

Yes.

Okay.

Thank you very much.

Ron Opel, Moors & Cabot.

Patrizio, the -- from the manufacturing with a partner, in Asia, in '08 that you mentioned, does that mean that manufacturing would be up and running by sometime in '08?

We are still working with our partner in preliminary way with respect to these plans.

It is, to some extent, dependent on acceptance of certain V-I Chip products, in particular consumer electronic applications.

And that is something that is going to be sorted out later this year.

But, tentatively, we look to have access to incremental capacity that we could draw upon sometime next year.

Okay, and moving over to bricks, the book to bill of 1.08 and the 6% increase sequentially, in bookings, does that suggest that there is firming in -- that you are seeing a firming in key capital equipment markets for the bricks?

I'm not sure that I would draw any broad trend out of that, beyond saying that we've been saying that the big business, based on what have been called from time to time legacy brick products or classic bricks, has opportunity for incremental growth at a low-level single digits kind of growth, and we see that opportunity playing out in the second half of this year into next year.

I think as we discussed most recently at the annual meeting, to take the brick business beyond those kinds of puny growth rates, it will take new kinds of products with new capabilities, both greater performance and/or cost metrics.

And we have a plan for that and, in fact, we are acting on that plan.

The gross margin sequential decline you said was due to a write-down of some equipment or a write-off of some equipment plus a change in mix.

Was the change in mix V-I Chips or something else?

Well, there were various components to it.

A small part was V-I Chips.

I think that mix within the Brick Business Unit was a significant factor.

And with respect to that, I wouldn't read into that anything other than the kind of quarter-to-quarter fluctuations that happen with respect to these kinds of things.

They [sent] with respect to our classical legacy bricks, any significant deterioration in the price fracture and certainly continued cost reductions outpace the degradation, the slight degradation in pricing in the marketplace for these kinds of products.

Okay, thank you.

And I wonder if you would just briefly explain the relationship of the related party, where there was an investment and so forth.

What is the relationship of that related party to the overall corporate product and market strategy?

Okay, so this is a party that we have a substantial investment in, approximately 30% interest.

And it is a party that has unique proprietary technology that is leveraged in many ways in terms of their own product opportunities.

It also plays into the V-I Chip product to certain components that are used in V-I Chips.

So, that's generally speaking, the natural relationship we think that this Company that we wish we could own, but we only have a minority interest in, has great prospects.

The accounting treatment is just that -- an accounting treatment.

Not necessarily indicative of the true underlying values of the entity's psychology, its product, and market prospects.

To some extent, the way these valuations get done, is slightly dependent on numbers in terms of revenues of profitability in the short term as distinctive from what one might call the more difficult to assess indicators of long-term value that, again, relate to technology products, customers and opportunities in the medium to long-term.

So, the accounting treatment is such that the value of the investment needed to be adjusted and I wouldn't expect that that's reflective of the real value in the longer-term and that's the reason why we will continue to make investments in [the center].

Very good.

Thank you.

Mark Lanier, Pegasus Capital.

Would you give us an update on Picor and some of its developments during the quarter?

There was no mention in the press release of Picor, but that's not an indication of a lack of progress.

There's been significant progress with respect to product plans, some advances with respect to revenues.

The revenues of Picor is still quite small and will remain small for sometime.

I think as we mentioned in the past, in terms of the top-line contribution associated with new technology and new products both relating to the card business and the V-I Chip and Picor entities, V-I Chip is off to I believe a now solid start in terms of growth in top-line and before too long, bottom-line contribution capability.

I would expect that the second contribution from the new technology and for opportunities will come by way of the Brick Business Unit, the leveraging V-I Chips and V-I Chip technology within the brick power component product line.

Last but not least is the fiber opportunity, which is, in effect, on a different scale in terms of the types of products, nature of the products, on a smaller scale, lower power level, power management and power conversion devices that I think have tremendous market opportunity, but is somewhat further in the future because of the stage of the development of these products, because to some extent, as we discussed in the past, Picor has played a key role in supporting the V-I Chip development through its proprietary chips.

And now, it's finally gathering an opportunity to leverage that technology in new ways through the Picor brand name.

Second question has to do with a repurchase of shares which you have done occasionally in the past and I was wondering whether there was an existing authorization outstanding and given the advances and solid beginning of the V-I Chip, would you consider using some of your cash to repurchase shares?

Or are there other acquisitions beyond the investment in the related party which might be attractive as you try to leverage the future of the V-I Chip?

Well I think that select investments is an opportunity.

Capital equipment in support of increasing capacity is another opportunity.

Repurchase of stock remains an opportunity and I think from time to time, we've been quite active with respect to that.

I think throughout the history, we have repurchased a very substantial amount of stock.

I think it's no accident that the stock outstanding hasn't grown over a long time and in part that is due to the fact that over the years, we have repurchased what is the net amount, Mark?

Just over $121 million worth of stock.

And to answer his other question, in the press release, we do have a plan that has about $8.5 million remaining on it.

Okay.

And we could expand on that plan and go beyond that, depending on what are your conditions.

So we have both a lot of stock, over $120 million in the past and that remains an opportunity going forward in concept with other opportunities such as you have suggested.

Thank you.

Dick Feldman, Monarch Capital.

Patrizio, you mentioned that there exists the opportunity to accelerate the growth in the Brick business by integrating some of the V-I Chip characteristics into a brick.

I wonder if you could give us some idea of what you need to do and over what time period could this start to contribute?

As I mentioned earlier, Dick, we have not just made plans but we are executing on those plans.

And the very first products are scheduled to come out later this year.

I expect that we're going to see an escalation of activities in part due to the availability of newer kinds of chips, including some of the chips that we are developing for some of the strategic customers and the strategic opportunities I alluded to earlier.

We see those being levers to brick-like products in a variety of directions.

So the early play will begin later this year.

I think it's going to be in full swing in 2008.

Now, in terms of making top-line revenue plans, we should all remember with respect to these, that we're still dealing with the kinds of products that have characteristically at least a six to nine months and more typically a 12 months gestation period in the marketplace from any early showing of products to customers to any significant business going into production.

So I wouldn't expect, because of all of that, any significant positive impact on the Brick Business Unit for sure this year and into the early part of next year.

But I think beginning with the second half of next year and most significantly, in 2009, I think there is an opportunity for significant advances, in part because while V-I Chips are very attractive to V-I Chip customers, in the short-term, their opportunity is constrained by this being a new paradigm, it having to be accepted, it being a different kind of power component that has unique issues in terms of its application.

As we all know, the big paradigm is an established paradigm cycle of Vicor established a long time ago.

It is something that today represents in the aggregate a couple of million dollars worth of market worldwide for bricks.

So given Vicor's branded entity in that space, I think there is reason to believe that bricks that are endowed with V-I Chip capabilities have the opportunity of significant growth once in the product is introduced and once we get through the normal cycles of the business.

So my expectation would be to articulate a little further, along the lines of what I suggested in answer to an earlier question, is that, we're now off to some exciting growth rates for V-I Chip as an entity.

The injection of V-I Chips into the Brick Business Unit do off to a later start for obvious reasons may well lead to some exciting developments in terms of top-line growth, because this capability is being injected in an established business with an established market.

And then longer-term, obviously, the bigger market opportunity of the new V-I Chip paradigm will lead to that becoming a bigger business opportunity.

But that is the sequence of events that I will foresee, and then Picor will layer onto that.

You had tried to earlier to introduce some V-I Chip technology into the Brick business without having a heck of a lot of success and now you sound much more confident.

What are the changes that you have made that have led you to feel more confident?

Well, the early concept was actually a customer's concept and even though it was appealing to a potential customer, it was not reflective of all of the essential attributes of a good power component.

What I mean by that without getting too technical is that for something of this kind to be successful, it has to respect to certain key attributes in terms of electrical, mechanical, and thermal performance, which the customer concept did not have.

What has happened within the last eight or nine months is that the Company has developed a different power concept, working from within as opposed to working from the outside in.

And this new power concept in classic Vicor style I think will leap ahead in terms of anticipating customer needs in a way that will create market opportunity.

It will do so because it anticipates the combination of attributes that customers at large, not just one particular customer would typically require.

So -- a different way of implementing, to give you a short answer to your question, it's a different way of implementing a V-I Chip inside concept, one that because of its superior combination of mechanical thermal as well as electrical attributes, has, in our collective opinion, much greater legs and much greater reach.

So there's tremendous excitement within the organization with respect to this concept and it's being aggressively pursued.

Would this, if you were successful here as your V-I Chip, is your brick production line capable of handling any surge in demand or would that require some capital planning?

The capital planning with respect to making bricks out of V-I Chips is, fortunately, one that does not require, in the foreseeable future, a huge capital equipment investment.

We made initial investments that really amounts to a few hundred thousand dollars worth of initial piece of capital equipment.

Generally speaking, doing this does not require much in the way of capital equipment in terms of making the bricks.

It obviously has implications with respect to capacity demands on the V-I Chip line and that all goes back to the issue of V-I Chip capacity we discussed earlier.

Now, we have not yet factored in the incremental capacity that will be required in order to supply the brick business unit with chips out of which to make new kinds of bricks because of where we are in that development, as I've articulated a little while ago, that is something that is going to become a factor later this year, early next year.

Okay, thank you.

Daniel [Gorman].

Yes, my first question is on the server market.

Basically, your total revenue is for bookings I think -- or not revenues, total bookings went from $3 million to $6 million for the V-I Chip and I was wondering if the server market was helped contributing to that and how you would characterize the server market for near-term contributing to revenue?

To be clear, what I said earlier was that the bookings for the second quarter were slightly above $3 million, not $6 million.

No, no, I thought you said $3 million -- not the revenues, the bookings were $3 million?

The bookings were slightly above $3 million and it was over 100% growth rate from the prior quarter.

From the prior quarter.

Okay.

So it went from $1.5 million to $3 million?

It was slightly above 100% growth.

Okay.

The question is -- what I started to ask was, was part of that related to revenues received from servers.

Well, the bookings related to the activities that I described earlier were, as I mentioned early market adopters were in [INDDP].

So draw your own conclusion with respect to that.

I wouldn't want to articulate it more precisely for a variety of reasons.

But it's reasonable to expect that the early adopters are the early customers placing orders and the early revenue contributors.

And again, as we expand that the customer base and expand both within INDDP and other markets, that there is going to be greater contribution from different directions.

And the second question, if you could update us when we might see some revenue from the LCD plasma market.

I don't want to attach a date to that.

I think it would be too speculative, subject to potential surprises one way or the other.

Let's just leave it at the following.

It's a very exciting development -- and not the only exciting development that is going on; there are other ones, but one that for a variety of reasons we're very focused on.

And as I suggested earlier, it's something that we'll get to a greater level of definition later this year, and perhaps at that point in time, we can begin to give you some more quantitative sense of where the opportunity might be going in 2008.

Thank you.

John [Dylan].

I'm wondering if you expect the V-I Chip bookings to continue to grow on a sequential quarter-to-quarter basis for, let's say, the next year?

Yes, and not necessarily 100% quarter to quarter, but we do expect it continued quarterly growth at very, very healthy rates.

Could you give us a sense of what you expect the sequential growth for next quarter to be?

I don't want to pin it down with a number, but I think as suggested earlier in the year that the marketing plans for V-I Chip showed a 400% growth rate from the prior year.

And, thus far, those plans have been exceeded.

And so I have every reason to believe, based on what the plans and my visibility with respect to the account activity, that things are progressing along very nicely.

Great.

Well congratulations on that $3 million.

The second question goes back to servers again.

I'm just wondering if you can tell us how many servers are actually using V-I Chips.

How many what?

How many server companies are using V-I Chips?

I really don't want to get into that.

Okay.

And the final question would be do you see any licensing revenue in the next quarter or two?

We are making progress on the licensing front, but I'm not in a position to forecast our licensing revenues at this point.

We have expanded the relationships; they are in place.

The potential for additional relationships and that's, as I mentioned, in the past, an area of interest for a variety of good reasons, so we believe that with the V-I Chip technology, it makes a lot of sense to partner with the right kind of companies to expand the market opportunity, but I give directions.

Having learned from prior experiences, we believe that it would be leaving a lot of opportunity and exploited to, in effect, tried to do it all on our own.

The market opportunity is far too large and the exhaust is to make the most out of it that can only be brought about by lining ourselves up with the right kind of companies in key markets.

And we are doing that and we've been doing it in the consumer electronics space and we are likely to be doing it in other market segments as well.

Great.

Thank you.

Jim Bartlett, Bartlett Investments.

Just a follow-up on the LCD TV space.

Could you just give us -- help us a little better understanding of how your chips are used, and to an order of magnitude, what kind of thinness reduction or thickness reduction that you might be able to achieve?

Would there also be an order of magnitude reduction in weight?

So, I recently tracked my Sharp LCD TV at home, the one I bought seven or eight months ago, and I think it's a 45-in.

display and roughly speaking, is 3 or 4 inches thick.

I wasn't the one bringing it to the house, but I can't tell you how heavy it is, but it's certainly because of its width, height, and thickness, something that falls far short of what ideally consumers would like to see, which is something as thin as a painting hanging on their wall to enable them to watch with high definition action with high definition and a big screen.

Remarkably, power is one of the major stumbling blocks in accomplishing that.

And the power system that can be accomplished with conventional technology is far to thick and heavy and difficult to manage in terms of advanced packaging.

So knowing about the thickness efficiency and general performance attributes of V-I Chip technology you can, in V-I Chip products, you can imagine how much thinner the power system could be.

You could get it from several inches down to 0.5 an inch or less over time.

And that represents a tremendous opportunity in terms of advancing that kind of technology.

Thank you.

Paul [Slavitz].

Yes, Patrizio, thank you.

I'm not sure -- you alluded a little bit to the automotive industry and I just wan to get a sense of this.

Traditionally, this industry has been in a high noise environment and they pretty much neglected it in terms of electrical efficiencies, especially the electronics.

And I'm not sure -- I know we have a great transition going on here to 48 V standards in the industry, and I'm wondering if it is fair to say that you are targeting this aspect of the automotive industry because of its electronic content, and the concerns for efficiency as a primary customer in the future of your power system approach.

I know it's been a long time being adapted in the computer industry, but they are much more sensitive to this.

Do you see the automotive industry as a potential primary customer?

Yes I do.

But as we said in the past, automotive cycle times in terms of designing times tying to production, tying to revenue, are very, very long.

So I want us to be clear about the fact that as we look at the progress of V-I Chip as an entity with growing revenues, our revenue growth in the early years isn't going to be coming from automotive.

There's going to be possibly some contribution, but that's not where the short-term revenue growth is going to come from.

But going back to the underlying reason and rationale for why automotive represents a major long-term market for V-I Chip technology, you pointed to electronic content.

As we all know, with conventional combustion engines, there's still very significant potential associated with growing electronic content within the automobile.

Electrical electronic.

So in that regard, V-I Chips have an opportunity to play in gasoline powered vehicles.

Beyond that, there is habits and pure electric.

And with respect to those kinds of a novel automotive applications, for obvious reasons, V-I Chip technology has an even stronger potential play.

You made reference to 48-V plus, and you're right.

The move from 12 to 48-V is one that hasn't really taken a hold.

But depending on the type of automotive applications, other bus voltages such as the 250 V bus, high voltage bus, have a niche and that is a niche that V-I Chip technology with its high voltage bus converters, same kind of converters that are used in high-end GDP applications, so at least the earlier [IND] applications.

That's an opportunity to play.

So there are many intersects that have to do with this general class of opportunities.

To recap, the [tried] content of conventionally powered vehicles is continuing to go up and the value electronics within a car is getting bigger and bigger in conventional types of cars.

There are normal kinds of cars where that content is even higher.

There are not just 12-V busses, but new kinds of bus voltages, very high voltages in the case of hybrids or pure electric.

And then, the 48-V bus may yet find opportunities as the power consumption the electric power consumption within vehicles continues to go up.

So all of that bodes well for the best power conversion technology, with the best attributes in terms of density, efficiency, and ability to support the diverse power system needs of complex systems such as automotive systems.

Bill Richards.

Just very briefly, and most of my questions were answered, but could you give us a better sense for the marketing initiative for the V-I Chip?

Well, they have been very focused and focused on the markets we've talked about in the order that we've discussed repeatedly.

They are being expanded with the addition of greater application engineer resources and they're going to be further expanded with the addition of talent, deducted at some of the longer-term end markets that we talked about.

Okay.

And just a couple of quick housecleaning notes.

Do you -- what is the expected tax rate for this year?

We're looking for the remainder of the year for it to be roughly 9%.

However, that could change if there are any onetime items like we had in Q2.

Okay.

And what about -- I sort of missed out on the CapEx.

What was the CapEx for the quarter?

The quarter was $1 million.

Year-to-date through six months, $3.1 million.

Okay, great.

Thank you so much.

[Don McKenna].

Hi, Patrizio.

I wanted to ask you, based on what I've been hearing, would you be surprised that based on the way the expectations for the V-I Chip coming on, even if you had no economic downturns of it, would you be surprised if you didn't see sequential revenue growth going forward?

Every quarter?

I would surprised if we didn't see for V-I Chip first order lack of correlation between the vagaries of the economy and bookings and revenue growth.

In other words, those are factors that play for obvious reasons, a bigger role with respect to the Brick Business Unit, than they would over the foreseeable future with respect to V-I Chip.

The growth of V-I Chip is so much related to new programs, new accounts, new activities, that --

I guess that was my feeling was that what I was hearing was that this has gotten now to be say 6% of revenue.

And that the expansion of the V-I Chip is so dramatic that even any of the fluctuations that might go on legacy products based upon economic conditions would be so small that overall revenues would continue to grow on a sequential basis.

Well I think it's great to have new technology and new products that are exciting to customers that are attractive.

It obviously makes the Corporation as a whole more resilient to economic downturns.

By the same token though, we should all recognize -- I'm sure I'm saying the obvious, but it is worth saying, that a severe economic downturn can also have an impact on new programs.

And so to be clear, it's not that the ups and downs of the economy would be totally irrelevant to the prospects of V-I Chip.

But to be clear, in answer to your question, the growth of V-I Chip should be there for quite some time irrespective of the state of the economy.

But the rate of growth might, of course, be affected by the pace of economic activity.

The second question I had for you too was that oh probably a couple of years ago when we were talking about the V-I Chip technology, we thought it was going to -- there wasn't going to be anything that could touch it for maybe ten years.

I don't remember saying that.

I know, isn't it amazing how we all remember certain things.

But anyway, do you see anything else out there being developed that might potentially be a competition to the approach you're taking?

Not at this point in time, no.

I think that the competitive landscape remains focused on traditional ways of doing business and hasn't caught on to the fact that I believe there's going to be dramatic change with respect to power.

In that, there is going to be a time in the not too distant future where power components are going to be playing a much greater role with respect to power systems at large.

So I think we're at the very early stage with V-I Chips of seeing a step in that direction and the competitive landscape hasn't caught onto that.

Thank you very much.

Nice quarter.

Mark Lanier, Pegasus Capital.

My question has been answered.

Thank you.

Ron Opel, Moors & Cabot.

A question for Mark.

That 9%, would that mean that all of your existing carryforwards were exhausted at that point?

Or would there be more on that well?

No, there's existing carryforwards.

The 9% is based on the minority owned subsidiaries that we have in our foreign and state -- different foreign and state jurisdictions.

Okay, great.

Patrizio, you referred in the annual meeting to the possibility that -- or the ultimate plan that Picor would do converter products on a small scale.

But I'm not sure I understand exactly what that means.

Could it mean that these would be converter products for wireless telephones or other handhelds?

Well, I think it's going to be up to Picor to articulate that in the future.

All that I can say at this point is that the power plans for Picor converter products are generally speaking aimed at smaller packages in the power component paradigm on a smaller scale than the kinds of V-I Chips you've seen.

So, one way of looking at it, there is a relationship between the bricks, which is the early power component paradigm, the V-I Chips, that is the new power component paradigm that V-I Chip is advancing.

And as suggested earlier, we are now looking at bricks made out of V-I Chips.

Picor chips are already inside V-I Chips, but they present an opportunity for even smaller power components again with a different brand identity on a smaller scale.

And those two over time could be found in larger kinds of products.

So there's a lot of synergy among these various initiatives.

There's a lot of interdependencies.

But it is a team that makes it clear, at least in some minds.

And that is that the difference in terms of products and core competency has to do ultimately will different scales, with different sizes, the brick being the largest, the V-I Chip being a much smaller one and Picor being smaller yet.

Okay, thank you.

And just one final follow-up on overall gross margins.

Following on from your comments a little bit earlier, my impression has been that you, that you expect a general trend of improving overall gross margins, primarily as a result of continuing cost reductions in manufacturing.

Is that your expectation even in view of the influx that looks like it will be coming now -- significant influx of lower margin V-I Chip products over the next few quarters?

We believe that the margin improvement opportunity that we described earlier is there, I think the first half of this year for a variety of reasons, it didn't come out as we expected, but as we look at the second half of the year, we expected that to be stronger, not just in terms of top line, but in terms of improving margins.

So we see that trend being a sustained trend for the reasons you cited.

And generally speaking, even though with V-I Chips, the margin picture is obviously quite different given the stage of these products that the capacity, the fixed cost structure that needs to be [assorted] with greater volumes.

Incrementally, there is an opportunity to make and ship products that don't detract from the overall margin capability of the Picor as a whole.

Very good, thank you.

We'll take one more question if there is one.

Sir, I have no further questions for you at this time.

Okay.

Thank you for joining us and we look forward to speaking with you again at the end of October.

Thank you.

Thank you, sir.

Thank you, again, ladies and gentlemen.

This brings your conference call to a lose.

Please feel free to disconnect your lines now at any time.