Vicor Corp (VICR) 2009 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Vicor 2009 Second Quarter Earnings Results.

My name is Katrina and I'll be your conference coordinator for today.

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

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

(Operator Instructions).

And as a reminder, this conference is being recorded for replay purposes.

I would now like to turn the presentation over to your host for today's call, James A.

Simms, CFO.

Please proceed.

Thank you, Katrina.

Good afternoon and welcome to Vicor's Second Quarter 2009 Earnings Conference Call.

As stated, I'm Jamie Simms, the Chief Financial Officer, and with me today is our Chairman, President and CEO, Patrizio Vinciarelli and Dick Nagel our Chief Accounting Officer.

Earlier this afternoon, we issued a press release outlining our financial results for the quarter ended June 30.

This press release is available on the Investor page of our website, www.Vicorpower.com.

We also have filed a Form 8-K with the Securities and Exchange Commission in association with issuing this press release.

Before we begin, I remind you, as always, today's conference call is being recorded and it 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, I also remind you various remarks we may make during this call about future expectations, trends, plans and prospects for the Company, and its businesses, constitute forward-looking statements for purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995.

Forward-looking statements are denoted by such words as will, would, believe, should, expect, outlook, estimate, plan, anticipate and similar expressions that look toward future events or performance.

These forward-looking statements mainly reflect our current beliefs, expectations and estimates which we share with you during these quarterly conference calls.

Forward-looking statements are based on current information that by its nature is dynamic and subject to rapid and even abrupt changes.

Our forward-looking statements are subject to risks and uncertainties which may cause actual results to differ materially from those projected or implied in our statements.

Such risks and uncertainties are discussed in today's press release as well as our most recent reports on Forms 10-K and 10-Q filed with the SEC.

A replay of this conference call will be available beginning shortly upon its conclusion through August 19, 2009 by calling 888-286-8010 and using the pass code 91114083.

In addition, a webcast replay of the conference call will be available on the Investor Relations page of the Company's website beginning shortly upon its conclusion.

This replay also will be available through August 19.

Please note the information provided during this conference call is accurate as of the date of the call, today.

Vicor undertakes no obligation to update any of the statements made during this call, and you should not rely upon them after the conclusion of the call.

Patrizio and I each have prepared remarks, after which we will take your questions.

Patrizio?

Thank you, Jamie, good afternoon everyone and welcome to our Second Quarter 2009 Conference Call.

I'm pleased to report that Vicor returned to after-tax profitability in the second quarter.

Consolidated net income exceeded $1.3 million representing $0.03 per diluted share.

This compares to a net loss of over $2.5 million or $0.06 per share for the first quarter 2009, a net loss of approximately $1.3 million or $0.02 per share for the corresponding quarter a year ago.

For the second quarter Vicor generated revenues of approximately $51 million, roughly equivalent to first quarter revenues, and a slight increase over the second quarter 2008.

Our consolidated gross profit margin increased to 44.6% as compared to 43.3% for the first quarter of 2009, and 42.8% for the second quarter of 2008.

Consolidated operating income fell about $2.1 million including a $0.9 million severance charge incurred in the second quarter.

For the first quarter, we have reported an operating loss of $1.10 million including a $3 million severance charge.

In the second quarter 2008, we had incurred an operating loss of $0.8 million.

The improvement in margin and operating income reflects our efficiency initiatives.

Our consolidated book-to-bill ratio for the second quarter 2009 was 0.79 to 1, as compared to 0.99 to 1 for the first quarter of 2009.

Backlog at the end of the second quarter 2009 was $41.5 million as compared to $52.1 million at the end of the first quarter.

Given the decline in both the ratio and our backlog at quarter end, management expects the Company will likely experience a decline in third quarter 2009 revenues.

A caution, business in the past that the book-to-bill ratio can be an inaccurate indicator of our forward revenue, as the timing of larger orders and skew the ratio one way or the other.

As such, management does not currently expect the anticipated revenue decline in third quarter to be of the magnitude you might infer or suggested by the second quarter book-to-bill ratio or backlog fees.

I will now address the quarterly performance over three primary business units.

For the second quarter, our [VBU] revenues totaled $47.6 million, representing a decline of approximately 2.4% on a sequential quarterly basis.

A reduction in custom product sales for the quarter was the primary contributor to the decline.

But this came after we recorded our highest level of revenue from such products in Q1 2009.

Our Custom business is weighted toward large projects, and as with experience in the past, the award of these projects and their revenue streams can be at times unpredictable and regular.

Overall, we expect continued strength in Custom business.

Our [V Component] business, which is the largest, showed encouraging strength for the second quarter, with an increase in its revenue for the quarter nearly offsetting the decline in Custom revenues.

This is an example of how the diversification or our top lines, market serves and customer base contributes to throughout this stability to our considered revenue.

We've taken steps to reinvigorate our configurable product businesses in particularly our West Coast division in Sunnyvale, California, and are hopeful that these steps will bring about improvement from new products incorporating V-I Chip components.

During the second quarter, the new international revenue increased from 35% of consolidated revenue for the first quarter to 39% of consolidated revenue for the second quarter.

Regarding the second half of the year, we are monitoring global and domestic economic conditions and assessing the implications of the ongoing recession, in particular for big business unit performance.

We do have a diversified mix of business and customers, within the VBU, and showing in the second quarter weakness in one aspect of the business is often offset by strength in others.

However the decline in bookings [as seen] in the second quarter was relatively uniform across all of the VBU, with the exception of Japan.

As I said earlier, management does not anticipate a quarterly decline in revenue that might be inferred from the quarterly decline in the book-to-bill ratio, but we do anticipate a decline.

Turning the V-I Chip, revenue increased from $1.3 million for the first quarter to $2.4 million for the second quarter.

I should point out that this figure represents only the extent of sales and does not include approximately $1.3 million of V-I Chips sold at arms length to other business units within Vicor.

Before inter-company transactions we achieved a revenue of approximately $3.7 million.

In addressing the audience at this year's Annual Shareholders Meeting on June 25, I spoke to the momentum being experienced with V-I Chip and our [factorized power deduction].

We now have completed the research and development phase for our VC input products and offer an expanded range of V-I Chip models.

We offer high-voltage bus converter modules or also called, BCMs in full size packages, and 48 volt input BCMs in both full and half size.

We offer pre-regulator modules or PRMs in a range of input voltages, input size package and are currently sampling the first half size models.

Our voltage transformation module or VTMs are offered in a range of input voltages in both full and half size packages.

These input products are targeted at a range of applications and have achieved already traction in high performance computing where the power distribution efficiency benefits they provide, coupled with an even density and still advantages, enable customers to develop two different shaded computing platforms.

The capital expenditures referenced earlier are related to installing capacity ahead of projected requirements associated with new applications for this DC input] products, but yearly in support of high performance computing applications.

In my remarks at the General Meeting, I also addressed the status of our AC to DC product development.

We failed to discuss our collaboration with Sanken Electric of Japan to develop an ultra thin power system based on our power factor module or PFM for [a flat-panel display].

Because of delays in achieving the targeted functionality, we have not yet introduced this new power system to the market.

However, we believe that the PFM is approaching completion, anticipate the general product release in the fourth quarter of this year.

Along with Sanken, we intend to pursue flat-panel TV market opportunities, but are also targeting a range of applications for AC and DC to deliver this of this power platform in both consumer and other more applications.

Based on robust activity with new applications, we are encouraged regarding the timing of the long anticipated ramp in V-I Chip revenues.

As said during our first quarter conference call, we expected V-I Chip revenue to have bottomed out in the second quarter, and to be gaining momentum as the second half of the year progresses.

While we're not prepared to provide specific guidance regarding quarterly revenue, we stand by this statement and continue to believe bookings for V-I Chip will ramp significantly over the next 12 months.

This anticipated volume is driving our initiatives for capacity expansion.

During the quarter we accelerated the development activity for VI BRICK, which combines the technical attributes of V-I Chips with the mechanical and thermal management flexibilities of [VI BRICK].

As previously disclosed, we have high expectations for VI BRICK.

It's enabled designers to take advantage of factorized power with customary brick-like packages sold to our VBU channels.

We believe this complementary implementation of V-I Chip technology will become an essential part of the VBU portfolio in both brick-like packages as well as configurable and custom products.

I will now briefly turn to Picor, our fabulous Power IC subsidiary.

Picor has experienced a strong second quarter recording its fifth consecutive increase in quarterly revenue.

We feel that in this is small and absolute terms, we are very encouraged by the progress made with high perform customers and we develop new power patent that management devices.

Bookings were strong in the quarter and Picor continues to enjoy market place momentum with its innovative, differentiated products.

This concludes my prepared remarks.

I will now turn the call over to Jamie.

Thank you, Patrizio.

For the second quarter, Vicor generated cash from operations of approximately $7.2 million, an increase of 110% over the $3.4 million generated in the first quarter.

After capital expenditures for the quarter of approximately $1.7 million and various financing and investing transactions and changes in working capital, cash and cash equivalents increased by $5.3 million for the quarter.

Total cash, cash equivalents and short-term investments inclusive of restricted cash, totaled $31.8 million at the end of the second quarter, up from $27 million at the end of the first quarter.

Long-term financial investments consisting of a student loan-backed auction rate securities carried out an estimated market value totaled $33.9 million at quarter end, in contrast to the carrying value at the end of that first quarter of $32.6 million.

We have no debt.

All of our primary facilities are owned and with cash investments exceeding $69 million at quarter end, representing 40% of our total assets, believe that we have more than adequate resources and liquidity to fund our operations.

This concludes management's prepared remarks, so we're happy to take your questions.

Katrina, please open the call to questions.

Thank you, ladies and gentlemen.

(Operator Instructions).

And your first question comes from the line of Walter Nasdeo from Ardour Capital.

Please proceed.

Hello, gentlemen, this is Shawn Lockman for Walter.

Just a couple of quick questions on the V-I Chip.

And obviously you're a lot more optimistic at looking ahead to 2010 with the capacity expansion and so forth.

Could you give us a little bit of idea of what the outlook is for that, and what's driving the uptick in demand that you're seeing?

The success that we have seen in gaining traction, particularly in the high end server market.

And to quantify that to some extent, we're looking at essentially doubling capacity over the next 12 months in terms of essentially adding a second line to complement the capacity we currently have in place.

Okay, and can you quantify what year you'll be spending to do the last expansion in terms of the CapEx?

In general terms, we can quantify within the range of $5 to $10 million.

Some of the equipment has already been ordered.

There is some other equipment that is yet to be ordered.

We're taking advantage of the current environment in being able to achieve pretty good deals with procurement of equipment in the market place.

And hope to be able to get the lining of the low end of the range.

But that will sort itself out over the next couple of months.

It's important to note that the vast majority of the equipment that we will be adding is standard off-the-shelf commercially available surface mount type technology, type equipment.

And there's readily available market for new equipment, but also very lightly used equipment available.

So while we have a budget that's upwards of 10 million, we can -- and hope we're going to spend a lot less than that.

Okay.

Great.

Thanks.

Just another question here, on -- in terms of just looking ahead to, say, next quarter, you talked about a sequential decline in revenue.

Any sense of how -- what percentage we're talking about here, in terms of a decline?

Or can you give us an indication on that?

I'd rather not, given the uncertainty with respect to answering that question at this point in time.

To give you a little perspective, with respect to this important question, we had, going back to the first quarter, remarkably strong book-to-bill and ending backlog as of that time, with essentially [unity] book-to-bill with essentially flat revenues in an environment that in some cases experienced setbacks in Japan and other parts of the world of as much as 30, 40, 50%.

I'm referring to both suppliers, partners, customers of electronics products of one form or another.

That, in hindsight, was perhaps too good to be true and it turned out to be that way in the second quarter where for the first time, in the current environment, we saw a relatively significant setback, as much as 20% drop, in the book-to-bill from essentially one to 0.8.

That was a little of a surprise, particularly in view of the fact that the market at large appeared to be beginning to recover in that same time frame.

Now since then, beginning of the third quarter, we've seen a pickup in demand.

So the general pattern that we are seeing does not appear to be perfectly in sync with the overall state of the market.

We were late in getting hit, to a lesser degree I will submit that most companies in our general space and since then we've seen a pick up.

That's our basis for, generally speaking, projecting a decline of less than [not even] you might infer from just looking at the backlog figures of the end of the second quarter.

And we'll have to wait and see until at least the next month progresses to get more definite with respect to that.

Great.

And in terms of that drop off, I mean, did you say it was specific mostly to Japan?

Or was it across the board regionally?

Or just in terms of industry?

I mean, where did you see -- where are you guys seeing the pull back and ordering?

Well, what we saw in the second quarter was a relatively general set back, particularly with the BBU products, the BBU markets, which still represent the lion's share of our revenues.

And generally speaking, when it comes to BBU, the set back was pretty uniform, with the exception, actually, of Japan where --.

It stabilized.

Earlier on, there was a significant hit.

So Japan, in effect, went into a dive earlier and then began to recover in the second quarter, whereas some of -- surprisingly, not in keeping with overall trends, we as a whole didn't see much of an impact from everything that was going around us in the second quarter, but saw some to a lesser degree in the second quarter.

And it looks like you guys had a strong quarter in terms of gross margins.

Can we expect that kind of performance going forward or was this just a stronger quarter than usual?

I would -- subject to re-normalizing, in effect, the gross margin is based on top line.

Which obviously has a significant impact on the opportunity to achieve good margins.

If we compare, in other words, our gross margin opportunity at the same revenue level, I would submit that that should be a continuing trend in part because of the initiatives we've taken and are continuing to take in re-engineering the business for improved performance and improved efficiency.

Okay.

Great.

That's it for me.

Thanks, guys.

Thank you.

And your next question comes from the line of Jim Bartlett of Bartlett Investors.

Please proceed.

The wrap-up for 2010 and the server space, could you give us an idea of how many customers or how many programs that recommends -- that represents?

Let me just answer it from the perspective of programs and I can't get specific with respect to customers.

There is a number of different programs that make up that expectation.

These are somewhat unrelated programs, but somewhat related programs in a different way of looking at it.

And to that extent, in terms of risk with respect to the programs coming to fruition, there is some potential for these programs to move in or move out to some extent, in combination.

Even though they're different programs and to an extent that my experience is different, progress rate as the year progresses.

Roughly, what's an ASP of the chips coming off your line and would you expect it to be about the same going forward?

Well, it's hard to answer that question because for one thing, we are already involved in some, so addressing the programs I was referencing earlier.

With both full chips and half chips and then there are some higher-level assemblies, [V8 breaks] containing a multiplicity of V8 chips.

So you can infer from that that the value proposition can vary greatly from one end of the spectrum, which would be a half-sized chip, to the other end of the spectrum, which will be a multiple up -- V8 break, containing a multiplicity of full-sized V8 chips.

But just given the mix that you have now, what would be an average number?

I don't think I want to put a specific number there.

Sure.

I think that even if I were willing to quote you a number, you would have a hard time, in effect, drawing significant conclusions out of that.

Again, because of the fact that we are at a stage in the V8 chip business where the business base, both from a customer make-up perspective and the breadth of our free cash flow perspective, is not all that statistical.

And different mix can affect the average selling price that you're looking for, significantly, one way or the other.

But if you want a very general characterization, I think we're talking from the low end of the range, upwards of $20, to a multiple of that.

But, Jim, obviously you're trying to back into some assessment of what our future revenue would be based on a doubling of our capacity and an ASP assumption.

We're not trying to be coy, we're just making sure that we're not misleading you or any listener with regard to what we're expecting forward revenue to be.

We're putting capacity in place.

We have a range of products and solutions with different ASPs and different profitability.

We're putting the capacity in place to meet those requirements.

It -- whether or not that's the number of X or Y in terms of our forward revenue forecast, it's hard to tell.

Fair enough.

Thank you.

One other question, given the -- that PFM completion in the fourth quarter, which I believe you forecast, how soon would you be integrating this base level shift or -- and to [Brick] and configure a product or products?

We already have platforms, high-level platforms, that are very far along in terms of being ready to accept final PFMs.

So then those product introductions -- you could see some product introductions in the fourth quarter as well?

Yes, the gaining element, up to this point, has been the PFM itself.

We have, in preparation for completing the PFM, long awaited PFM development, we have laid the foundations to leverage it up into an added-value proposition in a number of different [you actions] at various levels.

And at various tower levels.

At various levels of packaging and thermal management flexibility and so on and so forth.

Jim, I want to be careful though.

I think you asked or stated that we would be introducing new configurable products with the PFM in the fourth quarter?

Is that what you were asking?

Well, that you had mentioned before, taking the PFM and incorporating it into configurable products.

So that -- I was trying to get when that might start having an impact to configurable products.

I think you look more to 2010 for that type of robust activity to -- in terms of new product developments.

New product introductions, excuse me.

We are very much involved, as we speak, in terms of designing the chassis, so to speak, to drop the engine into.

Okay.

But the timing around a Q4 announcement of any specific configurables, it's a little dicey for us to be specific.

Okay.

Fair enough.

Thank you.

Your next question comes from the line of Don McKenna of DB McKenna.

Please proceed.

I wanted to ask you about Sanken.

Is that the one that -- or the company that was referred to in the annual report as being a new relationship?

Well, it's been a relationship for some time.

A couple of years to be specific.

Okay.

So even at the previous annual meeting, when you're talking about some new development with a company that also began with the letter S, it was Sanken that was being referenced?

I can't make any further comment with respect to that.

You draw your own conclusion.

Okay.

So -- but we -- you originally announced licensing agreements.

Do we now have two with Sanken and Sony?

We have more than two.

More than two.

And the reference you were making to -- with Sanken, is that the one that they make or they comment on their June 22nd release about what they call an SI-8000 Y-Series switching regulator?

I don't believe so, but you'd have to ask any question of that kind to Sanken itself.

Thank you.

Thank you.

(Operator Instructions)

And your next -- you have a follow-up question from the line of Jim Bartlett of Bartlett Investors.

Please proceed.

You mentioned at the annual meeting, that given the price decline in flat panel displays and delays in the [PO Fim] product that the market opportunity is -- has been somewhat limited more to the higher end of the flat panel display line.

Does that mean like 50 inches and above or where do you see we still have opportunities in the flat panel?

Well, so -- to be clear, I think we want to comment about the flat panel display opportunity on the one hand and the PFM opportunity at large on the other hand.

I think the comments you're referring to, that I made, at the annual meeting, with respect to limitation of the opportunity, those were specific to the flat panel display market opportunity.

And there, as you point out, the combination of the evolution of that market and the set-backs that market has suffered with significant price competition and cost cutting, coupled with the delays of our own making with respect to being able to complete fully functional PFM based on original target dates has limited the market opportunity in flat panel displays for the PFM to a significant degree.

And to your point, there would limit it towards the larger displays, towards premium opportunities as distinct from smaller displays that are more consensus.

I want to be clear about the fact that the value proposition, with respect to the PFM and its derivatives, both at the chip level and at the system level, are great, undiminished by the developments specific to the flat-panel display market outside of that market.

Meaning, we see tremendous opportunities in many different areas, which get addressable with the availability of the PFM and its derivatives.

So we are very excited about those other opportunities and still excited with respect to the flat-panel display market, even though that opportunity, for a combination of reasons, isn't what we thought it was going to be earlier on.

Thank you.

And your next question comes from the line of John Dillon of JMB Capital.

Please proceed.

Hey, Patrizio.

I was wondering if you've got the capital equipment in place now for producing the PFM?

Yes, we do.

And when you say you're going to release it in the fourth quarter, do you expect to ship product then, in the fourth quarter?

We expect to be shipping initial quantities.

We do not expect to be shipping in the fourth quarter, if that's the answer to your question, production volumes to any customers.

But we do expect to be sampling qualified units in the fourth quarter.

Do you have any letters of intents from anyone on these PFMs?

Or are they all -- or are there any kind of orders in-house already for those?

I -- we can't comment with respect to that.

To some extent, it doesn't really work that way.

We have interested customers.

They haven't expressed their interest by way of letters of intent, but a need for a product.

Got you.

Okay.

Great.

And it sounds like, I mean, you've been optimistic before about the BI chip, but this sounds different to me.

And I'm just wondering, is the forecast more solid?

Is it -- is there something else that's driving this?

Or am I off on thinking that it's not quite as -- you -- it sounds like you're more optimistic.

Am I on target with that or --?

Well, I think it's fair to say that with -- we've been working hard at it for a considerable time period.

We made major investments in the technology, in the infrastructure, in organization, in comprehensive -- problematics is getting more comprehensive all the time.

I think key building blocks are going to really expand our reach, each year.

We are about to be completed, the PFM being the most notable example of that.

But, the optimism, if you will, or just the (inaudible) of significant growth in the next year, isn't even predicated on this next set of chips.

It is rooted on the design wins, and traction we've achieved with the chips that were developed a year ago, or two years ago, and already sampled and customer tested.

So in effect, you really -- you're in effect, designed in, and that's why you feel you have more, I don't mean to say that, lightly, but you've got design wins, they've got you and they're billing materials, and you see that they're coming to production, and that's --.

We have production wins, we have forecasts, and we have bottoms up understanding of, you know, where the business is going to come from, and that's what's prompting us to part company with additional investments and capital equipment, to, you know, be ready ahead of the upcoming ramp.

And again, I want to caution people with respect to the risks inherent, not from the perspective of design wins not being there, but the custom systems, you know, be introduced in the timeframe that are being projected by the cap.

Obviously there is always risk with respect to that, and we saw it in the earlier days of the chip with our first major design win.

The same kind of you know, shift in time could be happening.

I don't anticipate it happening, I have no -- Yes, eventually it will happen, but I'm just calling the possibility that it could happen.

So, but we have, let's put it this way, enough confidence in the upcoming ramp, that again, we are putting our money where expectations are, in terms of, you know, putting capacity in place ahead of the ramp.

Excellent, excellent.

In regard to that, it sounds like you're building, you said you're building a second line.

Well my question is on your first line, are you running one shift on your first line, are you running two shifts or three shifts, or --.

Well it's a little harder to answer that question precisely, because it depending on the particular type of equipment, there is a varying degree of utilization.

As you might imagine, not all the line is as well utilized, and by the way, to be clear, you know, part of our plan is also to add equipment to the existing line, in order to increase its total (capacity.

So it's not as simple as adding a second line, or really taking (inaudible) steps to either expand the capacity of the existing line, and additional capacity beyond that.

But it sounds like you have more capacity than you're using right now in your first line, and then your second line will double the total capacity, but it doesn't sound like you're at 100% utilization at this time.

Far from it.

Okay, so there's lots of room for growth, more than double, I mean, what I think I'm hearing.

Okay, and on the AC-to-DC stuff, I'm sorry, one last question on the AC-to-DC, it sounds like this is going to be really incremental business to Vicor.

Is that correct, and then you say, I mean, how big is that market, is it as big as the DC-to-DC market, or --.

Well, it is actually bigger.

The size of the AC-to-DC market is substantially greater than the DC-to-DC market, and that's, in effect, part of the opportunity but I would submit that there is another element to this, that is important to keep in mind, and that has to do with the ability to service customer needs, as I'm fond of saying, from the wall plug, to the point of load.

In other words, up to this point, without a PFM capability, would be a chip product, we can only service the need of the customer from a certain point, and not all the way back to the typical source of power, which is AC.

Therefore, the customer has to, in effect, rely on other kinds of solution for at least a significant fraction of their full power system.

And that, to some degree, limits our ability to make a complete sell, by enabling customers to achieve even greater system benefits through a complete V-I Chip capability from one end to the other.

And, so going back to the answer to your question, part of the excitement having to do with the AC-to-DC capability, is the sheer size of the AC market, as compared to the DC market, but another part of the excitement, has to do with the fact that the combinatorial solution is potentially more valuable to customers in terms of giving customers a competitive advantage with their own systems, that we either sell, with opportunities in the DC-to-DC products.

So there is an opportunity to expand DC-to-DC, get an AC-to-DC capability in what is a larger market.

Sounds great, Patrizio, thank you very much.

You have a follow up question from the line of Walter Nasdeo of Ardour Capital.

Please proceed.

Hi there, again, this is Sean for Walter.

Just a couple of quick follow-ups.

I, obviously we're looking for a sequential decline here in 3Q, but as we look ahead for the BBU, I mean, and are we looking for a pick up after that?

Are we looking for the market to sort of open up?

I know this has been sort of tied a bit to just economic factors, but do you guys, when you're looking ahead, look for things to sort of pick up and loosen up maybe in 4Q or, as we head into 2010?

Well yes we do, obviously subject to the state of the economy at large, and tri products market in particular.

I think, to put things in a relevant frame of reference, if you look at power system sales, worldwide, and do a comparison, let's say from the second quarter of this year, to the corresponding timeframe of 2008, you would be looking, on average, at large double digit declines instead, we reported you know, essentially flat revenues in the same timeframe.

Either that will suggest to you the fact that the core present revenue which is still, you know, big products, is faring well in a very adverse environment.

Logic would suggest that as the eve recovers, we would be doing relatively better than competitors that have seen much more severe setbacks.

So that's one way of looking at it.

The other way of looking at it, from the bottoms up, in terms of the products, their competitiveness and their ability to give customers competitive advantages with their own system, is that when it comes, again, to the brick product capability, would be a chip inside strategy leveraging V-I Chips into brick-like and configurable products.

We'll be a growth opportunity based on new products and new capabilities based on the to the BBU, so when we're looking at it, the BBU is doing remarkably well, in a very difficult environment, which bodes well for the legacy business of legacy Bricks and legacy products and that's before we see a real impact from new capabilities, enabled by the V-I Chip inside strategy.

Okay, great, and just a couple of other, sort of housekeeping items.

As far as, I know that you've done some headcount reduction, and reductions to your workforce.

Are those reductions finished or are you continuing to sort of identify cost cutting opportunities?

Oh, we believe that we have done what we needed to do in terms of dealing with the range of scenarios that we anticipated being possible, given the uncertainties in the economic environment, as we saw it within the last couple of quarters.

So we do not anticipate having to do more on the job front, but we are continuing to look at every facet of the business from the perspective of improving our processes.

We engineered the business to make it, you know, more efficient, make it run better, smoother, more cost effectively, and that takes a variety of different forms.

So we are certainly not done with respect to the opportunity to improve our margins and make our operating expenses more leveraged in terms of generating opportunity in the front end of the business.

Okay, great, and just one other thing.

I want to make sure I had this right.

I asked earlier about the CAPEX for the line expansion.

You said $5 million to $10 million estimated?

Yes, I mean it's a lower number than we had expected earlier.

As Jamie articulated a little while ago, we are able to get, in this environment, where there's a lot covered up with (inaudible) there, and to his earlier point, a lot of the chip manufacturing equipment is standard equipment in one form or another, and there is an opportunity to, at this point in time, get it at very substantial discounts, relative to what would have been the going price for similar equipment a year ago.

So we're taking advantage of those opportunities wherever possible.

Okay, great, that's it for me, thank you, gentlemen.

You have a follow up question from the line of Don McKenna of DB McKenna & Company.

Please proceed.

Patrizio, could you put some numbers on the power system sales worldwide?

You mentioned 2008, and 2009, just rough numbers, what they might be.

Our prices themselves, or --.

No, just worldwide power system sales.

Oh, in terms of how many tens of billions of dollars we're talking about?

Yes.

Well that's a little tricky, because you have to define power system sales.

Well when you said they were down, maybe double digit, I was wondering --.

Well let me put it this way, you know, we -- what I had in the back of my mind, when I made that statement a little while ago, was, you know, knowledge of customers, partners, suppliers, that, generally speaking are first order dependent on, you know, senior types of products in where, you know, I've seen instances of business being down as much as 40%, or 45%, relative to six months of a year earlier, and I'm now going back to a timeframe in the first quarter this year, or beginning of the second quarter this year, where those kinds of setbacks were still relatively commonplace throughout the industry.

When, you know, earlier in the decade, we used to talk along the lines of a $25 billion to $30 billion worldwide opportunity.

Right.

Is this the same number you're making reference to here?

I think it has grown.

And, to some extent, fiber has grown as a function of you know, where you put the leaps and bounds in terms of defining the marketplace.

So what include and what exclude from the power system market at large.

It's enough to say that it's a very, very large market.

You might remember me saying in the past, that it is so large that, you know, how we define precisely is, to some extent, irrelevant, because we're certainly not limited in terms of our own opportunity, by the size of the market.

Great, okay, thanks a lot.

Thank you.

And you have a follow-up question from the line of Jim Bartlett of Bartlett Investors.

Please proceed.

Can you tell us the trends you're seeing in semiconductor tests this year, and outlook for next year, as well as military defense aerospace?

So in the test market, I've seen some green shoot indication of, you know, some improvement at least, with some customers in some areas of the world, but I think it's fair to say that the market is still very, very depressed in spite of some recent indication of selective improvement.

The defense market, I think is still going relatively strong.

There have been, early in the year, as we look at the US, and the changing administration, and the impact of those changes on, you know, budgets and programs getting financed.

You know, there were some ripples going through.

The funding is there for many defense programs that we're involved with.

So I think that market is still relatively strong.

And your expectation for both markets in 2010?

Do you have some new product?

Oh, if we go back to the test market, as we all know, that's the target of being a very cyclical market, very much dependent on the derivative of semiconductor sales.

You know, to sell incremental test equipment, the semiconductor industry must be selling larger quantities of their own products, so the first thing that needs to happen there is the pickup in the semiconductor business for that to drive incremental test equipment sales.

And I think it's only a matter of when, it's not a matter of if.

There is going to be a recovery there, the only question is how soon and how significant it is going to be.

Actually, I was more interested also in design wins you will be making in both areas.

We are, you know, we're making design wins in both areas, and we'll continue to make design wins in both areas.

Good.

You have no questions at this time.

Right, Katrina, if we have no more questions, I thank everyone for their participation, and we'll talk to you in another quarter.

Thank you.

Thank you for your participation in today's conference.

This concludes the presentation.

You may now disconnect.

Have a great day.