Vicor Corp (VICR) 2011 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Vicor earnings results for the three and nine months ended September 30th, 2011, conference call.

My name is Shanelle, and I'll be your operator for today.

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

Later we will conduct a question-and-answer session.

(Operator Instructions) As a reminder, this conference is being recorded for replay purposes.

Your host for today is Mr.

James Simms, CFO, and your CEO, Mr.

Patrizio Vinciarelli.

Please proceed.

Hi, everyone.

Welcome to Vicor's earnings call for the third quarter ended September 30th.

I'm Jamie Simms, Chief Financial Officer.

And with me here in Andover is Patrizio Vinciarelli, our Chief Executive Officer.

Today we issued a press release outlining our financial results for the third quarter.

This press release is available on the investor page of our website.

We have also filed a form 8-K with the SEC in association with issuing this press release.

I remind all of you today's conference call is being recorded and is the copyrighted property of Vicor Corporation.

I also remind you various remarks we may make during this call may constitute forward-looking statements for purposes of the Safe Harbor Provisions under the Federal -- excuse me -- Private Securities Litigation Reform Act of 1995.

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

Such risks and uncertainties are discussed in our most recent form 10-K and 10-Q filed with the SEC.

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

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.

A replay of this call will be available beginning shortly upon its conclusion, through November 9th.

The replay dial-in number is 888-286-8010, and the listener pass code 53815762.

In addition, a webcast replay of the conference call will be available on the investor relations page of our website, beginning shortly upon its conclusion.

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

Patrizio.

Thank you, Jamie.

Hello, and welcome to our Q3 earnings call.

As set forth in this afternoon's press release, Vicor reported third quarter earnings of $0.03 per share, down from second quarter earnings of $0.07 per share.

Consolidated revenue declined 10.4%.

Our overall financial performance was disappointing, our legacy module and configurable systems business still our largest, experienced a significant decline, largely due to weakness in exports.

Domestic revenue and bookings for the quarter grew sequentially.

But international revenue and bookings fell reflecting rising economic uncertainty in the Euro zone and what may be the beginning of cyclical (inaudible - highly accented language) of Asian economies, particularly China.

On the other hand, looking beyond current business conditions, we believe Vicor is on the right track and well positioned to execute on our vision of providing a comprehensive array of power component solutions to increasingly sophisticated and demanding customers.

And this vision supports growth rates not seen since the early life of the company.

As Jamie will cover our income statement and balance sheet in his comments, I will focus my remarks on our individual business units.

The BBU revenues declined 10.4% quarter-to-quarter, and 6.5% on a year-to-date basis, reflecting conditions in our primary commercial and industrial markets.

The BBU's international revenue declined 23.2% sequentially, which more than offset the 4.8% sequential increase in North American revenue.

The North American figure is somewhat encouraging, as the three prior quarters have seen declines reflecting a sharp reduction in defense spending.

As I [alluded] during recent calls and during our June shareholders meeting, (inaudible) products targeted to new customers would be among the drivers of the BBU's growth.

The BBU is advancing towards its goal of new products suited for high volume opportunities and expand the channel strategy and they're building customer base.

Design support and (inaudible) are progressing with potential customers for PFM and BCM-based V-I brick products.

During the third quarter, the BBU made good progress toward establishing momentum with differentiated high-performance bricks.

[And like] products associated were mass customization strategy.

These products will be higher volume and directed toward OEM applications.

The first BCM was recently released to mass production.

This V-I chip inside telecom DC-DC converter rated at nearly [400] watts and over 800 watts per cubic inch power density.

It is designed to [fit] central offices with high efficiency, high density power systems in arrays of up to 30 kilowatts, to meet growth in mobile communications and cloud computing applications.

The production ramp with the first committed telecom customer is forecast for the first half of next year.

With a 48 volt (inaudible) input, this first BCM product will be followed by [proper] variance capable of addressing growth market requirements for input voltages ranging from as low as six volts and up to 520 volts.

A related BCM-based solution receiving encouraging customer response is targeted at the electric and hybrid vehicle market for which [our unequal] power density is well suited.

The small size, light weight, and high efficiency of our solution are compelling attributes and represent the valuable position in terms of Vicor performance and driving range.

Our initial power system for pure electric and hybrid applications will provide greater than five-fold reduction in size and weight versus competitive solutions developed by traditional automotive electronic vendors.

We plan to ship Vicor's first BCM-based 1.8 kilowatt 380 volt to (inaudible) volt converter [in prototype] volumes, to a big three OEM this coming February.

We also expect to [release to] mass production this quarter a PFM-based AC front-end in our (inaudible).

For AC product applications across a wide market base, including process control, wireless telecom, satellite modems, defense electronics, and large scale printing and display applications.

Our 330 watt AC front-end is a high-efficiency, high density power [factor correct] AC-DC converter system that incorporates AC-DC (inaudible) involved with suppression.

It is the lowest profile power supply in its class in every new application [from factors] and flexible [system] capabilities.

The international D -- AC front-end capable of supplying downstream DC-DC conversion components from bricks to V-I chips and to Picor products, will greatly expand Vicor's available market and is a major milestone in Vicor's overall strategy to enable a full complement of modular solutions with superior density, efficiency, and flexibility, from the wall plug to the point of load.

I will now address the status of our initiative with the intermediate bus converter power line that we introduced during the first quarter of this year.

Our IBCs, which are isolated fixed ratio converters for networking, computing, and other segments in which the so-called intermediate bus architecture is favored, offer essentially twice the power density and conversion efficiency of industry standard bus converters, which they can replace on a pin-compatible basis.

IBCs utilize the same Sine Amplitude Converter engine found in V-I chip BCM, and VTM converters.

In their IBC implementation, a Sine Amplitude Converter engine delivers 98% peak efficiency, enabling performance-based competitive advantages for OEMs.

Having sampled our bus converters earlier in the year, a large number of customers have been attracted by the superior performance of our products.

However, until recently, revenues have been inhibited by the efforts of a bus converter competitor to intimidate customers with threats of legal action.

As disclosed and previously addressed, SynQor won a jury verdict in December 2010 against 11 manufacturers of commodity bus converters.

Vicor was not named in that suit.

However, as we subsequently introduced our own differentiated bus converter products, SynQor, unable to compete with our products superior performance and cost effectiveness, responded by suing Vicor and one of our early customers seeking a preliminary injunction.

As this closed at the end of May, one week prior to the scheduled court hearing, SynQor withdrew its preliminary injunction motion.

As stated at the time, SynQor's withdraw was a clear indication of the weakness of SynQor's claims as asserted against Vicor.

We also believe SynQor's PI motion was intended to create uncertainty in the market regarding the fact that Vicor's products represent non-infringing, superior alternatives.

On October 4th, SynQor issued a press release announcing a recently issued patent, and once again threatened customers with supply interruption in a clear attempt to interfere with growing adoption of Vicor bus converters.

Prior to this announcement, Vicor had put SynQor on notice of evidence of [inequitable] conduct in the US Patents and Trademark office, as SynQor obtained its new patent by failing to disclose material information about the rejection of similar claims found by patent examiners to be unpatentable.

As stated in our press release October 5th, we have filed counterclaims against SynQor for alleged unfair and deceptive trade practices and tortious interference to mislead customers and monopolize the [ABA] market with baseless litigations asserting claims that are not valid nor infringed.

As set forth in our filings which are a matter of public record, senior examiners in the patent office have unanimously concluded that SynQor did not invent intermediate bus architecture, and therefore has no legitimate claim to it.

We continue to make progress with IBC customers and applications and forecast escalating revenues growing in 2012, as more and more customers realize that SynQor's claims to the intermediate bus architecture are invalid and that SynQor is a self-proclaimed technology emperor with no clothes.

While anticipating substantial revenue growth from IBCs, their introduction is already evidence of unique advance capabilities to OEMs in the enterprise networking and computing segments.

Because we have not targeted such customers, our IBC line has already served to open up a broad range of opportunities for Vicor at large, as customers are getting exposed to our technical leadership and they're looking to expand their use of Vicor power system technology to achieve competitive advantages.

Turning to V-I chip's third quarter performance.

V-I chip revenues approximately $13 million, representing a 12% decline quarter-to-quarter, but nearly double year-over-year.

We exited the third quarter with the highest level of [operating] margins [issued] to date, and for September, the highest level of unit volume production and shipments to date.

The third quarter would have been a record revenue quarter, but for line upgrade and maintenance that interrupted production in July.

V-I chip continued to improve gross margins with higher production volumes, and a growing implementation of efficiency initiatives in manufacturing.

Greater efficiencies and lower material costs, complimented by advances in packaging technology, [notably] next generation V-I chip packaging technology, which we refer to as power molding, should continue to broadening market opportunities and improvements in V-I chip profitability.

We have adequate capacity to meet near-term production requirements, but likely will add production capacity in 2012, to support power molded products and laying the foundations to meet 2015 forecasts.

We have lowered our 2012 outlook for V-I chip to be flat, the cancellation in August of the Blue Waters super computer installation at the National Center for Supercomputing Applications of the University of Illinois.

V-I chip already delivered this year a modest volume of components for the first phase of the installation, and we are forecasting upwards of $20 million of V-I chip revenue, from this project alone in 2012, while these expanding demands for super computers in the same class, it may take time for our customer to replace this business.

As previously discussed, we [expect] for V-I chip to achieve about $100 million in total revenue for 2012.

Obviously, with the Blue Water's cancellation, we have a $20 million hole to fill for 2012.

However, based on current design activity, we see potential for higher level V-I chip sales from a (inaudible) customer base going into 2015.

Turning to our Picor business unit, a fabless developer silicon-centric power components.

The transition toward a merchant strategy continues with the development of innovative System-in-a-Package power management solutions.

These highly differentiated silicon-based solutions will represent the [key] element of our strategy to offer comprehensive solutions from the AC outlet to the point of load by the way of 48 volt bus.

Picor has been sampling an innovative power management [ASIC], the Cool-[Swap] for (inaudible) applications in computing, storage, and communications.

This unique power management product would be released to production in Q1 of 2012, and is receiving great feedback from potential customers.

Picor's Cool-Power power line of low-power isolated DC to DC converters for [portable] applications, is being expanded with the addition this quarter of other voltages and so-called (inaudible) derivatives.

More significantly, product families of point-of-load Picor SiP regulators, based on our proprietary zero voltage switching technology, [we're] set to roll out in a few months.

[Three] highly differentiated power families are enabled by leveraging a core ZVS control architecture across so-called back boost and back boost implementations, cable operating efficiency from and to relatively high voltages.

These highly integrated power families will support a percent of performance at relatively low cost, enabling scaling of our technology to [lure] power more cost sensitive point-of-load applications.

Picor System-in-Package devices will effectively complement and fully enable our vision of [component] solutions from the AC outlet to the point of load.

Picor's silicon-centric core power products will have market leading performance attributes at a percent game changing building blocks for Vicor's [solar] power system capability.

More significantly, in 2011, we have hired executive sales and marketing talent with a track record of success in related industries, and they have overhauled the front end of the business to support higher growth rates.

While these initiatives will undoubtedly take years to come to complete fruition, we are projecting accelerating top and bottom line growth starting in 2012.

This concludes my prepared remarks, and I'll now turn it over to Jamie.

Jamie.

I'll now review the specifics of our quarterly performance.

Vicor recorded consolidated revenue of $58.6 million, and net income of $1.1 million, or $0.03 per diluted share for the third quarter.

Although consolidated revenue declined 10.5% sequentially, it increased 9.4% year-over-year, reflecting the increased relative contribution of V-I chip to Vicor's revenue, which represented just over 23.3% of the consolidated total, and all-time high.

As Patrizio mentioned, we experienced a shift in our mix of domestic and international revenue, with international revenue falling to just under 56% of revenue for the quarter, down from the prior quarter's record level of 62%.

As reported for prior quarters, much of the recent growth of international sales is related to increases in sales in dollars to Asian contract manufacturers working on behalf of US OEMs that have designed our components into their products.

However, the decline in international revenue for the period was not associated with a decline in such OEM business, but in our more diverse mass customization module business and, to a lesser extent, our power systems businesses.

Since Vicor sells in dollars worldwide, except for Japan, shifts in our international revenue mix are not accompanied by an increase or decrease in currency risk.

Despite the market slide in the dollar versus the yen, we do not expect a meaningful impact on our Japanese subsidiaries results.

Patrizio mentioned that consolidated bookings increased slightly.

However, international bookings were down with uncharacteristic weakness from our distributors in Asia-Pacific.

The cancellation of the Blue Waters project did not have an impact on our backlog, as what had been ordered was already in production and, therefore, non-cancelable, while much of the 2012 demand had yet to be formally scheduled and booked.

On September 30th, our consolidated backlog shippable within one year stood at $62.8 million, a 3.3% decline from the level at June 30th.

As I've stated before, we do not disclose specific book-to-bill ratios by business unit, nor do we consider the quarterly book-to-bill ratio or comparisons of quarter-end backlog to be definitive indicators of forward revenue for our increasingly diverse operations with varied lead times.

While the adoption of a multi-tiered channel strategy and the expectation of a 2012 ramp in revenue through distributors, the consolidated book-to-bill ratio will become even less meaningful.

As such, going forward we will address overall booking trends and backlog levels as we have in today's discussion, but we will no longer discuss specific book-to-bill ratios.

Consolidated gross margin was essentially unchanged sequentially, reflecting improvement in V-I chip's gross margins and the increased percentage of total revenue contributed by V-I chip.

Vicor has maintained relatively healthy consolidated product and operating margins, despite shifts in volumes and mix associated with several transitions underway throughout our organization.

As addressed, V-I chip represents an increasing percentage of Vicor's consolidated revenue.

Since ramping production, V-I chip's gross margins have steadily increased, although they do not yet reflect the targeted levels one associates with high value add power components.

At the same time, recent softness in market segments served by the BBU, notably defense and aerospace, have resulted in absolute and relative declines in volume and gross margin.

However, our consolidated gross margin was stable quarter-to-quarter, reflecting the ongoing improvement in efficiencies and lowering costs within the relatively early stage V-I chip operation, as well as the cost control discipline of the mature BBU.

With the upcoming introduction of second generation V-I chip packaging technology, which we expect will reduce manufacturing complexity while improving product performance, we anticipate the expansion of V-I chip gross margins will accelerate.

Consolidated operating margin declined to 2.9%, reflecting lower revenue.

As regular listeners may recall, our operating expenses are largely headcount related.

Over the last few quarters, we have expanded our sales and marketing staff and associated spending in support of our new go-to-market strategy, including our adoption of a multi-tier channel strategy.

Nevertheless, total operating expenses actually declined on an absolute basis quarter-to-quarter.

Lower legal fees for Q3 were a contributor to this decline.

With the exception of expenses associated with our more robust sales and marketing initiatives, we do not anticipate further increases in absolute SG&A and R&D expenses for the foreseeable future.

The unknown will be the amount of attorneys fees incurred, as the timing of any substantial legal activity is unknown.

Quarterly pre-tax income, including interest income and the net effect of accounting for certain changes in the value of our investment portfolio, totaled $1.7 million, representing 2.9% of revenue, in contrast to the second quarter pre-tax income of $4.9 million, representing 7.5%.

Our effective tax rate for the third quarter was 29.8%, down from 35.0% for the second quarter, reflecting the methodology by which we calculate a full year provision and adjust our calculation of the incremental quarterly tax due based on comparison of our original pre-tax forecast to actual results.

We continue to assume our full year 2011 provision for income taxes will approximate the full statutory rate.

Cash flow from operations totaled $4.6 million for the third quarter, down from $7.1 million for the second quarter, largely reflecting lower income, but also the absence of any net change in working capital.

Capital expenditures totaled $1.2 million for the third quarter, down from $2.1 million for the second, reflecting something of a lull in CapEx, as we expect the quarterly figure to return to the more typical range between $2 and $3 million for the coming quarters.

As we've talked about here and last quarter, we have adopted a multi-channel distribution strategy.

Our new relationship with Future Electronics, a stocking distributor, has required Vicor to adopt certain revenue and cost recognition policies, so that our financial statements will accurately reflect sales through distributors that stock our products.

In Q3, we formally started the relationship with Future, which placed initial stocking orders.

During the quarter, sell-through, as expected, was not material.

Turning to the consolidated balance sheet, our receivables portfolio remains in excellent shape, with day sales staying at 44 days, despite continuing economic uncertainty and credit access problems for smaller businesses.

Consolidated inventories quarter-over-quarter changed very little and our annualized inventory turn stood at 4.2, a slight decline from 4.3 for the second quarter.

Cash and equivalents declined to $66.9 million for the third quarter, down from $69.8 million for the second, as the cash dividend of $6.2 million paid in August exceeded net cash generated after CapEx.

At quarter end, our auction rate securities portfolio totaled $11.175 million at par value.

However, a significant redemption at par occurred on October 7th, bringing the total down to $9.1 million, and adding just over $2 million to our cash balance.

This concludes management's prepared remarks.

So now we'll take your questions.

Operator.

(Operator Instructions) And your first question comes from Don McKenna.

Please go ahead.

Hi, guys.

I was going to ask you, can you make these prepared remarks available, whether it be by e-mail or do you put them out anywhere where we can get copies of them?

We'll do that.

We can make those available.

Should I contact you directly, or --

Sure.

Let me think about the best way to do it, but, yes, in the interim I'll be happy to respond with an e-mail.

Thank you.

And while I have you on here too, can you give me a feel for what the -- I know you said there are no significant sell-through as yet from the new distribution network.

But have you had any reaction from the folks that work there as to what kind of response they're getting when they bring the products around to their clients?

So we're still in the early stages of this relationship.

We're also looking at incremental distribution relationships.

We need to look at this as a long-term investment.

There is a great deal of excitement in terms of our product line.

It's being highly differentiated and what it can do in terms of opening doors while benefiting from relationships that distributors such as Future already have.

So we should not expect immediate satisfaction in terms of tangible contribution to the top line.

But as we look out into latter part of next year and 2015, we're expecting a growing and significant contribution to our overall success story.

Great.

Can I ask you one more while I got you on the line here too?

With this Blue Waters, if that represented $20 million of next year's anticipated revenue, that would have been a very large percentage of the overall expected revenues for the year.

And I'm wondering at what point do you see this as something -- an event such as this as being significant enough to release the news to the general public at the time it occurs rather than months later?

And also, is the overall project completely dead?

Did somebody else get it or did IBM just pull on out?

Well, I think that as you know from public press releases, our customer chose to pull out from this application for a combination of reasons and (inaudible).

It was actually unclear and (inaudible) to some extent unclear what will come of this project, because as we understand it, again, from public press releases, the University of Illinois had built a facility to house the supercomputer.

And we understand that that facility is ultimately going to be equipped with a supercomputer.

It may not be a supercomputer with the capability of Blue Waters as originally intended, but it's been made clear that the facility is not going to be remaining empty.

So in terms of releasing this kind of information, two comments.

One, it was not clear, and to some extent, as I mentioned a moment ago, it remains unclear what is actually going to happen.

Another consideration is that in terms -- in terms of contribution to our revenues for this year is negligible.

For next year, it is not as large as you might have suggested.

Certainly, as we look at the Vicor as a whole, in terms of the V-I chip performance, as you know, V-I chip has doubled or will be doubling its revenues from 2010 to 2011.

Next year, with Blue Waters would have been another bang-up year.

It will still be a significantly up year, even without Blue Waters.

So I think [especially] whether we look at it in terms of Vicor as a whole or the V-I chip business unit performance is all right, it is not that much of a big deal.

I'm not, obviously underplaying it.

We'll [have to get] the extra $20 million in revenues.

But viewed in [contrast], particularly considering that at this same time we've had significant developments, positive developments in other areas with other customers, I'm not overly concerned about it.

Okay.

Thanks.

Thank you.

Your next question comes from the line of John Dillon of C&B Capital.

Hi, Patrizio.

Along the same lines that you were just talking, are your V-I chips still used in other super computers?

Yes.

Okay.

I guess this one is a particular big one, though, I mean, $20 million.

Is that the total amount that you would be -- that you expected to deliver or is this $20 million in addition to what you've already delivered?

Well, as Jamie pointed out, for this particular project, our customer has only delivered relatively small initial demonstrative, and as you might imagine, our value contribution within that was commensurately that much smaller.

So as far as this project, again, there's been no impact of significance in 2011.

Prospectively looking at 2012, it does create a hole which we're looking to fill with other business, with other opportunities, not just in the computing arena, but in other areas, including different kinds of computing applications.

Right.

So there was no competitive pressure here or anything else, it was strictly that the university canceled the project because of some issues.

And it sounds like they're still negotiating with IBM, and it could possibly come back, but that's all speculation.

Is that --

Well, as I understand it from public press releases, this wasn't a case where the university canceled the project.

It's a case where IBM's top management decided to cancel this project because of certain considerations which didn't have to do with the performance of the product, they were to do with, in effect, cost and business opportunity, including --

Right.

And it had nothing -- it had nothing to do with the Vicor products whatsoever?

No, nothing at all.

Okay.

And computer companies are still embracing the FPA architecture?

Yes.

In fact, I think we have a very exciting development on another front.

It's not a super computing application.

It's in the server space in [server forms] that we're not at this point in a position to discuss.

But it represents opportunity, further opportunity for factorized power systems applications that range down to lower power levels for lower cost, more (inaudible) type of systems.

And these are applications that over time are going to be enabled by the next generation platforms that have been referenced in earlier calls and in our prepared remarks earlier today.

Is this with a new server company?

I cannot say anything about this, so --

Okay.

-- I will just leave it at the statement that we view it as a very exciting development with a very well recognized company that is very complimentary to the success stories we've had in other segments of the computing space.

Can you say, have you actually won the design win yet or is it -- are you in the design --

[I can't] say anything more about that.

Okay.

I probably already said --

-- too much.

-- too much.

Okay.

And with your IBC lines -- let me just finish up with the server.

Sorry.

So nothing has changed with the other server companies?

They're still buying your V-I chips, still producing and shipping and everything's going well with the other server companies that you've been doing business --

Yes, we are getting growing traction with other customers, not just in the US, but also in Japan.

Excellent.

And these growing (inaudible) of customers that are seeing the benefits of efficient power distribution, point-of-load current multiplication, avoidance of the pitfalls of the traditional solution, which is very [challenged] in many ways.

Okay.

And with the IBC line, changing topics here, have you seen any significant revenue or bookings from that yet or are the legal issues still slowing that up?

Well, the legal issues held a cloud of uncertainty, which was, in effect, purposely created by SynQor in the early part of the year between February and May by their bringing a preliminary injunction motion, which they then aborted on the eve of the court hearing.

After that and after subsequent developments that have involved the patent office retracting virtually all of the SynQor claims, the use of community has gotten, generally speaking, more comfortable with taking advantage from a competitive perspective of the benefits of our products, which for customers, again, competitive advantages, like even (inaudible) to make more powerful cards and more competitive systems that can be accomplished with other kinds of solutions that are handicapped by relatively low efficiency and low density.

So I think if I were to make a general characterization of the progression within the year, I think there was -- there was a very early phase after we introduced the product, where we got a lot of excitement by customers that, in effect, have been left in the lurch by the legal developments involving SynQor and the defendants in the (inaudible) suit that positive momentum was largely stopped in terms of short-term designing activity over a period of months by the legal threats, and in particular, the threat of preliminary injunction.

After that got out of the way, because SynQor withdrew, and after other developments took place, within the last few months, we [vamped] what I would characterize as a [turf fight].

And I think at this point it's becoming clear to the largest customers and the many of the second tier customers that they can very comfortably design in their products and take benefit of the competitive advantages that our products afford without any meaningful threat going forward from the likes of SynQor.

Now, is this -- when you say design in, I mean, I thought this was a pin-compatible product.

Aren't you going after the market that was -- the shortages that was created?

Is that still the case?

I mean, are you going to see some short-term revenue because of this?

Yes, we are seeing a short-term revenue because of this.

But as you might imagine, what happened between February and June, is that those sockets that used to be supported by the commodity [bigs] that were found to infringe, the sockets, because of the threat of litigation brought by SynQor, got filled with substitutes that don't provide the level of performance, density, efficiency, that we would have provided, but which have had to do for the short term.

Now that the cloud is lifted, we are looking primarily at -- aside from those sockets where, in effect, customers had no choice in spite of the threats, were left with new design in activities for systems that leverage the additional density and efficiency of our products.

And these are going to be rolling in on a constant progression later this year into next year.

So we are looking at a revenue contribution from IBCs that having gotten stalled because of illegitimate initiatives by SynQor earlier this year, it is taking off again and rising in 2012 and 2015.

Okay.

So it sounds like you really haven't gotten any significant revenue from this, but -- and the sockets were kind of filled because of the shortage.

But now what you're -- they're designing you in because you're a better product and that revenue's going to start ramping the end of this year or early next year; is that what I'm hearing?

Yes.

I think the level of revenue for this year in the grand scheme of aggregate revenues is relatively small.

It's not that small, but it's not nearly as large as we had expected it to be at the beginning of the year.

Right.

And we would have had, had it not been for, again, illegitimate initiatives by SynQor.

But I think at this point that effect is behind us and we're looking at a significant growth path over the next couple years.

Now, can they still use your product as a plug-in replacement?

And are you going to get any sockets as just a plug-in replacement that could be basically revenue now?

Or I guess that market is just not your market, or?

That possibility is there, but the nature of the industry's such that, in effect, it's natural to always look forward and seldom look backward --

Right.

-- because the greatest leverage by the OEMs comes from introducing them (inaudible) products and --

I understand.

I understand exactly.

-- there's a cash on the requirement and cost associated with that, which once you have a solution to particular requirement, it's relatively (inaudible), even though you may have a lot more to offer in terms of performance.

Right.

So that opportunity is going forward with respect to new sockets.

Right.

They've already got the bond.

They're already getting their products.

They're working.

They're going to look at you for the next generation and --

That's right.

That's the position we're in.

Okay.

Good.

That makes perfect sense.

That's good to hear.

That's really good to hear.

Okay.

I think I'll -- I've taken up a lot of your time.

I'll get back --

Okay.

-- in the queue and maybe jump in later on.

Thank you.

Thank you.

Thank you very much.

Bye.

Your next question comes from Jim Bartlett of Bartlett Investors.

Yes.

You had mentioned that the V-I chip revenues were down sequentially, partly because the line was taken down.

Could you expand on that and what the implications then are for the fourth quarter?

We expect revenues to be up for the fourth quarter.

To give you a little bit more of the flavor of the V-I chip revenues in the third quarter, as pointed out earlier, as you reminded us, in July we had diminished capacity because of plant operates inactivities on the line.

We could have shipped more had we had the capacity within the third quarter.

There was also a factor of mix in terms of different kinds of V-I chips representing different [ASMPs], factoring into third quarter of somewhat lower rate.

So that combination of factor led to the third quarter V-I chip revenue line.

As Jamie mentioned, we exited the quarter in September with record unit builds and shipments.

And looking forward to next year, what new product revenue opportunities is significant after the IBC products?

Well, I think that's a significant list involving new products, including the ones that were referenced in my prepared remarks, BCM products, new kinds of PRMs and VTMs.

So BCM products going to telecom applications, new kinds of PRM, VTMs going into test equipment, applications.

I made the vague reference earlier to V-I chips going into computing applications, lower end computing applications in several forms.

So there's a mix of different products, some of which have been in the V-I chip portfolio for some time and some which are new entries that play a role.

And we've also made reference to some longer term opportunities.

We talked again today about a strong initiative in the automotive space.

But that remains still relatively further away into the future, even though there is some possibility that it could kick in significantly in 2012, with at least one program.

But that remains somewhat speculative at this point.

So looking at the chess board, there's a lot of pieces and lots of opportunities for attack, using different pieces in our product line.

And what kind of growth rate would you anticipate for Picor in 2012?

So Picor is ramping in 2012.

It's a prime time for growth.

The introduction of what I would characterize with (inaudible) is revolutionary new System-in-a-Package products.

We'll start with the first quarter introduction of certain products followed, [in effect], quarter-by-quarter with additional products that are part of this expanding set of product lines that enable voltage step up, voltage step down, as well as general regulation in a range of voltages where our solutions have highly differentiated capability in terms of density and efficiency.

These products will generate traction in their own rite, meaning standalone solutions in systems that otherwise may not involve other Vicor products.

But that's more significantly over time they will bridge a gap with respect to enabling [tall] system solutions, including solutions from the wall plug to the point of load by way of 48 volt bus, where customers ever need the -- not just for high power or high current delivery to the point of load with building blocks that could be V-I chips, but also around those core products, what could be a large multiplicity of Picor System-in-a-Package plugs.

As you might imagine, for every Vicor or process or big memory function, there are all kinds of ancillary subsystems requiring variety of voltage [rails].

And this new Picor product line will uniquely [afford] customers with the ability to directly jump from 48 volt to this relatively low voltages with much higher level of efficiency and density than possible otherwise.

So, and it's not necessarily an opportunity of jumping down to low voltages.

These products will also provide the opportunity for voltage step-up.

For instance, you know, the [multi] applications or other kind of building block solutions where [given the] the engine whose density and efficiency attributes are valuable, but where the price [batch] is constrained, it can be, now will be effectively addressed by Picor.

So I'm quite excited about this opportunity.

I think going back to the caller, your question, 2012, will be a year of planting seeds more than bearing fruit for Picor products.

I think we're going to start to see in this collection of top line growth that it will be appreciable in some rite in significant terms of Vicor as a whole in 2015, because these are just (inaudible) associated with any OEM product of this kind.

But I'm quite pleased with the progress that's been made.

So it might be a year that you'd go up a reasonable amount, but it's not the type of year where 2013 might be the year where --

Yes.

I think the best way to look at Picor is V-I chip with a lag of a few years.

As long-term investors, you might remember V-I chip took some time to translate its technology position into meaningful initial revenues.

We're now past that phase, and we're looking at a very exciting growth phase, where the V-I chip revenue portion of Vicor as a whole will go from a de minimis contribution to over time being more of a lion's share of the revenues.

I think with Picor, we're going to see a -- see a phenomenon which could take place on an accelerated time scale relative to V-I chip because of the fact that the adoption of Picor solution is all -- is not one that requires the level of designing commitment that the V-I chip solution requires.

In other words, point-of-load regulators for a variety of purposes that I characterized can be used as standalone building blocks without the customer adding to, in effect, commit the (inaudible) system architecture to a Vicor solution, even though they can also be used that way.

Thank you.

Your next question comes from the line of John Dillon of D&D (sic) Capital.

Hi, Patrizio.

I think I heard you say before that the IBC market was $100 million market.

Did I hear that right awhile ago?

And is it still that?

And what percentage of that do you expect you'll be able to capture next year?

So I think we characterized it as somewhere between $100 and $150 million market.

It was a market that between February and the summer of this year got threatened with if not extinction, significant threat to its longevity by the SynQor activities.

Now that the cloud has lifted and customers recognize that they don't need to fear that and there are significant competitive advantages to be had by deploying advance bus converter solutions such as we have.

This is a market with significant prospects for growth.

What I hear from the largest customers and other customers for bus converters is that they need the density, they need the efficiency in order to realize their next generational systems in order to have a good competitive position, vis-�-vis, their competitors, OEM to OEM.

So that is a force that is very powerful, in effect, breaking down any remaining barrier to widespread adoption.

So we have expectations of being able to achieve a significant share of that market.

I'm not going to make specific forecasts as to percentages.

But let me put it this way - if it were a perfect marketplace, given the fact that our products have double the density and half the loss of any competitive product and they're price cost effectively, even if (inaudible) they should achieve 100% of the market, that it will not happen.

We'll obviously be satisfied with less than that.

But we have very high expectations.

So 50% sounds like a reasonable guesstimate?

It will take time.

It will not happen overnight.

But I think that would be, over time, a reasonable target given what we know at this point.

And it sounds like, what I think I heard you just say, is Vicor is actually an enabling technology for their next generation systems.

Is that correct?

Yes.

I think it is a very important point that occasionally gets missed.

At the end of the day, each of the major OEMs has its own set of challenges in terms of keeping up with their competitors.

And what the power system can do for them or what the power system can preclude them from being able to do can make the difference in that competitive relationship.

And you can imagine how reasonable people draw a conclusion with respect to what ought to be done under the circumstances in terms of embracing technology that gives the OEM the competitive advantage they need.

Excellent.

Yes, I completely understand.

Just like you enabled one of the server companies to make a better product, you can enable these companies to make a better product and be more competitive?

That's really a value proposition.

Okay.

And jumping to the PFM.

I think you said that you're going to be using power molding with the PFM.

And my question is, if you do that and you get the cost down and the size down, will that ever be in a position to get into consumer electronics?

We think so.

We are looking at (inaudible) seen lighting and other areas that represent tremendous opportunity for this engine.

As you might know, our (inaudible) marketing -- is experiencing in that field, among others.

So we are taking a very broad view of the market opportunities and breaking out of the mold, use analogy with respect to looking to make the most of the opportunity of V-I chip products, Picor products, and through a V-I chip (inaudible) new kinds of big products.

And what about the PFM with like telecom, would they ever use it?

Or was this --

Yes, there is interest in that space for AC products as well.

Frankly, we've been very focused within the last year, nine months at the IBC opportunity, which is, in effect, for [board-mounted] power as opposed to AC opportunities that are removed from the boards.

Because of the importance of, in effect, using the bus converter to open up the market, get customers to appreciate the benefits or technology, get customers to want to embrace greater use of Vicor solutions across their power systems, as a stepping stone to looking at other applications within their system.

So we, frankly, held back on pushing on these other kinds of solutions while the IBC play was in full force and also while we are still developing a more advance PFM solutions, to your point, using our second generation package.

That makes a lot of sense.

I think -- what I think I'm hearing is that the IBC really opened up a huge market for you, so you put your resources in that, and you'll come back now to the PFM and start using that all -- because you've done the work that you need for the IBC market.

That's right, yes.

So for --

Okay.

For this generation of product, we've done the work.

We're obviously looking at next generation IBCs.

But the -- we lay the foundations with the existing product line and we can now turn our attention to other opportunities.

Frankly, in the communication space, at this point, I cannot think of a large company that hasn't drawn the conclusion within its engineering department that Vicor is, by far, the best technology and that we are a good company to do business with.

Well, Cisco is named in the lawsuit.

So I would imagine you're talking to those guys pretty closely.

Well, we don't name customers.

But I can tell you that we've had good success with all of the major customers in that space.

And then back to Picor for a second.

What I think you heard -- I heard you talk to the other guy about was that you're starting to introduce new products, the SiP products, Q1.

They'll be a design cycle.

They'll be a design cycle that you need to get through, but these design cycles will not be as long as the V-I chips, because they're more of a standard product.

Some of them will not.

Some of them will be.

I think (inaudible) the great opportunity in terms of, in effect, a complete overhaul of the power system.

They would be somewhat similar to the V-I ship cycle.

But as I mentioned earlier, with the Picor regulators, there's an opportunity to go up against the likes of (inaudible) and others in a space that values high performance.

Would you go after companies like [Valterra] also with that?

Well, I think that in one combination that involves more than the Picor SiP, you would be correct.

But what I was referring to specifically is standalone SiP regulators playing, again, a step down, step up, or regulating engines, not for process applications, but for a variety of other loads.

Okay.

And talking about processor applications, have the V-I chips been -- have you got any opportunities with V-I chips in the Intel processors?

Well, the application that I was referring to earlier somewhat cryptically for good reason is an Intel socket.

Excellent.

Excellent.

Thank you very much.

It sounds good.

Thank you.

And, sir, we have two other questions.

Are we still taking questions?

Yes, we'll take -- it's getting late, so we'll take one more.

Okay.

Your next question comes from Don McKenna of B.B.

(sic) McKenna and Company.

Since I'm the last one, I'm going to try this one out for you.

You seem in a pretty good mood tonight.

And I'm just -- you've mentioned the rapid growth phase that we're getting into, and you've mentioned 2015 a few times.

Can you give us a range of the magnitude of growth that you might anticipate?

Obviously, you're doing the long-range planning, putting the infrastructure in place.

But do you see yourself having a company that's three, four, five times the size that it is today out in that time frame?

So we're working on a three-by-five program by which we aim to triple the revenues of the company in five years.

Terrific.

Thank you for being so concise.

And are we taking one other question, or are we --

Well, if it is a quick one.

Yes.

We have one other question.

It comes from Dick Feldman of Axiom Capital.

Patrizio, it sounds as if there's a great shift going on in the corporation and that the old core business of mass customization is being replaced by a different type of go-to-market focus.

Will you still have any of the mass customization business or do you anticipate that phasing out as some of the new products you mentioned earlier in the call start being released?

No, we continue to believe that mass customization is an essential part of a comprehensive power component methodology.

Now, the mass customization of the past that we pioneered with the bricks is a [highly intensive] mass customization.

What we did is we invested millions of dollars in [expert] systems that, in effect, allow customers to configure a solution, a big solution, with operator invention.

And you have us to build it and ship it relatively short cycle time.

But all that was supported, in effect, by software through expert systems, is very much hardware intensive in the sense that what the customer drove is a different [building] material to make a product unique to their hardware requirements.

What we're going to be leveraging going forward is a mass customization strategy that relies much more on far more capabilities that don't involve hardware decisions or changes in the hardware building material.

And those capabilities are in development in full swing.

We're going to, there again, start seeing rollout of so-called configurable products starting with PRM products that customers can configure online to meet their requirements.

So in our new products we have intelligent [micro controllers] that provide a good deal of flexibility.

And we are developing tools to enable customers to simulate, configure, order, and get in relatively short cycle time solutions [typical] to their needs based on the high level of intelligence.

So it is still mass customization.

It is, in effect, a more flexible form of mass customization, more leveraged in many ways, leading to even faster cycle time.

And (inaudible) that opportunity, because it affords customers a great deal of flexibility in terms of addressing their power system needs.

When do you anticipate rolling out this capability?

Well, this will be by [product] line, and the first one out will be with existing PRM platforms.

And as you said, it would sound to me like this has much greater operating leverage and potentially higher margins.

Yes.

Well, it goes without saying that if one can give customers a valuable position which leverages invest -- in [former] systems, which once developed don't represent any appreciable incremental cost.

If there's -- there's a value that we can get paid for incrementally that's a little bit like being in the [pharma] business, which, as we recognize, it's a very good business to be in.

Okay.

Thank you.

Thank you.

Thank you, everyone.

Ladies and gentleman, that concludes the presentation.

Thank you for your participation.

You may now disconnect.

Have a great day.