Vicor Corp (VICR) 2012 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Vicor Earnings Results for the First Quarter Ended March 31, 2012 Conference Call.

My name is Tahitia and I will be your Operator for today.

At this time, all participants are in a 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.

I would now like to turn the conference over to your host for today, Mr.

James Simms, CFO of Vicor Corporation.

Please proceed.

Thank you, Tahitia.

And welcome, everyone, to our conference call for Vicor Corporation's first quarter ended March 31, 2012.

I'm Jamie Simms, Chief Financial Officer, and with me here in Andover, as always, Patrizio Vinciarelli, our Chief Executive Officer, and Dick Nagel, our Chief Accounting Officer.

Today we issued a press release summarizing our financial results for the first quarter.

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

We also have filed a form 8K 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 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 forms 10K and 10Q 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 the call, and you should not rely upon them after the conclusion the call.

A replay will be available beginning shortly upon conclusion through May 9, 2012.

The replay dial-in number is 888-286-8010 and the listener pass code is 32338294.

In addition, a webcast replay of the call will be available on our Investor Relations page of our website beginning shortly after its conclusion.

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

Patrizio?

Hello.

And welcome to our 2012 first quarter earnings call.

As set forth in this afternoon's press release, Vicor reported first quarter earnings of $0.01 per share compared to $0.02 per share for the fourth quarter and $0.10 per share for the first quarter of 2011.

As Jamie and I addressed when discussing the fourth quarter, recent results have been influenced by weakness in particular markets and slower than expected growth from new opportunities.

Despite the good performance we're setting a strategic course as we believe current conditions are temporary and the strategy remains valid.

The businesses within the Brick Business Unit experienced mixed results for the first quarter with flat aggregate bookings and aggregate revenue declining approximately 2.7% sequential.

Bookings for the BBU in aggregate were essentially unchanged quarter to quarter deflecting continued soft demand across the geographies and markets we serve.

Bookings increased less than 1% with increases from Asia-Pacific, Japan, and Europe offset by a decline in North American order activity.

The BBU's [background owner] unit which manufactures both part conversion modules and DCDC configurable systems experienced a 12% increase in bookings and the Westcor unit which manufactures AC-DC configurable systems experienced a 16% increase.

But these improvements were offset by a marked decline in new orders placed with Vicor Custom Power, the BBU's custom system solutions business.

We previously had spoken to our concern that defense electronics has entered a period of sustained decline as Pentagon budgets decline.

However, we also spoken to our expectation that the diverse nature of our high-end solutions would be somewhat insulated from this sustained decline.

As the case with our configurable systems businesses, longer-term promise for our custom systems solutions also will be driven by the use of V-I Chip components aligned for better performance at a lower cost.

We continue to believe our custom system solutions are aligned with Pentagon spending priorities, but acknowledge we may experience soft demand for at least the remainder of 2012.

Once again, BBU revenue declined 2.7% on a quarter to quarter basis with the mix of shipments similar to the bookings mix.

I hope in the not too distant future to be able to speak to you about robust volume growth in revenue from our line of intermediate bus converters.

Fortunately, despite the US Patent and Trademark office finding all the claims of each of the four patents being asserted by Synqor against us to be invalid, we have yet to receive meaningful orders from customers who despite the compelling value proposition and significant performance differentiation of our IBCs are unwilling to risk getting entangled in litigation which Synqor has brought to interfere with our business.

Nevertheless, we have used the IBC opportunity to introduce our advanced technologies and capabilities to OEM customers in netbooking, computing, and other segments in which this bus architecture is utilized.

We expect to make further progress with these customers both with IBCs as Synqor patents are found invalidated as well as V-I Chip and Picor components.

Turning to BBU operations, the BBU continues to manage its supply chain and manufacturing plant quite well which is particularly notable in light of the changing mix as fewer higher margin custom solutions have been shipped in recent quarters.

The BBU with its mass customization model has a good track record as a domestic manufacturer and is clear evidence that (inaudible) products can be produced profitably in this country.

Turning to V-I Chip this subsidiary courted short-term improvements within the first quarter.

But its performance continues to be negatively influenced by the cancelation of the Blue Water projects at the University of Illinois.

V-I Chip saw a 26% sequential increase in first quarter bookings from the depressed levels of the fourth quarter and shipments increased 20% sequentially.

These increases reflect in part our efforts to broaden our customer base.

As earlier disclosed, Blue Waters was suspected to have generated approximately $17 million of incremental 2012 bookings for V-I Chip in addition to millions in bookings for the fourth quarter of 2011.

Which failed to materialized.

While V-I Chip 2012 performance will fall short of expectations discussed in prior conference calls, as the strategies included substantially higher sales in two IM service.

We are encouraged by the activity level in the initial order flow from new customers.

Notably during the quarter and disclosed in our fourth quarter call in February, V-I Chip booked initial orders associated with an important design win in the enterprise service space utilizing Intel's VR12 power specification.

These and numerous other opportunities are expected to replace the portion of the 2012 volumes lost to the Blue Waters cancelation but we now expect V-I Chip revenue to be essentially flat year to year and the revenue ramp to 2015 may not be seen until the fourth quarter of this year.

We remain confident 2015 will be an improved year for V-I Chip based on our visibility into customer strengths for a lot of their products utilizing existing V-I Chips.

An important growth variable for 2015 will be the rate at which customers designing new V-I Chips, most notably new DCMs and PFMs.

We expect commercial lease due the second half of this year over our promising panel molded V-I Chips and believe this new packaging technology will provide significant advantages for V-I Chip and V-I Chip customers.

The panel molding approach to V-I Chip modules should materially use cents per watt, a key measure of any cost effectiveness of enabling technology and the manufacturing costs and production efficiency.

Customers should find the unprecedented power density and cost effectiveness of these products to be very compelling.

V-I Chip continues to make progress on unit costs and overall manufacturing efficiency, recording a sequentially improved gross margin percentage for the first quarter.

Notably, certain material costs were lower and production yields sent it up.

Our now class six DCM, VRM, and VTM modules utilizing the (inaudible) [cavities] will continue to be manufactured as they have been without the economies of the scale of our new final molding process.

Nevertheless, we expect our gross margins on these legacy products to improve once volumes recover.

As mentioned a moment ago, we're meeting commercial release of new DCMs and PFMs manufactured using a new panel molding process.

This process will enable us to reduce material costs and total manufacturing costs, particularly when measured in terms of cents per watt.

Many of the processes for panel molded V-I Chips are the same as for (inaudible) [cavity] V-I Chips.

We should improve the [recession] for certain stages of production.

However, some processes, most notably molding and [final] packaging will require separate equipment and a branch in the work flow.

Given this branch at relatively lower volumes, V-I Chips considered their gross margin percentage for the next several quarters may reflect initial inefficiencies of this branch in the workflow.

We do not anticipate large (inaudible) expenditures this year to establish panel molding capacity.

As volumes increase for both types of products we will strive to establish a separate line for panel molded devices while we anticipate the benefits of high volumes to contribute to V-I Chip reaching its longer-term gross profit margin targets.

I'll now turn to Picor, our fabulous silicon centric subsidiary which is progressing on its merchant strategy.

Picor experienced a 14% reduction in shipments and 39% lower bookings quarter to quarter reflecting many of the same circumstances as V-I Chip.

With the cancelation of new orders we should expect a significant fraction of recent (inaudible) 2012 for the [floor].

Picor similarly has had to look to new customers to replace lost volume.

Also as in the case of V-I Chip, Picor is expecting a significant rebound from new products sold to a broad range of new customers.

Over the next several quarters, beginning this quarter, Picor will be introducing new core power devices.

I've spoken of the importance of these devices for the execution of both Picor 's merchant strategy and Picor's vision of delivering differentiated solutions all the way to the point of load.

The new line of Picor switching regulators are [systematically] packaged devices that provide a matched performance at attractive price points in standard packages.

These products have been designed to compliment V-I Chip and [be a big] products aligned for the sale of comprehensive power training solutions that by potentially accelerating a professional target in markets.

Also an attractive value proposition in standard packaging should make these PRL devices a source of robust revenue growth on their own.

As standard products sold in high volumes, they should be especially attractive for distribution partners.

To conclude the early portion of my prepared remarks, I want to emphasize as Vicor's largest shareholder and the Company CEO, I am particularly disappointed by our recent performance.

Clearly if among other things our defense business had stayed robust and if the Blue Waters project had not been canceled, our bookings and revenue trends would be more encouraging.

Recent performance has been negatively influenced by shifts in markets that we've previously identified and which were the basis for our shift in strategy towards global OEMs.

In somewhat of an ironic way, our recent performance confirms the validity of our shift in strategy and I will articulate this point further.

As I've long stated, customers are coming to terms with the realities of a world becoming more and more dependent on [their tried] products that must be small, light, and efficient.

High conversion part density and high conversion efficiency, the defining characteristics of Vicor products, have become customer priorities for a broad range of applications and customers, not just for the high-end applications we have traditionally served.

Our value proposition is well suited for today's increasingly power conscious market and over the past three years, we changed our strategy and our organization to advance these market opportunities.

Whether it is early adopters embracing factorized power in supercomputing, the recent design win for PRMs and VTMs in the enterprise service space or the remarkable customer response to the differentiated capabilities of our IBCs, these examples and other evidence represents some confirmation or value proposition and the nature of the shifting customer priorities away from commoditized power conversion solutions.

A brief review of our evolution may prove useful.

Around 2000 because of the collapse of the (inaudible) market on which we had based our initial strategy, we focused on serving lower volume opportunities with a high mix of mass customization [across] strategy focused on high power applications and emphasized design flexibility.

We relied on manufacturing reps, internationally known stocking distributers to access customers who were supported by strong field applications in [general].

This well executed strategy afforded us stability in cash flow but did not provide long-term growth.

It was also inconsistent with our view of the expected shifts in customer priorities and competitive capabilities.

Based on our belief traditional Brick modules would ultimately be unable to meet the high complexity and demanding promise of an evermore power conscious marketplace, we then began what is now a $200 million investment in next generation part performance, V-I Chips.

The market shift we anticipated is now underway but in a manner and sequence presenting challenges contributing to our current performance.

As I mentioned, we believe our strategy regarding changing customer requirements have been confirmed as there is a strategic response.

However, external circumstances we did not expect are influencing our short-term performance.

First, the market transition we did expect is taking place during a prolonged period of global economic uncertainty.

Second, BBU performance has been affected by a pronounced decline in defense spending that has exceeded what we have anticipated.

Third, that when we launched our measured power initiative in IBCs we did not anticipate our success would be limited and delayed by baseless legal challenges.

Let me address each of these circumstances.

We had expected a transition in customer requirements would be steady over several years as it has largely proven to be but we did not anticipate the consequences of poor economic conditions on already challenging sales cycles.

These strong economic conditions, sales cycles can require -- can still require an [out force] of 12 months of intense customer interaction before purchase orders are forthcoming.

Many potential customers have become [modest discoverers] during periods of economic uncertainty and while designers may be pressing ahead with next generation products, presenting an opportunity for Vicor, the urgency for new product development can be lower, [landing] the sale cycles by quarters.

Also, the economic downturns, OEM procurement personnel become more focused on price reductions which they're often able to sign from incumbent vendors, themselves seeking to protect their own volumes.

Our value proposition is therefore to be very well defined if it is to be successful with price conscious customers.

I'm pleased to point out that this was the case with a recent design win enterprise service as a V-I Chip solution was selected on both technical merit and long-term price per watt performance.

So, this [finds] both designers and procurement personnel.

Unfortunately, other customer engagements have been reflecting the delays and this conversion also shadowed with economic uncertainty.

Our panel molded packaging approach for V-I Chips should continue our acceleration of our ability to meet cents per watt cost requirements perspective on the underlying economic conditions.

With regard to the problematic defense electronics market, [sufficiency] in pentagon spending have reduced volumes for both our custom systems solutions business and our modules business as we have discussed what not optimistic volume would return to peak levels we experienced in 2010.

As US involvement in Iraq and Afghanistan has declined, fewer field systems may be needed going forward.

Also, as it is down to overall budget constraints, funding of these actions for long-term projects that they represent a meaningful portion of our revenue will be postponed or otherwise delayed.

We had hope the decline in volume had ended in late 2011 but this quarter results are indicative of continued weakness.

As discussed, we believe the nature of products and the diversity of the programs into which they are designed should largely insulate Vicor from further significant volume declines, however even the most promising opportunities for which we are providing a highly differentiated solution have been impacted.

As an example we have a sizable design win for a next generation [creative] platform utilizing innovative V-I Chips.

We see part of the opportunity unfortunately has already been rescheduled twice due to funding constraints and we now do not expect revenue until 2013.

Turning to the circumstances surrounding our IBC initiative, the baseless claims of a third-party have inhibited and delayed the market adoption of our highly differentiated line of intermediary bus converters.

As discussed in prior calls, our IBCs are a sine amplitude converter of a unique design for networking, computing, and other market segments.

Our IBCs offer twice the power density and conversion efficiency of industry standard bus converters for which they present compatible replacements.

Our IBCs utilize the same proprietary sine amplitude converter engine found in V-I Chip DCM and VTM converters.

Into IBC implementation our sine amplitude converters deliver 98% peak efficiency, enabling performance based competitive advantages for OEMs.

When we launched the IBC line in early 2011 we saw substantial market opportunity that we thought we would've substantially penetrated by this point in time.

While reaching expectations for IBCs have not been met, we have been aggressive in pursuing customers and as design wins reflecting the [well spread] acknowledgement of the superiority of our solutions.

We've won every one of several battles in our initiative to where the US Patent and Trademark office declare all of the Synqor patents invalid.

As these patents get finally invalidated and the trial litigation blows over, customers should be ordering escalating volumes and we may recover some of our original expectations for this promising product line.

As you've now heard, several (inaudible) circumstances have contributed to our recently poor performance.

Our revenue has been lower than we anticipated and given our build out of marketing sales and field litigations (inaudible) our expenses have been higher, leading to weaker profitability.

Despite our disappointing recent performance, we're looking beyond current business conditions and remain focused on our strategic vision.

We must assume macro economic trends will reverse at some point and we also expect the Pentagon's budget to find its bottom when it comes to products in which we're designed in.

We're also quite confident we will prevail in having all the Synqor patents declared invalid to the delight of customers and the industry at large.

At the same time we're certain global trends in (inaudible) availability, cost, and consumption will continue and likely [survey] some [re-favoring] of well-defined value proposition.

We invested heavily for many years in new technologies and manufacturing processes and most recently the frontend of our business.

Our transition as a Company continues as we engage with global OEMs seeking the highest performance solutions for their power conversion needs.

Vicor now has a proud roadmap and gained new concessional capabilities uniquely suited to meet the complex demands of these sophisticated customers.

We've discussed the high level design activity underway and the considerable promise of our activities with OEMs.

We've also discussed the progress we continue to make operationally.

As such, Vicor remains well positioned for the future.

While I'm very disappointed with recent financial results, I remain enthusiastic about the future.

I'll now turn the call over to Jamie who will discuss the financial statement.

Thank you, Patrizio.

I'll now review our quarterly financial performance, providing some background in business unit specifics.

Total one year backlog at yearend stood at $45.8 million, a decline of approximately 16% from the prior quarter's ending backlog of $54.2 million.

Consolidated bookings for the first quarter totaled $51.2 million, an increase of 2.3% from the prior quarter.

Backlog scheduled for shipment in Q2 at the end of Q1 totaled $33.4 million or 73% of total backlog, down from $40.4 million of backlog scheduled for shipment in Q1 at the end of Q4 which represented 74% of total backlog.

BBU bookings were stable quarter to quarter with an overall increase in Vicor and over Westcor and Vicor Japan bookings offset by a decline in Vicor custom power bookings.

As Patrizio mentioned, V-I Chip bookings for the first quarter rebounded from the low level of the fourth quarter but at just over $7 million remained well below levels expected before the cancelation of the Blue Waters project.

Turning to revenue, as disclosed in today's press release, Vicor reported consolidated revenue of $59.7 million for the first quarter, an increase of 1.9% over the fourth quarter of 2011.

Notable shifts in mix leading to the slight sequential increase were a 22.5% increase in V-I Chip revenue but a 21.9% decline in Vicor custom revenue.

We did experience a modest increase in recognized sell through revenue associated with shipments by Future Electronics, notably from Future's European activities but we have not yet booked meaningful sell-through revenue associated with Digi-Key with which we announced a distribution relationship during the fourth quarter.

Sell-through revenue totaled $281,000 for the first quarter.

The mix of North American and export revenue was consistent quarter to quarter with international revenue representing 53% of consolidated total revenue, down slightly from the 53.7% share in the fourth quarter.

Consolidated gross profit margin as a percentage of revenue for the fourth quarter was 41.0%, down slightly from 41.8% for the fourth quarter.

As indicated, the BBU maintained robust gross margins with a slight percentage decline quarter to quarter and V-I Chip experienced a meaningful recovery in gross profit margin as a percentage of revenue over the core margin of the fourth quarter.

As a result, the consolidated figures showed a slight decline reflecting the increased volume of lower, albeit improved margin V-I Chip products.

Consolidated operating margin as a percentage of revenue for the first quarter fell to 0.8%, essentially breakeven, down from the fourth quarter operating margin of 2.1%.

SG&A expenses were up 2.9% sequentially, largely as the result of increased compensation due to additional headcount, sales and marketing activities, and the annual change in certain employee benefit costs along with fees incurred during our annual audit.

Legal fees, largely associated with our patent litigation were lower sequentially and should remain at current levels through 2012.

R&D expenses predominantly compensation increased 3.4% sequentially largely associated with the same annual change in certain annual -- excuse me -- certain employee benefit costs.

Quarterly pretax income including interest income and the net effect of accounting for certain changes and the value of our investment portfolio totaled $517,000 representing 0.9% of revenue down from $1.2 million representing 2.1% of revenue for the fourth quarter.

Our effective tax rate for the fourth quarter was 34.0%.

Cash flow from operations totaled $7.5 million for the first quarter up from $4.7 million for the fourth quarter reflecting a sizable net reduction in inventories for the period.

Our net capital expenditures remained at the maintenance level of $1.3 million for the quarter up slightly from $1.2 million for the fourth.

As Patrizio mentioned in the context of our panel molding initiative, we do not anticipate substantial CapEx in the near future.

Turning to the consolidated balance sheet our receivables portfolio remains in excellent shape with day sales at 44 days.

Consolidated inventories quarter to quarter declined $4.3 million reflecting aggressive management of raw materials in light of reduced bookings and our annualized inventory turns to 4.2 in line with 4.1 for the fourth quarter.

As of Match 31 we had $78.3 million in cash and equivalents as well as long-term investment securities carried at a book value of 9.7.

Included in this long-term total are auction rate securities with a par value of $9.1 million carried at a book value of $7.7 million representing 84.5% of par value.

Since the failure of these auctions by which these securities were priced in February 2008 we have received over $29 million in redemptions at par and are confident the remaining balance will in time also be redeemed at par value.

We continue to be debt free and own our manufacturing facilities and principle offices.

A final note, on March 16, the US Court of Appeals vacated a 2009 judgment in our favor associated with our lawsuit against certain of our insurance carriers with respect to the Ericsson settlement.

We had been awarded approximately $16.5 million in the ruling which the insurers appealed.

The appeals court has remanded the case for a new trial and we are reviewing -- excuse me -- we are reviewing the ruling.

This concludes management's prepared remarks and we'll now take questions from listeners.

Tahitia?

Are you there?

Yes, sir.

I am.

(Operator Instructions) And you have a question from the line of John Dillon from DMB Capital.

Please proceed.

Hi, Patrizio.

Last conference call we heard that the legal issues with Synqor were basically behind you.

So, I'm wondering what changed.

I'm not sure where you got that from.

I think we've been clear about the fact that this is likely to be litigation that will remain with us for quite some time.

Maybe you picked up on early reports of success in the patent office with respect to each of several different examiners on the examination finding the Synqor patents, their claims to be invalid.

But that's a process that's not come to its end yet because Synqor will have the right to appeal to the patent board and potentially to the Federal circuit court of appeals.

We expect that this is going to happen but are confident that this process will come to the right conclusion which is that these patents are destined for the scrap heap.

It's just a matter of time.

But while that is going on, the litigation goes on.

Okay.

It sounds like you're not expecting any kind of production orders from your bigger customers with the IBC line in the near future?

We haven't received major orders.

We have a level of business which has been increasing and we are aware of significant design wins that have not come to production volumes yet but should in time.

So, some of these are new programs that are going to take some time to go into volume production.

I think when it comes to major customers and major programs, where there was an opportunity to replace with superior products solutions that had been precluded by Synqor's early win in Texas against the different settled defendants.

That opportunity has been largely negated by Synqor's stubborn approach and I would suggest arrogant approach with customers, in effect threatening customers with litigation against them or disruption of supply as a means to keeping customers from deciding to substitute better products.

Okay.

Maybe what I heard on the last conference call was more to the effect that some of your major customers were siding with you and they didn't think that their claims were valid so I kind of got the impression that you thought you'd be seeing some production orders as a result of that.

But it sounds like something that --

I think when it comes to the largest customer in this space, unfortunately that's not come to fruition yet even though we had led to believe that it would.

We think because Synqor is continuing to exert the -- exactly, a lot of pressure on that customer.

Okay.

Thanks.

Okay.

On -- you mentioned the Intel opportunity and what I think I heard, maybe you could give us a little more color on this or clarify it a little bit, but you've actually done some initial shipments to them.

Can you tell us a little bit more about when this might come to fruition and when you expect to see quantities from that?

We are currently expecting production volumes to hit in the second half and more likely the fourth quarter of this year.

You think you might see some bookings in the third quarter for those?

You'll see some bookings in third quarter for shipments in the fourth.

The units that you've shipped so far, there's just like engineering units or they're building out for prototypes or are there any -- ?

This is -- we were shipping engineering units earlier and we've now been through a first round of larger quantities to in effect demonstrate capabilities on a larger scale.

Okay.

Good.

Good.

Now, you mentioned that you won that for both technical reasons and price reasons and this is an Intel opportunity, so I'm wondering what's preventing you from going to every other server company now and presenting that same type of sales pitch or whatever to the VPs of engineering or the decision makers?

Do you expect to start seeing some significant activity with other server companies now that you've got both price and technical issues covered?

Okay.

So, what makes this application unique and at this point in time leading the pack is the fact that it will rely on a 48 volt distribution bus as distinct from the traditional 12 volt that is used in --

Okay.

I've got you.

So, that makes the value proposition considerably more compelling.

And to be clear, when it comes to value, part of the opportunity in terms of delivering the level of cents per watt that is very attractive to the customer has to do with the availability of a next generation solution which is coming to fruition.

So, this is a case where we're going to be going into production with existing V-I Chips and then that production is going to over time migrate to a next generation solution that combines V-I Chips with Picor sets to deliver a level of cost effectiveness that is considerably more attractive and attractive enough to make a lot of sense in terms of cents per watt.

Now, going back to your question, we're certainly looking to make this a good precedent for other applications servicing their kind.

The logic that both this one company to the change or the undertaking is a logic in terms of efficiency and overall efficient cost, it's a logic that makes sense for other companies and we expect that over time these architectural changes will favor the kind of solutions we have to offer.

Are there other server companies that use 48 volts?

Are they almost all universally 12 volts?

There is the beginning of a trend in that direction.

The one we're involved with is going to be a very reasonable one, we believe.

Good.

You mentioned that you --

You may want to give somebody else an opportunity to ask a question and then come back?

Sorry.

Thank you very much.

I appreciate it.

Bye.

And your next question comes from the line of Don McKenna from DB McKenna.

Please proceed.

I wanted to ask about the Synqor as well and with this being tied up, I know you'd like to see it resolved but can you give me an idea of when this goes to before the courts and when you -- ?

It's currently scheduled to go to trial in Texas in the second half of 2014.

Okay.

So, we're talking at least two years before it's even reviewed?

We're talking that current schedule for the case to go to trial.

We expect that the Synqor patents will be in the trash can before then.

What's your best expectation as to when you might start seeing any kind of volume orders on that IBC?

Again, with certain customers the trial and litigation has not been a deterrent.

With the largest customer, it has been a deterrent.

That could change because of the compelling nature of our products.

So, fundamentally the dilemma has to do on the one hand the engineering community wanting our solution because it is enabling the level of performance that they're asked to deliver to their management while other parts of the Company that in effect may not be as keen on the technology facet but more focused on business considerations and the lingering legal threats being in effect deterred and wanting to take extra time to make decisions because of the threats.

This is something that I think again as we continue to make progress in the patent office with the Synqor patents being declared one by one invalid by a number of different examiners I think it's clear at this point, the writing is on the wall that the patent office has come to see these patents for what they are which is trash and as that happens, the market at large we think -- and as some of the players in the industry benefit from our solutions to deliver high performance products, we expect the market at large will come around to the solutions even though there may still be litigation going.

Is there the risk, Patrizio, that during this process that the potential customers get so frustrated that they design around the IBC altogether so that you wind up being out in the cold as well as Synqor?

Well, there's certainly that risk.

I think that's been a reality in some cases.

I've seen that happen with some customers who to your point said -- The hell with it.

I'm just not going to let my business be dependent on these kinds of potential issues.

On the other hand, as suggested a moment ago, with most customers, the engineering community has a say and the engineering community is saying we need the performance IBCs and in particular we need the much higher performance of Vicor's IBCs in order to get the job done.

So, at the end of the day I would think that the ability to get products out and the ability to get high performance product out should trump the legal concern because at the end of the day the companies should care about revenues and profitability and to extent they're dependent on having leading edge products and those leading edge products depend on having a power system that can keep up with the needs of the product.

That should drive the decision.

But up to a point, these inhibiting factors have been playing a role and certainly we've gotten severely damaged by that.

Jamie, could I ask you -- I kind of missed one of the early statements you had but I was trying to get some kind of a dating on that backlog?

If you could compartmentalize that a bit, can you age it for me by quarter?

When you went into this quarter, the 54, did you say -- ?

What we do is we talk about the specifics for the forward one quarter and then we give you the four quarter total.

yes.

Alright.

So, what was the forward quarter in December?

Backlog -- well, let me just read the sentence again.

Backlog scheduled for shipment in Q2 at the end of Q1 totaled $33.4 million and the corresponding figure for the prior quarter was $40.4 million.

Okay.

Alright.

Now, I also see on your home page you're talking the -- what was it?

Four to 12 days you can have a new system in your hands?

Are you getting a lot of response to that?

Well, it depends specifically on what's being requested, but yes, customers obviously want to receive what they can as quickly as they can.

We typically -- as you know we don't maintain a meaningful amount of finished goods inventory.

We build to order.

So, it is our objective to shorten lead times as much as we can but I think the fact that we're looking at the levels of bookings as we've discussed and the implied turn figure shows that we're still pretty much in the four to six weeks threshold for BBU.

Okay.

Thanks.

(Operator Instructions) Your next question comes from the line of Jim Bartlett from Bartlett Investors.

Please proceed.

Yes.

Given what you told us, does it now look like not really a pickup in the second half, this is more a 2013 event?

Which event are you referring to?

I assume a significant revenue rise.

In terms of an acceleration in revenue?

Certainly the softness within the last quarter has dampened our expectations with respect to a significant pickup in the second half.

So, maybe we are now more cautious because of recent history and given what's in the pipeline and the good deal of activity on a variety of fronts, these expectations could change, being around long enough to have seen these kinds of things happen.

Looking at it with a rearview mirror, what has happened over the last couple of quarters is something that makes me more cautious with respect to the year than I would've been or was six months ago.

And could you also give us an update on the PFM?

So, as I mentioned earlier, we have developed a new device using panel molded technology.

We are looking for this platform to manifest itself in two variants with different outputs and different flexibilities for different application environments.

In particular there will be one that will dovetail to Picor offerings that are forthcoming with their system in a package solution, that's been kind of along in parallel with the 48 volts solution which to your implied point made its first incarnation through the double chip PFM which we've been selling for some time.

But without a good deal of (inaudible), partly because a companion device and a package to in effect deliver a complete solution involving the PFM installed [FEM] has not yet been released.

Now, we expect that package to be released imminently, but perhaps more importantly I'm looking forward to the release of the panel molded counterparts of these devices because they will raise the bar with respect to power capability, efficiency, and most significantly, cost effectiveness.

When will that happen?

That's planned to happen in the second half of this year and how long with respect to that, we're on track to get that to happen as early as the early part of the third quarter.

Looking at 2013, if you had -- if you would have to rank the program through the most incremental revenue opportunity which contributes to 2013, I mean, you've got the VR12, the IBC, you've got the radar that you've mentioned, the impact of future Digi-Key and distribution and anything out of Picor, how would you rank those?

That's quite a combination.

Some of the things you listed have tens of millions of dollars per year worth of revenue attached to them.

Some are still in the very developing stages.

So, to be realistic, our global distribution strategy will take time to come to fruition.

But the numbers this year will be in the millions of dollars.

That's relatively few as a stepping to a considerably larger number next year.

So, that is not by itself going to make a significant difference to the top line for Vicor this year even though it's beginning to plant seeds that are going to bear fruit in 2013.

The Picor product line is extremely exciting but that too I would urge caution with respect to seeking immediate gratification.

Unfortunately that's not going to happen for some time.

With products, specifically package regulators beginning to get introduced this quarter and following through with additional products of this kind in the third and fourth quarter, we're looking at the usual designing cycle that is measured in a year or 18 months as opposed to what we'd like to have which will be a lot shorter but wouldn't be realistic.

But I expect that will become a tens of millions of dollars per year opportunity in some right and as suggested in the earlier remarks, a great opportunity for Vicor at large because it is a combinatorial play that plays well with the PFMs you asked about, particularly panel molded devices that are forthcoming in that it will provide an end to end solution.

It will provide the solution for customers seeking a power system that can operate from a universal AC input to supply a large multiplicity of outputs where the PFM will carry the system from the wall plug to a bus voltage from which Picor slips will take it all the way to the point of load.

These are very unique solutions.

They're highly differentiated.

They're way ahead of any competitive products from the likes of LinaTech, National TI, and others and I think are going to set us into a very unique position.

But unfortunately they aren't going to turn into instant revenue because of the national debates that are ongoing.

Right.

That's like 2014 or something?

No.

I think we're going to see something meaningful in 2013 and it will be more significant in 2014.

Again, some of it is going to be our contribution and this I expect will be high margin products from the word go.

High contribution in terms of bottom line and profitability of Picor.

And again, very significant opportunity in terms of the bundle sales capabilities that we have in terms of projecting a total solution capability.

Okay.

The impact of the VR12?

So, we are very excited about that.

This is a very recognizable name and as suggested earlier, one that should lead to others.

Also potentially very significant.

By the way, this play in servers that are more in effect down to earth of being Intel based is not a in exclusion of the play that we've had for years now in the IM market where we continue to see big opportunities with a major cast of event markets for next generation systems that are still going to be leveraging factorized power, taking it to the next level of performance, as well as with the Japanese companies also looking to deploy factorized power systems solutions in variant servers.

So, the server market whether it's high-end as it has been where we've played in the early government with the V-I Chip solutions or for internal servers which obviously these are a lot more leveraging in the short-term.

Again, the V-I Chip solution as a stepping stone to a V-I Chip Picor solution, these are all very exciting opportunities that are going to begin to make a significant contribution late this year and should lead to greater contributions in years to come.

And you have a follow-up question from the line of Don McKenna.

Please proceed.

I wanted to ask you when you talk about some of these as being temporary setbacks, if your three by five plan is still on target as you see it?

We are very confident with respect to the plan and its execution.

I think that we -- this may sound a little over the top, but I remember a comment once made by an analyst that was writing about us and wanted to write something disparaging about Vicor.

And this was a timeframe in which Apple was not doing all that well and they were not the success story they are today.

And the comment was along the line of Vicor is the Apple of the power system business in the sense that we were unusual, we were odd, we were different and at the time we were not doing all that well.

I would not be surprised if that fellow turned out to be right even though he didn't mean it that way.

We have tremendous opportunity and we think we are embarked on the right strategy to deliver it.

Okay.

If you're going down the road, do you ever try to evaluate whether or not -- because obviously you want this technology to get developed, to be deployed, if you see it from the standpoint of saying -- Gee whiz, we're just not a big enough outfit to really get this thing out there and deployed the way we would want to, would you look at partnering or selling on out the business or are you going to maintain your independence all the way?

Well, I learned a long time ago never say never, right?

We're old enough to understand that would be a foolish proposition.

But I can say unequivocally that first of all we are not seeing our size as being a limitation with respect to customers' engagements.

Small and more significantly large.

Two or three by five initially is we've been engaging with major corporations worldwide who see a value proposition with respect to our products, our technology, and our capabilities and want to partner with us as suppliers and in some cases in other ways but I see the greater return for shareholders coming out of playing out this opportunity for what it is worth which is a lot more than the current market cap.

Great.

Thank you.

And gentlemen, we have no more questions at this time.

Thank you.

Talk to you in the next quarter.

Ladies and gentlemen, that concludes today's conference.

Thank you for your participation.

You may now disconnect.

Have a great day.