Vicor Corp (VICR) 2013 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, 2013 conference call hosted by James Simms, CFO; and Dr. Patrizio Vinciarelli, CEO.

My name is Sheila and I'm your event coordinator.

During the presentation, your lines will remain on listen-only.

(Operator Instructions) I'd like to advise all parties this conference is being recorded for replay purposes.

And now I'd like to hand over to James.

Please go ahead.

Thank you, Sheila.

Good afternoon, everyone, and welcome to our conference call for the first-quarter ended March 31, 2013.

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

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

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

We have also filed a Form 8-K with the Securities and Exchange Commission 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 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 the call will be available beginning at midnight tonight through May 10, 2013.

The replay dial-in number is 888-286-8010, and the listener pass code is 44260860.

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.

I'll start this evening's call with a review of our financial performance for the first quarter, and Patrizio will follow with his comments; after which, we will take your questions.

As was the case last quarter, we have chosen not to present non-GAAP pro forma financials that would require a non-GAAP pro forma presentation in our filings and an associated reconciliation to our GAAP financials.

This is because we do not believe the fourth-quarter non-cash charges as described below will be recurring.

However, we do want to provide investors an apples-to-apples comparison of actual operating performance, and my comments today reflect this intent.

As set forth in this afternoon's press release, Vicor reported an after-tax loss for the first quarter of just under $5 million, representing a net loss of $0.12 per share.

First-quarter reported net loss in EPS are very close to the net loss of $4.8 million or $0.12 reported for the fourth quarter of 2012, but the prior loss reflected certain year-end charges for inventory reserves and goodwill impairment totaling, on a pretax basis, approximately $3.4 million; a gain of approximately $2 million associated with the settlement of insurance litigation; and a write-off of deferred tax assets associated with state-level activity of $1.5 million, which was reflected in our fourth-quarter provision for income taxes.

As such, the first quarter's loss was much more related to operational inefficiencies brought about by much lower production activity and fewer shipments during the period, rather than the non-cash accounting charges that impacted fourth-quarter results.

Vicor's consolidated revenue for the first quarter of 2013 declined 16.8% sequentially to approximately $42 million from the $50.4 million recorded for the fourth quarter of 2012.

The first-quarter figure compares to revenue of $59.7 million for the first quarter of 2012, representing a year-over-year quarterly decline of 29.7%.

The first quarter's revenue decline was expected, as we have stated in prior communications, given the prior quarter's sharp decline in bookings across all business units.

The Brick Business Unit, our largest, expressed a 12% sequential decline in revenue, while V-I Chip, which has much greater customer concentration, experienced a 49% sequential decline.

Turns revenue -- meaning those orders booked and shipped within the quarter -- increased to 47% for the first quarter, the highest level in recent memory.

But we believe this reflects an increase in urgent orders postponed by customers during the fourth quarter.

While, as stated, consolidated revenue declined 16.8%, our domestic shipments fell more than our international shipments on absolute basis and relative basis, reflecting pronounced uncertainty in important industrial transportation and defense electronics markets during the fourth quarter.

International revenue decreased 11.5% quarter-to-quarter, and represented 54.1% of total revenue -- an increase from 50.8% for the fourth quarter of 2012, and 53% for the first quarter of 2012.

Keep in mind, for financial reporting purposes, we segregate customers by the address to which we ship.

With the exception of Vicor Japan, all of our subsidiaries sell in US dollars, and all of our products -- again, with the exception of those manufactured by Vicor Japan -- are exported from the US.

As our customer base shifts to domestically-based OEMs that use offshore contract manufacturers, international bookings and shipments are increasing.

Because such OEM orders typically are much larger and vary in frequency, the ratio of international activity to total activity will bounce around, as it has over recent quarters.

However, as we implement our OEM strategy, over time, we expect the ratio of international bookings or shipments to increase, even though the actual purchase orders are placed domestically.

Asia-Pacific is the region with the most attractive growth, which is why we are investing in personnel and infrastructure in the region, particularly in China.

Revenue from Asia-Pacific rose sequentially, as robust growth in China and Hong Kong was offset by declines elsewhere, notably Taiwan, where the majority of the contract manufacturers supporting the OEM customers of V-I Chip are located.

When both Japan and India are included in the definition of Asia-Pacific, revenue increased approximately 7.5%.

European revenue declined 17% sequentially, but bright spots included Germany and Russia, which both showed growth in revenue and order flow.

Recognized sellthrough revenue for the quarter associated with shipments by our stocking distributors, Future Electronics and Digi-Key, fell by 5.3%, representing our first quarterly decline, but reflected the overall weak demand of the fourth quarter.

Recognized sellthrough revenue totaled $945,000 for the first quarter compared to $1 million for the fourth.

Consolidated bookings increased 24% sequentially, but declined 5.3% year-over-year, and remained below levels of the initial three quarters of 2012.

During the first quarter of 2013, we received several large OEM orders, primarily for V-I Chip solutions, that had been expected in the fourth quarter.

Domestic non-OEM bookings increased, but ordering activity continues to reflect the broad uncertainty in the US economy, which was illustrated by yesterday's very disappointing March Durable Goods Report.

International orders, including the large OEM orders that will be shipped to Asian contract manufacturers, grew at a far faster pace than domestic bookings, reflecting, in part, the early traction of our new Chinese distribution partner, NuPower, which has offices in Beijing, Nanjing, Shanghai, and Shenzhen, complementing our own expanded presence in Hong Kong and Shanghai.

A promising rebound in certain European countries, notably the UK and Germany, contributed to the improved bookings for the quarter.

Total backlog at the end of the first quarter was $37.9 million compared to $31.4 million at the end of the fourth quarter.

73% of this backlog is scheduled for shipment in the current quarter.

Reported consolidated gross margin was steady for the first quarter at 39.6% compared to 39.9% for the fourth quarter, although the last quarter's figure reflected a $1.4 million charge to cost of goods sold associated with increased inventory reserves for V-I Chip.

A more normalized gross margin would have been in the range of 42% for the fourth quarter.

The current gross margin is heavily influenced by capacity and utilization pressures, and not by pricing or mix considerations.

Consolidated operating expenses, as reported for the first quarter but excluding a $1.4 million charge for severance, declined $600,000, or sequentially, 2.5%.

This decline was driven by lower consumption of pre-production and prototype materials, reflecting the advanced stage of development of many of our new products; lower commissions, a result of lower revenue; and lower compensation, a result of the reduction in force.

A broad range of other operating expenses declined, including travel and advertising.

I should point out the decline in operating expenses would have been much greater, but for the accounting and legal fees associated with our annual audit -- that takes place during the end of the fourth quarter and into the first quarter -- and our recent tender offers.

We are focused on controlling our discretionary spending, and continuing our efforts to identify opportunities to improve efficiencies and lower costs.

Total headcount stood at 989 as of March 31, compared to 1046 as of December 31.

For the first quarter, our consolidated operating loss was $8.5 million compared to the prior quarter's operating loss of $4.3 million.

This quarter's figure included the aforementioned $1.4 million severance charge, while last quarter's figure included the $1.4 million inventory charge to cost of goods sold, the charge of approximately $2 million for the impairment of goodwill, and the offsetting $2 million gain from the settlement of insurance litigation.

For the first quarter, we recorded an income tax benefit of $3.5 million based on a potential net operating loss carryback for federal income tax purposes, and the recognition of the full federal research and development tax credit for 2012.

Because Congress had not renewed the research and development tax credit by year-end, we incurred over $500,000 in additional taxes for the year.

However, Congress did pass the American Taxpayer Relief Act on January 2nd, although, because it occurred in 2013, we are recognizing the entire 2012 credit in the first quarter, along with a portion of the 2013 credit.

Cash flow from operations for the first quarter was a deficit of $1.6 million, reflecting the $5 million net loss and the net -- excuse me, non-cash deferred tax benefit of $2.3 million, offset by depreciation of $2.5 million to $1.4 million severance accrued during the quarter, and a $1.5 million favorable swing in networking capital.

Capital expenditures for the quarter declined to $1.2 million from the prior quarter's $2.6 million, truly reflecting maintenance activity.

Based on our current production forecast, we do not anticipate increasing capital expenditures in the coming quarters beyond the recent range of maintenance expenditures.

Cash declined by $13.2 million for the quarter, primarily due to the completion of the tender offer we initiated in November of last year, the cost of which was $10.4 million.

We will be communicating tomorrow morning the final results of our more recent tender offer, which expired on Monday, April 22.

As we stated in our press release of April 23, Computershare Trust Company, the depositary for the tender, gave us a preliminary count of 1,344,585 shares that potentially could be purchased.

At a price of $5.00 per share, purchasing these shares would cost approximately $6.7 million, excluding fees and expenses.

Turning to the consolidated balance sheet, our receivables portfolio remains in excellent shape, with days sales steady at 49 days.

Consolidated inventories quarter-to-quarter were stable, with no additional reserves taken.

Analyzed inventory stood at [3.9], unchanged from the fourth quarter.

As of March 31, we had $71.4 million of cash and equivalents, down from the prior quarter's $84.6 million.

We also hold long-term investment securities carried at an estimated fair value of $6.6 million.

Included in this long-term total are auction rate securities with a par value of $6.1 million carried at a book value of $5.0 million, representing 82.5% of par.

After the quarter ended, we received another small redemption of $100,000 at par.

After the settlement of the tender offer tomorrow, we will have approximately $65 million of cash and equivalents.

That concludes my prepared remarks regarding our financials.

And now I'll turn the call over to Patrizio.

Thank you, Jamie.

As you might infer from my remarks in this afternoon press release, I am balancing a concern regarding our performance over the remaining quarters of 2013, with enthusiasm for the implementation of our OEM strategy, which is based on exciting new products that are either already being sampled or will be introduced later this year.

This strategy gives Vicor the opportunity to take meaningful market share in what appears may be an expanded low-growth environment.

Clearly, uncertainty continues to influence domestic demand for our products, particularly in our traditional markets.

The sequestration appears to have had the chilling effect beyond defense electronics, with broader demand across industrial, instrumentation and transportation segments yet to recover to a level of late 2011 or early 2012.

While fourth-quarter bookings appear to be an anomaly caused by the chaos in Washington, confirmed by the bounce back in the first quarter, I do not yet see indicators of a broad robust recovery of sustained demand.

While these are the direct relationship between cuts in Pentagon's budget, and reduce all this for our military grade products, these are less direct relationship between cuts in non-defense fellow spending, and state and municipal level spending, and reduce all this for our traditional commercial grade products.

For example, reduced current budgets and lower long-term commitments to the infrastructure affect demand for our transportation products that go into railway and construction applications.

Similarly, the cuts to research and development, whether via government research labs, university labs or funded product research, affect demand for products targeted at sophisticated instrumentation, which is the industry segment that remains US-based.

I could offer other examples in commercial aviation, robotics and medical equipment, and most notably supercomputers.

Given the pervasive impact of government spending on the US economy, I am concerned we may not see a recovery of our domestic business for several more quarters, or at least until Washington provides some evidence of a solution to the budget crisis.

Our decision to shift to an OEM strategy serving major manufacturers in networking and computing segments, among other activity new segments, is being validated by order flow and overall designing activity coming from those segments.

These OEMs are globally, and much of their demand is not US.

Although we have experienced delays in anticipated order flow, we are confident the considerable effort we made to implement this strategy will be paying off.

As Jamie stated, we received a number of seven-figure orders during the quarter that we have anticipated will be placed last year.

These were both for Intel-based server applications as well as for supercomputing platforms.

As Jamie indicated, the Asia-Pacific region is a primary focus for us, with new operations in Shanghai complementing our longest average presence in Hong Kong.

Interestingly, our momentum to date across the region, and notably in China, has been with our traditional brick modules.

I like this because Vicor has penetrated these markets with legacy products of high reliability and severe performance, taking share from numerous indigenous vendors of commodity products in industrial and transportation segments.

As we roll out our new solutions, our expanded infrastructure of sales personnel, field application engineers and distribution partners, should be able to accelerate this penetration, broadening it to include Chinese OEMs, as it is clear Vicor offers compelling differentiation in a highly commercialized marketplace.

Turning to these new solutions, Vicor received a positive reception at the March EPIC 2013 Conference, at which I delivered an address formally introducing our new packaging technology, ChiP, which is an anachronism for Converter housed in Package.

ChiP's technology enables small and large converter products with functionalities ranging from the PFM, AC/DC conversion with our factor correction, the DCM full AC/DC conversion; the BCM isolated bus conversion; and the VTM, point of load card multiplication.

ChiP technology presents the reception of our vision of power module packaging, which substantially lowers the manufacturing cost of our modules, well below the cost of first-generation V-I Chips.

Acknowledging that to be attractive to our volume OEM customers, we had to provide differentiated performance of the compelling cost per watt figure merit.

We spent upwards of three years perfecting this packaging concept.

And along the way, we find unique components, the (inaudible) performance of our conversion engines within ChiPs.

Our initiative is being acknowledged as a breakthrough means of allowing designers faster time-to-market for development of full power systems, and a power management solutions leveraging a power component building block methodology.

ChiPs offer unprecedented levels of performance in terms of power density and high efficiency, while providing a level of manufacturing cost effectiveness necessary for Vicor to succeed in cost-sensitive high-volume applications.

At this report, we have received our first purchase order for ChiP modules even before our first formal ChiP product introduction.

For those listeners interested in learning more about ChiPs, and our product offerings and roadmaps, please visit the website.

So on the one hand, I am cautious about the Company's performance in the near-term.

Based on booking trends and market visibility, I do not believe Vicor will be profitable in the second quarter, although I do expect improvement over first-quarter performance.

Based on expectations of requirements from servers, supercomputer and defense electronics projects, in which we are already involved, we could receive significant orders this quarter.

However, we also know that projects of this kind have been pushed out before, so it will not be unexpected to see further delays.

On the other hand, I am hopeful improvements in our results will accelerate as innovative new products are introduced later this year.

ChiP modules in combination with Vicor SIPS and Vicor system level products fulfill our commitment to provide the most technologically advanced solution for power management from the AC source to the point of load.

The market's reception of our new products in our near-term product roadmap has been encouraging, confirming our power component paradigm vision.

Although these products are early in their design and sale cycles, and their fate could be inhibited by prolonged economic uncertainties.

Nevertheless, I know Vicor is on the correct path to long-term success, as we have the technology, the product roadmap, and the vision necessary to serve the needs of our targeted customers.

We have redefined our go-to-market infrastructure, expanding our worldwide capabilities, and partnering with well-positioned distributors.

Unfortunately, we continue to face strong economic headwinds just as we are delivering on our new product commitments.

This concludes management's prepared remarks.

And we'll now take questions from listeners.

Operator?

(Operator Instructions) Ben Alexander.

For somebody looking at your Company for the first time, could you quantify in some fashion the opportunities that you see?

What type of operator performance you might be able to achieve looking, let's say, out to 2014?

What's going to drive that?

So what is going to drive long-term growth is the new power platforms that we've been talking about.

These new power platforms are from the likes of our Vicor subsidiary focusing on System-in-a-Package power management and power conversion solutions, and the likes of ChiP products from our V-I Chip division.

These are products which, in their own domains, advance the sale of DR to with respect to key converter attributes, including density, efficiency and overall performance, while at the same time, providing a level of cost effectiveness that our plastic products never achieved.

That either itself should lay a rational foundation for growth opportunity even in an adverse, relatively slow growth environment, as we might generally experience in the next several years.

Does that answer your question?

Well, it does, it is helpful, but I know it's -- the environment is uncertain and you're feeling the impact of US government reining in their spending and so forth.

But if we assume the environment is going to remain pretty much the same, very muddled through and with government cutbacks and things of that nature, what type of upside or long-term profitability do you think is possible or likely, looking out a longer-term, when your products might gain some traction in the marketplace?

Well, I think in general, I suggested in earlier conference calls and in our meetings, that we have high expectations.

Because with our products, we address very large market opportunity that is very thirsty for solutions with the requisite attributes of density, efficiency and cost effectiveness.

And we believe that making products with these attributes available into our marketplace will bring about the change from solutions that historically have been handicapped by a custom measure or custom developments, which are immediately not scalable, to the vision that we have been pursuing of a building block-based methodology, Lego blocks, if you will, for power systems.

So you can infer from that that the growth opportunity is very substantial.

Obviously, Vicor is very low penetrated in a very large market, that the market in and of itself is large enough not to present a practical limit with respect to growth.

Our ability to grow is going to be very much dependent on execution with respect to key objectives of achieving a complete portfolio of products that is critical, in terms of advancing complete solutions from the wall plug to the point of load, as well as delivering those products with the requisite cost effectiveness.

But with those elements in place, the growth opportunity is, I believe, very, very large.

But does the Company have in mind like an operating model?

And what I mean by that is --?

We do, but that's not one that we would want to quantify in detail here, and that could be -- risky, as you can imagine, for a number of reasons.

I think it's fair to say that we've had disappointments in recent years regarding earlier projections.

And disappointments were, to a large degree, brought about by events beyond our control, ranging from large cancellations of supercomputing products to severe cutbacks in the defense market.

And that's an indication of how precarious the operating environment is.

So stick your neck out with any kind of detailed prediction of topline and bottom-line performance into a time frame -- as you suggested, 2014 -- would be a very risky position that we are not prepared to take.

But the range of outcomes is obviously relatively wide.

And I believe, again, that there is a great deal off-site.

Thank you.

Jim Bartlett.

When you mention the potential significant orders in the second quarter, what area are those orders?

In some of the new markets that we have targeted, and about which we told you about in earlier conference calls, so, in computing and -- but actually supercomputing applications as well as communications applications.

But these aren't -- this is not related to the new ChiP product line?

Is that correct?

Because that's (multiple speakers) --

We expect to start shipping ChiP products later this year, and we already have a lot of designing activity for these products in the same end markets and other markets.

So, but not anything of significance in terms of bookings for ChiP products this quarter.

Even though I mentioned in our prepared remarks that we actually began to get some actual purchase orders for these products.

There's a lot of activity already because we've been -- even though there hasn't been a formal product announcement, we only had an introduction of the ChiP technology platform as a packaging platform at EPIC about a month ago.

We have been sharing with some key customers some of the product opportunities, and these got a bit of interest with respect to these products, and the kind of performance they're enabling in certain applications with OEMs in the targeted markets.

But the design in time on that is probably similar to past experiences like 12, 18 months, two years?

Yes.

There is no instant gratification with respect to OEM products of the kind we make.

So, I think, to your point, a reasonable expectation for the beginning of a significant contribution from ChiP products would be 2014.

In late 2014?

No, I think we are going to see some action starting at the end of 2013, but that in and of itself is not going to be -- assuming that it comes in without delays.

So which is always necessary caveats, right?

But even if it were to happen on time because the customer program is on target, it will not be all that substantial in 2013.

But as we get into 2014, there are other programs and more activity involving a variety of ChiPs.

And so the (inaudible) base gets to be more relevant, and I think it's reasonable to expect we are going to see significant contributions next year.

Likewise, there's been already some significant level of activity for fiber SIPS and some of these initiatives may turn into a contribution to topline in 2014.

When we are looking at 2013, could you just give us an update on what the opportunities are for revenue increases of -- one from Future and Digi-Key as the decline this quarter?

But how do you see that progressing?

And then add onto that your new distribution partner in China, as well as what's happening in the ITC space and given the Synqor suit.

And just give us an update on what's happening in that regard, giving their latest actions?

That's more than a mouthful, but let me take it in small parts.

So regarding your first question.

I think, again, without getting quantitative, we do expect progress through the balance of this year in terms of topline.

Regarding the bottom line, our bottom line is -- at least as now -- is so dependent on the topline given a fixed cost ratio that our ability to be profitable will very much depend on raising the revenue level to levels at least comparable to the levels of the earlier part of 2012.

There is an opportunity for that as this year comes to a close.

And we think there is an opportunity for considerably better than that as we get into 2014.

Regarding the second part of your question with respect to the (inaudible) connection with the Synqor litigation.

Synqor has been aggressively asserting its patents against the so-called artists and defendants in a first litigation in Texas, and aggressively asserting pretty much the same patents against us and Cisco in a second litigation also brought in Texas.

As you reference, Synqor is called a victory in terms of being able to have the fellow circuit uphold in a world of damages in the Attison case without changing any of the parameters of the other world.

They declared victory in their contest, and issued a press release including statements that are, from our perspective, falsely characterizing their monopoly of so-called IBA.

We believe that Synqor did not invent IBA.

Synqor is not entitled to any IBA patent.

And by that I mean the power distribution architecture that has become known as IBA.

All that Synqor did back in 1997 is to invent and lay claim to the ADC to the C converter.

And through a long saga, which has not yet come to an end, they managed posthumously to redefine that which they'd invented into something other than what it is.

And having done that, in the Patent Office, they were successful in asserting these bogus claims against defendants that, from our perspective, were very ill-prepared, and to put it bluntly, somewhat inept at defending themselves.

That will not be the case with us.

And in fact, so far, we have taken the initiative in the Patent Office with each and every Synqor patent.

And as of today, if this were a boxing match, it would be 5 to 0 against Synqor, in that each and every one of their patents has been found to be not valid.

All the claims asserted against us had been found by different examiners in the Patent Office as not having the requisite novelty to warrant patentable.

In fact, what has happened in that context is that it is Synqor that is now appealing the finding of the examiners, as opposed to what happened in the Attison case, where the Attison defendants were appealing a judgment against them.

So it is going to be up to Synqor to try and undo the invalidation of their patents, which has been taking place.

But beyond that, even if somehow these patents were to be found valid, they are not infringed by our products.

Because our products are fundamentally different from the products in the Attison case.

Any person looking at a distance at these products and comparing them with one another can tell that they're fundamentally different in terms of technology.

As Synqor has, in order to get their patents issued in the Patent Office, pursued this claimed that the class of converters that our products represent.

So there is a long list of reasons why, number one, the patents are invalid to begin with.

Number two, even if they were valid, did not apply against our products.

But that's not deferred Synqor, aggressive as they are, to make false claims, treating customers with litigation in order to carry on their crusade in order to collect the shakeout money from competitors and customers.

And we're patiently waiting to play all this out to its bitter end in the Patent Office and in the courts.

And what has happened to your IBC orders?

I know they were way down from what you expected.

And last I heard that it sounded like you should be getting some at a low level, but some increasing orders in 2013.

Is that still the case or not?

Synqor through their threats have, at least up to this point, succeeding in holding back the wave of interest that many customers had demonstrated for our products.

And we are obviously holding them accountable for that.

But I can say that we have made progress in spite of that, because sophisticated customers can tell that their clients are without a rational foundation, and are attracted to our products because of their superiority, their higher density, their efficiency, their cost effectiveness.

So in spite of all of the Synqor threats, we've been able to make progress and are continuing to make progress in that regard.

Thank you.

John Dillon.

Patrizio, first of all, thank you for that explanation of the lawsuit.

That was incredibly helpful for me to hear you explain that in the detail that you did.

Thank you.

My question is on bookings.

Bookings were up pretty substantially and that's great, but I am just wondering in this current environment, macro environment, are -- do you see that curve continuing to go up for bookings in the foreseeable future?

Well, I think acknowledging the headwinds and the applicability that comes with that, the short answer would be yes.

We do see progress as the year progresses -- again, subject to two potential upsets coming from the variety of France.

But the potential is that there is going to be bookings growth, sequential bookings growth, and sequential revenue growth as the year progresses.

Great.

(multiple speakers)

(multiple speakers) And then, hopefully, that will result in a change in the sign of the bottom line.

Great.

And with that, do you have any plans to bring back some of the workers that were furloughed?

Or have any been brought back?

None have been brought back, nor do we have a near-term plan to bring them back.

Pragmatically looking at these kinds of decisions, difficult as they are and agonizing as they are, because of all of the impact they have, it would be foolish to make such a decision in the first place with the intent of bringing people back in a near-time horizon.

We are practically, having taken that decision, looking at doing the utmost in order to improve our productivity, reduce our cost structure, so as to improve the level of profitability we are going to be able to sustain once the topline improves.

Okay.

And you've talked about the improvement in the communications market a number of times.

And I'm just wondering, can you give us a little bit more color on that?

Because it sounds like that's a bright spot for you, even though you still have some hurdles because of the lawsuit.

So, I think to some extent, we talked about this.

We had significant challenges brought about by Synqor's threats.

Those threats have recently been renewed, and that's -- and they're false claims particularly vis-a-vis our products.

It caused damage to us.

But again, the damage is, to some degree, limited by the field of products, and the fact that certain customers have learned how to deal with this kind of an issue, and find the products compelling enough to want to use them or design them into new applications.

So do you see consistent growth in that market going forward?

We see growth in the communications space.

And as I mentioned in past conference calls, we see growth in that space, not just for bus converters, but particularly for other Vicor products that have caught the attention of key OEMs in that space, once they became better aware of our technological capabilities, which was made evident by the superiority of our bus converters.

So as these casting for our calls, part of our strategic decision to enter the bus converter market with products that compete within the standard bricks, but do so with much more advanced technology, was not just to capture the market opportunity that was being created by Synqor's initial win against competitors, copycat competitors, but also significantly in order to make evident to key customers in that space that Vicor is uniquely equipped with much more advanced technology, which can be leveraged in realizing more advanced systems.

So more and more, we are making inroads with these customers -- not with IBA solutions; or it could be a bus (inaudible) solutions, but with other kinds of products ranging from point of load multipliers to AC to DC product opportunities.

Great, great.

Question for Jamie, a quick one for Jamie.

Don McKenna asked a very interesting question last conference call.

And it was basically attributed to you about some of the stock options that the guys have, the new sales guys that were brought on.

So, Jamie, I want to ask you a similar question.

The bulk of your stock options are at $12 to $13 a share.

What makes you hang around?

Because obviously, you're hanging around for more than the salary.

So can you give us a little insight as to what motivates you to hang around, and what you see is going to drive Vicor so you can profit from it?

Make sure you say that working for me, such a charming fellow.

(laughter)

I was going to point out Patrizio's smart charisma.

Look, I think we have a tremendous opportunity here.

I'm not going to deny the certain level of disappointment that I share with the investors on this call.

But I think, to turn your question sort of inside out, I think you should take some degree of comfort that we do retain the employees, the leaders of the Company, because we all have a shared vision with Patrizio that this is a tremendous opportunity.

Now, I've said before that when I arrived here five years ago, more than a few of the problems that we were facing were of our own design.

Whereas, five years later, we are executing on what we can do internally.

What we've had happen is we've run into the much discussed macro issues.

We've run into the challenges of transitioning our model, and we've run into the litigation, which inhibited progress in a very promising market.

So I think that to the extent that you look to why I stick around, I think it's very clear that it's because of the long-term opportunity to really redefine, as Patrizio calls it, the power paradigm.

Great.

Thank you very much, guys.

Thank you.

So Jamie is going to stick around long after I am gone.

(laughter) I hope so.

Thank you both.

Any other questions?

Yes.

The next question comes from the line of Alan Hicks.

Please go ahead.

You're live in the call.

I had a question about the supercomputing market.

I know you were a strong player there in the past.

What -- how does that look for you in the -- I imagine it's going to be lumpy, but do you have big opportunities like you've had in the past there?

Yes, we do.

And I think what's happening with respect to that is that new opportunities are coming about from new major players in that market.

So, as you might know, initial penetration was very much focused on one major player, another larger.

And I think of late, we've seen significant progress elsewhere.

And this is really driven by the compelling nature of our solutions, that the fact that more and more in that space, given competitive challenges, key OEMs are driven to want to leverage the best of power technology in order to make their products more competitive.

So this is a case where the current difficult environment is catalyzing a new top process on several fronts, including with companies that historically were really changed to a commoditized power methodology.

So they are thinking out of the box.

They see that there is a valid position.

I've been recently on trips that have been very encouraging in terms of new opportunities.

Okay, so you'd say you have a lot of new opportunities, but it just hasn't come together yet?

Well, I think these are new designing activities, so the same comments apply as earlier made with respect to time to fruition.

I think that the first one of these opportunities will probably be a 2014 event.

And also on the new packaging technology, has that begun to ship already?

We sampled it to a number of customers, but there's been no production shipments yet.

There's been no formal product introduction yet.

But I suggested earlier a number of these new opportunities have to do with ChiP products.

Okay.

So that's more second-half of the year?

Well, the first one that's scheduled to go into production is in the second half of the year, with more opportunities, more designing activity in 2014.

Okay, thank you very much.

Thank you.

John Dillon.

Just a quick one, guys.

Patrizio, with the new packaging technology, do you guys truly have a cost card that's competitive with other power supply technologies?

And then on top of that, do you have all your benefits on top of it?

Yes, so it's a game changer in terms of the cost effectiveness of the platform.

It's also a game changer with respect to scalability.

And what I mean by that is that unlike our first generation V-I Chips made into the cavities, so that in effect, a new power line would require a new cavity and significant tooling to support that new parallel line.

The soul of the power-molded technology platform, which we have marketed and branded as ChiP technology, is that it's really highly scalable.

Because what is fundamentally manufactured is not a device but an array of devices.

And so throughout the manufacturing process, what is being made is not in effect a single chip, but an array of chips.

Their chip can comprise anywhere from relatively few to as many as approximately 100 of them in one panel.

So this is for power and power components what, if you will, a wafer methodology is for silicon chips, in that -- as with wafers, you can have, in effect, a general platform, silicon platform, that within a certain wafer geometry, depending on the chip size, can provide a larger or smaller number of devices.

And that's highly scalable in that you can, without significant incremental tooling costs, accommodate application requirements for larger or smaller chips.

Well, that same methodology applies with our ChiP as in capital C, H, i, capital P technology.

We have a senior level of scalability.

So this brings about again a cost effectiveness because nothing goes to waste.

Unlike the case for first generation V-I Chips were quite -- a big deal of the costs were in effect sank in terms of materials due to inefficiencies in the panel, and the equipment measure of that process for each type of V-I chip.

With ChiPs, much more scalable, nothing goes to waste.

We can rapidly scale up or scale down as need be our engines within this package to address power requirements, ranging from less than 100 watts or even less than that, all the way up to several kilowatts in relatively large chips.

So it's a technology platform with legs.

Once again, it's going to take time, but -- and obviously, there's been a lot of time already invested in this.

We have a very strong IP foundation for this technology.

We have basically a very significant long-term expectations for its contribution to the top and bottom line.

That sounds great.

Thanks.

Looking forward to the next conference call.

And with that, if there are no other calls, we look forward to talking to you again in a few months.

Thanks very much.

Have a good night.

Thank you.

So, ladies and gentlemen, that now concludes your conference call for today.

You may now disconnect.

Thank you for joining, and enjoy the rest of your day.