Vicor Corp (VICR) 2014 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, 2014 call.

My name is Sarah and I will be your operator for today.

At this time all participants are in listen-only mode and later we will conduct a question-and-answer session.

(Operator Instructions).

I'd now like to turn the conference over to Dr. Patrizio Vinciarelli, CEO and James Simms, CFO.

Please proceed.

Thank you, sir.

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

I am Jamie Simms, CFO and with me here in Andover are Patrizio Vinciarelli, our CEO 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, www.vicorpower.com.

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

I remind listeners the 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 statements made during this calling 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 7. The repay dial-in number is 888-286-8010 and the listener passcode will be 30401713.

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

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

Since it is less than six weeks ago that we last spoke with investors addressing Q4 and full-year 2013 results this evening's discussion will be something of an update on those remarks.

As set forth in this afternoon's press release Vicor reported a net loss for the first quarter of just under $5.4 million representing a net loss of $0.14 a share on revenue of $53.2 million.

For the fourth quarter of 2013 we reported a net loss of $13.1 million, or $0.34 a share, on revenue of $55.3 million.

For the first quarter of 2013 a year ago we reported a net loss of just under $5 million, or $0.12 a share on revenue of just under $42 million.

In calculating Q1 EPS we used total basic shares of 38.541 million, very close to the 38.539 million total basic shares used to calculate Q4 EPS.

We used 41.167 million total basic shares to calculate EPS for Q1 2013 reflecting the higher share count prior to the completion of our two tender offers during Q2 2013.

While we do not report non-GAAP results I remind listeners the reported results for the fourth quarter of 2013 included a non-cash increase in our provision for income tax of approximately $10.2 million representing a full reserve against our net deferred tax assets, which increased our reported Q4 loss per share by a proximately $0.26.

As such our first-quarter loss per share of $0.14 is more appropriately compared to a pro forma loss per share for the fourth quarter of approximately $0.08 cents.

Legal fees were again a major contributor to our quarterly loss.

We also suffered from the anticipated decline in VI Chip shipments associated with the transition by our major customer in the data center space to its next-generation motherboard.

Consolidated revenue for Q1 2014 declined 3.7% sequentially reflecting a 30% decline in VI Chip shipments.

However, we are encouraged by the recovery of shipments for the Brick business unit, which increased 3.3% off of a substantially larger base.

The VBU saw improvement in North American volumes both the modules and custom solutions.

Q1 2014 revenue of $53.2 million was 27% higher than revenue for the same quarter last year.

VBU quarterly revenue increased 14.3% year-over-year while VI Chip revenue almost doubled year-over-year while we are also pleased that recognized quarterly distribution revenue increased over 24% sequentially.

As anticipated, given recent booking trends, turns volume increased rising to just under 37% of total shipments for the quarter.

International revenue declined to just under 61% of total revenue down from a record level of 64% reflecting a broad range of circumstances.

Notably, VI Chip shipped lower volumes to Asian contract manufacturers working on behalf of our data center customer while Vicor Japan also experienced an unexpected reversal in trend with a 30% decline in the dollar value of shipments, in part a result of lower unit volumes and in part a result of the impact of the market rise in the relative value of the dollar to the yen during the fourth quarter.

These revenue declines were offset by growth in developing markets.

European shipments were mixed reflecting continued uncertainty across Europe and adjustments we have made to our distribution partnerships.

Consolidated gross profit margin was essentially unchanged sequentially ending at 42.8% compared to 42.4% for the fourth quarter.

Consolidated gross profit margin of 39.6% for Q1 -- excuse me -- 39.6% for Q1 of 2013.

While recent variability in our quarterly consolidated gross profit margin has been attributable to VI Chip volume variances, the impact on margin from VI Chip's volume decline was offset by improvement in the VBU's margins driven by higher volumes, better mix and lower manufacturing variances.

Consolidated operating expenses rose 4.3% sequentially but when legal fees are excluded from both quarters expenses, such expenses actually fell 1.5% sequentially.

General administrative expenses declined 4.5% sequentially when legal fees are excluded even though we recorded approximately $250,000 of Q1 expenses associated with our annual financial audit.

Marketing and sales expenses increased 5.3% sequentially largely due to higher headcount, higher commissions paid due to shifts in mix and the higher recruiting expenses.

Research and development expenses were flat quarter to quarter.

Total headcount stood at 1,009 as of March 31, up from 1,002 as of December 31, 2013.

At the end of the first quarter of 2013 a year ago total headcount was 989.

Turning to new orders, first-quarter bookings reflected first-quarter shipments in that the expected temporary decline in VI Chip bookings was more than offset by robust rebound in VBU order volume.

VBU order flow increased over 17% with our legacy module business up over 21% sequentially.

Increased activity in other areas offset the decline in the dollar value of Japanese orders.

Booking patterns in April for the VBU continue to follow recent trends.

Q1 VI Chip bookings declined more than anticipated, falling 43% but expected new orders for the production runs of the current generation of Sandy Bridge 48 volt processor solutions began coming in just last week in addition to a first significant production order for our next-generation solution.

We now expect to receive additional order flow for the VTM- and PRM-based solution to satisfy production requirements into the third quarter overlapping with a production ramp of the chip VTM and SiP PRM system for new Haswell-based motherboards, which we expect to begin shipping later this quarter.

Vicor continues to gain momentum with its expanding line of Cool-Power SiP point-of-load regulators with design activity leading to encouraging sizable orders.

These early orders have been for SiPs in standalone applications but we are actively expanding our cross-selling efforts with solutions incorporating our ChiP current multipliers similar to the solution we will be shipping to our data center customers starting in a few months.

During the coming months look for Vicor to introduce several new products including an expansion of its ZVS Buck line to include 48 volt input models thereby broadening the range of applications served.

To conclude on order activity, total one-year backlog stood at $41.6 million at the end of Q1, down 7% sequentially with 76% of this backlog scheduled for shipment during current quarter.

Cash flow from operations for Q1 fell to a deficit of $4.5 million largely due to the quarter's net loss.

Capital expenditures for the quarter declined to $1.6 million as much of the additional investment for the expansion of our ChiP production capabilities has yet to be incurred.

As stated last quarter we have refined our budgets for 2014 expansion and currently expect the actual dollar investment for the year will be lower than originally expected, in the range of $4 million.

We have been successful in repurposing existing resources to meet expected 2014 ChiP capacity means.

Turning to our consolidated balance sheet, our receivables portfolio remains in excellent shape although day sales uncharacteristically increased to 50 days at quarter end.

However, a substantial dollar volume of past-due accounts were collected after the quarter close and our DSOs have now fallen back to their usual quarterly level.

Consolidated inventories quarter to quarter were essentially unchanged with an annualized turnover climbing slightly to 4.2 times representing a new high.

There was no meaningful change to our reserves.

Cash and equivalents stood at $50.3 million at the end of quarter down from $56.3 million at yearend.

This figure excludes investment securities for the par value of $6 million carried on our balance sheet at an estimated fair value of $4.9 million representing roughly 81% of the par value.

Turning to expectations for the second quarter, we expect bookings will end the second quarter ahead of the first quarter assuming the recent trend for the VBU and the receipt of additional bookings for VI Chip's first-generation data center solution, which as I stated earlier, have started to arrive.

Keep in mind the lead times for VI Chip orders are currently running 12 weeks, which would imply that any new orders received would be shipped in Q3.

We are targeting Q2 revenue of approximately $52 million, which would be sequentially lightly lower reflecting the Q1 gap in the VI Chip order flow.

While VBU revenue is expected to increase based on backlog and assumed turns, we expect VI Chip revenue to experience a temporary further decline from the Q1 level.

Accordingly we expect reduced efficiencies in overhead absorption in VI Chip which will likely be offset by any improvement in VBU results contributing to a Q2 quarterly loss.

As I stated last quarter any improvement in our operating performance will likely be offset by legal fees for the foreseeable future.

Now I will turn the call over to Patrizio.

Thank you, Jamie.

As Jamie stated Q1 was characterized by an improvement in VBU's performance offset by a temporary setback in VI Chip sales to a large data center customer.

We expect a decline in shipments and orders for the first generation of our VF-12 VI Chip solution given Q4 bookings and forecasts from our customer.

And we are communicating this expectation to investors.

However, we did not anticipate deferral of significant volumes in anticipation of accelerated deployment of next-generation VR 12.5 motherboards using a next-generation ChiP, SiP system solution with the consequence being a weaker second-quarter forecast.

This issue highlights the need to further diversify our VI Chip customer base which is a strategic priority supported by new product introductions.

We are leading the way with a highly differentiated approach to power distribution, power conversion and power management with our ChiP and SiP platforms which provide a compelling value proposition to an expanding needs of major customers.

While Q2 looks to be behind plan, Q3 is shaping up to be a busy quarter with an expected pickup in shipments of first-generation VI Chips and the provisional ramp of next-generation ChiP DPMs and CPRMs for VR 12.5 systems, which recently got underway.

This would be the first wave of revenue growth based on expanding product portfolio of ChiPs and SiPs thus setting new standards for power system performance and cost effectiveness in processor and memory applications among others.

I am pleased to report that the new product platforms, packaging technology and application-specific integrated circuits in which we have invested considerably, are now supporting international exciting new products and opening new market opportunities at an accelerating pace.

I am also pleased to report that we are bringing to fruition new Chip-inside Brick and power system product platforms with new products which will soon start to refresh the classic portfolio of our Brick business unit and revitalize the growth opportunity of our power systems business.

I will now provide a short update on our patent litigation.

Earlier this month the patent trial and appeals board of US Standard and Trademark Office reversed an appeal by SynQor, the decision of a patent office examiner who had rejected all claims of one of SynQor's patents as invalid.

We will appeal this reversal to the Court of Appeals for the Federal Circuit.

As we reported in the news, on March 31 the Federal Circuit Court in the Eastern District of Texas ruled on a motion by Cisco Systems, our co-defendant, to sever our litigation into two separate cases to be tried sequentially.

Cisco has taken the position opposed by plaintiff SynQor that its case against Cisco and Vicor should be severed to prevent the prejudice and jury confusion that we sought from Cisco and Vicor having to defend the different and complex cases together, which have been part of SynQor's game plan.

The court agreed with Cisco and this established two new cases.

We are pleased with the court's decision as it will provide Vicor with the opportunity to unequivocally prove that our products do not infringe.

To assert lost profit claims against other defendants, SynQor has refused to publicly admit that Vicor Bus converters do not infringe even though SynQor has known all along that the high-frequency high-density Bus converters are fundamentally different from and far superior to SynQor's Bus converters which are limited by switching losses to much lower operating frequency with inferior bandwidth density and efficiency.

We are pleased that the court has ruled against SynQor on a number of key issues.

Having our case severed from Cisco as we set our trial date from July to later this year and our current expectation is that our case against SynQor will go to trial in October.

This concludes my prepared remarks and Jamie and I will now take your questions.

(Operator Instructions).

Dino Diana, Manatuck Hill.

Hi there.

Can you talk about the VI Chip opportunity in the data center?

Namely, I think in the past you've spoken about the opportunity within the processor segment and then on the last call you mentioned that the new addition will give you the opportunity to penetrate the memory rails opportunity.

Is there any way to just flesh it out a little bit, size it, give us the potential of what that can ultimately get to?

Yes, to give you an appreciation of the ChiPs and SiPs that provide significant opportunities, it may be good to introduce some nomenclature.

As part of our scalable packaging platform we define ChiPs by their metric sizes.

So to set things in perspective, our next-generation solution for processor applications is based on what we call a 1323 ChiP, which is a device which is 13 millimeter in one dimension and 20 millimeter as a complementary dimension.

These devices are very thin.

They are only 5 or 6 millimeter (inaudible).

So that being the solution for processor application we recently come up with a ChiP which is essentially half the size of the 1323, it's called an 0623.

So it is the same length but approximately half the width, which implies that we get twice as many per panel.

So instead of getting about 40 per panel we get about 80 per panel.

And this is sized for memory applications where the typical node is not as significant as it is for processor application.

So the typical processor application might draw a steady-state current of 90 amperes with peaks of 180 amps.

And the 1323 is sized to provide the kind of current capability but from a safety perspective in terms of Bus requirements, that is one of our key advantages.

In memory sockets the current requirements typically are considerably lower.

And hence there is an opportunity for a ChiP of smaller dimensions, same level of efficiency performance, same level of density performance but a considerably reduced cost was, the cost scaling pretty much in proportion to ChiP size.

So as to enable calling more of the customer requirements within the motherboard.

So this, obviously has recently been sampled to customers and we are looking to as the year progresses begin to expand our footprint beyond processor sockets.

Okay, and so if we assume a Google or Amazon designs a server for a manufacturer to build and you are designed in, let's say, what kind of Vicor content would there be in the processor side of the house and then maybe what would that look like on the memory side?

I don't know if there is an ASP you can give or some kind of color around -- just basically trying to understand how big this opportunity can be if you start to gain traction in a big way there.

So the opportunity is already quite significant as implied by earlier comments we made in this call and earlier calls.

The addition of memory would roughly speaking double the business opportunity in terms of the value proposition per motherboard.

So as you can imagine in the motherboard there is more than one processor and quite a bit of memory.

So the value proposition is to share it with being able to expand from just addressing the processor requirements to being able to address processor memory is quite substantial.

It is part of a grand strategy that we have been focused on for quite some time.

This strategy is to enable a complete solution direct from 48 to the point-of-load that does not stop at the memory circuit.

So as suggested in the early remarks by Jamie, as you heard, these upcoming prior releases by Picor that are aimed at enabling direct solutions 48 to auxiliary rails at lower power levels.

These are going to be extremely cost-effective, single stage converter solutions.

We are also within VI Chip planning new devices that are going to continue to scale down the current and power capability even below the level of 0623 that I referenced earlier.

We have a new device roughly half that size which is in the works.

So with an extension of the ChiP VTMs which are the point-of-load current multipliers, an expansion of the prior metrics of Picor buck-boost and ZVS regulators that provide in effect the regulation function of signaling the current multiplier.

And with the ability of an increasing portfolio of direct 48 to point-of-load regulators, we aim to cover all of the rails of a typical motherboard.

Okay, one more question before I jump in -- I'll jump in the queue.

You mentioned HP and Amazon were mentioned in your last call as data center partners.

Can you talk about what that means?

Are they customer success stories today or are they just testing and evaluating the products?

I'm not going to comment with respect to specific customers applications and opportunities because we respect the confidentiality of what our customers do with us.

Okay.

Can you just say what a say what a data center partner means?

I think those words are pretty self explanatory.

To the extent that we are at liberty to disclose some of this information as reflected in your comment, I think those words speak for themselves.

Okay.

Thank you.

Jim Bartlett, Bartlett Investors.

Yes, could you give me a better understanding of what's going on on the VI Chip side?

You said that that business would be ramping up in the third quarter.

How long can that part of the business show increases?

Well, so there are two components to that.

One component can relate to data center applications where we then allow having to do with the crossover to the next-generation platforms which has caused careful monitoring of inventory levels and a temporary lull in activity.

Since earlier on there have been concerned with respect to capacity so the customer is in effect buffered through extra inventory their potential demands and eventual concerns with respect for capacity.

But to your point there is an opportunity that over time will give way to our next-generation chipset used in ChiPs and Vicor SiPs as more advanced and more cost-effective higher performance higher-margin for us alternatives to the older solution.

But going back to what we called the classic VI Chips of first-generation products, we have been seating many customers in many applications in diverse markets for many years, as you know, and some of these designing activities like the [mesh], including some that are defense applications, they have a very long gestation.

Some of them are coming to fruition in the next year.

There are some that are very very substantial in terms of revenues and particularly profits in terms of margin for us.

So we don't expect the VI Chip part of the business, the classic VI Chip or first-generation VI Chip product to fade away just like the classic Bricks after 30 years have faded away.

We expect them to continue to grow but we expect to be able to layer on with the ChiPs and SiPs much faster growth opportunities because of their intrinsic better value proposition and better (inaudible).

So that's where a lot of the action is focused.

That's were obviously all the new product development activity is focused, that's where new product interactions is recently announced and soon to be announced in the next month and as months progress through the year.

That's where ChiPs and SiPs is where most of the action is going to be.

I realize that.

I was just wondering when you might see an inflection point of the old VI Chips when that starts to turn down, is that a --?

It's not going to turn down again because we have customers with designs that were secured literally two years ago that are only going into production in 2015.

And some of these are very large opportunities, so we are continuing to sell classic VI Chips.

There is an expanding market opportunity for them with our distribution partners.

We are seeing new applications but we're going to be laying on ChiP and SiP opportunities because in general terms they deliver considerably more performance and efficiency with a cost fracture that nearly cuts the cost in half.

Great.

Thank you.

John Dillon, D&B Capital.

Hi, Patrizio.

I'm wondering if you could give us a little bit more information on the booking that came in last week and in particular what that means to Q3 revenue.

For example, will we see a spike up in Q3 revenue as a result of the production orders from the data centers that are coming in?

So we are expecting a ramp to take place with respect to the ChiP, SiP set that I referenced earlier, was a 1323 ChiP.

The 1323 VTM and I think it's a 1014 SiP.

We see the first substantial order last week.

We expect additional orders to come in as this quarter progresses.

The customer is highly motivated to drive a fast ramp because of the combination of economies that this new solution brings about.

And so that is part of the combination of factors leading us to expect considerable improvement in the second half of the year.

If we look at it from a bookings perspective we expect bookings this quarter to be ahead of last quarter and we expect bookings in the third quarter to ramp further.

And we are looking over the next four quarters at a pretty significant step up.

We are particularly focused on VI Chip and Picor systems.

So Picor in particular will enjoy a significant step up due to their contribution to the next-generation solution, which will have a pretty dramatic impact on the revenue level.

Do you think we will start seeing a spike up in revenue on the third quarter then?

Well, I don't know what you mean by a spike up.

I think we are going to see a progression and let's wait and see how it shapes up so that we can quantify it with calm expectations.

I think all that I can tell you at this point is that we expect to see a positive progression coming from a variety of different applications.

Okay.

And you said you haven't had a substantial booking.

And I had the same question for you that you asked of me, what does substantial mean?

50,000 sets.

50,000, I'm sorry, ChiPs?

Is that would you say?

50,000 chipsets.

Wow, okay.

That is substantial.

Okay.

I've been following you a long time, Patrizio, and I don't think I've ever seen Vicor in a better strategic position.

I'm wondering if you can comment on that?

What I have seen before is you've always had the size, you've always had performance, but you haven't necessarily had the cost card for a broader market.

Now I think you've got is you've got the size, you've got the performance, but you've also got a cost card for a much broader market.

Can you kind of validate that?

Am I thinking along the right lines here and will this lead to an inflection point in revenue soon?

Can you give me a little help on that?

So I would say that we always had the vision, we always had a clear understanding of what needed to be done.

Doing it is a different story and particularly for a company whose business model is so innovation focused, as it is for us.

As we all know, innovation has its pitfalls in terms of longer gestation periods as a significant investment.

So to quantify the level of investment that we made from a financial perspective we have invested about $0.25 billion at this point in our next-generation capabilities and I am referring to generally speaking, the VI Chip and Picor product capabilities.

So financially that is obviously very significant investment for a company whose revenue levels historically have hit a ceiling of around $250 million.

We are looking to accomplish over the next several years is to break and bust through this historical ceiling.

And to your point this is going to be enabled by a cost card that we never incurred before.

So we all have to recognize that having a much better mousetrap in the marketplace gets you into the door but it doesn't get you designed in because most customers are very cost sensitive.

And the fact that they want better performance, they want ideally the lower cost, or at least at a competitive cost.

And historically we haven't been able to accomplish that to the degree that is necessary.

With the scalability of our ChiP platform and the companion development by Picor of SiP regulators, we are for the first time a cost card that makes a very compelling proposition to customers who can enjoy significantly high efficiency which translates into reduced costs for data centers, which is obviously a very hot topic while at the same time also make it from the perspective of the cost of the bars or the cost of the power system, very competitive even attractive.

So we fully expect that this is going to enable us to bust through bust ceilings in terms of revenues.

And with that we expect to see a significant return on investment, on our consumer investment, in our technology platform and investment simply on a cost slash that is to a high degree fixed.

We have infrastructure which is relatively expensive at the $200 million, $250 million per year run rate.

It would be a lot less expensive roughly speaking as we get the Bus to these levels.

Sounds good.

And before you talked about I think a 3 by 5 plan, triple the size of the Company in five years.

Is that right and is that -- are we there now?

Are we really there that we can expect that?

We are very focused on that.

I think the whole Company is aligned to achieve those goals.

We obviously made the investment in the front end of the business device wise to enable it.

Now that from a product, the portfolio and scalability of power components we have the wherewithal to deliver it.

So to your point we think we are at a unique time where everything is coming together to enable the delivery of some significant financial performance.

Okay, great.

Congratulations on the increase in the VBU and also the data center bookings.

Thank you very much, Patrizio.

Jim Bartlett, Bartlett Investors.

Could you just expand a little bit more on the splitting of the exploding of the cases and two rulings they made, how this is positive for you and exactly what is going to be decided in the October case?

So as mentioned earlier, on a motion of our co-defendant, Cisco, the court recently, just a couple of weeks ago ruled that the case is, or case should be severed into two cases.

As suggested earlier Cisco and Vicor view this as a very positive development in that it will enable us to avoid falling prey to the kind of game that SynQor as you saw they played in terms of overwhelming their opponents by among other things relying on their inability to defend themselves by not having adequate time to share of time in the courtroom to present their case.

So we think this is a very useful development.

And we are very focused on having our days in court later this year and prevailing on products that clearly do not infringe.

And until then the legal expenses will continue at the high rate that they have been during this last quarter?

Well, until then, and then means very likely October, the legal expenses will be whatever they need to be to ensure that we don't fall by the same sword that affected the earlier defendants.

Could you also just, you introduced this new chip-based BCMs and could you talk a little bit -- this is what you introduced in April -- a little bit more of when you might see traction in that product?

So I think you are referencing a device that was introduced within the last couple of weeks, which is what we will collect 6123, or 61 millimeter long, 23 millimeter wide device, which we get nine per panel.

This device is rated at 1750 watts, has a power density of over 2 kilowatts per cubic inch.

Just to set things in perspective the density is about 7 or 8 times greater than any competitive product.

So we are talking not marginal improvements, we're talking about something that is essentially not (inaudible) and greater density, it is (inaudible) an efficiency of approximately 98%, which means only 2% of the power delivered gets lost within the device, or seep.

It has great bandwidth, very low noise.

It's a great performer in every respect.

It's got a very low cost structure.

It supports advanced solutions.

We have a number of customers that are very interested in this device as part of a general trend to 48-volt systems which obviously play important role with respect to our point-of-load PRM VTM solutions.

In terms of getting traction on revenue from this device, is this a possibly a fourth-quarter event?

For that ChiP I would think it is falling sometime next year.

When do you think you will start getting traction on some of the products which you will be introducing to reinvigorate the VBU?

So there is going to be product introductions starting in one month and then there is going to be additional product introductions shortly thereafter.

We have a new very scalable platform that is very cost effective.

It's Chip-inside.

It provides a combination of great functionality including advanced thermal management, filtering transient protection within a package that is very easy to deploy, very scalable in terms of accommodating ChiPs of different sizes, short and long, it will accommodate it.

To begin with devices small as a 22, 23 all the way up to a 9323 with the power capabilities starting at the low end and a few hundred watts, a couple of hundred watts all the way up to a couple of kilowatts and more over time.

We think that this power component and power system capability represents an opportunity that is greater in magnitude than the opportunity that the Brick represented back in the 1980s because of a variety of key attributes not the least of which in answer to the earlier question, cost effectiveness.

In other words with this new packaging technology and Chip-inside methodology we are going to be able to provide complete front-end solutions that measured in terms of cents to watt are going to be extremely cost-effective while sporting fantastic efficiency and density performance.

So I expect this over time to take our Brick and power system business in its own right to a significant new levels of revenues and profitability.

It is more than a defensive strategy.

It's a very offensive strategy in terms of advancing new kinds of market opportunities that historically our Brick business unit and power system business could not address because the cost card was not nearly good enough.

Is this something we could see the impact of starting in the first half of 2015, or would it be later than that?

Well, my expectation is that because of the nature of this products being primarily front-end products, (inaudible) type of products, their time to market and time to revenue is considerably shorter than the kind of longer gestation designing such as the data center or earlier generation high-end server type of applications, which basically involved several years worth of designing gestation.

With front-end systems there can be applications that go from sampling to initial production in as little as six or nine months.

So we're going to have significantly new product introductions based on this power system capability starting in the June timeframe and progressing through the second half of this year.

And so I would expect the base of six to nine months the gestation period some initial contribution in the first half of the 2015.

And could you talk a little bit about the gestation period for another data center customer?

There is activity in the works.

I'm not going to make any forecasts with respect to dates but I think it is safe to say that what's good for some is generally good for others and they recognize that.

Thank you.

All right.

There are no further questions in queue.

Thanks very much.

We will be talking to you in two months.

Ladies and gentlemen, that concludes today's conference.

Thank you for your participation.

You may now disconnect and have a great day.