Vicor Corp (VICR) 2016 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Vicor earnings results for the third quarter ended September 30, 2016, hosted by Dr. Patrizio Vinciarelli and Jamie Simms. My name is Steve, and I am your event manager. (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 Jamie.

Thank you, Steve. Good afternoon and welcome to Vicor Corporation's conference call for the third quarter ended September 30, 2016.

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

Today we issued a press release summarizing our financial results for the third quarter ended September 30. This press release is available on the Investor Relations page of our website, www.vicorpower.com. We also have filed a Form 8-K with the Securities and Exchange Commission in association with issuing this press release.

I remind listeners this 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 the Form 10-K we filed with the SEC on March 8, 2016.

Please note the information provided during this conference call is accurate only as of today, Tuesday, October 25, 2016. Vicor undertakes no obligation to update any statements made during this call, and you should not rely upon such statements after the conclusion of this call. A replay will be available beginning at midnight tonight through November 9, 2016. The replay dial-in number is 888-286-8010, followed by the pass code 20774900.

In addition, a webcast replay of the call will be available shortly on the IR page of our website.

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

For the third quarter, as stated in this afternoon's press release, Vicor recorded a net profit attributable to Vicor Corporation of $2,336,000, representing earnings-per-share rounded to $0.06. For the prior quarter, we reported a net loss of $544,000, representing a net loss per share rounded to $0.01. For the third quarter of the prior year, we reported net profit attributable to Vicor of $2.5 million, representing earnings-per-share of $0.06.

For the first three quarters of 2016, we recorded $152.2 million of revenue and a net loss of $3.5 million, representing a net loss of $0.09 a share.

In contrast, for the first nine months or first three quarters of 2015, we reported net income of $6.7 million, representing net income per share of $0.17. Recall results for the third quarter and first three quarters of 2015 included $5 million recovery at par value of our investment in Great Wall Semiconductor, which was recorded as a gain since we had previously written off the investment.

As addressed in this afternoon's press release, third-quarter results again reflected the circumstances we have encountered for the last several quarters in terms of the negative influence on our revenue and profitability of weakness in demand for our legacy products due to conditions in certain end markets. However, a decline in legacy product revenue was offset by an increase in advanced product revenue, notably due to higher shipments of VI Chip and Picor VR 12.5 data center solutions.

Domestic revenue increased 3.5% sequentially, and international revenue, which we identified by the ship-to address, declined 1.4%, despite the increase in shipments by VI Chip and Picor to Asian contract manufacturers. This absolute and relative decline in international volume is largely the consequence of a roughly 12% sequential decline in shipments of legacy products to Europe and Asia.

For the quarter, consolidated turns volumes -- that is orders received and shipped within the quarter -- remained relatively strong, representing 42.8% of revenue for Q3.

Concluding on consolidated revenue, recognized distribution revenue increased for the third consecutive quarter, rising 15.7% sequentially with each of our distributors recording improved results and with new products representing a higher share of their activity.

Turning to product level profitability, consolidated gross profit margin as a percentage of sales rose to 48.7% for Q3 from the prior 46.2%. Gross profit margins rose for all but a few product lines as increased volumes absorbed overhead, notably in VI Chip, for which we also recorded lower average material costs.

BBU module and configurable revenue decreased 7% sequentially, reflecting worldwide demand. However, a mix shift resulted in an increase in Andover's gross profit margin. Our three custom subsidiaries continue to show progress in achieving our post-consolidation sales and operational goals. The Q3 revenue slipped sequentially due to timing of large program deliveries for two of the subsidiaries.

Combined gross margins for the three custom subsidiaries declined approximately 3 percentage points for this reason.

VJCL, our Japanese subsidiary, recorded a third consecutive quarter of higher revenue in both dollar and yen terms, despite continued challenging conditions. Due to a shift in mix, gross profit margin improved sequentially.

VI Chip revenue increased 14.3% sequentially with the increase in volume and lower material costs per unit driving gross profit margin higher by over 6 percentage points.

Picor, our fabless IC subsidiary, experienced a 36.8% increase in revenue, reflecting its contribution of SiP regulator components to the increased volume of VR 12.5 deliveries. Picor's gross margins were essentially unchanged for the quarter.

Consolidated operating expenses declined $1.4 million sequentially or 5.7%. A major component of this decline involved the reversal of previously recorded equity-based compensation expense associated with certain performance-based VI Chip stock options awarded in 2010. These particular options vest only upon VI Chip reaching defined performance targets, which management recently concluded could not be met.

As such, approximately $768,000 of previously recorded comp expense was reversed during Q3 and will not reoccur.

The other major contributor to the 5.7% Q3 decline was associated with circumstances we experienced last year for the same period, namely the impact of a high level of vacation taken during the quarter, which lowered our net compensation costs by approximately $765,000. Recall that we implemented a change in our vacation policy to cap the amount of accrued time that could be carried over from year to year. With that change made in June of 2015, many employees with high accrued levels of paid time off took vacations so that they would not lose future accruals. Certain other operating expenses also declined.

I should point out that the stock option expense reversal and the PTO swing I just described had negligible influences on the quarter's gross profit margins.

Our consolidated operating income of approximately $2.3 million compared favorably to the $601,000 operating loss recorded for the second quarter. As was the case for several quarters now, our third-quarter tax calculations did not report unusual or nonrecurring activity. Note also the reversal of stock option compensation did not have a meaningful influence on the calculation of our tax provision.

Turning to cash flow and our cash position, we generated third-quarter cash flow from operations of $2.4 million, reversing the operating deficits recorded for the prior three quarters. After capital expenditures of $1.7 million, our cash and equivalents rose $913,000, closing out the quarter at $55.1 million. The quality of our receivables portfolio remains excellent with days sales declining to 43 days from the second quarter's of 46 days. Similarly, our aging schedule remains in very good shape with 97% of accounts under 60 days.

Annualized turnover of consolidated inventories again declined slightly from 4.5 times to 4.4 times, reflecting an increase in raw materials held by VI Chip and Picor in anticipation of near-term VR 12.5 volume. No unusual or notable activity occurred in any of our inventory reserve accounts.

Employee headcount as of June 30 was 997, of which 970 were full-time employees. Year-to-date total headcount is increased by a net of 12 individuals with the net addition of six full-time employees across the organization and a net increase of six temporary employees.

Recall that I described last quarter how our temporary headcount is influenced by the comings and goings of university co-op students that we typically involved in programming and IT support initiatives.

Now I'll turn to bookings and our outlook for the fourth quarter. Bookings for the third quarter rose 2.5% sequentially to $53.8 million, the highest level in six quarters.

Total BBU bookings declined [14.3] overall with declines across the Andover module business, our custom business and VJCL, both in dollars and yen. VI Chip and Picor bookings reflected the continued order flow for VTM and PRM solutions for powering processors using the Intel VR 12.5 standard. Reflecting these orders, VI Chip bookings sequentially increased 54%.

As I've described before, contract manufacturers frequently do not match VTM and PRM order volumes, and third-quarter bookings for Picor were again out of sync with bookings up 122%. With this mix of bookings, our consolidated book-to-bill ratio for the third quarter stood at just over 1 to 1.

Lower backlog for the fourth quarter reflects challenging conditions in certain end markets, notably domestic defense and railway applications in Asia. Nevertheless, we are expecting further improvement in turns volumes for Q4. As anticipated, we are seeing higher demand for VTM, PRM 48 volt point-of-load solutions from a range of customers. These and other new programs are expected to fill the gap between VR 12.5 and VR 13 solutions that are expected to ramp in mid-2017.

As discussed before, our breakeven quarterly revenue level can vary depending on mix. We benefited from the mix of products shipped in Q3, generating a profit of approximately $0.06 per share, including the various nonrecurring expense reductions totaling approximately 4% I've addressed. We expect Q4 revenue to be approximately the same as that recorded for Q3. Fourth-quarter profitability will depend on many factors, including particularly product mix.

As Patrizio will address, the momentum of our 48 volt point-of-load solution continues to build. Also interest in our new VI Chips and VIA products for a range of applications beyond computing continues to build with customers from around the world financing development of point-of-load and front-end power systems solutions to meet their needs across a range of applications.

In closing my remarks, as I always do, I must remind listeners that sales cycles for new disruptive technologies are unpredictable and can be long.

I'll now turn the call over to Patrizio.

Thank you, Jamie. As Jamie noted, third quarter results reflected an increase in VI Chip and Picor volumes, primarily for data centers and for other applications, offset by weak legacy business. Our EPS rose to $0.06, due in part to the one-time event and seasonal factors that Jamie described. I am pleased with the [important] increase in margins, reflecting progress made in VI Chip manufacturing.

We continue to see improvement and drive toward lower costs. Over the last three years, we have essentially doubled the gross profit margin generated by VI Chip.

We are still operating well below capacity, and this represents a great opportunity to continue to improve our profit level margins as we achieve volumes increase through 2017.

We talked for some time about opportunities that are just around the horizon. Today the opportunities are right before us, and we are fully engaged with a broadening line of highly differentiated products. Accordingly, I can confidently affirm my belief that we are executing on a comprehensive strategy to transform our competitive landscape and make the most of it for Vicor and for our customers.

While headwinds in certain end markets remains a challenge for our legacy business and these rapid innovations around certain sales cycles, we have [varied] products offering superior capabilities that are sought after by a growing list of customers across diverse markets.

I'm sure listeners have many questions, so I will open the call. Operator?

(Operator Instructions) [John Dylan].

Congratulations, guys, especially on the gross margin front. Patrizio, you said that you still have a lot of room to move on the gross margin. Can you elaborate on that a little? I mean next quarter do you think we will be up also? Do you expect it to rise for the next four or five quarters, or can you help us out a little bit with that?

So we are anticipating bookings growing in the 5% to 7% over the next -- quarter to quarter over the next several quarters. And with that, and with the lion's share of that being related to VI Chip products, we see opportunity for improving efficiency -- further improvements in efficiency in a factory that, as I mentioned in the prepared remarks, is still significantly underutilized.

To say in different words, we have had and continue to have a relatively high fixed cost structure, the cost structure which goes back to the inception of our VI Chip product development and all of the (inaudible) infrastructure has been put in place to enable the capability that goes far beyond in terms of unit rates and unit volumes what we have experienced to date.

And so I think the answer to your question is that there's going to be official progress over the next several quarters. I think as we get to a point of inflection and unit volumes get to much higher levels, there is major opportunity for unit cost reduction and ongoing margin improvements. So we are getting pretty close to the 50% level overall.

As I mentioned in the past, given the level of innovation, investment, intellectual property, coverage of the technology we have been developing over the last nearly 15 years and nearly [$300 million] in investment we made in it, it behooves us to see a return on that investment and that's going to come through margins that are going to be supported by a very low cost structure while enabling our customers to enjoy in addition to best-in-class performance at the lowest total cost solution.

Great. Okay. We heard from Intel on their conference call that they are starting to sample their Skylake and also their Purley platforms. And so I'm wondering are you supplying the VR 13 power supplies for those also?

Yes, so we've seen, for a change, some further change for the first time in (inaudible) action, meaning things moving in a little bit as (inaudible) from what we've been seeing for many quarters as we all painfully remember where things were sliding out.

So I can't confirm that the schedule is firming up. Orders -- we've started to get some significant orders, there's more coming, and so the ramp of VR 13 will be upon us by the first half of next year.

So you're actually seeing firm purchase orders for VR 13 beyond the sampling (multiple speakers) production --?

Yes, we got in some major million dollar type orders that obviously are well beyond the prototype level.

And is that included in your bookings number this --?

Yes, I don't remember the specifics, but what I remember is that we started seeing significant $1 million-plus orders for VR 13 generation products.

Excellent. Excellent. We've talked about the Skylake processor a lot, but there's also the Intel [Phi] chip, which is a very high-powered chip. Do you guys have any design wins for the Phi chip?

So I'm not going to go into details with respect to the various flavors of chips that we are powering today and that we are going to be powering in the future. And I want to emphasize that our strategy when it comes to powering point-of-load ASICs and processors, in particular, is our diversified -- obviously Intel is the elephant in the room, but as you know, there are competitors gunning for that space.

And some of these competitors are, I would say, (inaudible) of them are providing or looking to provide solutions that rely on a processor that is fed with a lower voltage at considerably higher current than Intel's. And that's where (technical difficulty) solutions do even more in terms of providing even a higher density or efficiency in lower total costs.

So we are particularly focusing on those kinds of opportunities. Within the last three, four months, there's also been significant progress toward our first power and package capability, which involves using a new kind of point-of-load current multiplier that can be deployed within a customer ASIC package to provide a very intimate point-of-load current multiplication to hundreds of amps voltages in the (inaudible) to 1 volt range. And these kind of solutions again will enable capabilities for more advanced ASICs and processors. Actually we have seen the third quarter, maybe it was early this quarter -- well, let's put it within the last several weeks, received our first production order for one such solution.

So this is in package?

It's power on package. And what that means is that instead of providing the power conversion, which in our case the point-of-load is a current multiplication function, where we multiply a relatively low input current into the (inaudible) required by processors. Instead of doing that outside of the processor package, we are beginning to do it with some devices within the package itself.

That's phenomenal. Good job. I'm going to get back in the queue because I know other guys have a lot of questions, but I'll get back in the queue. Thank you.

[Jim Bartlett].

Patrizio, you mentioned a 5% to 7% sequential increase in bookings going forward for -- and I wasn't sure what timeframe you are using there. Because it would seem to me then also with the VR 13 coming on then, at some point, it would accelerate from that. Can you help me understand sort of the progressions here?

Yes. So obviously there's a lot of variables at play and these kinds of forecasting yearly risky, so I'm not going to stick my neck out beyond saying that our current expectations for the next couple of quarters are in that range.

The next couple of quarters in that range.

Yes.

And then -- but you also said you're going to see some VR 13 orders you said in the first half.

Well, we already started seeing some, but the more significant orders will or are expected to come starting Q1 and more significantly in Q2.

And that's for delivery.

Well, that's when bookings take place. Deliveries usually lag by about a quarter.

Delivery lags about a quarter. I understand. Given what's going on now, do you see a need for any change in sort of the marketing strategy, the sales strategy from what it has been?

No. I think we have a comprehensive strategy. We actually just had the internal review within the last week. We feel and our Board feels that we are well-positioned in going after the right kinds of opportunities, both with strategic accounts and what you might call A to Z accounts. I think it's a strategy that involves a multiplicity of end markets. It involves a multiplicity of solutions, point-of-load solutions, front-end solutions with different types of functional box, different architectural options for customers.

Suggested in prepared remarks, we think it's a very comprehensive strategy. We are seeing more and more examples of our customers embracing our type of modular approach from the source to the point-of-load.

So, in particular, I'm particularly intrigued and excited about an opportunity which closed just in the last few months where we started out with a customer looking to provide a more dense, more efficient and high performance solution for new kinds of point-of-load ASICs. And we were able in a relatively short timeframe to expand the engagement to become the power system provider all the way from the point-of-load to a three-phase source at very high power levels.

So this is another example of a comprehensive strategy that enables customers, this customer in particular, to have by far -- and by far I mean 5X more dense and more efficient solution that would be out of sight were it not for the capabilities we have and how we are able to project them globally.

Sounds good. Just one last question. Just in the data center space, within the public cloud, companies offering data center services, would you expect to get new customers in that group?

Yes. And, again, we expect to see customers for point-of-load solutions, so this would be PRM/VTM customers so traditional factorized power type solutions. We expect to see power package customers that involve what we call MCMs, or modular current multipliers, driven by MCM drivers, which is a new partitioning of factorized power systems for similar events, point-of-load solutions.

We also expect to, in some instances, be the provider of choice for the front end, particularly with either high-voltage DC buses such as 300 [volts of] HVDC bus, which is becoming more and more accepted in cloud computing, among others spaces, as well as our power three-phase front ends.

Great. Thank you.

[Alan Hicks].

Good afternoon. On your reported revenues for the quarter and on the Brick business, you said that was down I think 14%, or was that bookings?

That was -- yes. Jamie will give you that. I believe they were both down.

Yes, they were both down.

So roughly what are revenues down in BBU more or less?

I can give you the total BBU number.

Okay, that's fine.

(inaudible) that both bookings and revenues for BBU were down, but let me give you a little bit more color regarding what's impacting that.

So, as suggested in prepared remarks, the defense market, particularly the US defense market, remains unhealthy with programs getting delayed. I think of particular significance, what we've seen within the last few quarters has impacted BBU bookings and shipments and revenues, has been (inaudible) with respect to some other programs, of particular significance as noted in the prepared remarks, applications involving some railway type of hardware, particularly in Asia.

Now this detection is that this business, particularly the last one, which is in effect in the short-term, more predictable in terms of visibility, should start coming back over the next quarter or two. There were some temporary gates that should reopen; that's what we are told.

So we don't see in the decline of recent quarters in BBU bookings and shipments a significant trend, and part of the reason why I can say that with confidence is that we track, as you might imagine, very closely new product registrations and when it comes to our classic bricks, the activity in terms of new registration has actually been very healthy, and that's indicative of future demand for those products, including new applications.

So at 10,000 feet, we see our classic Brick business being subject to fluctuations as it has in the past, and from time to time, the fluctuations are down, they are up. That business isn't going to go anywhere up or down as you average through a number of quarters.

The growth is going to come from the new products, the ones we've been primarily focused on and we've been talking about. And that growth is obviously going to start impacting the overall growth rate more and more as the fraction of revenues that are derived from the new products gets to be a larger percentage of the total.

So up to recently, fortunately there's been a small percentage. It has itself been subject to ups and downs because the customer base has been relatively limited. As we all know, there had been accelerations and then decelerations going from VR 12 to VR 12.5 and then to VR 13. But now that we have grown the customer base, diversified into other types of applications, and guiding the new products business to be a larger percentage of the whole, we should begin to see the benefits of both that business we have a more statistically, more predictably, as well as over time leaving the classic legacy Brick business behind to be less significant while it is enjoying its old age.

Okay. So your legacy businesses should bounce back a little bit and then stay relatively flat over time.

Yes, we think we've seen, at least in the short-term, the bottom of it. We see it coming back over the next couple of quarters, at least based on the visibility we have. Should the difference market get healthier, there could be more significant pickup. Now, in defense applications, we also have a lot and a growing presence with our new products, and obviously in the longer term those are going to be picking up where bricks get eventually left behind.

But we don't see cannibalizing our own Brick business anytime soon. It has been very resilient for 30, nearly 40 years, and for everything from -- based on everything we can see, it's expected to continue to be resilient at least for the next 10 years.

Okay. And I think I heard Jamie say Vicor chips would be at -- or the orders were up 54% and Picor up 122% during the quarter, did I hear that?

Yes, yes. Again, this is still reflective of some of the vagaries of how these orders are placed; they are not perfectly matched within a quarter. Generally speaking, they should be rising in the same proportion. They don't always do that. And I think, again, as we progress to a more statistical VI Chip business for our power components and the power component business in general and the power system business based on the new generation of products, these numbers are going to, from quarter to quarter, come out to be more consistent and less bumpy.

That's mainly getting more reorders for the 12.5 version and some new 13 versions?

Well, that's the case with Picor products. I think with VI Chip there's been a grassroot growth in a variety of applications, defense applications, industrial and other kinds of applications. And so the VI Chip business has been growing over the last year, even in those quarters, in those timeframes in which the (inaudible) demand was suppressed.

Okay. So you've evened them all out, you're expecting 5% to 7% growth over the next two to three quarters?

That's the best visibility we have at this point.

Okay. Then second half of next year is when you expect more acceleration?

Well, we expect to see VR 13 to be a significant contributor. We also expect other initiatives, and we have several in different end markets to become more significant as we get towards the latter half of next year. There's a lot of missionary work that we've been doing on a number of fronts with new products, and these investments, these long-term investments, will start paying off in terms of bookings and revenues over the next few years.

Yes, okay. Thank you very much.

[Don McCann].

Hi, guys. Just following up on the last question and with the acceleration really coming in the second half and you having had your sales and marketing meetings over the past week, would it be unrealistic for us to expect revenues for 2017 to be up 10% to 15% from 2016?

So I don't want to pin the revenue growth for 2017 down at this point in time. There's a lot of things that could happen next year. I think there is another key milestone that we have been talking about in terms of our 3 by 5 initiative and point of inception that will in our minds mark a [phase sensation], if you will, in the state of the Company from what it has been to what it is going to be in terms of revenue run rate breaking -- approaching and breaking through the $300 million level. We see that coming at the end in the fourth quarter of next year. That's where we see that in terms of bookings rate coming about.

Thank you very much and congratulations. It looks like you really turned the corner this time.

(Operator Instructions) Jim Bartlett.

Yes, I didn't get the -- what were the BBU revenues this quarter and the Vicor and Picor revenues?

I don't think we provide a detailed breakdown. (multiple speakers) We just provide the trends as discussed earlier. For obvious reasons, we don't want to really expose the specifics of these various contributions. Beyond the kinds of things we have discussed with a growing rate of acceptance of VI Chip, Picor products, they are beginning to represent the more substantial percentage of the whole.

And there was a point in time in which, as we had discussed, there was of some concern because of the fact that, once upon a time, in particular with VI Chip, we were not enjoying margins that were [representative of] what should be achievable. But we have been making good progress with that, so we now feel quite good about the change in mix and the new products that we've invested so much in developing, in effect, taking over the bigger share of the total revenue as we get in 2017 and more so in 2018. But beyond those general commentaries, we're going to keep the percentages from getting too detailed.

But aren't those -- they're provided in the Q, the 10-Q.

Those are segment data that's aggregated.

Right. That's what I'm looking for. Can you give those now?

So I don't have those numbers in front of me. I think the information that's provided in the Q obviously will continue to be provided in the Q.

Okay. So I have to wait for the Q is what you're saying. Okay.

Yes, it won't be long.

Thank you.

John Dylan.

Patrizio, you talked before about a V opportunity in the high-performance computer arena. I think it was going to hit in the fourth quarter this year. Is that still happening, or can you give us an update on that?

Yes, that is happening, and we are gearing up for the action on that. So that's an example of our providing a front end VIA solution in a computing application. It's not [official] point-of-load type of device that we've talked as much about. It's a front end converter, and it's remarkable because of the fact it's in the new VIA package.

By the way, we've invested as part of the capital equipment deployment has been going on, we've invested in VIA manufacturing line in preparation for customers' uptake of VIA products. So it's a good development because we see millions of dollars worth of revenues next year from that particular opportunity and growing its current revenues for VIA products. As time goes on, it is more of the VIA products getting introduced, and there is going to be an accelerating pace of activity with respect to VIA products.

So we are also essentially investing in capacity with respect to point-of-load solutions. We are investing in capacity with respect to chip packages and in particular the kinds of Chip VTMs, Chip PRMs, Chip MCMs for power package that were briefly discussed earlier in the call.

So this capacity expansion is taking place, again in anticipation of requirements for all these products.

But, going back to the VIA products, we are doing well. In particular, so-called VCM VIAs, which were introduced after the VCM chips were themselves introduced, they are getting good traction with customers that value the fact that the VIA package offers a turnkey solution that provides not just the real power conversion function, but everything that needs to go around it in order for the customer to, in fact, plug and play in this particular case a front end converter that includes filtering, the rush protection, the (technical difficulty), secondary side communication, all of the bells and whistles that enable a very fast time to market, highly predictable deployment of a front-end building block.

So I think there's good news on the VIA front to match expectations. It's not going to turn into $100 million business overnight. We see based on the registered wins and design activity, we see an escalation with millions of dollars going to tens of millions of dollars over the next year to three years.

Yes, and wasn't this opportunity -- did I hear before that it was for tens of millions of dollars?

It is, it is. I think there are several programs involved with one customer. The first program, these programs are phased -- this is the first program that goes into production early next year, and there are other programs with the same customers that are going to fall on the heels of the first.

Excellent. And are the VIA products, are they going into BBU's revenues or are they in the VI Chip revenues?

So we view VIA products as power system products, and we generally approach our business in terms of point-of-load and power system products. So the point-of-load solutions are what we call power component solutions. They tend to be relatively small modular building blocks that get deployed, typically next to processor, ASICs or other kinds of point-of-load hardware.

Whereas VIAs and new kinds of bricks that we are going to be introducing with chips within them tend to be removed from the point-of-load that they provide power to the point-of-load, but they process it from a source which can be the DC bus or a single-phase or three-phase power source. And those kinds of products are power systems products that -- going back to the heart of your question -- are in some respects more like the classic bricks.

Now there was a point in time in which the classic bricks in distributed power played the role of a point-of-load device. But a lot has happened since then, power system architectures are evolved and evolved again, and at this point in time, the right partitioning is of a different kind.

Brick-like products are really more front-end type of devices, and VIA is a perfect example that we're going to have some new products that are going to be referred to as super bricks; those are beginning to come out for some customers and some engagements starting in Q1. Those kinds of solutions are going to be front-end power system type of building blocks that complement the point-of-load solutions.

And, again, our strategy is to give customers greater flexibility, greater architectural flexibility of our system flexibility to implement the best solutions with a faster time to market, with a high degree of predictability, great cost effectiveness, if you will, soup to nuts. In this particular analogy, the soup is the front-end VIA-like product, and the nuts are the point-of-load power components.

I guess my question is more of an accounting question, though. Do you record the revenue under the BBU Unit or under the VI Chip unit?

So we are going to be evolving the way in which we track these things and manage them and make the most out of them. We very much believe in a divide and conquer strategy. It brings about focus, it brings about accountability, it brings about greater level of performance, and we are adapting to the future requirements to project to our customers the best solutions, both at the point-of-load and in the front end that leads to the point-of-load. And in concert with that vision, we are going through some internal refocusing to again provide the best in terms of the divide and conquer strategy.

Okay. But what about the LED marketplace, how big is that? Is that going to be a significant revenue stream for you? How are you doing in there? Can you just elaborate on the complete LED? What's going on with the Vicor product?

Let's maybe leave that for the next call. I think we are getting close to the end of this one, and I don't have specific data in front of me. Let's make a note of it, and I can address it the next time around. I think in general terms I can tell you, as suggested in the prepared remarks, that this is a market we're focused on, and we have some significant engagements. One of the products that has opened the way to those kinds of applications have been PFM-like products and other kinds of products that we have been introducing over the last few years.

Sounds good. Thank you very much.

You're welcome. Maybe if there is another short question, we'll take it. Otherwise --

There are no further questions.

Very well. Thank you very much. We will talk to you in three months.

Thank you. Ladies and gentlemen, that concludes your conference call for today. You may now disconnect. Thank you for joining. Have a very good day.