Vicor Corp (VICR) 2019 Q1 法說會逐字稿

Good day, and welcome everyone to the Vicor earnings results for the first quarter ended March 31, 2019, conference call.

My name is Christian, I am your event manager today.

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

Now I'd like to hand it over to James Simms.

Mr. James, you may now go ahead, sir.

Thank you.

Good afternoon, everyone, and welcome to Vicor Corporation's Earnings Call for the First Quarter ended March 31, 2019.

I'm Jamie Simms, Chief Financial Officer; and with me here in Andover is Patrizio Vinciarelli, Chief Executive Officer.

After the market's close today, we issued a press release summarizing our financial results for the 3-month period ended March 31.

This press release has been posted on the Investor Relations page of our website, vicorpower.com.

We also filed a Form 8-K today related to the issuance of this press release.

As always, I remind listeners this conference call is being recorded and is the copyrighted property of Vicor Corporation.

I also remind you various remarks that we 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.

Except for historical information contained in this call, the matters discussed on this call, including any statements regarding current and planned products, current and potential customers, potential market opportunities, expected events and announcements, planned capacity expansion as well as forecast sales growth, spending and profitability are forward-looking statements, involving risks and uncertainties.

In light of these risks and uncertainties, we can offer no assurance that any forward-looking statement will, in fact, prove to be correct.

Actual results may differ materially from those explicitly set forth in or implied by any of our remarks today.

The risks and uncertainties we face are described in Item 1A of our 2018 Form 10-K, which we filed with the SEC on February 28, 2019.

Please note, the information provided during this conference call is accurate only as of today, Tuesday, April 23, 2019.

Vicor undertakes no obligation to update any statements, including forward-looking statements, made during this call, and you should not rely upon such statements after the conclusion of the call.

A replay of the call will be available beginning at midnight tonight through May 8. The replay dial-in number is (888) 286-8010 followed by the passcode 88788951.

In addition, a webcast replay of today's call will be available shortly on the Investor Relations page of our website.

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

Beginning with consolidated results, as stated in today's press release, Vicor recorded total revenue for the first quarter of $65.7 million, representing a 10.8% sequential decline from our fourth quarter revenue of $73.7 million and less than a percentage point increase from the $65.3 million recorded for the first quarter of 2018.

As anticipated, Q1 revenue was sequentially lower, reflecting reduced demand for Advanced Products from a pause in data center buildout and an associated inventory correction.

Both shipments and bookings were affected as existing backlog was rescheduled from Q1 into Q2 and Q3.

Brick Product revenue was flat sequentially but approximately 15% higher than the figure for the first quarter of 2018.

Advanced Products revenue declined just under 30% sequentially, reflecting the aforementioned backlog rescheduling.

Revenue from other product categories within Advanced Products was generally steady for the quarter.

Reflecting current circumstances, the Brick to Advanced Product revenue split for the first quarter was 71% Brick Products and 29% Advanced Products.

Our turns volumes did not materially change sequentially.

International revenue declined 18% sequentially although international shipments of Brick Products were flat quarter-to-quarter.

The decline reflects the higher percentage of Advanced Products that are shipped to offshore contract manufacturers.

Because of the drop in such shipments, international revenue fell to 56% of revenue for Q1 from 61% for Q4.

Although distribution revenue was steady in China sequentially, Chinese revenue as a whole declined to 22% of total revenue from the prior quarter's level of 33%.

The primary driver of this decline was the lower direct volume of Advanced Products shipped to CMs, but an additional factor was the transfer of certain projects by CMs from their locations in China to other Asia Pacific locations in an effort to reduce exposure to current and potentially higher import tariffs.

Consolidated gross margin as a percentage of revenue rose to 47.3% for Q1 from Q4's 45.9% and compares favorably to Q1 2018's gross margin of 46.3%.

The Q1 improvement largely reflects a favorable mix, which offset lower absorption brought about by the reduced volume and an increase in Section 301 tariff charges which totaled over $1 million for the quarter.

We continue to assess the impact of Section 301 tariff charges and may add a tariff surcharge to the selling price of our products if the Chinese trade dispute is not resolved.

Quarterly operating expenses were flat sequentially and year-over-year.

Reflecting the decline in revenue, quarterly operating income declined 37% totaling $4.5 million or 6.8% of revenue, in contrast to the prior quarter's $7.1 million, representing an operating margin of 9.6%.

In Q1 2018, operating income was $3.7 million, representing an operating margin of 5.6%.

Our effective tax rate for the first quarter was 9%, reflecting continued utilization of federal net operating loss carryforwards and tax credits.

The bulk of our quarterly provision is associated with our 2019 tax estimates for state and foreign jurisdictions in which Vicor does not have NOLs or credits.

Net income attributable to Vicor totaled $4.3 million for the first quarter, representing a diluted EPS of $0.10.

This is in contrast to Q4 2018 net income of $6.9 million, representing diluted EPS of $0.17.

For Q1 2018, we recorded net income of $3.9 million and diluted EPS of $0.10.

Our fully diluted share count as of March 31 was 41,029,000 shares, which is the sum of both common share classes representing approximately 29.3 million registered common shares and diluted stock options and approximately 11.8 million Class B common shares which are neither registered nor listed.

Turning to our balance sheet.

Cash and cash equivalents sequentially declined $3.9 million, ending the first quarter at $66.6 million.

On a year-over-year basis, after substantial investments in additional capital equipment, cash increased by $23.9 million.

The Q1 cash decline reflects a decrease in accounts payable, mostly associated with paying for much of the production equipment recently installed and an increase in finished goods inventory brought about by the customer rescheduling.

Capital expenditures for Q1 were lower sequentially, totaling $3.3 million as certain equipment was not yet formally placed in service by March 31.

I will return to capital spending and capacity in a moment.

Trade receivables net of reserves totaled $40.8 million at quarter end, down sequentially 5% with DSOs rising to 46 days from 44 days.

Inventories, net of reserve, increased 9% sequentially to $51.6 million, as mentioned, due to the higher finished goods and WIP inventories associated with delayed shipments.

Our raw materials balance actually declined 4% sequentially.

Annualized inventory turns fell to 3.1 reflecting the increased total balance and the lower volume.

Including my review of the first quarter, total employee headcount as of March 31 stood at 1,022, up from 1,007 for the prior quarter.

Full-time headcount was 985 at the end of Q1, up from 976 at year end.

I'll now provide an update on our capacity expansion.

We believe we are close to receiving the approvals to proceed with our proposed 85,000-square-foot addition to our Andover facility.

As previously reported, we plan to break ground on this addition to our existing plant in 2019 and take occupancy in 2020, providing the space necessary to add manufacturing lines to meet forecast capacity requirements through 2021.

Again, we anticipate internally funding both the building and the planned phases of equipment installation.

While staying focused on the Andover factory expansion, we continue to assess alternatives for an additional facility in 2021.

We are also pursuing opportunities to expand global manufacturing capacity with parties interested in acquiring a license to source Advanced Products into data center and/or automotive applications.

Turning to the second quarter.

Our near-term outlook since speaking to you 8 weeks ago remains essentially unchanged.

While demand for Brick Products is firm, demand for Advanced Products will resume after the recent inventory correction has run its course and major design wins enter production in the second half of 2019.

To conclude my remarks, we are pleased with Q1 financial results given the quarter's challenges.

We are forecasting modest revenue growth for Q2 with sustained profitability and improved operating cash flow.

Having offered this limited guidance, I'll remind listeners, as I do each time I speak with you, our operating and financial forecasts are subject to unanticipated changes, many of which are caused by factors and influences outside of our control.

So with that, I'll turn the call over to Patrizio.

Thank you, Jamie.

As stated, our Brick Product shipments are likely to rise as bookings for Brick Products increased to 17% sequentially with improvement in the channel and defense electronics.

However, quarterly bookings for Advanced Products declined [10%] sequentially, reflecting reduced demand from a pause in data center buildout and inventory correction ahead of next generation servers and GPUs.

While Q2 demand for Advanced Products remains weak, our penetration of servers, supercomputing and AI accelerators is gaining momentum with major design wins for NBMs and Lateral Power Delivery solutions entering production in the second half of this year.

We're also seeing early traction for our Vertical Power Delivery systems.

Owing to their superior power density, Lateral and Vertical Power Delivery solutions are the solutions of choice for high-performance demanding processor applications, particularly AI accelerators.

At the [exeditial] level, the transition from 12-volt to 48-volt power distribution is gaining momentum in the cloud and the automotive market segment.

In data centers, 4 years after Google's pioneering initiative to convert from 12-volt racks to 48-volt racks, other hyperscalers did not follow through.

However, confronted with the necessity to power GPUs and other 48-volt loads, bastions of legacy 12-volt power distribution systems have recently started to crumble and decide to convert to 48-volt within a few years.

Power distribution infrastructure developments in data centers and the cloud reflect corresponding developments in automotive where, for similar reasons, GPUs and AI for autonomous driving and general vehicle [occupational] requirements.

12-volt legacy energy storage and 12-volt power distribution are giving way to 48-volt.

This set the stage for broad adoption of power distributional architectures, our conversion topologies, control systems and packaging technologies that Vicor invented and comprehensively patented over the last 15 years.

As our Advanced Products gain broad adoption in the data center and automotive markets, we'll continue to expand the performance gaps that sets Vicor apart from so-called competitive solutions, at the point-of-load, in AC front ends and in complete power systems.

With the rollout of 4G power modules across our Advanced Product families, we're expanding our power density advantage to at least 2x, and in many instances for certain classes of products, as much as 5x that of the closest so-called competitive product.

It is this kind of inherent technology that drives major customers to come to Vicor for the high-performance power system requirements, which cannot be effectively supported by bulky and clunky alternatives.

In summary, with power system solutions, the anticipated market requirements and [enable] superior end product capabilities and a comprehensive portfolio of patents protecting this technology, Vicor's competitive position rests on a solid foundation.

As to the near-term outlook, in 2019, we see a positive progression from quarter-to-quarter with firm demand for Brick Products and heading into the second half of the year, resume growth for Advanced Products.

Let's now open the call.

Operator?

(Operator Instructions) First question is coming from the line of Quinn Bolton.

A few questions.

Just first on the Advanced Products.

About 8 weeks ago, I think you'd said you had seen a pretty sizable order for advanced GPUs pushing from sort of Q4 to late Q1 or early Q2.

On this call, you'd mentioned some pushout even into the third quarter.

Wondering if you can give us an update.

Have things continued to push from the first half into the second half in Advanced Products?

So I suggest in my prepared remarks both in data center buildout with the advance of next-generation processors and with respect to existing GPU opportunities, we've seen starting late last year, a pretty dramatic change in requirements.

We believe it has settled out at this point, as suggested in the prepared remarks.

We see demand picking up in the second half of the year as the inventory that had been built up works itself through the supply chain and as new applications come into production.

There hasn't been much of a change since the last time we talked except that we see now confirmation of what was starting to become clear a couple of months ago.

Patrizio, the second question, you talked about the opportunity, the growing opportunity in the data center both in the rack and as well as the advanced GPUs and AI processors to sort of expand your customer base.

What do you think the timing for some of the other hyperscalers to adopt 48-volt in scale?

What's that time frame look like?

Do you think that happens over the next 1 or 2 years or is it further out?

So with one large potential customer, what we've recently seen, this is a customer that we've been endeavoring to penetrate for quite some time, and it's a customer that was very entrenched at 12-volt, reluctant to entertain a change in infrastructure to 48.

What we've recently seen within the last couple of months is a decision to effect the transition in a 2-year time frame.

Now leading up to that, with other customers and potential customers in the space, we're seeing steps being taken in that direction.

But frankly, the NBM that was referenced in the prepared remarks, which as a reminder, it's very high density, 48- to 12- and 12- to 48- converter plays a role in this phase.

It plays a role because it allows -- enables the use of 48-volt GPUs, 48-volt AI loads in 12-volt infrastructure.

It also, as discussed in prior calls, it can serve a purpose going the other way from 48- to 12- to enable 12-volt solutions within a 48-volt power distribution, which is something that customers that don't want to have single source dependencies are interested in embracing because it's a way, in effect, to provide for multiple resources and mitigate risk.

Great.

And sorry, the last question I had is just coming back to the vertical power opportunity.

I know that the pace of development in the GPU and the AI processor phase is pretty rapid.

Do you think we may see initial prototype units shipping to the market in 2020 for the vertical power in terms of data center application?

Yes, we expect to actually be in mass production in 2020, around the middle of 2020.

So we have large projects, more than one in the works, different stages of development but we're seeing opportunities for mass production starting the middle of next year.

So we're engaged on a number of different fronts.

I think as mentioned in early remarks, the vertical power delivery is a natural next step with respect to the trend towards power package.

As a reminder, Power-on-Package is the key to eliminating power distribution losses, gradually reducing power distribution losses that have historically limited power distribution efficiency in classic servers, including Intel servers, in spite of the fact that Intel servers historically have operated from 1.8-volt at the Point-of-Load.

Even at 1.8-volt, the power distribution losses as the current consumptions of these devices have escalated from less than 100 amps to hundreds of amperes became substantial.

But with AI processors that typically operate nowadays, 0.8-volt, and in the future are going to go down to even lower voltages, with the lower voltages and currents escalating to 600 amps, 700 amps, 1,000 amps -- just within last week, we had a power up of a device of 1,200 amperes.

We're working on application of up to 2,000 amperes.

With that escalating demand for current, even with the lateral power delivery power package, which dramatically counts on the motherboard interconnect losses of non-Power-on-Package power delivery, you still have very substantial power losses.

So just to qualify the handicap of [all of] the solutions, without Power-on-Package, at 600 amps, you might have the better part of 100 watts of interconnect losses in one form or another.

With lateral power delivery, you can cut that down by at least a factor of 2 to 30, 40 watts.

With vertical power delivery, you can get it down into single-digit, less than 10 watts.

And so that makes a huge difference with respect to enabling very high current, very low voltage nodes that push the envelope with respect to AI capabilities.

Next question is coming from the line of Don McKenna.

I wanted to ask you if you're still -- this is going back from memory here now, we were looking at, I think for the fourth quarter, to see a run rate of about $100 million so that would be, at annualized, $400 million and that your existing facility with the new equipment that you brought in was going to give us the capacity of about $750 million.

And with the new facility coming on, that we could get up to about $1 billion a year in revenues.

And now you mentioned the possibility of needs for additional facilities in 2021.

Am I right with what I had already said and as you see that demand having such a significant almost parabolic increase coming in those next 2 years?

Yes.

We see demand for capacity expanding dramatically.

So the addition -- the expansion of the existing facility of Federal Street will bring about approximately $0.25 billion worth of increase revenue capability on top of the existing facility.

Whether in the aggregate that ends up supporting $750 million or closer to $1 billion remains to be seen.

It may be a function of efficiency improvements we may be able to capture.

But we're confident that $750 million is within the capability of the expanded facility.

Going back to your question regarding the progression to these levels, when we hear that the forecast of $100 million was for bookings in Q4, in that ballpark, existing from revenues that lagged by 1 to 2 quarters.

Okay.

And that's still good?

That's as far as we can see, is still good.

Yes.

Great.

And could you talk for a second on the licensing agreement with Kyocera?

And also I know back in 2004, you signed one with Sony.

Is there still a relationship with Sony?

Well, so let me talk about Sony first.

So the agreement with Sony to do with, I think, PlayStation 3 and that game, no pun intended, changed dramatically with Nintendo entry in the market ahead of Sony with a device that had certain advantages and, in that particular case, didn't consume all that much power.

So nothing ultimately came of that relationship because of a change in the power system requirement for PS3.

Turning to the present, to be clear, we do not have, at this time, a licensing relationship with Kyocera.

There's a figure in the press release, we've been working closely with Kyocera that has played a key role with a number of customer engagement.

(technical difficulty)

with respect to general packaging technology, it complements our power system expertise.

They become quite adept at incorporating a power package within a complete solution for a variety of customers.

And that's what's articulated in the recent press release.

The next question is coming from the line of [John Dillon].

Patrizio, I want to go back to Don's question a little bit.

On the capital, it looks like you bought $11.3 million of capital equipment in the fourth quarter and $3.3 million in the first quarter.

What is the capacity now with that equipment all installed in your existing building?

So I think we're good through Q1, Q2 of next year, and that's when the expansion in the facility and additional line comes into being.

And obviously, we're going to do that.

We'll keep monitoring progress.

We'll keep monitoring demand.

We're going to proceed with having the space ready because obviously, there's a long lead time with that.

With respect to deploying equipment, we can make it happen in about 6 months, so we'll pull the trigger on the equipment with that lead time in mind and wanted to make sure that the equipment is installed and the division lines are qualified for mass production with at least a quarter of [garband] relative to capacity needs.

So the current capacity, is that around $500 million then or $0.5 billion now that you got that equipment installed?

In that ballpark, yes, in that ballpark.

So again, capacity has some level of elasticity.

We're not at the limits in terms of 24/7 so there is flexibilities.

But obviously, we want to reserve capacity for -- some level of capacity for peak demand that may come without enough forward visibility.

So it doesn't make sense to run anywhere close to the capacity constraints, or ultimate capacity constraint of the facility.

I think a conservative model suggested, in answer to the earlier question for Federal Street, is around $400 million for -- within existing walls and an additional $250 million with the 85,000-square-foot expansion.

Whether we can stretch it to something more than $750 million, I think remains to be seen.

But obviously, we're always striving for maximizing capacity utilization and overall efficiency.

Okay.

Okay.

And then what I thought I heard on the last conference call is, okay, so you've got $14.6 million you've just installed but in the new facility, you're going to add $12 million.

Is that correct or was it more than $12 million?

So we're budgeting in total for the new facility, including the building itself, something of the order of $30 million.

The details of that are not to be taken within too fine a level of accuracy.

I think it's the kind of thing that could change easily by $5 million, $7 million.

But let's say that as a ballpark we're looking all in, including the additional lines, $25 million to $35 million.

Okay.

But that includes the building, too, so it's the...

And that includes the building, yes.

So that's amazing that you've got $14.6 million.

So you've really got the capacity today to do about $0.5 billion in the existing building is what I think I'm hearing.

Yes.

Obviously, bear in mind that some of that is good old Bricks, right?

They never seem to go away.

That's good.

Okay.

That answers my question.

Okay.

So let me jump to the front-end products.

This was not a forecast but several conference calls ago, you gave an example how you were working with one company.

There's one company had the potential, the potential to take basically all of your capacity on the front-end products.

Now that we're a little bit further along and pretty close to the fourth-gen for the front-end products, do you still -- is that customer still interested in front-end products?

And do you have others also interested in front-end products that could substantially take a big step up in the production on those?

Yes.

I think the volume production and its impact on the top line and bottom line frankly is still some distance away.

But without question, we're seeing tremendous interest in front-end capability, particularly in AC to DC, particularly AC 3 phase for high power systems going into 48-volt, or I should say, 54-volt intermediate outputs.

With 4G, to your point, we are raising the bar on these front-end capabilities.

And we're doing that because when we're looking at it, we intentionally skipped one control generation in terms of refreshing our front-end capability and to be really clear with respect to that.

The 3G control technology was really rifle shot into Point-of-Load applications that did not provide for a refresh of front-end capabilities.

So all of our front-end products, high voltage plus converters and existing RFM, to be clear, still rely on our 2G technology.

And we're now in the midst of upgrading that capability, in effect, by 2 generations of control silicon.

And with that comes a much higher level of proficiency, dramatically (inaudible) better efficiency, better density.

And with it, a much lower cost curve.

So that what's coming together now.

There is one controller which is in fab as we speak, due to come out in about 8 weeks.

That is key to some of these developments.

As that controller becomes relevant -- and this is a controller which is, in effect, a derivative of an existing controller, a 4G PFM controller which is already in production.

But that PSE variant of the 4G controller will enable the 4G AC/DC front ends that will further increase the density, the efficiency and the cost effectiveness of our front-end solution.

So we're going to start rolling those out in the second half of this year.

We have all the interested parties -- we have interested parties in existing RFM and a variety of front-end products.

But the level of capability with 4G and in all cost effectiveness is going to be substantially improved.

So if you look, for instance, our website, you might have seen there an RFM which is, we call it a power tablet, it's the size of a tablet.

It weighs quite a bit more than a tablet but it's about the size of a tablet.

And with that, we process, depending on input voltage range, 10 to 12 kilowatts.

So with 4G, we're going to have a much more granular capability.

We're going to be able to make front-ends within our power model packages using the same packaging technologies we use for Point-of-Load devices.

And that would make it considerably more cost effective, more scalable and more granular.

So we're going to have, at the level of 5, 6 kilowatts a solution in the size of an iPhone and with a cost card that is going to be (inaudible) competitive.

So on the Point-of-Load, you've got some enabling technology that is pretty obvious.

You eliminate pins, you get the power there, you save power but you can also put the components closer together which makes a faster computer.

Is there a similar enabling piece on the front-end stuff?

Or is it really more the efficiency, the cost card that's going to win the business for you?

Well, in the power system industry, the issues and the opportunities tend to be very similar.

Obviously, the challenges of the Point-of-Load are not necessarily the same as the challenges in the front-end.

But they're common denominator requirements, and common denominator opportunity.

So whether it's Point of Load or front-end, generally speaking power density is a differentiator.

It may be more differentiator at the Point of Load because it's key to enabling, as an example, advanced ASICs or AI accelerators.

But the front-end density is also important and the front-end efficiency is also important because it impacts total cost of ownership.

Obviously, in many instances, the customers end up paying the utility bills.

So they care for solutions that are efficient, that are advanced, cost-effective and reliable and scalable with all the other necessary attributes in terms of the performance, low noise, so on and so forth.

And last but not least, what's important, we believe in bringing about the market opportunity in its entirety is the ability to service requirements from the wall plug to the Point of Load.

There is a degree of synergy that comes from providing the front-end solution that takes power from AC [main] phase, AC [mains] in particular, deliver it at 54-volt for energy storage in batteries, is a stepping stone to delivering it sub 1-volt to, as we were discussing earlier, 1,000-amp processors.

Being able to provide that complete solution with all the right attributes and all of the related connectivities and capabilities is, we believe, key to success in the market.

Congratulations on the $0.10.

That was better than expected.

The next question is coming from Alan Hicks.

I want to congratulate you on navigating through, I would say, a lot of cross currents and headwinds.

So I think you're doing a good job.

My question is, sounds like the BBU unit was basically flat from quarter-to-quarter.

Yes.

In terms of revenue.

Again, as we suggested earlier, bookings for BBU being surprisingly strong, I wouldn't make too much out of that.

To your point, it helped us navigate through what would otherwise have been a more difficult period.

This, frankly, as suggested from comments that Jamie made, we had a bit of an implosion on the Advanced Products from a bookings perspective, in particular, taking place late last year and into Q1.

And that's fundamentally related to the fact that, that business is not yet a statistic, all right?

It's dependent on relatively small number of applications and customers.

And so events that unfolded late last year caused it to undergo a very dramatic temporary change.

Now as we look at the mix of customers and applications getting into the second half of this year and into next year, the Advanced Products are going to be on a much stronger foundation because they're going to get to be statistical or a lot more statistical in terms of their dependency on a [multiple list] of customers and applications.

And we're starting to see this.

We had, within last quarter, a significant $1 million-type booking from a new GPU type application.

That's the kind of thing that begins to differentiate and build the kind of face to your business that we've enjoyed for a long time in the Brick Business Unit but have not yet established when it comes to Advanced Products.

But that day is coming, and I think starting second half of this year, we're going to see a much more significant mix of customers and applications.

One of them got delayed in Q4, was supposed to ship in Q1, Q2, did any of that ship in Q1?

Some.

There's more going in Q2.

But the inventory correction there is pretty substantial so we're not looking at that as making a contribution for the bulk of 2019.

I think the action there is going to resume in earnest as we get towards the end of the year.

Okay.

But is that $4 million or $5 million order going to be delivered?

Yes, it is.

Okay.

And the BBU, do you have some visibility for the rest of the year?

Is it going to stay at this level or can it continue to grow from here?

It's firm.

But we should be clear that we don't see an opportunity for growth there.

In fact, we are well along in terms of doing our own cannibalization of our classic Brick Products.

So we've done very well with our BCM product line, which is an Advanced Products line using a chip packaging technology.

And in many applications, we're really seeing customers transition from old bricks to DCMs directly because the products are much more efficient, they're much denser.

And we're happy because we make bigger margins on DCMs than we do on old bricks.

So to be clear, bricks have been remarkably resilient.

As suggested earlier, we like it because it's a very diversified customer base.

We literally get thousands of different customers and applications but as time progresses, those are going to get converted, too, to Advanced Products and they're not going to stay bricks forever.

So the business won't go away?

Conversion...

No.

The business will transition from being products effectively were developed 20, 30 years ago to Advanced Products that are being developed over the last 4 or 5 years.

Okay.

What would you say your capacity is in Brick Products versus Advanced Products?

So we have substantial capacity for bricks.

And what has been happening, over time, our operations team is very adept at this is as we continue to get more efficiency out of the older products, we also keep reclaiming some of the floor space and we reassign it to Advanced Products.

And we're going to be doing more of that kind of thing.

And particularly, as suggested a moment ago, as some of the customers and applications get converted from, let's call it, classic bricks which are DC-DC converters to DCMs which are also DC-DC converters but they are built on a [vast pro] platform.

We're going to have more opportunity to, in effect, scale down on the older lines which are, at this point, more than fully depreciated.

They have been depreciated quite some time ago and reclaim the space for Advanced Product lines which, by their measure, are very flexible because on the same line, we can make a DC-DC converter product that performs the function of a brick in a smaller volume with better performance while at the same time, on the same line, we can make MCMs or GCMs or Point of Load devices for artificial intelligence powering.

So that is part of the strategy with respect to having flexible capacity that over time is going to be fully redeployed within available space to being Advanced Products capacity.

What would you say your capacity is just on Advanced Products today?

So of the $400 million is a rough figure.

In gross terms, it's pretty close to half and half, but again, it's something that keeps evolving and obviously, it's been growing.

We've been investing.

We make substantial investment in the second half late last year on additional Advanced Product line capacity.

So this is not a stationary number, it keeps evolving towards more and more capacity for Advanced Products.

I think over time, it is going to be used capacity for classic Bricks.

Last question is I know you used to be strong in telecom.

Is there any new opportunities with 5G telecom equipment coming?

Yes.

I mean, so there, too, there are applications with very high current demands, approaching 1,000 amps.

So there are -- this common denominator requirements that they're not selective in terms of applying only to data center or automotive.

I think part of our strategy with the products and the power distribution architecture, the packaging, the control systems and [the jar] capabilities is to leverage across different end markets.

And 5G certainly is very demanding in terms of some of the Point-of-Load current requirements and also in terms of front-end requirements.

So the power density needs are escalating.

So there's a lot of interdependency across these end markets and the silicone is a common denominator driver for more current, lower voltages with greater power density needs.

Are you getting any traction with telecom customers with some of these new products?

Yes.

We are.

The next question is coming from [Doc Campbell].

Just 2 quick questions.

In Q3 and Q4, you talked about entertaining a Japanese partner for expanding your manufacturing in Asia.

Has there been any future discussions or further discussions in that regard?

And just if you could clarify, both Patrizio and Jamie, you both said major design wins coming in second half of this year.

Are you just anticipating?

I mean, can you expand upon that statement?

No.

These are design wins.

I mean, things have already gone, in the example -- I said it earlier -- had already gone into some pretty significant initial orders.

So there is not a good deal of speculation with respect to spreading our wings across a variety of GPUs applications with a multiplicity of customers and other applications for -- again, if an idea of AI chips with leading companies in that general space.

Going back to the first half of your question, so I can't really go into details but suffice it to say that we're engaged with 2 Japanese companies, in negotiations regarding an open source capability that we've been asked by a few customers to bring about sooner than later because of their need to have an open source for products where either because of job policies within these companies with respect to an open source asset or because of geopolitical considerations having to do with, let's say, Chinese companies not wanting to be single source dependent from a U.S. company for obvious reasons.

These companies are putting pressure on us to [average] this open source.

In some cases, they're acting, as in effect, catalysts for bringing this about.

Great.

So the talks for a Japanese partner are still continuing, if I hear you correctly?

Yes.

And just last follow-up on the major design wins.

So those have already been accomplished.

When you receive those orders or when you get those wins, do you guys put out press releases because I feel like I missed those.

No, you haven't missed anything.

We're not in the habit of naming customers or putting out press releases when we get design win.

That's just not the way we operate.

But you can be sure, we are very, very busy.

There's frankly more demand for support in the designing cycle that we can support.

We're being selective with respect to which applications we choose to support.

There's again a lot of opportunity in automotive, in particular in the center space with a variety of AI applications.

These engagements tend to be very deep.

They typically require a team of our own applications engineers supporting each application.

It typically goes through at least 6, 9 months, 12 months of designing cycle within which time the demand on our team is quite extensive.

So it's something that has been progressing and keeps expanding and we're mindful of.

We're looking for ways to bring about more scalability with the process, more automation with the tools and the capabilities because there are limitations to how many great applications engineers we can have and deploy in support of each and every customer opportunity which they all tend to be somewhat -- even though they have common denominator requirements in many respects, but they also have unique traits that require some level of handling.

No, I get it.

And to be clear, I think you guys have built a tremendous business.

As a portfolio manager, I wish more Wall Street investors or institutional investors knew about your story and I guess as you get bigger, they will.

That's right, it's as simple as that.

And with that, thanks again, and we'll be talking to you in -- well, actually, we have a shareholders' meeting coming up, but if not there, in 3 months.

Have a good evening.

Okay.

So everyone, that concludes your conference call today.

You may now disconnect.

Thank you for joining, and have a very nice day ahead.