Vicor Corp (VICR) 2022 Q4 法說會逐字稿

Good day, everyone, and welcome to the Vicor Earnings Results for the Fourth Quarter and Year Ended December 31, 2022 Conference Call hosted by Jim Schmidt, Chief Financial Officer. My name is Esther, and I'm your operator today. (Operator Instructions) I would like to advise all parties that this call is being recorded.

And with that, I would like to hand over to Jim. Please go ahead.

Thank you. Good afternoon, and welcome to Vicor Corporation's earnings call for the fourth quarter and year ended December 31, 2022. I'm Jim Schmidt, Chief Financial Officer and I'm in Andover with Patrizio Vinciarelli, Chief Executive Officer; and Phil Davies, Vice President, Global Sales and Marketing.

After the markets closed today, we issued a press release summarizing our financial results for the 3 months and year ending December 31. This press release has been posted on the Investor Relations page of our website, www.vicorpower.com. We also filed a Form 8-K today related to the issuance of this press release.

I remind listeners that this conference call is being recorded and is the copyrighted property of Vicor Corporation. I also remind you various remarks 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 and our capacity expansion as well as management's expectations for 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 discussed in Item 1A of our 2021 Form 10-K, which we filed with the SEC on March 1, 2022. This document is available via the EDGAR system on the SEC's website. Please note the information provided during this conference call is accurate only as of today, Thursday, February 23, 2023. 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 this call. A replay of today's call will be available beginning at midnight tonight through March 10, 2023. The replay dial-in number is (888) 286-8010, followed by the passcode 99813947. This dial-in and passcode also are set forth in today's press release. In addition, a webcast replay of today's call, along with a transcript will be available shortly on the Investor Relations page of our website.

I'll now turn to a review of our Q4 and full year financial performance. After which, Phil will review recent market developments and Patrizio, Phil and I will take your questions. In my remarks, I will focus mostly on the sequential quarterly change for P&L and balance sheet items as well as full year-on-year changes and refer you to our press release for our upcoming Form 10-K for additional information.

As stated in today's press release, Vicor recorded total revenue for the fourth quarter of $105.5 million, up 2.3% from the third quarter total of $103.1 million and up 16.8% from the fourth quarter 2021 total of $90.3 million. Revenues for the year ended December 31, 2022, increased 11.1% to $399.1 million from $359.4 million for the prior year. Advanced Products revenue rose 7.3% sequentially, while Brick Products revenue declined 4.4% from the third quarter. Revenues for Advanced Products for the year ending 2022 increased 42.9% to $243.3 million from $170.2 million the year before.

Shipments to stocking distributors increased 16.4% sequentially and 3.4% year-over-year. Exports for the fourth quarter decreased sequentially as a percentage of total revenue to approximately 59.8% for the prior -- from the prior quarter 70.1%. On a year-over-year basis, exports increased as a percentage of total revenue to approximately 67.6% from the prior year's 67%. For Q4, Advanced Products share of total revenue increased to 60.2% compared to 57.4% for the third quarter, with Brick Products share correspondingly decreasing to 39.8% of total revenue.

Turning to Q4 gross margin. We recorded a consolidated gross profit margin of 46.6%, which is approximately a 100 basis point increase from the prior quarter. For the full year 2022, gross margin declined to 45.2% from 49.6% in the prior year. A number of factors contributed to the year-on-year decline in gross margin percentage, including less factory utilization associated with lower book volume, increasing start-up costs incurred as we equipped our in-house vertically integrated manufacturing facility, higher outsourced manufacturing costs during the year and higher freight and tariff costs.

I'll now turn to Q4 operating expenses. Total operating expense decreased 6.7% from the third quarter. For the full year 2022, total operating expense as a percent of revenue increased to 38.4% from 34.1% in the prior year. The amounts of total equity-based compensation expense for Q4 included in cost of goods, SG&A and R&D was $486,000, $1,551,000, and $781,000, respectively, totaling approximately $2.8 million. For Q4, we recorded operating income of $8.1 million, representing an operating margin of 7.7%. For the full year 2022, operating income totaled $27.2 million or 6.8% of revenue compared to $55.6 million or 15.5% of revenue in the prior year.

Turning to income taxes. We recorded a tax provision for Q4 of approximately $1.9 million, representing an effective tax rate for the quarter of 18.8%. The tax provision for the full year 2022 was approximately $3.3 million, representing an effective tax rate for the year of 11.4%.

Net income for Q4 totaled $8.1 million. GAAP diluted earnings per share was $0.18 based on a fully diluted share count of 44, 859,000. For the full year 2022, net income decreased to $25.5 million from $56.6 million in the prior year. In 2022, fully diluted earnings per share declined from the prior year, decreasing to $0.57 from $1.26.

Turning to our cash flow and balance sheet. Cash and cash equivalents totaled $190.6 million in Q4. Accounts receivable, net of reserves, totaled $65.4 million at quarter end, with DSOs for trade receivables at 40 days. Inventories, net of reserves, increased 7.5% sequentially to $101.4 million. Annualized inventory turns were approximately flat sequentially at 2.59. Operating cash flow totaled $929,000 for the quarter. Capital expenditures for Q4 totaled $12.7 million. We ended the quarter with a construction in progress balance primarily for manufacturing equipment of approximately $60.4 million and with approximately $20.6 million remaining to be spent.

I'll now address bookings and backlog. Q4 book-to-bill came in far below 1 and with 1-year backlog decreasing 18.1% from the prior quarter and 11.9% from the same period last year, closing at $304 million at year-end. Q4 bookings included cancellation of orders as well as new orders for our next-generation program in our high-performance compute business. The net effect was a reduction in backlog of $15 million, which contributed to the 18.1% sequential decline in total backlog.

Turning to our factory expansion. Our manufacturing team is working diligently to bring our in-house vertically integrated Advanced Products factory fully online. While we have begun to benefit from the use of certain process steps in the fabrication of our advanced products, we are not yet self-sufficient in a key plating process operation. installation and start-up of this process equipment has been delayed due to resource and material constraints at the equipment manufacturer from the first quarter of this year to what is now expected to be the second quarter. As we near the completion of our vertically integrated U.S.-based fab for advanced products, we are looking forward to the substantial reduction in cycle time, improved manufacturing efficiency and full manufacturing control that this facility will allow. And we are anxious to leverage the imminent completion of our factory to provide shorter and more consistent lead times to our customers.

Turning to the first quarter of 2023. We expect results to be approximately flat to Q4. We expect operating expenses to decline modestly sequentially and a tax rate on the order of 15% to 20% in 2023.

With that, Phil will provide an overview of recent market developments. And then Patrizio, Phil and I will take your questions. I ask that you limit yourselves to 1 question and a related follow-up so that we can respond to as many of you as we can in the limited time available. If you have more than one topic to address, please get back in the queue. Phil?

Thank you, Jim. Our low order rate for the second half of 2022 and specifically in Q4, continued to reflect the backlog that we've built in prior quarters and the transitions that are occurring to next-generation processor platforms at hyperscaler and XPU customers. While a number of processor chip companies and hyperscalers with internal ASIC developments are about to launch 5-nanometer-based products with FPA solutions and bus converters from Vicor, their next-generation R&D is focused on 3-nanometer technology. This process node will drive chip current requirements even higher, closer to 2,000 amps, and at the same time, reduced core voltages down to 0.45 volts.

Our prediction about the future of power delivery is playing out in real time. High-performance processors and clustered processor arrays will soon require vertical power delivery, VPD, and current multiplication, both proprietary Vicor technologies. Instead of voltage averaging, Vicor chips uniquely enable processors to meet their performance requirements. In Q4, we initiated discussions with several major OEMs on how to best intersect their 3-nanometer products with our next-generation 5G solutions. Our FPA solutions provide the highest performance in terms of current density, low noise and overall power system efficiency. And our Generation 5 technology will, as I have said in previous calls, be a game changer in cloud computing and machine learning with a 3x step-up in current density.

The journey to smaller geometries to support ever-expanding AI processor performance requirements fully aligns to Vicor's proprietary technology. Our competitive position in HPC is growing stronger. And as a result, my confidence in our HPC market position and in the customers that we have worked hard to develop in recent years is increasing.

Our industrial and defense and aerospace businesses remained stable in Q4, and POS and new orders with our global distributors remain strong. The addition of Avnet as a globally franchised distributor will add strength to our broad market efforts and support the identification and engagement with new customers developing advanced electrified systems across a broad set of applications. I expect the revenues from these 2 business units to grow in 2023 as a result of design wins in emerging high-growth markets that are being driven by electrification, automation and autonomy. These target markets represent over $2 billion in SAM for Vicor.

One exciting new opportunity spans the entire battery ecosystem that includes forming and testing cells, testing packs, using packs in the electrified applications and battery recycling. We have important design wins with leading customers in all of these high-growth markets for our high-voltage modules with early revenues in 2023.

Our progress in the automotive market remains very positive with 3 successful OEM audits in the past 6 months, resulting in approval of Vicor as an automotive supplier. We expect to be IATF-certified in Q2 2023, and we will PPAP our top 3 flagship advanced products in Q2 with additional products to follow in Q3 and Q4. OEM and Tier 1 engagements are strong, and we expect further NRE-funded collaborations in 2023. As in our HPC market, automotive customers are valuing the modularity and power density that Vicor modules bring to their powertrain system designs and the competitive advantage that we enable for their vehicles. As our new factory comes online and we release our new 5G modules into production this year, our front-end team is laser-focused on our top 100 customers, securing design and production wins that will put us on track to achieve our North Star goal of $1 billion in revenues and 65% gross margins. Thank you.

Patrizio, Jim and I will now take your questions.

So operator, we're ready for questions now.

(Operator Instructions) And the first one is coming from Jon Tanwanteng.

My first one is, Phil or Patrizio, could you give us any more color on the low orders in the quarter and the cancellations, maybe just a bit on both, first? Are your clients simply digesting the long lead time orders they had already placed? Or is it there are more of a supply and ramp concern with the new factory and just being able to get that up on time to support new product ramps just on the order rate, number one? And number two, any cancellations, what's going on there if you have any more color, that'd be great.

I think as Phil pointed out, we are seeing the effects of the long lead times and growth (technical difficulty) placed over a year ago with some key customers being concerned with respect to being able to get enough product and ordering ahead to ensuing events involving a variety of factors from the exclusion of certain products from the Chinese market to the setbacks that the industry at large has suffered with respect to contraction in the channel level of activity. So that coupled with generational transitions with respect to older products being phased out and new products being brought up in the right sequence has led to the particular changes that are taking place with respect to our backlog in the last quarter.

Okay. Great. And then you gave some interesting stats on 3-nanometer and the current requirements there. But I was wondering if you could give us some indication as to the level of participation you're having or perhaps the relative market share you're having at 5 nanometers today on AI GPU compute. We know that there's a lot of frenzy around things -- the advent of ChatGPT and similar AI models and just the general requirements to change such large language models into similar things. Are you -- has that changed the discussion at all with your customers? And are you able to participate in that this year? Or is that something that's going to have to wait from next generation?

No. I think that what we've spoken about in the past is that the 5-nanometer nodes that have the significantly higher currents, our factorized power architecture has significant benefits. We've got about 5 or 6 companies ramping with 5-nanometer nodes in 2023. We've also got other customers that have started out with IBA architectures, 48 volts down to 12 and then multiphase that are seeing that these architectures are actually not giving them the maximum amount of performance that they can get from their processors and are looking at even re-spins possibly of those boards to something that will lower their PDN, voltage drops and power losses. And that's also a factorized solution. So we're also engaged with 2 or 3 other customers on that sort of upgrades, if you like, to get the best processor performance, Jon, out of their 5-nanometer node. So we see both of those going on. I think when you get to 3 nanometers, that's a completely different area for the high currents and low voltages. And we feel very strongly that our 5G technology and vertical power delivery is going to do extremely well when that starts to happen. And the interest is very high in the market in vertical power delivery from Vicor. So that's what we were talking about in the prepared remarks here.

Just to quantify that value proposition, looking at the test case for high current processor [rails] with the target total current requirement in the [1000] ampere range depending on whether you look at it in terms of steady state or transient current requirements, the value proposition of our factorized power solution as a lateral vertical solution is a net reduction in just PDN loss, that is the power distribution network in the copper from about 120 watts down to pretty close to 50 watts. And that reduction doesn't account other reductions in power loss that take place within the silicon itself due to a major reduction in the voltage differentials within the pin field, within the domains that are powered by each of the multiplicity of rails. So -- and this is already the case in a 5-nanometer type of application. To Phil's earlier point, this kind of a challenge gets elevated to a new level of difficulty going down to 3-nanometer with lower voltages and even higher currents, where fundamentally, the duration of solutions, the multiphase, multi-source solution is up against (technical difficulty) in terms of servicing these needs.

And the next question is coming from Quinn Bolton.

I wanted to follow up on the last question and Phil's response to that, but perhaps try to be a little bit more direct. Your largest GPU customer last night announced the revenue for its next-generation 5-nanometer GPU exceeded the revenue from its older generation GPU in just the second quarter of shipments. So it's obviously a very fast ramp of the new generation 5-nanometer GPU. You've previously stated, Vicor expects to have content on this 5-nanometer platform. Has anything changed recently on Vicor's opportunity with this new 5-nanometer GPU? And if not, when would you expect to see meaningful revenue for this program ramping?

So Quinn, we're not going to make customer-specific commentaries. As you know, as a matter of general policy, we don't get into that. I will answer your question in general terms and Phil may supplement what I have to say with sort of a restatement of what we just said. We believe that our competitive position is getting stronger, particularly with our 5G, particularly with respect to our unique PDN architectures and the demand for our solutions is rising. Now I can't comment with respect to specific customers, specific applications at any one point in time, again, it's a matter of general policy. Phil?

Yes. I mean in terms of, has anything changed, we're confident in the future, like you said, and we're going to go through the ramps this year with the lead customers and some new customers. And as I mentioned in my remarks, I'm -- my confidence in our position in this market is growing, not reducing.

Got it. So it sounds like, without speaking to specific customers, you feel good that you'll participate in 5-nanometer ramps with multiple customers as I think you just mentioned, but it sounds like you feel even better positioned as we get to 3-nanometer next-generation architectures because the current requirements just move more into your sweet spot.

The answer is yes. And also, I think that there will be upgrades on 5-nanometer nodes to -- they're not getting the performance out of the IBA architectures and there's more performance to be gained by reducing PDNs. I mean PDNs are the significant drawback to the IBA architecture. And so lateral vertical solutions and then 5G solutions from us, we can intersect in a number of places and improve the processor performance, sometimes to 2x the levels that they're getting now. So I expect some of that to play out this year as well, Quinn.

Understood. And then the second question I have, obviously, I understand you're going through the process of ramping the Andover facility. It sounds like, if I listen to the comments, that you think you'll be largely independent of the outsourced provider by the end of the second quarter. I just wanted to confirm that. And I guess, can you just comment how your yields have progressed as you've started to ramp this internal capacity? Have you had any meaningful yield excursions or manufacturing issues that could delay manufacturing ramps of some of these next-generation processor designs or current programs?

Yields are getting better. So for high-volume products, typical yield of a chip is nowadays around 95%. We have chips where we're targeting raising the bar to the upper-90s, and we're pursuing the steps in a methodology to accomplish that. And these advances have taken place in spite of the challenges of outsourcing, they don't yet reflect the benefits of vertical integration.

And just -- sorry, the timing of when you will be largely free of the dependency on the third-party electroplating partner, is that sort of middle of '23 now?

No, I think it's -- based on the current schedule, within Q2, specifically. The last major piece of equipment due to be installed in the month of April and coming up shortly after that.

The next question is coming from [John Gruber].

On the last call, it was asked about the -- when you're going to have an analyst meeting, and I was under the impression that you were talking about in this quarter, and I haven't seen anything about that. And also, when will you resume analyst visits and communication with -- and be like a real public company and communicate with the analysts and the owners.

We had a -- so we participated in the Needham Conference, January 12. So that was one that we did. At this point, we haven't decided about an Analyst Day, John. I think our perspective is we're going to talk again in another couple of months. So it's fairly frequent in the short term here. And then we're also talking about the shareholder meeting and how to handle that in June. So those are upcoming.

And what about analyst visits, investor visits to the company, which -- when you own the companies -- want to talk to people?

Yes. I think we do that from time to time. It's a process that we take very seriously. We want to make sure everybody is treated fairly. That's kind of the focus we have and provide the same information to everyone at the same time is our objective.

The next question is coming from [John Dylan].

So I just got a question, Phil, we're pretty far into the quarter, I'm just wondering how bookings are so far this quarter.

I don't think we can get specific about that, right? We're talking about halfway through the quarter here. But certainly, the rates are...

So let's not get into specifics, by general policy we don't get into. Again, I think both Phil and I have emphasized in the strongest terms that we believe we have the winning technology. Our technological gap to the competition is widening, not shrinking. And that's something that applies to HPC, it applies to automotive. As we heard earlier from Phil, it also applies to some of the industrial markets and other markets. So we feel very strongly that we are going to use up the capacity that we are putting in place. It's again little longer than anticipated, but it's a major undertaking. And we see the returns on that investment taking place in years to come.

So, as to what is happening this month with respect to bookings? Or what is going to happen this quarter beyond the general guidance that Jim provided earlier? I don't think we are going to get into any specifics.

Okay. It actually helps. But I am wondering if you can help me with my math a little bit here. If you still have $300 million in backlog, it would appear for me even from the outside and again, I don't understand the inside, but it would appear, you would be able to ship more than $105 million a quarter, because you are going to book and ship something during the quarter, you can have additional bookings. So are you being super conservative with that saying that's going to be revenue is going to be flat for the near-term?

I think that's the guidance as of now. And I wouldn't characterize it as being conservative, optimistic or anything else. That is our best guidance as of now.

Okay. And then one last question for Jim. You had mentioned that you expect incremental GM improvements as the factory starts coming online. So, can we expect to see some GM improvements this quarter?

I would say, the guidance is approximately flat. It could be slightly better, but we'll see. There is incremental improvements by way of less spending on the outsourced manufacturing side of things real time. So as we bring up the production line, that will increase. So there is the opportunity for some improvement there. I think beyond that, we're looking for significant efficiency out of our own factory. We have to wait...

We have much shorter cycle times, much better efficiencies.

The next questioner is Jon Tanwanteng.

My question was around the returned inventory and product that you took back last quarter. Were you able to place that, number 1? And was it at a margin or is at a price that was satisfactory to you guys or if it hasn't happened yet or are you pretty close to doing so?

It's been put back into inventory and some of it has been shipped out.

Okay, great. That's good to hear. And then second, can you give us a layman's commentary on just the current legal efforts you have, the recent decisions that we have seen, just tell me where exactly you are and what we can expect next?

You are talking about legal activity here?

Yes, correct.

Sync or update?

There is no update there. We are going through the post-trial briefing, nothing of significance.

Okay, great. And then finally, just the sales and R&D expense jumped up quite a bit in the quarter. Is that indicative of any new wins or projects that are getting close in the pipeline? And is that a run-rate that we should be using going forward? Jim, I think you said you expect a little bit. I am not sure exactly what magnitude and (technical difficulty)?

Yes. So, you might be looking at it without including the $6.5 million litigation-related accrual in third quarter. So that -- the OpEx did come up from third quarter when you exclude that, and it was mostly associated actually with legal expense because of the trial and the activity was in fourth quarter. That caused a piece of the increase in spend. R&D expense did increase 9% sequentially in fourth quarter. I think it's important to note that Vicor is increasing the rate of R&D spend and it's aimed at new products and it's aimed at getting the factory online.

Got it. Is there -- you mentioned NRE revenue coming in this year. Just how much of -- how much do you expect that to fund, just in terms of the cost development?

Well, that's a factor for -- again, it's strategically, the types of customers we engage with and want to engage with on the collaborative efforts of new product development or new systems development in automotive. So we've got a lot of opportunities to do that. So we really look to engage with leaders in the marketplace. And these engagements range from hundreds of thousands of dollars to sometimes millions of dollars. It's difficult to put a number on it, Jon.

Okay. Great. Last one, just any thoughts on the Brick and legacy businesses and how you expect those to trend this year? I don't think -- did you give a split on Advanced versus legacy at all? I didn't catch in your prepared remarks.

Yes. I think Jim did the sales of Bricks.

On a go-forward basis?

Not on a go-forward basis, but the last quarter, you did, right, [legacy] something.

Yes. I gave the breakdown of the percentages. So, the legacy business isn't going away, but as we've been discussing for quite some time, it's becoming over time to a greater degree irrelevant. So it wasn't that long ago that it was the majority of our revenues is reducing minority. But it is a business that has lived in terms of characteristic timescale for the last 15 or 20 years, some of it 25 years and the [test suites] longevity isn't going to go away next month or next year.

Our next questioner is Richard Shannon.

Great. I think going back to the statement here in the press release about only supporting essentially flat quarterly revenues in the near-term, obviously, referred to the March quarter. It would seem to suggest also beyond that in June or maybe longer. Maybe if you can give some language to how long do you expect that near-term flatness to occur or visibility into when that -- how long that will take?

Yes, again, I don't think we want to stick our neck out beyond the level that is reflected in the press release. I think it's near-term and there could be this quarter, it could be also next quarter. Obviously, visibility, given a variety of factors at play, diminishes as we get further out and that's part of the rationale to provide guidance with the caveats we should all understand.

Just a time frame by which you hope to get better visibility this contingent on new applications you're hoping to win or when they get scheduled? Or is this potentially contingent on standing up your manufacturing facility, which I think you said you're hoping to get done sometime in the second quarter?

The [former 2 not a lot there]. I think we have a high degree of visibility with respect to the completion of vertical integration, the capacity, availability, the results from that. We have, as you might imagine, less visibility with respect to the timing of new programs and the ramps. Frankly, given the challenges that Phil described earlier with these programs and the specific technical commentary I made with respect to -- in particular, PDN losses getting in the way of being able to extract the anticipated level of performance out of even 5-nanometer silicon. There is a lot of uncertainty with the customers themselves, so frankly, they don't understand to a high degree what they got and we're helping them understand what they can get. So that's part of the source of uncertainty with respect to timing, programs and revenues.

That uncertainty about PDN issues here, as you go down nodes here, is that reflecting customers who haven't yet adopted Vicor solutions or also ones who have done it in the past?

Well, all of the above. And Vicor solutions gotten to a deeper level of capability with respect to this with an invention of vertical and level of vertical. So part of this advance is set to do with advanced CT of our modules, the current density, which has been ahead of the pack by a certain percentage with 5G, that advanced is becoming 3x greater. But it's not just a module density, current density, power density play. It's also a part distribution architecture of play and for a variety of reasons there are constraints on the competitive alternatives with respect to what they can do in terms of power distribution networks. And one of our greater opportunities aside from, again, the density of the modules and the advantages of factorized power have to do with our enabling ways to deliver that power, that bring about much greater efficiency in the power distribution, that is the copper layers, so let's say within a board and relating to that the much greater control of the voltages within domains in the silicon itself, which is an issue that, frankly, many customers don't yet fully appreciate. They see the silicon running red-hot. They see themselves not being able to deliver the level of performance that was anticipated, it is because of the handicap of the power system, in particular, the power distribution network and is both direct and indirect, both in terms of the drops that take place within the copper and within the silicon itself. So, this is a process of (inaudible), there are challenges associated with carrying this process to fruition because frankly the level of understanding isn't what it could be and it's incumbent on us, in particular, to work with our customers to unleash the full potential of their silicon.

Okay. I'll have to review that. A lot of stuff to unpack there, Patrizio. Maybe a last question, I'll jump out of line here related the automotive opportunity. I think earlier this year you stated a bit of a delay from prior expectations and kind of ramping around the middle of next year. When do you expect to get the orders and maybe more detailed forecast to help you understand what that could look like for next year?

That's towards the end of this year, Richard. Really the ramps for that stuff is towards the middle of '24. I mentioned, there will be some delays because of the COVID issues that hit a lot of the R&D teams and different OEMs and Tier 1s. So, I would think this is probably more of end of '24, early '25 sort of a ramp for us.

Our next questioner is Doug Campbell.

Just if you could clarify, looking back at my notes and my thought is probably the end of Q2 last year we talked about 80% to 90% fully integrated, vertically integrated at the new warehouse, the new manufacturing plant by the end of December of last year. It seems to continue to get pushed out. And last week there was some speculation that you guys had some contamination issues. If you could kind of clear that up? And then I'll follow up with that, I mean, just -- can you just be a little more specific about the delays in the fab -- ChiP fab plant going up?

So, suggestions by competitors are contamination are pure bulls. With respect to...

That's what I wanted to hear.

Okay. Well, that's what it is. And with respect to the timing of bringing the vertically integrated facility to fruition, there have been some delays, we kept you apprised of what has been happening with respect to this complex endeavor. Again, not to overstate the complexity. But in one way of looking at this, what we're bringing together is the first fab for ChiPs as in converters as in package, a unique Vicor technology, heavily protected, first-of-its-kind. And the fab to make these kinds of products with vertically integrated processes has got a number of novelties and complexities that we're bringing together for the first time.

I guess, in hindsight, the fact that the delivery of some of this equipment get delayed by, I think, 5 or 6 months. All told, given the cycle time for developing the equipment and manufacturing it, may not be all that surprising. The good news is that, as I pointed out earlier in answer to an earlier question, we're now in the end of February and we're looking the last commit date from a vendor in Europe for the last major piece of equipment being a fellow ChiP in April. So that's really only 2 months away, which -- there is a lot of uncertainty (inaudible).

I'm not trying to be a wise guy, but we've kind of heard that before. So it's getting a little unnerving as an investor that there seems to be a delay, a delay, a delay, and like Quinn said, you won't talk about NVIDIA, but NVIDIA seems to be working through their inventory and ramping up in all areas. AI has been a real buzzword over the last couple of weeks. I know you guys are involved with AI. As an investor, I'm getting a little nervous that the race has started and you guys have fallen behind, no matter how good your technology is, I mean, monolithic is an execution machine, and they keep talking all sorts of trash across the board, but they are executing. So, I'm just getting a little nervous that you guys have fallen behind.

I'm not. Look, I can't blame you for getting nervous. I guess, if I'm wearing your shoes, I might. There have been delays with respect to the first fab for ChiPs. And I don't mean to make excuses for the delays, but we have had a number of equipment vendors involved across the globe from Japan to Europe to the U.S. and some piece of equipment have taken some number of months beyond expectations. So I don't think you heard me say before, that we're in February, the last piece of equipment is due to be delivered in (inaudible) you don't need to be a wise guy either, but we have a high degree...

No, and I hope that comes true. Well, because I also go back to -- so it's purely equipment delivery that's been delayed because I remember you talking about the outsourcing process and the plating process that your guys were at the outsourcers basically mastering the process that you planned on bringing efficiencies that you thought you can improve upon the process when you brought it in-house. So, it's not like a training issue, it's strictly equipment is not there.

That's right. Yes, it's equipment. So, a lot of the equipment has been delivered, has been qualified. It's up and running. And as Jim pointed out earlier, we're already using it and it's beginning to reflect itself in greater capacity and greater predictability with respect to cycle time and lead times. These -- a few pieces of equipment that are still to be delivered, but we are very close to that being delivered then needless to say with that little time left, the degree of credibility gets to be greater. So, I'd be very surprised if there were to be further delays, I think we are line of sight to being vertically integrated.

Well, that's great, and I'll finish with a positive. I greatly appreciate that you guys attended the Needham Conference because it's sort of what we talked about last year. We want to hear the story. We think it's a great story. We want to be in contact with you guys, and I hope that continues this year. And I'll get back in the queue.

Our next questioner is Alan Hicks.

I want to approach that a little differently on the last question. It seems like the gating factor and getting your revenues growing again has been, one, the plating, and then 2, the 5G technology products. Can we expect -- what's plating design can we expect a step-up in revenues right away? And then 5G, when are those coming out and what can we expect from that?

So, we expect -- we have -- let me start with what has already been done. We have begun to expose 5G capabilities to a very, very limited test case of customers, very few instances and in a very controlled way to, in effect, get market validation for being aligned with needs that are coming our way with further advances in silicon lithography and general market trends. And what I can tell you is that, we're getting great traction with respect to 5G, providing what customers and real-world applications need and are going to need over the years to come. So, I am very, very comfortable with respect to the fact that it has happened before. We've had the vision to anticipate where the market is going and what is needed in order to enable performance out of critical applications.

We have some 5G modules operating on the bench. The full complement of capabilities is coming together with the availability of some control silicon, that is taking place over the next several months. And we expect to be able to start sampling customers in Q4 of this year. As we get further along with the (inaudible), we're going to expose the capabilities to a growing list of customers. We have unique tools that are being developed and have, to some degree, been developed already to enable customers to, in effect, get behind the driver's seat with respect to controlling their destiny with system solutions and PDN methodologies that meet their real requirements. So we feel very good about this. And this is a '23 development with respect to the 5G technology coming together. And I think what's particularly noteworthy is that, in terms of resetting the level -- resetting the bar of expectations in terms of power density, current density and the critical needs in computing, automotive and other major applications, I think is well beyond the step-up in performance that Vicor was able to achieve with prior generations of products. These are coming together of a lot of technologies, both with respect to unique components, the packaging technology, the power distribution architectures, all playing together for the first time to deliver a major step-up in performance. So, we're very excited about that.

Yes. Do you think customers are perhaps delaying until they get their hands on 5G?

No. No, that's not the way it works, right? The trains leave the session on the best schedule that can be achieved and needless to say, if not all the capabilities are in place, they still have to leave the station, but there are trains that follow the earlier ones. So, there is an opportunity to intersect with 5G from a design and process perspective starting this year. We're already engaged in a few instances with the kinds of customers that we can be engaging at this stage of 5G capability, which is really still preliminary because while we do have target specs for a very comprehensive product portfolio, the target specs are not final yet, while we wait some of the last elements -- enabling elements to fall in place.

So, our 4G technology is ramping right now with the 5-nanometer nodes, as we spoke about earlier, both for factorized power architectures and bus converters. So the 4G is ramping through this year. It will hit some peaks next year, and then we'll move on to 3-nanometer. But we've got good design-ins on the 4G stuff and there will be opportunities to pick up other 5-nanometer nodes as I've mentioned to get the performance out of those processes using what we're calling lateral vertical with our 4G technology. So that all happens before the transition to 5G.

Okay. Do you think 5G will significantly expand your markets?

Absolutely.

Yes. Both in terms of higher current and even lower current, because (inaudible) it is going to go a lot finer. So, we're going to, not only take the 1,500 amp or 2,000 amps rails, but we're also going to take the 100 amp rails.

Okay. And finally, back on the plating, do you expect a step-up in revenue once you get that completed?

Step-up in?

Will that unleash your (inaudible) for more shipments using your in-house plating?

Yes. So as suggested earlier, as suggested in the press release, as of this moment, we are not capacity constrained with respect to revenue. It's as of now limited by history of bookings and backlog for the near-term.

Okay. So basically, flat this next quarter and possibly (technical difficulty) in the second quarter, in the second half maybe [come through]?

It's your interpretation on near-term. And again, I don't mean to be a wise guy either. But we just want to be sure that we are very clear with respect to what to expect and not encourage any potentially misleading expectation.

Well, thank you, everyone. And operator, I think we could -- I think we have time for maybe 1 more question.

The last question is coming from Quinn Bolton.

Phil, I guess, the lateral vertical ramping with your 4G technology, does that start this year or is that more of a 2024 event based on sort of your current expectations?

Our goal is to have that ramping this year.

Okay. Thank you, everyone. Operator, I think we're ready to close the call now. Thank you.

Thank you, everyone. That concludes your conference call for today. You may now disconnect. Thank you for joining, and enjoy the rest of your day.