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Vicor Corp
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Good day, ladies and gentlemen, and welcome to the Vicor Earnings Results for the First Quarter Ended March 31, 2018 Conference Call hosted by James Simms and Dr. Patrizio Vinciarelli. My name is Sam and I’m the event manager. During the presentation your lines will remain on listen-only. [Operator Instructions] I would like to advice, part of this conference is being recorded for replay purposes.
I now would like to hand it to James. Please go ahead.
Thank you, Sam. Good afternoon, everyone, and welcome to Vicor Corporation’s earnings call for the first quarter of 2018. I’m Jamie Simms, Chief Financial Officer, and with me here in Andover are Patrizio Vinciarelli, Chief Executive Officer; and Dick Nagel, Chief Accounting Officer.
Today, we issued a press release summarizing our financial results for the three-month period ended March 31. The press release is available on the Investor Relations page of our website, vicorpower.com. We also filed a Form 8-K earlier today with the SEC 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 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.
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 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 discussed in Item 1A of our 2017 Form 10-K, which we filed with the SEC on March 9, 2018.
Please note the information provided during this conference call is accurate only as of today, Tuesday, April 24, 2018. 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 call will be available beginning at midnight tonight through May 9, 2018. The replay dial-in number is 888-286-8010, followed by the passcode 74685691. 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. Dick will comment briefly on your first quarter implementation of ASC 606 and our outlook for income taxes, and Patrizio will follow with comments about current business conditions, after which we will take your questions.
Beginning with consolidated results, as stated in this afternoon’s press release, Vicor reported total revenue for the fourth – excuse me, for the first quarter of $65.3 million, representing a sequential quarterly increase of 11%. This figure was 20% higher than revenue recorded for the first quarter of 2017.
Revenue associated with our advanced product portfolio rose 12% sequentially. A comparison of first quarter of 2018 to first quarter of 2017 clearly illustrates the substantive shift underway for our revenue mix toward our advanced products which rose 46% period-to-period from our legacy products which rose 8% period-to-period.
Quarterly international revenue increased by 8.5% sequentially. Turns volume, that is orders received and shipped within the quarter totaled $15.4 million representing approximately 24% of first quarter revenue. Gross profit margin dollars increased at a faster pace than revenue dollars, 12% versus 11% as total gross profit margin rose sequentially from 46.3% – excuse me, to 46.3% from 45.8%.
As stated in today’s press release gross profit margins are expected to improve, driven by higher volumes and economies of scale. As reported for the fourth quarter of 2017, first quarter gross margins for VI Chip product lines again exceeded those for our legacy BBU product lines, representing further evidence of the scalability and inherent cost effectiveness of our proprietary VI Chip manufacturing processes and packaging technology, which can support gross margins commensurate to levels achieved with advanced power management ASICs.
Our operating expenses for the first quarter were essentially unchanged with seasonal increases in audit and reporting fees, offset by reduced spending in R&D. Pre-tax income totaled $4.1 million for the first quarter. We recorded an income tax provision reflecting state and foreign amounts of $134,000, as such net income for the first quarter was $3.9 million representing $0.10 per diluted share compared to $0.04 per diluted share reported for the fourth quarter of 2017, recall our fourth quarter EPS included approximately $0.02 per share of net income associated with the year-end change in accounting for alternative minimum tax credit carryforwards. Our first quarter EPS includes no unusual or non-recurring tax influences.
Turning to the balance sheet, DSOs were steady at 44 days up from the prior quarter’s 43 days. Given the increase in sales, net receivables also increased rising $7.1 million for the quarter to $41.6 million. Portfolio quality remains high. Inventory also rose sequentially increasing $2.5 million, largely a reflection of rising material and component purchases to meet our increased backlog. Annualized inventory turns declined to $3.5 million from $4.0 million for the fourth quarter, reflecting higher than usual levels of safety stock, given industry-wide raw material lead times and other supply chain uncertainties.
Cash and cash equivalents sequentially decreased $1.6 million for the first quarter, ending at approximately $42.6 million. This decline was due largely to a $7.8 million increase in working capital driven by higher sales. This increase was offset by the $4 million of net income, $1.3 million realized through share purchases through our employee stock purchase plan and stock option plan, and capital expenditures that were sequentially lower by just over $500,000, totaling $1.6 million. We anticipate operating cash flow to turn positive as the year progresses and intend to fund near-term capacity expansion from operating cash flow and possibly the sale of real estate asset.
To conclude my review of the first quarter, total employee headcount as of March 31 increased to 995 from 980 due to an increase in temporary staffing. Total full-time employment was essentially unchanged. As addressed last quarter, productivity continues to improve with level loading of quarterly production and longer term visibility into our growing backlog. Beginning with the first quarter, Vicor adopted ASC 606, which sets forth new guidance for how we recognize revenue.
Dick Nagel will now describe the impact of this adoption on our results for the first quarter and [indiscernible].
Thank you, Jamie. As discussed during the last two quarterly earnings calls on January 1, 2018 we adopted ASC 606 revenue from contract with customers, which codifies the U.S. GAAP requirement for revenue recognition, adoption was addressed in our recent Form 10-K filing.
We utilized the modified retrospective method of adoption, which instead of restating prior years’ data lead us to make a single adjustment of approximately $3.7 million to retained earnings as of January 1, 2018. This increase in retained earnings represents a net effect of application of ASC 606 to existing customer contracts subject to such application. The $3.7 million credit to retained earnings is reflected in our first quarter financial statements. It was no cash impact from the adoption of the new guidance.
As I addressed last quarter, the most significant impact of ASC 606 going forward is on the timing of recognition of sales to our stocking distributors. As of January 1, we no longer defer revenue and the related costs of sales on shipments to stocking distributors. With ASC 606 we record revenue at the time sales to the stocking distributors, while also recording sales reserves based on our historically-based estimate of returns and allowances provided to the stocking distributors. This is why Jamie no longer has to discuss stocking distributor activity in his remarks as such activity is no longer subject to different treatment.
Turning to our tax outlook for 2018, we’re forecasting sustained taxable income for the entire year which at some point would cause a release of an allowance of approximately $33 million against our deferred tax assets, generating a significant one-time tax benefit.
With that, I will return the call to Jamie.
Thanks, Dick. Turning to our second quarter outlook given recent increases in backlog which totaled $90 million as of March 31, we anticipate a 10% sequential increase in consolidated revenue for the second quarter with expanding gross margins and net profitability. I must remind listeners as I do each time I speak with you, our operating and financial forecast are subject to sudden and unanticipated changes.
So with that, I’ll turn the call over to Patrizio.
Thank you, Jamie. As we reported the first quarter was characterized by strong bookings from both customers for our legacy products and an expanding base of customers for our advanced products. Factorized Power system that bus 48-volt to the point-of-load are gaining traction in demanding applications, including large scale data centers and supercomputing. Notably GPUs are pervasively being used both as accelerators or CPUs based platforms, and as dedicated computer engines particularly for machine learning and relative artificial intelligence applications.
Vicor is uniquely positioned in this high-growth market with our Power-on-Package, Modular Current Multipliers, MCMs, enjoying design wins for the highest profile opportunities. Aside from – we are actually contributing to our revenue growth starting in the second half of 2018, success in converting Advanced GPUs to 48-volt is accelerating the transition of data centers and automotive systems to a 48-volt infrastructure, that is central to Vicor’s power system architecture and power components methodology. Having to supply 48-volt GPUs within a 12-volt legacy infrastructure, that is no longer cable, are supporting higher bandwidth and connectivity, if the cable is for change that would be in pursuing.
As always I could go on, but I’m sure listeners have specific questions, so I will open the call. Operator?
[Operator Instructions] We do have a question. The first question comes from Don McKenna [D.B. McKenna and Company]. Don, please go ahead, you’re now live on the call.
Congratulations many times over, guys, this was just terrific. Patrizio, based on the design wins that you have got now, can you kind of qualify the size of the addressable market that you see out there?
I don’t know that I can quantify it in a meaningful way. I think it’s safe to say, first of all, it would have to be done by segments and there are a number of different segments that are undergoing transfusions that favor our power components and power system architecture and technology. If we focus as an example on the data center space, as you may know, Google play a pioneer role with respect to adopting 48-volt system in its data centers and now this goes back in number of years, they contributed one of their systems to Open Compute to accelerate conversion of the industry large into 48-volt in an effort to – in an effort to spent an ecosystem that would be beneficial to all.
But frankly it was not until recently till a leading company the GPU arena, made the switch to 48-volt that within data center space and the major players in that space, we started seeing a definite sense of urgency with respect to making a transition from 12-volt infrastructure to 48-volt. The compelling reasons now to do it given a pervasive GPUs are becoming within variety of systems within data center space. I expect that it’s now a matter of roughly few years and this is not an overnight affair because of the complexity of this infrastructure, but it’s going to be matter of years before we’re going to see a broad conversion.
And with that, the rest of the market just in the data center space to answer your question with respect to what are the market opportunities, will expand greatly because Google being a very market player is not the only player in that space. I could have addressed your answer in the context of other end markets. In the long-term the data center space remains particularly interesting for us and ripe with opportunities. It’s really not the only major area opportunity. So I think in a nutshell it’s fair and safe to say that the rest of the market is expanding very rapidly. I’ll make one more comment with respect to this.
Historically, particularly in the data center space, Intel severs have been dominant. Intel historically has relied on its own on-chip regulators to lessen the challenge for their customers in applying their CPUs. But what we’re seeing now more and more and application opportunities are really coming up more and more frequently on a monthly basis.
We’re seeing expanding requirements for, what we call XPU solutions, ASICs, other type of devices that unlike Intel CPUs require a lower voltage, not 1.8-volt, but typically 0.8-volt going down to 0.7-volt going down to 0.6-volt are currents that are rapidly approaching and for too long exceeding 1000 amperes. In that type of socket there’s nothing else that can provide an effective solution as we’ve seen demonstrated by recent designs and recent adoption. So that’s another power force apply because as we all know in artificial intelligence chips that more and more getting developed by the key players in the data center space and other places to serve their unique needs in a trail manner that maximizes the efficiency of their applications. They’re becoming more and more part of the strategy of the core of major developments.
So it’s a combination of variety of forces applied that are coming together to increase our market opportunity in the international market. Sorry for the lengthy answer.
No, that’s just quite all right. But if I could try a different way, in the previous conference calls you’ve indicated that as far as you can see that we’re going to be going through these increased revenue periods and with the forecast for the upcoming quarter being 10% or so. Is this a scenario that you would see sequential increases in that magnitude for, let’s say, three years to five years as you see these outside markets developing?
I think we’ll know around long enough to make very long-term forecast, right, it’s percentage gain. But I think I can safely say as I indicated in my earlier response that there are forces of play in the conversion from 12-volt to 48-volt. The competition to CPUs from GPUs and ASICs that require very high current of very low voltages, these are all perfectly matched to our capabilities, and I would say, rather uniquely matched to our capabilities. So as far as my eye can see, I see expanding opportunities. Frankly, we are in the develop position of having to pick which particular customers, which particular applications we want to pursue and we are being muscle active with respect to the ones that represent the greatest opportunity for us in the long-term.
Okay, thank you very much and I’ll get back in line. And once again, congratulations and thanks for sticking to your dream there.
Thank you.
We do have several other questions. And next question comes from Jim Bartlett [Bartlett Investors]. Jim, please go ahead, you’re now live.
Yes. Along at the same line, could you tell us how many ASIC, GPU customers where you are now shipping product? And how many are design wins that you may have in this space? So what can you expect to say a year from now?
So, I’m not going to give you specific numbers for a variety of reasons, but I will say that there are several engagements and the number is growing and the inquiries with respect to our willingness to support new developments is eventually increasing. So I think we are engaged with the multi busier customers in a range of applications in sub-1 volt XPUs, they range from 700 amps to up 1 extreme for a range of around 16,000 amperes. So there is a variety of applications and a growing number of opportunities.
Again, when talking about this particular class opportunities, I want to remind us that this is not being extremely exciting what our power component methodology should be entirely about – the important thing is that, with the same engines, with the same power component methodology, with the same packaging technology or which are very unique to us and highly propertied and very heavily parented, we can address different types of applications.
So for instances we’re also involved the other end of spectrum in front end requirements so that take us from 3-phase AC lines or high-voltage passes to the 48-volt node which is in fact the center of gravity for our power system methodology, that have around which our solutions evolve.
So the high current ASICs are very exciting and it’s clearly great opportunity for I believe many years to come. This is a market that is now expanding which didn’t exist measured in terms of applications requiring as volunteers, as recently as a couple of years ago, so it’s – and within a couple of years I’ve seen requirements grow from couple of 100 amps to 1000 amps and so just as earlier well beyond that. And we don’t see that subsiding to the contrary. We see it with both in the data center space and in supercomputing and other types of applications. We see it expanding with more and more players looking at AI chips playing a key role going forward, autonomous driving, other kinds of applications not necessarily within the data center.
Could you help me understand the NBM module that you introduced that the availability and how this may enable you to penetrate a legacy data centers that are on 12-volt? How quickly could this have an impact?
So we’re looking to start shipping NBMs into applications in the data center space, where to your point that is the existing 12-voltage transaction that cannot be changed overnight to 48-volt, but which get challenged by leading GPUs running on a 48-volt bus. So we want to see the adoption of these kinds of devices making it easy, efficient, cost effective to use them in a 12-volt infrastructure and that’s what our NBM solution is all about.
It enables conversion from 12-volt to 48-volt, and by the way, it also enables conversion from 48-volt to 12-volt in a very cost effective way with very high efficiency, big efficiencies of – 98%-plus and going high later this year, going high later this year. If cost effective is very advance, it essentially circumvents the challenge of making immediate decisions with respect to power, 48-volt flows in a 12-volt system or 12-volt flows in a 48-volt system.
Let me talk a moment more about that because I think your question was aimed at how do we use NBMs to enable data center customers that would like to use a 48-volt GPU in their 12-volt infrastructure. The NBM again will convert 12-volt up to 48-volt so that the 48-volt GPU load can be readily powered. But this is complimentary play and that complimentary play as to do with using that same NBM for the purposes to convert 48-volt to 12-volt. And how does that play into the overall transition of 12-volt infrastructure to 48-volt?
It plays by in fact taking away the anxiety that some customers might have with respect to making the transition because it’s a big bag with very profound ramifications. So many of these customers have been longer custom to their 12-volt multi-phase regulators as the preferred way of powering CPUs and memory in their servers, but they all recognize that there are significant efficiency benefits, infrastructure benefits to 48-volt.
So by adding a device like an NBM that can convert 48-volt to 12-volt, we’re going to be perceived I think, a conversion of the infrastructure to 48-volt so that infrastructure can readily power 48-volt GPUs, it can power 12-volt systems, legacy systems through the NBMs as a stepping stone to eventually powering it all directly from 48-volt. So it is a key enabling building block that can facilitate the use of 48-volt GPUs infrastructure 48-volt ASICs in a 12-volt infrastructure and conversely can power legacy 12-volt load in a 48-volt infrastructure thus must be the transition from 12-volt to 48-volt.
And when do you think you’d start seeing some impact of this?
Well, I believe to see some early requirements. I think in terms of a meaningful impact on revenues I don’t anticipate that until 2019, where our programs that should start in the second half of 2018, but frankly I think that in the very short-term the 48-volt GPUs in particular are going to be powered from within their systems, that’s a require – that is self sufficient in terms of it’s being powered directly from the AC mains. But I think over time and again they may take six, nine months, there should be some significant contribution to the revenues from the NBM opportunity, we it as a very exciting product.
Our NBM is a lot denser, more cost effective than any competitive alternative. And it would become even more so when we rollout our 4G our next generation technology later this year. But even with our older generation technology it is three or four times smaller than any competitive alternative, and it’s small cost effective than any competitive alternative. So we think we have the winning card to play in that space.
And sort of a childish analogy, is this getting sort of – you’ll get the nose under the tent with this, and then but that may facilitate broad conversion to 48-volt and data centers that are now really just 12-volt.
Yes, I think the NBM is a building block that can facilitate that. I think again while that’s recently being announced regarding selling our GPUs that being though itself is going to change the industry I believe, but facilitating a transition in every way we can is certainly part of our mission.
Thank you, and congratulations.
Thank you.
The next question comes from John Anderson [ph]. John, please go ahead, you’re now live on the call.
Hey, guys, congratulations on your progress.
Thank you.
I have two questions, if I could. My first question relates to the tenor of orders in the current quarter you just landed here, perhaps you’re one of your biggest customers ever. Is that logical to assume? I think on your last call we talked about orders sequentially expected to grow throughout the year in each quarter. Is there visibility to expand upon on the call here for the listeners?
Well, we’ve seen forecasts from key customers growing up for the balance of this year, in some cases it’s going up by significant multipliers. I think with some of these applications the ramp will start in Q3. But looking at the Q2 thus far, we’re doing very well, we’re well ahead where we were at this time in last quarter. So the outlook in the near-term, in terms of actual bookings that have already taken place and the outlook in terms of forecast and demand that’s forecasted by some of the key customers, they are all suggesting start going forward and again that fits with the general logic of the solutions and the applications, and their respective opportunities seen in their marketplace.
Great, thanks for the color there. And my other question relates to, I know in your annual report where you referenced you guys in late 2017, we know you’ve been working with Google for five years, that you’re also kind of working with other very large hyperscale data center players. Can you give any update there? We just saw Facebook last week talk about starting a new ASIC division. Without naming any new potential customers, can you give any update on that initiative?
So with respect to customer names, the ones that are in pubic domain, we can talk about the ones that are not we want. I’m not sure I fully understood the second half of your question. If you could maybe you phrase it, in particular regarding new ASIC developments?
I think there is just – within that the news last week Facebook was rumored to basically be starting a new division focused on implementing ASIC chips just like Google has been doing. So I just – was referencing that. Just in relation to the note in our annual report because I know you guys said in that note you’re working with multiple hyperscale data center players. So just without specifically talking about Facebook, can you give any – are there other opportunities that are kind of maybe nearing than the video finish line that could be groundbreaking new customer relationships in the back half of the year?
So no comments regarding Facebook particular, and no comments with respect to other key data center customers. I can say that as suggested earlier, we’re working to power a variety of high current ASICs. As you point out, Facebook recently announced, is looking to our key people to staff in key development in this general area. Well, guess what, as we all know all along, right, fundamentally advance ASICs that customize the two process applications with unique advantages for these companies are going to be common place to all of the key players. They all have the resources to do it, they all have the will to do it as far as we know, and they’re doing it.
And to the sent again that they have – with these developments a common denominator need for devices that are ran on very low voltage nodes 0.6-volt 0.7-volt 0.8-volt of very high currents, that’s a proxy for a current multiplier. And our Factorized Power System architecture is the one that has got current multipliers that – this very high currents can lessen the challenge of delivering 1000 amps by a factor of 50. So fundamentally we are the only ones with the technology to take 1000 ampere load and convert it to 20 amps or even less, 15 amps, we are developing for one customer so-called K0172, which is a 72:1 current multiplier. So they will take 1000 amp load to down to 15 amps and that’s all that with our technology you need to deliver to the ASIC packages.
So your point is Facebook is going in that direction and some other public record that they are, so are the other ones. And guess what, their only need of low voltage high current solutions because again unlike Intel where a one kind and billions of dollars of development R&D to develop a chip assay solution. By the way, the Intel on chip solution only reduces the challenge by roughly a factor of two. In other words, if Intel chip consumes 500 amps is still needs to be fed with about 250 amps because the on-chip regulator can only convert 1.8-volt to, let’s say, 0.8-volt, and that’s roughly a factor of two division in voltage and multiplication in current.
We can affect much, much larger current multiplication ratios. Again, in the early engagement with pacing in Japan with a center customer in the U.S. we had our multipliers I think they were in the 48-volt to 1-volt, or 64-volt to 1-volt. We’re now going to 72-volt to 1-volt. These provides again a huge advantage in terms of lessening the challenge of delivering the current, freeing up pressures I/Os for connectivity as supposed to power delivery. So this is very timely development that we think we are well positioned for us, not just with one customer, but with larger multi busier of them.
Well, thank you for that explanation. And I’m going to cede the call to other shareholders. Before that I just want to ensure I speak for other shareholders and I’m relatively new one with our firm, but I personally hold lot of admiration for your forward vision and building this company, you’ve been very tenacious and sticking to you kind of predicting where the market is going to go, and for that my hat’s off to you and thank you for all your efforts and really appreciate it. Thank you.
Thank you.
We do have several other questions. The next question comes from John Dillon [D&B Capital]. John, please go ahead, you’re now live.
Hi, guys, congratulations on 15% sequential bookings, it’s just outstanding. And Jamie, is the backlog of $90 million is that record for you guys?
I believe so.
I believe it is.
Yes. I can’t remember ever having a $90 million backlog, so congratulations. And Patrizio, I also want to thank you for the explanation on the currents in amps because of what I think I’m hearing is that Intel has got built-in and regulator so they only need 1.8-volt, but the other guys are going down 0.9-volt, 0.7-volt, 0.6-volt even which is going to need a lot more amps and this is where your technology has really, really shine. So this is really your sweet spot and this is the trend in the industry, that’s what I’m hearing. Is that correct?
That’s correct. Another way of saying that is that as you know we’ve had some remarkable wins powering Intel processors, in spite of the fact that they only need a couple of 100 amps of 1.8-volt.
Right. Not even your sweet spot, exactly.
And at that level, the 12-volt bus and a regulator which doesn’t really multiply current, it averages the voltage down. By averaging the voltage down, it can provide more current but fundamentally, I don’t want too technical here, but the analogy I’d like to use is getting water at the right temperature by mixing the hot water faucet flow with the cold water faucet flow.
When you are 1.8-volt and your power source is 12-volt, 1.8-volt divided by 12-volt is about 15%. And if you open the hot water faucet alone, and you through most of the water from the cold water faucet, you can get down to 1.8-volt from 12-volt pretty easily. But doing it up 0.6-volt makes the hot water faucet which in technical term is called duty cycle much more challenging. Not to mention the fact that power level are also going up, and densities are becoming more challenging.
So to your point, being able to win at 1.8-volt powering an Intel Processor, is indicative of the competitive advantage we have powering sub-1 volt ASICs with the GPUs or other kinds of ASICs, lower voltages. And obviously this would be devices that wouldn’t come out of Intel fabs, they typically come out of the TSMC. And their voltage nodes are going down, and down, and down and with that the currents are going up and up, and the appetites are more.
Our compute capability is as we all know escalating. So we think that we’ve had some good hits up 1.8-volt, we are in a sweet spot below 1-volt. And I don’t see anything else that can really challenge us there.
That also kind of reminds me that if the leading guys are doing this and they’re freeing up pens and they’re providing a more efficient GPU or XPU, the other guys are going to really have to follow in order to be competitive, aren’t they?
Yes. I think we all know how these things go. There are visionaries within companies that foster that mindset. We’re willing to take risks in order to gain competitive advantages for their own products. They realize that playing the commodity game of being extra conservative isn’t going to be a good long-term strategy. And then there are other companies that limit risk taking to core developers and they tend to be a lot more cautious when it comes to in particular the power technology.
But to your point that’s becoming a riskier proposition because it’s becoming more and more of an impediment to getting the fundamental task down. So, I think there’s been reluctance in the past on the part of some to embrace running a different new technology from the likes of Picor. That reluctance is getting overcome superseded by other considerations.
And I will tell you one thing, if it isn’t by way of current multipliers or MCBs and MCMs we’re getting there by way of NBMs or other power components or potentially front end products or so, these buyers are breaking down. And once we are in and we prove that we are very trustworthy as a supplier, in terms of capacity, pricing, reliability we expect that the doors will open with respect to more sensitive applications.
Yes, I agree, I think the NBM is just a brilliant move on your part. But I do have another question that’s more related towards booking. So I’m just wondering sometimes companies will prime the pump when they start placing orders with you or another company. They have a big order up front and so then your bookings might tend to take tick down a little. So I’m just wondering for the next quarter, is it safe for us to assume another 10% sequential increase in bookings? Or are we going to see a go down a little bit because they’ve already put their big orders in? I don’t know if I’m clear…
We haven’t yet gotten any big orders with respect to the recent GPU design wins, that’s going to be second half of 2018 event. Now we’ve gotten some initial orders, they are non-negligible, but nothing that has really impacted the bookings pattern today.
So we could expect another 10% sequential increase in bookings?
I don’t want you to look down on that. I think what you can legitimately expect is progress on the bookings front, on the revenue front, I think it’s easier to forecast revenue and that’s why we’re seeking Manukau a little bit with respect to the revenue forecast for this quarter then it is to forecast bookings because particularly with big projects whether they come in or large order that comes in, the first two weeks of the quarter, the first two weeks of the next quarter that can make a easily a 10% to 15% difference with respect to the bookings of the quarter. So I’m not going to seek Manukau with respect to bookings. But I have said thus far in this quarter we are substantially ahead over the last quarter and we will let the quarter go by.
And it sounds like there was no real climbing of the pump from some of the big guys?
There’s been no climbing of the pump with respect to none whatsoever with respected to new projects. Nothing in the first quarter with respect to the bookings that we have reported; there’s been some heightened activity of late but that’s part of the second quarter opportunities.
Thank you, Patrizio and Jamie, this is what we’ve been waiting for. This is phenomenal. Great job, thanks.
The next question comes from Alan Hicks [Ainsley Capital Management]. Alan Hicks, please go ahead, you’re now live.
Good afternoon and I add my congratulations to both your vision and your execution.
Thank you, I like it.
We all do. My question is on, well, first of all, can you break out the revenues for segment VI Chip, Picor, and BBU?
So I think in the prepared remarks Jamie pointed out that the year-over-year growth is primarily due to the advanced products and you can take those to be the achievement Picor products that was at 40-some-percent. We have been doing pretty well with legacy products, which are showing their resiliency, but again, that’s not where the growth going forward is going to come from. And discussed in recent quarterly calls, we’re now at the point with the vast products where they’re causing a feedback with respect to our growth curve overall, because historically they were not critical mass, they’re now critical mass.
And as I look daily bookings part, I see the legacy system type of solutions doing okay, but essentially being slightly up fundamentally level over a long time scale. Whereas the advanced solutions, MCBs and MCMs, VTMs, PRMs, BCMs, shifts these are the products so that you know been driving the growth of light, and they’re going to be driving the growth from the foreseeable future.
We do have major opportunities with front end products particularly with PRM, we talked about that. In the past that we’ve had major engagement in Japan, which is going forward, we’re seeing a number of interested parties in that product. So that’s not a classic legacy product, but it is not the kind of the point-of-load device that we’ve been talking about in this conference call. It is very complimentary to it because it gets customers from their power source whatever that might be to 48-volt underway to the point-of-load, but those are going to become significant I believe over the next 12 months as well. So all the action is with respect to these new products will give you yet a bit of a different flavor.
When it comes to advanced products, what we’re shipping is primarily what we call our 2G and 3G technology. You make reference to Picor, obviously key part of our effort. With their ASIC in particular the 2G ASIC and 3G ASIC we’ve been able to make a great deal of progress. We’re now very close to in fact we already have with one of the two key ASICs, 4G platforms that we’re working on the bench, very soon we’re going to have the complimentary piece. And before too long starting late this year and into next year, we’re going to see our 4G technology give us yet another level of capability and that deals on the packaging technology, but takes the control system to a much higher level of integration, and efficiency, and flexibility. So we’re layering in these other developments which are currently being contributed by the portions of enterprise in particular the Picor portion.
Alan, to answer your earlier question more specifically, you’ll have to wait roughly two weeks until we file our Q, we will have all of the segment second before it broke down. Plus we will have the new format of our ASC 606 disclosures.
Thank you. What I wanted to get at, I was reading to your 10-Q for last year and Picor was extremely profitable I think about 33% operating margins. BBU, it looks like operating income fell in half to about 3% or 4%, but VI Chip is still – till last year about $11 million improved. I know it’s improving throughout there. At what point do we get to profitability? What revenue level we have on VI Chips?
VI Chip is there, I think we’re getting to the 50% area. I think as we get into the second half of this year, well, it is true to your point that Picor chips lead the way with respect to very high margins, gross margins in 17% to 18% there. VI Chip products have the potential of getting to comparable levels. It’s all to do with scale and capacity of recession. And I saw it being the significant infrastructure cost of the unique packages, packaging technology that underlies the VI Chip power component. But all of these developments, when you look, let’s say at the GPU, with three golden chips on it, those are all VI Chips. There are – two of them are current multipliers and one is modular current driver. Those are all devices that will bring about the economies of scale and with that significant margin opportunity.
I’ve made this point in the past and I know it was difficult to make it and probably hard to believe when margins from VI Chip were zero or negative I think is becoming a lot more credible. Today I think we are taking it from negative 20% to 30% to positive to close to 50% I think we’re going to take it down quite a bit higher with rising volumes.
So overall you could sort of far surpass 50% gross margins?
I think we are going to be past 50% starting in Q3.
Okay. And my next question is, when do you expect to announce the RFM product? When it will ship in volume?
So, we have been very selective with respect to – we have shipped some non-measurable quantities of it but to just one customer. And we’re doing that cognizant of the unique challenges of the front end products of that kind of that power scale I mean. This is depending on where the supply, the 8 kilowatt, 10 kilowatt, 12 kilowatt device. There are unique application requirements that go with it. We have a few different flavors of the device under development. We want to complete that development before making that available to other customers.
We have remained every other day that we have three, four major customers that are very eager to evaluate it and potentially adopt it, and we see some measurable opportunities with it. But I think it’s very important to keep up other drive with respect to some of these things and roll them up when they achieve the level of maturity they need to have.
That’s more of a 2019 opportunity?
No, I think we are very close to more customers for that product. I think it’s a 2018 event. But I think in terms of being a large scale contributor – as a large scale contributor it’d probably be late 2019, maybe even 2020.
And on the PEZY supercomputer, is that shipping yet?
Yes. So the company had some issues that they have overcome those issues. And we look forward to a long-term relationship as a key supplier. They’re pursuing opportunities with us in a variety of trends.
Okay. And do you have other opportunities in supercomputers?
Yes, I think you name it as supercomputer; we’re likely to be in it.
Okay. And then last question, are you on track for increasing capacity?
Yes. So with respect to that – very key question. So you’ve heard me say we’ve been reassessing our strategy and we continue to reassess it. In the October timeframe of last year we’re very close to actually acquiring some space to develop about 70,000 square feet to 80,000 square feet of incremental capacity capability.
We have decided since then to partner with a company that has certain complementary capabilities and that’s progressing very well. We are pretty along with that to bring about capacity that will relieve some of our existing bottlenecks and that gives us the being whom we want to have to make a judicious choice, what we’re actively looking for the space in the 200,000 square feet to 250,000 square feet area in nearby. But fighting out our way from those facilities so that a meteorite could not hit both places at the same time, which is believe it not is also a concern for some potential customers.
When we actually pull the trigger on that I do not yet know it could happen relatively soon. But, yet, we may be able to find other relief valve that enable us to expand the capacity capability we have within our federal state facility which is about 250,000 square feet, so that we don’t have to – that’s very tough for us from the ramp that we are in the midst of it. So we like to the differ to that possible deposition of additional vertical integration capacity to extend we can source it from the outside without any compromise idea in terms of quality capacity, or cost effectiveness and we think we can accomplish that combinational goals.
Okay. Thank you very much and congratulations again.
Thank you. If there’s one more question we’ll take you, otherwise…
Yes, you do have a couple of other. But the next one comes from Ron Feinstein [ph]. Ron, please go ahead, you’re now live on the call.
Thank you. Patrizio, biggest compliment I can give you is in 10 years I haven’t asked any questions. So thank you for your results. I just want to ask whether the foreign policy and the trade issues that could be coming for China or elsewhere, will that influence or affect your business at all?
In a very minor way. I think few million dollars if – recent decision by Department of Commerce holds for the next seven years with one Chinese customers, but otherwise it’s similar deal to cross aspect in the near-term. I think the opportunity there was somewhat longer term opportunity and I believe that there’s an issue that’s likely to get resolved before too long. But in any case it wouldn’t be – it’s certainly affecting our prospects in the near-term or the long-term. So we’re not particularly concerned about it.
Okay. Well, congratulations to the whole team. Thank you.
Thank you. And with that we will call it a day. We will talk to you in a few months actually in the shareholders meeting in June. Have a good day.
Thank you. Ladies and gentlemen, that concludes your conference call for today. You may now disconnect. Thank you for joining and have a good day.