Vicor Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
April 25, 2023

There are 9 speakers on the call.

Operator

Welcome everyone to today's webinar entitled, YCOR Earnings Results for the First Quarter Ended March 31, 2023. My name is Przygy, and I'm your operator today. During the presentation, all attendees will remain in listen only mode. I would like to advise all parties that this conference is being recorded. And with that, I would like to hand over to Jim Schmidt, Chief Financial Officer of Vicor.

Operator

Please go ahead.

Speaker 1

Thank you. Good afternoon, and welcome to Vicor Corporation's earnings call for the Q1 ended March 31, 2023. I'm Jim Schmitt, Chief Financial Officer, and I'm in Andover with Patrizio Vinciarelli, Chief Executive Officer and Phil Davies, Corporate Vice President, Global Sales and Marketing. After the markets closed today, we issued a press release summarizing our financial results for the 3 months ending March 31. This press release has been posted on the Investor Relations page of our website, www.vicorpower.com.

Speaker 1

We also filed a Form 8 ks today related to the issuance of this press release. I remind listeners this conference call is being recorded and is Copyrighted property of Vicor Corporation. I also remind you various remarks we make during this call may constitute forward looking statements for This is 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.

Speaker 1

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 2022 Form 10 ks, which we filed with the SEC on February 28, 2020 This document is available via the EDGAR system on the SEC's website. Please note the information provided This conference call is accurate only as of today, Tuesday, April 25, 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 webcast replay of today's call will be available shortly on the Investor Relations page of our website.

Speaker 1

I'll now turn to a review of our Q1 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 changes for P and L and balance sheet items and refer you quarterly changes for P and L and balance sheet items and refer you to our press release or upcoming Form 10 Q for additional information. As stated in today's press release, Vicor recorded total revenue for the Q1 of 97,800,000 from the Q4 of 2022 total of $105,500,000 but up 10.8 percent from the Q1 2022 total of $88,300,000 Advanced Products revenue declined 19.3% sequentially to $51,300,000 While Brick Products revenue increased 10.9 percent sequentially to $46,500,000 Shipments to stocking distributors increased 4 0.1% sequentially and 43.3% year over year. The decline in advanced products revenue was due primarily to constraints at our outsourced Manufacturing partner. Exports for the Q1 decreased slightly on a dollar basis, but increased sequentially as a percentage of total revenue to approximately 64.3 percent from the prior quarter's 59.8%.

Speaker 1

For Q1, Advanced product share of total revenue decreased to 50 2.4% compared to 60.2% for the Q4 of 2022 with Brick Products share correspondingly increasing to 40 7.6 percent of total revenue. Turning to Q1 gross margin, we recorded a consolidated gross profit margin of 47.6 percent, which is a 100 basis point increase from the prior quarter. While lower sales volume pressured gross margins, we did benefit from an improvement in tariff rate as a percentage of revenue. During the quarter, we recovered approximately $3,000,000 in duty drawback of previously paid tariffs. We continue to work to reduce overall tariff expense and recover previously paid duty drawback.

Speaker 1

I'll now turn to Q1 operating expenses. Total operating expense decreased 12% sequentially from the Q4 of 2022 to $36,100,000 The sequential reduction was primarily due to a reduction in legal fees. The amounts of total equity based compensation expense for Q1 included in cost of goods, SG and A and R and D was $486,000 $1,520,000 and $811,000 respectively totaling approximately $2,800,000 For Q1, we recorded operating income of $10,400,000 representing an operating margin of 10.7%. Turning to income taxes, we recorded a Tax provision for Q1 of approximately $1,100,000 representing an effective tax rate for the quarter of 9.2%. Net income for Q1 totaled $11,200,000 GAAP diluted earnings per share was $0.25 Based on a fully diluted share count of 44,907,000 shares, fully diluted EPS increased approximately 30 Compared to $0.18 in the Q4 of 2022 and more than doubled from $0.11 per share earned in the same quarter a year ago.

Speaker 1

Turning to our cash flow and balance sheet. Cash and cash equivalents totaled $192,900,000 in Q1. Accounts receivable net of reserves totaled $61,100,000 at quarter end with DSOs for trade receivables at 35 days. Inventories, net of reserves increased 5.9 percent sequentially to 107,400,000 Annualized inventory turns were 2.1. Operating cash flow totaled $10,100,000 for the quarter.

Speaker 1

Capital expenditures for Q1 totaled $10,100,000 We ended the quarter with a construction in progress balance primarily for manufacturing equipment $36,000,000 and with approximately $13,000,000 remaining to be spent. I'll now address bookings and backlog. Q1 book to bill came in below 1 and with 1 year backlog decreasing 10.9% from the prior quarter closing at 271,300,000 Turning to our factory expansion. As expected, we recently received the final pieces of equipment necessary to complete vertical integration of our new chip fab. During the month of May, our manufacturing team will conduct pilot runs using this equipment.

Speaker 1

Through July, we expect to complete manufacturing qualification of our vertically integrated chip fab and then commence volume production. While there will still be some outsourced processing, In Q3, we expect to be vertically integrated across all of the key process steps necessary to manufacture our power modules. This marks a milestone in Vicor's history aligning our manufacturing capacity in the first global chip fab with the breakthrough design technology Vicor has invented to deliver superior power density. As we said last quarter, we are looking forward to the substantial reduction in cycle time, improved manufacturing efficiency Full manufacturing control that this facility will allow. And we are anxious to leverage the completion of our chip fab to provide shorter and more consistent lead times Turning to the Q2 of 2023, we expect results to be approximately flat to Q1 with a potential for a modest sequential improvement in overall results and including a moderate sequential increase in operating expense as We implement our annual merit process.

Speaker 1

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 one question and a related follow-up, so that we can respond to as many of you as possible in the limited time available. If you have more than one topic to address, please get back in

Speaker 2

the queue. Phil? Thank you, Jim. I'll begin with an update on our Satellite market business development initiatives, which we haven't discussed for a while. In December of 2022, We announced that Veiko's radiation tolerant factorized power chipset was onboard the launch of Boeing's O3B communication satellite Powering the communication ASICs.

Speaker 2

This was a critical milestone for us by proving to other satellite customers that Building a space heritage opens up an available market opportunity of $175,000,000 with Boeing and other customers. Our initial radiation tolerant chipset is being expanded with additional input and output voltage modules critical for other customers and applications. In early Q3, we will introduce a reference design for AMD's first Space grade Versal Adaptive SoC, which delivers reprogrammable AI inferencing and high bandwidth signal processing for satellite and space applications. Turning to our automotive market opportunity. At the World Congress event in Detroit last week, Michael presented 4 papers on how our power modules solve the toughest power delivery and conversion challenges in electric vehicle power 48 volt power distribution bodes well for us, given that the 48 volt architecture is one that Vicor has pioneered and innovated around for over 15 years, developing proprietary and patented power distribution networks, Topologies, control systems and packaging to deliver the highest power density 48 volt solutions.

Speaker 2

The chips and applications presented at WCX and on display at our booth are the foundation of our expanding OEM and Tier 1 collaborations and existing OEMs with additional platforms and applications. We also started 3 new collaborations and added a major design win with an SOP date of 2026. High voltage power systems designed with our power modules approving to be 3 to 10 times smaller and lighter than DC DC converters built with silicon carbide or GaN power switches. We are also on track to achieve automotive level qualification for several of our power modules in Q2. In Q1, the high performance computing market saw the introduction of artificial intelligence chatbots using large language models, which have Significantly stimulated the market for AI systems at hyperscalers and social media companies globally.

Speaker 2

These new chatbot capabilities open up completely new areas of AI to the masses and have a much higher customer satisfaction than traditional search engines. Our factorized power solutions are being used to power the rollout of this exciting new technology and as higher performing processes are introduced, Our lateral vertical solutions will provide the higher current density and lower PDN losses that these next generation AI processes demand with increasing current levels and lower operating voltages. As I commented in our last call, new 5 nanometer processors Being introduced to the market using lateral power conversion solutions are hindered with high PDN loss, which limits performance from otherwise achievable Lateral vertical factorized power enables the full potential of AI processors by reducing processor and PDN losses. On the product development front, our Gen5 Technology continues to make excellent progress and is on schedule for introduction to major customers this year. These next generation point of load solutions enable scalable, cost effective VPD or vertical power delivery, which will be a game changer for the industry and enable next generation processes that would otherwise be handicapped by the power conversion and delivery challenges of multiphase technology.

Speaker 2

In summary, all of our 4 Business units are seeing expanding opportunities and major customer engagements across our top 100 customers as electrification, autonomy and artificial intelligence requirements rapidly expand. Account managers for our top 100 accounts are setting up visits to our new chip fab for Q3 and Q4 as part of our operational excellence initiatives to provide our target customer base worldwide visibility to our scalable capacity And to introduce them to the superior power system capabilities of our Gen 5 chips. That concludes my remarks. Tricchio, Jim and I will now take your questions.

Speaker 1

Operator, we're now ready to take questions. Thank

Operator

you. Everyone, your question and answer session will now begin. And we have received a couple of questions already. The first one is coming from Quinn Bolton. I will unmute you now.

Operator

Please go ahead. Please go ahead, Quinn. Quinn,

Speaker 2

are you there?

Speaker 3

Hi, Patricio, Jim, Phil, can you guys hear me?

Speaker 4

Yes, we are in here.

Speaker 3

Okay, perfect. Hey guys, I wanted to start with just clarification, A quote from the press release where you said bookings will or may remain weak until AI OEMs capture the benefits of advanced PDNs with lateral vertical Solutions. Can you give us some sense of timing when do you expect to ramp those lateral vertical solutions? Is that going to be in calendar 2023 or do you expect that potentially move out to 2024?

Speaker 4

We don't know with a high degree of confidence when this Would happen. It could happen later this year. It could happen in Q1 of next year.

Speaker 3

Okay. Then last call you talked about I think roughly 5 or 6 Design wins with 5 nanometer ASICs or other sensors,

Speaker 4

as you expected to be turning to

Speaker 3

volumes This year, can you say are those wins using just pure lateral solutions or Some of those wins, you see convertible.

Speaker 2

We seem to have some interference on the line with some background Yes. So, Jean, I apologize. Did you understand that?

Speaker 5

I think I

Speaker 2

got most of it, Quinn. Yes. So yes, I think that what I talked about last time was that We have design wins ongoing with lateral solutions to about 4 or 5 companies And that we're also engaging with other companies that have higher current processes that will require, we believe, Vertical or even pure vertical with our Gen 5 technology. So there's a lot actually happening in the market right now With different process nodes and different current levels, but we'll I expect lateral vertical and pure vertical to be part of the portfolio going through the end of this year and into next year. Quinn, did you get that?

Speaker 4

There appears to be a connectivity issue.

Speaker 3

Yes. All right. I'll drop it off in the queue and see if I can dial in on a phone and see if that helps.

Speaker 2

Thanks, Quinn. Thanks. Okay. Operator, let's go to the next question please.

Operator

Yes. Thank you. The next question is coming from John Tanwanteng. Please go ahead with your question. I will unmute you now.

Speaker 6

So my first one is, what are your biggest customers telling you about competitiveness of your product sec, compared to a year ago, specifically in the APT markets?

Speaker 2

Competitiveness of the products. What are

Speaker 4

you What are our customers telling us with respect to where do we stand competitively visavis?

Speaker 2

Okay. So John, so I think that it's clear that the multi phase Technology is advanced with current density, but it's still not at the levels that we are at in terms of the density of the product and the ability Of the product, which in lateral vertical is very important is to be very thin. So you need to have a very, very thin package that you can place On the back of the board in any sort of GPU, ASIC, CPU type application. So that's number 1. I think that with Gen 5 technology, which is where we're focusing the majority of our product development here now, That's a complete game changer in terms of the 3x improvement in current density that Patrizio has spoken about That changes things dramatically with regards to power delivery for high current GPUs and also The optical networking backbone processes.

Speaker 2

So that's what we're looking at currently. But lateral vertical is certainly superior to a multi phase lateral approach.

Speaker 1

Let me

Speaker 4

add, it's been nearly 40 years. When Vicor introduced its first products, we took converters, which at the time Time were about 1 watt per cubic inch to 10, 15 watts per cubic inch at a much higher operating frequency. And our lead in terms of power density, current density, key figures of merit in demanding applications As persisted for the case, it's not about to abate. As Phil just suggested, it's about to take a major leap forward.

Speaker 6

Got it. Thanks, Patricio. And Phil, and just regarding the customers and maybe specifically on The ones that you're waiting for to ramp solutions that are using your lateral vertical solutions, are they simply waiting for your new facility To qualify before giving you orders or is it more of a product timing situation? Can you just give us a little more color as to the status of when you expect those orders to come in and maybe The reason why there is maybe a little bit more delay than we thought it would be.

Speaker 4

So a change From lateral to lateral vertical is a change in PDN of our distribution network architecture. There are many facets to this challenge, having to do with The PDN architecture itself, what needs to happen in terms of reclaiming Some of the real estate within the processor socket that historically has been dedicated To capacity bypassing to in effect keep up with the dynamic requirements of this processor, which entailed very quick changes in current up to 10,000 amperes per microsecond. So managing the combination of PDN dynamic requirements And making it happen with in the mechanical, thermal management constraints And other constraints of the application is a complex challenge. There are International property aspects to this, there is know how that is not generally available. And to make a long story short, This is not an easy transition.

Speaker 4

It requires as of now a close collaboration between the OEM and vigor With respect to bring to fruition a solution that meets all the requirements. One of the major advances with 5 gs is that this whole process is going to become much more scalable And OEMs are going to be in the driver's seat with respect to their design ins. But as of now With 4 gs building blocks and the know how that is available, It is a bit of a tedious process and this in my opinion is and has been for a while The obstacle to faster adoption of more advanced PGN architectures.

Speaker 6

Great. Thank you. And it's not a facility issue or anything like that or just waiting for that that's to ramp and qualify?

Speaker 4

No. Lateral vertical can be done as Phil suggested earlier with our 4 gs building blocks. Doing full vertical with 4 gs, it can be done, but it entails Stacking chips or stacking certain functionalities with regard to which Sure. Vigor holds IP, relevant IP, but it's got complexities that with 5 gs We are doing away with in terms of leveraging the much higher density to facilitate PPD in a very simple and cost effective

Speaker 6

Great. Thank you. I'll jump back in queue.

Operator

Okay. And next, we have a question from the line of John Dillon. Please go ahead. I will unmute you now. Please also unmute yourself from your end.

Speaker 7

I also have a question on the lateral vertical and particularly with the 4 gs. Are you still planning on Doing 4 gs with lateral vertical and would that be this year or is that also would that also step out next year? And can you give us a little color on the customers that are looking at your 4 gs technology for lateral vertical?

Speaker 4

So existing design activity for Lada Vertigo is as of now still Based on 4 gs modules, existing 4 gs modules. Before too long, any incremental activity And expanding level of activity will be enabled by 5 gs building blocks. But as of now, it's still With existing 5 gs 4 gs module.

Speaker 7

And those 4 gs module opportunities, do you expect them to go to production later this year then?

Speaker 4

Well, again, we don't have perfect visibility. There could be Production ramp with a lateral PDM, a significant production ramp with lateral PDM Using 4 gs modules or it could be that the pressure ramp of waste The latter vertical solution because of its significant improvements In power capability, reduction in loss within the silicon and within the PDN itself.

Speaker 7

Okay. So you still might have some new 4 gs lateral opportunity to come in the second half of the year. Is that what you're saying?

Speaker 2

Yes, John. That's correct.

Speaker 7

Okay, great. And do you have any kind of guesstimate on the timing of that? I mean, Is that again this year? Or is that also maybe next year?

Speaker 2

I think John Patrizio put it well earlier. It's working through all this stuff. It's Complex, complicated, but we're making good progress and we'll be able to talk about that a little bit more in future calls. Okay.

Speaker 7

My follow-up question is, Patrice, I've been invested with you for About 25 years and when I reflect back, we've had a lot of successes, we've had some setbacks, but I can't remember Vicor being positioned for a consistent long term growth better than you are today. But then again, I've been surprised Before when I thought that before, am I correct in my views that you are better positioned now than you have been? And if so, what makes it different from the past where we've had these successes and also setbacks?

Speaker 4

Well, that's a very good question. I can tell you personally, I feel that way. I think in terms of Articulating why I feel that way, I think I suggested in the press release, It has to do with the combination of factors. First of all, we are very close to the first Global Foundry for chips. There is nothing that comes close or can come close.

Speaker 4

It is enabling in that it provides scalability in terms of volume, cost, very low cost structure From very low power levels to applications ranging up to 100 of kilowatts in automotive applications. So whether it's a fast charger for An electric vehicle in the 100 of kilowatts or a current multiplier in the 1,000 amp Or several 1,000 amp range on a multi PC of rails for a future GPU or XPU. Our chip foundry is converters and packaged foundry gives us in Amparo unique Ability to provide not just the highest power density or current density solution as the case may be In other words, systems or AI, the LaSalle type applications, but enables us to do that with the lowest cost. So we're not going to be missing any of the essential ingredients necessary to Take full advantage of the general adoption of the 48 volt infrastructure that Vago itself has pioneered.

Speaker 2

So

Speaker 4

that's the simple story of where we are. I understand that Historically, it hasn't been easy to bring all this about. It's taken Again, the yellow focus in terms of the complex facets of the puzzle as a whole, Ranging from power conversion engines, control systems, unique components, packaging technology that is underlying The convert the housing package scalable methodology that is wafer like as in a wafer foundry And the fund itself that we've invested upwards of $100,000,000 to bring about To give us the capacity for about $1,000,000,000 in revenues. So that's the simple reason why we I think we're well positioned for the market demands for high power density, high current density in a variety of growth end markets.

Speaker 2

John, if I could just add want to quick think to that. I second everything Patrizio just said. I think that from my tenure here, the 12, 13 years, we've never had A quality set of customers that we're engaged with like we have now. So that's really critical, right, to who are you working with and what does the Future hold for those customers in their markets are they leaders. And it can't just be in high performance compute with a couple of big companies, hyper Scale is our GPU guys.

Speaker 2

It's got to be right across the 4 business units that we are now developing long range revenue plans And are engaged with great customers right across the globe. So just add that to Patrizio's comments.

Speaker 7

Yes, I get it. And it seems to me like you've always had the performance card, but now the customers They need your performance. They have to have it. It's not a want to have. And then on top of it, it sounds like you've got the cost card to go along with it, Which is a nice combination where they need your product and you also are very cost competitive.

Speaker 7

And from the sounds of it, Gen 5 is going to be even lower cost competitive Down to the commodity servo level, which is really exciting because that really opens up a huge market for you.

Speaker 2

Yes. And the vertically integrated factory that Patrizio mentioned, that's really critical for us, right?

Speaker 7

Yes. Okay. I'll get back in the queue. Thank you so much.

Operator

Thank you. Next, we have a question from an anonymous participant who joined via a

Speaker 2

Hello. We can't hear your question.

Speaker 4

I know that there's a latency in

Speaker 1

You have operator, please remind questioners, they have to hit star 6 to unmute themselves.

Operator

Yes, from their side as well.

Speaker 2

Okay. Let's go to the next question then, operator.

Speaker 4

All

Operator

right. Next, we have from Jun Tongwanteng. Please go ahead and unmute yourself from your side as well.

Speaker 6

Thanks for the follow-up. My question is, Phil, just where do we stand today in the migration to 48 volts Data centers as a whole, what inning on OEM, how much are you seeing that play out in your bookings and pipeline?

Speaker 2

Yes. So definitely the Other hyperscalers that we've been waiting for are working on 48 volt native rack systems. In the meantime, we've talked about this. They are buying basically power distribution boards, Incorporating our MBMs to do the 12 volt native to 48 volt level necessary for the advanced AI systems. So but we are seeing native rack developments now at the hyperscalers in North America and also overseas Because of the power levels that these the addition of AI, chatbots, whatever, into the data centers are requiring 48 volt power distribution.

Speaker 2

And in the supercomputer area, it's even higher. It's up at the 380 volt range where we sell High voltage bus converter. So the power levels just keep going up, John, and we have the technology to do the down conversion to 48 And then the 48 to point of load either with bus converters for low power CPU systems or factorized power for very high power GPUs and ASICs and optical network processors. So we're sitting really well with technology migration In our customers and being able to follow that and even be ahead of that with now our Gen 5 solutions coming along later this year.

Speaker 6

Got it. One thing I've been surprised with is just the total power consumption of these next gen CPUs. They're approaching the levels that the last generation AI processors that they use your lateral solutions are at. Do you see the CPU market ever going to your Finding your product necessary to drive the power usage that they're starting to run at?

Speaker 2

Yes. I think Gen 5 actually opens up CPU higher power CPU applications for us. And who knows, maybe even lower power CPUs as the rack The 48 volts, direct conversion from 48 volts with Gen 5 can be very cost effective and very dense. So We're going to

Speaker 4

go after that market as well when Gen 5 comes along. But make no mistake, any system today, high end system, Let's say high end GPU powered from 48 volt through a lateral PDM It's handicapped by the power system. It cannot deliver It's compute capability because of the limitation of our system.

Speaker 6

Understood. If I may ask a question on the quarter, what caused the constraints of your supplier? I know they've been pretty spotty in the past. Is that going to continue in Q2? And just give us a little color as to what happened in the quarter compared to where you thought you were going to be?

Speaker 1

Yes, go

Speaker 2

ahead. So I think

Speaker 1

John as we said was mostly a function of the outsource manufacturing partner which is we're in the final stages now of bringing the production in house. So in some cases the supply wasn't as So in some cases, the supply wasn't as prompt as we needed it to for the quarter and anticipating the output. As I described, we're into May now with qualification June, July qualification. Facilitating the equipment in May that we brought in. So I think as we get into the Q3, we'll be clear about our ability to generate the output we need.

Speaker 6

Okay, great. And then Jim, just one more follow-up. Do you expect these tariff clawbacks to be relatively continuous as you go forward? Or was it still spotty and kind of unpredictable? How should we think about that and then kind of what's in the backlog for you to claim?

Speaker 1

In the short term, we can we're sort of expecting the same level For this quarter, that's our anticipation. And then it will kind of throttle down a bit because we've basically been clawing back what amounted to It's a go worth of tariff payments. So that will come that will feather down over the course of the year.

Speaker 6

Okay, great. Thank you.

Speaker 1

Okay. Operator, next question?

Operator

Yes. We have again the person who was part of the question earlier through the phone line. So please, unmute yourself using star and 6. I will also unmute you from our end. Please state your name and go ahead with your question.

Speaker 8

Hi, this is Richard Chan with current alum. Can you hear me?

Speaker 1

Richard, we can. Yes.

Speaker 8

Excellent. I'm glad I was able to make it in this time. Thanks for taking my questions guys.

Speaker 4

We're not trying to block you guys.

Speaker 8

I was blaming my input skills on my phone here, not you guys.

Speaker 5

I guess I want to kind of ask

Speaker 8

a follow-up to a Two different past questions, including starting with Quinn's about how to think about when you're seeing an inflection points and kind of the characteristics Of when that happened? And Patrizio, I understand your response to the couple of those has been, you don't have complete clarity in that. So let me kind of ask a multi parter on this and I'll let you kind of go read like to

Speaker 6

as I think you get the

Speaker 8

gist of my question here. So I'm not exactly sure when that will be. It sounds like it could be either with lateral, lateral, Vertical, I'm assuming these are with AI accelerator type applications. But also could you characterize whether these are designs that are done and completed Just haven't been greenlit at the time or are they still designs in flight? Maybe just kind of help clarify the dynamics here along those lines, please.

Speaker 2

So we're working with a number, as you point out of AI accelerator card companies. They're all in different stages. Some of them are actually in early sort of preproduction. Others are in qualification. Others are also got advanced developments going on that will be qualification later this year and then ramps later this year maybe and maybe More like early next year.

Speaker 2

So it's across the board, Richard, really. And it's a mix of applications, but most of it is And then we've got some lateral vertical activity going on as well.

Speaker 8

Okay, perfect. That is helpful. Maybe let's ask an automotive question here. And I may have Phil, I may have missed all of your comments about kind of the latest update here in the last quarter, but maybe if we ask you kind of do a 2 parter here again, Repeat what you said about those designs and maybe if you can kind of give us the top down here and how many designs you have and what Functionalities, your comments on the press release talk about applications up to 150 kilovolts, which seem to apply inverters in EVs. Maybe kind of characterize what functionality you're supporting then.

Speaker 8

And just to clarify, it sounds like calendar 2020 5 is a timeframe to expect material revenues there. Is that accurate?

Speaker 4

And that was kilowatts, not kilowatts. Yes. My apologies.

Speaker 2

So if you look at The chipset that we showed basically the power module family that's making up most of the solutions that we're bringing forth because as we talked But before, this is a very scalable technology, right? You can have a 5, 10 kilowatt, 800 volt to 48 volt System and then you can add more modules to scale it to 15, 20 kilowatts and so forth. So that's really loved by the automotive OEMs and also Some of the Tier 1s that we're now working with. So the applications are 800 volts to 48, 800 volts to 48 to 12, then you can go 400 volts to 48 to 12 or 400 volts to 12. So Different types of car platforms that use that down conversion capability that we can offer In 2 or 3 power modules.

Speaker 2

On the other side, Patricio mentioned the 150 kilowatt. That's for an onboard charger for rapid charging. It's a 400 volt, 800 volt bidirectional buck boost, if you like, converter system with 98%, 99% efficiency. If you can hold it in the palm of your hand and you can get 30 plus kilowatts out of it, we showed it at WCX last week and actually in a module form That can achieve, I think it was 150 kilowatts in the stack that we have.

Speaker 4

Yes. In a stack of right now with some OEMs, 5 modules going down to Four modules going down to 3 modules. With the power density, there's literally 5 times better In terms of volume and weight than any competitive alternative.

Speaker 2

So Richard, in Q1, I mentioned here just briefly Again, we had a supplier agreement with a major Tier 1. We signed that, expanded design wins at OEMs we started working with almost 2 years ago with additional platforms and new applications like the onboard charger example. We also had 3 new collaborations in the quarter and added a major design win with an SOP in 2026. Those are from my comments earlier. We've got quite a number of collaborations going on now globally, but all of them center around that 800 volt down conversion To 48 or 12 or 400 volt down conversion 48 to 12 and then also 48 to 12 applications with Wire harness type companies, and then also, these rapid charge onboard charger systems At very high power levels with a number of OEMs and Tier 1s.

Speaker 2

So it's a really it's quite a mix. And As I said before, I'm very excited about it. We're really engaged with a very high class level of OEMs and Tier 1s now. It's very exciting.

Speaker 1

Okay.

Speaker 8

A lot of detail there to unpack. I think I got some good notes there. I think I will jump out of line here though. Thank you very much guys.

Speaker 1

Okay. Thank you.

Operator

Thank you. The next question is from Doug Campbell. Please go ahead. I will unmute you now. Please also unmute yourself from your end.

Operator

You can go ahead now.

Speaker 5

Can you hear me guys?

Speaker 3

Yes.

Speaker 5

Hey. Okay. Just a couple of quick questions. First of all, Patricio, congratulations on the Forbes article. I thought it was really great to see you Talking to a broad span of people, obviously Forbes is a great publication and I thought it was well written and explained the story pretty well.

Speaker 5

I thought it was a very handsome photo of you as well. So congrats on that. I guess my only question is with the drawdown in the backlog and some of the timeframes you've given for new products and new OEM contracts and All of the above with the new factory pretty much not being online until July, August or in that timeframe. I've kind of viewed this year as a transition year. Do you See the backlog being significantly drawn down.

Speaker 5

I don't want to say to 0, but as we enter Q3, Q4, I mean, will the backlog just be eliminated at this point?

Speaker 4

So it's hard to tell exactly what's going to happen. But In terms of bookings, we believe that the low point took place in Q4 with an improvement in Q1 and further improvement in Q2 expected, but because of the uncertainties With respect to some of these programs ramping, which is really Something we can control. It's hard to predict exactly what is going to happen through the balance of the year with respect to backlog. Our revenues in Q1 were not limited by backlog. We're still playing catch up with respect to the backlog.

Speaker 4

And even in Q2, we're going to be playing catch up. So in one way of looking at it, in terms of taking care of customer needs In the short term, the monkey is not on the back of the front end of the business. It's still On the back end, in terms of operations, setting up the bar, given the challenges with outsourcing Of some of the chip processes, which has still been a factor in recent months. Getting the apples within the quarter.

Speaker 5

Well, 2 things. I have to believe that you guys Are counting the seconds before you can produce everything in house because I know as investors, I'm not going to be I'm not going to say we're so tired I was hearing about the outsource manufacturing problems. When you guys control this, it's going to be a game changer. I guess I was thinking the drawdown was going to occur because you talked about, I guess, new orders or new projects In Q4 maybe heading into next year. So I was thinking that the bulk of the revenue for the next few quarters would come out of that Backlog, I do realize it's significant, but with a book to bill, again, you don't give specifics, but I know it was significantly below 1, it's improving.

Speaker 5

But if it stays, let's say, below 0.6 or 0.7, that backlog is going to draw down pretty quick. So I mean, Have any of your conversations talked about economic weakness or the most forecasted recession that We've ever seen before. I mean, it hasn't hit yet, but everyone's pointing to it. That also makes me a little antsy in that your plants About to come online and you have all these great industries and all these great potential customers, I'm also concerned about the macro and I'm concerned about how deep will the recession be if there's a recession. Do we have a repeat of Q4 of 2018 where certain OEMs just shut off the order flow for a certain period of time?

Speaker 5

I know you can't predict that, but I'm wondering if you're getting any feedback For many of these larger guys, I mean Microsoft's quarter was great today, Alpha is better than expected. So I'm wondering what you guys are hearing.

Speaker 4

So I'm not really concerned about these factors. Obviously, They are there and they have a certain degree of unpredictability. But I feel I'm in a safe harbor because of The technology, the products, the fab, the scalability, the cost effectiveness, The diversification with respect to end markets, the general Big cash on with EVs converging on 48 volt as an infrastructure for power distribution. So all of these things at the end of the day will bring about more demand than our fab We'll be able to supply, which is a substantial multiple of our current revenues. As I have a perfect level of disability, none of us has, but I'm not losing any sleep with respect to our ability to fill this out.

Speaker 5

Well, just and I'll just finish with this because I've taken enough time. I'm not I have no doubt about your future. I'm just concerned with the present. That's as an investor, that's all I'm concerned with. Your future to me 2, 3, 4 years out, I have no doubts where the company will be.

Speaker 5

I'm just last couple of quarters and the next couple of quarters for me as a fund manager, it's a little tricky. That's all.

Speaker 4

Understood. And I think by the way, your choice of words This year being a transition year, I think that's very much on point. It is a transition year for a number of reasons. But Yes. The year is progressing, but we're going to be getting to the end of the year before we realize it and all of these critical Elements are going to be in place?

Speaker 5

Well, the future in all these industries has panned out exactly as you forecasted years ago. So I just I hope we all make a boatload of money On top of it all.

Speaker 4

Thank you.

Speaker 3

Okay.

Operator

Thank you. Next question is from another caller. So please

Speaker 3

Hey, this is Quinn Bolton from Needham. Can you guys hear me?

Speaker 1

Hi, Quinn. Yes.

Speaker 3

Hey, hopefully this is a better connection.

Speaker 6

Just wanted a couple of

Speaker 3

follow ups. Last quarter, you talked about the ability to potentially come in on some redesigns where processors Had shipped initially using multi phase, and you saw the opportunity to redesign those boards with 5 core components. Can you just give us an update whether you still see that opportunity? And if you do, are those going to be the lateral or are those lateral vertical designs?

Speaker 4

So some of these solutions suggested earlier are severely handicapped I. E. Air lateral PBM. Now a Tycho solution that is still lateral Within in effect the constraints of the lateral PDM offers performance advantages in terms of lower noise, Some increase in power density, but not on the scale of a lot of vertical solution And even less so on the scale of a fully vertical. The transition in terms of The architecture I suggested earlier is not as quick and simple As some of us would like it to be, because of the nature Of the design process with 4 gs components and the novelty in terms of A different kind of PDM that customers, OEMs struggle with in terms of Appreciating the benefits through the various stages of the design process.

Speaker 4

And that's What has led to delays and some level of profitability, but I can generally say that There is growing recognition of major benefits. It's not just slashing the PDN losses, OEMs are coming to realize that there is as much of A power saving in the silicon itself because frankly the end cap results into Large voltage differentials within domains, the primary rail and auxiliary rail that It require a significant increase in power dissipation within the silicon itself. So the advance They brought about by a lateral vertical PDN even before we get to fully vertical PDN. It gets measured not just by 50, 60, 70 watts worth of reduction in PDN loss. There is Just about as much of a reduction in power loss within the silicon and better functionality of the silicon And a lower noise flow.

Speaker 3

No, I understand, Patricia, that the benefits of lateral vertical And vertical only out in the future. I guess what I'm trying to and I think a number of investors in the company and many on this call are trying to ask is, Will do we effectively need to wait for next generation 3 nanometer XPUs Before we see the significant ramp of lateral vertical or vertical only solutions, can you ramp lateral vertical on Existing 5 nanometer processors over the next year?

Speaker 4

Yes. So as we said earlier in the call, we I believe that there may well be a ramp with the lateral solution because of Certain benefits even though the PDN is still handicapped. We believe that Before too long, there's going to be a ramp for a lateral vertical alternative that It's got distinct advantages ORM and all of these are developments that Based on current silicon, they are not contingent on the 3 nanometer Notes that Phil made reference to In our most recent prior conference call, what it was pointed to there Is those developments making it, practically speaking, impossible for lateral solution to Engra And we are seeing the robust requirement for our 5 gs taco solution.

Speaker 1

There is some feedback on the line, Quinn. Yes. Hopefully, you caught that.

Speaker 4

Hello, Quinn.

Speaker 1

Operator, are you there?

Speaker 3

Hey, guys. I'd have to do that muted because of the background noise. Hopefully, you can hear me again. Yes.

Speaker 8

Okay. My next question was last quarter, you

Speaker 3

talked about seeing some cancellations. In this quarter, I haven't heard you mention cancellations. Just wondering if you saw any meaningful cancellations The backlog or whether you think the cancellation activity has largely subsided at this point?

Speaker 2

Yes, we haven't seen cancellations, Quinn. Back Looks very good.

Speaker 3

Perfect. And the last one for me, just you mentioned the last key pieces of equipment, I think, being

Speaker 1

delivered in May and

Speaker 3

qualified in June and And I think being delivered in May and qualified in June July, does

Speaker 4

that get you

Speaker 3

to the full $1,000,000,000 run rate or Are those pieces of equipment just bringing you to the sort of the full vertical integration capability, but to the extent you wanted to ramp To $500,000,000 or $750,000,000 or $1,000,000,000 you would need several additional lines of whatever equipment was delayed until Late April or May?

Speaker 1

So in April, we took receipt of the equipment For vertical integration through plating of the copper, which is the critical process that we had outsourced. First step was Half of the 18,000 panels per month around there capacity we have the ability to install We'll install the balance as we need it, but the plating operation and the vertical integration should position us for, as Patrizio said, about a $1,000,000,000 capacity. Do you

Speaker 2

have anything

Speaker 3

to add?

Speaker 1

Go ahead.

Speaker 3

Okay. So it sounds like you've got half of the equipment

Speaker 1

I don't want to give you the wrong impression. We've got the equipment lined up to do the plating operation We've installed just for as a matter of starting the process, half of the total capacity we can install. So the next tranche of capacity It's very easy to put in. There's no problem at all expected with that. In May, we'll do the pilot runs.

Speaker 1

June, July, we'll qualify All the equipment and we'll have essentially the capacity in place to generate the panel output that we need to get to that level. Now there will be one Minor outsource process that's very simple to accomplish and that will not be a capacity bottleneck in the future.

Speaker 3

Okay. Maybe let me see if I can clarify with this question. It sounds like with the exception of this one small process that will remain outsourced, You'll have vertical integration capacity to do about $500,000,000 of revenue By the end of Q3?

Speaker 4

More than that. More than

Speaker 3

that. Okay.

Speaker 4

To give you a little bit More color with respect to this. What Jim was referring to is one of the processes So they're vertically integrated or about to be vertically integrated. There is many processes in the chip fab That being vertically integrated and whose capacity can support the $1,000,000,000 revenue in terms of pounds per week, Pounds per month, pounds per year. Also what should be considered is that Depending on the mix between on the one hand data center AI where the panels are very thin, They're going to be with 5 gs 1.6 millimeter thin or automotive chips, Which are considerably thicker. Those are front end products, typically 7.4 millimeter thick.

Speaker 4

The capacity of this equipment scales in effect in inverse proportion to the Thickness of the panel. It's a little bit like in a wafer foundry, capacity being function of the number of Mass layers. So we have actually more capacity in terms of pounds per week For data center or AI applications that we would have for front end high power automotive type of chips. But generally speaking, looking at the bulk of the capacity, we are going to be as of Q2 In a position to support the lion's share of $1,000,000,000 worth of revenues per year.

Speaker 3

Understood. Thank you.

Operator

Thank you. We have no further question in the queue.

Speaker 1

And operator, I think this will be our last question as we're at the top of the hour.

Speaker 4

I think she said that.

Speaker 1

Okay. Okay, fine. Okay. Thank you. Thank you very much.

Speaker 1

We're ready to conclude the call then, operator.

Operator

All right. Thank you. Thank you, everyone. That marks the end of your webinar. Thank you for joining and have a nice day.

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Earnings Conference Call
Vicor Q1 2023
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