Q1 2020 Earnings Call
[music].
Good day, everyone and welcome to the Vicor earnings results for the first quarter ended March 31st 2020 called for in school hosted by Chief Financial Officer, James Simms. My name is off the law and I'm. Your event manager today. During the presentation. You are nice we remain on listen only if you require assistance at any time Lieske saw.
Zero on your telephone and the coordinator, we'll be happy to assist you I would like to advise all parties. This conference is being recorded for replay purposes, and now I'd like to hand over to James. Please proceed.
Thank you very much good afternoon, and welcome to Vicor Corporation's earnings call for the first quarter ended March 31st 2020.
Jamie Simms, Chief Financial Officer, and with me here in hand over his Patrizio Vinciarelli Chief Executive Officer.
After the market's close today, we issued a press release summarizing our financial results for three months ended March 30 Onest.
This press release has been posted on the Investor Relations page of our website Www Dot Vicor power Dot com.
We also filed a form 8-K today related to the issuance of this press release.
I remind listeners this conference call is being recorded and as the copyrighted property of Vicor Corporation. I also remind you various remarks, we make with during this call may constitute forward looking statements for purposes of the Safe Harbor provisions under the private Securities Litigation Reform Act of 1995 [noise] et.
Separate historical information contained in this call the matters discussed on this call, including any statements regarding current implant products current and potential customers potential market opportunities expected events at announcements planned capacity expansion as well as management's expectations for sales growth spending and profitability.
They are forward looking statements involving risks and uncertainties.
In light of these risks and uncertainties, we can offer no assurances that any forward looking statement will prove in fact to be correct.
Actual results may differ materially from those explicitly set forth or implied by in any of our remarks today.
The risks and uncertainties, we face are discussed in item one a day of our 2019 form 10-K, which we filed with the FCC on February 28 2020.
Please note the information provided during this conference call is accurate only as of today Thursday April 20, Threerd 2020.
Vicor undertakes no obligation to update any statements, including forward looking statements made during this call and you should not rely upon such statements. After the conclusion of the call.
A replay of todays call will be available beginning at midnight Tonight through May eight 2020, the replay dial in number is eight eight a. [noise].
Hey, six.
Eight Wapas excuse me 801 zero again, Thats 286, 801 zero.
I loved by the passcode eight to 686567.
This dial in and pass code or also set forth in today's press release.
In addition, a webcast replay of todays call along with the transcript will be available shortly on the Investor Relations page of our website.
I will start this afternoon's discussion with a review of our Q1 financial performance.
And after closing remarks by Patricio, we will take your questions [noise].
Beginning with consolidated results as stated in today's press release Vicor reported total revenue for the first quarter of 63.4 million up slightly from the prior quarters 63.1 million.
Rick product revenue declined 2.8% sequentially, well advanced product revenue rose 9.8% sequentially.
Late in Q1, a small number of customers requested we postponed shipments due to the coded 19 pandemic.
However, the impact of those postpone shipments on first quarter revenue was immaterial.
For Q1 brick products represented 71.8% of total revenue, while advanced products share rose to 28.2.
Domestic volume rose to 52.9% of total revenue revenue from shipments to stocking distributors domestically rose as well.
Export to revenue declined 4.8%, reflecting prior period bookings influenced by macro weakness across Asia, notably in China for our brick products.
However, exports to Asia advanced products to contract manufacturers building for our OEM customers rose slightly.
Consolidated gross margin as a percentage of revenue declined sequentially from Q4's, 47.1% to 43.1% for Q1.
Production inefficiencies caused by delayed shipments of components from China, and ramping volume of advanced products impacted gross margin.
We also incurred a noncash charge to increase the reserve against certain inventories of raw materials.
Hi, inbound tariffs continue to impact gross margin as we recorded $1.8 million of tariffs for Q1 up from 1.3 million for the prior quarter.
Regarding tariffs us customs remains backed up with high volumes of applicants for the duty drawback program. So we have yet to recover any amount of tariffs paid to date.
The total amount under section 301 tariffs paid since implementation exceed $7.4 million and we anticipate nearly two thirds of this amount is eligible for drawback.
During the height of the Chinese shutdown in February we did as mentioned experienced some delays in receipt of raw materials by mid March However, all of our suppliers were operational and meeting their commitments to us.
I will now turn to Q1 operating expenses.
Total Opex rose just under 3% with the increase entirely associated with a project specific rise in prototype development spending.
No other category of operating spend rose meaningfully.
Full time headcount stood at 991.
At March 30, Onest inline with the year end total of 993.
We recorded an operating loss for the quarter of $2.4 million, reflecting lower product level profitability.
Turning to income taxes, we recorded a small net benefit for Q1 of $494000. After.
Although we are forecasting a full year of profitability.
We have thoroughly reviewed the cares act for any possible provision from which we might benefit.
Because vicors too large to qualify for lending programs and our financial performance and resources, if not been materially affected by the pandemic today.
The primary cares provision available to us is the temporary retention of the company's portion of social security taxes payable in 2020.
Of course, representing 6.2% of payroll.
This will be a balance sheet item not a PML item as we will continue to expense such taxes through the year, but we will not be required to repay the full amount, which we estimate to be approximately $3 million until December 2022.
Net loss attributable to Vicor for Q1 totaled 1.7 million.
GAAP loss per share was four cents based on a share count of 40.635 million shares.
Turning to our balance sheet cash and cash equivalents sequentially declined to 82.8 million due to the net loss and an unfavorable swing and working capital.
Accounts receivable net of reserves totaled 41.3 million at quarter end with Dsos for trade receivables improving to 42 days all balances our current.
Inventories net of reserves rose, 8.5% sequentially to 53.4 million as raw materials increased to support our near term outlook for increasing production.
Annualized turns correspondingly declined to 2.8.
Capital expenditures for Q4 totaled $3 million as compared with Q4's 3.4 million.
I'll now turn to bookings and backlog.
Q1 bookings totaled 70.1 million compared to 76.8 million booked in Q4 of 2019.
At quarter end backlog was 110.8 million an increase of 6.4% sequentially.
Advanced product orders came in as expected.
The sequential 9% decline reflects the composition of the prior quarters Order book, which included a large yearlong program for high end commercial lighting.
Absent that single large order advanced product bookings rose, 23% sequentially and were almost entirely associated with customers in AI acceleration.
Rick product bookings declined slightly quarter to quarter with the uncertainties of cobot 19 across Asia, notably in China.
So far in this quarter bookings have been robust, but given the uncertainties associated with the code at 19 pandemic, we cannot predict if this will continue.
Before I turn to our outlook for the second quarter of 2020, I will address the challenges we faced with the pandemic, which has brought about widespread uncertainty as segments of the economy. It came to a halt.
Since the declaration of the state of emergency and Massachusetts on March 20, Threerd, our manufacturing operations have however continue to function without interruption.
Vicor is an essential business under policies of the US Department of Homeland security given our role in supporting industrial sectors considered critical infrastructure.
In the second quarter, we have adapted to social distancing in the workplace and have provided work from home privileges to the extent feasible, while maintaining productivity.
We continue to operate three shifts at our Andover manufacturing facility and our engineering sales and administrative departments continue to function globally.
We have taken substantial measures to protect the health and safety of our employees and I refer our listeners to our pending form 10-Q filing which will set forth. The details regarding these measures.
Although there is uncertainly excuse me uncertainty related to the possibility that co. The 19 may influence future operational and financial results. We believe Vicors power system franchise, our strong balance sheet and our flexible operational model will enable us to emerge from the coded 19 Panda.
With relative strength.
Our expansion plans remain on track.
We intend to begin construction of the plan 90000 square feet addition to our federal Street facilities in a few weeks and as stated expect to fund this construction and related investment and capital equipment from operating cash flow.
Subject to unexpected disruptions from curve in 19, we anticipate increased revenue for the second quarter, which we are forecasting to be profitable.
With that I'll turn the call over to Patricia.
As Jamie stated and these are challenging times. However, vicor is equipped to deal with these challenges effectively.
I am grateful to our employees and our suppliers for that efforts in support of our customers.
As stated we're moving ahead with the addition of a new 90000 square foot wing.
Two on dollar manufacturing facilities.
The new wing, we enable us to establish.
Double the capacity vast products.
And the new wing would provide vertical integration for all of the process steps necessary to manufacture advanced products.
30 going to crash on all our CIB auto converse to house in package processes is a major milestone the call me national the large investments made over the last 15 years.
Measure of the R&D dollars this investment that Zap two near the positive BGR.
In terms of vessel market. This investment should strengthen on the leadership position in an emerging Tam we believe would be more than other my view glad there than the aforementioned investment.
And in terms of intellectual property. This investment is transacted by comprehensive patent portfolio.
Which is up cut acidize before represents a minefield up patents no compared to the wouldn't be able to costs for long time.
These minefield spans a multiplicity of proprietary technologies, realizing two power conversion endurance control systems and.
And to the Mashaw power packaging.
Income the National these proprietary technologies enable high density power solutions, including power and package and vertical power the Lily.
Which on the path of that happened the escalating car requirements of artificial intelligence processes.
So despite the offsetting cost circumstances.
Vical his position from a charge on the other side of the funding mix with the strong and well protected leadership.
India spans the markets for Fourq to evolve systems.
In AI, there's a center service and they call and FCC cash.
The Canadian obviously initiative and the technology GAAP separating us from any aspiring competitive multi veights every powered engineer and project manager facing high density power system challenges.
To approach provides for our unique performance in having solutions.
We often these SASSA best wishes for the out and well being as well as their families friends and colleagues.
We'll now take your questions about either.
Good luck your question and answer this is generally a now begin if you wish to ask a question. Please ski started one on your telephone. If you then decide to either earlier question seems leaky start to all questions. We will be answered in the order received Andy will be advisement ask your question all other lines, we remain on listen only.
Yes.
And we already have three questions in the Q.
And the first one is coming from the line ups Quinn Bolton. Your line is now open. Please proceed.
Hey, guys. Congratulations on the nice activity in the advanced products side, I guess I wanted to start there in the press release, you talked about the pace of activity in early second quarter, reflecting strength in the demand for advanced products can you give us better sense is that sort of across the board is that more for the.
Hyperscale.
Server motherboard business that you've been involved in for a while is it more for GPU accelerators.
How broad based demand for advanced products.
It's certainly broad based assays includes.
The portion of our ramp of follow a new GPU.
I have been scale servers.
But is also encompasses song.
TVT fall, even outbreaks that old rigs.
In industrial markets medical equip them.
So its surprisingly broad.
Frankly.
I would now desktop that.
A few weeks ago.
I've asked a number of questions relating to was behind it and.
Nashville is it derives from.
The programs that.
I outlined a moment ago.
Infantry, So just a follow up especially on the bricks business is there any weighted.
Determine whether or not.
Your customers are trying to buy ahead or build inventory buffer inventory given the.
Increasingly uncertain environment demand environment as I think nobody really knows for the second half of the years looking like or do you have pretty good confidence that the decision demand and.
Real demand for for those products.
So I asked that same question now.
Capital people here and that the ounce.
I have received and was a leader in.
The daily bookings is evidence of.
At programs that are going into production.
And generally sustained demand now without prestea three up point them in effect my long question, but with our sales folks.
That could be Soc component.
[music].
All customers.
Trying to ensure that.
They have.
A continued a pipeline of products through on certain times.
But we haven't been able to add up that component to to anything significant.
And as a complement to that when we're not susceptible to the double booking patterns that you sometimes see in.
Commodity businesses.
Because most of that most of the solutions are customized correct.
To some extent yes.
Well and then just just two quick ones re Jamie one just wondering obviously that the gross margin was hit by some of the supply chain efficiencies in the first quarter or how do you think.
Gross margin looks in the second quarter and similarly on Opex, you mentioned development and prototype expense was higher in the first quarter does that continue at an elevated level in Q2 or does it stepped back down to.
Yes levels that we might have seen.
In 2018, well appreciate Thats your department so okay, well I'll talk also your question.
I think in Q1, we have some rather unique set of circumstances I think in looking at Q2.
The margins look better.
We are ramping new products. So that's.
Not necessarily going to immediately being about to level off efficiency, we like.
So to me the guys fit fashion. So I think we may need to wait.
As we progress further along in the year to achieve.
A greater efficiencies with those new product ramps.
But as a team we're very much focused on growing our margins.
We see way, so accomplishing that and.
Certainly.
These are long term proposition not one that.
In these two immediate gratification, but given that from prizes shaping the products unique franchise, we have the economies of scale, we're about to achieve diversity getting tech lashonda is going to be brought about.
With this fashion on the factory.
We have.
A plan to get there.
In any quick comments on prototype expense into the second quarters that continue or does it set back down.
Yes. So these are these alok TV is going on in support of let IPO cast in this requirements. As these are vein past invalid offense.
The pricing.
By the buildup felt type activity a debt again is a costly publication, but one that.
Sets the stage fall.
Long term opportunity in terms of all this programs.
In general our strategy going forward given in new Paul line all bomb.
Devices that can be used boat for lateral and vertical power delivery.
And as they represent a stand that product offering our Zhao strategy going forward will be two lavish to the extent possible with most of free cash us and most cash summers those stands up products in order to provide the Columbia national benefits, including.
Shorter cycle time faster time to market and to your point that most significantly meaning these ash on all of dark develop fence that.
Intense and costly and also that are not in new entry a scalable as we will like our capabilities to beat the just so many of these major projects that can be handled at any one point in time, so mindful of that we've put all F.
In.
A in profitability using our Fourg technology and scaling up so called Golden sales to provide the level all multilateral key galilei tea.
That should enable us for most of the cash us to provide this solution based on standard building blocks valid ball vicor off the shelves. This we're going to be rolling out as the year progress is a survey extensive product line and again it.
I will provide cast a mess with benefits in terms of immediacy.
In depth power system solution flexibility if their power requirements change as they often do wall lessening the burden on like R&D to customize our revenue customized solutions that payload to but to your knees.
But they still going to be some of those there's no question about it we're a program warrants it because the program is in the tens of millions of dollars of revenues per year, we will see the independent.
At lower revenue rivals.
We can't justify a this found that the methodology.
Generally speaking going to be good enough.
Understood. Thank you for that for the detailed as Jerry said, Thank you Jamie.
Youre welcome.
The next is China is coming from the line of John 10 Times. Your line is now open. Please proceed.
Good afternoon, guys. Thank you for taking my question.
My first one is.
We've seen reports some some has it has us and large hyperscale companies that they're talking about or thinking about reducing their datacenter spending.
I'm wondering if you've already seen that in your advantage comments orders.
Or is that still yet to come or is it maybe being offset by the new customers and applications that that's year on now rolling out on any color there would be helpful.
So with respect to the visibility we have.
I don't see that we don't see that.
Again, we are.
At the beginning.
All the capital all major programs with major customers and the non but allow there some of smaller programs.
And those may now be affected by.
Any type of any of the belted that may be going on depending on how the domino's of course of iOS and up falling but.
I would say that thus far.
I've been surprised.
By the resiliency of the demand.
What level, where I thought we would be at this point in the second quarter in terms of bookings and.
And offering to Jamie spy, that's not going to be negated by.
A.
Weakening of the demand laid that out and we don't see that it could app them.
But we don't seat.
I would just highlight Alibaba statements.
About the magnitude of their intended spend.
We're not seeing any.
Contraction in terms of our opportunities.
Understood. Thank you and procedure you mentioned youre surprised by the strength in order to headlines that broad based or was it just one or two.
Good customers that they came in earlier stronger than expected can you just.
That help us think about what would actually went on at a little deeper level as possible.
As suggesting the early asset it's been.
Two major programs that are beginning to ramp.
With.
Demand what are the forecast as being revised up.
We'll have to see that that holds we believe hoping around long enough to be surprised the but certainly the indications are positive.
But also gentile.
If demand the full or for not just the last process, but also with old breaks.
So I think Steve said generally speaking at a relatively broad based.
Great. Thank you.
Jamie just one for you and piggybacking a bit on liquid just asked can you quantify that gross margin hit.
Supply side in the last quarter and and also the prototype and Casillas I guess above your normal run rate and I assume that that latter, but it's going to keep.
And but I won't.
Let's just characterize it as something that we hope is behind us.
Okay fair enough.
And then.
Just a general question are there any issue your partners on but leathers you suppliers of customers in terms of solvency or liquidity or maybe some of that might have been shut down by quarantine or state issues or maybe even contracting lives in their facilities.
Just wondering if there's any risk there and then how could recapture that every then how are you planning for that.
So we've had one partner experience.
In the dark shown in the workforce you took around Elias said the these appreciable significant I should say.
[music].
We're working on around that so certainly from the of our shop us back to these so as I said earlier challenging times right.
It is it's not easy sailing, but as suggested in the prepared remarks.
We are.
He is seeing very strong support from all our key suppliers and partners.
Decent anything that are process at this point in time is stumbling block.
Again, nobody else has had to work.
Some issues, but they found solutions for all those challenges and.
I think that magic is going to be too to keep.
On Megi that benefit this quarter the next quarter progresses.
Got it. Thank you very much good luck and hopefully the a this ranks continues.
Thank you.
The next question is coming from the line of Don Mckenna. Your line is now open. Please proceed.
Hi, there guys I wanted to go back gosh, I could to the bookings a bit.
And I know in the beginning of the month you increased lead times from 20 to 24 weeks.
Which ended up itself would.
Seem like would generate about a 20% increase in in a bookings for the upcoming quarter.
If you backed out.
Any increased demand do you see that would be generated by that increase in lead time, what would you see as a percentage increase.
For end demand.
Order.
So generally speaking.
You know as we all know all.
Hi.
Bookings within a quarter tend to be.
OCC is fixed right they.
He is another Nina progression as we was all love to see.
And.
And well they generally expect as the quarter progress is is that.
The plan.
He is achieved with a strong contribution in the second my intent, but the only in the 12 month. So case implied last quarter, we have a strong.
Finish to the quarter.
And that made the part of our bookings perspective.
This quarter, thus far.
Well actually percentage wise appreciably ahead.
All the delineate a feel for the plan for the bookings platform to fall off as a whole.
Our lead times to your point do play at all.
But I think this sank to we've seen in terms of the Ashok programs.
It points to sustained demand.
You know we've added examples such as.
Hey, providing bricks far ventilators as an example.
All right.
Other kinds all vast solutions that Tom.
I'm not related to be an all lead times.
And.
By the time to your point these unquestionably a component.
Now without them.
Suppliers, we've seen.
Increased lead times, particularly in the power semiconductors, adding out lead times went out.
And the Columbia Nash on all vile.
Tom point lead times, it with respect to send key components going out.
And the need to to plan factory capacity.
With greater visibility more runway.
Navigating through.
Sound component supply issues that again, we've been able to address but could recur.
That's what allows us to taking this that folks standing lead time said by four weeks.
Yes, but if you if you backed out the increased demand because of or the increased bookings because of your increased lead time.
Thank you. This is feel for what kind of a percentage increase she is a participate in the way of bookings for the quarter.
So as a zhao level I would say that in a TP got costa.
In the spa into the Quad General where essentially two thirds into the first month of the data.
With respect on a linear basis in terms, so a leaner fail to be at the percentage.
Below the if you will hundred percent level, if things were perfect any day now by typically 15 20, 25% you said well ahead of the quarterly plan on aligning our base is by percentage I'm not going to tell you saw okay and the financial.
Is substantially NAF.
Two.
Yeah.
Fit with what we see in terms so the specifics of the August that we're getting.
Okay, Great again.
When we go back to the earlier question of the composition of the bookings.
And.
[music].
And the fact that when it comes through cycles have EG cast immerse. These bookings you laid to new programs that adjustment unique ramp.
Those programs as they ramp should lead to an increase phase of bookings as we get.
Further into the second quarter into third quarter.
Okay, but my other question is kind of related to that and in that was.
What is the current percentage of capacity for the advanced products that you have.
So we are.
Yeah.
In doing.
Okay in that regard.
We.
We have the capacity we need a we always like to have this.
Assay the to be able to deal with burst demand.
It I will be running at 50% of capacity or 60 or.
I don't have a specific.
I can numbers to give you a we're not running a lot of percentage, we're not running a 50% you know what running somewhere in between.
Capacity to be CLIA ease some of the classic is dependent on being effect.
What levers we pool in order to adjusted.
So we're comfortable with respect to to not having a capacity problem over the next few quarters, but will also mindful of the fact that we're going to need more capacity and thats why inspite of the challenging time send the uncertainties all the times.
We've decided without any issues fashion that we we want to that needed to to move a hat break ground and get an expansion to our advanced products capabilities.
With the goal of actually moving equipment into the facility if not at the end of this year the very beginning of Q1 of 2021.
Thank you.
The next question is coming from that I know John Dunn. Please proceed.
Hi, guys.
Hey is that backlog number a record.
Oh.
I'm not sure, but the desire to easily as close to it.
It might be.
Thank you I think it is my having there anyway. Congratulations that's really good to see it's obviously you guys are doing well in the co than new environment.
So you had a question not it looked like your shares of stock went down I was just kind of curious as to what happened there why why did they go down.
Well there.
You can I ask that question for me on Russia on going through.
Venture a guess with respect to that.
Yeah, no other than obviously.
It to two is significant degree, but remember we're working off of loss position for the quarter. So we use what used to be called basic shares.
As opposed to fully diluted.
Okay.
So in some options become a day did or did you buyback any shares or anything like that that's just that we we do it on outstanding shares the basic share count.
Which is the 40 million six.
Yeah, just seems like it went down so just kind of curious is why we get out so actually the basic went up from 40 million for 80 to 240 million 635.
And the diluted went down.
Yeah.
Yeah and again.
Based on options that are heavily lakes was talk right.
Yes, so lower stock price.
Yes, Oh, okay, Okay, I shoot yourself.
Exercisable in the immediate future and.
Based on stock price.
Gotcha, Okay. Thank you. Thank you.
John I was wondering if you could comment a little bit bad I'd GCM engagements are there any new engagements on how's that going are you picking up some new significant customers in that.
Yes, so that is there's lot PBC on that front as I suggested earlier.
We're actually trying to limit the number of engagements.
And for Juicy amps and they use.
In even more complex if you will people sac, what we've engaged thus far with two major cast the most key customers.
Going forward, the while we get a pretty kras literally every day for.
Hello.
Solutions to the involve GCA ramps.
We.
The limit.
To the extent possible.
Going down that path to because as suggested earlier these level complexity to it.
But I'm guessing that way as scalability. So it is something that we're only going to obtain for major.
Programs in the tens of millions of dollars per year.
And again, a solutions or cast the most will like us.
To to address through a cast on GCM.
They can.
Be made to happen.
With steel.
Phase of the our power density efficiency and channel.
Performance.
We doubt involving the cash some develop fantasising yet to just Jim and to be locally are in terms. So.
The audience here why as to why these that GCM.
As got high level of constant tailoring it with a GCM we have a car multiplier that is sized to deliver the car requirement of a process. So the 700 amps, so not to them. So a thousand amps investors.
Ballpark.
And we have dot com multiplier.
Layered on top of what we call it gear box, which is.
One of the many path to the aspects of our technology.
That adapt the comp multiplier or adapt any kind of all multi our power system such as a crime multefire.
Two.
And.
Pean math.
All the.
[music].
So see ASIC.
That is being power in other words the cast in our comes to us.
With not just a crowd requirement and power requirement, but also if you will that paean map all is ASIC.
Which has got a lot of a detailed way that you're getting margin.
And is that detail that drives customization.
Because the solution he stays on the free cash and now we learnt having gone through these exercise.
A few times out to make it more scalable and we're getting more proficient of it to the point to work as I mentioned earlier, we've taken on two major opportunities with so-called people stocks were they use a gearbox these car multiplier and various.
The rest of the POS system is layered on top of the crime multi device. So you can have a complete the vertical power delivery solution.
But while we gotten better are doing this complex cast some developments.
And that being use following Tom's solve all exploring what could be down and what that technology got opportunities in the intellectual property by property opportunities would be.
It is now SAP team that we want to encourage for broad based jalpa plus type of obligations.
Thank you that was it that was a great explanation. Thank you. So that can it does tails into my next question once Youve I think you've answered and previous questions here, but I'm. One that you are unclear. So you mentioned that you had specific customers a junior expenses up and it looks like your R&D was up about.
10 million and U.S. DNA was up about a million and are those and customer engagements with the GCM or were they also involved in projects that were like sorry, $20 million or more a year like you mentioned a couple of times.
Yes, Jay speaking.
If they these attract shelled a song necessarily always the same add to justifying these kinds of development eating in the case, so companies that have significant potential.
We maintain it if the opportunity warrants it in other cases that are established companies in their respective areas were you know better opportunities very clear for us to see is so obviously judgment the enters into it and in some cases.
Some out of risk of with respect to too.
I see that he's our investment, but generally speaking we like to limit that so just to quantify for you the level of activity.
It is going on on that child trough that just within the last.
Month to month and a half.
Several of these engagements were progressing through what Andy engineering with if an idea about TV. These that in effect represent significant.
<unk> expense, both with materials and R&D personnel.
And they were all concurrent developments and that's available to all vol yandi costs being way what they are.
Great. Thank you very much I'll get back in the queue. If there is time. Thank you. Thank you.
The next question is coming from the line of Richard Shannon. Your line is now open. Please proceed.
[noise] well have to consume Jamie thanks for taking my questions. Let me start with his financial one on gross margins sounded like from your prior discussions that you're looking for gross margins are improving here to some degree in the in the second quarter, but future based on your comments. It sounded like you would take a couple of quarters, maybe to get back up to prior.
Levels of 2019.
Based on the ramp us new products is there kind of a history that you can fall back on and get it give us a sense of how fast it would take before you get back you get your gross margins backup to the mid to high Fortys.
Well so.
[laughter].
I think if they.
Yeah.
Reasonable threshold, given the level of investment into technology, the proprietorship the IP.
He is 50% right so as management team.
We have set our sights on the crossing the 50% level.
In a matter of a few quarters, and then going well beyond that as.
Justified by the half a billion dollar investment that that was referencing earlier.
In and that technology portfolio that we've been developing over the last 15 years.
A fair return for these kinds of technology.
He is not based on gross margins in the fourth these are even in the fifties.
We need to me thinking all.
Gross margins in this 60% and maybe even higher than that and obviously part of these is cost structure.
The cost fracture is key to making cast the merce very happy with respect to not only having.
Solutions that enable that competitive advantages, but those so being able to do so very cost effectively and but also they.
Importantly enabled us to achieve good margins improving margins as we need to do to get the return on investment.
So.
Going forward with the expansion of our feet the with the party integration of the bounce up process is required.
For power package Vertica power delivery.
And economies of scale associated we gathered volume given the fixed cost Sasha. The we currently have in advanced products, we have tremendous opportunity these to dramatically reduce cost and Thats you know.
Oh.
The number that we are very focused on reduction in cost and we measure these in terms of so-called Donald costs.
So as you might know I.
I like the brakes of.
Decades ago conceive decades ago, which are made the in effect one other time.
Our chips.
Made a though panels you can think of them as brownies if you will in.
Analogy.
And the factory is designed the tween effect make brown sand, we make brown is so different thicknesses.
But the the X and Y dimension of the Brownie is always the saying it just like in a way for foundry.
Let's say at TSMC or some other major foundry.
<unk> costs are based on a.
Commenting I mean, as though wafers for certain classes of products in our case, we have seen Mueller.
Metric that.
In effect enables us to achieve economies of scale based on the number of panels, we manufacture and as we drive the Powell count up the cost Sasha per panel goes down and fundamentally what.
A chip cost is a function of two things all the power costs and how many ships we get per panel and the number of chips, we get per panel.
Oops getting reviews as we continue to increase that power density of the products.
And in maybe you should do you envision that power density we in effect reviews. The area of the panel that is occupied by product of a different power couple of certain power capabilities. So.
These are the key drivers to.
Continuous cost reduction that amati cost is actually getting out costs down while at the same time getting the number of chips per panel at the certain power level per trip up.
And these tremendous opportunity with respect to using costs.
Wonderful trees to thank you for the a complete in the helpful answer there, maybe one or two more from Meenal jump on line.
You've referenced I think in the last conference call about the Oems the RCP accelerator modules, maybe characterize how important to have an opportunity you see that for this year, maybe next and I think specifically last quarter you referenced one of the versions using your LPD.
To what degree do you see that is as a contributor to revenues this year.
Well so that's the space where are these obviously it yet or a very large established dominant player.
And and loss so aspiring competitors again, what I can say is that.
Whatever.
The car requirements.
Get.
Beyond.
If you wanted apps and particularly as they get up to.
No 700 800.
Thousand apps and beyond.
Our solution is.
A very highly differentiated and fundamentally navigating what competitive alternatives are not and again co pay alternative these are handicap in a number respects their.
Bassi proficiency and potentially you know Pico, saying so.
We feel very strongly that as that market continues to span visit as.
With an I'm about all Val.
Competitors gunning for.
A market opportunity these days you too.
Grow very substantially over the next step 510 years, we see ourselves as being a common thing I mean, as our power system enabler for for the solutions.
Okay Fair enough last question for me a last quarter, you talked about a in the auto auto Smith, sending it to agreements I Didnt hear anything in your prepared remarks today.
Any any update you can give on progress there I know that we've seen a lot of or the automotive space slowdown that has had those slowdowns impacted these sort of engagement or discussions in that space.
So, yes to say hey over the last couple of months.
I think said being relatively quiet.
In that general area, you know people can travel.
Can visit.
Our than where the customers potential other cast the most investors analysts space.
So.
I think we're being trucked to wait.
In lower while it to see.
What transpires opt out of.
While the impact that recent events have add on on that.
Market.
I would suspect that you have to free cash flow.
Paul.
Trend Oh and that the.
A convergence on Fourq to Fourq involve known as a.
A central note the within that actually five bagels.
Well it before too long accelerate.
Even further in spite of.
The cost of hall coming down the goes so either a secular trends that.
Oh I believe.
Are going to be.
Driving.
These advances and Dell.
Certainly the leaders in that.
All area along are continuing to.
Jive heart for solutions AI solutions for wrong of animals driving and.
Other kinds of solutions for all at power systems.
Beyond autonomous driving.
Actually five cars.
But frankly over the last several weeks.
I haven't been personally Fibrocell doesn't match on the other multi space for obvious reasons and I haven't got than recent updates on activity on the general front.
Okay that makes sense. Thanks for the detail and that's only question should we thank you. Thank you.
The next question is coming from the line of and then Hicks. Please proceed yeah. Good afternoon and a question about.
It seems like with everything that's happening that data.
Centers service demand is increasing what are you seeing from your customers.
Getting stronger.
So if suggested earlier.
The cash them or some of the programs that what particularly Fargo song.
Our appear to be doing well and I.
A fair that.
Them with the fashion too long.
Accelerate ramps and get a new products that create new revenue opportunities. So create a new levels of efficiency in data centers.
Those are.
Driving this.
Ramps.
I can't tell you whether.
With other programs and potentially other cast to immerse the same in general trend holds I don't know for a fact, where the other but.
With the visibility that we have thus far it's been remarkably strong.
And how are things going with getting new customers.
He is going very well so again.
When it comes to a high.
If any.
Any company you would think have.
He is either an existing engagement or engagement to waiting to be kicked off.
And is how do you see 48 volt adoption is that as interest increasing how's that going.
It's definitely a.
Despite a down deed in the sense that.
That train has left us fashion not everybody is gathering on it at the but if we always going.
So take up the Vishay intelligence as an example.
In that particular case.
What drove the switch from 12 to 14 vault was the only Sasha.
That.
40 evolved was a necessary.
Intermediate note to be able to support.
The level of GPU car.
That this solution on demand it.
It is in that party hit our case.
The the car requirements of the GPU.
Oh that drives the switch from 12 to 48, even though as we all know.
We are a lot of these gpus are probably the Floyd which is in data centers.
On the for Sasha Fantasy steel largely 12 volt. These so there is a notable exception and a more exceptions that they're going to become the norm before too long you know coming our way.
But clearly there will be gone as being cross the with respect to.
12 going to 48 in automotive the same also.
Thank you only need to look at the number of confidence sees that were held before the pandemic.
In Germany in try now.
With the tie, though fourq evolve bar systems for automotive.
They what's happening with the frequency of want every capital weeks.
To get a measure of all of that trend that and again.
There may be selling few automobiles now, but I think the rationale for going Green if anything I think he's may songer by recent developments, so we see that trend.
Accelerating after the staff settles.
And I think the need for taking advantage of all advanced technologies will become even more compelling in order to have a competitive advantage in that space.
Okay, and then on your front end products, you hit that RFM product based on Fourg technology, How's that going.
That's going good so we we are engaged with.
A cast some well does it wouldn't be indeed, cas them, a florida that product.
The say a in AG customer a war.
We already providing the points, but a little solution as a power packaged solution.
They still have a very bulky.
Classical frontend, they're going to be able to shrink the size of death from fan essentially by an order of magnitude using our fourg RFM technology. So that's great to be a need.
Customer for us in that space.
And we'll look to broaden it from from that.
Well they follow us at this point on this initial engagement.
So you still have very high hopes for their printing.
I'm, sorry, Oh, yes, you still got it helps yeah, yeah, we them.
And then lastly can you give a quick update and your supercomputer business.
Other programs ramping in that space as well, there's some gathering programs other programs.
So that's.
While the example sat in the back online the now so to the earlier question with respect to you an award this fan.
The near term is coming from.
Supercomputers is one of those areas that.
You know Evan.
Programs.
That alliance and and production requirements that are coming.
Okay. So he's back sales from that and the second or third quarter.
Yep.
Okay. Okay. Thank you very much. Thank you I think if these one more question we have now.
At the end of the hour.
Yes, we do have a one more question can I introduce it.
Okay. Thank you it's coming from Jim Bartlett. Please proceed.
Many of my questions have been asked just last on the RFM a product you had said last conference call. It six seven weeks you'd have the Fourg controller chip.
And you start powering it up has not happened.
So we've had its first to revision of the for GE controller that we used to fall are wrong.
Some initial purposes essentially benchmarking.
You know not surprisingly the Sealy gone a job requires you know a.
If we spin to address some minor issues that are found in benchmarking.
The revenue so we have a Rev B, which is you win in Uh huh.
I believe a few weeks I think is about three four weeks from now we expect that to to be a good to go in terms of is cutting up our capabilities with respect to Fourg PFC, both single phase three phase RFM.
If an idea products for AC to DC power conversion from fact conversion.
And when you see bookings well design win.
He production.
That cycle, you might see yet so I will then move outs up 40, Ida Fabs as.
Being a near term.
Contributor, though there's going to move the needle.
In.
2020, I think cap.
We should be thinking and next year the after that.
For initial significant opportunities for for that technology, but enough to your question.
We see that as a very important complementary.
Capability.
It's complimentary because as I mentioned over the past.
The conference calls.
It is what brings power from whatever worldwide AC mains, you know I happened to be available to the Commons and you mean has a 48 volt note, which is the hobby if you will from which.
We take cash them or so the point of load so.
As suggested a moment ago, we have lead cast summer that has gone to fourq evolved.
To.
Support that they iconic requirements sub one vault.
And now wants to.
Compete their system with a solution that is much more dance and sales the often I respect.
To to power their systems from worldwide. They seem AC made so we see that as a sense it was truly differentiate.
Their system, our solutions are getting a complimentary way.
From AC mains doesn't matter, where you are going to be U.S., Japan.
Any source AC source to Fourq involved and then from there to the point of load.
Thank you.
And congratulations on very much looking forward to the <unk>.
Order of magnitude return on the 400 million.
Well, we're counting on it thanks, very much and we'd be talking to you in a few months have a good day bye everyone.
Thank you very much everyone. That's confuse you will come from school for today you may now disconnect. Thank you for joining enjoy the rest of your day.
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