Q2 2020 Vicor Corp Earnings Call
[laughter] welcome everyone to this conference call, which will begin shortly you pretty quite assistance at any time, but he's best idea when your telephone in the meantime, we've continued to play the music. Thank you for your patience.
[music].
Good day and welcome everyone to the White core earnings results for the second quarter ended June 30, Twentytwenty conference call, what's the by they'll put patrizio Vinciarelli CEO and James seems.
Yeah for Wicor My name is Shandong and I am you'd even manager during the presentation.
So we remain only spend only if any quite a few cents at any time, but he spent staci. It on your telephone and according to you told me I'd be happy to assist you I would like to had like all parties. This conference is being recorded and now I'd like to hand over to James. Please proceed.
Thanks send or a good afternoon, everyone and welcome to Vicor Corporation earnings call for the second quarter ended June Thirtyth 2020.
Jamie Simms, Chief Financial Officer, and with me here and Andover, Arbitrates, you're going to really see you know and fill Davies Vice president of global sales and marketing.
After the market's close today, we issued a press release summarizing our financial results for the three months ended June Thirtyth [noise].
It's press release has been posted on the Investor Relations page of our website.
Core power Dot Com, we'd 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 that's the copyrighted property of Vicor Corporation.
I also remind your various remarks, we make during this call may constitute forward looking statements for purposes of the Safe Harbor provisions under the private Securities Litigation Reform Act 1995.
Except for 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 offense, and announcements and ARQ <unk> capacity expansion as well as management.
Patients for sales growth spending and profitability.
Our forward looking statements involving risks and uncertainties.
In light of these risks and uncertainties, we can offer no assurance that any forward looking statements will in fact proved to be correct.
Actual results may differ materially from those explicitly set forth in or implied by any of our remarks today.
The risks and uncertainties, we face are discussed an item one way or 2019 form 10-K, which we filed with the FCC on February 28, 2020, as well on the prospectus supplement associated with our recent share offering, which we filed with the FCC on for 24 24 be five on June nine.
2020, both of these documents are available by the Edgar system on the Fccs website.
Please note the information provided during this conference calls accurate only as of today Thursday July 23rd 2025.
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 on this call.
A replay of todays call will be available beginning at midnight Tonight through August 7th 2020, the replay dial in number is eight.
Age six 801 zero, followed by the passcode four one sixeight five to zero three [noise].
Just dialing in passcode are also set forth in today's press release.
In addition, a webcast replay of todays call along with a transcript will be available shortly on the Investor Relations page of our website.
[noise] I'll start this afternoon's discussion with a review of our Q2 financial performance after which Patricio, Phil and I will take your questions.
I'll begin by addressing Vicors response to the 19 pandemic.
As reported last quarter Vicor has taken substantial measures to protect the health and safety of our employees.
Following local government and federal CDC and Osha guidelines for employee wellbeing.
Using match some practicing social distancing.
Since Q1, we've operated three shifts at our Andover manufacturing facility, while our engineering sales and administration administrative personnel are now working in their offices if allowed to do so under local rules.
I refer our listeners to our pending form 10-Q filing which will set forth updated details regarding our response to the pandemic and the impact it has had on our operations.
Although there is uncertainty related to the extent the pandemic will negatively influence our future all future operational and financial results.
We believe our liquidity flexible operating model existing raw material inventories and dedicated workforce will enable vicor to continue to effectively conduct business until the cobot 19 pandemic passage.
We are monitoring changing circumstances worldwide and may take additional actions to address cobot 19 risks as they evolve, particularly to federal state and local governments so require.
As much of the potential influence of code at 19 is associated with risk outside of our control we cannot estimate the extent of such influence on our financial or operational performance or when such influence from I concur.
Now turning to consolidated results as stated in today's press release Vicor recording total revenue for the second quarter of 17.7 million.
11.6% sequentially from the prior quarter 63.4 million.
Advanced products revenue rose, 36.1% sequentially.
Primarily reflecting ramping shipments of our lateral power solutions for acceleration.
Brick product revenue rose, 2% sequentially, reflecting a recovery of Asian markets, notably, China, [noise] offset by reduced domestic shipments, reflecting the influence of cobot 19 on U.S. manufacturing.
The pandemic contributed to both lower shipments to stocking distributors and overall lower turns volume for the quarter.
While we supply range of essential industries.
Domestic customers, including defense contractors significantly reduced production in Q1 and have yet to return to pre pandemic demand levels.
We are hopeful our U.S. business once the pandemic a base will experience the same quick recovery, our Chinese business has experienced.
We do not believe this demand has evaporated, but considering postponed.
[noise] for Q2 advanced product share of total revenue rose to 34.4%.
Brick product share declined to 65.6% of total revenue.
Our expectation is that advanced products will continue to grow their share of revenues, even as domestic brick product demand recovers.
Exports increased as a percentage of total revenue to approximately 70%, reflecting the aforementioned recovery of Asian demand for brick products and a near doubling of shipments of advanced products to Asian subcontract manufacturers building systems for our OEM customers.
Shipments to European customers also recovered.
Reflecting the shift in the impact of the Cobot 19 pandemic from China to the United States.
Domestic revenue declined to approximately 30% of total revenue.
Despite higher unit volume the ongoing impact of the pandemic on our supply chain partners as well as mixed considerations cost consolidated gross margins as a percentage of revenue to slip three tenths of a percentage point sequentially from Q1's, 43.1% to 40.
2.8% for Q2.
We again encountered production inefficiencies on cost variances as vendors struggled with Covance 19 challenges.
Gross margin was also burden by higher tariff charges totaling $2 million for the period.
Unfortunately, U.S. customs is yet to address our duty drawback filings. So we have yet to recover any amount of the total of 9.4 million paid and to date in tariffs on Chinese imports as previously discussed we anticipate more than half of this amount is eligible for drawback.
I'll now turn.
I'll now turn to Q2 operating expenses [noise].
Total opex declined 4.8% sequentially with the decline associated with a decline in gionee expenses, namely audit and legal costs.
A decline in travel costs with sales and marketing marketing given the pandemic.
Any decline in prototyping and related costs in R&D.
For the quarter, we incurred approximately $236000 of incremental employee safety and well being expenses directly associated with our response to the coven 19th the endemic.
Also please note the expenses associated with our June equity offering were recorded as a charge to paid in capital and we're not reflected.
On our income statement.
As highlighted in our press release overall Q2 results were affected by 1.2 million noncash charge associated with the acceleration of equity based compensation expenses.
Hi to an award of stock options in June.
One might expect that the value of the award would be recognized pro rata over the five year vesting period of the options.
However, because our option plan allows for anyone to retire at age 62, and a half and retain their unvested options over the original vesting period.
Required accounting is for us to record at the time of the award all of the compensation expense for employees, who have reached that age.
The amounts of total equity based compensation expense for Q2, including included in cost of goods SGN, a and R&D were approximately $277000 $1 million and $629000 respectively totaling.
$1.936 million.
We reported operating income of 2 million, representing an operating margin of 3%.
Getting into non-GAAP disclosure I'll simply point out that absent the 1.2 million compensation charge, the 2 million Terra charge and certain expedite fees and vendor surcharges totaling $1 million for the quarter, our operating margin would have been appreciably higher.
Turning to income taxes, we recorded another small benefit for Q2 of $406000. Although we are forecasting full year profitability.
The next the net tax benefit for Q2 and year to date was primarily due to result of the income tax accounting required for stock options exercised during those periods.
Net income attributable to Vicor for Q2 totaled 2.7 million.
GAAP earnings per share was six cents based on a fully diluted share count of 43.385 million, which includes 1.741 million exercisable options.
As a reminder, we issued 1 million 767231 shares, including the Underwriters' overallotment option in our June share offering.
Turning to our balance sheet cash and cash equivalents sequentially increased 4.2 million before taking into account.
Mm 109.7 million net proceeds from our June share offering.
Cash at period end totaled 196.7 million.
Accounts receivable net of reserves totaled 48.5 million at quarter end with Dsos for trade receivables, increasing slightly to 45 days from the prior quarters 42 days.
Paul balances are correct and we have made no meaningful accommodations to customers gauge improvement 19 challenge.
Inventories net of reserves rose, 4.3% sequentially to 55.6 million as raw materials increased to support our near term outlook for increasing production.
Annualized turns remained at 2.8.
Capital expenditures for Q2 totaled 5.3 million, representing the value of equipment placed in service during the period.
In contrast at quarter end, we had over 47 million of approved capital projects.
Underway the balance of the budget in fraud projects currently estimated to be approximately 15 million likely we will be improved by year end, bringing total for the expansion to approximately 62 million.
We expected to pursue dispersed approximately 25 million before year end with the balance to be dispersed again 2021.
As previously disclosed construction is now underway, our 400 Federal Street manufacturing facility, but we do not expect much of the total $62 62 million dollar amount to be placed in service before mid year 2021.
I will now address bookings and backlog.
Two bookings rose to 87.5 million a sequential increase of 24.9%.
Overall book to Bill was 1.24 with advanced products at 1.35 products at 1.18.
At quarter end backlog totaled 127.5 million, an increase of 15.1% sequentially.
We earlier mentioned the challenges faced by customers and the current backlog balance includes approximately $8 million of orders rescheduled from Q2 into Q3 in Q4, either by us or by customers due to coded 19 related challenges.
Turning to our outlook for the third quarter, we expect strength in bookings for advanced products, given our customers forecasts.
Great product bookings in July continued to show strength in Asia, notably in China, but we have not yet seeing indications that domestic demand maybe resuming.
Having said that based on existing backlog scheduled for Q3 and of course subject to the near term influences of Cobot 19, we are forecasting increased revenue and improved profitability for the third quarter.
With that.
Patricio, Phil and I will take your questions operator.
Thank you very much so everyone question and answer session will now begin if you wish to ask a question. Please press star one when your telephone. If you then decide do we did earlier question simply press Star two little questions. We will be answered in the order received and you will be advised went to ask your question.
All other lines, we have the main only send only so just to be keep in mind. If you wish to ask a question. Please press Star then one point your telephone.
All right we have already received the couple of questions.
The first question is coming from the line of Joan.
On the one thing.
In line is open now please proceed.
Good afternoon gentlemen, thank you taking my question vendor during this quarter.
Hi, John.
First one from me can you discuss how much Covidien pack you had in the quarter on a cogs basis and that's been result in July.
I probably.
Could give you a.
Pretty good number but I won't.
The.
Issues are.
Still in play.
But we have taken steps to remedy.
Some of the some of the variables.
And we're hopeful that.
Things will improve but I suspect that for the coming quarter.
We will still face.
Some of the inefficiencies and challenges that we discussed.
Is that fair.
Yes, I mean, the diminishing right.
Yes. Thanks.
You may specs.
Mark.
Stable now than they were R&D in the year and subcommittee there's been.
Thank you opportunity to address that to the new environment.
But with some suppliers that nestea locational basis.
Yes, I'll point out.
As we discussed in the Mdna of the Q.
Absenteeism has improved significantly from what we are experiencing coming out of Q1.
So we have some some areas of less risk, but theres still risk.
Understood.
And then moving onto the bookings.
87, and a half million is a fantastic number I was just wondering if that is the timing of that any different from your regular order pattern. When those are scheduled to deliver should we expect that to hit your PML over the next one this quarters or.
There are there any different patterns and rescheduled involved here.
This is Phil so I'm, sorry, I was a good bookings quarter I think that.
Jamie talked about in his remarks here was the strength that we're seeing with advanced products as we start to ramp.
Lateral power delivery solutions and.
And also some standard 48 to 12 and 48 to load products that we supply into the datacenter hyperscalers in HPC type.
Companies, but we've also seen some tremendous strength coming out of China. I mean, if you look at what China has gone through from a negative GDP and in Q1 to a very large.
I would rise of like almost 9% in Q2, we huge investments continuing an infrastructure there so.
We benefited from that with really good bookings on our own up Rick.
Acknowledging a few like so.
So those are being laid in for Q2 Q3.
Our lead times are still 20 to 24 weeks. We've maintained those we were not we don't anticipate reducing them anytime soon because of the supply chain challenges but.
That factors in a little bit as well.
Got it and then just to clarify you're expecting improvement in the next quarter.
And your order today advanced product did you also mean that on a blended basis. So it's too early to sell.
Just where you see bookings and go to in Q3.
I think we're still going to see good good strength in the brick line and as Jim you mentioned.
Increases in the advanced products that we see that from our forecast.
Okay got it and then last one from me.
A large player or at least a unicorn by many standards.
Released or showed up in new product yesterday, and I didn't see by core.
At least on the on the product boards that they showed.
To the public I'm wondering if you're involved and most of these projects as you've been telling people in the past.
You're talking about the growth Kwan.
Core yeah, Yeah, Oh graph core.
Oh, yeah. So no. So there was another announcement from a company called I think its groch as well they announced I don't know if you saw that one that was an AI influence a.
Chip very specialized type of product and.
Both of those companies are using multi phase at the moment.
Because the current levels are still quite low there in that 300 amp range, but I know that.
Next generation chip saw going up significantly and then moving too.
40 April systems, using micro technology.
Got it was more matter of timing than anything else yeah. Yeah. A lot of these guys start off in that three to 400 Amp range for their first Silicon and then they next silicon has gotta go up and performance because in all competing with Nvidia.
So that's where we step in.
Understood I mean that casting that as we discussed in the past the trash barrel or pain.
For.
12, all systems.
Is such that.
With power levels and Carl levels.
Over a few onto that comps if steel tolerable, but it just becomes intolerable as you get pass far far into that.
And all of these.
The all animal Kingdom unique on an otherwise so that all they're all heading for the same both in terms of.
Being able to compete with each other.
Yes.
Understood. Thanks for the color.
Thank you very much.
The next question is the next question is coming from the line of how much of course and your line is open now. Please proceed.
Just wanted to see.
So the increase in advanced products is relates just.
Inventory stocking.
I don't think any.
Yeah.
Phil do you.
No.
I don't think there's any.
Thats the simple answer.
Okay.
And my other question was a or their manufacturing efficiencies you encountered are they manageable or is it something that's going to continue for the foreseeable quarter.
So I think coffee is as we discussed earlier.
It was an issue.
Okay.
In the March after all.
Timeframe, it's a diminishing issue.
But as being an issue and as Jamie suggested you must feel to some degree be an issue this quarter obviously.
Yeah, We will watch the same news.
And we'll have to wait and see what happens.
You know in our area.
Thanks, again have them much rather than they used to be.
As Jimmy mentioned.
Where essentially back kind of <unk> percent.
But we do have some some band those seen other areas of that steel.
On the call of it the right.
Now beyond that when it comes to manufacturing efficiencies.
That is in fact this is not just call of it.
It's.
This collapse of new platforms.
In the early going it's not unusual.
But you only with new packaging technology to of inefficiencies.
On T., all we made substantial quantities.
And get yields to where they get once cities.
Maturity and.
Cycle, so learning at being reflected into fine tuning the manufacturing processes. So we're still going to be seeing some of that is baked into the south within.
The last few quarters and it will impact results going forward to a lesser extent.
Capacity easy these ashwin, it's another big factor with respect to two manufacturing efficiency a problem, our Jane and Jane speaking as we scale at.
Best product set those efficiencies are going to get better and better.
Okay and my last question what are you seeing any changes in order patterns.
With your AD.
<unk>.
Lateral power delivery products right now with the especially with Nvidias, releasing new products as a couple of months ago.
No. We're on a steady ramp yeah, we've been increasing and yet, but we really don't want to make comments that specific so anyone customer operating cash right, but across the board or across the board.
Yes.
Okay. Thank you have more than one question.
So it's important to reflect that.
I appreciate it thank you.
Thank you.
Thank you very much and the next question is coming from Quinn Bolton. Your line is open now. Please proceed.
Hey, guys. Congratulations on the results and that the nice bookings number I guess I wanted to start with bookings can you give us the split of the 87 and half million how much of that was great sense that was advanced products.
Well I sort of did already but [noise].
With the.
Book to Bill, Yes, So I think you can.
You can do the math that based on.
Yeah.
Yeah.
The numbers that Jim It arrives earlier in the percent fashion right.
Yes.
I don't have the specifics right in front of me Quinn so.
Understood understood.
Second question and I assume that's definitely a little.
Customer specific but yeah, one of your lead customers on lateral power.
As a 48 volt solution as well as a 12, both PC isolation do you have any sense, what what the mix of.
That that business will be going forward.
Well, that's that's obviously aimed at the very different marketplace right. I mean, I mean PCIA is is really struggling right now with the power levels on the they're having to pump into those boards. So eventually they'll they'll move to 48 volt and that'll be great entry point for us, but that's a very did.
Front space on the space that we're in.
Most of these guys in terms of the the training.
Loads that they're having having to do the me that's really where we're playing at the moment Quint.
I guess, maybe another way to ask that you can do you think most of the training applications will be 48 volt.
Oh, yes, absolutely, yes, I mean, that's such a heavy heavy workload and and again on the on the insurance side as it moves out towards the edge.
So again those process of power levels are going to continue to increase so.
Workloads are going to continue to go up right. So I see us playing in the edge eventually as well.
Great and then Chaney, obviously, you guys talked about some of the coded related inefficiencies that you're working through as you continue the expansion of the Andover facility do you expect any inefficiencies just with.
That expansion project.
No we don't that we got that very well plan very see some.
Mature operations team.
So they get that very well planned.
And.
Just giving up days earlier today everything is on track.
We don't anticipate any.
Interference with.
For the action within the existing wall. So for let me say strategies to.
Perhaps the space the shovel wing and build it up.
Needless to say, there's going to be some time so when.
Community cash on called with said got to be provided between the two but that's being planned to open a party you guys time, so as not to interfere with the production cycle.
Great and then my last question you'd mentioned some rescheduling of bookings from Q to Q3 Q4.
Sure if that was due to some of the production inefficiencies you would you talked about you said that there was some suppliers that we're having issues I guess my question is do you feel like you're leading demand on build or have you been able to manage to your customer forecasts. Despite some of these inefficiencies.
Well, what apple to manage to customer requirements. They tend to change in all that's the nasher.
Of Deane this thing.
Well.
Some of the backlog.
That.
Was in Q2 moved into Q3.
Hey.
This is immunity fraction all.
In advanced scale deals so with sent cast the most there's nothing unusual about that these specialty here.
Relative to other periods I think it's up.
It's been refugees routines every got.
Understood. Okay. Thank you.
Thank you.
Thank you very much. The next question is coming from the nine of gentlemen deal on your line is open now. Please proceed.
Hi, Yes first of all congratulations guys. This is a really really nice core you're just saying.
My question is kind of been answered I was wondering can give me a little more color on it and that's on bookings I'm just wondering if the bookings increase is due to.
Couple of your larger customers priming, the pump or is it more of a steady state from a a wider differs customer base.
It's both as well as what we've talked about which is the the growth of the the or the Asian business sort of returning to strength. So it's just sort of across the board, but yeah. We have we're getting some some nice bookings ramps if you like from.
You know the data center AI guys, we've been talking about and HPC companies Hyperscalers coming back to a two to ordering what they typically have ordered and they've gone through a slowdown as well so they've started to recover so it's it's sort of across the board really.
When you talk about the next quarter. It looked like bookings you then be up for the advanced products in pretty good for the bricks what about for the next two quarters do you see increases in bookings for the next couple of quarters.
[noise] again, looking very far out in a in a that sort of a turbulent time, but yeah. I mean I'm confident that the strength is it's going to remain with vicor and the products that we have on both the advanced side and.
Still see good strength on the the older products the brick products too.
Excellent. Thank you. So these these [noise].
[noise] dedicated.
Not just on whether we hear from customers so wouldn't pick actions.
But on.
The transition that these now finally, beginning to take place away from 12 into 48.
It not just into the SAP that I space, but automotive you know, we're seeing a lot of action there too now Unfortunately that's.
Long gestation period right. There is no instant galifi cash on its way Mutiara you walk steel.
All of.
Couple of years, but if we look at.
The medium to long term if you will pass the next capital Cortez into let's say that 20.
20 to 20, the timeframe, there's a lot of.
Action that is taking place in automotive that will both talk too hard to develop offense in adding that Osaka.
Excellent and that kind of leads right into my last question. That's if you can give us an update on the design wins like are they still increasing what markets are you, saying are they broad based and then finally are you seeing any design wins for the front end products.
Okay. So.
Then products for us at this point in time.
Mainly the high voltage you know fixed ratio converters. So yes, we've got lots of these items for those in the automotive market. Some in the data sent the area.
We also serve you know robotics companies emerging robotics companies, that's a very exciting market and there has got some great growth potential for us.
And also you weigh these.
Lighting have theres, a whole host of markets that John at a fairly broad based with really large numbers of customers entering.
Those marketplaces. So that's that's good strength for us. So that's on the front end high voltage bus converters in terms of.
I think your other question was that you know, but more towards the data center AI space or automotive space and yet we've got more engagements I'm going on pretty much every quarter. There's there's something new that we're working on a somebody's coming to us with a challenge or an opportunity and yes. This is very exciting time base in particular I project. This fall.
Our.
Yeah.
For GE base.
PFC.
Our system solution.
That.
The walks now and.
I think we'll leave that to.
What should be by five the most advance AI solution from crises in perspective, so soup to nuts from three face a C.
The way down to very icon.
The point of load to a 48 vault.
Cease them well, we're going to be a variety in the whole solution. We're currently providing the solution from fourq evolved to the point of load of an extra cash on sees them, we're going through providing the solution from the phase and this national season is going to be a fraction of the volume.
Some of the contract ration.
He goes in product of the advances in different path.
And I think it's going to be a game changer for the industrial luck.
This is great and it sounds like we're finally getting a the diversification that we're all looking for this is really great congratulations guys.
Thank you.
Thank you and in much. The next question is coming from the line of Kemet data on that your line is open now. Please proceed.
I actually don't have a question because I didnt.
Here.
Hi.
Hey.
Hi, just dropped Pavel.
I'm sorry to hear you that as we mentioned at the beginning of the call we are recording.
These confidence so you will be able to listen back envy. The investigate so he can it. So have you got any question or can I close your line.
Right.
No question.
Okay, sorry, thank you.
So the next question is coming from every Chad Shannon. Your line is open now. Please proceed.
Great. Thanks for let me ask some questions here as well given the follow on from one of the earlier ones and my question is more specific to bookings within the advanced products, they want to get a sense or whether there's a.
A broadening of that base here, obviously, you've got to larger customers I think in the prior answer your talking maybe about some HPC coming in here, but im, particularly curious about any new hyperscalers and or customers with.
With Oems that you're starting to see material bookings for.
So.
So on the OEM side, we've got a lot of design and either 48 to 12 or fewer 48 would lateral power delivery. Those those companies are bringing those products to market, but again.
You know that they're finding their own hyperscale customers to work with so it's early days for us to really understand the forecast on the penetration of those particular chip companies within within the Hyperscalers, but they telestack, the winning share and getting good design and so so.
That's that's yet to come but we're still doing.
Doing really well in that area.
Also you've got the new.
I'm sort of VR 14.
Sure the board's being developed by Intel and Intel's.
Customer base and.
40% of those 50% is what we're hearing is going to go 48 volt.
That's that's on the that's a number thats being confirmed and in those types of applications. We are providing the 48 to 12.
The regulated or unregulated solutions.
You know that that market is a market that has got a number of competitors in it but nobody's got the density efficiency and performance that we have so we expect to get some good design wins in the in the VR 14, Eric area both at the Hyperscaler.
Companies, who will do their own reference designs off of the Intel reference designs.
Well as in the C M companies down in Taiwan and China.
Okay, Great just follow up on that silly, if you listen to the Yossi piece someone here earlier. This spring they talked about some some revenues coming from Oems here in the second half of the year.
Sounds like from your commentary you might not necessarily expect a whole lot wanted to kind of dive into that a little bit is that something is that a fair.
Interpretation for me from what you've said or do you still see some nosal revenues this year.
I think it'll be early next year, Richard I don't think though he you know heavy bookings this year, we'll see some early bookings obviously in terms of how they.
They do their early production ramps and get ready to launch but in terms of the big numbers that those will come next year.
Okay.
Fair enough a quick question on gross margins a follow up from from earlier and I think to treat so you were commenting on some previous questions here about getting some maturity in the manufacturing process here to what degree was that an impact in the second quarter, how much does that that help here in the third quarter in trying to get to the question of how much if any you should we.
Gross margins improve here in the third quarter.
So I'm not going to make a very specific position with respect to too.
The amount of improvement in gross margin beyond saying that.
We see the gross margins.
Continuing to.
Expand obviously, they haven't been expanding recently, but we I believe we we've seen the bottom.
In this past quarter two yardi appoint the that's the do with that.
It can be national facto suggested earlier.
Scaling up high volume production for new products with new packaging technology is a big factor.
Tom So depressing margins capacity these ashok.
And it less spend all leased patios.
And.
Coffee related the inefficiencies.
So going forward.
These factors at least the whilst that under our control.
Sure.
It continued to.
Fade in terms of having a negative impact on margins you know we are as a company as a management team now very much fragos.
Seeing our margins.
Expand to the levels of the bass.
Analog companies in the industry, which is all obviously you know not single coughing advances relative to what we are it's more like 20, 20% or higher and we're not going to get that overnight.
Hey, let's be clear it is going to be a multiyear process, but we have a line of sight on how to accomplish that and we're very much focused on making that happen.
Okay. We look we look forward to seeing that thanks to cheer for those thoughts my last question.
I mean, obviously, we've had some impact a in past quarters from the tariffs for products shipped to China here, but you had a very nice returned a business in the second quarter.
My assumptions based on what I heard that you're expecting a Chinese new improve here in the third quarter, but is there some lingering riskier of other terrace continue in any manner that that businesses.
<unk> is lower even launched if if if if the view is that will continue for a lengthy period of time.
Well I don't know that again really.
A comment on what might happen.
In terms of.
Some further irrational relationships between the countries.
We do have contingency plans.
But no we're not pulling the trigger it on.
Those contingency plans set despite the in time, hoping that.
Quota hey has it would be that right. So we don't see if we haven't seen it but Pete here on the.
A different overall.
Concerning.
Issue overlay to your point.
The ties our steel there at both coming and going right you know we.
We paid guiding sung min tee us we procure from China.
Casket I've seen China paid out if some products they procure from us.
We are.
Taking.
It constructive staff in terms of diminishing our dependency following the T. Src perspective from from China, I, just had an update on that channel Sather GE earlier, this week and we're going to be largely out of all with respect to megis.
Bias out of China.
Within the next year again, a half and this is an ongoing process. It's now.
Step function right. Some of it is beginning to happen. It took some time to bring it up out more of it is going to drop in second half of this year, it's going to become more significant mexia. Some of what is going on is a working actually in costs at the with some our longstanding supply us based.
China opening up shop in Vietnam.
To a in effect get around the the handicap that the tie self imposed on on that business not just with us.
Hi, there so that's a part of that and we have pulled the trigger arm and we're working very closely with piece with guys. So another example would be.
Four components that we used to source from Japan that add move to China because of.
A cost reduction opportunities and very soon they're going to be backing Japan.
Because all told the weekend saw some with.
With lower overall costs back from Japan, So those activities ongoing when he comes to making our products outside the U.S. are making some projects like breaks outside of the U.S. should you know a.
A worsening.
Over the last year sheep, App and we have contingency plans, but we have a more pulled the trigger on that.
Okay.
Appreciate the thoughts so that's only question would be congratulations great progress guys. That's all.
Thank you very much. The next question is coming from the line of and then Hicks. Your line is open now and then please proceed.
Good afternoon.
I wanted to ask about some of the projects that like the Elliot Logility project can satellite budget because those shipped.
So the satellites would be going after the that's why the project said get Saturday night.
I think we're going to be shifting proud that.
Thank you see in more product in Q4.
Okay, and the largest Ltd project <unk>.
So as you can imagine a that's another one of those were because of a call the right and things.
Turning to screeching halt.
Yeah Award winning Celeste for instance, take place for a number of months.
You know things got delay.
But once again you know we are not lacking bookings or backlog. This so we have planting too so from in terms of racing revenue levels from quarter to quarter, and you know would be I didn't ship those programs and those products.
So as.
The impact of call read that gets behind us.
Okay. So those are still to come.
Yes.
Okay, and supercomputing, you're expecting that to ramp this year hows that progressing.
That's that's going very well, there's been a lot of consolidation there of course with HP buying crazy and so forth but.
We're making good progress we've got both front end business.
Business, there as well as the point of load as well as both on the CP you side as well as the the AI.
Gpus as well so so that's that's going very well that's a classic 48 volt market that market transition a while ago. So that's a great market for us and we're making good progress that to you see had good shipments in Q2.
Shipments will be yeah, increasing as we go through Q3, and Q4 that those programs are little bit longer in terms of their government programs in the very high end to sort of program. So that the shipments will really beginning Q3 Q4.
And then can you give an update on your new newer front end products and is that progressing as planned.
Oh, yes.
As always these things end up always taking longer than.
We like but.
We have.
Now everything we need as I mentioned earlier we.
We are engaged the with one of our a key lead cast the merce.
On a program that will bring about.
A much smaller much more powerful machine.
Many cancer kilowatts of AI in in one bauxite is going to be.
A game changer in the industry and a one that will leverage our four g.
Get Amp Dfc technology, it's very novelty mags facts, they that's a very efficient very flexible.
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Okay, that's still maybe a way for any contribution.
Well in terms, so moving the needle on the revenue front I would say, probably even more than a year away, but I.
I think in terms of.
You know initial pilot production less than a year way.
And then.
Thanks someone mentioned that opportunities on the edge how significant are your opportunities there.
Again, that's that's a developing market for us because again, we were looking at you know power levels and current levels increasing on those types of processes. So so that's a market that I think we'll probably be participating in and again, you know sort of a 2022 type of timeframe.
That.
Okay that.
How significant was opportunity do you mean.
Well, that's that's a very that's going to be a very large market right. If you look at the the number of processes, an inference versus training you're looking at maybe fivex in terms of the quantity of processes that will go there.
So that's that's a significant market expansion that will come when the you see the autonomous vehicles out there another.
Robotic type.
He system, so that'll that'll infrastructure has to get built out so.
They can engineer at all or for dinner last night.
He went back today and it's going to be.
Yeah.
In.
At 14 day.
And what you call it installation Chrysler last year I'm quite on cutting.
Working on now.
If they go through the liver.
And two homes.
With a chips and a variety of perception type challenges.
Whatever it turns I see these kinds of opportunities right he's going to be.
I think if they significant.
Area of opportunity.
Well all of these things for instance, said this but can you hear a company is.
[noise] exceeding a phase of a you know any develop that and for sure. Another all of them are going to make it.
You know, they're competing among others with the likes of Amazon.
But.
Again, whatever we turn we see more immoral opportunities for from.
You know that idea of farms.
As long as driving it but to get up and take a look at our new robotics video on our website, that's pretty cool that'll show you some of the areas that we're getting into.
Okay, great congratulations on great quarter. Thank you.
Thank you.
Thank you very much. The next question is coming from the line of Jonah The alone John Your line is open then ill.
Hi, Thanks again for taking my call. Those are my questions. I think you answered this already but curious if I just want to make sure I got it right. It was on gross margins and I think what I heard was you think you saw the bottom on gross margins last quarter and you expect increases and the next two quarters, let's can take a while to get to the gross margins that you are.
Back and that's you know maybe 20 points higher but that's down the road is is that a fair assessment.
Yes.
Excellent.
So I mean, obviously, there's going to.
Nothing is ever a straight line right, but.
I think the trend.
Should be.
The positive trend with.
Hey time scale all of a few years to get to war, our margins to be long given the level all technologies investment that the intellectual property the patents.
The unique capabilities that we have being you know well above any competitor in the industry.
Excellent.
And did somebody mentioned deferred revenues could you talk about that a little bit.
Sorry, what was that John did somebody mentioned deferred revenues, Jamie that you mentioned that.
Yeah, I, just don't all mentioning it but it's obviously a tied to a lot of our development projects where we.
Book, both deferred revenue and deferred cost and then when we can recognize it under GAAP. We we do so it's a recurring we have projects a war the work that might be done [laughter].
My that being a.
Sam it might even have been paid for but we can't see if you go NYSE it right.
We got some.
How much deferred revenue do you have.
I'm not sure that we can get into specifics about that but.
Their accounts on the balance sheet, you can see them and it's a.
It's clearly presented.
Yes.
[laughter].
Thank you. Thank you very much and again congratulations.
So operator nowhere one more a one more question.
Yes, we actually we have the last question and it's coming.
Again from Queen bullets on your line is open now.
Hey, just wanted to follow up on it or just a question. So you made the comment that on the D.R. 14 board she thought that perhaps 40% to 50% of those boards might be 48 volt, giving you a great opportunity for that 48 to 12 Nbn product Im just kind of curious Dee Ann Inc.
Is that true you know beyond your your your large hyperscale motherboard Tessmer, David do you see most of the Hyperscalers moving to 48 volt with the BRL 14 boards.
The data that we've seen is that over 40% of server you know blade developers are moving to 48 volt, that's what they're moving to for a we are 14 and other types of.
Processes, CPQ boards, and not just from Intel, but A.M.D. as well and then if you look at the.
Oh, sorry, if you look at the the VR 14, just to jump back a little bit too and explain so the we are 14 boards, if they've got no AI capability a tool they still do a process of but they they dissipate today about 1500 watts.
Right once you start adding AI in there they go to about three kilowatts. So you get to the point, where you know you really can't have a 12 volt infrastructure and put many of those blaze and in a in Iraq. So you have to make that jumped to 48 volt. So the service developers are moving there and if you look at the Hyperscalers. The estimate right now is.
25% of the worldwide, you know hyperscale accompanies, including China, Europe, and North America, whatever about 25% of them are putting in place 48, both data centers, so thats big numbers compared to right, where we were two three years ago. So so for vicor the operator.
Unity is the 48 to 12, where the current levels Patricio mentioned earlier that the sweet spot being four or 500 amps and up but some of the SIFI use is still to 5300 amps multi phase is okay, but they're 48 volt infrastructure now.
Opportunities for us with and be EMS, but also regulated mgms, which we call. It DCM. So there is opportunities there for us in that general serve up blade.
Oh, good search type of 'em application.
That's crazy currently modeling but.
Great great. Thank you.
Yes, that's that that is additional to what we've been talking about which is a big AI story right. That's what we've been talk spending a lot of time talking about the last few months.
Right right now it's great.
Thank you and I'm actually not that on no more questions.
Very well talk to you in a few months. Thank you [noise].
Thank you everyone that concludes your conference call for today you may now disconnect. Thank you for joining and enjoy the rest of here today.
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