Q2 2021 Vicor Corp Earnings Call
[music].
Good day and welcome everyone to <unk> earnings resilience for the second quarter ended June 32021 call hosted by James Schmidt Chief Financial Officer.
My name is billion day I'm your event manager.
During the presentation your lines will remain on listen only but if you require assistance at any time, Please key star and zero on your telephone and a coordinator will be happy to assist you.
Thanks for all parties that this call is being recorded for replay purposes, and now I would like to turn it over to James Schmidt. Please take it away for free.
Thank you good afternoon, and welcome to <unk> Corporation's earnings call for the second quarter ended June 32021.
Jim Schmidt, Chief Financial Officer, and I am in Andover, with Patrice you often see a rally Chief Executive Officer, and Phil Davies, Vice President of global sales and marketing.
After the market closed today, we issued a press release summarizing our financial results for the 3 months ending June 30. This press release has been posted on the Investor Relations page of our website.
The new Ww Dot Vycor 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 is the copyrighted property of Ichor Corp.
I also remind you various remarks, we make during this call may constitute forward looking statements for purposes of the Safe Harbor 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 and planned products current and potential customers potential market opportunities expected events and announcements and our capacity expansion as well as management's expectations for sales growth spending.
And profitability are forward looking statements involving risks and uncertainties.
In light of these risks and uncertainties, we can offer no assurance that any forward looking statement will in fact prove to be correct.
Actual results may differ materially from those explicitly set forth in or implied by any of our remarks today.
The risks and uncertainties, we face are discussed in item <unk> of our 2020 form 10-K, which we filed with the SEC on March 1.2021. This document is available via the Edgar system on the SEC's website.
Please note the information provided during this conference call is accurate only as of today Thursday July 22.2021.
<unk> undertakes no obligation to update any statements, including forward looking statements made during this call.
You should not rely upon such statements after the conclusion of this call.
A replay of today's call will be available beginning at midnight Tonight through August 6.2021. The replay dial in number is 8882868010, followed by the passcode 18601 for 6 for this dial in and Passcode also are set forth in today's press.
Release.
In addition, a webcast replay of today's call along with a transcript will be available shortly on the Investor Relations page of our website.
I'll now turn to a review of our Q2 financial performance after which Bill will review recent market developments and <unk> will take we will take your questions. In my remarks, I will focus mostly on the sequential quarterly change for P&L and balance sheet items and refer you to our press release or our upcoming form 10-Q for year over year.
<unk>.
As stated in today's press release FICO for total recorded total revenue for the second quarter of $95.4 million.
Up 7.4% from the first quarter total of $88.8 million.
Quarterly advanced products revenue Rose 19, 7% sequentially product shipment growth continued to be constrained by limited component availability to do 2 global semiconductor supply allocation issues experienced during the quarter.
Brick products revenue was basically unchanged from the first quarter.
Shipments to stocking distributors rose, 43% sequentially, primarily due to an increase in brick product shipments.
Exports for the second quarter decreased sequentially as a percentage of total revenue to approximately 64% of consolidated revenue from the prior quarter, 69%.
Primarily due to decreases in brick products for.
For Q2 advanced product share of total revenue increased to 43% compared to 39% for the first quarter with brick products share correspondingly decreasing to 57% of total revenue.
We believe advanced product sales will explain expand significantly as a percentage of total revenues, especially once new manufacturing capacity comes online given the high growth segments. We have penetrated with our 48 volt technology, including AI data Center and automotive and contrast of the maturity of the segments, we serve with brick.
Products.
Turning to Q2 gross margin we recorded a consolidated gross profit margin of 52, 3% higher volumes and improved mix contributed to higher profitability as did a reduction in cost variances and process yield improvements gross margin dollars rose 11, 6% sequentially.
Margins remained under the pressure of high tariff charges as the Q2 charge increased approximately 36% from Q1's charge of approximately $1.4 million.
Primarily due to due to an increase in receipts of inventories subject to tariffs.
Despite the increase we expect to see improvement through 2021 in part, reflecting our ongoing efforts to reduce component imports from China.
I'll now turn to Q2 operating expenses.
Total opex was essentially even with the first quarter the amount of total equity based compensation expense expense for Q2 included in cost of goods SG&A and R&D were approximately 252700, 80000 and $536000 respectively totaling 1.
$6 million.
For Q2, we recorded operating income of $20 million representing.
And operating margin of 21%.
The sequential 36% increase in operating income reflects the operational leverage in our model.
Turning to income taxes, we recorded a net provision for Q2 of $999000.
Representing an effect an effective tax rate for the quarter, a 4.9%.
Net income attributable to volume quarter for Q2 totaled $19.4 million GAAP diluted earnings per share was <unk> 43.
Based on a fully diluted share count of $44 million 841 share.
Shares.
Before I turn to our financial position just a brief update about COVID-19 in our workforce.
As previously discussed as the debt designated essential manufacturer using maskin practicing social distancing from the onset of the pandemic. We have continuously operated 3 shifts at our Andover manufacturing facility.
Cases in absenteeism due to Covid are now negligible net.
Nevertheless, because much of the potential influence of the COVID-19 pandemic is associated with risk outside of our control we cannot estimate the extensive such influence on our financial or operational performance are when such influence might occur.
Turning to our cash flow and balance sheet cash cash equivalents and short term investments totaled $230.2 million in Q2.
The sequential increase of 3.2% accounts receivable net of reserves totaled 55 million at quarter end, an increase of 15, 3% over Q1 with Ddos Dsos for trade receivables basically steady at 39 days all balances are current.
Inventories net of reserves net of reserves increased 5.3% sequentially to.
<unk> to $57.1 million.
Annualized turns remained essentially the same at $3.1 2.
Reflecting the positive operating results operating cash flow totaled $12.3 million for the quarter.
Capital expenditures expenditures for Q2 totaled $15 million, we ended the quarter with a construction in progress balance of $28 million leave.
Leaving approximately $28 million of our capital budget is scheduled to be spent through the year. Our factory expansion project is proceeding on schedule and on budget.
I'll now address bookings and backlog bookings momentum continued in Q2 with book to Bill well above 1 and with 1 year backlog and increasing sequentially from Q1.
Turning to our outlook for the third quarter of 2021, we expect increased revenue growth in advanced products offset by an anticipated decline in brick products revenue.
We continue to address the sources of gross margin pressure in our forecasting improvement in product level profitability.
Further we do not anticipate any meaningful increases in operating expenses.
While substantial further improvements in gross margin will have to await production from our new vertically integrated factory, we expect incremental revenue to drive earnings per share given the scalability of our operating model.
With that Phil will provide will provide an overview of recent market developments and then for treaty on fill where we will take your questions.
I ask that you limit yourselves to 1 question and a related follow up so that we can respond to as many of you as we can in the limited time available.
If you have more than 1 topic to address please get back in the queue Phil.
Thank you Jim and good afternoon, and thank you for joining US first I'll address our data center business, which showed continued momentum in Q2 with next generation design wins for both point of load factor is power solutions and 48 to 12 and 12 to 48 volt bridging applications for both low power <unk>.
<unk> servers, and AI accelerator installations into.
Into legacy 12 volt rack based servers at North American Hyperscale as well.
We also made excellent progress in our new AC to DC front end product development initiatives, and we will be delivering preproduction units as planned in Q3 to lead customers.
Automotive OEM collaborations continue to advance with Oems, adding additional vehicle platforms. As a result of successful testing of our power modules and as their electrification strategies become firmer with larger R&D commitments.
As I apologize for the capabilities become more visible to new divisions, and with higher management levels within Oems with which we are collaborating we are seeing increased opportunities due to the realization of the major advantages that are high density power modules bring to an electrified vehicle power system.
In Q2, we added 2 new collaboration projects with Oems in Japan, and Korea, and we initiated 2 new onboard charging projects in collaboration with a tier 1 partner.
We are on track to ship, our first fully automotive qualified modules in Q4 of this year and we continue to add to our operations quality reliability on front end teams with resources that have significant automotive experience.
At our annual shareholders meeting a few weeks ago I discussed the progress and next steps of our 5 layers of growth strategy, which has seen our market share on new customer acquisition accelerate in the past for years.
While our 3 while on layer 3 high growth markets of data center, AI and automotive with a combined <unk> over $20 billion by 2026 are currently dominating our growth and conversations with shareholders. We are focused on building our broad markets business that builds on a legacy product revenues.
The opportunities in the broad markets with emerging applications are significant with $1 billion Sam for advanced products in 2026, and justify increased focus and attention as customers in emerging growth markets challenged with higher power requirements look for smaller lower weight.
In high performance power delivery solutions.
We will be updating our progress in the broad markets in upcoming calls.
With that Patricio, Jim and I will now take your questions. Thank you.
Okay, operator, we're ready for questions.
Thank you very much in line.
If you have a question on the line please.
Thank you Brad.
And 1 for nobody has.
Okay.
Your question please.
Sure.
Thank you.
And <unk> already received a couple of question, where do you think you receive them.
Yes.
Great. Thank you.
Is coming from the line of Hamid question. Please go ahead, Sir your line.
Hi.
<unk>.
Question here as well.
Well I have a lack of disclosure this time around compared to your prior research.
The earnings releases, you're not providing bookings numbers anymore backlog number anymore youre not being specific in guidance anymore why why the change in commentary.
On the bookings front, what we decided is theres a lot of dynamics in the bookings number on a 3 month basis and our feeling is that directional indications around book to bill are appropriate to help the analysts and investor community understand the business. It's just a it's a function of lead time in backlog and churn. So we feel like it's dynamic.
And we're going with a relative comparison to book to Bill of 1.
Which is actually more than many other companies provide.
And in the guidance.
Why did you decide to go more.
Quantity the qualitative than quantitative.
Well I think what we wanted to point out is that there is accelerating revenue growth in the advanced products as we've been talking about for some time and we are going to see a sequential decline in the bricks business.
Okay. Thank you.
Yeah.
Thank you very much for any question and our next question is coming from the line of Quinn Bolton. Please go ahead Sir.
Hey, guys nice job on the results and particularly on the gross margins I just wanted to follow up on <unk> question.
If I if I look at the guidance you are talking about accelerating growth in advanced products, which I think if I've got my numbers right. It should say advanced products growth north of 20% sequentially in the third quarter.
But you're talking about a decline in bricks.
Can you give us some sense will overall revenue still increased quarter on quarter.
Driven by the accelerating growth in AP or do you expect a fairly substantial decline in for.
Products.
I think that we're not giving specific guidance on quarter to quarter sequential change in revenue.
I think our mission at this point is to ship advanced products accelerate the growth there.
I would say directionally, you're not far off Gwen relative to the quarter quarter change in advanced products.
And we have to clear the backlog at the component supply ramp that business way up. So the success is materializing, there and we're dealing with a decline in brick which is not surprising given the strength of that business over the last year.
I think net net.
We're not going to give specific guidance on revenue growth, but the momentum is there and the advanced products.
Understood and I guess, maybe a follow up I think it was at the shareholder meeting in late June you mentioned advanced products could exceed on a dollar basis the brick products in the third quarter do you still think that that's how it is going to shake out for Q3 per.
Well being.
Got it okay I'll get back in the queue.
Okay.
Thank you very much further question and our next question is coming from the line of John Kim Min Kang. Please.
Please go ahead, Sir your line.
Right now.
Hi, good afternoon, and great quarter guys. Thank you for taking my question.
Just wanted to clarify again with the other 2 colors last quarter. You had said that you were probably going to do.
7% sequential revenue growth as you look down at the quarters through the end of the year, mostly driven by capacity limitations has anything changed.
From that is the outlook that you gave for qualitative outlook consistent.
Consistent with that quantitative outlook, you gave a quarter ago.
Nothing has changed.
So this quarter part of that recently and that we were able to achieve.
Slightly better than this fab for SaaS Jamie.
<unk> cash on that we have that figured items out of the end of the year.
<unk> passion is field there.
The other.
And so.
Sequential growth as to its magnitude for June spine.
Is freight dynamics you to action.
We have.
Just to put it in perspective, we are booked solid for this quarter and next quarter.
So its not lack for demand the bookings.
Sure.
<unk> debt.
1 might expect.
The challenge.
And the book could be cognitively was substantial.
<unk> what percent the.
Challenges not demand the challenge in the short term is the change in mix.
In an environment.
Component availability.
The particular semiconductor component availability is an issue.
So we need to navigate through that.
While we are together early in the year in terms of.
Sequential growth for <unk> is still in place.
We're solving tool.
Total debt limit given again, our capacity growth. Thanks.
The <unk> integration and component availability.
Consider that Ashok.
And.
We'll have to wait to see what we actually do.
Got it. Thanks appreciate you and my second question I think non.
This quarter, you had talked about 55% gross margin as your target exiting the year has that changed given the change in mix from I guess component availability and all of the day other issues that we're seeing in supply chain.
No this not change.
Again.
That is a goal that we're driving to internally adjusted.
Just like the sequential increases in revenue.
The goals for the challenging given a variety of all.
Consider that shops that have been touched upon in the last few minutes.
But that debt has been and remains our goal and beyond at the end of the year as we get to.
Start utilizing.
Capacity for the packaging process apps for.
On our past products.
We have plenty of opportunity to go well beyond the 55% level. So.
I think we are on track with respect to progress that the auction I think finding with.
Within the last couple of quarters, we've been doing.
We'll have better than expected.
And that remains our goal.
Great I'll get back from Q great quarter.
Thank you thanks.
Thank you very much for your question and our next line is coming from the line of John Kernan. Please go ahead Sir.
Hi, guys congratulations good quarter.
I got a question and then a follow up Phil in the last conference call in response to a question from Quinn you mentioned the next generation product technology I'm. Just wondering if he can elaborate on that a little bit.
Sorry, Jon the next product generation technology, and sort of what area. This week.
I think it was in automotive, but I'm not sure.
Yes.
There's a lot of new product next generation product technology.
Relevant.
I think in terms of data center, it's a vertical power.
The other delivery.
In automotive, we've got a lot of innovation and product development going on there and the charging area bridging area.
48 volt conversion areas.
AC D. C is a big initiative for us of course with the expanding our Sam.
In the markets for both.
For data center and in some of the industrial segments that we're targeting now and the broad markets.
So theres a lot really going on for you John on it so it's quite exciting to be in the middle of it.
And if we look around at the Hood, so to speak on the whole the power molecules.
We are.
Converging on.
Next generation <unk>.
<unk> silicon.
Debt advances.
The level of integration cost effectiveness, the dynamic for fall months.
Frequency capability scalability of all of the power molecules addressing a variety of markets that feel just pointed to.
So that's also exciting so I'll just development.
Of next generation molecules is social development of the call share.
<unk>.
Our control systems.
And packaging technology for the advanced packaging technology.
With advances in materials science, a quite relevant to.
Power components that will enable further step up in the key attributes of our products.
Density efficiency.
<unk> low noise and last but not least cost effectiveness.
Great. Thanks, Yeah, I think thats, what I was looking for because yeah. I think it was had to do with the size and everything and I'm just wondering in regard to that.
Are you accelerating away from your competition or are you still moving away from your competition with these advancements.
So frankly when it comes to.
Competing our performance and technology.
We will look at we don't look in the rearview mirror.
Competition debt.
It tends to be.
Packed.
In in an ultra the comment or 2.
2 stage power conversion with limited.
Opportunity.
<unk> has been refined to the health.
Not to say that for the farmers.
Possible.
But.
From our perspective.
<unk> is pretty much a debt and roll to when it comes to what we see as the future of our system technology.
You mean, the competitions out of debt and right is that what you mean.
Sure.
Sure.
<unk> seen 2 what that regardless of divan.
Great.
I've got some more questions, but ill get back in the queue. Thank you so much congrats again.
Thank you very much from further questions. Our next 1 is coming from the line of Alan.
Please go ahead, Sir your line is <unk>.
No.
Yes, congratulations on the quarter, especially the gross margins I think those are the highest since around 1996.
Right.
So my question is.
On the BD you unit I know you've been saying it's going on.
Latin flattening decline eventually.
How fast can we expect.
Debt.
That's a big part of your revenue is down.
What kind of decline.
Overtime.
And I know you've got some good end markets like semiconductor equipment, I would think you'd want to keep those.
Updated products for those markets.
Yes. This is Phil so so in terms of as you said, the <unk> or the BRIC revenue.
The BRIC revenue other brick bookings are very cyclical they're sort of very macroeconomic day. So then they go up and down with time and with quarters.
So for them.
Recently because of lead time.
Extensions and supply constraints.
Tariffs and the whole trade thing with China, that's been going on.
Debt brick bookings in revenue, just as being moving up and down but to your point, it's still relatively steady when you average it out over 2 years 3 years or for use at the line sort of sort of flattens as it were so it's still in good shape.
As I mentioned on the annual shareholders meeting its still an important business to us although declining in terms of its share overall share of our revenue.
But we are working with those customers to convert them to a new advanced products and that is actually going really well and has been going well for a couple of years now.
No.
Net legacy customer base is still important to us and we want to convert them over to new technologies and also build new customers on top of that where.
For the bigger focus on the broad markets, which is what I talked about earlier.
Yes, that's actually what I was wondering if you would if you were going to convert those to new more advanced technology, but that didn't fall into advanced bionics or was it still phones maybe your.
Advanced products, we call those products Dcms, DC DC converters that chip products that theyre not the plated products that you see in the sort of data center AI space. There the molded package the black molded packaging, that's been going really well, it's just that the classic industrial markets from the legacy customers.
They take a while to move to the new technology. The gestation periods are quite long, but the same story applies once you're in you're in for a long long time with those customers and I'm pleased with the progress that we're making in conversion and layer 1 as we call layer 1 legacy customers.
So would you say you're actually increasing your penetration with.
Existing customers with new advanced products and BP.
Yes, yes, because <unk>.
Several market segments within the legacy customer base those markets have been expanded for example high performance rail for example, right I mean, you're starting to see high speed trains electrification of all sorts of systems in the train.
The way market and we had a significant we have a significant share in there without bricks, that's all being converted over to more advanced products as I speak we were getting some great wins, there and custom.
Customers Love density because its almost 10 ex better density and performance than our older bricks and more cost effective as well.
It is a big value proposition to convert to advanced products.
Cost effect due to the cash flow and considerably higher margins for volume for vehicles.
Mhm.
So the BV you revenue line could decline over time, but youre actually increasing revenues to those existing customers.
Correct, yeah, but the demise of video revenue line.
Which has been forecasted to often decades now is not about to up.
It's just going to become the rollout because of the growth products.
It's cyclical okay, yeah okay.
Okay. Thank you.
Yeah.
Thank you very much gentlemen for your question.
And our next line is coming from the line of Richard Shannon. Please go ahead.
Well, thanks for taking my questions Hello, guys. Congrats on the nice numbers here.
A question on advanced products, so you're talking about an acceleration here in the third quarter and you've talked about historically in terms of 3 buckets data center acceleration that H P. C. Wonder if you can kind of delineate.
Any are any of those 3 buckets growing faster or slower than the others in the third quarter and maybe if you could extend that into the next couple of quarters, even year it'd be great to hear kind of the dynamics you expect from there.
So hydrogen itself so.
Growth in the end markets, there AI HCC data center.
Being driven.
By AI and in the interim period here, although we've seen some new projects kick in on the <unk> side as well adding to that growth.
And then the new rollout of the.
Intel Cpus and AMD FX Cpus being used in 48 volt data centers, where the bridging 48 to 12.
Going into quite a substantial market opportunity for us I talked about that as a $500 million Sam.
5 years from now.
So that's an important piece and we're playing in it and that piece is growing as well and will continue to grow over.
For the rest of this year and into next we will see a ramp up in opportunities day as those.
CPU flat platform from Intel and AMD, you start to get really rolled out into these hyperscale data centers.
But AI is dominated right now.
Okay perfect.
My follow up question is on supply constraints I just wanted to get your update on the state of this or if it's gotten worse or improve so much and when do you see.
You get any visibility on when this is going to end up for you.
Yeah.
So he's asking Gavin.
Worse in terms of the supply constraints.
But the demand is sky than bigger and so fundamentally the challenge is to.
Meat wrap.
Rapidly growing demand.
Well with respect to sow components being on a fixed cash.
Okay perfect. That's all for me. Thank you.
Thank you.
Thank you and the Hana from a question coming from the line of Quinn Bolton. Please go ahead Sir.
So I wanted to actually to follow up on your comments there on the bridging opportunity that just kind of looking recently at some of the Intel TDP.
Requirements for for the next generation Sapphire Rapids, and beyond processors, and I think youre seeing GDP just on a standard server CPU up like 350 Watts, maybe higher and I think that's pretty close to it where Nvidia AI, sorry, Nvidia Gpus already a day I mean.
Look you know that bridging opportunity how quickly do you think.
We're going to see.
The broader hyperscale or saying before is to convert from from 12 to 48 volt I mean do you think that.
The rollout of these new higher power.
Standard server Cpus is really going to drive that transition over the next couple of years or do you think it still takes.
On a longer period of time.
So definitely the highest power Cpus are obviously, adding to the power and the rack with it.
But you're also seeing is the addition of AI.
And in those in those data centers. So so the overall power budget is growing significantly up it's on both fronts.
Gpus for the AI current saw I would say in that 500 amp sort of TTC type or type of range and with peaks up to 600.5700 next generation is way way above that.
But in terms of the conversion of the other hyperscale as to 48 volts that started.
In terms of what I, what we see in terms of internal programs within those companies and I would expect rack systems to start getting installed 2 to 3 year time period within the other hyperscale is that haven't converted.
For the over the 48 volt like Google has.
So that is definitely ongoing initiatives because.
For those guys are all developing their own AI 86, as well for their workloads and those AIA 6 a high current a need for 48 book interface. So so having a 48 volt rack based system makes a lot of sense when they wanted to integrate your own chips along with.
For the CPU base and Conversely, it makes no sense to deliver power from from fans up 12 volt to Iraq distributed with a humongous volume distributional losses, all lead to boost it back up to 48 for.
2 then powerpoints on royalty advisors right that debt.
It's clearly nonsense.
We're happy to take the for as well.
Okay.
Clearly.
Field calls bridging it rich region.
Right I guess, it's sort of a follow up question to that is if the.
You know I know the AI processors in the Gpus are consuming more power and probably more likely to have for April but if the power consumption on the standard server processors are going up and you've got pretty equal in Iraq.
Do you see an opportunity to do 48 volt point of load for the standard Cpus. In addition to the AI I mean is that net $500 million bridging that that's just the 12% to 48 is there a <unk>.
Server CPU point of load.
Or is that in the $1 billion current delivery Tam that you talked about at the shareholder meeting.
Not for the cross channel rationale products, but going back to 2.
The reference I made earlier to Nextgen national share legal.
Debt next year at Ash, Australia opens.
Opens up new kinds of opportunities because of its scalability.
And.
I think <unk>.
It couldnt be national factors.
Okay.
Want to converge on that opportunity.
Again cash capability with a net cash on silica.
And its trend towards higher power levels.
As Phil pointed out earlier with the Cpus.
Okay. Thank you.
Thank you very much green for the question and our next day is coming from the line of Jonathan Chang.
Please go ahead Sir.
Hey, guys. Thanks for the follow up.
The first 1 I wanted to ask 1.
You guys are obviously a domestic success.
Success story and critical to a lot of the data and easy effort.
And then on top of other industries like for the military and the satellite.
Are you able to take advantage of these U S. Semiconductor funding programs that are out there there's something out there for you as you think about the next step and capacity expansion.
We certainly hope so John and we're watching it very closely the chips Act has to go through the house of Representatives. That's 50 billion. Once that's approved by President Biden.
We intend to be part of that and we have reached out to some experts in the field locally here, who have the right contacts for us to pursue.
We're we're a poster child for the kind of investment.
I think the U S government would want to participate in where local local company, where critical as you said John to infrastructure on electrification. So we fully intend to get our share of that.
Got it and what kind of benefit would that bring you were kind of streams would be cash that is it just the low interest rate or is it like free money, yet and how should we think of it.
We're in the early stages of finding that out we've had some calls with local experts here and as well in D C.
We have to kind of dig into the details of how that would play out over time, let's get the bill passed and.
I'd ask all of us to do our best to pressure.
Powers that be to get that through so.
But we intend to participate in that and we have the right contacts lined up.
Okay fair enough and good luck on that.
Thanks.
Okay.
Thank you very much and our next question or comment coming from the line of Richard. Please go ahead Sir.
Yes, thanks for taking my questions.
Just.
I want to make sure I understand the business is rolling over a little bit is is it just slow summer seasonality is attributable to mil aero or industrial or is it a function of your customers not being able to get parts can you give a little bit more color as to sort of the slowdown you're seeing.
So you can call it seasonality.
North America started off a little quieter, it's now picking up defense and aerospace.
Europe has been relatively flat, China sort of up and down depending on quarter to quarter.
Had big growth.
In China in China in 2018 and again.
At the end of 2019 there.
To the trade and the tariff situations, so again coming back to that business is very cyclical.
Very seasonal as we want to call it but it's.
As I said, if you average it out over a longer period of time, it's relatively relatively flat now.
And 1 other things that we're obviously looking to do there with some of the older products.
As to other pricing strategy that makes sense and take opportunities, where we can for increased prices and better margins for that business and you know what.
While trading obviously the customer base are the right way, but we are looking at those opportunities and we constantly do so.
Got it and then for my follow up just from the auto business, you've been working with the auto manufacturers for a while now.
Just wondering when when do you think you might start to get your first revenue and instead of what you see as your content per vehicle.
That would be helpful. Thank you.
Sure. So revenue right now is mostly NRI.
<unk> based revenue, which is quite healthy because we've got quite a few collaborations ongoing.
But in terms of the revenue stores won't really start until the end of 'twenty 3 with the first OEM partnership that we put together a boat to almost 18 months ago.
Content per vehicle depends on whether you look at miles hybrid plug in hybrid or a pure electric ranges from about 100 Bucks up to $800 for a very high performance electric vehicle, we've got content as high as $50.600. So so it varies across.
For the different different platforms, but it is certainly very healthy.
Got it thank you so much.
Welcome.
Okay.
Thank you very much and I have a follow up question coming from the line of John G line.
Please go ahead Sir.
Hey, Phil again on the last conference call you were talking about auto and you were talking about back where it might be able to supply more than just modules to the auto industry. I'm. Just wondering what that means can you give us some more color on that.
Well, our primary businesses to supply modules to the to the automakers are John and also to tier ones, who can then take that and build the systems out of it but.
In some instances.
What we're looking at doing is on the reference design side of things and providing some early reference designs provides a good <unk> opportunities and.
The early pre production they don't meant for production at this point in time, we were not aiming to get into the.
The full systems business at this point, so I'll focus right now is on modules.
Working with Oems and direct partnerships and also with the tier ones.
And how is the licensing coming along for.
For both data centers and the auto.
So what are these cash rents on a few fronts again is suggesting that fast.
We need to.
Passion.
Keith.
Our key objectives.
In mind apply it consists of sales of.
Hum.
The methodology is and and that's generally while we're proceeding.
Great. Okay. Thank you very much.
Thank you.
Okay.
Thank you very much.
Our next question is coming from the line of Christopher Hillary. Please go ahead.
Thank you.
The previous question was pretty much my question, but maybe I'll ask it a different way as you have.
All of these end markets.
Sam growing.
You start too.
Contemplate what your net capacity.
Right.
Particularly in some of the.
Licensee agreements are.
Hard to predict.
So if I understood your question a little bit faster.
Capacity expansion and if I understood you correctly.
Our licensing.
It plays into that.
So if that's the question.
As we discussed we are now.
Bringing the equipment in the expanded.
For our fifth facility.
To get to.
What's been estimated to be.
Total operating capacity of about so not a net $50 million.
On a yearly revenue basis.
I happen to think that that's on the <unk> side, we may be able to.
Net more than 50.
That facility.
We have been.
Looking very preliminary level.
A campus different site.
Both.
In.
New Hampshire, not far away from our existing facility.
As well as on a very preliminary basis and saw the southern U S States.
Any decisions regarding the next income at a capacity or a different site is still several months away we need to.
<unk> continues to be focused on bringing.
To fruition.
The capacity of the philosophy.
While riding on that well.
We're obviously soft for capacity right now and that's.
The top priority and with that we're going together substantial.
Step up again, I believe more than to the sorry for your $2 million level. So that will take care of us for a while I can give us.
They are bringing in from an SSA to make a judicious choice with respect to for the next incremental capacity.
Regarding licensing, which I think it was.
Part of your question.
Any licensee opportunity will not detract from.
The need for incremental capacity for our own molecules the kinds of licensing what pursuing.
Which is licensing Oems to enable Oems to source, otherwise infringing products from third party manufacturers.
Is that kind of licensing.
While providing Oems with.
Continuing to supply splash for us for.
From.
Module makers that could otherwise put them in an innovative issued notes for it doesn't detract from.
The opportunities for our own molecules and policies think capabilities.
So I would view this as very comprehensively develop S without.
Any kind of.
Interference.
Yeah.
Thank you for the detailed answer and if I may 1 other you referenced in the press release decreasing demand from AI and automotive markets.
Would you describe it.
Moving along the continuum of challenges for.
As these systems.
She progressed does it create a new set of challenges that you're trying to solve with your products.
So I would say debt.
In AI.
Bass computing and chop.
Okay.
There are escalating challenges because of the day, you sending saturable appetite.
For more and more current.
Lower voltages and for them.
Intel is a value proposition there is.
Give me as much cost as you can.
Because it translates directly into <unk>.
For months.
And.
Cash similar to there in order to have.
Advanced solutions.
Ah willing to go.
2.
Sure.
Extremes with respect to satisfying the power needs.
And.
The rationale for a number of initiatives we've had for some time.
Ranging from for the fastest with respect to.
Our point of load power control as to vertical power delivery to <unk>.
Talking of.
Shapes within panels.
As source of factor so.
AI for teacher.
And it's rapidly escalating demand for card losses.
<unk> got challenges debt within <unk>.
To address uniquely equipped to address because of the investments we made.
In developing all of the key facets of our technology in terms. So our conversion engine control systems unique components and processes and last but not least packaging technology.
<unk>.
I think on the other multi fraud.
Detecting our challenges.
Not nearly as crashing as they are in AI.
But with the R.
With our park apartments for dollar tree, while the key benefits is that we have.
I call them other than many other engines called them you have a control systems, commonly handler as a component of processes and packaging technology. So <unk> debt is the opportunity to as we make advances to address it.
No.
It seems demands in NII for T. Here, we also get to leverage those kinds of developments the same developments for.
For our free cash flows in other end markets.
Sure.
The technical challenges may not be as demanding at least at this point in time.
But.
The opportunity in other ways is ripe for the same kinds of solutions.
Thank you.
Thank you for the question Christopher and our next line is coming from the line of James Lieberman. Please go ahead James.
Oh, great. This is a wonderful numbers in terrific indication of how you are positioned in the marketplace.
I Wonder if you could comment on the opportunities evolving in the low altitude <unk> satellite Internet.
The business down the road.
Sure. So as we said in our press release earlier, we engaged with with Boeing to develop.
<unk> chipset for that particular marketplace.
So those products are starting to shift and rollout and I think.
The company that Boeing is aligned with its announced there'll be.
Putting satellites up towards the end of this year and then rolling out I think it's about 8 satellites in total for the <unk> platform over the next year and obviously we've been taking.
Debt in early chipset to other companies that participate in the same Leo constellation market Boeing is actually a meal, but theyre taking them to the legal guys, which have much higher numbers.
A larger constellations.
With Orbitz non theres been a lot of interest in the product family due to its density it's low noise for these very sensitive networking asics. So we're seeing really good customer engagement.
Are there and we're continuing to look at advancing those products to the next level of performance.
For that marketplace and engaging with other customers and other collaboration so that's going well.
Hopefully we can make further announcements on that early next year.
Oh, that's that's good information thank you again.
Thank you very much and our last question in the Q&A.
For the lab from Anna please.
Please go ahead Sir.
Yes, I just had a quick question on when do you expect to book.
Book significant revenues from your front end products.
Okay.
So we already booked significant revenues from our for our from tap products.
<unk>.
We have a $15 million project debt.
Is shipping.
Within the next 12 months.
And there's going to be quite a bit more coming.
You know the.
Suggested earlier.
This product capabilities in terms of the relative merits.
Set us apart from competitive offerings.
In a dramatic fashion again in terms of density.
And other key attributes.
So in particular when it comes to the density.
Our solution.
Front end solution can be about 110th the size of competing alternatives.
And that's very attractive in a in a number of end markets.
Coming back to we've got Pete here.
<unk> AI.
<unk>.
There are opportunities there.
<unk> now debt. It was far density requires liquid cooling and per seat here.
Again the debt.
The drive.
2 more and more.
Performance demanding high energy costs, and higher and higher power levels.
In solutions that have from a packaging perspective.
The key ingredients, including.
Density and total management fee quantity liquid cooling doses per cent.
The Ah <unk>.
Ripe opportunities for us in our front end systems.
So did I hear you say at 50 million dollar customer.
Hi, <unk> lumpy 1 tree it actually started about the Pan is <unk> 13 and <unk>.
And Thats simple.
It's about to go into production next few months.
Okay. So that would that would ship over the next 12 months.
Yes, it will.
We'll ship by I think the middle of July of next year.
Okay. Okay. Thank you.
Thank you.
Okay. Thank you.
Operator, I think we're ready to conclude.
Thank you very much and thank you for everyone. You may now disconnect that concludes our call for today.
Please enjoy your day.
Thank you. Thank you bye bye.
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