Q4 2021 Vicor Corp Earnings Call
Good day and welcome everyone to <unk> earnings results for the fourth quarter and year ended December 31, 2021, My name is Robin and RPG outrage today during the presentation. Your lines will remain on listen only if you require assistance at any time. Please press star zero on your telephone and accordingly, we will be happy to assist you I would like to advise.
All parties that this conference is being recorded and now I would like to hand, the call over to Jim Smith, Chief Financial Officer. Please proceed sir.
Okay. Thank you and good afternoon, and welcome to <unk> Corporation's earnings call for the fourth quarter and year ended December 31 2021.
Jim Schmidt, Chief Financial Officer, and I am in Andover, with Patricio Vinci, a rally Chief Executive Officer, and Phil Babies, Vice President of global sales and marketing.
After the market closed today, we issued a press release summarizing our financial results for the three months and year ending December 31.
This press release has been posted on the Investor Relations page of our website.
Ww don't W. Dot Xicor 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 <unk> Corporation.
I also remind you 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 of 1995.
Except for historical information contained in this call the matters discussed on this call, including any statements regarding current and planned products current and potential customers potential market opportunities expected events and announcements and our capacity expansion as well as management's expectations for sales grew.
<unk> 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 and uncertainties. We face are discussed in item <unk> of our 2020 Form 10-K , which we filed with the SEC on March one 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 February 24 to 2022.
<unk> undertakes no obligation to update any statements, including forward looking statements made during this call and you should use.
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 March 11, 2022 three.
The replay dial in number is 8882868010, followed by the passcode 630 75 to 91.
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 Q4 and full year financial performance after which Bill will review recent market developments and Patricio, Phil and I will take your questions.
In my remarks, I will focus mostly on the sequential quarterly change for P&L and balance sheet items as well as full year on year changes.
And refer you to our press release or our upcoming Form 10-K for additional information.
As stated in today's press release <unk> recorded total revenue for the fourth quarter of $93 million up six 3% from the third quarter total of $84 9 million.
Revenues for the year ended December 31, 2021 increased 21, 2% to $3 $59 4 million from $2 $96 6 million for the prior year events.
Advanced product revenue Rose 18, 2% sequentially, while brick products revenue declined six 2% from the third quarter.
Revenues for advanced products for the year, ending 2021 increased 61% to $170 million.
$170 2 million from <unk> $106 $3 million a year before.
Shipments to stocking distributors increased four 2% sequentially and 67, 4% year over year with year over year increases for both advanced and brick products.
Exports for the fourth quarter increased sequentially as a percentage of total revenue to approximately 71, 7% from the prior quarter of 62, 4% primarily due to increases in advanced products.
On a year over year basis exports increased as a percentage of total revenue to approximately 67% from the prior year was 64, 4%.
For Q4 advanced products share of total revenue increased to 56, 9% compared to 51, 2% for the third quarter with brick products sure correspondingly decreasing to 43, 1% of total revenue.
Turning to Q4 gross margin we recorded a consolidated gross profit margin of 45, 2%.
For the full year 2021 gross margin improved to 49, 6% from 44, 3% in the prior year, while margins remain under the pressure of high tariff charges.
Q4 charge did decreased by approximately seven 1% compared to Q3 to approximately $1 8 million.
We continue to expect to see improvement over time in part, reflecting our ongoing efforts to reduce component imports from China.
I'll now turn to Q4 operating expenses.
Total operating expense increased three 5% from the third quarter, driven by increased compensation legal and business development expense.
For the full year 2021, total operating expense as a percent of revenue declined to 34, 1% from 38, 5% in the prior year.
The amounts of total equity based compensation expense for Q4 included in cost of goods sold SG&A and R&D was 261, 120 $7 million and 562000, respectively totaling approximately $2 million.
For Q4, we recorded operating income of $8 9 million, representing an operating margin of nine 9%.
For the full year 2021, operating income totaled $55 6 million or 15, 5% of revenue compared to $17 4 million or five 9% of revenue in the prior year.
Turning to income taxes, we recorded a tax provision for Q4 of $206000, representing an effective tax rate for the quarter of two 3% the.
The tax provision for the full year 2021 was $176000.
Representing an effective tax rate for the year of <unk>, 3%.
This was primarily due to a result of the interim income tax accounting required for stock options exercised during those periods.
Net net income for Q4 totaled $8 9 million.
GAAP diluted earnings per share was <unk> 20.
Based on a fully diluted share count of $45 million 148000 shares.
For the full year 2021, net income increased $56 6 million up from $17 9 million in the prior year.
In 2021 fully diluted earnings per share more than tripled from the prior year, increasing to $1 26 from <unk> 41.
In the prior year.
Before I turn to our financial position just a brief update about COVID-19 in our workforce as previously discussed as a designated essential manufacture using masks practicing social distancing from the onset of the pandemic. We have continuously operated three shifts at our Andover manufacturing facility case.
Cases in absenteeism due to COVID-19 are now negligible.
Nevertheless, because much of the potential influence of the COVID-19 pandemic is associated with risk outside of our control we cannot estimate the extent of such influence under 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 $227 6 million at Q4.
Accounts receivable net of reserves totaled $55 1 million at quarter end with Dsos for trade receivables basically steady at 41 days all balances are current.
Inventories net of reserves increased six 2% sequentially to $67 3 million.
Annualized turns remained unchanged at two nine.
Operating cash flow totaled $14 2 million for the quarter.
Capital expenditures for Q4 totaled $16 8 million.
We ended the quarter with our construction in progress balance of approximately $36 million, leaving approximately $35 million scheduled to be spent through the year primarily for manufacturing equipment.
Our factory expansion project is proceeding on schedule and on budget and on January 27th we received certificate of occupancy.
I will now address bookings and backlog.
Q4 book to Bill came in well above one and with one year backlog, increasing 17% from EMEA immediately prior quarter and up more than two fold from the same period last year.
Turning to the first quarter of 2022, our practice continues to be not to provide specific quarterly targets. Our focus is directed at bringing our in house production online in the coming months. So that we can fully support the customer base that is driving demand for our products.
We continue to work on improvements in product level profitability further.
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 solar will provide an overview of recent market developments and then Patrice Youll, Phil and I will take your questions.
I ask that you limit yourselves to one question and a related follow up so we can respond to as many of you as we can in the limited time available.
If you have more than one topic to address please get back in the queue.
<unk>.
Thank you Jim Q.
Q4 was once again characterized by strong bookings for advanced products with high performance computing customers and with anticipated lower legacy product bookings.
Orders for legacy products and regions other than China remained strong.
On the advanced products front, the strong bookings growth trajectory for our high performance computing business is expected to continue with both increased demand from major customers and new opportunities in designing activity continuing at both existing and new customers.
Established Oems and several well known and well funded AI startup companies, having introduced initial relatively low current AI platforms and now planning AIA Asics with current approaching 1000, amps and attuned to vehicles lateral and lateral and vertical power solutions.
Customer portfolio and high performance computing continues to grow and we are readying, new generation five technologies and control silicon and components to continue our advances in power density current density efficiency and transient response, which is critical which are all critical to high performance AI applications.
<unk>.
Our Gen five point of load products, incorporating several major performance advances will be introduced in Q3 this year to early lead customers.
The demand for high density power delivery solutions continues unabated across all of our target markets with power systems engineers, turning to vehicles modular power solutions to solve the toughest design challenges our work in the past three years in the broad industrial marketplace to find new growth applications as begin.
<unk> to pay off.
Due to the rapid electrification and autonomy trends with both within both existing and emerging industrial markets. We have identified an additional $2 5 billion of available market in the next five years across market segments, such as light electric vehicles robotics battery test equipment in UA.
Vs.
Our opportunity pipeline currently stands for $250 million for these new high growth applications.
Our automotive business development success in 2021 confirmed our confidence that the automotive market presents a significant growth opportunity for veeco power modules and our place as a major future supplier of power modules to the automobile and truck industry.
Our directed supplier strategy with leading Oems has been very successful with three production design wins and now 10 collaboration projects with major Oems on technology and power module based system evaluations.
Our aerospace our aerospace and defense business strategy is undergoing a refocusing on four key growth markets and one of these markets satellite communications, we have made advances with new customers and our opportunity pipeline outside of our lead customer Boeing is beginning to grow.
Yes.
We are excited for what lies ahead of us in 2022 and beyond given the major dislocations occurring in numerous large end markets our system power levels increase on electrification and autonomy drive the demand for higher performance power delivery networks.
Major customers across our target markets clearly see the significant benefits of moving to higher voltages and away from discrete based custom power system solutions and towards high density modular power solutions from Brightcove.
Key to maximizing our growth opportunity will be achieving and maintaining operational excellence across our entire company.
The initiatives launched in Q2 of last year, and now well underway with multiple cross functional teams focusing on seven pillars of continuous improvement raging from customer centricity to talent retention and acquisition.
Our commitment to vertical integration of our manufacturing processes and expanding our American base of operations is also a key success factor to achieving operational excellence as Jim noted earlier in his prepared remarks, our new facility is approaching completion and will be operational in Q3 of this year with the.
Ribbon cutting opening ceremony on April 26.
That concludes my remarks, and Patricio, Jim and I will now take your questions.
Yes.
Okay, operator, we're ready for questions now.
Alright, Thank you and Ron if you wish to ask a question. Please press star one on your telephone questions will be answered in the order of Steve John do you will be advised to ask your question.
Okay.
Yes.
We have a few questions in the queue and the first one is coming from the line of John Taylor. Please proceed your line is open.
Hi, guys.
Congratulations on the bookings they look really good.
Patricia I did have a question on the new factory.
Kind of I thought kind of debt.
Production will be starting this Q. This quarter can you give us more color on what's happening with the new factory.
Yes, so regarding.
Startup production in the new wing, we're actually expecting next week to start production on the new line.
With the capacity of.
One panel, which is a larger multi DCM molecules per minute.
Yes.
If portion of the expansion.
With a shorter cycle time to fruition then are there.
Pork shops to do more with.
The package technology.
That is key to vertically integrate ashok.
So thats a quick.
Actually <unk>.
Jim and I got to have it on Tuesday of this week.
Then equipment.
These bottling pace.
There was two clients will award that on Tuesday.
Lifting.
Vishal fencer is getting installed.
<unk> also quick fed said theres going in.
And it's going to stop.
Going to.
Qualification runs later this quarter aimed to Mexico, our staff and some of the process steps are going to be opened are showing in the second quarter, but to be clear as suggested by Jim earlier.
A full vertical integration, we're looking at the month of July .
Got you. So we will still see some increase in production then for the <unk>.
Next couple of quarters I would imagine.
Well in <unk>.
As we are looking at significant increases in production again, starting next week.
With respect to.
As some of the process steps involved in.
In the shape of convert fast impact.
Package technology.
We're going to add.
Access to some of the process steps starting in Q2, but again.
For a complete soup to nuts packaging it will be in July .
Gotcha.
Can you just sort of total revenue.
Ahead.
While our total revenue.
For total revenue for <unk> can we expect to see revenues starting to increase.
After quarter.
I'd imagine I mean, I guess really what I'm asking is the supply chain constraints along with the additional.
The new factory will we see the revenue start increasing.
Our continued increase I should say.
So let's start with Q4, so Q4, our frustrating is that while we did achieve.
Significant.
Increasing throughput, particularly with respect to advanced products I think as mentioned earlier was about 18% sequentially from the third quarter that steel fell short of our professionals.
For a combination of reasons some lingering challenges on components of our body side.
As well as significant challenges with respect to some of the package process steps.
Our steel outsource.
Now we've drilled up.
And now that partner is an interim.
Stepping stone for additional capacity and Thats, providing some relief.
Within the last month.
But.
As suggested in.
In the prepared remarks.
We're really counting the days at this point to too.
The other part of the second quarter and for full integration.
At the beginning of Q3 to be in the control of that things that we need to add to over the long after the quality.
That we expect.
Apache is that further consolidate welcome there in Q4 and just to be clear.
Our <unk> borrowings and going to be there in this quarter I think.
The access to additional capacity with respect to solve the process steps.
Our passionate team.
More flexibility with respect of getting that dropped down.
But it's been very challenging for them.
Both because of oil.
Debate tight supply chain.
The challenges with respect to outsource processes.
And just to get it all of the four quarters.
With respect to that.
Just in terms of <unk>.
But also the impact on margins.
In Q4, we're confronted with.
<unk>.
Out of the Blue paybacks.
Price increases on some of these process steps so it's.
<unk>.
Environment.
And.
Again, we are.
Eager to get through the completion of a selection of equipment, which is progressing well.
And then getting the benefit of being App It call control of our best in a box.
All of the equipment is ready for our property.
Cash.
Got you.
So from all of that can I can we.
Give any kind of feel for I mean, you did about you did a little over $90 million in revenue. This fourth quarter will we see a step up first quarter and second quarter.
So I entirety salt given that in Q4.
We fell short of our targets even though.
Earlier in the quarter, we thought we're going to make.
Hi, a step up in <unk> past product revenues.
We believe that we are in control our destiny two to provide guidance with respect to the level of improvement sequentially in revenues.
<unk>.
Whatsapp for surprises, one way or the other and so we're just going to.
Stick to.
Keeping it.
TBD.
I'm here to say.
We got the all backlog, we are all cash sellers looking for Marla Cassia.
Our key products.
And you can be sure that our rationale theme.
Is working extremely hard.
So, bringing it all about even before we get into the lower contra investments that we need to have.
Got you I completely understand that but we're pretty far into Q1 already.
Yes.
As I said earlier in the call is Jim Harry we're just not going to offer specific guidance I think we've been included really need to have control over our own destiny and we're.
You could call. It months, you could call it weeks away from having that visibility and having that.
No sense of control yes.
Just that far right, we are engaging in greater control of our destiny and going back to the component development issues continue to all the semiconductor front.
<unk>.
We made progress we get bigger our low cash them, but.
That.
That landscape is steel.
Okay.
For our mines as an example late last year, we got notified of an end of life on certain components and then the vendor on.
A last time buy so.
We are dealing with the law complexities by chain.
That make.
First ability hot there aside from the lack of vertical integration and manufacturing process steps.
Got it.
Understand that thank you and I'll get back in the queue. Thank you so much.
The next question is coming from the line of Quinn Bolton. Please proceed your line is open.
Hey, guys just wanted to sort of follow up on John's line of questioning and I guess my My key question is you mentioned some component constraints and then obviously some limitations on your outsourced electrical plating step.
Was the entirety of the Miss really due to the outsourced.
Manufacturing step or is it shared with component challenges still because it sounds like you'll bring that manufacturing step online.
Vertically integrated beginning July but I'm.
I'm trying to get a sense how much how much risk is there still one component availability issues. It sounds like youre, making progress so maybe that wasn't the bottleneck.
So there.
There was progress.
And the wafer outs.
<unk> have been increasing but I think as we discuss.
In the past.
These latency between wafer outs and.
Components of the type of real ready for assembly and by the way there too.
<unk> taken the initiative of.
Investing.
In an additional facility in Rhode Island the two.
Provide virtual integration with respect to the back half.
No.
It's a combination of factors.
Imports availability issues were not as significant of the Westfield pressor.
And they as you heard me say in the past.
Get compounded by affecting neither with capacity in the El sauce packaging process steps because.
Yeah.
As we say <unk> or particular jobs can be started on time.
Due to any one component not being available.
The opportunity to make that at <unk>.
You've got constraints.
Now the packaging process steps using pad by those constraints.
So.
So I'll answer dependencies and up.
We still got some work to do to get to the level of predictability, we expect will go into App.
Once the.
Yes.
The latency associated with.
A substantial step up in wafer outs.
<unk> costs, which is taking place this quarter and we get at least.
Good traction of the packaging process steps under our belt.
Understood and Patricia you had mentioned that.
The reason for the gross margin pressure it sounds like primarily in Q4.
Sort of a five X increase in some process steps and am I right to think that those are the outsourced process steps, where <unk> had to bring on a second supplier.
But perhaps more importantly that those are the process steps that you will bring in house beginning July with vertical integration.
You are correct.
So fundamentally we have to do what.
We were forced to do in order to take care of our customers and.
And the priority was.
To get the capacity there was essential to app.
Without regard to the.
Cost issue for.
For the short term knowing that.
Yes.
And before too long going to be.
Behind that scenario of Humira.
The priorities to get as much capacity as we can.
And.
And not worry about the short term impact on margin.
Understood and then my last question, sorry for asking a third but I think it's important do you feel like any of your customers have been.
You've left I'm sure to such a point, where they may look to.
Try to find alternative sources to buy core or do you think some of the steps you've taken paying the higher prices for the process steps that you are satisfying.
They are critical demands.
Obviously as you ramp Andover, youll be able to supply more of their demand.
So Quinn this is Phil so.
I think with the.
The major customers that we have we're obviously in very very close communication with them almost daily.
Planning.
Shipments to them and to their contract manufacturers.
With a very integral set of eyes on on that.
I ask because it so.
They are very very aware with the steps that we're taking in.
We're not surprising them at all there's no surprises in terms of what we're doing that we're very.
Intricately involved in their planning and supporting them, but to the future. What we're seeing is that in.
In the AI market, particularly high performance computing the demand.
Profiles, they are significantly increasing over the next year or two to three years.
What we're seeing is a big shift in the market.
The Hyperscale is actually buying in solutions that would embed in racks that they already have.
And then having a very much higher compute density within the power power.
Profile that they have for their for their data centers, which is pretty much fixed.
So the demand is going significantly up.
A lot of our end customers to service that need and so yes, I think that a number of these customers are going to be looking for second sources, but vycor I can assure you is going to play.
Big role in servicing that demand still.
We've got close partnerships with these companies developed over many years, they they need our solutions they need outperformance so.
So I am confident that we will.
Stay with them stay on track to meet our commitments that we do make then.
And then as Patricio mentioned ramp up in the second half of this year with the step up in.
In delivery and be able to meet the demand that we are planning with them for next year and beyond so I'm very confident in that.
Mentioned in my prepared remarks.
Thank you for the additional details.
The next question is coming from the line of James Lieberman. Please proceed.
Thank you so it was a pleasure listening into the progress Youre, making.
Could you make some comments on the developments regarding licensing and also in <unk>.
<unk> converted market opportunities open up to you and what kind of color you could give to us on your participation in that area.
So we're having discussions with multiple CEO of.
Licensees or potential licensees.
And.
As discussed in the past is these are.
Develop fence with relatively long just S&P and so we don't have anything to say today and.
When we are.
We will go public with it but.
Okay.
Licensing opportunity.
In a variety of end markets.
For our.
Portfolio and technology.
There are very substantial and.
I think as discussed in the past.
The result, this fact that theyre going to make a significant contribution.
To the margin to the bottom line and to a significant degree also too.
As a whole.
But I think we need to be.
Passion to with respect to.
Making the right <unk>.
Gage events on restaurants.
And.
Making the most of the opportunity with respect to.
Speaking of the right partners in the.
In each of the key end markets.
Got it that makes sense, absolutely and can you comment on the CDC opportunities for you down the road.
We have very significant opportunities.
As we speak.
Thank you.
Beyond that these customers that we referenced in the past.
The last chance that beginning now.
We have.
A broader.
Yes.
Market opportunity for high density liquid pool.
UC products.
That we are pursuing.
This is <unk>.
Nevertheless solutions with very very high density.
<unk>.
Racks and other systems.
Which more and more of a par.
Liquid content.
<unk>.
The cost points that makes them generally attractive while providing us with a strong margin opportunity.
Thats.
There's a video of these products of the economy in.
Advanced development.
They are assessing effects of the lagging foods.
As a follow on to the efforts to this already being completed.
They use the same building blocks that have been proven.
To perform.
To the level of power density efficiency.
And ease of ton mile Mark about that.
We've demonstrated that with <unk>.
Our lead customers.
Okay. Thank you very much I appreciate it.
Thank you.
The next question is coming from the line of John Taylor. Please proceed your line is open.
Hi, yes.
On your <unk>.
Vertical power delivery system I'm, just wondering how comprehensive patent protection is and specifically.
Was wondering if someone delivers power from underneath.
You do is that either in licensing our product sales from <unk>.
As your patent protection did enough that you can protect anyone from doing underneath or is it just your whole solution that is patented.
So for obvious reasons im not going to give you any detail asset to your question.
SaaS is it to say that.
The innovation that we brought up.
With.
Our <unk> initiative is effectively protected by multiple CF balance.
Some.
<unk>.
Become public domain other ones have not yet.
<unk>.
As you know we take good care ensuring that.
In Nevada from intellectual property are effectively protected.
I think it's fair to assume that any policy.
And chances with respect to falling on trucks on DPC technology as you might have heard me say in the past.
Is that being on.
A minefield and thats not an advisable car selection.
Alright.
Sure.
And then.
Phil I was in Vegas I saw these lead led signs.
I thought of by core and I'm, just wondering how big of a market that is compared to the data center and if you could read like point of load in the data Center high performance Computing and then maybe front end products and then led lighting can you give me a sense of how they relate to each other the size of each of them.
Yes, I think it's safe to say that the whole data center opportunity for ACDC in Devens DC point of load is massive compared to the led market I mean, the LCD market display market, particularly which are the.
The Big high performance displays is a very good market for us on the broad industrial front.
Yes, we're involved with one big installation there in Vegas and there.
There may be others to follow.
We're talking about London, and other places for those types of entertainment domes.
So I think we will be participating that that'll be part of our broad industrial portfolio, but estimate.
Maybe the available market there to be in the range of about maybe 100 $150 million somewhere around there.
Gotcha I figured it would be limited, but it was it was.
Interesting alright, thank you very much guys.
Or does it progress next quarter.
Yes, So let me make another shock holiday Guardians.
Okay.
The opportunity there.
Even though incrementally.
These are relatively small royalty to AI and data centers.
It's an opportunity that leverages the same building blocks.
We have developed for AI and <unk>. So we have.
Big Unicorn.
Thus at this phase.
AI.
With the liquid cooled.
PSU.
On the one hand.
And remarkably the same mall deals that.
It provides.
The key functionality within that solution.
Obviously, Florida is exactly the same molecule.
In.
Lighting.
Don Lightening up the gas.
10 megawatts, so inside defense scale in terms of tall power requirement.
Different kind of environment.
But the synergy of our molecule.
Power system methodology and IP.
SaaS shut the heck, we can incrementally pursue.
<unk> diverse market opportunity reusing the same building blocks and as is very unique to our methodology.
Yes, it sounds like you can scale to different markets very easily with very little engineering and Thats, a real benefit for a lot of people out there people outside the data center.
Am I hearing that.
Okay that sounds good.
That's really good.
Thank you.
Thank you.
The next question is coming from the line of John John Huan Cheng. Please proceed.
Hi, Thanks for taking my question I was wondering if you could give us a little bit more color regarding the bottlenecks. Thank you Rob.
<unk> partners it had been kogan in prior quarters is there something new going on now and what is happening to I guess improve the throughput there as we go through the next couple of quarters before you wrap up your vertical integration.
Yes, so I'm not sure I can give you.
More color on that.
Not to say that it's been very frustrating in many respects.
<unk>.
Again, as I said earlier.
The only counting the days left.
The control of our destiny.
So we've been able to get.
Incremental capacity.
And month after month quarter after quarter.
Not to the scale that.
With it being necessary in order to.
Expand.
Volume month Vas products.
As.
With it being necessary to fully support.
Demand Comcast doors.
So.
We are.
Not hopeful that anything dramatic in terms of.
Incremental improvements with outsourcing.
Can be made to <unk> in a few months left to the setting of a fully integrated.
The capacity of our own.
We have growth on.
A second.
Partner, but frankly, there are limitations with both of these partners with respect to.
What they can do and the degree.
Which we can produce heavily rely on that output. So.
It's got its ups and downs from week to week and.
It really makes our life a very comprehensive.
The remaining timeframe between essentially the middle of Q1, and the end of Q2, even though as I mentioned earlier.
Some of the equipment gets turned on.
The number of process steps for which we've been relying on yourself sources.
It will be going down and that you sort of rational team more lightly viewed more flexibility with respect to getting that dropdown.
Yes.
Got it thank you for that and then.
You mentioned that the price pricing one of your outsourced partners.
Are you seeing other general inflationary pressures first of all and second are you able to pass those on in any way shape or form through pricing. I know you said you didn't want to pass on the big surprise one participant in other terms.
Other places everyone's raising prices and im wondering if youre able to get them.
At the same tailwind behind you in terms of pricing.
So I'll address the first part of your question regarding <unk>.
The food chain upstream of us and field will take the second part regarding.
Our customers.
So with respect to process steps.
We had we were jolted by a feedbacks out of the Blue.
There was a big impact.
In many ways.
<unk>.
<unk> theme.
Example of the kinds of challenges that we've been seeing.
Over the last year I think there are more down towards <unk>.
Examples that would become a routine for clearly in the semi conductor.
Anyhow.
With <unk>.
Increases of the yard that are 15% to 25%.
Now that the level of the suitcase I was referencing earlier.
If these pressures are going to stay with us for the foreseeable future when.
Facing the industry.
<unk> is still a TBD.
Sure.
Extra fashion, so that things could begin to.
Turn around.
As we all know that.
Methylene Blue C is Scott.
Phases, followed by bus.
As more Fabs come online.
Very sarcastic with App as early as the end of this year, but then again.
What are you going to advance it could.
Get in the way of that.
Sure.
So Phil on.
Yes on the pricing front John .
Pretty much every year, we take a look at.
Our legacy products out of our advanced products and.
Strategically price increase certain families and through different channels and things like that so we just recently completed one.
That will help us certainly with any any increases in.
In cost of components from our side that was wide ranging right across legacy and advanced.
Ranging from 15% somewhere in that range.
We've even done some price increases with some of our very big customers and for us.
A couple of years as well and they understand that they understand the challenges and they want us to obviously.
B, a good supplier to them and they understand that.
Helping us with our profitability is important for the long haul. So so they've been very collaborative partners with us as well. So so yeah, we've been we've been doing that.
Got it that's very helpful. Thank you.
The next question is coming from the line of Richard Shannon. Please proceed.
Well, thanks, guys for taking my questions, Jim maybe a quick to partner for you do you have any 10% customers for 2021 and can you put the lead times that you you had exiting fourth quarter or at least compare them to what was the quarter before.
The lead time that we're quoting is still consistent with what we had said previously.
32 weeks.
Weak slugs of advanced products in 'twenty six clinical in the bridge.
So it's still lengthy.
But it is the case that with the with.
With a brick products, we generally have a bit more ability to deal with turns business and capture turns business.
Subject to components available subject to component availability, but without generally the outsource.
Constraint that we've talked about it.
And I think that it's probably I don't know that it's the case that we have routinely 10% customer.
To that question.
You're talking about in terms of revenue or yes.
Yes, we have distributors.
Distributors that are 10% customers and we have shown in a couple of luxury apparel large Oems.
Okay.
Fair enough then let me ask you a follow up question here on the automotive space. So I think you said you mentioned you have three design wins I think thats, one more than last quarter here, along with 10 collaborations I can't remember how many you had before and that one maybe you can give us a sense of the dynamics there and maybe if you can touch on applications within the <unk>.
Motive architectures that you're focused on where youre having success.
Yes, so the collaborations have increased by four four to five.
In the quarter Q4.
Thousand 21 was outstanding in terms of building the pipeline, it's over $1 billion now.
So <unk>.
Significant opportunity it's.
It's about converting those opportunities into design wins start of production dates and we're working really hard to do that over the next couple of quarters.
In terms of where we're playing.
Play in the charging 800, 400 volt onboard charging systems, we have a significant power density over competing sort of discrete based solutions silver box solutions almost tenex.
Smaller much much higher efficiency, so we're getting a lot of.
Interest there and collaborative interest in and developing some early prototype systems.
For evaluation and then we're playing in the classic 800 volts down to 48 to 12, and then 400 volts down to 48 to 12.
Working with several lead Oems on Saturday delete projects, either the 12 volt battery or even the 48 volt battery getting rid of it.
Which saves cost and weight and the increases range.
So, yes, it's right across that.
Charging and down conversion I would I would call it.
And several large Oems around the world.
Okay, great appreciate the detail that's all for me.
The next question is coming from the line of Alan Hicks. Please proceed.
Yes, good afternoon.
And the areas high performance in Supercomputing I know this can be very large orders like $10 million and upwards.
Have you been able to deliver on those some of those big.
Orders or is that the reason you are.
Your backlog has risen so dramatically.
So.
We've had a steady ramp.
Through the different quarters of last year.
We've Inc. As Patricio mentioned, we've increased <unk>.
Delivery.
On some of our larger power modules.
What we call <unk> 248 to 12 12 to 48 volt bridging applications those are steadily increased.
But we certainly has to go to the next level of ramp as we've talked about.
We're going to need our.
New factory to come online for treats you talked about some of the early equipment, that's going to help us do some of that but in terms of getting fully integrated thats, what we really need to to ramp up production in the second half.
Of this year, but we are increasing we have been increasing shipments to our lead customers there quarter on quarter.
So the biggest thing example, Q4 fell short of.
Our target and expectation.
But when it comes to pass products, they will still 18% the half of the prior quarter and even through the power cost that was unfortunate you also at this point.
That too was double digits sequentially.
The sequential increase.
In.
In our past products shipments relative to the quarter before that.
Same comment and was applied to that so it has been compounding.
15% to 20%.
Water sequentially too.
To get it to higher rates.
We can't be relying on unpredictable so far kroll.
Parker with <unk>.
Passive which is not.
It wasn't designed to support our specific needs. He was really architected to support general marketing so.
It's not really in every respect.
The right infrastructure.
Our unique package technology needs.
Okay.
So when the supercomputing area is that is it across the board or is it more.
Can you say some of these very large orders supercomputing.
Backlog is data.
Data center and across the board.
Yes.
Ranges from as I mentioned hyper scalar.
Integration of 48 volt AI systems that they purchase.
<unk> 48 to 12, new server blade with new CPU.
Products to AI accelerated cards too.
AI pods and service system.
This system. So it is right across the board and <unk>.
Even into sort of the more government military type of supercomputers, we're ramping our business there as well. So so we've got a very good footprint in the high performance compute industry and it is across many customers now and many different types of applications.
Okay, and then could you just comment on you mentioned because generation technology coming out in the third quarter.
Is that what.
Opportunities that can provide for you beyond.
Beyond what you have now.
So we're very very excited about that because it will raise the bar.
Significantly relative to the key figures of merit all of our existing.
Point of load solution for.
Okay.
AI and does have this type of all free cash outs.
In one measure which is.
In fact, the switching frequency and the transfer these past time.
It's a.
A three fold.
Step up in performance.
Yes.
A significant step up in terms of converse with the power density.
<unk> as well as cost effectiveness so.
Our future International control system has been under development.
For our call.
Some time.
We recently Gavin.
Key.
A component of the special extra point of load solution.
At the wafer level.
Great.
Waving were within about 10 base.
Getting.
Possibly interpret real that we can deploy on some of the platform.
<unk> platform being raised.
As devices.
We will be <unk>.
International solutions slowly starting in two or three weeks.
And we have.
A complement of <unk> controllers.
Some are taping out the next two weeks.
Some other ones.
A few weeks behind them, but.
And display in a complementary way in defense.
The fat free cash on so some of them so fast.
Solutions for automotive as an example, with our <unk>.
Technology, we got pulled by directional control.
Of the policies.
Fundamentally no incremental cost incremental component count.
A key feature for some of the automotive solutions set.
Was referencing earlier all of this is accomplished that in a fraction of the silicon area. So we're achieving.
Essentially <unk> increase in the con call system density.
And and with that event that.
The cost of Sealy.
First of all the dependence on area.
Eight to ask reduction in cost.
Subject to what has happened with respect to cost events.
When it comes to wafers, which is under the <unk>.
Environment.
Adding higher but.
Negating that impact the impact of.
Shortages within the industry and price pressures within the industry as we get to a five <unk> then we're going to us.
A major cost reduction in <unk>.
A significant density improvement.
Two.
Totaling the rationale as to be able to within Avnet Shashank control architecture.
So the new factory would be able to handle this new technology.
The new FERC.
<unk>, yes, yes. So this is Matt.
Yes, so the same packaging technology that we've developed.
With FRG.
Solutions queso without.
Any novelty in terms of packaging technology.
As we deploy the next generation silicon.
This is sort of plug and play right. So the component of that was referencing earlier.
Which has been cafes.
Wafer allow us about to be capitalized.
In actual mesh on platforms.
That's an opportunity to raise the bar on.
For months and cost effectiveness.
Separate and apart from <unk>.
Some of the new controllers.
Becoming available.
As the year progresses and again some of these.
<unk> for the Santo <unk>.
Other international relates to two two.
Although more of these type of obligations.
So that's part of the reason you expect gross margins to improve.
Substantially.
After you get the Pepsi that quickly.
Yes. So again, we are frustrated and disappointed with what we have to do in Q4.
It was certainly not what we expected with aster.
But.
<unk> had to be that way too to get.
The increase in advanced product volumes that we matched to realize in the fourth quarter, but I would fully expect that.
With these kinds of of an eight cap.
Tran with respect to margins remains.
Very positive.
And we should see significant improvement this quarter and the quarter. After that then again once we get in torque control, our destiny and we.
Leverage of the economies.
And the scale of.
Our new facility with a $1 billion.
Yearly revenue capability.
The.
The fundamental working all of the business model when it comes to.
Improving margins improving bottom line.
I think they are going to be unleashed.
Okay. Thank you very much thank.
Thank you and I think with that we should take maybe just one more question. Please operator.
Alright Gene next question is coming from the line of John John Wong Zhang. Please proceed.
Hi, guys. Thanks for taking my follow up I was just wondering when the factory the new facility does come online.
How quickly can you catch up on the backlog I think maybe you just did.
Yes, the revenue has been leaving on the table because of the supply chain and capacity issues.
Is it going to be a matter of quarters.
It takes some time to ramp up that.
Capacity to something worse.
Can quickly catch up on that.
Well, so step functions as an app.
In video World when it comes to this.
<unk> capabilities were going to be.
Walking before we run but the new factory as you heard me, saying that fast is the capacity for over $1 billion per year worth of.
Revenues essentially all advanced products.
And.
That level of capacity will enable us to catch up with the backlog.
Relatively quickly.
But I think we're not yet at the point the war.
We can.
Make.
If statement.
<unk>.
That rate of progress I think construct to say that as suggested earlier.
In spite of all of the challenges the upcycle courses at a rational steam is that to run through over the last several quarters <unk> been able to deliver if we look at the glass half full again, 15% to 20% sequential advanced product.
Unit growth.
I think that number comes to third quarter should begin to take a significant step up.
Got it thank you.
Thank you.
Thanks very much.
So operator, I think we're ready to conclude the call.
Alright, Thank you and that case, everyone. Thank you very much for joining this conference call.
And have a nice day.
Bye bye.
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