Vicor Corporation (VICR) Q3 2016 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen and welcome to the Vicor Earnings Results for the Third Quarter ended September 30, 2016 hosted by Dr. Patrizio Vinciarelli and Jamie Simms. My name is Steve and I am your Event Manager. [Operator Instructions] I would like to advise all parties this conference is being recorded for replay purposes. And now I’d like to hand over to Jamie.

Thank you, Steve. Good afternoon and welcome to Vicor Corporation’s conference call for the third quarter ended September 30, 2016. As mentioned, I am Jamie Simms, Chief Financial Officer and with me here in Andover are Patrizio Vinciarelli, Chief Executive Officer and Dick Nagel, our Chief Accounting Officer. Today, we issued a press release summarizing our financial results for the third quarter ended September 30. This press release is available on the Investor Relations page of our website, www.vicorpower.com. We also have filed a Form 8-K with the Securities and Exchange Commission in association with issuing this press release. I remind listeners this conference call is being recorded and is the copyrighted property of Vicor Corporation. I also remind you various remarks we may 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. Our forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those explicitly set forth or implied in our statements. Such risks and uncertainties are discussed in the Form 10-K we filed with the SEC on March 8, 2016. Please note the information provided during this conference call is accurate only as of today, Tuesday, October 25, 2016. Vicor undertakes no obligation to update any statements made during this call and you should not rely upon such statements after the conclusion of this call. A replay will be available beginning at midnight tonight through November 9, 2016. The replay dial-in number is 888-286-8010 followed by the pass code 20774900. In addition, a webcast replay of the call will be available shortly on the IR page of our website. I will start this afternoon’s discussion with a review of our financial performance for the third quarter and Patrizio will follow with his comments, after which we will take your questions regarding our business. For the third quarter, as stated in this afternoon’s press release, Vicor recorded a net profit attributable to Vicor Corporation of $2,336,000, representing earnings per share rounded to $0.06. For the prior quarter reported a net loss of $544,000, representing a net loss per share rounded to $0.01. For the third quarter of the prior year, we reported net profit attributable to Vicor of $2.5 million representing earnings per share of $0.06. For the first three quarters of 2016, we recorded $152.2 million of revenue and a net loss of $3.5 million representing a net loss of $0.09 a share. In contrast, for the first 9 months – or first three quarters of 2015, we reported net income of $6.7 million representing net income per share of $0.17. Recall results for the third quarter and first three quarters of 2015 included $5 million recovery at par value of our investment in Great Wall Semiconductor, which was recorded as a gain since we had previously written off the investment. As addressed in this afternoon’s press release, third quarter results again reflected the circumstances we have encountered for the last several quarters in terms of the negative influence on our revenue and profitability of weakness in demand for our legacy products due to conditions in certain end markets. However, a decline in legacy product revenue was offset by an increase in advanced product revenue notably due to higher shipments of VI Chip and Picor VR-12.5 data center solutions. Domestic revenue increased 3.5% sequentially and international revenue, which we identified by the ship to address, declined 1.4% despite the increase in shipments by VI Chip and Picor to Asian contract manufacturers. This absolute and relative decline in international volume is largely the consequence of a roughly 12% sequential decline in shipments of legacy products to Europe and Asia. For the quarter, consolidated turns volumes, that is orders received and shipped within the quarter, remained relatively strong representing 42.8% of revenue for Q3. Concluding on consolidated revenue recognized distribution revenue increased for the third consecutive quarter, rising 15.7% sequentially with each of our distributors recording improved results and with new products representing a higher share of their activity. Turning to product level profitability, consolidated gross profit margin as a percentage of sales rose to 48.7% in Q3 from the prior 46.2%. Gross profit margins rose for all but a few product lines as increased volumes absorbed overhead notably in VI Chip for which we also recorded lower average material costs. BBU module and configurable revenue decreased 7% sequentially, reflecting worldwide demand. However, a mix shift resulted in an increase in Andover’s gross profit margin. Our three custom subsidiaries continue to show progress in achieving our post consolidation sales and operational goals. But Q3 revenue slipped sequentially due to the timing of large program deliveries for two of the subsidiaries. Combined gross margins for the three custom subsidiaries declined approximately 3 percentage points for this reason. VJCL, our Japanese subsidiary, recorded a third consecutive quarter of higher revenue in both dollar and yen terms despite continued challenging conditions. Due to a shift in mix, gross profit margin improved sequentially. VI Chip revenue increased 14.3% sequentially, with the increase in volume and lower material costs per unit driving gross profit margin higher by over 6 percentage points. Picor, our fabless IC subsidiary, experienced a 36.8% increase in revenue, reflecting its contribution of SIP regulator components to the increased volume of VR-12.5 deliveries. Picor’s gross margins were essentially unchanged for the quarter. Consolidated operating expenses declined $1.4 million sequentially or 5.7%. A major component of this decline involved the reversal of previously recorded equity-based compensation expense associated with certain performance-based VI Chip stock options awarded in 2010. These particular options vest only upon VI Chip reaching defined performance targets, which management recently concluded could not be met. As such, approximately $768,000 of previously recorded comp expense was reversed during Q3 and will not reoccur. The other major contributor to the 5.7% Q3 decline was associated with circumstances we experienced last year for the same period, namely the impact of a high level of vacation taken during the quarter, which lowered our net compensation costs by approximately $765,000. Recall that we implemented a change in our vacation policy to cap the amount of accrued time that could be carried over from year to year. With that change made in 20 – excuse me, June of 2015, many employees with high accrued levels of paid time off took vacation so that they would not lose future accruals. Certain other operating expenses also declined. I should point out that the stock option expense reversal in the PTO swing I just described had negligible influences on the quarter’s gross profit margins. Our consolidated operating income of approximately $2.3 million compared favorably to the $601,000 operating loss recorded for the second quarter. As was the case for several quarters now, our third quarter tax calculations did not report unusual or non-recurring activity. Note also the reversal of stock option compensation did not have a meaningful influence on the calculation of our tax provision. Turning to cash flow and our cash position, we generated third quarter cash flow from operations of $2.4 million, reversing the operating deficits recorded for the prior three quarters. After capital expenditures of $1.7 million, our cash and equivalents rose $913,000, closing out the quarter at $55.1 million. The quality of our receivables portfolio remains excellent with day sales declining to 43 days from the second quarter’s 46 days. Similarly, our aging schedule remains in very good shape with 97% of accounts under 60 days. Annualized turnover of consolidated inventories again declined slightly from 4.5x to 4.4x, reflecting an increase in raw materials held by VI Chip and Picor in anticipation of near-term VR 12.5 volume. No unusual or notable activity occurred in any of our inventory reserve accounts. Employee headcount as of June 30 was 997, of which 970 were full-time employees. Year-to-date, total headcount has increased by a net of 12 individuals, with the net addition of six full-time employees across the organization and a net increase of six temporary employees. Recall that I described last quarter how our temporary headcount is influenced by the comings and goings of university co-op students that we typically involve in programming and IT support initiatives. Now, I will turn to bookings and our outlook for the fourth quarter. Bookings for the third quarter rose 2.5% sequentially to $53.8 million, the highest level in six quarters. Total BBU bookings declined 14.3% overall, with declines across the Andover module business, our custom business and VJCL, both in dollars and yen. VI Chip and the Picor bookings reflected the continued order flow for VTM and PRM solutions for powering processors using the Intel VR 12.5 standard. Reflecting these orders, VI Chip bookings sequentially increased 54%. As I have described before, contract manufacturers strictly do not match VTM and PRM order volumes and third quarter bookings for Picor were again out of sync, with bookings up 122%. With this mix of bookings, our consolidated book to bill ratio for the third quarter stood at just over 1 to 1. Lower backlog for the fourth quarter reflects challenging conditions in certain end markets, notably domestic defense and railway applications in Asia. Nevertheless, we are expecting further improvement in turns volumes for Q4. As anticipated, we are seeing higher demand for VTM, PRM 48 volt point of load solutions from a range of customers. These and other new programs are expected to fill the gap between VR 12.5 and VR 13.0 solutions that are expected to ramp in mid-2017. As discussed before, our breakeven quarterly revenue level can vary depending on mix. We benefited from the mix of products shipped in Q3, generating a profit of approximately $0.06 per share, including the various non-recurring expense reductions, totaling approximately 4% I have addressed. We expect Q4 revenue to be approximately the same as that recorded for Q3. Fourth quarter profitability will depend on many factors including, particularly, product mix. As Patrizio will address, the momentum of our 48 volt point of load solutions continues to build. Also, interest in our new VI Chips and VIA products for a range of applications beyond computing continues to build with customers from around the world, financing development of point of load and front end power system solutions to meet their needs across a range of applications. In closing my remarks, as I always do, I must remind listeners that sales cycles for new disruptive technologies are unpredictable and can be long. I will now turn the call over to Patrizio.

Thank you, Jamie. As Jamie noted, third quarter results reflected an increase in VI Chip and Picor volumes, primarily for datacenters and for other applications, offset by weak legacy business. Our EPS rose to $0.06 due in part to the one-time event and seasonal factors that Jamie described. I am pleased with the reported increase in margins, reflecting progress made in VI Chip manufacturing. We continue to see improvement and drive towards lower costs. Over the last 3 years, we have essentially doubled the gross profit margin generated by VI Chip. We are still operating well below capacity and this represents a great opportunity to continue to improve our product level margins as we achieve volumes increase through 2017. We have talked for sometime about opportunities that are just around the horizon. Today, the opportunities are right before us and we are fully engaged with the building line of highly differentiated products. Accordingly, I can confidently reaffirm my belief that we are executing on a comprehensive strategy to transform our competitive landscape and make the most of it for Vicor and for our customers. While headwind in certain end markets remains the challenge for our legacy business and disruptive innovations among certain sales cycles, we have very products offering superior capabilities that are sought after by growing list of customers across diverse markets. I am sure listeners have many questions, so I will open the call. Operator?

Thank you. Ladies and gentlemen, your question-and-answer session will now begin. [Operator Instructions] Your first question comes from the line of John Dillon. Please go ahead John.

Hi. It’s John Dillon. Hey, congratulations guys, especially on the gross margin front. Patrizio, you said that you still have a lot of room to move on the gross margin, can you elaborate on that a little, I mean next quarter, do you think it will be up also, do you expect it to rise for the next four quarters, five quarters or can you help us out a little bit with that?

So we are anticipating bookings growing in the 5% to 7% over the next quarter-to-quarter over the next several quarters. And with that and with the lion’s share that being related to VI Chip products, we see opportunity for improving efficiency, further improvements in efficiency and a factor that as I mentioned in the prepared remarks is still significantly underutilized. To say in different words, we have had and continued to have relatively high fixed costs structure, the cost structure, which goes back to the inception of our VI Chip product development and all of the infrastructure has been put in place to enable our capability that goes far beyond in terms of unit price and unit volumes what we have experienced today. And so I think the answer to your question is that there is going to be appreciable progress over the next several quarters. I think as we get to the point of inflection and unit volumes get to much higher levels, there is major opportunity for unit cost reduction and ongoing margin improvements. So we are getting pretty close to the 50% level overall. As I mentioned in the past, given the level of innovation investment, intellectual property, coverage of the technology we have been developing over the last nearly 15 years and nearly $10 million in investment, we made in it – to see a return on that investment and that’s going to come through margins that are going to be supported by very low cost structure while enabling our customers to enjoy in addition to best-in-class performance at the lowest power cost solution.

Great, okay. We heard from Intel on your conference call that they are starting to sample their Skylake and also their Purley [ph] platforms. And so I am wondering are you supplying the VR-13 power supplies for those also?

Yes. So, we have seen, for a change, some further change and for the first time [indiscernible], meaning if things moving in a little bit as this thinks for what we have been seeing for many quarters as we will thankfully remember were – things were sliding out. So, I can confirm that the schedule is firming up or this – we started to get some significant orders, there is more coming. And so the ramp of VR-13 will be upon us by the first half of next year.

So, you are actually saying firm purchase orders for VR-13 up beyond the sampling for this kind of production?

Yes. We have got in some major million dollar type orders that obviously are well beyond the prototype level.

And is that included in your bookings number this...

Yes. I don’t remember the specifics, but in general, I remember that we started seeing significant million dollar plus orders for VR-13 generation product.

Excellent, excellent. We have talked about the Skylake processor a lot, but there is also the Intel C chip, which is a very high-powered chip. Did you guys do any design wins for the C chip?

So, I am not going to into details with respect to the various flavors of chips that we are powering today and that we are going to be powering in the future. And I want to emphasize that our strategy when it comes to powering quite a lot ASICs and processors in particular is highly diversified. Obviously, Intel is the elephant in the room, but as you know, there are competitors coming for that space and some of these competitors are, I would say most busy of them, are providing or looking to provide solutions that rely on a processor that is fad with the lower voltage at considerably higher cut than Intel’s. And that’s where our factorized power solutions do even more in terms of providing even a higher density, higher efficiency and lower power cost. So, we are particularly focusing on these kinds of opportunities. Within the last 3, 4 months, there has also been significant progress toward first power on package capability, which involves using a new kind of point-to-load current multiplier that can be deployed within customer ASIC package to provide very intimate point-of-load current multiplication to hundreds of amps of voltages in the 6-volt to 1-volt range. And these kind of solutions again will enable capabilities for more advanced ASIC processors. Actually, within the third quarter, maybe it was early this quarter, well, let’s put it within the last several weeks, we see the first production are therefore one such solution.

So this is in package?

It’s power on package. And what that means is that instead of providing the power conversion, which in our case at the point-of-load is a current multiplication function, where we multiply relatively low input card into the [indiscernible] required by processors. You are still doing that outside of the processor package. We are beginning to do it with some devices within the package itself.

That’s phenomenal. Good job. I am going to get back into queue, because I know other guys have a lot of questions, but I will get back into queue. Thank you.

And your next question is from the line of Jim Bartlett [ph]. Please go ahead.

Patrizio, you mentioned the 5% to 7% sequential increase in bookings going forward for – and I wasn’t sure what timeframe you are using there, because it would seem to me also with the VR-13 coming on, then at some point, that would accelerate from that. Can you help me understand sort of the progressions here?

Yes. So obviously, there is a lot of variable sub-play and the – and these kinds of forecast are nearly risky. So, I am not going to stick my neck out via saying that our current expectations over the next couple of quarters are in that range.

So, the next couple of quarters in that range.

Yes.

And then – but you also said you are going to see some VR-13 orders you said in the first half?

Well, we already started seeing some, but the more significant orders will – are expected to come starting Q1 and more significantly in Q2.

Delivery.

That’s for delivery, I guess.

Well, that’s when bookings take place. Deliveries usually lag by about a quarter.

Delivery lagged about a quarter. Okay, I understand. Given what’s going on now, do you see a need for any change in sort of the marketing strategy, the sales strategy from what it has been?

Not. I think we have comprehensive strategy. We actually just had an internal review within the last week. We feel and our board feels that we are well positioned in going after the right kinds of opportunities both with strategic accounts and what you might call A to Z accounts. I think it’s a strategy that involves the multiplicity of end markets. It involves a multiplicity of solutions, point-of-load solutions, front-end solutions with different types of functional blocks, different architectural options for customers. I suggested in prepared remarks, we think it’s a very comprehensive strategy. We are seeing more and more examples of our customers embracing our type of modular approach from the source to the point-of-load. So in particular, I am particularly intrigued and excited about an opportunity, which closed just within the last few months. We started out with the customer looking to provide a more dense, more efficient and higher performance solution for new kinds of point-of-load ASICs. And we were able, in the relatively short timeframe, to expand engagement to become the power system provider all the way from the point-of-load to a 3-phase source at very high power levels. So this is a, in other words, example of comprehensive strategy that enables customers – this customer in particular to have by far, and by far I mean 5x, more than a more efficient solution that would be out of sight, we are not for the capabilities we have and how we are able to project them globally.

It sounds good. Just one last question just in the datacenter space, within the public cloud, companies offering datacenter services, would you expect to get new customers in that group?

Yes. And again, we expect to see customers for point of load solutions. So this would be PRM/VTM customers, so traditional factorized power type solutions. We expect to see power package customers that involve we call MCMs or modular current multipliers driven by MCM drivers, which is a new partitioning of factorized power systems for extremely high dense point-of-load solutions. We also expect to in some instances be the provider of choice for the front end, particularly with either high voltage, DC buses, such as 300 volts of HVDC bus, which is becoming a more and more accepted in cloud computing among other spaces, as well as our power 3-phase front ends.

Great. Thank you.

Next question comes from the line of Alan Hicks. Please go ahead.

Good afternoon. Reported revenues for the quarter and on the brick business, you said that it was down like 14% or was that bookings?

That was – yes, Jamie would you give the – I believe they were both down.

Yes. They were both down.

So roughly, what were the revenues down in the BBU more or less?

I can give the total BBU number.

Okay, that is fine.

One of the things is that both bookings and revenues for BBU were down, but let me give you a little bit more color regarding what’s impacting that. So as suggested in the prepared remarks, the defense market, particularly the U.S. defense market remains unhealthy, with programs getting delayed. I think a particular significance what we have seen within the last few quarters that has impacted BBU bookings and shipments and revenues has been – you have this with respect to some other programs, particular significance as noted in the prepared remarks, applications involving some railway type of hard work, particularly in Asia. Now this protection is that this business, particularly the last one, which is in effect in the short-term, more predictable in terms of visibility, should start coming back over the next quarter or two quarters. There were some temporary gates that should reopen that’s what we are told. So we don’t see in the decline of recent quarters in BBU bookings and shipments a significant trend. And part of the reason why I can say that with confidence is that we track as you might imagine very closely new product for these fashions. And when it comes to our classic bricks, the activity in terms of new registration is actually being very healthy. And that’s indicative of future demand for those products, including new applications. So at 10,000 feet, we see our classic brick business being subject to fluctuations, as it has in the past. And from time-to-time, the fluctuations are down, they are up. That business isn’t going to go anywhere, up or down, as you average through a number of quarters. The growth is going to come from the new products, the ones we are being primarily focused on and we have been talking about. And that growth is obviously going to start impacting the overall growth rate more and more as the fraction of revenues that are derived from the new products gets to be a larger percentage of the total. So up to recently, fortunately that has been a small percentage, it has itself been subject to ups and downs because the customer base is being relatively limited. As we all know, there have been accelerations and then decelerations going from VR 12.0 to VR 12.5 and then to VR 13.0. But now that we have grown the customer base, diversified into other types of applications and gather the new products business to be a larger percentage of the whole, we should begin to see the benefits of both that business behaving more statistically, more predictably as well as over time leaving the classic legacy brick business behind to be less significant while it is enjoying its old age.

Okay. So your legacy businesses should bounce back a little bit and then stay relatively flat over time?

Yes. We think we have seen at least in the short-term the bottom of it. We see it coming back over the next couple of quarters, at least based on the visibility we have. Should the defense market get healthier, there could be more significant pickup. Now in defense applications, we also have a lot and a growing presence with our new products. And obviously, in the longer term, those are going to be picking up where bricks eventually left behind. But we don’t see cannibalizing our own brick business anytime soon. It has been very resilient for 30 years, nearly 40 years and for everything from – based on everything we can see, it’s expected to continue to be resilient at least for the next 10 years.

Okay. And I think I heard Jamie say Vicor Chips would be – orders were up 54% and Picor were up 122% during the quarter, did I hear that?

Yes. Again, this is still reflective of some of the vagaries of how these orders are placed. They are not carefully matched within the quarter. Generally speaking, they should be rising in the same proportion. They don’t always do that. And I think again, as we progress to a more statistical VI Chip business for our power components and the power component of business in China and the power system business based on the new generation of products, these numbers are going to from quarter-to-quarter come out to be more consistent and less bumpy.

So that’s mainly getting more reorders for the 12.5 version and some new 13.0 versions?

Well, that’s the case with Picor products. I think with VI Chip, there has been a grass-root growth in a variety of applications defense applications, industry and other kinds of applications. And so the VI Chip business has been growing over the last year, even in those quarters, in those timeframes in which the datacenter demand was suppressed.

Okay. So even them all out, you are expecting 5% to 7% growth over the next two to three quarters?

That’s the best visibility we have at this point.

Okay. Then second half of next year is when you expect more acceleration?

Well, we expect to see VR-13 to be a significant contributor. We also expect other initiatives and we have several in different end markets to become more significant as we get towards the latter half of next year. There is a lot of machinery works that we have been doing on a number of fronts with new products and these investments, these long-term investments will start paying off in terms of bookings and revenues over the next few years.

Yes. Okay, thank you very much.

You are welcome.

Our next question comes from the line Don McKenna. Please go ahead.

Hi, guys. Just following up on the last question and with the acceleration really coming in the second half and you are having had your sales and marketing meetings over the past week, would it be unrealistic for us to expect revenues for 2017 to be up 10% to 15% from 2016?

So, I don’t want to pin the revenue growth for 2017 down at this point in time. There is a lot of things that could happen next year. I think there is another key milestone that we have been talking about in terms of our [indiscernible] initiative and point of inception that will, in our minds, marks a phase transition, if you will, in the side of the company for where it has been to where it is going to be in terms of revenue run-rate breaking – approaching and breaking through the $300 million level. And we see that coming at the end in the fourth quarter of next year, that’s where we see that in terms of bookings rate coming about.

Thank you very much and congratulations. It looks like you really turned the corner this time.

There are no further audio questions. [Operator Instructions] Now, your next question comes from the line of Jim Bartlett. Please go ahead.

Yes, I didn’t get the – what were the BBU revenues this quarter and the Vicor and Picor revenues?

I don’t think we provide a detailed breakdown. So, we just provide the trends as discussed earlier. For obvious reasons, we don’t want to really expose the specifics of the space contributions. Beyond the kinds of things we have discussed with a growing rate of acceptance of VI Chip, Picor products, we are beginning to represent a more substantial percentage of the whole. And there was a point in time in which, as we had discussed, there was some concern because of the fact that once upon a time, in particular, with VI Chip, we were not enjoying margins that were presented what should be achievable. But we have been making good progress with that. So, we now feel quite good about the change in mix and the new products that we have invested so much in developing, in fact, taking over the bigger share of the total revenue as we get into 2017 and more so in 2018. But beyond those general commentaries, we are going to keep the percentages from getting too detailed.

Are those provided the Q, 10-Q?

Well, those are segment data that’s aggregated.

Right. That’s what I am looking for. Can you give those now?

So, I don’t have those numbers in front of me. I think the information is provided in the Q. Obviously, we will continue to be provided in the Q.

So, we will have to wait for Q is what you are saying. Okay.

Yes, it won’t be long.

Thank you.

You are welcome.

The next question is from the line of John Dillon.

Patrizio, you talked before about the opportunity in the high-performance computer arena, I think it was going to hit in the fourth quarter this year. Is that still happening or can you give us an update on that?

Yes, that is happening. We are getting up for production that. And so that’s an example of our providing front-end VIA solution in a computing application. It’s not the point-of-load type of device that we talked as much about. It’s a front-end converter and its remarkable deals of the fact that it’s in the new VIA package. By the way, we have invested this part of the capital equipment deployment has been going on. We have invested in VIA manufacturing line in preparation for customers’ uptake of VIA products. So, it’s a good development figures. We see millions of dollars worth of revenues next year from that particular opportunity and growing current revenues for VIA products as time goes on is more of the VIA products get introduced. And there is going to be an accelerating pace of activity with respect to VIA products. So, we are also centrally investing in capacity with respect to point-of-load solutions, we invest in capacity with respect to chip packages, and in particular, the kinds of ChiP VTMs, ChiP PRMs, ChiP MCMs for power package that were briefly discussed earlier in the call. So, this capacity expansion is taking place again in anticipation of requirements for all these products. But going back to the VIA products, we are doing well, in particular, so-called DCM VIAs which were introduced after the DCM chips were themselves introduced. They are getting traction with customers that value the fact that the VIA package offers a turnkey solution that provides not just the rural power conversion function, but everything that needs to go around it in order for the customer to in effect plug and play, in this particular case a front end converter that includes filtering the brush protection, the plug ability, secondary side communication, all of the bells and whistles that enable a very fast time to market, highly predictable deployment of front-end building back. So, I think there is good news on the VIA front to margin expectations. It’s not going to turn into – have a million dollar business overnight. We see based on the registered wins and designing activity, we see an escalation with millions of dollars going to tens of millions of dollars over the next 1 year to 3 years.

Yes. And wasn’t this opportunity – did I hear before that it was for tens of millions of dollars?

It is. I think there are several programs involved with one customer. The first program – these programs are phased. This is the first program that goes into production early next year. And there are other programs with the same customers that are going to fall on the heels of the first.

Excellent. And are the VIA products, are they going into BBU’s revenues or are they into the VI Chip revenues?

So we view VIA products as power system products and we generally approach our business in terms of point-of-load and power system products. So the point-of-load solutions are what we call power component solutions. They tend to be relatively small modular building blocks that get be deployed typically next to processor ASICs or other kinds of point-of-load hardware, whereas VIAs and new kinds of bricks that we are going to be introducing with chips within them tend to be removed from the point-of-load that they provide power to the point-of-load, but they process it from a source, which can be a DC bus or a single phase or 3-phase power source. And those kinds of products or power system products that going back to the heart of your question, in some respects more like the classic bricks. Now, there was a point in time in which the classic bricks in distributed power played a role of a point-of-load device, but a lot has happened since then. Power system architectures have evolved and evolved again. And at this point in time, the right partitioning is of a different kind. Brick like products are really more front end type of devices and VIAs are perfect example of that. We are going to have some new products that are going to be referred to as super bricks. Those are beginning to come out for some customers and some engagements starting in Q1. Those kinds of solutions are going to be front end power system type of building blocks that complement the point-of-load solutions. And again, our strategy is to give customers greater flexibility, greater architectural feasibility and power system flexibility to implement the best solutions with a faster time to market with high degree of predictability, great cost effectiveness, if you will, soup to nuts. In this particular analogy, the soup is the front end, VIA like product and the nuts are the point-of-load power components.

I guess my question is more of an accounting question, now would you record the revenue under the BBU unit or under the VI Chip unit?

So we are going to be evolving the way in which we track these things and manage them and make the most out of them. We very much believe in a divide and conquer strategy, it brings about focus, it brings about accountability, it brings about greater level of performance. And we are adapting to the future requirements to project to our customers the best solutions both at the point-of-load and in the front end that leads to the point-of-load. And in concert with that vision, we are going through some internal refocusing to again provide the best in terms of that divide and conquer strategy.

Okay. What about the LED marketplace, how big is that, is that going to be a significant revenue stream for you or how are you doing in there, can you just elaborate on that complete LED, what’s going on with that with Vicor products?

Let’s maybe leave that for the next call. I think we are getting close to the end of this one and I don’t have specific that in front of me. Let’s make a note of it and I can address it the next time around. I think in general terms I can tell you, I suggested in the prepared remarks that this is a market we are focused on and we have some significant engagements. One of the products that has opened the way to those kinds of applications have been PFM like products and other kinds of products that we have been introducing over the last few years.

It sounds good. Thank you very much.

You’re welcome. Maybe Steve, another short question, we will take it, otherwise…

There are no further questions.

Very well. Thank you very much. We will talk to you in three months.