John Dillon: So one, with the one major customer though, do they have 2 different designs with you, one for — are they working with the one customer? Do they have 2 different GPUs that are going to be used in one, using lateral, the other is going to be using lateral vertical? Or is it the same GPU that’s initially going to be used lateral and then going to lateral vertical?
Patrizio Vinciarelli: John, we’re not going to talk about any one customer. I’m sorry but bear with us. That’s not the level of specificity that we want to get involved with.
John Dillon: And then one last question then. When do you expect the GMs, the gross margins to improve with the new factory?
Patrizio Vinciarelli: Well, I think we are on a general upward trend. That’s not to say that we’re going to see a positive improvement each and every quarter. But we have been in the low 50% range. And I think the 3 of us here feel, Jim and myself, have line of sight to considerably higher numbers, partly due to the unique fab capabilities that we put in place, a considerable investment but also significantly in terms of the 5G point-of-load technology that takes us to a much stronger position in terms of not just performance but cost-effectiveness. And some of that is going to be passed along to customers in the form of more cost-effective solutions. But at the same time, those more cost-effective solutions at a lower price point in terms of cents per amp to a customer will result in substantially higher margins for Vicor.
Operator: The next question is coming from the attendee who joined over the phone. So please introduce yourself before you take your question.
Unidentified Analyst: Hi, Richard Shannon [ph] with Craig-Hallum. Let’s see, a couple of questions. Maybe a following up on the topic of bookings here. I think last quarter, you felt fairly confident that the backlogs would improve either in the ending third quarter or fourth quarter. Now, it seems you’re less certain of that. And I think if I understood one of the answers to a prior question, you’re still expecting the design with a major customer to — that is still active here. So it seems like a couple of simple explanations for that would be either that design is delayed or your share of the size of the opportunity is more limited than what you initially had thought or potentially there’s other reasons. So can you help us understand those dynamics relative to your last conference call?
Patrizio Vinciarelli: I think I made clear that we really don’t want to go into the level of detail. And to be clear, well, I appreciate the reason for the interest, the curiosity, it’s really got very little to do with Vicor’s opportunity in the medium and long term. And that’s what we’re really focused on.
Unidentified Analyst: I guess I’ll jump to another question here. Maybe looking a little bit longer term. And Phil, I’m going back to your prepared remarks here about time frame for 5G technology to be ramping. I think you said in ’25, if I caught my — if I caught your commentary correctly. Is this the expectation of one that would intersect with the first ramp-up of 3-nanometer accelerators you see in the market or is there some dynamic you’re expecting to intersect with?
Phil Davies: No. I think that 5G is, I believe, looking at what it’s capable of doing to the market, it’s going to be very ubiquitous. I think we’ll see design-ins, as we’ve talked about, even down in the low hundreds of amps because of the density and cost-effectiveness, and performance level of the technology. So it’s going to be ubiquitous across all sorts of different high-performance computing markets. But with regards to what we see from a deployment perspective, ’24 will be obviously a big design win year for us with an increasing number of customers and then a ramp to production in the ’25 time frame. Some customers are really in ’25, other customers are sort of midway through the year. So it will be a mix and a blend of both domestic and international customers, actually. So again, that’s going to set the scene for us to take really significant share in the ever-expanding AI market. That’s what we’re looking at right now, Richard.
Operator: And the next question is coming from Quinn Bolton.
Quinn Bolton: There we go. I guess just a follow-up there, Philip, to Richard’s question. If 2024 is sort of a transition year design year for Gen 5 and 2025 is the real ramp of the Gen 5 technology, would you expect quarterly revenue to sort of stay flattish at about current levels until you get to that Gen 5 ramp or do you see the opportunity that as some of the Gen 4 lateral and lateral vertical solutions come to market that you could actually see growth in quarterly revenue. Now I’m not trying to get you to give us a quarter when it may grow. I’m just — how do you think about revenue over the next 4 or 5 quarters? Do we need Gen 5 to ramp before we see a significant increase in quarterly revenue or can that happen sooner with Gen 4 lateral and lateral vertical?
Phil Davies: So Quinn, as we said, it’s a complex landscape right now. And we’ve got confidence in our Gen 5 — Gen 4 lateral and lateral vertical solutions. We’re going to see how that goes, but I believe that that technology, again, as we talked about, I mean you can’t not save megawatts for your end customer and not consider it seriously for deployment, right? I’ll just go back to that. So it’s a very important step for us towards Gen 5, but we’ve got great products that we’re going to be ramping this quarter and into next quarter. So we have a bridge, if you like, to the Gen 5.
Operator: The next question is coming from Jon Tanwanteng.
Jon Tanwanteng: I was wondering, Jim, if you could break out the actual legal expense in the quarter and kind of what you expect the run rate to be as the ITC does its investigation over the next couple of quarters?
Jim Schmidt: Incrementally, Jon, I won’t quote an exact number, but it’s in the millions of dollars, and it’s very substantial for us as a smaller company. But we believe it’s what we’re taking on because of the strength of our position.
Jon Tanwanteng: Do you expect it to increase from what you did in the past quarter here?
Patrizio Vinciarelli: Yes, we’re prepared to invest as much as necessary. Again, in one way of looking at this, the intellectual property side of our business is profitable, right? The operating expense relating to a certain intellectual property is more than covered by intellectual property-related income. And we expect that to continue to move in the right direction, particularly as it becomes evident to OEMs who have been taking a wait-and-see attitude with respect to how this may all play out that they’re going to be left in the large by companies that have stolen our technology.
Jon Tanwanteng: So I was wondering if you could expand just a little bit on the enthusiasm you’re seeing out there for the Gen 5 VPD. Where — what’s like the breadth of the customers that you’re seeing today versus where you were maybe in the same time in the development cycle for the current gen of AI processes? Would you say that there’s a lot more volume and opportunity out there today just because of all the I guess, the amount of competitors that are out there, number one. Number two, the size of the opportunity increasing. Just help me size what that opportunity looks like Gen 4 versus Gen 5, if you can.
Phil Davies: Yes. The current density improvement. Well, first of all, you’ve got the drivers of the much higher currents coming along for all of the processes across networking, AI, CPU, right? That’s the first thing. Secondly, the market is expanding at an incredible rate, particularly on the AI side. But as you add more AI, you also need to add more CPU, you also need to add more networking. So everything is sort of getting the big uplift. Now then you factor in that our Gen 5 has got 3x the current density over the Gen 4 technology and the reaction to that, and we’ve shown a lot of the customers actually. When you go down the list of the majors in data center, AI processors, or network processes, we’ve shown them examples of — the mechanical examples of the packaging that we’re going to have.
