Patrizio Vinciarelli: I’m sorry, what is what interest in 4G?
Unidentified Analyst: Yes.
Patrizio Vinciarelli: So I think frankly, I’ll follow straight now. We do have… Phil, do you want to answer that question?
Phil Davies: Well, we have some 4G design wins. Yeah, absolutely. So that will play out as we move through the year. But the real focus, and I think that’s where Patrizio is going, is really establishing the 5G technology because it’s 3x the power density of 4G, which is a major value proposition to vertical power delivery and other lower current lateral applications too. So it opens up new markets for us, bigger markets. So I think it’s an exciting time.
Patrizio Vinciarelli: Yes. And frankly, I’m not thinking about 4G. I’m thinking and the executive team is very much focused on making sure that we bring 5G, to completion and get demo system boards out to customers, tools, and begin that scale-up.
Unidentified Analyst: Okay. Thank you very much.
Operator: The next question is coming from Jon Tanwanteng. Please go ahead. Your line is open.
Jon Tanwanteng: Hi. Thanks for the follow-up. I was wondering if your expectations for the automotive applications have changed at all, just given the shift in automotive sentiment, where maybe hybrids are a little bit more back in fashion versus pure EVs and how that plays out to your 48-volt technology?
Phil Davies: No. Hi, John. It’s Phil. So no, the market is sizable for us as a new entrant, of course. I mean, there’s still millions of BEVs and mild hybrids out there for us to go after with their 800-volt or 400-volt battery technology. And what we’re seeing at the moment that’s actually quite interesting is that we have powertrain solutions that go from 800 to 48 or 800 to 12. We have an onboard charger platform that is incredibly power-dense and is getting a lot of interest in the market with 800-400-volt bidirectional conversion. And so, what we’re seeing recently actually are different applications, like for example converting a condenser or an active suspension system, or a seat heater from an 800 or 400-volt battery down to 48 volts as 48 volts starts to take a hold in some of these electromechanical applications.
So, we’ve seen a lot more of that in the last, I would say, the last two quarters. And that’s exciting for us, because those are relatively high-volume applications, like the active suspension, for example, is two to four modules per vehicle. So we’re encouraged about the continued progress in automotive. And the application spread is actually increasing for us.
Jon Tanwanteng: Understood. Thank you. And then second, just wanted to go back to the issues with the IBM and the IP. As you assert your intellectual property there, is there a risk that it deters you or potential customers from pursuing designs or closing deals on fifth-generation VPD technology? Or do you view them as mostly ring-fenced here? You know, I’m just thinking that, you know, maybe if you’re pursuing this path and the demand is out there for all these AI processors, maybe the customers might settle for something that’s less than perfect just to meet the demand that they see?
Patrizio Vinciarelli: So I guess the way I would view this is that in terms, of encouraging or discouraging OEMs doing business with us, I would expect that OEMs make these decisions based on their considered interest, right, which involves access to competitive technology. Because it’s to say if they are foreclosed from a power system technology that their competitors have, they are in a challenging competitive position of their own. And so, to the extent that Vicor provides access to enabling power system technology, whether it’s VPDs, particularly second-generation VPD, or high-current density solutions, customers come to us because they realize we have those capabilities which the commodity pack or multi-phase does not have.
Now, the enforcement of the IP is a necessity. IP needs to be respected. We can’t have a market in which OEMs, particularly large OEMs, you know, wish to commoditize a proprietary product covered by a lot of innovation and patents, as is the case for the NBM and other unique vital capabilities. So we need to make the investment necessary in getting the respect that the intellectual property deserves. And our first action in this regard is an action of the International Trade Commission. We’re now more than halfway through that process. We are going to be at trial at the end of April. And thus far, we’re winning on just about every key decision that, has been made to date. So I’m very encouraged with respect to the outcome. And we’re very focused on bringing that to a successful conclusion later this year.
Jon Tanwanteng: Got it. When do you expect the final decisions to be made there? And what are you expecting the legal costs to be just on a runway basis as we get there?
Patrizio Vinciarelli: So the LGA will render its decision by, I think, the very beginning of October. The trial is at the end of April, beginning of May. Cherry-blossom time in Washington, D.C. Good time to be in Washington.
Jon Tanwanteng: Got it. And the cost, the legal expenses associated with that?
Patrizio Vinciarelli: It’s significant, but not nearly as significant for our opponents, because of how we structure the RDO with law firms that work with us as partners. So we have a common goal and a common set of interests.
Jon Tanwanteng: Got it. Okay. Thank you.
Operator: The next question is coming from John Dillon. Please go ahead. Your line is open.
John Dillon: Hi, guys. Thanks for the follow-up. Patrizio, your cash keeps increasing even after you’re investing in building a new factory. So I’m wondering, are you saving the cash for building a multiplicity of ChiP fabs, or are you considering stock buybacks for that cash?
Patrizio Vinciarelli: Building more fabs or a stock buyback isn’t it? Yeah. So I’m sorry, I couldn’t understand all of what you said. But regarding more fabs, we first have to feel the existing one, right? And the existing one, which we have represented to have a capability of nearly $1 billion, based on some of the advances we made with our 5G technology, is not expected to be able to support considerably more than that level of yearly revenues. So, we got a while to go before having to invest in a second fab.
John Dillon: What about stock buybacks?
Patrizio Vinciarelli: Well, we’re focused on a variety of opportunities at this point in time. And frankly, that’s not being on my end of the screen. But it may get on the screen, and if and when that happens, we’ll find out when it happens.
John Dillon: What are you saving your cash for then? You’ve got a huge cash flow that keeps growing?
Jim Schmidt: Okay. Sure. So what are we using the cash for? Well, I think at this point, it is the case, John, that one very favorable thing that occurred in the last couple quarters is a couple quarters of greater than $20 million per quarter of operating cash flow. So there is a sense now that with royalties and other parts of the P&L and the factory internalized and no more spend outside that we can be pretty efficient and very efficient, in fact, in generating cash. But let’s let the cash flow grow a bit and then we’ll decide as to create a revenue. Look at it.
Patrizio Vinciarelli: Yes. So we need to say we particularly in the early stage of our IP campaign, we want to be in a very strong financial position, right? And there are the second several reasons with respect, to being able to invest in the campaign to extend the necessary for as long as it takes to achieve the goals. And that’s our top priority. That’s most important strategically. Going back to your question, let’s say we could buy back 5% or 10% of our float. That opportunity, relatively speaking, pales relative to the opportunity to double the value or do more than that by succeeding at the standard in the mission. And that’s our focus.
John Dillon: Got you. And, Phil, can you just give us a brief update on your design wins? How they’re going? Where do you see them coming up?
Phil Davies: Sorry, John. I couldn’t make out that question.
Patrizio Vinciarelli: Yes. So very, very hard. Speak louder or…
John Dillon: Yes. Sorry. Yes. Phil, can you just give us an update on your design wins? A quick update on wins?
Phil Davies: As I mentioned in my remarks, John, the pipeline is continuing to grow. I mean, as I talked about, we’re focused as a strategy on 100 customers. We’ve identified those 100 customers with about a $6 billion SAM for Vicor. We’re very focused on those top 100 with account managers on every single one of them. And every single one of them is targeted for a set of new products that will – are starting to release in Q4 and we’ll have more in Q1 and Q2. So the pipeline is growing. We’ve got a very healthy growing pipeline. I’m quite confident in all four business units achieving their goals over the next three to four years by 2027.
Patrizio Vinciarelli: Yes. You see part of the note that this is a diversified model, right? We’re not – even though there’s been a lot of talk, a lot of focus, particularly from the investors’ community on AI for obvious reasons that center opportunities. That is one of the primary markets. It’s not the only market. You heard us talk about automotive. That’s an important market as well. Obviously an emerging market for us. But we have two other end markets that in their own right represent the opportunity. Outer space and defense, industrial market, our products have all the right traits for those applications in those end markets. And those in their own right represent the opportunity for us. And if you see here, actually in the business model, it is obviously key to the overall strategy in terms of market transaction.
John Dillon: Thank you guys very much. Really appreciate it.
Operator: The next question is coming from an attendee who joined over the phone. So I will unmute you now, but I would like to ask you to introduce yourself before you take your question.
Phil Davies: We might want to go to the next questions operator.
Operator: Sure. The next questioner also joined over the phone. So I will unmute you now. And as I asked earlier, please introduce yourself before you ask a question. Please go ahead.
Unidentified Analyst: Okay. Hi, this is [Don McKenna].
Patrizio Vinciarelli: Hi, Don. Please go ahead.
Unidentified Analyst: All right. Can you guys hear me?
Patrizio Vinciarelli: Yes, very well. Yes.
Unidentified Analyst: Okay. Then I was following up on John Dillon’s earlier question relative to bookings. And I know you said you didn’t want to project any kind of trends, but can you give a rough idea how they’re running so far? You’re halfway through the quarter. How they’re running compared to last quarter?
Patrizio Vinciarelli: Again, setting expectations with respect to what is going to happen this quarter or next quarter is not something we’re going to do because it could be misleading one way or the other. And we don’t want to do that. So, we want to be very honest in fact sharing what we characterize as challenges and opportunities that on balance could lead to a variety of outcomes. So given that setting any kind of specific expectation could be potentially misleading one way or the other, we don’t want to do that.
