Good day, ladies and gentlemen, and welcome to the Vicor earnings results for the first quarter ended March 31, 2014 call. My name is Sarah, and I'll be your operator for today [Operator Instructions] I would now like to turn the conference over to Dr. Patrizio Vinciarelli, CEO; and James Simms, CFO. Please proceed.

Thank you, Sarah. Good afternoon, everyone, and welcome to our conference call for the first quarter ended March 31. I am Jamie Simms, CFO; and with me here in Andover are Patrizio Vinciarelli, our CEO; and Dick Nagel, our Chief Accounting Officer. Today, we issued a press release summarizing our financial results for the first quarter. This press release is available on the Investor page of our website, www.vicorpower.com. And we 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 our most recent Forms 10-K and 10-Q filed with the SEC. Please note the information provided during this conference call is accurate only as of the date of the call. Vicor undertakes no obligation to update statements made during this call and you should not rely upon them after the conclusion of the call. A replay of the call will be available beginning at midnight tonight through May 7. The replay dial-in number is (888) 286-8010 and the listener pass code will be 30401713. In addition, a webcast replay of the conference call will be available on the Investor Relations page of our website, beginning shortly after its conclusion. I'll start this afternoon's discussion with a review of our financial performance for the first quarter and Patrizio will…

Thank you, Jamie. As Jamie stated Q1 was characterized by an improvement in BBU's performance offset by temporary setback in VI Chip sales to largely the center customer. We expect a decline in shipments in August for the first generation VR 12, VI Chip solution given Q4 bookings and forecast from our customer, and we have communicated this [indiscernible] investors. However, we did not anticipate deferral of significant volumes in anticipation of accelerated deployment of next generation VR12.5 motherboards using our next generation chip set system solution, with the consequence being a weaker second quarter forecast. This issue highlights the need to further rectify VI Chip customer base, which is a strategic priority supported by new product introductions. We are leading the way with a highly differentiated approach to power distribution, power conversion, and power management with the chip and SiP platforms which provide a compelling value proposition for an expanding lease of major customers. While Q2 looks to be behind plan, Q3 is shaping up to be a busy quarter, with an expected pickup in shipments of first generation via chips and production ramp of next generation chip VTMs and CPRMs for VR12.5 systems which recently got underway. This will be the first wave of revenue growth based on expanding product portfolio for chips and SiPs that set new standards for power system performance and cost effectiveness in processor and memory applications among others. I'm pleased to report that our new product platforms, packaging technology and application specific integrated circuits in which we've invested considerably, are now supporting international exciting new products and opening new market opportunities at the next arriving phase. I'm also pleased to report that we're bringing into fruition new chipping side Brick and power system to our platforms with new products, which will soon start…

[Operator Instructions] Our first question comes from [indiscernible].

Can you talk about the VI Chip opportunity in the data center, namely I think in the past you've spoken about the opportunity within the processor segment and then on the last call you mentioned that the new addition will you give you the opportunity to penetrate the memory rails opportunity. Is there any way that you're flush out a little bit, size it, give us the potential look back you can ultimately get to?

Yes. So to give you an appreciation of the chips and SiPs that it provides incremental opportunities, it may be good to introduce some nomenclature. Part of scalable packaging platform we define chips by their metric sizes. So to set things in perspective, our next generation solution for processor applications is based on what we call 1523 feature chip, which is a device which is 13 millimeter in one dimension and 20 millimeter at the complementary dimension. This device is very thin, there on the 5 millimeter or 6 millimeter taking the channel ballpark. So that being the solution for processor applications, we recently came up with a chip which is essentially half the size of the 1523 is called an 0623. So it is the same lap by approximately half the width, which implies that we get twice as many per panel. So instead of getting about 40 per panel we get about 80 per panel. And this is sized for memory applications, where the typical load is not as significant as it is for the processor application. So if a processor application might draw a let's say current of 90 amperes with peaks of 180 amps and the 1523 is sized to provide the kind of cost capability, both from a safety perspective in terms of current requirement, so that’s one of our key advantages. In memory sockets, the current requirements are typically considerably lower and hence there is an opportunity for a chip of smaller dimensions, small level of efficiency performance, same level of density performance, but I consider we use cost wise the cost scaling pretty much in proportion to chip size. So that's being able, covering more of the customer requirements within the motherboard. So this 0623 has recently been sampled to customers and we're looking to as the year progresses begin to expand our footprint beyond processor sockets.

And so if we assume a Google or Amazon designed a server for a manufacture to build and you’re designed in, let's say, what kind of iCore content would there be in the processor side of the house and then maybe what would that look like on the memory side. Maybe like I don't know if there is an ASP you can give or some kind of color around, basically just trying to understand how big this actually can be, if you know just starting to gain traction in a big way there?

So the opportunity is really quite significant as implied by earlier comments we made in this call and in earlier calls. The addition of memory would roughly speaking double the business opportunity in terms of the value proposition for motherboard. So as you can imagine, motherboard there is more than one processor and or a bit of memory. So the very position is to shed it with being able to expand from just addressing the processor requirements to being able to address processor memory is quite substantial. And is part of advanced strategy that we've been focused on for quite some time. And this strategy is to enable a complete solution direct from 48 to the point of load that does not stop the memory circuit. So as suggested in the earlier remarks by Jamie, as you've heard, these upcoming product releases by Vicor that are aimed at enabling direct solutions 48 through [indiscernible] at lower power levels, these are going to be extremely cost effective single stage converter solutions. We are also -- within VI Chip are planning new devices that are going to continue to scale down the current and power capability even below the level of 0623 that I referenced earlier. We have a new device roughly half that size, which is in the works. So with an expansion of the chip BTM, which are point of low current multipliers an expansion of the power metrics of Vicor by boost to get regulators that provides in effect the regression function of single to current multiplier. And with the ability of an increasing portfolio of direct 48 to point-of-load regulators we aim to cover all of the layouts of PPR molecule.

One more question before I jump in the queue. You mentioned HP and Amazon are mentioned in your last call datacenter partners. Can you talk about what that means? What is are they, I guess customer success stories today are they just testing, evaluating the products.

I'm not going to comment with respect to specific customers' applications and opportunities, because we spike the confidentiality of what our customers do with us.

Can you just say what a data center partner means?

I think this word is a pretty self-explanatory. To the extent that where our liberty to disclose some of this information as reflected in your comments, I think this word speak for themselves.

Our next question comes from Jim Bartlett from Bartlett Investors.

Could you give me a better understanding what's going on, on the VI Chip side, you said that that business would be ramping up in the third quarter. How long can that part of the business show increases?

Well, so there are 2 components to that. One component relates to data center applications, where we've had a lot having to do with the crossover to the next generation platforms, which has caused the casual monitoring of inventory levels and the temporary lull in activity. It seems earlier on that the concern was this type of capacity so that the customer is in effect buffered it through extra inventory, their potential demands and potential concerns, which is tied to our capacity. But to your point, that is an opportunity that overtime will give way to our next generation chipset using Chips and Vicor chips as more advanced and more cost effective via performance our margin for us, alternatives to be hold their solution. But going back to the what we call the costly VI Chips or first generation products, we have been feeding many customers and many applications in the rest markets for many years as you know and some of these designing activities by their nature, including some that are defense applications. They are very long just fashion; no some of them are coming to solution in the next year. Some that are very, very substantial in terms of revenues and particularly profits in terms of margin for us. So we don't expect that the VI Chip part of the business, the classic VI Chip or first-generation VI Chip product to fade away, just like the classic Bricks for 50 years and faded way. We expect them to continue to grow but we expect them to be able to layer on with the chips and SiPs, much faster growth opportunities because of the intrinsic, better value proposition and better [indiscernible]. So that's where a lot of the action is focused, that's where obviously all the new product development activity is focused, that's where new product interactions as recently announced and soon to be announced in the next month and is must progress through the year. That's where -- Chips and SiPs is where most of the action is going to be.

Well, I realize that. I was just wondering when you might gain inflexion point of VI Chip, when that start to turn down, is that…

It's not going to turn down. Because again, we have customers with designings that were secured the -- literally 2 years ago, they are only going into production in 2015. And these are -- some of these are very large opportunities. And so we're continuing to sell classic VI Chips that is an expanding market opportunity for them with a distribution partners. We are receiving new applications. But we're going to be layering on chip and SiP opportunities because in general terms, they deliver considerably more performance and efficiency with a cost to action that nearly cut the cost in half.

Our next question comes from John Dillon [ph] from D&B Capital.

I'm wondering if you could give us a little bit more information on the bookings that came in last week and in particular, what that means to Q3 revenue. For example, will we see a spike up in Q3 revenue as a result of the production orders from the data centers that are coming in?

So we are expecting a ramp to take place with respect to chips, SiP set that I referenced earlier with the 1523 chip. The 1523 VTM and I think it's a 10-14 set. We see the first substantial order. Last week, we expect additional order this coming as this quarter progresses. The customer is highly motivated to drive a fast ramp because of the combination of economies that this new solution brings about. And so that's part of a combination of factors leaving us to expect considerable improvement in the second half of the year. If we look at it from a bookings perspective, we expect bookings this quarter to be -- I have the last quarter in respect with bookings in third quarter to ramp further. And we are looking over the next four quarters that it would be a significant step up but particularly focused on VI Chip and Picor system. So Picor in particular would enjoy a significant step up due to their contribution to the next generation solution, which will have pretty dramatically impact on the revenue level.

Do you think you will start seeing a spike up in revenue on the third quarter then?

Well, as I know what you mean by a spike up. I think we're going to see a progression and let's wait and see how this shapes up, I said we can quantified with detection. I think all that I can tell you at this point is that we expect to see a positive progression coming from a variety of different applications.

Okay. And you said you have had a substantial booking. And I have the same question for you to do it to me, what is substantial mean?

50,000 chips.

50,000 -- I am sorry chips, is that what you said?

50,000 chipsets.

Well, okay. Well that is substantial. Okay. I have been following you a longtime Patrizio and I don't think I have ever seeing Vicor in a better strategic position. I'm wondering if you can comment on that. I mean, what I've seen before is, you've always had the size, you've always had performance but you haven't necessarily had the cost card for a broader market. Now what I think you got is, I think you got the size, you've got the performance but you've also got a cost card for a much broader market. Can you kind of validate that? Am I thinking along the right lines here? And will this lead to an inflection point in revenue soon; can you give me a little help on that?

So I would say that we always had the leader, we always had a very clear understanding what needed to be done. Doing it is a different story and particularly for company whose business model is so innovational for others as it is for us. As we all know, innovation has it's pitfalls in terms of long gestation phase significant investment. So to quantify the level of investment that we made from a financial perspective, we’ve invested about $250 million at this point in our next-generation capabilities and I'm referring to, generally speaking, the VI Chip and Picor product capabilities. So financially that's obviously very significant investment for a company whose revenue levels historically, it has hit a ceiling of around $250 million. We are looking to accomplish over the next several years is to break and bust through this historical ceiling. And to your point this is going to be enabled by a cost cut that we never tried before. So we have to recognize having a much better mouse trap in the marketplace gets you into the door, but it doesn't get you designed in because most cuts in this are very cost sensitive. And in effect that they want the better performers but they want is ideally lower cost or at least at a competitive cost. And historically we haven't been able to accomplish that to the degree that it's necessary. With the scalability of our chip platform and the companion development that they have had for chip regulators, we're for the first time a cost card that makes a very compelling position to customers where they can enjoy significantly higher efficiency which translates into views cost for Vilma Santos which is obviously very hot talent. While at the same time also make it from the perspective of the cost of the boards, the cost of power system very competitive and attractive. So we fully expect that this is going to enable us to bust through past seasons in terms of revenues. And with that we expect to see a significant return on investment from our considerable investment in our technology platform and thus predicate feel free on our cost slash or revenues to a high degree in fixed that we have an infrastructure which is pretty extensive up to $200 million, $250 million per year run rate, it would be a lot less expensive, relatively speaking, as we get past this wall.

Sounds good. And before you talked about I think a 3x5 plan, triple the size of the company in five years. Is that right? And is that really -- are we there now? Are we really there that we can expect that?

We are very focused on that. I think the whole company is aligned to achieve those goals. We obviously made the investment in the front end of the business the best ways to enable it. Now that from a product portfolio and scalability of power components, we have the wherewithal to deliver it. So to your point that we think we are at a unique time where everything is coming together to enable the delivery of some significant financial performance.

We'll move to another question coming from Jim Bartlett from Bartlett Investors.

Could you just expand a little bit more on the splitting of the cases in 2? And the rulings they made, how is this positive for you and exactly what is going to be decided on the October date?

So as mentioned earlier, on a motion by co-defendant Cisco, the court recently just a couple of weeks ago ruled that the cases -- our case should be severed into 2 cases. As suggested earlier, Cisco and Vicor view this as a very positive development in that it will enable us to avoid falling prey to the kind of game that Cincor has decided to play in terms of overwhelming their opponents by among other things, relying on their inability to defend themselves by not having adequate time, a share of time in the court room to present their case. So we think it is very useful development and we're very focused on having our days in court later this year and prevailing on products that clearly do not infringe.

Until then the legal expenses will continue to be certainly at a high rate that they have been during this last quarter?

Well until then, and then means very likely October, the legal expenses would be whatever they need to be to ensure that we don't fall by the same sort of effected early defendants.

Could you also just introduce this new chip based DCM? And could you talk about -- this was what you introduced in April, a little bit more of when you might see tractions in that product?

So I think you are referencing a device that was introduced within I think the last couple of weeks, which is what we call as 6123 or 61 millimeter long, 23 millimeter wide device of which we get 9 per panel. This device is rated at 1750 watts as a power density, of over 2 kilowatts per cubic inch, just to set things in perspective. The density is about 7 or 8 times greater than any competitive product. So we're talking not marginal improvements, we're talking about stamping essentially not to a minor greater density. But its force and efficiency of approximately 98%, which means only 2% of the power delivered get lost within the device so as you see it has a great bandwidth, a very low noise. It's great performer in every respect. It has got a very low cost structure. It supports vast solutions. A number of customers are very interested in this device. It's passed of a general trend to get involved systems which obviously play important role with respect to our point of load to get end DCM solutions.

So in terms of getting traction on revenue from this device, is this a -- possibly a fourth quarter event?

For that chip, I would think it's probably sometime next year.

And when do you think you will start giving traction on some of the products that you will be introducing for -- to reintegrate the BBU?

So there is going to be product introductions starting in one month and then there is going to be additional product introductions shortly thereafter. We have a new very scalable platform that is very cost effective. It's chip inside, it provides a combination of great functionality, including advanced thermo management, filtering transient protection. We're going to package it’s very easy to deploy; very scalable in terms of accommodating chips of different sizes short and long. It will accommodate, to begin with the device is as small as a 22, 23 all the way out to 9323 with the power capabilities starting at the low end in 200 watts -- 200 watts all the way up to a 2 kilowatts and more over time. We think that this power components and power system capability represents an opportunity that is greater in magnitude than the opportunity that the brick represented back in the '80s because of a variety of key attributes, not least of which, in answer for the earlier question, cost effectiveness. In other words, with this in packing technology and chip inside and methodology, we are going to be able to provide complete front-end solutions that measure in terms of cents per watt are going to be exceeding cost effective was supporting fantastic efficiency and density performance. So I expect these over time, to take our brick and power system business in its own right to significant new levels of revenues and profitability. It is more than a defensive strategy; it's a very offensive strategy in terms of advancing new kinds of market opportunities that historically our brick business units and power system business could not address because their cost card was not nearly good enough.

And is this something we could see in the impact of starting in the first quarter of 2015 or it would be later than that?

Well, my expectation is that because of the nature of these products being primarily front-end products, chassis mount type of products, their time to market and time to revenue is significantly shorter, considerably shorter than the kind of longer gestation designing such as datacenter or earlier generation high end server type of application which basically involved several years’ worth of designing gestation. With front-end systems, there can be applications that go from sampling to initial production in as low as 6 or 9 months. So we are going to have significant new product introductions based on this power system capability, starting in between timeframe and progressing through the second half of this year. And so I would expect a base of 6 to 9 month gestation period, financial contribution in the first half of 2015.

And could you talk a little but about the gestation period for another datacenter customer?

There is activity in the works. I am not going to make any forecast with respect to dates. But I think it is safe to say that what is good for some is generally good for others and they recognize that.

All right. There are no further questions in queue.

Thanks very much. We will be talking to you in 3 months.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. And have a great day.