Jamie Simms - CFO Patrizio Vinciarelli - CEO.

John Dilon - D&B Capital Hasnain Karim - Kilimanjaro Capital Alan Hicks - Ainsley Capital Management.

Good day, ladies and gentlemen and welcome to the Vicor Earnings Results for the Fourth Quarter and Year-Ended December 31, 2016 Conference Call. My name is Tippy and I will be your coordinator for today. At this time all participants are in a listen-only mode. Later we will facilitate a question-and-answer session. [Operator Instructions].

As a reminder, this conference is being recorded for replay purposes. I would now like to turn the over to your host for today’s call Dr. Patrizio Vinciarelli. Please proceed. .

Actually this is Jamie Simms, CFO. Thank you operators, good afternoon to everyone, apologize for the delay. Welcome to Vicor Corporation’s conference call for the fourth quarter and the full year ended December 31, 2016. Today, we issued a press release summarizing our financial results for the periods ended December 31.

This press release is available on the Investor Relations page of our website, www.vicorpower.com, and we also filed a Form 8-K earlier today with the Securities and Exchange Commission related to the issuance of the press release.

As always 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.

Expect for historical information contained in this call, the matters discussed on this call including the statements regarding customers, opportunities, sales growth 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 our remarks today.

The risks and uncertainties we face are discussed in the 2015 Form 10-K we filed with the SEC on March 8, 2016, and will be addressed again in our 2016 Form 10-K which we expect to file on or about March 7, 2017. Please note the information provided during this conference call is accurate only as of today, Thursday, February 23, 2017.

Vicor undertakes no obligation to update any statements including forward-looking statements made during this call and you 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 10, 2017.

The replay dial-in number is 888-286-8010 followed by the pass code 40981832. In addition, a webcast replay of today’s call will be available shortly on the Investor Relations page of our website.

I will start this afternoon’s discussion with a review of our financial performance for the fourth quarter and full year and Patrizio will follow with his comments, after which we will take your questions regarding our business.

As stated in this afternoon’s press release, Vicor recorded a net loss for the fourth quarter of $2.7 million or $0.07 per primary share compared to net income of 2.3 million or $0.06 per diluted share for the third quarter of 2016. For the fourth quarter of 2015, a year ago, we recorded a net loss of 1.8 million or $0.05 per share.

\ For the full year, 2016, our net loss totaled 6.3 million or $0.16 per share compared to net income for the prior year of 4.9 million or $0.13 per diluted share.

Recall, however, 2015 results included a third quarter gain of $5 million equal to the cash consideration paid to us by Intersil Corporation representing 100% of the par value of our preferred stock investment in Great Wall Semiconductor, which we had previously written down to zero.

Consolidated revenues for the fourth quarter decreased to 48.1 million from 53.2 million for the third quarter, representing a sequential decline of 9.7%. Gross margin dollars declined 17.1% sequentially and gross margin as a percentage of revenue fell sequentially to 44.7% from 48.7%.

For the quarter, we recorded an operating loss of $2.6 million in contrast to the prior quarters’ operating profit of $2.3 million. However, I am reminding listeners that our third quarter 2016 operating expenses reduced by a one-time reversal of previously recorded equity based compensation expense and a seasonal surge in vacations taken.

On a year-over-year basis, consolidated revenue declined 9% from $220.2 million to $200.3 million. Full year gross margin dollars declined 8.3%. The gross margin as a percentage of revenue was stable rising slightly. For the year, we recorded an operating loss of 6.3 million in contrast to the 2015 operating loss of $267,000.

As addressed in this afternoon’s press release, fourth quarter results again reflected the recurring circumstances we have encountered for the last nine quarters in terms of the negative influence our revenue and profitability of the combination of general weakness in demand for our legacy products due to broad macroeconomic uncertainty and segment specific weakness and delayed uptake of our new products.

While we recorded increased revenue from our new product initiatives, notably our 48 volt point-of-load solutions. Other meaningful product categories experienced quarter-to-quarter revenue declines.

I’ll take a moment to highlight that we began to ship the VR 13 version of our 48 volt the point-of-load solution during the fourth quarter and will be shipping both the 12.5 and 13 versions through the first quarter after which shipments of VR 13 are scheduled to ramp more steeply.

Also during the first quarter we began shipping our datacenter solutions to some of the new customers we referenced during last quarters’ conference call. As such we expect total volume shift of datacenter solutions to increase through the year.

International revenue which we identified by the ship to address, declined 10.7% despite the increase in shipments of our 48 volt point-of-load solution to Asian contract manufacturers.

As was the case with prior quarters, the absolute decline in international revenue is largely the consequence of sustained weakness in the Chinese industrial and rail segments, as well as continued mix results across Europe.

Revenue recorded VJCL in both yen and dollar terms was stable quarter-to-quarter For the fourth quarter a consolidated turn volumes that is orders received and shipped within the quarter declined 11%, but was steady at 42% of quarterly revenue.

Concluding on consolidated revenue, recognized distribution revenue was largely unchanged for the fourth quarter totaling $4.8 million, but rising as a percentage of quarterly revenue from roughly 9% to 10%.

Turning to product level profitability, consolidated gross profit margin as a percentage of sales fell as stated to 44.7% from 48.7% for the quarter. Gross profit margins were supported by steady ASPs, but lower product volumes reduced overhead absorptions notably in VI chip.

Consolidating operating expenses sequentially rose 1.7%, but the prior quarter included the reversal of previously recorded equity based compensation expense as well as the seasonal surge in vacations which reduced compensation expense. Regarding income taxes, our fourth quarter tax calculations did not reflect unusual or non-recurring activity.

Turning to cash flow and our cash position, we generated fourth quarter cash flow from operations of $2.1 million as working capital swings offset our consolidated net loss. After capital expenditures of $2.1 million, our quarter end cash and equivalence balance sequentially rose 1.1 million to $56.2 million.

We are confident we had the liquidity to fund anticipated growth, as well as any further capital expenditures for expanded manufacturing capacity.

The quality of our receivables portfolio remains excellent with day sales declining to 41 days from the third quarter’s 43; similarly our aging schedule is in excellent shape with no meaningful pass dues as of today.

Annualized turnover of consolidated inventories remain steady, declining slightly from 4.4 to 4.3 times, reflecting an increase in raw materials held by VI Chip and Picor in anticipation scheduled near-term demand.

No unusual activity occurred in our inventory reserve accounts, although we did increase our reserves by almost $0.5 million or almost 6% contributing to lower gross margins for the quarter. Employee headcount at year-end was 971 of which 959 were full time employees down from the prior quarters 970.

Temporary and part-time headcount declined from 27 to 12 quarter-to-quarter. Recall that I previously described how our temporary headcount is influenced by the comings of goings of University co-op students. We currently are running two five day shifts for brick manufacturing and three five day shifts for VI Chip manufacturing.

With our expanded cross-training effort we are confident we will be able to flexibly schedule direct labor across business units as needed to meet demand. Turning to bookings, fourth quarter bookings increased to 55.1 million from 53.8 million for the third quarter, an increase of 2.3%.

The mix of bookings for the quarter was encouraging as areas of slow activity was offset by sustained bookings for the VR13 version of our 48 volt point-of-load solution and improvements elsewhere notably a substantial increase in domestic bookings for [Milcox] modules and customer solutions for defense electronics.

DJCL our Japanese subsidiary also saw a meaningful rise in bookings for our advance products. One year backlog rose 14.8% quarter-to-quarter to 48.4 million. Given our backlog, current terms volume and our near-term outlook, we anticipate an improved topline for the first quarter of 2017.

We are forecasting a sequential quarterly revenue increase of at least 10%. As listeners are likely aware, the current earnings season has been characterized by cautious guidance reflecting an uncertain macro environment.

Dull weathers for many of the markets we serve such as Intel and Cisco are signaling that the second half of the year may show improved performance or over what maybe a flat first half, given that market softness notably in enterprise computing and networking.

However, our focus on cloud computing in the datacenter space puts us in a leadership position in one of the few market segments constantly expected to show growth through the year and in to the next.

Recently Gartner and Synergy Research published their 2017 forecast calling for public cloud hosting revenue to grow anywhere from 37% to 50% this year alone.

Earlier this week, IDC released its cloud forecast calling for overall public cloud spending for the 2015 to 2020 period to expand at a 21.5% compound annual growth rate, which is almost seven times the rate of overall IT spending growth.

While these growth rates are for the revenues of the cloud infrastructure providers, we believe the figures represent a compelling proxy for the rates at which the required infrastructure to meet this growth will expand.

We are also targeting other promising market segments with our new products, among these as we’ve discussed before are electric vehicle, autonomous driving systems, LED lighting, wireless infrastructure and advanced aerospace and defense electronics, all of which are predicted to outperform the overall merchant power supply market.

We also are aggressively expanding our efforts to accelerate the uptake of our new products as successors to our legacy products in demanding industrial and mil-aero applications.

Our goal continues to be move Vicor to higher growth opportunities for which our advanced products have sufficient differentiation to take meaningful market share regardless of the overall growth of the market segment.

As I always do, I must remind listeners that the lengths of sales cycle for disruptive innovative technologies are difficult to predict. Similarly the decisions made by early adopting customers and the timing of those decisions are subject to changes brought about by many factors out of our control.

Also macroeconomic conditions cannot be accurately predicted. With that, I’ll turn the call over to Patricio. .

Thank you Jamie. As Jamie noted, continuous weakness in our legacy business during the fourth quarter overshadowed equal growth of VI Chip and Picor volumes for datacenter application.

A nearly 10% sequential decline in quarterly consideration revenue reduced manufacturing efficiencies, reduced gross margins, and although operating expenses were in check a quarterly loss.

However, a sequential increase in considerable bookings and the strengthening book-to-bill ratio bode well for sequential increases in quarterly revenues and profitability in 2017. Shipments of 48 volts to point-of-load solutions for datacenters rose approximately 15% sequentially, with customers facing all of this for Q1 and Q2 deliveries.

Designing activity of vast products in datacenter, super-computing, autonomous driving and aerospace applications accelerated during the quarter, and we recorded first design wins for powering GPUs and for powering CPUs within the CPU packet.

We believe this unpleasant level of activity and the encouraging improvement in bookings are indicative of increasing market traction enabled by innovative and are differentiated module of our components.

Of course our sales protection for these new products and customers are difficult to quantify as scheduled given the uncertain timing and outcome of various opportunities that are in the pipeline. But we are confident that we will see expanding revenue contributions from new products in 2017 and beyond. I’m sure listeners have many questions.

So I will open the call. Operator, we are ready for the first question..

[Operator Instructions] Your first question comes from the line of John Dilon representing D&B Capital. Please proceed. .

It looks like your shipping to the VR-13 data centers, and I’m also wondering are you shipping some converters for the memory socket in to those same datacenters..

Not yet. .

Will that be coming soon?.

Yes. As the year progresses. .

So you are 13% even without the memory sockets then?.

Well the VR-13 shipments are (inaudible) shipping at the very early stage of VR-13 in this class application. So I think the availability of these processors will improve as the year progresses and wins with primary and secondary customer will cause a broader structural activity.

Even with the very early ramp, we’re still attractively modest rate as compared to the (inaudible) expected starting Q2 and later this year. .

That’s makes sense because it’s still pre-production.

I think Intel is delivering VR-13 servers and starting production ramps too, isn’t it in the third quarter?.

Well I think as oppose to the availability depending on this too is different and it also depends on the particular customer. So it is going to change as the year progresses and it’s going to be different depending on the particular customers and application. .

But you expect that to release increases --..

Yeah. We have evidence of it taking off as we get in to Q2 and Q3. .

And how much is the memory going to add incrementally? The new servicing add more and more memory all the time, but I think your average selling price for the memory chips are going to be a little bit less. I’m just wondering how is it going wash out, against the twice the amount of revenue when you start shipping the memory or a quarter of it.

Can you give us a little color on that?.

I think the main driver for growth is going to be the standing mix of applications. The memory sockets while being first of their kind are going to bring about a contribution that in the short term is going to be relatively minor. It also depends because that particular combination applies to certain applications.

So it will also depend on when those particular applications are taking off hopefully in the middle or third quarter this year. I think the bigger contribution to an expansion in VR-13 related revenue comes from the broader set of applications and customers. .

So you expect more customers to be coming on as the year goes on is really what I think I’m hearing?.

We see a growing trend which really began to take shape at Open Compute in 2016 trying towards 48 volt to direct to the point-of-load solutions.

I think Google was the pioneer with respect to this type of application, and as Google offered a reference design at Open Compute last year that served as a powerful catalyst for others to follow not just in the US, but particularly I would say in Asia. Not just in the CPU space, but also with GPU type applications. So we see a growing trend.

I think we’re transitioning from the earlier lot to broader level of interest that I think is slowly growing by the day. So we’re actually expecting some important announcements at Open Compute in a couple of weeks. And we see new designs power different 48 volt (inaudible) in Asia taking off as we get to the end of this year and in to 2018. .

Do you still see Vicor making the $75 million number in the fourth quarter?.

We are trying for that. We are serving for exciting growth rates for 2018, ’19 and ’20 consistent with the three-fold increase in revenue over the five year timeframe which we have aimed at for quite some time. I think as many of you know, people who have followed the company, this initiative got off to a late start for a variety reasons.

But we think that it is at our doorstep and I think as 2017 progresses we’ll see the beginning of that. .

You mentioned the GPU in your remarks and just taking it from my question earlier, so I know you’ve had some working relationship with NVidia of course.

So I’m wondering is your design win with NVidia?.

I can’t comment on specific customer applications, but I think it’s safe to say that we actually have more than one design in the GPU space and we are very excited about the fact that we’re making progress in that space.

It’s no mystery that’s an area where there’s tremendous growth and with that there are growing demands for a very advance and efficient and cost effective power system that can keep up with the needs of this chips which now run at current levels that places a very challenging burden on traditional power system solutions based on the 12 volt bus and the multiplicity of back regulators, multi-face regulators.

As current levels get to the 200-300 level and as voltages of the point-of-load get to be well below one volt, the demand for a more capable point-of-load solution that relies on current multiplication as oppose to averaging out a 12 volt bus, they become much more compelling and obviously the pioneering initiative of Google in this job space [forces] these needs and now they are being realized more broadly across a range of customers that look to power their CPUs, their GPUs and I should say a variety of application specific chip or ASICs to perform a variety of advanced function.

More and more instances for the demand of these chips get in to - under the ramp and that’s where our technology, our point-of-load technology excels. .

And the GPUs are that in the automotive or are it in the datacenter or both because I know those are both big areas for the GPUs?.

It’s all the above. .

Your next question comes from the line of Hasnain Karim representing Kilimanjaro Capital. Please proceed..

My first question is with regards to as you see Skylake ramping in the back half of the year, can you talk about may be market share for 48 volt based servers going in to the cloud versus 12 volt solutions.

Is there a way that you guys were able to parse out whether it’s by skew or by what you think historically what percentage of the server you’re converting over to 48 volt?.

Well that very much depends on the customer. So with leading customers the percentage is quite significant. Obviously for the majority of the potential customers today’s percentage is literally zero because the 12 volt is the established standard for powering these kinds of chips in this class of applications.

But as suggested earlier, it is a question of both the 48 volt train of direct 48 the point-of-load is taking off and more and more customers applications are getting on board. I think that this is a session whose (inaudible) scale will take a few years, but and obviously the set will predict how the mix will end up.

But I will not be surprised if in a matter of few years a significant percentage and potential eventually a majority of the applications were to convert over to 48 volts.

Impact of this has to do not with what goes on at the point-of-load, the earlier comments about the growing current needs, the fact that advanced ASICs are more and more current hungry and operate at lower and lower voltages.

But also from a greater perspective of the supply change from the power source to the point-of-load we are involved with a very vast application where for the first time the super computer is being powered from a different source to the point-of-load of very, very high power levels through our building blocks going three phase to 48 volts and then directly from the 48 volt to the point-of-load.

So this is not just to do with how you get to the point of load from the bus that proceeds it. It’s also an issue of how do you get from the power source be it DC bus or an AC source is commonly the place all the way to the point-of-load.

So what we have is by far the most efficient advance and ultimately cost effective particularly in terms of cost of ownership solution shifting from the power source to the load and we are actually now for the first time again involved in supercomputing application where the solution will be from source to point-of-load 100% based on our margin of building blocks involving 48 volt as the bridge to the point-of-load.

.

And then I guess if you were to think about the customers out there in cloud, so you got essential cloud providers like the Google or Microsoft with their own applications, Amazon across the board in Asia [Bidoo], Alibaba also building datacenters out there.

But then also your enterprise class customers like the sales force or an Oracle, how you describe the latter to or those types of enterprise customers building cloud with their own applications. Are those types of customers going to 48 volt or will they be later on down the line as oppose to the first set of customers..

In the list that you just mentioned that based on visibility and design activity that we participated in we’ll be going to 48 volts by 2018. .

So I guess would you classify them as the first type where they tend to be larger and also a third party providers or what do you classify them as both the first and second type where they are also running really their own datacenters running their own applications. .

We’re seeing activity coming from different directions, coming from the companies that own the datacenters. It’s also coming from contract manufacturers that have worked with some of these companies in the past, and we can’t persuade it.

There’s going to be a large market for this new class of solutions and are offering - and develop them and offering them to other customers. With respect to those opportunities, they are really not packed to any particular customer of ours.

So we’re seeing, we’re impacting at various levels with different parties that play a different role in the food chain. .

And what type of lead times are you coating your customers at this point?.

It depends really on the class of product. So generally speaking we are addressing these types of solutions with some of the early, for VR 12.5 some of the early chips which are through old packages using our power molded packaging technology.

But we are also now beginning to ship quantities, pre-production quantities of very advanced its called SM chip which is a more advance form of our molded packaging technology.

These are such a small product and some instances that these products are designed for co-packaging with ASIC, this could be referred to as power and package where a pair our MCMs fracing in ASIC those under the amperes are co-packers with the ASIC itself.

So there are different type of packaging options depending on whether our solution is on a server board where our components mingle with components typically on server boards. And at this point in time those are primarily through all solutions.

But they would be evolving to more advance and more efficient and more cost effective surface (inaudible) product as well as very advanced packages that are only 12 millimeter thin or thick, depending how you want to look at it, which are for the first time getting co-packaged with very high kind of ASIC, it’s the power on package type of solution. .

So I guess maybe if you were to generalize a little bit more the range of lead times reporting is that more than a month or is it --..

Well at one end of the spectrum it could be for the more established mature earlier vintage solutions, it could be for weeks at the other end of the spectrum for MCMs power and package. It would be a 12 weeks type of lead time. .

And then I’m guessing that because it’s a power solution more analog based, that you tend to be self-sourced on a board design is that fair to say?.

There’s nothing our power component. Now there’s not to say that there is no other solution, obviously there is and in particular when it comes to the 48 volt to the point-of-load, given the change that is taking place in the industry and a number of conferences have made statements starting to compete in that space.

And if you have introduced some competitive products, but just to benchmark relative performance, the so-called competitive products that are being introduced by 48 volt to the point-of-load, competitors are approximately three times the size of other products that are three years old and a much bigger multiple of the size of product that we’re starting to ship in to power and package type of application.

So there’s nothing like our products and customers in this space generally recognize that Vicor is the pioneer leader, an established supplier of this kind of solutions. .

So let’s say we were to try to figure out as the first generation of 48 volt board ramps this year, where do you think your market share based on design wins that you’ve gotten after over the past couple of years for VR-13?.

As far as we can tell, as of today, our market share is pretty close to 100%. Not quite a 100%, but pretty close to it.

And obviously our objective is to keep it after, it won’t stay at that level forever, we are naïve with respect to that, but having learned lessons from past live, you can be sure that we are very focused in every aspect to maintain a very high market share making this product as cost effective, as scalable, as flexible as they need to be support their market share.

And again while the competition is aiming to serve this space, we are advancing to sell the art of our product I believe far faster than the competition is trying to play catch-up at least as far as we can tell. .

So anything 48 volt based shipping Skylake almost likely will be a Vicor point-of-load solution on there. .

Yeah, I can’t pinpoint it to high level of accuracy, but for practical purposes most of the action today is based on Vicor solutions. Now there is again an effort to establish what could be called an ecosystem for 48 volt because of the general uptick within the industry. And that’s a good thing and obviously we support that.

But we want assure that we want to continue to play the role of being the company with the best solutions, the most efficient solution, the most cost effective solutions, the best solutions overall to retain a very high share of this market. .

And then just one last question for Jamie, if I were to look at the income statement as you exit the year, obviously you’re expecting a fairly robust revenue ramp through the next three to four quarters.

How should I think about gross margins and OpEx to match that revenue ramp?.

OpEx is heavily dominated by head count and we don’t anticipate much expansion there, so I’d stop short of saying it’s fixed, but it’s not going to scale with the topline.

With margins I think it’s been evident over the last several quarters is more overhead we can absorb the better our margins are then once we get to another threshold it becomes an extremely efficient model. .

I think mentally from where we are its safe to say that the majority of topline growth drops to the pre-tax bottom line. .

So what gross margin trends towards - I guess is it possible for gross margins to trend towards the low 50 as you exit 2017?.

I believe so, obviously in the third quarter of last year we were with slightly over $50 million in revenues getting pretty close to 50 around I think 48%. And you can see what happened in four quarters the revenue declined going in the other direction.

You can do the interpolation with the same certifies the coefficient and fundamentally we have what is likely these cost models, both in the near term with respect to operating expenses, because I think that’s a lot in particularly in R&D, we believe we are well equipped to deal with what needs to be done on the job front for quite some time.

So (inaudible) in many parts of the enterprise is going to stay pretty confident to Jamie’s point. And likewise when it comes to gross margin, the biggest element is the largely fixed cost associated with infrastructure.

Now we’re investing in new equipment and obviously it is going to be some incremental call it equipment depreciation as those lines and additional equipment are deployed.

But that in and of itself given what we’ve done in terms of planning for capacity for this new generations of product will not make a big difference with respect to the general proposition of expanding margins in large proportion to increases in revenues. The material cost structure of the (inaudible) is relative low.

So again we largely are working with a fixed cost model. .

Your next question comes from the line of Alan Hicks representing Ainsley Capital Management. Please proceed. .

I had a question about your VIA product line, I know it’s relatively new can you talk about traction in those markets and what kind of applications are you getting into. .

So we have some volume applications on middle of this year, there’s one in particular which is once again a server type application, but in this case with the VIA product it’s a front end as opposed to being a point-of-load device.

So generally speaking we see an opportunity in VIA products both in the same end markets that we’ve been talking about as well as for more traditional defense type applications that Vigor is historically played in to.

So with the particular product line of the AC-DC converters DCMs the VIA packaging option is very well received by our traditional customer base, and we have a lot of designing activity with DCM in VIA packages.

So those who tend to be again somewhat lower volume higher ASAP type of applications consistent with the type of products we’ve historically made with the new value proposition because the new DCM in VIA package is of a great deal of performance to the wish of our customers well beyond the capability of our older bricks, much more advanced, much more efficient, more cost effective.

But we’re also seeing applications in higher volume, cost sensitive requirement and that’s part of the opportunity with the VIA [fault] line. .

Do you say it’s addressing your big product line, your legacy just replacing that or how much you’re just going (inaudible)?.

Eventually I expected that a lot of the big customers are going to become relative to VIA customers absolutely.

So generally speaking if you look for a website and look for a classic pick that we’ve been selling for 30 years and you look at this performance attributes, its capacity is the number one we can process in a given volume, its efficiency, its cost, you begin to find counter parsing the alternatives that are lot more attractive.

The volume gets reduced by a factor of three or eventually more. So taking up a fraction of the space, counting the losses by factor two and being overall more cost effective. So it’s a matter time certainly for new applications before (inaudible) customers will convert over.

Having said that we have a cast of a base that over not just years now but a few decades have [gathered] to be very comfortable with the liability, the robustness of a (inaudible) brick and certainly for applications are not demanding from a performance perspective will continue to rely on them just because they are comfortable and familiar with it and it’s a known entity.

So we don’t expect it to be big business, real big business to go away, but it will not grow and over time it will decline and will have the best form cannibalization from within, and that will expand our market opportunity in that application space. .

So your brick business was the weak area last quarter I assume? I guess how much - percentage wise how much did it fall last quarter?.

We’re not going to quantify that, but let’s agree about the fact that we have had a card business which is still a very large percentage of the total business, where the product line is very much (inaudible) to this currently.

Some might argue it’s quite aged, but it’s got good attributes and because of that it sells relatively well, but it is not going to be engine of growth.

So from a growth perspective (inaudible) obviously we need to do is first of all get the new products, the chips, the VIA products, other products chips, other products that are on the forefront of technological capability to represent the majority and the larger share of the world business, and then we’re going to see the growth in those products and those markets it enables us to achieve exciting growth rates.

But what we’ve been is largely dependent on historical bricks to in effect finance the development and the [missionary] work that has been going on with the new technology and the new products. .

Do you include the VIA in the brick product category?.

So the VIA is a brand new product, it relies on a (inaudible) technology in a package that has all of the benefits of a traditional brick and (inaudible), meaning it is easy to attach to a PCB or mount it to a shaft C it’s a AC-DC converter with the attributes the AC-DC converters such as what we’ve had in classic bricks, but then it has a number of new features that are attracted to customers.

So it’s a product that in this space puts Vicor back at the forefront of technology or capability. While with our classic bricks which have not been refreshed for a long time, we were in terms of some of the technological attributes started to ladies and gentlemen behind some competition. The VIA are way ahead of the competition in that space. .

In the past in your 10-Q that VI chip (inaudible), so what does VIA followed in those three areas?.

So in spite of what we are shaping to be the power system business as they see it from a (inaudible) business and fundamentally partitioning of our business going forward would follow the demarcation line.

We have obviously lost opportunities at or close to the point of load, those are the power components and then we have our system products that are typically playing a converted role in the front-end further removed from the point-of-load.

Now there is great synergy between the power system business and the power component business as implied by an earlier response to different question.

We are seeing applications where we are serving the end-to-end function and the power system and power component rules are very complimentary, but it is also fair to say that the focus that is brought about in our transaction by having different groups respectively to spearhead the effort with respect to point-of-load in power component is distinct from the successor to the brick and power system type of products that focus is doing very well for us because it enables us to get things done to get the product development and get the other essential activities done in a more efficient way..

Are you going to continue to report out on the 10-Q of the booked on VI chip, Picor and BBU?.

We are going to overtime evolve to a different report that is actually along the lines that I just suggested. But what now applies of that place yet, but we will get there before too long. .

Your next question comes from the line of Jim (inaudible), representing Integrity Wealth Management. Please proceed. .

The question that I have is on the non-recurring engineering fees. Could you give us a flavor for the trend significance and the results and any kind of design wins during the third quarter or the fourth quarter..

So we are seeing a growing contribution from so called NREs, these are coming from customers that are financing development activities relating to products that are dear to their applications. And we are finding more and more instances of these.

Customers have unique requirements that have us develop particular components of power system product for their needs, their sharing or participating at the cost of that development. And it goes without saying that to the extent that these NREs can be substantial hundreds and thousands of dollars and in some cases millions of dollars.

There is no better testimony to the real interest of the customer in having us develop the product than their backing company with that kind of money to (inaudible). So this modern money is in my mind visual guarantee that the development activity has got significant revenue dollars at the end of the development effort..

Did you see an uptick in the fourth quarter relative to the third quarter in that activity?.

I think we’re seeing generally speaking a growing trend in the job space and this comes about for the reasons implied or specifically stated earlier.

I think more and more customers are coming to us in some cases they have unique needs and if that’s the case and we need to do something particularly for them, we’re happy to do it under the right circumstances.

But the fact that we have is quite a high level of R&D investment that we have limited resources, we can only accept so many of those opportunities and where appropriate we look for the customers to participate in financing the development. .

If you had to rank the top three industries that you will have revenue exposure to this year, everybody assumes datacenter is going to be in an accelerating mode, but where would you place defense, electronics and industrial?.

So defense electronic because of the big business is still a very substantial part of our revenue, and so it will continue to remain that way.

As suggested earlier, the classic bricks are not going to grows any revenue, but new VIA products are going to pick up in new applications where the older bricks might be left behind and that is turning that market in to a growth market for us.

So in defense electronics in particular with some of the new products we have solutions to that in terms of key figures were made for those applications leave the competition further and further behind.

And again, if you look at the US defense major reason one, we’re not participating and I will submit the reason one why we are not viewed as the primary candidate for providing the best and most robust and most sophisticate (inaudible) point solutions. So an expansion in to the defense market would be good news for Vigor.

But as suggesting the fact, we have a very diversified strategy; we are very keen on converting the registration of Vicor model from a business perspective to a new model where economies of scale it must sell then high margins in niche markets are going to drive [factory] sales going forward. .

Your final question comes as a follow-up from the line of John Dilon with D&B Capital. Please proceed..

Jamie we’re pretty well in to the quarter and I’m just wondering how the bookings are running for this quarter?.

I will give you an oblique answer by saying that we are doing very well. .

So are you ahead of last quarter?.

We’re doing well. We are on track with respect to our plans. .

And regarding to automotive it looks like the automotive industry is moving really, really quick towards autonomous driving and hybrids and in particular 48 volt micro hybrids.

But Patrizio I’m just wondering do you have a design wins in the micro hybrids or did you have much activity in that field?.

So we have activity in the field and I would say we are involved with two major players in that field. With systems that in one case were especially developed for a very advanced autonomous driving system. In other case we are involved with also a well-recognized player in the trial space which is using DCMs in VIA packages.

So we view autonomous driving and this is normally - obviously it has been a much talked about and there’s growing focus on it. As a growth market we have technology that is well matched to the application requirements. We are involved with key power players and we look at autonomous driving systems as a great opportunity for us.

We’ve invested a lot in developing solutions that are particularly flexible and capable to advance for those kinds of applications. Our side of autonomous driving which obviously is certain that would become very pervasive not just within electric vehicles but vehicles at large.

We’re also playing a role in some other applications that are related to electric vehicles in Asia or other types of applications. I think overtime overall in the automotive market we’ll be growing. We recognize automotive is not where the growth that will support our factor three or five years will come from in that initial time frame.

It is more of a longer term opportunity because of the nature of the market.

So in terms of thinking about where the growth is coming from in the next few years, what moves the needle isn’t going to be automotive, but it’s going to be an appreciable expansion that will set the foundation for a further layer of growth later on in I would say the three to five years’ timeframe.

Automotive is not where the real action is going to come from in 2017, ’18 and ’19. Even though from a name recognition perspective, we may have some great stories to tell but it isn’t going to be a revenue story as much as some recognition of technological powers. .

Great. It sounds like things are moving along pretty well. Thank you very much. .

Thank you. And we’ll end it year and we’ll talk to you before too long. Have a good day. .

Thank you. Ladies and gentlemen, thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect. Good day..