Good day, everyone, and welcome to the Vicor Earnings Results for the First Quarter ended March 31, 2020 conference call hosted by Chief Financial Officer, James Simms. My name is Attila, and I'm your event manager today. During the presentation, and the coordinator will be happy to assist you. I would like to advise all parties this conference is being recorded for replay purposes. And now I'd like to hand over to James.
Please proceed.
Thank you very much. Good afternoon and welcome to Vicor Corporation's earnings call for the first quarter ended March 31, 2020. I'm Jamie Sims, Chief Financial Officer and with me here in Andover is Patricio Vinciarelli. Chief Executive Officer. After the markets closed today, we issued a press release summarizing our financial results for the 3 months ended March 31st.
This press release has been posted on the Investor Relations page of our website, www.vicorepower.com, We also filed a Form 8 K today related to the issuance of 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 make during this call make constitute forward looking statements for purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. Except for historical information contained in this call, the matters discussed on this call, including any statements regarding current and planned products, current and potential customers, potential market opportunities, expected events and announcements, planned capacity expansion, as well as management expectations for 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 prove in fact to be correct.
Actual results may differ materially from those explicitly set forth or implied by in any of our remarks today. The risks and uncertainties we face are discussed in Item 1A of our 2019 Form 10 K which it during this conference call is accurate only as of today, Thursday, April 23, 2020. FICO undertakes no obligation to update any statements including forward looking statements made during this call. A replay of today's call will be The replay dial in number is 88828681 excuse me, 8010 Again, that's 2868010 followed by the passcode 82686567. This dial in and passcode are also set forth in today's press release.
In addition, a webcast replay of today's call, along with a transcript, will be available shortly on the Investor Relations page of our website. Will start this afternoon's discussion with a review of our Q1 financial performance. And after closing remarks by Patricio, we will take your questions. Beginning with consolidated results, as stated in today's press release, Vicor recorded total revenue for the first quarter of $63,400,000, up slightly from the prior quarter's $63,100,000. Brick product revenue declined 2.8% sequentially, while Advanced Product revenue rose 9.8 percent sequentially.
Late in Q1, a small number of customers request we postponed shipments due to the COVID-nineteen pandemic. However, the impact of those postponed shipments on first quarter revenue was immaterial. For Q1, BRIC products represented 71.8 percent of total revenue, while Advanced Products share rose to 28.2. Domestic volume rose to 52.9 percent of total revenue. Revenue from shipments to stocking distributors domestically rose as well.
Export revenue declined 4.8 percent, reflecting prior period bookings influenced by macro weakness across Asia, notably in China for our brick products. However, exports to Asia of advanced products to contract manufacturers building for our OEM customer rose slightly. Consolidated gross margin as a percentage of revenue declined sequentially from Q4's 47.1 percent to 43.1% for Q1. Production inefficiencies caused by delayed shipments of components from China. And ramping volume of Advanced Products increase the reserve against certain inventories of raw materials.
High inbound tariffs continue to impact gross margin as we recorded $1,800,000 of tariffs for Q1, up from $1,300,000 for the prior quarter. Regarding tariffs, U. S. Customs remains backed up with high volumes of applicants for the duty drawback program. So we have yet to recover any amount of tariffs paid to date The total amount of Section 301 Tariffs paid since implementation exceeds $7,400,000, and we anticipate nearly 2 thirds this amount is seat of raw materials.
By mid March, however, all of our suppliers were operational and meeting their commitments to us. I will now turn entirely associated with a project specific rise in prototype development spending. No other category of operating spend rose meaningfully. Full time headcount stood at 9.91 at March 31, in line with the year end total of 9.93. We recorded an operating product level profitability.
Turning to income taxes. We recorded a small net benefit for Q1 of $494,000 after although we are forecasting a full year of profitability. We have thoroughly reviewed the Cares Act for any possible provision from which we might benefit because Vicor is too large to qualify for lending programs, our financial performance attention of the company's portion of Social Security taxes payable in 2020, of course, representing 6.2% of payroll. This will be a balance sheet item, not a P and L item as we will continue to expense such taxes through the year, but we will not be required to repay the full amount, which we have to be approximately $3,000,000 until December 2022. Net loss attributable to Vicor for Q1 totaled $1,700,000.
GAAP loss per share was 0.04 dollars based on a share count of $40,635,000 shares. Turning to our balance sheet, cash and cash equivalents sequentially declined to 82,800,000 due to the net loss and an unfavorable swing in working capital. Accounts receivable net of reserves totaled $41,300,000 at quarter end, with DSOs for trade receivables improving to 42 days. All balances are current. Inventories, net of reserves rose 8.5 dollars sequentially to $53,400,000 as raw materials increased to support our near term outlook for increasing production.
Annualized turns correspondingly declined to 2.8. Capital expenditures for as compared with Q4's 3.4000000. I'll now turn to bookings and backlog. Q1 bookings totaled $70,100,000 compared to $76,800,000 booked in Q4 of 2019. At quarter end backlog was $110,800,000, an increase of 6.4% sequentially.
Advanced product orders came in as expected. The sequential 9% decline reflects the composition of the prior quarter's order book, which included a large year long program for high end commercial lighting absent that single large order advanced product bookings rose 23 percent sequentially, and were almost entirely associated with customers in AI acceleration. Rick product bookings declined slightly quarter to quarter with the uncertainties of COVID-nineteen across Asia, notably in China. So far in this quarter, bookings have been robust, but given the uncertainties associated with the COVID-nineteen pandemic, We cannot predict that this will continue. Before I turn to our outlook for the second quarter of 2020, I will address the challenges we face with the pandemic, has see in Massachusetts on March 23, our manufacturing operations have, however, continued to function without interruption.
Vicor is an essential business under policies of the U. S. Department of Homeland Security, given our role in supporting industrial sectors considered critical in structure. In the second quarter, we have adapted to social distancing in the workplace and have provided work from home privileges to the extent feasible while maintaining productivity. Our engineering sales and administrative departments continue to function globally.
We have taken substantial measures to protect the health and safety of our employees And I refer listeners to our pending Form 10 Q filing, which will set forth the details regarding these measures. Although there is uncertainty related to the possibility that COVID-nineteen may influence future operational and financial results, we believe Vicor's power system franchise, our strong balance sheet and our flexible operational model will enable us to We intend to begin construction of the plan 90,000 square feet addition to our Federal Street facilities in a few weeks and, as stated, expect to fund this construction and related investment in capital equipment from operating cash flow. Subject to unexpected disruptions from COVID-nineteen, we anticipate increased revenue for the 2nd quarter which we are forecasting to be profitable. With that, I'll turn the
call over to Patricia. As Jamie stated, these are challenging times. However, VAICO is equipped to deal with these challenges effectively. I'm grateful to our employees and our suppliers for their efforts support of our customers. As stated, we're moving ahead with the addition of a new 90,000 square foot wing our indoor manufacturing facilities.
The new wing, we enable us to establish double the capacity for advanced products. And the new wing will provide vertical integration for all the process steps necessary to manufacture Advanced Products. Vertical integration of our chip or converter house in package processes is a major milestone. The combination of a large investment made over the last 15 years. Measured in R&D dollars This investment adds up to nearly $400,000,000,000.
In terms of addressable market, This investment should strengthen our early leadership position. In an emerging term, we believe will be more than other magnitude greater than the aforementioned investment. And in terms of intellectual property, this investment is protected by comprehensive patent portfolio, which, as I've characterized before, represents a minefield of patents no competitor will be able to cross for a long time. This minefield spans a multiplicity of proprietary technologies relating to power conversion engines, control systems, and three-dimensional power packaging. In combination, proprietary technologies enable high density power solutions, including power and package and vertical power delivery.
Which are on the critical path of the rapidly escalating car requirements of artificial intelligence processes. So despite the uncertain current circumstances, VIGO is positioned to emerge on the other side of the pandemic, with a strong and well protected leadership in the expanding market for 48 volt systems, in AI data center service and vehicle electrification. Recognition of this leadership and of the technology gap separating us from any aspiring competitor motivates every power engineer and project manager facing high density power system challenges to approach Vicor for our unique performance in Evolving Solutions. We offer listeners our best wishes for the health and well-being as well as their families, friends and colleagues. We'll now take your questions.
Your question
you.
All lines, we remain on listen only. We already have three questions in the queue. And the first one is coming from the line of Quinn Bolton.
Hey guys, congratulations on the nice activity in the Advanced Products side. I guess I wanted to start there in the press release. You talked about the pace of activity in early second quarter, reflecting strengthening demand for Advanced Products. Can you give us a better sense? Is that sort of across the board?
Is that more for the hyperscale, server motherboard business that you've been involved in for a while? Is it more for GPU or AIX elevators, how broad based is that demand for Advanced Products?
It's relatively broad based. So it includes the early portion of a ramp for a new GPU, hyperscale servers, But it also encompasses, strong activity for even our bricks, our old bricks, in industrial markets, medical equipment. So it's surprisingly broad, frankly, I would not have thought that a few weeks ago. I've asked a number of questions relating to what's behind it. And in a nutshell, it derives from the programs that I outlined a moment ago.
And Patricia, just on a follow-up, especially on the BRIC business, is there any way to determine whether or not your customers are trying to buy ahead or build inventory buffer inventory? Given the increasingly uncertain environment, demand environment as I think nobody really knows what the second half of the year is like or do you have pretty good confidence that this is in demand and real demand for those products
So I asked that same question of a couple of people here and the answer I've received and what I read in the daily bookings is evidence of programs that are going into production and generally sustained demand. Now without press to your point and in effect, my own question with ourselves folks, there could be some component of customers trying to ensure that they have a continued pipeline of products through uncertain times, but we haven't been able to add up component to anything significant.
And as a compliment to that Quinn, we're not susceptible to the double booking patterns that you sometimes see in commodity businesses.
Because most of the solutions are customized, correct?
To some extent, yes.
Got it. And then just two quick ones for you, Jamie. 1, just wondering obviously the gross margin was hit by some of the supply chain inefficiencies in the first quarter. How do you think gross margin looks in the 2nd quarter and similarly on OpEx. You mentioned development and prototype expense was higher in the 1st quarter.
Does that continue at an elevated level in Q2 or does it step back down to, levels that we might have seen in 2019?
Patricia, that's your department. So
Okay. Well, I'll try to answer your question first. I think in Q1 with some rather unique set of circumstances. I think looking at Q2, the margins look better. We are ramping new products, so that's not necessarily going to immediately bring about the level of efficiency we like.
So to mitigate expectations, I think we may need to wait until we progress further along in the year to achieve greater efficiencies with those new product ramps. But as a team, we're very much focused on growing our margins. We see ways to accomplishing that. And certainly, it is a long term proposition, not one that leads to immediate gratification, but Given the proprietorship in the products, the unique franchise we have, the economies of scale, we're about to achieve the vertical integration that is going to be brought about, with the expansion of the factory. We have a plan to get there.
And any quick comments on the prototype expense into the 2nd quarter, is continue or does it set back down?
Yes. So there's a lot of activity that's going on in support of variety of customer requirements. These are very intense developments, requiring quite a bit of type activity that again is a costly proposition, but one that sets the stage for long term opportunity in terms of those programs. In general, our strategy going forward given a new product line of devices that can be used both for lateral and vertical power delivery, and they represent a standard product offering. Our general strategy going forward will be to leverage to the extent possible with most applications and most customers, those standard products in order to provide a combination of benefits, including shorter cycle time, faster time to market, to your point, the most significantly minimization of adult developments that are intense and cough and also that are not inherently as scalable as we would like our capabilities to be.
There are just so many of these major projects that can be handled at any one point in time. So mindful of that we put all of effort in a, a profitability using for G technology and scaling up so called golden sales to provide the level of modularity granularity that should enable us for most applications to provide the solution based on standard building blocks, the available at Vicor off the shelves. This we're going to be rolling out as the year progresses it's a very extensive product line. And again, it will provide customers with benefits in terms of immediacy. In their power system solution, flexibility if their power requirements change as they often do, while lessening the burden on Vicor R&D to customize or heavily customized solutions that are tailored to But there's still going to be some of those.
There's no question about it. Where a program warrants it because the program is in the tens of 1,000,000 of dollars of revenues per year. We will still entertain it at lower revenue levels, we can't justify. The standard methodology is generally speaking going to be good enough.
Understood. Thank you for the detail, Patricia. Thank you, Jamie.
You're welcome.
The next question is coming from the line of John Tanwanteng.
Good afternoon guys. Thank you for taking my questions. My first one is, we've seen reports from some heads of some large hyperscale companies that they're talking about or thinking about reducing their data center spending. I'm wondering if you've already seen that in your Advanced Products orders or is that still yet to come or is it maybe being offset by these new customers and applications that you're now rolling out? Any color there would be helpful.
So with respect to the visibility we have, I don't see that. We don't see that. Again, we are at the beginning of a couple of major programs with major customers and the number of others, some of smaller programs, those may not be affected by any tightening of the belt that may be going on depending on how the dominos of coronavirus end up falling. But I would say that thus far, I've been surprised by the resiliency of the demand. Well above where I thought we would be at this point in the second quarter in terms of bookings.
And and offering to Jamie's point, that's not going to be negated by a weakening of the demand later on. We don't see that. It could happen, but we don't see it.
Yes, I would just highlight Alibaba's statements about the magnitude of their intended spend. We're not seeing any contraction in terms of our opportunities.
Understood. Thank you. And Patricia, you mentioned your surprised by the strengths in the orders. Was that broad based or was it just 1 or 2 bigger customers that came in earlier or stronger than you expected? Can you just help us think about what actually went on at a little deeper level if possible.
As suggesting the earlier answer, it's been 2 major programs that are beginning to ramp with demand where the forecast is being revised up, we'll have to see that that holds, we've all been around long enough to be surprised, but certainly, the indications are positive. But also general, demand for not just the best products, but also good old bricks. So I think it's generally speaking relatively broad based.
Great. Thank you. Jamie, just one for you and piggybacking a bit on what Quinn just asked. Can you quantify the gross margin hit from the supply side in the low last quarter and also the prototyping costs that was, I guess, above your normal run rate? And I assume that that latter bit is going
to keep.
I can, but I won't. Let's just characterize it as something that we hope is behind us.
Okay, fair enough. And then just a general question, are there any issues with your partners, whether it's your suppliers or customers in terms of solvency or liquidity or maybe some of them might have been shut down by quarantine or state issues or maybe even contracting the viruses in their facilities. I'm just wondering if there's any risk there? And then how could we capture that? And how are you planning for that?
So we've had one partner experience a reduction in the workforce due to coronavirus that is appreciable significant, I should say, We're working around that. So certainly from the operational perspective, these are, as I said earlier, challenging times, right? It's not easy sailing. But as suggested in the prepared remarks, We are, seeing very strong support from all our key suppliers and partners. There isn't anything that represents at this point in time a stumbling block.
Again, operations has had to work some issues, but they found solutions for those challenges. And I think the magic is going to be to keep on making it happen this quarter and the next quarter progresses.
Got it. Thank you very much. Good luck and hopefully the strength continues.
The next question is coming from the line of Don McKenna. Your line is now open. Please proceed.
Hi there guys. I wanted to go back if I could to the booking a bit, and I know in the beginning of the month, you increased lead times from 20 to 24 weeks which in and of itself would seem like would generate about a 20% increase in, in, bookings for the upcoming quarter. If you backed out, you know, any, increased demand that you see that would be generated by that increase in lead time, what would you see as a percentage increase for end demand for the quarter?
So generally speaking, as we all know, bookings within a quarter tend to be acoustics, right? They it's another linear progression as we would all love to see and what I generally expect as the quarter progresses is that the plan is achieved with a strong contribution in the 2nd month and particularly in 3rd month. So case implied last quarter, we had a very strong finish to the quarter, and that made the partner from a bookings perspective. This quarter thus far were actually percentage wise appreciably ahead of the linear fill for the plan for the bookings plan for the quarter as a whole. Lead times to your point do play a role.
But I think strength we've seen in terms of the actual programs, it points to sustained demand. We've had examples such as, providing bricks for ventilators as an example. Or other kinds of solutions that are unrelated to lead times. And but lead time to your point is question ought to be a component. Now with our own suppliers, we've seen increased lead times, particularly in the power semiconductors, area and lead times went up.
And the combination of comparantly times with respect to some key components going out and the need to plan factory capacity City with greater visibility, more runway, particularly navigating through some component supply issues that Again, we've been able to address, but could recur, that's what led us to taking the step of extending lead times by 4 weeks.
Yes, but if you backed out the increased demand because of or the increased booking because of your increased lead time. Can you give us a feel for what kind of a percentage increase you anticipate in the way of bookings for the quarter?
So at the general level, I would say that in a typical quarter, this far into the quarter, and we're essentially 2 thirds into the 1st month of the quarter. I would expect on a linear basis in terms of a linear fail to be at a percentage below the, if you will, 100% level, if things were perfectly linear by typically 15%, 20%, 25%. Is that we're ahead of the quarterly plan on a linear basis by percentage, I'm not going to tell you, So I think that differential is substantial enough to, fit what we see in terms of the specifics of the artists that we're getting. When we go back to the earlier question of the composition of the bookings and the fact that when it comes to so called strategic customers, these bookings relate to new programs that are just beginning to ramp, those programs as they ramp should lead to an increased rate of bookings as we get further into the second quarter into 3rd quarter.
Okay. My other question is kind of related to that. And that was what is the, current percentage of, capacity for the advanced products that you have?
So we are doing okay in that regard. We have the capacity we need. We always like to have spec capacity to be able to deal with burst demand.
Are we running at 50% of capacity or 6 steer?
I don't have a specific accurate number to give you. We're not running a 100%. We're not running a 50%. We're running a software in between capacity to be clear is somewhat elastic is dependent on, in effect, what levers we pull in order to adjust it. So we're comfortable with respect to not having a capacity problem over the next few quarters.
But we're also mindful of the fact that we're going to need more capacity. And that's why in spite of the challenging times and the uncertainties, of the times, we've decided without any hesitation that we wanted and needed to move ahead break ground and get an expansion to our advanced products capabilities with the goal of actually moving equipment into the facility, if not at the end of this year at the very beginning of Q1. Of 2021.
Thank you.
The next question is coming from the line of John Dillon Please proceed.
Hi guys. Hey, is that backlog number a record?
I'm not sure, but it's either either it's close to it. It's close to it, right. It might be.
I think it is from whatever in there. Anyway, congratulation. That's really good to see. It's obviously you guys are doing well in the COVID new environment. So I had a question.
It looked like your shares of stock went down. I was just kind of curious as to what happened there. Why did they go down?
Well, you can answer that question for me. I'm not sure I'm going to venture a guess with respect to that. Other than obviously, to a significant degree.
But remember, we're working off of a loss position for the quarter. So we use what used to be called basic shares as opposed to fully diluted.
K. So did some options become, dated, or did you buy back any shares or anything like that?
That's just that we do it on outstanding shares, the basic share count, which is the 40,000,006.
Yes, it just seems like it went down. So I was just kind of curious as to why it would go down?
No, actually the basic went up from 40,000,000 $482,000,000 to $40,635,000,000.
And it's delayed. It went down.
Yeah. Again, it's based on options
that are Yeah. So lower stock price.
Oh, okay. Okay. I see what you're saying.
The exercisable in the immediate future and based on stock price.
Got you. Okay. Thank you. Thank you. Patricia, I was wondering if you could comment a little bit about GCM engagements.
Are there any engagements on how's that going? Are you picking up some new significant customers in that?
Yes. So there is There's a lot of activity on the front. As I suggested earlier, we're actually trying to limit the number of engagements for GCMs and these, an even more complex, if you will, people stack what we engaged thus far with 2 major customers, key customers. But going forward, while we get requests literally every day for solutions that involve GCMs, we limit to the extent possible, going down that path because as suggested earlier, there's a level of complexity to it that gets in the way as scalability. So it is something that we're only going to entertain for major programs in the tens of 1,000,000 of dollars per year.
And again, solutions where customers would like us to address through a Caston GCM, they can be made to happen, with still state of the art power density, efficiency and general performance, without involving the CASM development is in the end to GCM. And to be a little clear, in terms of the audience here, why as to why these GCM has got a high level of custom tailoring. With the GCM, we have a com multiplier that is sized to deliver the current requirement of a processor, be 700 amps or 900 amps or 1000 amps in that job ballpark. And we have the current multiplier, layered on top of what we call a gearbox, which is one of the many panented aspects of our technology that adapt the current multiplier or adapt any kind of modular power system, such as a current multiplier to the pin map of the, SoC, that is being powered. In other words, the customer comes to us with not just a current requirement, and a power requirement.
But also, if you will, the pin map of its ASIC which has got a lot of detail to it, as you can imagine, and it's that detail that drives customization. Because the solution is tailored to the application. Now we learned having gone through this exercise a few times, how to make it more scalable, and we're getting more proficient at it to the point of where I mentioned earlier, we're taking on 2 major opportunities with so called trepo stacks where there is a gearbox this current multiplier, and there is the rest of the power system is layered on top of the current multiplier. So can have a complete vertical power delivery solution. But what we've gotten better at doing this complex custom developments, and they've been useful in terms of exploring what could be done.
What the technological opportunities and intellectual property opportunities would be. It is not something that we want to encourage for broad based general purpose type of applications.
Thank you. That was a great explanation. Thank you. So that kind of dovetails into my next question, which I think you've answered in previous questions here, but want to make sure I'm clear. So you mentioned, that you had specific, customers that drove your expenses up and it looked like your R and D was up about $2,000,000 and your SG and A was up about $1,000,000.
And are those, in customer engagements with GCMs? Or were they also involved in projects that were like for $20,000,000 or more a year, like you've mentioned a couple times?
Yes. Generally speaking, there's a threshold aren't necessarily always the same to justifying this kind of a development. In the case of companies that have significant potential, we may entertain it if the opportunity warrants it In other cases, their established companies in their respective areas were that opportunity is very clear for us to see. So obviously, judgment enters into it And in some cases, there's some amount of risk with respect to seeing the return on investment, but generally speaking, we'd like to limit that. So just to quantify for you the level of activity that is going on in the general fraud, just within the last month to month and a half, several of these engagements were progressing through R&D Engineering with a variety of activities that, in effect, represent significant expense, both with materials and R and D personnel.
And there were all concurrent developments. And if that's at the root of the R and D costs being where they are.
Great. Thank you very much. I'll get back in the queue if there's time. Thank you.
The next question is coming from the line of Richard Chen Your line is now open. Please proceed.
Well, hi, Patrice and Jamie. Thanks for taking my questions. So let me start with the financial one on gross margins. Sounds like from your prior discussions that you were looking for, gross margins, improving here to some degree in the second quarter, but Patricia, based on your it sounds like it would take a couple of quarters maybe to get back up to prior levels of 2019. Based on the ramp of some new products.
Is there kind of a history that you can fall back on and give us a sense of how fast it would take before you can get back, you get your gross margins back the mid to high 40s?
Well, so I think a very reasonable threshold given the level of investment in the technology, the proprietorship, the IP is 50%, right? So as management team, we have set our sights on crossing the 50% level, in a matter of a few quarters. And then going well beyond that as justified by the that I was referencing earlier in the technology portfolio that we've been developing over the last 15 years. A fair return for this kind of technology is not based on gross margins in the 40s or even in the 50s. We need to be thinking of, gross margins in the 60% and maybe even higher than that.
And obviously, part of this is cost structure. The cost structure is key to making customers very happy with respect to not only having solutions that enable their competitive advantages, but also being able to do so very cost effectively. But also they importantly enable us to achieve good margins improving margins as we need to do to get return on investment. So going forward with dispansion of Ralphsita with the vertical integration of the balance of processes required for power and package vertical power delivery and economies of scale associated with greater volume. Given the fixed cost structure that we currently have, in advanced products, we have tremendous opportunities to dramatically reduce costs.
And that's you know, the the number, that we are very focused on reduction in cost. And we measure this in terms of so called panel costs. So as you might know, unlike the bricks of, decades ago, a conceived decades ago, which are made in effect one at a time. Chips are made out of panels. You can think of them as brownies, if you will, in an analogy.
And the factory is designed to in effect make brownies. And we make brownies of different thicknesses but the X NY dimension of the brownie is always the same. Just like in a wafer foundry, Rosette TSMC or some other major foundry, costs are based on common denominator wafers for certain classes of products. In our case, we have a similar metric that in effect enables us to achieve economies of scale based on the number of panels we manufacture. And as we drive the power count up, the cost pressure per panel goes down.
And fundamentally, what a cheap cost is a function of 2 things. What the panel costs and how many chips we get per panel. And the number of chips we get per panel keeps getting reduced as we continue to increase the power density of the products And in maybe, sure, increasing the power density, we, in effect, reduce the area of the panel that is occupied by a product of a different power capability or certain power capabilities. So these are the key drivers to continuous cost reduction, dramatic cost reduction, getting power costs down, while at the same time, getting the number of chips per panel at a certain power level per chip up and there's tremendous opportunity with respect to reducing costs.
Wonderful. Thank you for the complete and helpful answer there. Maybe 1 or 2 more from me and I'll jump out of line. You've referenced, I think, in the last conference, call about the OEMs, the OCP Accelerator Modules. Maybe if you can characterize how important of an opportunity you see that for this year, maybe next, And I think specifically last quarter you referenced one of the versions using your LPD, to what degree do you see that as a contributor to revenues this year?
Well, so that's a space where there's obviously a very large established dominant player and loss of aspiring competitors. Again, what I can say is that whatever the current requirements get beyond a few 100 apps and particularly as they get up to 700, 800,000 apps and beyond. Our solution is, very highly differentiated and fundamentally enabling where competitive alternatives are not. And again, competitive alternatives are in the cap in a number of respects. They're basic proficiency and potentially IP constraints.
So we feel very strongly that as that market continues to expand as it has, with a number of competitors, gaming for a market opportunity that is due to grow very substantially over the next five 10 years. We see ourselves as being a common denominator power system in Abler for those solutions.
Okay. Fair enough. Last question for me. Last quarter, you talked about in the auto Swiss signing of 2 agreements. I did anything in your prepared remarks today.
Any updates you can give on progress there? I know that we've seen a lot of the automotive space slowdown? Has that have those slowdowns impacted the sort of engagement or discussions in that space?
So needless to say, over the last couple of months, things have been relatively quiet, in that general area, people can't travel, can't visit other multi customers, a lot of customers in that general space. So I think we're going to have to wait a little while to see what transpires after the impact that recent events have had on that market I would expect that the electrification trend and that the convergence on 48 volt node as a central node within electrified vehicles. Will before too long accelerate even further in spite of the cost of all, coming down because of other secular trends that I believe are going to be driving these advances. And certainly the leaders in that area are continuing to, drive hard for solutions AI solutions for, autonomous driving and other kinds of solutions for power systems beyond autonomous driving in electrified cars. But frankly, over the last several weeks, I haven't been personally focused on that much on the automotive space.
For obvious reasons and haven't gathered recent updates on activity on the general front.
Okay. That makes sense. Thanks for the detail and that's all the questions for me. Thank you.
Next question is coming from the line of Alan Hicks. Please proceed.
Yes, good afternoon. I had a question about, seems like everything that's happening, that data center service demand is increasing, what are you seeing from your customers? Coming, getting stronger?
So as suggested earlier, the customers and the programs that were particularly focused on appear to be doing well. And I fared that the motivation to accelerate ramps and get new products that create new revenue opportunities or create new levels of efficiency in data centers. Those are driving this ramps. I can't tell you whether with other programs and potentially other customers the same general trend holds. I don't know for a fact one way or the other, but with the visibility that we have, thus far, it's been remarkably strong.
And how are things going with getting new customers?
It's going very well. So again, when it comes to AI, any company you would think of, is either an existing engagement or an engagement waiting to be kicked off.
And is how do you see 48 volt adoption? Is that is it interest increasing or how is that going?
It's definitely despite a down deed in the sense that, that train has left us and not everybody is gathering on it, but it's clear where it's going. So take artificial intelligence as an example. In that particular case, what drove the switch from 12 volt to 48 volt was the realization that the 48 Volt was a necessary intermediate node to be able to support the level of GPU car, that the solution demanded. It is, in that particular case, the current requirement of the GPU that drives the switch from 12 to 48. Even though, as we all know, where a lot of these GPUs are currently deployed, which is, in data centers, the infrastructure in the centers is still largely to evolve.
There is a notable exception and more exceptions that are going to become the norm before too long coming away But clearly, the rubicon has been crossed with respect to 12 going to 48. In automotive, the same also, I think you only need to look at the number of conferences that were held before the pandemic in Germany, in China, with the title, 48 volt power systems for automotive, they were happening with the frequency of 1 every couple of weeks to get a measure of of that trend. And again, they may be selling fewer automobiles now, but I think the rationale for going green if anything, I think, is made stronger by recent developments. So, we see that trend accelerating after this task settles. And I think the need for taking advantage of advanced technologies will become even more compelling in order to have a competitive advantage in that space.
Okay. And then, on your front end products, you hit that RFM product based on 4g Technology. How's that going?
That's going good. So we are engaged with a customer that will be a lead customer for that product. This is an AI customer where in effect we are already providing the points point of loss solution as a power and packet solution. They still have a very bulky classical front end. They're going to be able to shrink the size of that front end essentially by an order of magnitude using our 4G RFM technology.
So that's going to be a lead customer for us in that space. And we look to broaden it from there. So we're very focused at this point on this initial engagement.
So you still have very high hopes for that product?
I'm sorry? Oh, yeah. You still have
high hopes, yes.
Yes. We
do. And then lastly, can you give quick update on your supercomputer business?
There are programs ramping in that space as well. There are some gathering programs other programs. So that's one of the examples that in the back of our mind in answer to the earlier question with respect to word descent in the near term is coming from supercomputers is one of those areas that have programs deadlines and production requirements that are coming.
Okay. So you expect sales from that in the second or third quarter?
Yes. I think if there's one more question, we are at the end of the hour.
Yes, we do have one more question. Can I introduce it?
Sure.
Okay. Thank you. It's coming from Jim Bartlett. Please proceed.
Many of my questions have been asked. Just last on the RFM, a product, you had said last conference call, in 6, 7 weeks, you've had a, the 4 g controller chip, and you start powering it up, it has that happened? So we've had a first revision of the 4 g controller that we used for is some initial purposes, essentially benchmarking. Not surprisingly, the silicon it generally requires a, a, a risk pin to address some minor issues that are found in benchmarking, the Reb A. So we have a Reb B, which is due in I believe a few weeks, I think it's about 3, 4 weeks from now.
We expect that to be good to go. In terms of, scaling up our capabilities with respect to 4G PFC, both single phase, 3 phase, RFM, a variety of products for AC to DC power conversion, front end conversion. And when do you see bookings, well, design wins, production bookings, what's sort of that cycle that you might see. Yes. So I wouldn't look at 4g RFMs as being a near term contributor that is going to move the needle in 2020.
I think we should be thinking next year, the year after that, for initial significant opportunities for that technology. But in answer to the earlier question, We see that as a very important complementary capability. It's complimentary because as I mentioned in past conference calls, it is what brings power from whatever worldwide AC Mains happen to be available. To the common denominator 48 volt node, which is the hub, if you will, from which we take customers to the point of load. So as suggested a moment ago, we have a lead customer that has gone to 48 volts to support the very high requirements, Subwell involved, and now wants to compete their system with a solution that is much more dense and sell the art in every respect.
To power their systems from worldwide ACMA. So we see that as, Santier will truly differentiate their system, our solutions, Again, in a complementary way, from AC Mains, doesn't matter where you happen to be, U. S, Japan, any source, AC source to 48 volts. And then from there, to the point of load. Order of magnitude return on the $400,000,000.
We're counting on it. Thanks very much, and we'll be talking to you in a few months. Have a good day.
Thank you very much everyone. That concludes your conference call for today. You may now disconnect. Thank you for joining. Enjoy the rest of your day.