Good day, and welcome everyone to the Bicore Earning Results the fourth quarter year ended December 31, 2019, hosted by Doctor. Patricio Vincarelli, CEO Vicor and James Simms, CFO of Vicor. My name is Tommy, and I'm your event manager. 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 Simms.
Please go ahead, sir.
Thank you, Tommy. Good afternoon, everyone, and welcome to Vicor Corporation's earnings call the 4th quarter and the full year ended twelvethirty 1. I'm Jamie Simms, CFO. And with me here in Andover are Patricio Vinciarelli. CEO and Phil Davies, Worldwide Head of Global Sales And Marketing.
After the markets closed today, we issued a press release summarizing our financial results for the 3 months 12 months ended December 31st. This press release has been posted on the Investor Relations page of our website www.vicorpower.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 may 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's expectations for sales, growth, spending and profitability are all forward looking statements involving risk 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 or in or implied by any of our remarks today. The risks and uncertainties we face are discussed in Item 1A of our 2018 Form 10 K, which we filed with the SEC on February 28, 2019. We expect to file our 2019 Form 10 K this week ahead of the SEC's March 2nd deadline and a refresh discussion of these risks and uncertainties call is accurate only as of today, Tuesday, February 25, 2020.
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 the call. A replay of today's call will be available beginning at midnight tonight through March 11 2020. The replay dial in number is 888 2868010 followed by the passcode 90154129. 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.
Discussion with a review of our financial performance, Phil will address current market circumstances and our outlook. And after closing remarks by Atresio, we will take your questions. So, beginning with consolidated results, as stated in today's press release, Vicore recorded total revenue 8% from the 3rd quarter figure of $70,800,000 and down 14.4% from the 4th quarter 2018 figure of $73,700,000. Revenue for 2019 totaled 2 $63,000,000, a decline of 9.7 percent from the $291,000,000 recorded for 2018. 20 nineteen's year over year revenue decline primarily reflected for Advanced Products reduced shipments into data center applications.
And for Brick Products, the influence on demand from Chinese customers of import tariffs placed on our products. In aggregate, our annual shipments to China in 2018 to 20 $1,000,000,000 of second half of twenty nineteen. To address the Japanese market, during the year we repositioned our majority owned subsidiary VJCL, to focus on custom and configurable products for the Japanese market. We also established a support office in Tokyo with new hires focusing on promising in Japan are now through new distribution partners, which are well positioned to broaden our penetration North American revenue expanded 9.3% year over year with sales through industrial distribution rising, complemented by increased defense electronics volumes consisting of higher shipments of both brick and advanced products. European revenue rose 3% for the year, reflecting improved conditions in certain industrial segments on the continent, offset by ongoing weakness in UK demand.
For the fourth quarter, the same conditions influencing our full year performance were at play. Conditions in China continue to 20% sequentially for the 4th quarter as the 2019 expansion of trade restrictions by the U. S. Government including the prohibition of sales reduced both bookings and shipments for the quarter. Revenue through Hong Kong distribution declined sequentially approximately 10% due to further slowing of the Chinese economy and reduced demand across industrial segments owing to the 20% tariffs applied to our products by the Chinese government.
As was the case for the full year, for the fourth quarter, BRIC product revenue increased slightly as higher domestic distribution, higher domestic defense electronic shipments, and an unexpected level of domestic turns volume offset declines in Brick product shipments to China. However, Advanced Products revenue declined by 33% sequentially, driven by 3 events. Our forecast for Q4 twenty nineteen had included shipments to an important hyperscale customer. This customer in the fourth quarter of 2018. In the fourth quarter of 2018, we production is now scheduled for was the delayed shipment of certain pre production volumes brought about by supply chain bottleneck.
We believe we have successfully addressed this bottleneck ahead of for the quarter. For the 4th quarter, the BRIC to Advanced revenue split was 74% to 26% in contrast to the split of 66.34 for the third quarter. International revenue declined 24% sequentially essentially giving back the 28% increase recorded for the 3rd quarter with the decline largely tied to the Q3 relaunch of a hyperscaler server program and the aforementioned Q4 rescheduling of deliveries for that program. As a percentage of total revenue for the fourth quarter, international declined to 50% from the prior quarter's 58%. For the full year, international revenue represented 54% of total revenue in contrast to 62% for 2018.
Consolidated gross margin as a percentage of revenue for the full year was 46.8%, down slightly from the prior year's 47.7%. For the fourth quarter, gross margin was 47.1 percent. Through the year and the fourth quarter, our operational metrics have improved. However, we recorded charge of over $1,000,000 in Q4 associated with the aforementioned supply chain bottleneck. High inbound tariffs continue to impact gross margin as we incurred 1,300,000 of tariffs for Q4.
U. S. Customs is backed up with for the duty drawback program, so we have yet to recover any amounts of tariffs paid to date. The total amount of Section 301 tariff paid dollars implementation exceeds $5,600,000, and we anticipate more than half of this amount will be eligible for drawback. We continue to evaluate suppliers that certain vendors are nearing completion of their efforts to move production out of China and we hope to see lower imports subject to tariffs through the year.
I'll now turn to operating expenses. For the year, total OpEx rose 2.5%, exclusive of the 402,000 or severance charges we recorded for the year, excuse me, recorded in 2018, with the majority of the increase occurring in the 4th quarter, reflecting for the year spending discipline or 1.7% to 993, with 14 of these new hires occurring in the fourth quarter of the year. For the fourth quarter, OpEx increased 7.1 percent sequentially, largely due to an increase in project specific prototyping charges. Full year and 4th quarter operating income reflected lower revenue. Full year operating margin declined from 5 to 5.3 percent from the prior year's 11.1% while Q4 operating margin fell sequentially to 1.4% from 8.6%.
Turning to income taxes, we recorded a small net benefit for Q4 to bring our full year effective tax rate to 5.2%. Net income attributable to Vicor totaled $14,100,000 for 2019, a decline of 56% for the year. The Q4 figure was $1,300,000, representing a sequential decline of 78%. Fully diluted GAAP EPS the fourth quarter was $0.03 on a diluted share count of 42,404,004,004,000 shares. This is in contrast to Q3 net income of $5,900,000 which represented fully diluted GAAP EPS of $0.14.
Turning to our balance sheet, cash and cash equivalents sequentially rose to $84,700,000. Accounts receivable net of reserves totaled $38,100,000 at year end, down sequentially 4.7% with DSOs for trade receivable steady at 45 days. All balances are current. Inventories, net of reserves, decreased 1% sequentially to $49,200,000, with another sequential decline in finished goods. Annualized turns remained at 3.
Capital expenditures for Q4 totaled $3,400,000, an increase of 3% sequentially. Now, turning to our planned expansion. We closed on the acquisition of land adjacent to our andover plant in December. Mother Nature is now our primary gating variable, and we plan to begin construction in April and complete an expansion of our Federal Street factory. By 90,000 square feet, going from 250,000 to 340,000 square feet by year end.
As stated before, we anticipate internally funding both the construction and the multiple phases of planned equipment installation. I'll now address backlog and bookings. An increase of almost 16% sequentially, reflecting a 27% sequential increase in bookings for the quarter. New Advanced Products orders essentially doubled for the quarter, while Brick product orders were flat. New Advanced Product orders reflected activity in the data center space, and a notable increase in orders for commercial lighting applications.
Brick products orders reflected the circumstances seen in our revenue. China and Hong Kong continued their decline, while domestic activity was steady. Turning to our outlook for the first quarter of 2020, subject to the impact of the coronavirus outbreak, we anticipate limited progress in revenues for Q1 ahead of anticipated increases starting in Q2 With that, I'll turn the call over to Phil, who will provide insights into market conditions and our positioning in those markets.
Thank you, Jamie, and good afternoon to everyone. As Jamie just discussed, 2019 was a challenging year for us, particularly in our China market, with the tariff situation and potentially important customers there who ended up on the commerce department denied parties list. We also faced an over inventory situation and push outs with our data center customers. Plus reduced spending in the semiconductor test equipment market. We did, however, see growth in, North America and Europe with both our brick products and advanced products, and our global distributors grew at a combined 22% year on year.
We remain enthusiastic about our 2020 prospects in AI acceleration, supercomputing and data center service given design wins and expanding product offering, including power on package solutions and a ever broadening customer list. Customer interest in factorized power solutions for the 48 volt variant of the open accelerator module as it's commonly called the OAM, a design put forth by the open compute standards group is high. We are working with GPU and ASIC developers on OEM solutions. If listeners are attending the open compute summit in California, in early March, you'll see companies there demonstrating new 48 volt based OEM accelerator mezzanine cars. There are 2 power levels for these cards and the lower power versions use our 48 volt to 12 volt and 12 to 48 volt modules.
The 12 to 48 modules enable these AI cards to be backwards compatible with data center customers were still using 12 volt power delivery networks. The higher power cards use our LPD or lateral power delivery 48 volt to load factorized power solutions. Looking forward, demand for much higher AI processor performance requires much higher current, which is bringing new customers both very large and small, such as new startups, to our VPD or vertical power delivery as the enabling solution to their current density needs. Some of these startups have already been acquired by larger companies, which is good for us. They all add up as design wins in the data center and AI processor market for generation devices that require greater than 600 amps.
These projects are expected to ramp in late 2020 through players who are facing the same power delivery challenges as the cloud computing and AI processor companies. We are starting to see current requirements in these applications approach 1000 amps, and we are engaged on VPD vertical power delivery solutions for this new cloud networking for the AI market. More to come on this in future updates. We continue making progress with design wins for advanced products in other growth markets, as evidenced by the high power video display project mentioned by Jamie, which we were awarded in Q4. Our unmatched efficiency and density are ideal installation that will be one of the world's largest LED displays.
We will see additional projects, similar to this on the horizon. Back in June of 2019, I had an opportunity to update some of you at our annual shareholders meeting, where I discussed a few of these large growth markets. Notably automotive. And I'd like to take the opportunity to give you a further update on our progress in automotive, which continues to be very positive. The good news is that the move to 48 volts as the main power delivery network within automotive continues to gain significant momentum.
I am pleased to report that enabled power system solutions with unprecedented power conversion density and modular system flexibility for hybrid and full electric vehicles. As is the case in artificial intelligence and supercomputing, automotive designers are turning to Vicor for unmatched performance that in turn differentiates the performance of their end products. The progress we have made in just over a year has been remarkable. And the momentum is building with 2 agreements signed in the fourth quarter and more coming this quarter. At our next annual shareholders meeting in June, Patrick Wyden, our VP of Worldwide Automotive Business Development will be presenting our progress in far more detail.
With that, I hand the reins over to Patricio to make a few important statements.
I am leaving my remarks today given a bad cold and coughing that may make it even harder to comprehend my voice. I want to repeat the statement from last quarter. Vigor is executing well in the face of challenging conditions and near term uncertainties, and we're confident the company is well positioned for long term growth in very promising markets. We're engaged with parties interested in partnering with us for either technology or market access, with the goal of accelerating expansion of vertical markets with alternate sources. Phil has spoken to a substantial head start to enjoy in AI acceleration and automotive electronics.
Which are both expected to follow sustained secular growth trends. And Jenny mentioned our forthcoming capacity expansion. Evidence of confidence in the future. As discussed, booking patterns continue to reflect U. S, China trade and tariff dynamics, country specific micro uncertainty.
Segment specific demand visibility challenges, and more recently, the coronavirus uncertainty. Bookings growth in Q4 was expected to set the stage for an upward trend in Q1 with sequentially higher bookings and revenues. However, program uncertainties are causing Q1 revenues to be less than earlier forecasted. We have a sizable pipeline of customer programs in AI acceleration, supercomputing and the center servers. With the sudden supply chain and people about the coronavirus.
Some large near term advanced products orders may be delayed until a clear sense of the extent and planted outbreak is developed. We'll now take your questions.
Thank you so much. Questions. First question is coming from the line of Jim Walton.
Hi, gentlemen. Congratulations on a nice order in the fourth quarter. Obviously, some near term uncertainty around a number of moving factors, but was hoping you could just clarify your comments again about the orders that pushed out. Did you say that it was a HPC customer or a hyperscale server customer that pushed, I guess, from Q4 to the month of April?
We saw push outs, from a couple of our, data center and, HPC customers. I it was a couple of fairly large companies that we've been dealing with for a couple of years now.
Got it. And then I guess the second question, Jamie, you sort of said in your script that you did not expect revenue in the first quarter to advance or some similar term. Wondering if if that's effectively sort of a you're looking for revenue to be roughly flat or do you think it actually takes a step down with coronavirus and continued weakness out of the China Hong Kong part of the business?
I would expect it to be slightly but not substantially contrary to our risk protections. And going back to the question that Phil answered regarding that is scheduling. So what we are on the verge of with a large customers in the service space is a ramp starting and ever. And at this point, that's locked in forever. We're also on the verge of what's expected to be a major ramp for a new GPU applications.
That's also due to start ramping in the next couple of months. I'm sorry.
No, no, please continue, Patricio. I'm sorry.
So, well, there's been some rescheduling. With those customers at this point, we have line of sight 2 grams that are imminent. Now we should all be cautious though with respect to the potential impact of coronavirus, right, because it has a disruptive effect on supply chain. And so we need to sit tight over the next several weeks to see what actually ends up at It's good news over the weekend that the Chinese government instructed Chinese companies to get back into business. That will help relieve, some of the supply chain constraints we think.
But until all of the dust settle, there's still uncertainty in the near term.
Great. And just last question for me. It sounds like the Q2 ramp in beyond is driven from multiple customers, hyperscale servers, new GPU, the HPC, business coming back. Do you now have firm order orders on the books for delivery beginning Q2 for those programs? Or are you still waiting for some of those orders at this point?
No, we have orders on the books for a lot of the new programs for this coming year. We're in good shape.
Great. Thank you. More timing.
Yes. Of course.
Yes. So what's in the books covers the near term? Including the, the ramp in the server, the application starting in Apple.
The next question is coming from the line of John Tanwanteng. Please proceed your line in the call.
Hi, good afternoon. This is Brendan on for John. I just wanted to ask real quick. I know a lot of customers have moved their supply lines out of China due to tariffs, which caused you to have a little rain delay. And wondering if if you've been able to pursue similar strategies in your production at all and do see more of that kind of impact, looking ahead.
Yes. So we've been pursuing the general strategy of limiting our exposure to Chinese supply because of the ongoing tariffs and other considerations. Unfortunately, these initiatives take time, were looking forward with some of the key suppliers, having established an outsource outside of China is the first half of this year. So the dependency has been lessened, but, it's still significant.
Great. Thank you.
The next question is coming from the line of Rich Shannon. Please go ahead. You're live in the call now.
Hi, guys. Thanks for taking my questions as well. Let's hear maybe a quick question on the brick business. Here. If I'm to read the tea leaves right here, is it fair to say that your, your brick business is getting a reasonably good bookings outside of China, but the ones for China are the ones that are seeing some issues?
Yes, that's correct.
Okay. As we look at China going forward and if I caught the numbers right from Jamie, you had 20% of your sales for 2019. I didn't catch the number. Exiting the year, but in kind of a worst case scenario when the tariffs and the supply chain issues that you've talked about already continue to be enforced and you can't solve the supply chain problem. Do you see a big risk to a lot or most of that China based business disappearing over time?
Or do you still think you can still sustain some of that?
So I think it's a complex question to answer. There's a lot of impoundables, but in general, our Brexit proven to have a high degree of resiliency to a variety of factors, the passage of time. And the recent set of issues. That said, we obviously took a hit with respect to Greek business in China. Last year.
Phil, what do you see happening going forward with the brick business in China?
So I think that, from the tariff point of view, the business has sort of flattened out in terms of that, actually the overall brick market in China is actually growing as a total market opportunity. It's just that there are local, supply now for, you know, Chinese made, brick product but the overall market is growing and our position in that market is still very strong with a very high brand of high quality, high reliability ruggedness. So I still see a good brick business for us going forward for a number of years. In the Chinese market?
Yes. So to be clear, the copycat brings from Chinese Meggers don't work all that well. When, going up against our thirty or forty years old breaks. And we are cannibalizing our own bricks with advanced products that perform the BRIC function in a fraction of the space and with significant performance advantages. So, particularly, when we take into consideration the long term competitive advantage of the advance product version of an old fashioned brick, demand in that market is subject to avoidance of excessive environmental interference, should stay strong.
Okay. That's helpful. A couple more questions for me, and I'll jump out of line. First of all, last quarter, you got a sense of increasing breadth of your orders, but particularly and I'm specifically interested in the Advanced Products. Maybe if you could provide some context to how that finished the 4th quarter how you're seeing the first quarter, maybe give us a sense of what you expect in the breath of this order and sales book exiting this year?
So, exiting the year, we had some very nice orders from some new applications, actually. We mentioned the video, the very large video wall display that we're involved with at the 20 Megawatt level. That was for a new, front end, 3 phase AC to DC product AC to 48 volts. And, it's our first entry, if you like, into a new AC to DC market that is actually four times bigger than the DC to DC converter market. And it's a market that we have big plans for as we introduce new products through this year.
So that order came in, in fourth quarter, we'd been working on it for a while. And then we started to see preliminary orders coming in for the launch of these new data center, HPC and GPU customers, you know, early ramps, if you like, in pre production phases, getting systems in place for their early customers. So that, that came on in fourth quarter as well.
Okay, perfect. One last question for me. I think in your prepared remarks here, Phil, I think as you were discussing the OEM modules. A, just want to confirm that that's really a market at least today that are really serving by your MBMs and then B, How many of the announced partners for OEMs both on the inference and training side are you working with?
Well, answer the last question, Fred, we're working with a lot of them. When it comes to 48 volts, I mean, the NBM is the densest highest efficiency product on the market. It's very easy to use drop down solution and pretty much all of the OEM is going 48 to 12 are using it. And then for the, the 12 volt infrastructure market where they have to go 12 to to 48, they're using MBMs there as well. So we've got really great penetration with that product.
And also, there's a regulated version of that product getting great traction out there as well right now. So, we have high hopes for the 48 to 12 market, actually. So the regulated version is called the DCM, and customers can choose between fixed rational and the regulated, alternatives with some of different trade offs. And in both we have, by far, a superior solution.
Okay. Excellent. I appreciate all the detail guys. That is all the question for me.
The next question is coming from the line of John Dillon.
Hi, guys. Good to hear you. I just wanted to say, it was really nice seeing gross margins go up this quarter, even though your revenue went down. So, that was nice to see. But my questions are more on, first of all, Patrizio, I just want to make sure I understood the bookings for next quarter you expect to be up sequentially.
Is that what I heard?
No, I didn't say that. See this quarter bookings being
above the
revenue level with greater than
1 book to bill. But we don't expect them to be, this quarter at the level of Q4.
Okay. Okay. So I misunderstood. Thank you. Alright.
And let's talk about the backlog for a second. It seems like you have a great backlog over $100,000,000 in backlog. And I'm wondering, is that all scheduled to ship within the year
year? Yes.
And is there any orders in house that are scheduled for more than a year out that aren't are not included in the backlog numbers
There are some, but they are the minimums. So they're not all that significant because generally speaking, customers don't book that far out.
Correct. Okay. Okay. Just wanted to wasn't sure if some customers kind of you know, the customers who keep coming back to you would put in some long multi year orders to get better pricing or something. I didn't know if that was possible or not.
So, for Phil, you talked about some of the ramps that you're seeing. We've seen 1, hyper data center, Google, you know, who's been taking product from you for quite a while now. And, you know, I imagine your strategy is to use some of the AI chips to get your foot into the door of the other data centers, the big data centers. But I'm just wondering, can you give us a little bit more color on that? And also, is there any visibility as to when another hyperscale data center will adopt 48 volts on a grand scale across the whole data center.
Okay. So
a lot of questions. Okay. So I
think So we'll leave the specific names of customers out of this, right?
So it's safe to say we're working with, pretty much all of the, data companies here in the United States across a variety of different applications. So some have talked about, which is the 48 volt to twelve volt and 12 to 48 volt sort of applications. So we're working with pretty much all of them, on that With regards to factorized power applications, we're working with, again, quite a few of them on their own internal ASIC developments. And, those are new engagements that we came on board in Q4. And further ones that we are in the initial stages on, which will come on in Q1, Q2 of this year.
So one of them, they expect over a year in terms of development, because there have been more recent additions.
That's right. Yes. Yes. So, so in terms of deployment of large scale, you know, 48 volt racks, that is starting and, you know, the open compute forum, you'll see a lot more 48 volt at that, that show this year than you did last year, although last year was very encouraging. So you'll start to see, I think, 48 volts in the rack in terms of the power delivery networks at the big other hyperscalers like Facebook, Amazon, Microsoft, and companies like that, I would, I would think it the 2021, 2022 sort of area.
Up until then, they have to use the 12 to 48 and then 48 to load factorized power solutions for the AI accelerators that they're going to use. So
The accelerators have transitioned to 4K Vault already, the ones that we email. Yes.
So we're getting into those data centers sort of like a Trojan horse strategy, if you like.
So you're kind of getting your foot in the door with the AI stuff, but then it sounds like the data center customers are starting to realize that 48 volts can go across the whole data center and that would be beneficial to them. Is that what I'm hearing? Is that kind of the lay of the land?
Is not turning back from 48 volt either in the center space in AI, or for that matter in other mode. It's scamming. And we see the same thing happening in China as well. So the China, Alibaba, Baidu, Tencent, they're all actively developing 48 volt racks based on, the Scorpio standard, which is very equivalent of the open compute.
Great. I'll get back in the queue at this time. Thanks.
The next question is coming from the line of Gus Richard Please proceed your line in the call.
Yes, thanks for taking the question. Just quickly on the re schedules, that you saw, can you give a little bit more color as to what's driving that? I know one was a com satellite and the other was, hyperscalers. Is there an issue with their facilities, their products? Any color there would be helpful.
No, it was it was the bring up of new products, new platforms. And, they were over inventoried quite a bit on the some of the older programs. Platforms. And so they, they build those out. And then they start, working on the, the next generation microprocesses and GPUs.
And, you know, that was the reason for the push out. The programs are there, they're healthy. They'll come on in Q2.
Got it. And then on the supply bottlenecks, any additional color there, is that, issues getting magnetics or something else?
So thus far, we've not been impacted, on the supply side, from coronavirus We may be impacted if shops in China stay close. Again, as I suggested earlier, it was encouraging to see over the weekend that the mandate from the Chinese leadership is to get back to work. So we'll have to see how it plays out. Obviously, if If coronavirus turns out to be, base use and the recent reversal, in China were to turn the other end. That could, that could have serious effects with respect to the supply chain.
But thus far, we've been able to get for the most part, the components we need from China, obviously, the trains supply chain was effectively closed over, the Chinese New Year. And this year, because of coronavirus, what's usually a 1 week shutdown turned into a 3 week shutdown. And things are still not really running smoothly. But in anticipation of the usual shutdown, we obviously had buffer materials So we're covered through the next several weeks. And we're taking it, we didn't see active yield and Obviously, taking steps where possible to make sure that our needs are taken care of.
Got it. And then the last one for me, you're working with a number of ASIC vendors, GPU vendors, etcetera. And I'm just trying to understand is, most of those customers, is your products required when they move to 7 nanometer or 5 nanometer, or is it independent of what process node they are currently run it?
It's really more to do with the level of current that they need. Certainly as you go to 7 nanometer performance is going up. Therefore, the current's going up, the power's going up, and the same at 5 nanometer. The challenges they move down those process nodes is that the, sometimes the operating volt that they're working at is dropping. And, our factorized power solution with current multipliers is a fantastic way of going from 48 volts down to we've got customers as low as 0.35 volts.
And so you can still do that with a factor power solution, much easier than you can, an IBA sort of multi phase solution. So it's across the board really, but it really depends on the amount of current.
But these are correlation between the voltage and and the car because generally speaking, the technology trend of going down to 7 nanometer and 5 nanometer is a technology trend that leverages a reduction in voltage an increase in current capability for comparable to our power distribution to achieve greater processor performance. And to Phil's point, that's also strongly correlated to our solution in that with our solution, and that's unique to our solution. Lower voltages in our occurrence, the more demerit was with the so called competitive alternatives It's very difficult to average down to a fractional of all from the bus voltage that is acceptably efficient at distributing power. There's a fundamental conflict between efficient power distribution and the ability to support very low voltages because the alternative technologies lack the current multiplication function that is our core a factorized power. Got it.
Thank you so much.
The next question is coming from the line of John Dillon.
So Patrizio, I wonder if you can give us an update on the RFM?
So we have a 2G RFM and we're getting very close to the 4G RFM. We got limited scope of engagement intentionally so with a 2G, which is in effect is counting product. It's not, it's intended for really special Captigash as opposed to high volume mainstream applications. And that's what the 4G RFM is intended for. We actually recently saw a step up in interest in at least 1, 2G RFM application.
We're seeing other interest for, for GRFMs. As with the front end products, for which we gathered a substantial order late last year. I think the future of James speaking, Arafence, is, very bright for us, very complimentary to our point of load solutions. They, that sale with each other financially because customers need to power the systems typically from, from AC sources. And, and the 48 volt bus is the intermediate step, which with our technology, brings it all together.
So the RFM In effect, takes the power from the source and delivers it at at the 48 volt level, which is safe. It's efficient to distribute. And it's cable with our current multiplier technology to then be converted directly to 7 nanometer nodes or 5 nanometer nodes with very high levels of efficiency. So the DFM products with upcoming 4G versions are going to be much higher performance and much more cost effective than 2G plays an important role into the overall strategy. I'll make one comment with respect to this strategy.
We're the only company that has the breadth of capabilities to address general power system needs. With a power component methodology dispense again from 480 Vault AC sources all the way to is Phil was saying earlier 0.35 volt, subtreshold implementations of AI chips. And the RFM is a key element of that strategy. It's if you will, the jumbo jet that takes the the power to an efficient hub, which is 48 volt on the way to the point of load.
Yes, it sounds really exciting. When do you expect we would see initial revenue for that? And then when do you expect we would see production revenue for the 4th generation version?
So we are actually, engaging on, for GLFM Developments We have a controller chip. This new win in about 6, 7 weeks. And we're going to start powering things up in 4GRFM land, in the second quarter.
Excellent.
Platforms ready to go with the controller due to arrive in, again, 7 or 8 weeks.
And then production revenue, when do you expect that possibly?
Well, I think that's probably still at least a year away, but we're going to design activity. We already have some design activity taking place as we speak.
Great. And, the results today kind of begs the question. We've talked about diversification in previous conference calls. I'm just wondering when do you think we'll have efficient diversification that we can kind of smooth out the quarterly bumps that we're seeing.
Phil? Yes, I think this year is the year to do that. I think if you look, if you look at the customer list that we have, going back a couple of years, it was, you know, one big data center guy, maybe a couple of small ones. But now if you look at our customer list for this year, it's expanded significantly. So I think 2020 is the year to do that.
And then 2021 with all the new programs coming on with the powering AI ASICs, the OEM cards, the 48 to 12, I'm very confident about, the, our position in the data center market and growth that's going to come from that. And to your point, smoothing out the bumps that we've gone through the last year and the year before.
Yeah, automotive is still 2 to 3 years ago, but that's going to add a significant component.
Yes. And I'm encouraged also. I mentioned the network, cloud networking companies that have come to us and have asked us for solutions for 48 volts now and higher current networking process is that's a new market, that parallels very closely the AI and cloud computing space. It's the same challenge, the same problem. We've got exactly the right technology and products for it.
And that market is very large.
So you're talking about network processors like the Cavium chip?
No. I'm talking much higher, much higher bandwidth than that. I mean, it's the stuff that, you know, is in the back haul, back plan, backhaul of data centers that's really needed to move the data around.
So if there's one more question, we'll take it.
We've got one more question from the line of Quinn Bolton.
Great. I just wanted to follow-up on John's question about the broader adoption in data centers. It sounds like the next 12 months or so is going to be driven by the AI accelerators, the OA modules or the MBM, where it's 12 to 48 or 48 to 12. But when you talk about broader adoption of 48 volt racks, you sort of implying that everything on the card or everything in the server would be 48 volts. So that would be including the intel and AMD CPUs.
And so you have opportunity for point of load for, pretty much every component on the motherboard?
Yes. In terms of the high performance compute, right, the exascale type computing, that's already 48 volts and we do power AMD processes and high performance Intel Processes on those cards, you know, directly from 48 with factorized power solutions. And then In terms of the general, if you like cloud computing server market, that infrastructure is starting to move over to 48 volts at the big data center companies because they're in they're moving to add AI capabilities to the cloud. The power and the racks are going up over 20 kilowatt to 40 kilowatts, you could not use 12 volt power delivery networks, in the rack for that. So that's going to take a year or 2 to happen, but that infrastructure change is happening and is being supported by OPC.
And then last quick one for Jamie. The OpEx ticked up in the fourth quarter. You said some of that was project specific development. Charges, how should we be thinking about OpEx in Q1 and beyond for the rest of the year in 2020?
Well, the the headcount expansion was essentially a replacement of truing up of, over the year. So as you saw, the percentage increase was very small. So I don't think there's real reason to assume that there's going to be a sustained ramp the project materials, the prototyping expense was somewhat one off in, It's not to say that we won't be spending a lot on prototyping, but, it surged a lot just from timing.
So maybe flattish in Q1 from Q4?
Yes. Not materially more. I mean, again, I emphasize the personnel nature of our of our OpEx. It's headcount.
And with that, thank you very much. We'll be talking to you in a few months. Have a good day.
Thank you everyone. That concludes your conference call for today. You may now disconnect. Thank you for joining and enjoy the rest of your day.