Welcome everyone to the Viker Earnings Results for the First Quarter Ended March 31, 2019 Conference Call. My name is Christian. I am your admin manager today. Presentation. I'd like to advise our parties this conference is being recorded for replay purposes.
I'd like to hand over to James Simms. James, you may now go ahead, sir.
Thank you. Good afternoon, everyone, and welcome to Vicor Corporation's earnings call for the first quarter ended March 31, 2019. I'm Jamie Simms, Chief Financial Officer, and with me here in Andover is Patricio of NCirelli, Chief Executive Officer. After the markets closed today, we issued a press release summarizing our financial results for the 3 month period ended March 31st. This press release has been posted on the Investor Relations page of our website, bicorepower.com.
We also call to discuss our financial results. I'll now turn the call over to Mr.
Hester. Please go ahead.
Thank you, sir. Good morning, everyone. Good morning, everyone. Good morning, everyone. Good morning, everyone.
Good morning, everyone. Good morning, everyone. Good morning, everyone. Good morning, everyone. Operation.
I also remind you various remarks that 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 forecast 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 any of our remarks today. The risks and uncertainties we face are described in Item 1A of our 2018 Form 10 K, which we filed with the SEC on February 28, 2019.
Please note the information provided during this conference call is accurate only as of today, Tuesday, April 23, 20 18. Vicor undertakes no obligation to update any statements, including forward looking statements made during this call. And you should not rely upon such statements tonight through May 8. 8010 followed by the passcode 8,878,8951. 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 first quarter and Patricio will follow with his remarks, after which 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 $65,700,000, representing a 10.8% sequential decline from our 4th quarter revenue of $73,700,000, and less than a percentage point increase from the $65,300,000 recorded for the first quarter of 2018. As anticipated, Q1 revenue was sequentially lower, reflecting reduced demand for advanced products from a pause in data center build out and an associated inventory correction. Both shipments and bookings were affected as existing backlog was rescheduled from Q1 into Q2 and Q3. Brick product revenue was flat sequentially, but approximately 15% higher than the figure for the first quarter of 2018.
Advanced Products revenue declined just under 30% sequentially, reflecting the aforementioned backlog rescheduling. Revenue from other product categories within Advanced Products was generally steady for the brick to advanced product revenue split for the first quarter was 71% Brick products and 29% advanced products. Our turns volumes did not materially change sequentially. International revenue declined 18% sequentially, although international shipments of Brick products were flat quarter to quarter. Of advanced products that are shipped to offshore contract manufacturers.
Because of the drop in such shipments, international revenue fell to 56 percent of revenue for Q1 from 61% for Q4. Although distribution revenue was steady in China sequentially, Chinese revenue as a whole declined to 22 percent of total revenue from the prior quarter's level of 33%. The primary driver of this decline was the lower direct volume of advanced products shipped to CMs, but an additional factor was the transfer of certain projects by CMs from their locations in China to other Asia Pacific locations in an effort to reduce exposure to current and potentially higher import tariffs. Consolidated gross margin as a percentage of revenue rose to 47.3 percent for Q1. From Q4's 45.9 percent and compares favorably to Q1 twenty eighteen's gross margin of 46.3 percent.
The Q1 improvement largely reflects a favorable mix, which offset lower absorption brought about by the reduced volume and an increase in Section 301 tariff charges, which totaled over $1,000,000 for the quarter. We continue to the impact of Section 301 tariff charges and may add a tariff surcharge to the selling price of our products if the Chinese trade dispute is not resolved. Quarterly operating expenses were flat sequentially and year over year, reflecting the decline in revenue quarterly operating income declined 37 percent, totaling $4,500,000 or 6.8 percent of revenue, in contrast to the prior quarter's $7,100,000, representing an operating margin of 9.6%. In Q1 twenty eighteen, operating income was $3,700,000, representing an operating margin of 5.6%. Our effective tax rate for the first quarter was 9%, reflecting continued utilization of federal net operating loss carry forwards and tax credits.
The bulk of our quarterly provision is associated with our 2019 tax estimates for state and foreign jurisdictions in which Vicor does not have NOLs or credits. Net income attributable to Vicor totaled $4,300,000 for the first quarter representing an income of $6,900,000, representing diluted EPS of $0.17. For Q1 2018, we recorded net income of $3,900,000, and diluted EPS of $0.10. Our fully diluted share count as of March 31st was 41,029,000 shares, which is the sum of both common share classes representing approximately 29,300,000 registered common shares and diluted stock options and approximately 11,800,000 Class B common shares, which are neither registered nor listed. Turning to our balance sheet, cash and cash equivalents sequentially declined $3,900,000, ending the first quarter at $66,600,000.
On a year over year basis after substantial investments in additional capital equipment, cash increased by $23,900,000. The Q1 cash decline reflects a decrease in accounts payable mostly associated with paying for much of the production equipment recently installed. And an increase in finished goods inventory brought about by the customer rescheduling. Capital expenditures for Q1 were lower sequentially, totaling $3,300,000 as certain equipment was not yet formally placed in service by March 31st. I'll return to capital spending and capacity in a moment.
Trade receivables net of reserves totaled $40,800,000 at quarter end, down 5% with DSOs rising to 46 days from 44 days. Inventories, net of reserve, excuse me, net of reserves increased 9 percent sequentially to $51,600,000, as mentioned, due to the higher finished goods and WIP inventories associated with delayed shipments. Our raw materials balance actually declined 4% sequentially. Annualized inventory turns fell to 3.1, reflecting the increased total balance and the lower volume. Concluding my review of the first quarter, total employee headcount as of March 31st stood at 1022, up from 1007 for the prior quarter.
Full time headcount was end of Q1, up from $9.76 at year end. I'll now provide an update on our capacity expansion. We believe we are close to receiving the approvals to proceed with our proposed 80 5000 Square Foot addition to our Andover facility. As previously reported, we plan to break ground on this addition to our existing plant in 2019 and take occupancy in 2020 providing the space necessary to add manufacturing lines to meet forecast capacity requirements through 2021. Again, we anticipate internally funding both the building and the planned phases of equipment installation.
While staying focused on the Andover factory expansion, we continue to assess alternatives for an additional facility in 2021. We are also pursuing opportunities to expand global manufacturing capacity with parties interested in acquiring a license, to source advanced products into data center and or automotive applications. Turning to the second quarter, our near term outlook since speaking to you 8 weeks ago remains essentially unchanged. While demand for Brick Products is firm, demand for Advanced Products will resume after the recent inventory correction has run its course, and major design wins enter production in the second half of twenty nineteen. To conclude my remarks, we are pleased with Q1 financial results, given the quarter's challenges.
We are forecasting modest revenue growth for Q2 with sustained profitability and improved operating cash flow. Having offered this limited guidance, I'll remind listeners as I do each time I speak with you our operating and financial forecast are subject to unanticipated changes, many of which are caused by factors and influences outside of our control. With that, I'll turn
are likely to rise as bookings for Brick Products increased to 17% sequentially. With improvement in the channel and in defense electronics. Our quarterly bookings for Advanced Products declined 7% sequentially, reflecting reduced demand from a pause in data center build out and inventory correction ahead of next generation servers and GPUs. Our Q2 demand for Advanced Products remains weak, our penetration of servers, supercomputing and AI accelerators is gaining momentum which with major design wins for MBMs and lateral power delivery solutions, entering production in the second half of this year. We're also seeing early traction for our vertical power delivery systems.
Owing to their superior power density, lateral and vertical power delivery solutions are the solutions or choice for high performance demanding processor applications, particularly AI accelerators. At the FPSO level, the transition from 12 volt to to 48 volt power distribution is gaining momentum in the cloud and the automotive market segment. In data centers, 4 years after Google's pioneering initiative to convert from 12 volt racks to 40 Other hyperscalers did not follow through. However, confronted with the necessity to power GPUs and other 48 volt loads. Bastiance of legacy 12 volt power distribution systems have recently started to crumble.
And decided to convert in datacenters and the cloud reflect corresponding developments in automotive, where for similar reasons, GPUs and AIS 6 for autonomous driving and general vehicle electrification requirements, to twelve volt legacy energy storage and twelve volt power distribution are giving way to 48 volt. This fence set the stage for broad adoption of power distribution architectures, our conversion topologies, control systems, and packaging technologies that Vago invented and comprehensively panted over the last 15 years. As our Advanced Products gain broader adoption in the datacenter and automotive markets, We'll continue to expand the performance gaps that sets Vaguar apart from so called competitive solutions. At the point of load in AC front ends and in complete power systems, with the rollout of 4 g power modules across advanced product families, we're extending our power density advantage to at least 2x and in many instances for certain classes of products as much as 5x that of the closest so called competitive product. It is this kind of enabling technology that drives major customers to come to Vicor for the high performance power system requirements, which cannot be effectively supported by bulky and clunky alternatives.
In summary, with power system solutions that anticipate market requirements, enables superior and product capabilities and a comprehensive portfolio of patents protecting its technology. Vicor's competitive position rests on a solid foundation. As to the near term outlook, in 2019, we see a positive progression from quarter to quarter with firm demand for Brick Products and heading into the second half of the year, resumed growth for Advanced Products. Let's now open the call. Pereza.
You.
First question
coming from the line of Tom Bolton. You may now go ahead, sir. Your line is open.
Hey, guys. A few questions. Just first on the Advanced Products about 8 weeks ago, I think you said you had seen a pretty sizable order for advanced GPUs pushing from sort of Q4 into late Q1 early Q2. On this call, you'd mentioned some push outs even into the third quarter. Wondering if you could give us an update.
Have things continued to push from the first half into the second half in Advanced Products?
So as suggested in the prepared remarks, both in into a center build out, with the advent of next generation processors, And with respect to existing GPU opportunities, we've seen starting late last year, a pretty dramatic change in requirements. We believe it has settled out at this point. It's suggested in the prepared remarks. We see demand picking up in the second half of the year, as the inventory that had been built up works itself through the supply chain. And as new applications come into production.
There hasn't been much of a change since the last time we talked, except that we see now confirmation of what was starting to become clear a couple of months ago.
Thanks. And to treat you with a second question, you talked about the opportunity, the growing opportunity in the data center both in the act and as well as the advanced GPUs and AI processors to sort of expand your customer base. What do you think the timing for some of the other hyperscalers to adopt 48 volt in scale. What's that timeframe look like? Do you think that happens over the 1 or 2 years or is it further out?
So with one large, potential customer what we've recently seen And it is a customer that we've been endeavoring to penetrate for quite some time and it's a customer that was very entrenched, at 12volt reluctant to, entertain a change in infrastructure to 48 what we've recently seen within the last couple of months is a decision to affect the transition. In a 2 year timeframe. Now leading up to that, with other customers and potential customers in the space, we're seeing, steps being taken in that direction that frankly, the NBM that was referenced in the prepared remarks, which, as a reminder, is very high density 48 to 1212 to 48 converter plays a role in this phase. It plays a role because it allows enables use of 48 volt GPUs of 48 volt AI loads in 12 volt infrastructure. It also is discussed in prior calls, it can serve a purpose, going the other way from 48 12 to enable 12 volts solutions within a 48 volt power distribution, which is something that customers that don't want to have single source dependencies, interested in embracing because it's a way in effect to provide for multibacy sources and mitigate risk.
Great. And then sorry, the last question I had was just coming back to the vertical power opportunity. I know the pace of development in the GPU and the AI processor space is pretty rapid. Do you think we may see initial prototype units shipping to the market in 2020 for the vertical power in terms of data center applications?
Yes, we expect to actually be in mass production in 2020 around the middle of 2020. So we have large projects, more than 1, in the works, different stages of development, but we're seeing opportunities for mass production starting the middle of next year. So we're engaged on a number of different fronts. I think as mentioned, every remarks. The diversity of power delivery is a natural next step, with respect to the trend towards power on package.
As a reminder, power package is the key to eliminating power distribution loss so largely reducing part distribution losses that have historically limited part distribution efficiency in classic servers, including Intel servers, in spite of the fact that Intel servers historically have operated from a 1.8 vault, at the point of load, even a 1.8 vault, the power distribution losses as the current consumptions of these devices have escalated from less than 100 amps to 100s of amperes. Became substantial. But with AI processors that typically operate nowadays, point 8 volt and in the future are going to go down to even lower voltages. With the lower voltages and currents escalating to 600, 700,000 amps. Just within last week, we had a power up of a device at 1200 amperes.
We're working on application up to 2000 amperes. With debt escalating demand for current, even with the lateral power delivery power package, which dramatically cuts on the motherboard interconnect losses of non power and package power delivery, you still have a substantial power loss. So just to quantify the handicap of the these solutions without power package at 600 amps, you might have the best part of 100 watts of interconnect losses in one form or another. With a lot of power delivery, you can cut that down by at least a factor of 2 to 30, 40 watts. With vertical power delivery, you can get it down into single digit, less than 10 watts.
And So that makes a huge difference with respect to enabling, you know, very high current, very low voltage notes that push the envelope with respect to AI capabilities.
Theresa, thank you for the detail.
Okay. The next question is coming from the line of Dan McKenna.
I wanted to ask you if, you still and this is, I'm going back from memory here now. We were looking at, I think, for the fourth quarter to see a run rate of about 100,000,000 so that we'd be at annualized $400,000,000. And that, your existing facility with the new equipment that you brought in was gonna give us the capacity of about $7.50. And with the new facility coming on, that we could get up to about $1,000,000,000 a year in revenues. And now you mentioned the possibility of needs for additional facilities in 2021.
Am I right with, what I had already said? And and is do you see that demand having such a significant, almost parabolic increase coming in those next 2 years?
Yes, we see demand for capacity expanding dramatically. So the addition, the expansion of the existing facility at Fellow Street will bring about approximately a $4,000,000,000 worth of increased, revenue capability, on top of the existing facility. Whether in the aggregate that ends up supporting 750 or closer to $1,000,000,000, it remains to be seen, it may be a function of efficiency improvements we may be able to capture, but We are confident that 7.50 is within the capability of the expanded facility. Going back to your question regarding the progression to these levels, want to be clear that the forecast of 100,000,000 was for bookings in Q4, in that ballpark, existing from revenues that would lag by 1 to 2 quarters.
Okay. And that's still good?
That's as far as we can see still good, yes.
Great. And and could you, talk for a second on the, the licensing agreement with, Kayocera? And I and also, I know back in 2004, you signed 1 with Sony. Is there still a relationship with Sony?
Well, so let me talk about Sony first. So you're presenting with Sonya to do with, I think, PlayStation 3 and that game, if I intended, changed dramatically with Nintendo, entry in the market ahead of Sony with a device that had certain advantages and, in that particular case, didn't consume all that much power. So, nothing ultimately came of that relationship because of a change in the power system requirement for PS3. Coming to the present, to be clear, we do not have, at this time, a licensing relationship with Kyocera is, as I articulated in the recent press release, we've been working closely with Kyocera that has played the key role with a number of customer engagement. Respect to job packaging, technology, it complements our power system expertise, they become quite adept at incorporating a power and package within a complete solutions for for a variety of customers, and that's what's articulated in the recent press release.
You're welcome.
Okay. The next question is coming from the line of John Dillon. You may now go ahead, sir.
Hi guys. Patricio, I want to go back to Don's question a little bit on the capital. It looks like you bought $11,300,000 of capital equipment in the 4th quarter and $3,300,000 in the 1st quarter. What is the capacity now with that equipment all installed in your existing building?
So I think we're good through, Q1, Q2 or next year and that's when the expansion in the facility and an additional line, comes into being and obviously, we're going to do that. We'll keep monitoring progress we'll keep monitoring demand. We're going to proceed with, having the space ready because obviously there's a longer lead time with that. With respect to deploying equipment, we can make it happen in about 6 months. So we'll pull the trigger on the equipment, with deadly time in mind and wanting to make sure that the equipment is installed and the additional lines are qualified for mass production with at least a quarter of, guard band relative to capacity needs.
So the current capacity, is that around $500,000,000 in or $500,000,000 now that you've got that equipment installed?
In that ballpark, yes, in that ballpark. So again, capacity as some level of elasticity, we're not at the limits in terms of 20 fourseven So these flexibilities, but, obviously, we want to reserve capacity for some level of capacity for peak demand that may come without enough for visibility. So it doesn't make sense to run anywhere close to the capacity constraints ultimate capacity constraint of the facility. I think when somebody model has suggested the answer to the earlier question for fellow fleet is around 500,000,000 for within the existing walls and an additional 250 with the 85 tons of square foot expansion, whether we can stretch it to something more than 7 I think remains to be seen, but obviously, we're always striving for, for maximizing capacity utilization and overall efficiency.
Okay. Okay. And then what I thought I heard on the last conference call is, okay, so you've got 14 point $6,000,000 you've just installed, but in the new facility, you're gonna add $12,000,000. Is that correct, or was it more than $12,000,000?
So we're budgeting in Tallah for the new facility, including, the building itself something of the order of $30,000,000. The details of that are not to be taken within to find a level of accuracy, I think it's the kind of thing that could change easily by 5,000,000 dollars, $7,000,000, but let's say that as a ballpark, we're looking all in, including the additional lines, $25,000,000 to $35,000,000.
Okay. But that includes the building too. So that's the
And that includes the building, yes.
So that's amazing that you've got 14.6 $1,000,000. So you've really got the capacity today to do about $500,000,000 in the existing building is what I think I'm hearing.
Yes, obviously bear in mind that some of that is good old bricks, right, that never seemed to throw away. So
Right. That's good. Okay. That answers my question. Okay.
So let me jump to the front end products. This was not a forecast, but several conference calls ago, you gave an example how you were working with one company. There's one company had the potential. The potential to take basically all your capacity on the front end products. Now that we're a little bit farther along and pretty close to the 4th gen for the front end products, Do you still is that customer still interested in the front end products?
And, do you have others also interested in front end products that could substantially take a big step up in the production on those?
Yes. I think the volume production and it's impact on the top line and bottom line, frankly, still some distance away. But with our question, we're seeing tremendous interest in, in our front end capability, particularly AC to DC regularly AC 3 phase for high power systems going into 48 volts or should say 54 volt, intermediate bus outputs, with 4G to your point, we are raising the bar on this front end capabilities. And we're doing that because in one way of looking at it, we intentionally skipped 1 control generation in terms of refreshing our front end capability. And to be a little clear with respect to that, The 3g Control Technology was really rifle shut into point of load applications that did not, provide for a refresh of our front end capabilities.
So all of our front end products, high voltage bus converters and existing RFM, to be clear, still rely on our 2G technology. And we're now in the midst of upgrading that capability in effect by 2 generations of control silicon. And with that comes a much higher level of proficiency, dramatic reduction in part count, better efficiency, better density and within a much lower cost card. So that's what's coming together now. There is one controller, which is in fab as we speak due to come out in about 8 weeks that is key to some of these developments as that controller becomes available.
And this is a controller which is in effect a derivative of an existing controller for GPN controller, which is already in production, but that PSC variant of the 4G controller will enable the 4G ACDC front ends that will further increase the density, the efficiency and the cost effectiveness of our front end solution. So We're going to start lowering those out in the second half of this year. We got a lot of interested parties. We have interested parties in existing RFM variety of front end products, but the level of capability with 4G and the lower cost effectiveness is going to be substantially improved. So if you look, for instance, our website you might have seen there in RFM, which is, we call it the power tablet.
It's the size of a tablet, it weighs quite a bit more than a tablet, but it's about the size of a tablet. And with that, we process pending on input voltage range 10 to 12 kilowatts. So with 4G, we're going to have a much more granular capability the we're going to be able to make front ends within our power molded packages using the same packaging technologies we use for point of load devices. And that will make it considerably more cost effective and more scalable and more granular. So we're going to have the level of fire 6 kilowatts, a solution in the size of an iPhone.
And with a cost card, there's going to be a synergy competitor.
Wow. So on the point of load, you've got some enabling technology that It's pretty obvious. You eliminate pins. You get the power there. You save power, but you can also put the components closer together, which makes a faster computer.
Is there a similar enabling piece on the front end stuff, or is it really more the efficiency of the cost card that's going to win the business for you?
Well, in the past system industry, the issues and the opportunities tend to be very similar. Obviously, the challenges at the point of load are not necessarily the same as the challenges the front end, but there are common denominator requirements and common denominator opportunities. So in what is point of load or front ends generally speaking power density is a key differentiator. It may be more of a differentiator at the point of load because it's key to enabling, as an example, advanced ASICs or AI others. But the front end density is also important.
And the front end efficiency is also important because it impacts dollar cost of ownership. Obviously, in main instances, the customers end up paying these dizzy bills. So they care for solutions that are efficient to the dense and cost effective and reliable and scalable with all the other necessary attributes in terms of the nonperformance, low noise and so on and so forth. And last but not least, what's important, we believe in bringing about the market opportunity, in its entirety is the ability to service requirements from the wall plaque to the point of load. There is a great deal of synergy accounts from providing the front end solution that takes power from AC mains, 3 phase AC mains in particular, deliver it at 54 volts for energy storage in batteries as a stepping stone to delivering it a sub 1 volt to, as we were discussing earlier, 1000 amp processors.
Being able to provide that complete solution with all the right attributes and all of the related connectivities and capabilities is we believe key to success in the market.
Great. Thank you very much. And congratulations on the 10 sense. That was better than expected. Thank you.
Thank you.
Okay. The next question is coming from Alan Hicks You may now go ahead, sir.
Yeah. Good afternoon. Yeah, I want to congratulate you on navigating through I would say it's a lot of cross currents and headwinds, so I think you're doing a good job. My question is, It sounds like the BBU unit was basically flat from quarter to quarter.
Yeah. In terms of revenue, again, as we suggested earlier, bookings for BBU have been surprisingly strong. And I wouldn't make too much other that, it's your point. It helped us navigate through what would otherwise have been a more difficult period. Because frankly, as suggested from comments that Jimmy made, We had a bit of an implosion on the advanced products from a bookings perspective in particular taking place last year and into Q1.
And that's fundamentally related to the fact that that business is not yet statistical, right? It's dependent on relatively small number of applications and customers. And so events that unfolded late last year caused it to undergo a very dramatic temporary change. Now as we look at the mix of customers and applications, getting into the second half for this year and into next year. The Advanced Products are going to be on a much stronger foundation because they're going to get to be statistical or a lot more statistical in terms of, their dependency on a multiplicity of customers and applications.
You know, what we're saying to see this, we had within the last quarter a significant $1,000,000 type booking from a new GPU type of application. That's the kind of thing that begins to differentiate, and build the kinds of statistical business that we've enjoyed for a long time in the big business unit, but have not yet established when it comes to to advance products. But that day is coming. And I think starting in second half of this year, we're going to see a much more significant mix of customers and applications.
Okay. Why did that got delayed in Q4 was supposed to ship in Q1, Q2. Did any of that ship in
Q1? Some, there's more going in, in Q2, but the inventory correction there is pretty substantial. So we're not looking at that as making a contribution for the bulk of 2019. I think the action there is going to resume in earnest as we get towards the end of the year.
Okay. Is that full $5,000,000 order going to be delivered?
Yes, yes, please.
Okay. And the BBU, do you have some visibility for the rest of the year? Is it going to stay at this level or can it continue to grow from here?
It's firm, but we should be clear that we don't see opportunity for growth there. In fact, we are well along in terms of doing our own cannibalization of our class big products. So we've done very well with our BCM product line, which is an advanced product line using a chip packaging technology. And, in many applications, we're really seeing catalysts titions from oil rigs, to DCMs, you know, they're happy because the products are much more efficient, they're much denser. And we're happy because we make bigger margins on DCMs than we do on old bricks.
So, to be clear, our bricks have been remarkably resilient, as suggested earlier, we like it because it's a very diversified customer base. We literally got thousands of different customers and applications. But as time progresses, those are going to get converted to advanced products. And they're not going to stay bricks forever.
Okay. So you want the business won't go away. Convergent?
No, the business will transition from being, products effectively were developed 20, 30 years ago to advance products being in development over the last 4 or 5 years. Okay.
What would you say your capacity is in Brick Products versus Advanced Products?
So, we have a substantial capacity for bricks and what has been happening over time and our operations team is adapted this is as we continue to get more efficiency out of the older products. We also keep reclaiming some of the fraud space. And we reassign it to advanced products. And we're going to be doing more of that kind of thing and particularly as suggested a moment ago as some of the customers and applications get converted from, let's call it, classic bricks, which are DCDC converters to DCMs, which are also CC converters, they are built on AdvancedPro platform. We're going to have more an opportunity to, in effect, scale down on the older lines, which are at this point, more than fully depreciated, they've been depreciated quite some time ago.
And reclaim the space for advanced product lines which by the measure are very flexible because on the same line, we can make a DCDC converter product that performs the function of a brick in a smaller volume with better performance, while at the same time on the same line, we can make, NCMs or GCMs or point of load devices for, artificial intelligence powering. So that is part of the strategy with respect to having flexible capacity that over time is going to be fully redeployed within available space to being advanced products capacity.
What would you say your capacity is just in advanced products today?
So the $400,000,000 is a rough fee year, in gross terms, it's pretty close to half and half. But again, it's something that keeps evolving and obviously it's been growing. We've been investing. We've made substantial investment in the second half late last year on additional advanced product line capacity. So this is not a stationary number.
It keeps evolving towards, more and more capacity for Advanced Products. I think over time, it's going to be reduced capacity for our classic breaks.
Okay. Last question is, I know it used to be strong in telecom. Is there any new opportunities with 5g Telecom equipment coming?
Oh, yes. I mean, so there too, there are applications with very high current demands, approaching 1000 amps. So there are this common denominator requirements that they're not selective in terms of applying only to datacenter or automotive I think part of our strategy with the products and the part distribution architecture, the packaging, the control systems and the general capabilities is to leverage across different end markets and 5G certainly is very demanding, in terms of some of the point of load current requirements. Also in terms of front end requirements. So the power density needs, are escalating.
So there's a lot of interdependence across the sand markets and the the silicon that is a common denominator driver for more current, lower voltages what greater power density needs.
Are you getting any traction with telecom customers with some of these new products?
Yes, we are.
Okay. So the next question is coming from Doug Campbell. Doug, you may now go ahead, sir.
Yes. Yes, hi guys. Just two quick questions. In Q3 and Q4, you talked about entertaining a Japanese partner for expanding your manufacturing in Asia. Has there been any future discussions or further discussions in that regard.
And just if you could clarify both, Patricio and Jamie, you both said major design wins coming in second half of this year. Are you just anticipating? I mean, can you expand upon that statement? Thank you.
No, these are design wins. I mean, things already gone, as in the example, like I said earlier, already gone into some pretty significant initial orders. So, there is not a good deal of speculation with respect to spreading our wings across a variety of GPU type applications with the multiples of customers and other applications for, again, a variety of AI chips with leading companies in that general space. Going back to your the first half of your question, So, I can't really go into details, but suffice it to say that we're engaged with 2 Japanese companies in negotiations regarding an alternate source capability that we've been asked by a few customers to bring about sooner than later, because of their need to have an outsource for products were either because of job policies within these companies, with respect to an outstanding source of assets, or because of geopolitical considerations, having to do with you know, let's say Chinese companies not wanting to be single source dependent from a U. S.
Company for obvious reasons. This company is putting pressure on us to average this alternate source. And in some cases, they're acting as, in effect, calories for, bringing this about.
Great. So the talks for a Japanese partner are still continuing if I hear you correctly?
Yes.
And just last follow-up on the major design wins. So those have already been accomplished. When you receive those orders or when you get those wins. Do you guys put out press releases? Because I feel like I
missed those.
No, you haven't missed anything. We're not in the habit of of naming customers. So putting out press releases when we get a design win, Okay. That's just not the way we operate. So, but you can be sure we are we're very, very busy.
There's frankly more demand, for support in the design in cycle that we can support. We're being selective with respect to which applications we choose to support. There's again a lot of opportunity, in automotive in particular in the center space with a variety of AI applications. These engagements tend to be very deep. They typically require a team of our own applications engineers supporting each application that typically goes through at least 6, 9 months, 12 months designing cycle, within which time, the demand on our team is quite extensive.
So It's something that, has been progressing and keep susanding, and we're mindful of. We're looking for ways to bring about more scalability with the process more automation with the tools and the capabilities because there are limitations to many great applications engineers we can have and deploy in support of each and every customer opportunity, which they all tend to be somewhat even though they have common denominator requirements in many respects, but they also have unique traits that require some level of handholding.
No, again, And to be clear, I think you guys have built a tremendous business as a portfolio manager. I wish more I wish more Wall Street investors or institutional investors knew about your story. And I guess as you get bigger, they will.
That's right. So I suppose that.
Okay. Yes. Thank you. Okay.
Thank you. And with that, thanks again. And we'll be talking to you in, well, actually we have a shareholders meeting coming up, but if not there, in 3 months. Have a good evening.