Good day, ladies and gentlemen, welcome to the Vicor earnings results for the first quarter ended March 31st, 2018 conference call hosted by James Simms and Dr. Patrizio Vinciarelli. My name is Sam, I'm the event manager. During the presentation, your lines will remain on listen only. If you require assistance at any time, please key star zero on your telephone and a coordinator will be happy to assist you. I would like to advise all parties this conference is being recorded for replay purposes. Now I'd like to hand over to James. Please go ahead.
Thank you, Sam. Good afternoon, everyone, welcome to Vicor Corporation's earnings call for the first quarter of 2018. I'm Jamie Simms, Chief Financial Officer, with me here in Andover are Patrizio Vinciarelli, Chief Executive Officer, and Dick Nagel, Chief Accounting Officer. Today, we issued a press release summarizing our financial results for the three-month period ended March 31st. The press release is available on the investor relations page of our website, vicorpower.com. We also filed a Form 8-K earlier today with the SEC related to the issuance of this press release. As always, I remind listeners this conference call is being recorded and is the copyrighted property of Vicor Corporation. I also remind you various remarks we may make during this call may constitute forward-looking statements for purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995.
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, 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 discussed in Item 1A of our 2017 Form 10-K, which we filed with the SEC on March 9th, 2018. Please note the information provided during this conference call is accurate only as of today, Tuesday, April 24th, 2018.
Vicor undertakes no obligation to update any statements, including forward-looking statements made during this call. You should not rely upon such statements after the conclusion of this call. A replay will be available beginning at midnight tonight through May 9th, 2018. The replay dial-in number is 888-286-8010, followed by the passcode 74685691. In addition, a webcast replay of today's call will be available shortly on the investor relations page of our website. I'll start this afternoon's discussion with a review of our financial performance for the first quarter. Dick will comment briefly on our first quarter implementation of ASC 606 and our outlook for income taxes. Patrizio will follow with comments about current business conditions, after which he will take your questions.
Beginning with consolidated results, as stated in this afternoon's press release, Vicor recorded total revenue for the fourth, excuse me, for the first quarter of $65.3 million, representing a sequential quarterly increase of 11%. This figure was 20% higher than revenue recorded for the first quarter of 2017. Revenue associated with our advanced product portfolio rose 12% sequentially. A comparison of first quarter 2018 to first quarter 2017 clearly illustrates the substantive shift underway for our revenue mix toward our advanced products, which rose 46% period to period from our legacy products, which rose 8% period to period. Quarterly international revenue increased by 8.5% sequentially. Turns volume, that is, orders received and shipped within the quarter, totaled $15.4 million, representing approximately 24% of first quarter revenue.
Gross profit margin dollars increased at a faster pace than revenue dollars, 12% versus 11%, as total gross profit margin rose sequentially to 46.3% from 45.8%. As stated in today's press release, gross profit margins are expected to improve, driven by higher volumes and economies of scale. As reported for the fourth quarter of 2017, first quarter gross margins for VI Chip product lines again exceeded those for our legacy BBU product lines, representing further evidence of the scalability and inherent cost-effectiveness of our proprietary VI Chip manufacturing processes and packaging technology, which can support gross margins commensurate to levels achieved with advanced power management ASICs. Our operating expenses for the first quarter were essentially unchanged, with seasonal increases in audit and reporting fees offset by reduced spending in R&D. Pre-tax income totaled $4.1 million for the first quarter.
We recorded an income tax provision reflecting state and foreign amounts of $134,000. As such, net income for the first quarter was $3.9 million, representing $0.10 per diluted share, compared to $0.04 per diluted share recorded for the fourth quarter of 2017. Recall our fourth quarter EPS included approximately $0.02 per share of net income associated with the year-end change in accounting for alternative minimum tax credit carryforwards. Our first quarter EPS includes no unusual or non-recurring tax influences. Turning to the balance sheet, DSOs were steady at 44 days, up from the prior quarter's 43. Given the increase in sales, net receivables also increased, rising $7.1 million for the quarter to $41.6 million. Portfolio quality remains high. Inventory also rose sequentially, increasing $2.5 million, largely a reflection of rising material and component purchases to meet our increased backlog.
Annualized inventory turns declined to 3.5 from 4.0 for the fourth quarter, reflecting higher than usual levels of safety stock given industry-wide raw material lead times and other supply chain uncertainties. Cash and cash equivalents sequentially decreased $1.6 million for the first quarter, ending at approximately $42.6 million. This decline was due largely to a $7.8 million increase in working capital, driven by higher sales. This increase was offset by the $4 million of net income, $1.3 million realized through share purchases through our employee stock purchase plan and stock option plans, and capital expenditures that were sequentially lower by just over $500,000, totaling $1.6 million. We anticipate operating cash flow to turn positive as the year progresses and intend to fund near-term capacity expansion from operating cash flow, and possibly the sale of real estate asset.
To conclude my review of the first quarter, total employee headcount as of March 31st increased to 995 from 980 due to an increase in temporary staffing. Total full-time employment was essentially unchanged. As addressed last quarter, productivity continues to improve with level loading of quarterly production and longer-term visibility into our growing backlog. Beginning with the first quarter, Vicor adopted ASC 606, which sets forth new guidance for how we recognize revenue. Dick Nagel will now describe the impact of this adoption on our results for the first quarter and going forward. Dick?
Thank you, Jamie. As discussed during the last two quarterly earnings calls, on January 1, 2018, we adopted ASC 606, revenue from contracts with customers, which codifies a U.S. GAAP requirement for revenue recognition. The adoption was addressed in our recent Form 10-K filing. We utilized the modified retrospective method of adoption, which instead of restating prior year's data, led us to make a single adjustment of approximately $3.7 million to retained earnings as of January 1, 2018. This increase in retained earnings represents the net effect of application of ASC 606 to existing customer contracts subject to such application. The $3.7 million credit to retained earnings is reflected in our first quarter financial statements. There was no cash impact from the adoption of the new guidance.
As I addressed last quarter, the most significant impact of ASC 606 going forward is on the timing of recognition of sales to our stocking distributors. As of January 1st, we no longer defer revenue and the related cost of sales on shipments to stocking distributors. With ASC 606, we record revenue at the time of sale to the stocking distributor, while also recording sales reserves based on our historically based estimate of returns and allowances provided to the stocking distributors. This is why Jamie no longer has to discuss stocking distributor activity in his remarks, as such activity is no longer subject to different treatment. Turning to our tax outlook for 2018, we are forecasting sustained taxable income for the entire year, which at some point would cause the release of an allowance of approximately $33 million against our deferred tax asset, generating a significant one-time tax benefit.
With that, I'll return the call to Jamie.
Thanks, Dick. Turning to our second quarter outlook, given recent increases in backlog, which totaled $90 million as of March 31st, we anticipate a 10% sequential increase in consolidated revenue for the second quarter with expanding gross margins and net profitability. I must remind listeners, as I do each time I speak with you, our operating and financial forecasts are subject to sudden and unanticipated changes. With that, I'll turn the call over to Patrizio.
Thank you, Jamie. As reported, the first quarter was characterized by strong bookings from both customers for our legacy products and an expanding base of customers for our VADS products. Factorized power systems that bus 48 volt to the point of load are gaining traction in demanding applications, including hyperscale data centers and supercomputing. Notably, GPUs are pervasively being used both as accelerators of CPU-based platforms and as dedicated compute engines, particularly for machine learning and related artificial intelligence applications. Vicor is uniquely positioned in this high-growth market with our Power-on-Package modular current multipliers, MCMs, enjoying design wins for the highest-profile opportunities.
Aside from directly contributing to our revenue growth, starting the second half of 2018, success in converting advanced GPUs to 48 volt is accelerating the transition of data centers and automotive systems to a 48-volt infrastructure that is central to Vicor's power system architecture and power components methodology. Having to supply 48-volt GPUs within a 12-volt legacy infrastructure that is no longer capable of supporting higher bandwidth and connectivity is the catalyst for change that we've been pursuing. As always, I could go on, but I'm sure listeners have specific questions. I will open the call. Operator?
Certainly. Ladies and gentlemen, if you do wish to ask a question now, please key star then one. Star then one to ask your question. All questions will be answered in the order received, and you'll be advised when to ask your question. Thank you. We do have a question. The first question comes from Don McKenna. Don, please go ahead. You're now live on the call.
Congratulations many times over, guys. This was just terrific. Patrizio, based on the design wins that you've got now, can you quantify the size of the addressable market that you see out there?
I don't know that I can quantify it in a meaningful way. I think it's safe to say, first of all, it would have to be done by segments. There are a number of different segments that are undergoing transitions that favor our power components and the power system architecture and technology. If we focus as an example on the data center space, as you may know, Google played a pioneer role with respect to adopting a 48-volt system in its data centers. Now this goes back a number of years. They contributed one of their systems to Open Compute to accelerate conversion of the industry at large to 48 volt in an effort to, in effect, expand an ecosystem that would be beneficial to all.
Frankly, it was not until recently and until a leading company in the GPU arena made the switch to 48 volt that within the data center space and the major players in that space, we started seeing a definite sense of urgency with respect to making a transition from the traditional 12-volt infrastructure to 48 volt. There are compelling reasons now to do it, given how pervasive GPUs are becoming within a variety of systems within the data center space. I expect that it's now a matter of relatively few years. This is not an overnight affair because of the complexity of this infrastructure. It's going to be a matter of years before we're going to see a broad conversion.
With that, the addressable market, just in the data center space, to answer your question with respect to one of the market opportunities, will expand greatly because Google, while being a very major player, is clearly not the only player in that space. I could address your question in the context of other end markets. In the long term, while the data center space remains particularly interesting for us and ripe with opportunities, it's clearly not the only major opportunity. I think in a nutshell, it's fair and safe to say that the addressable market is expanding very rapidly. I'll make one more comment with respect to this. Historically, particularly in the data center space, Intel servers have been dominant. Intel historically has relied on its own on-chip regulators to lessen the challenge for their customers in applying their CPUs.
What we're seeing now more and more, applications and opportunities are really coming up more and more frequently, on a monthly basis. We're seeing expanding requirements for what we call XPU solutions, AI ASICs, other type of devices that, unlike Intel CPUs, require a lower voltage, not 1.8 volt, but typically 0.8 volt, going down to 0.7 volt, going down to 0.6 volt, are currents that are rapidly approaching, and short to long, exceeding 1,000 amperes. In that type of a socket, there's nothing else that can provide an effective solution, as recently demonstrated by recent design wins and recent adoption.
That's another powerful force at play, because as we all know, artificial intelligence chips that more and more are getting developed by the key players in the data center space and other places to serve their unique needs in a tailored manner that maximizes the efficiency of their applications. They're becoming more and more part of the strategy at the core of major developments. It's a combination of a variety of forces at play that are coming together to increase our market opportunity in the addressable market. Sorry for the length.
No, that's quite all right. If I could try it a different way. In previous conference calls, you've indicated that as far as you can see, that we're going to be going through these increased revenue periods, and with the forecast for the upcoming quarter being 10% or so. Is this a scenario that you would see sequential increases in that magnitude for, let's say, three to five years as you see these outside markets developing?
I think we all know around long enough to make very long-term forecasts, right? It's a treacherous game. I think I can safely say, as I indicated in my earlier response, that there are forces at play, be they the conversion from 12 volt to 48 volt, the competition to CPUs from GPUs and ASICs that require very high currents or very low voltages. These are all perfectly matched to our capabilities, and I would say rather uniquely matched to our capabilities. As far as my eye can see, I see expanding opportunities. Frankly, we are in the enviable position of having to pick which particular customers, which particular applications we want to pursue, and we are being more selective with respect to the ones that represent the greatest opportunity for us in the long term.
Okay. Thank you very much, I'll get back in line. Once again, congratulations and thanks for sticking to your dream there.
Thank you.
We do have several other questions. The next question comes from Jim Bartlett. Jim, please go ahead. You're now live.
Yes. Along that same line, could you tell us how many ASIC GPU customers where you're now shipping product, and how many design wins that you may have in this space? What can you expect, say, a year from now?
I'm not going to give you specific numbers for a variety of reasons, but I will say that there are several engagements, and the number is growing. The inquiries with respect to our willingness to support new developments, that's increasing. I think we're engaged with a multiplicity of customers in a range of applications in sub-one volt XPUs that range from 700 amps to, at one extreme, for an array around 16,000 amperes. There's a variety of applications and a growing number of opportunities. Again, talking about this particular class of opportunities, I want to remind us that this is not, while being extremely exciting, what our power component methodology should be entirely about.
The remarkable thing is that with the same engines, with the same power component methodology, with the same packaging technology, all of which are very unique to us and highly proprietary and very heavily patented, we can address different types of applications. For instance, we're also involved at the other end of the spectrum in front-end requirements that take us from 3-phase AC lines or high voltage buses to the 48-volt node, which is, in effect, the center of gravity for our power system methodology, the hub around which our solutions revolve. The high current assets are very exciting and a clearly great opportunity for, I believe, many years to come. This is a market that is now expanding, which literally didn't exist, measured in terms of applications requiring hundreds of amperes, as recently as a couple of years ago.
Within a couple of years, I've seen requirements grow from a couple of hundred amps to 1,000 amps, and as I suggested earlier, well beyond that. We don't see that subsiding. To the contrary, we see it with both in the data center space, in supercomputing, and other types of applications, we see it expanding with more and more players looking at AI chips playing a key role going forward. Autonomous driving, other kinds of applications, not necessarily within a data center.
Could you help me understand the NBM module that you introduced, that the availability and how this may enable you to penetrate legacy data centers that are on 12 volt? How quickly could this have an impact?
We're looking to start shipping NBMs into applications in the data center space, where to your point, there is an existing 12-volt infrastructure that cannot be changed overnight to 48-volt, but which gets challenged by leading GPUs running on a 48-volt bus. We want to facilitate adoption of these kinds of devices, making it easy, efficient, cost-effective to use them in a 12-volt infrastructure, and that's what our NBM solution is all about. It enables conversion from 12 to 48, and by the way, it also enables conversion from 48 to 12, in a very cost-effective way with very high efficiency, peak efficiencies of the order of 98% plus, and going higher later this year. It's very cost-effective. It's very dense.
It essentially circumvents the challenge of making immediate decisions with respect to how to power 48-volt loads in a 12-volt system, or 12-volt loads in a 48-volt system. Let me talk a moment more about that, because I think your question was aimed at how do we use NBMs to enable data center customers that would like to use a 48-volt GPU in their 12-volt infrastructure. The NBM, again, will convert 12-volt up to 48-volt, so that the 48-volt GPU load can be readily powered. There's a complementary play, and that complementary play is to do with using that same NBM, for all practical purposes, to convert 48 to 12. How does that play into the role transition of a 12-volt infrastructure to 48?
It plays by, in effect, taking away the anxiety that some customers might have with respect to making that transition, because it's a big bet with very profound ramifications. Many of these customers have been long accustomed to their 12-volt multi-phase regulators as the preferred way of powering CPUs and memory in their servers. They all recognize that there are significant efficiency benefits, infrastructure benefits to 48-volt. By having a device like an NBM that can convert 48 to 12, we're going to be facilitating a conversion of the infrastructure to 48, so that the infrastructure can readily power 48-volt GPUs. It can power 12-volt systems, legacy systems, through the NBMs, as a stepping stone to eventually powering it all directly from 48.
It is a key enabling building block that can facilitate use of 48-volt GPUs in particular, or 48-volt ASICs in a 12-volt infrastructure, and conversely, can power legacy 12-volt loads in a 48-volt infrastructure thus facilitating a transition from 12 to 48.
When do you think you'd start seeing some impact of this?
We are beginning to see some early requirements. I think in terms of a meaningful impact on revenues, I don't anticipate that until 2019. We're aware of programs that should start in the second half of 2018, frankly, I think that in the very short term, the 48 volt GPUs in particular are going to be powered from within their system that is self-sufficient in terms of it being powered directly from the AC mains. I think over time, and again, that may take six, nine months, there should be some significant contribution to the revenues from the NBM opportunity. We see it as a very exciting product. Our NBM is a lot denser, more cost-effective than any competitive alternative. It will become even more so when we roll out our 4G, our next-generation technology later this year.
Even with our older generation technology, it is three or four times smaller than any competitive alternative, and it's more cost-effective than any competitive alternative. We think we have the winning card to play in that space.
Sort of a childish analogy, you get the nose under the tent with this, but that may facilitate a broader conversion to 48 volt in data centers that are now really just 12 volt.
Yes. I think the NBM is a building block that can facilitate that. I think, again, what has recently been announced regarding SLI or GPUs, that in and of itself is going to change the industry, I believe. Facilitating a transition in every way we can is certainly part of our mission.
Thank you, and congratulations.
Thank you.
The next question comes from Jon Anderson. Jon, please go ahead. You're now live on the call.
Hey, guys. Congratulations on your progress.
Thank you.
I had two questions, if I could. My first question relates to the tenor of orders in the current quarter. You've just landed perhaps one of your biggest customers ever. Is it logical to assume, I think on your last call, you talked about orders sequentially expected to grow throughout the year and each quarter? Is there visibility to expand upon on the call here for listeners?
We've seen forecasts from key customers going up for the balance of this year, in some cases going up by significant multipliers. I think with some of these applications, the ramp in earnest will start in Q3. Looking at Q2 thus far, we're doing very well. We're well ahead of where we were at this time last quarter. The outlook in the near term, in terms of actual bookings that have already taken place and the outlook in terms of forecast and demand that's forecasted by some of the key customers, they're all suggesting strength going forward. Again, that fits with the general logic of the solutions and the applications and their respective opportunities in their marketplace.
Great. Thanks for the color there. My other question relates to a note in your annual report where you reference you guys in late 2017. We know you've been working with Google for five years, that you're also kind of working with other very large hyperscale data center players. Can you give any update there on, we just saw Facebook last week talk about starting a new ASIC division. Without naming any new potential customers, can you give any update on that initiative?
With respect to customer names, the ones in the public domain we can talk about, the ones that are not, we won't. I'm not sure I fully understood the second half of your question, if you could maybe rephrase it, in particular regarding new ASIC developments.
I think there was just within the news last week, Facebook was rumored to basically be starting a new division focused on implementing ASIC chips just like Google's been doing. I just was referencing that just in relation to the note in your annual report, because I know you guys said in that note you're working with multiple hyperscale data center players. Just without specifically talking about Facebook, are there other opportunities that are kind of maybe nearing the NVIDIA finish line that could be groundbreaking new customer relationships in the back half of the year?
No comments regarding Facebook in particular, and no comments with respect to other key data center customers. I can say that, as suggested earlier, we're working to power a variety of high current ASICs. As you point out, Facebook recently announced, or is looking to hire key people to staff a key development in this general area. Well, guess what? As we all know, they're not alone, right? Fundamentally, advanced ASICs that are customized to process applications with unique advantages for these companies are going to be commonplace to all of the key players. They all have the resources to do it. They all have the will to do it, as far as we know, and they're doing it.
To the extent, again, that they have with these developments, a common denominator need for devices that run on very low voltage nodes, 0.6, 0.7, 0.8 volts of very high currents. That's a proxy for a current multiplier. A factorized power system architecture is the one that has got current multipliers that these very high currents can lessen the challenge of delivering 1,000 amps by a factor of 50. Fundamentally, we are the only ones with the technology to take a 1,000 ampere load and convert it to 20 amps or even less, 15 amps. We are developing for one customer a so-called KO 172, which is a 72-to-1 current multiplier. They'll take 1,000 amp load down to 15 amps, and that's all that, with our technology, you need to deliver to the ASIC packages.
Your point is, Facebook is going that direction, and it's another public record that they are. Are the other ones. Guess what? They're all in need of low voltage, high current solutions because, again, unlike Intel, who had a long time and billions of dollars of development R&D to develop a chip partial solution. By the way, the Intel on-chip solution only reduces the challenge by roughly a factor of two. In other words, if an Intel chip consumes 400 amps, it still needs to be fed with about 250 because the on-chip regulator can only convert 1.8 volt to, let's say, 0.8 volt. That's roughly a factor of two division in voltage and multiplication in current. We can affect much, much larger current multiplication ratios.
Again, in the early engagement with PEZY in Japan, with a data center customer in the U.S., we had current multipliers, I think they were in the 48-to-1 or 64-to-1, we're now going to 72-to-1. This provides, again, a huge advantage in terms of lessening the challenge of delivering the current, freeing up precious I/Os for connectivity as opposed to power delivery. This is a very timely development that we think we are well-positioned to address, not just with one customer, but with a large multiplicity of them.
Thank you for that explanation, I'm going to cede the call to other shareholders. Before I did that, I'm sure I speak for other shareholders, and I'm a relatively new one with our firm, I personally hold a lot of admiration for your forward vision in building this company. You've been very tenacious in sticking to kind of predicting where the market was going to go. For that, my hat's off to you, thank you for all your efforts, really appreciate it. Thank you.
Thank you.
We do have several other questions. The next question comes from John Dillon. John, please go ahead. You're now live.
Hi, guys. Congratulations. 15% sequential bookings is just outstanding. Jamie, is the backlog of $90 million, is that a record for you guys?
I believe so.
I believe it is.
Yeah.
I can't remember ever having a $90 million backlog, so congratulations. Patrizio, also wanted to thank you for the explanation on the currents and the amps, because what I think I'm hearing is that Intel's got a built-in regulator, they only need 1.8 volts, the other guys are going down to 0.9, 0.7, 0.6 even, which is going to need a lot more amps, and this is where your technology really shines. This is really your sweet spot, and this is the trend in the industry. That's what I'm hearing. Is that correct?
That's correct. Another way of saying that is that as you know, we've had some remarkable wins powering Intel processors, in spite of the fact that they only need a couple of hundred amps at 1.8 volt.
Right. It's not even your sweet spot. Exactly.
At that level, the 12-volt bus and a regulator, which doesn't really multiply current, it averages the voltage down. By averaging the voltage down, it can provide more current. Fundamentally, I don't want to get too technical here, but the analogy I like to use is, in effect, getting water at the right temperature by mixing the hot water faucet flow with the cold water faucet flow. When you're at 1.8 volt, and your power source is 12, 1.8 divided by 12 is about 15%. If you open the hot water faucet low, and you draw most of the water from the cold water faucet, you can get down to 1.8 from 12 volt relatively easily. Doing it at 0.6 volt, makes the trickle of water out of the hot water faucet, which in technical jargon is called duty cycle, much more challenging.
Not to mention the fact that power levels are going up and densities are becoming more challenging. To your point, being able to win at 1.8 powering an Intel processor is indicative of the competitive advantage we have powering sub one volt ASICs, be they GPUs or other kinds of ASICs, at lower voltages. Obviously, these would be devices that wouldn't come out of Intel fabs. They would typically come out of TSMC. Their voltage nodes are going down and down and down. With that, the currents are going up and up. The appetite for more compute capability is, as we all know, escalating. We think that we've had some good hits at 1.8. We are in our sweet spot below one volt, and I don't see anything else that can really challenge us there.
That also kind of reminds me that if the leading guys are doing this, and they're freeing up pins and they're providing a more efficient GPU or XPU, the other guys are going to really have to follow in order to be competitive, aren't they?
Yeah. I think we all know how these things go. There are visionaries within companies that foster that mindset, who are willing to take risks, in order to gain competitive advantages for their own products. They realize that playing the commodity game of being extra conservative isn't going to be a good long-term strategy. Then there are other companies that limit risk-taking to core developments and tend to be a lot more cautious when it comes to, in particular, the power technology. To your point- That's becoming a riskier proposition because it's becoming more and more of an impediment to getting the fundamental task done. I think there's been reluctance in the past on the part of some to embrace radically different new technology from the likes of Vicor. That reluctance is getting overcome, superseded by other considerations.
I'll tell you one thing, if it isn't by way of current multipliers or MCDs and MCMs, we're getting there by way of NBMs or other power components or potentially front-end products. These barriers are breaking down, and once we're in and we prove that we are very trustworthy as a supplier in terms of capacity, pricing, reliability, we expect that the doors will open with respect to more sensitive applications.
Yeah, I agree. I think the NBM is just a brilliant move on your part. I do have another question that's more related towards bookings, and I'm just wondering, sometimes companies will prime the pump when they start placing orders with you or another company. They have a big order up front, your bookings might tend to tick down a little. I'm just wondering for the next quarter, is it safe for us to assume another 10% sequential increase in bookings? Are we going to see it go down a little bit because they've already put their big orders in? I don't know if I'm clear on this point.
We haven't yet gotten any big orders with respect to the recent GPU design win. That's going to be second half of 2018 event. We've gotten some initial orders and they're not negligible, but nothing that has really impacted the bookings pattern today.
We could expect another 10% sequential increase in bookings with this.
I don't want to get pinned down on I think what you can legitimately expect is progress on the bookings front, on the revenue front. I think it's easier to forecast revenue, and that's why we're sticking our neck out a little bit with respect to the revenue forecast for this quarter than it is to forecast bookings. Because particularly with big projects, whether they come in, a large order comes in, the last two weeks of the quarter or the first weeks of the next quarter, they can make easily a 10%-15% difference with respect to the bookings of the quarter. I'm not going to stick my neck out with respect to bookings. I have said that thus far in this quarter, we are substantially ahead of where we were last quarter, and we'll let the quarter go by.
It sounds like there was no real priming of the pump from some of the big guys.
No, there's been no priming of the pump with respect, none whatsoever, with respect to new projects. Nothing in the first quarter with respect to the bookings that have been reported. There's been some heightened activity of late, but that's part of the second quarter opportunity.
Thank you, Patrizio and Jamie. This is what we've been waiting for. This is phenomenal. Great job. Thanks.
The next question comes from Alan Hicks. Alan, please go ahead. You're now live.
Yeah. Good afternoon, I add my congratulations to both your vision and your execution. My question-
Thank you. I like it.
Yeah. We all do. My question is on, well, first of all, can you break out the revenues per segment, VI Chip, Picor, and BBU?
I think in the prepared remarks, Jamie pointed out that the year-over-year growth is primarily due to the advanced products, and you can take those to be VI Chip and Picor products. That was at 40-some%. We have been doing pretty well with legacy products, which are showing their resiliency. Again, that's not where the growth going forward is going to come from. As discussed in recent quarterly calls, we're now at the point with the advanced products where they are causing a pivot with respect to our growth curve overall, because historically they were not critical mass. They are now critical mass. As I look at the daily bookings report, I see the legacy system type of solutions doing okay, but essentially being slightly up fundamentally level over a long timescale. Whereas the advanced solutions, MCDs, MCMs, VTMs, PRMs, BCMs, SiP.
These are the products that have been driving the growth of late, and they're going to be driving the growth for the foreseeable future. We do have major opportunities with front-end products, particularly RFM. We talked about that in the past. We've had major engagement in Japan, which is going forward. We're seeing a number of interested parties in that product. That's not a classic legacy product, but it is not the kind of point-of-load device that we've been talking about in this conference call. It's very complementary to it because it gets customers from their power source, whatever that may be, to 40V on the way to the point of load. Those are going to become significant, I believe, over the next 12 months as well. All the action is with respect to these new products.
To give you yet a bit of a different flavor, when it comes to advanced products, what we're shipping is primarily what we call our 2G and 3G technology. You made reference to Picor, obviously key part of our effort with their ASICs, in particular the 2G ASICs and the 3G ASICs, we've been able to make a great deal of progress. We're now very close to, and in fact, we already have with one of the two key ASICs, 4G platforms that are working on the bench. Very soon we're going to have the complementary piece, and before too long, starting late this year and into next year, we're going to see our 4G technology give us yet another level of capability, and that builds on the packaging technology, but takes the control system to a much higher level of integration and efficiency and flexibility.
We're layering in these other developments which are coming in, being contributed by portions of the enterprise, in particular, the Picor portion.
Alan, to answer your earlier question more specifically, you'll have to wait roughly two weeks until we file our Q. We will have all of the segment reporting broken down. We'll have the new format of our ASC 606 disclosures.
Thanks. What I wanted to get at, I was reading through your 10-Q for last year, and Picor is extremely profitable at, I think, around 33% operating margins. BBU looks like its operating income fell in half to about 3%-4%. VI Chip still lost last year, about $11 million, although improved. I know it was improving throughout the quarter. At what point do we get to profitability on what revenue level on VI Chips?
VI Chip is there. I think we're getting to the 50% margin area. I think as we get into the second half of this year, while it is true to your point that Picor chips have led the way with respect to very high margins, gross margins in the 70%-80% area. VI Chip products have the potential of getting to comparable levels. It's all to do with scale and capacity utilization, and absorbing the significant infrastructure cost of the unique packaging technology that underlies the VI Chip power component. All of these developments, when you look, let's say, at the GPU with three golden chips on it, those are all VI Chips. Two of them are current multipliers. One is a modular current driver. Those are all devices that will bring about economies of scale, and with that, significant margin opportunity. I made this point in the past.
I know it was difficult to make it, and probably hard to believe, when margins for VI Chip were zero or negative. I think it's becoming a lot more credible today. I think we've taken it from negative 20%, 30% to positive, to close to 50%, and I think we're going to take it quite a bit higher with rising volumes.
Overall, you can far surpass 50% gross margins.
I believe we're going to be past 50% starting in Q3.
Good. Okay, my next question is, when do you expect to announce the RFM product, and when will it ship in volume?
We've been very selective with respect to that. We've shipped some non-negligible quantities of it, but just to one customer. We're doing that cognizant of the unique challenges of the front-end products of that kind, at that power scale. This is, depending on where it is applied, an eight, 10, 12 kilowatt device. There are unique application requirements that go with it. We have a few different flavors of the device under development. We want to complete that development before making it available to other customers. I'm reminded every other day that we have three, four major customers that are very eager to evaluate it and potentially adopt it, and we see some major opportunities with it.
I think it's very important to keep our powder dry with respect to some of these things and roll them out when they achieve the level of maturity they need to have.
That's more of a 2019 opportunity?
I think we're very close to more customers for that product. I think it's a 2018 event. I think in terms of it being a large-scale contributor, as a large-scale contributor, it'll probably be late 2019, maybe even 2020.
On the PEZY supercomputer, is that shipping yet?
Yeah. That company had some issues. They've overcome those issues. We look forward to a long-term relationship as a key supplier. They are pursuing opportunities with us on a variety of fronts.
Okay. Do you have other opportunities in supercomputers?
Oh, yeah. I think you name the supercomputer, and we're likely to be in it.
Okay, last question, are you on track for increasing capacity?
Yes. With respect to that, very key question. As you've heard me say, we've been reassessing our strategy, and we're continuing to reassess it. In the October timeframe of last year, we were very close to actually acquiring some space to develop about 70,000-80,000 sq ft of incremental capacity capability. We have decided since then to partner with a company that has certain complementary capabilities, and that's progressing very well. We are pretty far along with that to bring about a capacity that will relieve some of our existing bottlenecks. That gives us the breathing room we want to have to make a judicious choice.
We're actively looking for space in the 200,000-250,000 sq ft area nearby, but far enough away from our Andover facility so that a meteorite could not hit both places at the same time, which is, believe it or not, is also a concern for some potential customers. When we actually pull the trigger on that, I do not yet know. It could happen relatively soon. Yet, we may be able to find other relief valves that enable us to extend the capacity capability we have within our Federal Street facility, which is about 250,000 sq ft, so that we don't have to divert our focus from the ramp that we are in the midst of.
We like to defer to the extent possible the acquisition of additional vertical integration capacity to the extent we can source it from the outside without any compromise, either in terms of quality, capacity, or cost effectiveness. We think we can accomplish that combination of goals.
Okay. Well, thank you very much, congratulations again.
Thank you. If there's one more question, we'll take it, otherwise
You do have several others, but the next one comes from Ron Feinstein. Ron, please go ahead. You're now live on the call.
Thank you. Patrizio, the biggest compliment I can give you is, in 10 years, I haven't asked any questions, so thank you for your results. I just want to ask whether the foreign policy and the trade issues that could be coming for China or elsewhere, will that influence or affect your business at all?
In a very minor way. I think a few million dollars, if a recent decision by the Department of Commerce holds for the next seven years with one Chinese customer. Otherwise, it's immaterial to our prospects, particularly in the near term. I think the opportunity there was some longer-term opportunity, and I believe that that's an issue that's likely to get resolved before too long. In any case, it wouldn't be certainly affecting our prospects in the near term or the long term. We're not particularly concerned about it.
Okay. Well, congratulations to the whole team. Thank you.
Thank you. With that, we'll call it a day. We'll talk to you in a few months at actually the shareholders' meeting in June. Have a good day.
Thank you. Ladies and gentlemen, that concludes your conference call for today. You may now disconnect. Thank you for joining, and have a good day.