Vicor (VICR) 29 Apr 252025 Q1 Earnings call transcript

Good day, and thank you for standing by. Welcome to the Q1 2025 Vicor Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to turn the conference over to Jim Schmidt, Chief Financial Officer. Please go ahead.

Thank you. Good afternoon and welcome to Vicor Corporation's earnings call for the first quarter ended March 31, 2025. I'm Jim Schmidt, Chief Financial Officer, and I'm in Andover with Patrizio Vinciarelli, Chief Executive Officer; and Phil Davies, Corporate Vice President, Global Sales and Marketing. After the markets closed today, we issued a press release summarizing our financial results for the 3 months ended March 31. 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 and our capacity expansion as well as management's expectations for sales growth, spending and profitability are forward-looking statements involving risks and uncertainties. In light of these risks and uncertainties, we can offer no assurance that any forward-looking statement will, 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 2024 Form 10-K, which we filed with the SEC on March 3, 2025. This document is available via the EDGAR system on the SEC's website. Please note the information provided during this conference call is accurate only as of today, Tuesday, April 29, 2025, Vicor undertakes no obligation to update any statements, including forward-looking statements made during this call, and you should not rely upon such statements after the conclusion of this call. A webcast replay of today's call will be available shortly on the Investor Relations page of our website. I'll now turn to a review of our Q1 financial performance, after which Phil will review recent market developments, and Patrizio, Phil and I will take your questions. In my remarks, I will focus mostly on the sequential quarterly changes for P&L and balance sheet items and refer you to our press release or our upcoming Form 10-Q for additional information.

As stated in today's press release, Vicor recorded total revenue for the first quarter of $94 million, down 2.3% sequentially from the fourth quarter of 2024 total of $96.2 million and up 12% from the first quarter of 2024 total of $83.9 million. Advanced Products revenue increased 2.7% sequentially to $59.9 million, while Brick Products revenue decreased 10% sequentially to $34.1 million. Shipments to stocking distributors decreased 16.9% sequentially and decreased 33.8% year-over-year. Exports for the first quarter increased sequentially as a percentage of total revenue to approximately 60.8% from the prior quarter's 56.9%.

For Q1, Advanced Products share of total revenue increased to 63.7% compared to 60.6% for the fourth quarter of 2024, with Brick Products share correspondingly decreasing to 36.3% of total revenue.

Turning to Q1 gross margin; we recorded a consolidated gross profit margin of 47.2%, which is a 520 basis point decrease from the prior quarter. To elaborate on the factors causing the sequential decline in gross margin, I'd like to first mention that over the course of fourth quarter of last year and into the first quarter of this year, Vicor transitioned off of a legacy ERP system and on to a state-of-the-art ERP system, SAP, which went live on January 1. In planning for a successful transition and to derisk it, we increased production in Q4, required a mandatory week of paid time off in December by any employees not involved in the cutover and funded outside consultants who provided the necessary expertise as we implemented the change. All required actions were successfully completed in Q1. What I've just described is an important contributor to about half of the percentage point decline in gross margin as sequentially, utilization and absorption declined, compensation increased and so did consulting expense.

Aside from these factors and the sequential decline in royalty revenue, which on its own accounted for about half of the percentage point decline in gross margin, other components of the decline included the normal seasonal reset higher of FICA expense to start the year as well as incremental depreciation expense associated with bringing online capital investments in U.S.-based semiconductor manufacturing in both Andover and Rhode Island. Tariff expense net of duty drawback was approximately $700,000 in Q1. I'll now turn to Q1 operating expenses. Total operating expense increased 8.2% sequentially from the fourth quarter of 2024 to $44.5 million. The sequential increase was primarily due to an increase in research and development expenses.

Here, too, the sequential increase was due in part to the mandatory time off in Q4 that did not repeat in Q1 as well as the normal seasonal reset higher of FICA expense. The amounts of total equity-based compensation expense for Q1 included in cost of goods, SG&A and R&D was $967,000, $2,194,000 and $1,188,000, respectively, totaling approximately $4.3 million.

Turning to income taxes; we recorded a tax provision for Q1 of approximately $0.4 million, representing an effective tax rate for the quarter of 14.2%. Net income for Q1 totaled $2.5 million. GAAP diluted earnings per share was $0.06 based on a fully diluted share count of 45,495,000 shares.

Turning to our cash flow and balance sheet; cash and cash equivalents totaled $296.1 million at Q1. Accounts receivable net of reserves totaled $65.9 million at quarter end, with DSOs for trade receivables at 43 days. Inventories net of reserves decreased 7.1% sequentially to $98.5 million. Annualized inventory turns were 1.7. Operating cash flow totaled $20.1 million for the quarter. Capital expenditures for Q1 totaled $4.6 million. We ended the quarter with a construction in progress balance primarily for manufacturing equipment of approximately $9.9 million and with approximately $12.3 million remaining to be spent. I'll now address bookings and backlog. Q1 book-to-bill came in above 1 and 1-year backlog increased 10.4% from the prior quarter, closing at $171.7 million.

As we said on last quarter earnings call, 2025 is a year of uncertainty and opportunity.

As of today, the quarterly and annual outcome in terms of top line and bottom line is subject to a relatively wide range of scenarios.

Given the wide range of possible outcomes, we are unable to provide quarterly guidance until we are further along resolving uncertainties and capitalizing on opportunities. With that, Phil will provide an overview of recent market developments, and then Patrizio, Phil and I will take your questions. I ask that you limit yourselves to one question and a related follow-up so that we can respond to as many of you as possible in the limited time available.

If you have more than one topic to address, please get back in the queue. Phil?

Thank you, Jim.

Our first quarter book-to-bill ratio increased well above 1 with new orders for NBMs in our HPC business from a hyperscaler licensee. Conversations continue with potential licensees facing a first exclusion order following the ITC final determination and presidential review period.

Our second-generation high-density VPD for leading AI applications is coming to fruition with the recent arrival of an ASIC raising the bar on the density and bandwidth of our MCM current multipliers.

Second-generation VPD will enable AI processors to set new standards for performance. Development of the next-generation VPD system for a lead customer is approaching completion, and we will soon provide evaluation systems to processor chip companies and hyperscalers. Appetite for factorized power VPD solutions is growing as multiphase voltage regulators are unable to deliver the performance and current density required by future AI systems. With AI driving rack power up to 160 kilowatts, the HPC industry is evaluating a transition to 800-volt power delivery to the rack and bus conversion to 48-volt nodes within the rack on the way to the point of load. Vicor's fixed ratio bus converter modules with industry-leading power density and liquid-cooled thermal management flexibility are a perfect solution for these requirements.

Given these market forces, Vicor will be uniquely positioned to offer front-end 800-volt to 48-volt bus converters and direct VPD 48-volt to sub-1-volt solutions, enabling a complete high-efficiency, high-density power delivery network for our customers. The market [ SAM ] for these solutions is expected to exceed $5 billion by 2028.

As with other U.S.A.-based manufacturers, we are navigating a changing tariff landscape. Components used in our power modules are not exempt from tariffs. In Q1, we informed our customers and channel partners that a 10% tariff surcharge line item will be added to invoices for shipments after July 2. Due to higher reciprocal tariffs levied by the Chinese government, we have also seen cancellation requests from China-based customers, but these potential cancellations are not at levels enough -- high enough to impact our overall business.

New product introductions will continue to ramp as we move through 2025. In Q1, we announced availability for general sale of a new high-density 48-volt DC-to-DC converter family.

We have also initiated sampling of a new family of 3-phase AC-to-DC power modules to lead customers in the aerospace market. This will be a new market for Vicor offering excellent growth opportunities.

Our engagement with our top 100 customers continues to strengthen as 48-volt power delivery moves to the mainstream along with 800-volt DC-based front-end power systems.

Our strategy of developing complete front-end to point-of-load solutions that are centered on a 48-volt hub offering high power density, ease of use, scalability and flexibility across product platforms is proving to be right as evidenced by strong engagements across our top 100 customers in our 4 target business segments.

As stated in our Q4 call, we see 2025 as a year of opportunities and have high confidence in our business. Thank you. With that, we'll now take your questions.

[Operator Instructions] The first question will come from the line of Quinn Bolton of Needham & Company.

I wanted to ask about something in the press release. In the press release you mentioned revenue and gross margins declined sequentially with reduced income from a licensee transitioning to a new generation of unlicensed products. Can you just elaborate on that? Is that new generation of products span an entire family of new GPUs or XPUs or is it more limited? Just trying to gauge how significant the change in your licensing or royalty income might be as a result of this transition?

I cannot, for a variety of reasons, elaborate on that.

Can you elaborate just on the impact of Vicor? Would you expect a material change in the licensing outlook with that licensee?

Well, obviously, that's had a short-term impact in our results for Q1. But we remain confident with respect to our licensing business being a growth business that will contribute substantially at spending levels to both the top line and particularly the bottom line.

And Patrizio, maybe there, that was my sort of follow-on.

I think in the script, you guys mentioned ongoing negotiations or discussions with additional licensees. Can you clarify now that we have, I think, the injunction against Delta, if non-licensee hyperscalers import modules from Delta, would that be subject to the injunction?

Yes.

[Operator Instructions] And our next question will be coming from the line of Jon Tanwanteng of CJS.

I was wondering if you could just talk about the indirect impacts from tariffs and the direct impacts from tariffs, if you've made any assumptions going forward. What do you think the indirect might be on supply and demand as potentially other suppliers may not be able to import as much stuff and the impact on your own tariff paying to modules from China?

So we've assessed the impact on our bill of material. And obviously, the impact varies depending on which particular platform we're talking about and the mix of components from various countries of origin. But having gone through that assessment as of several weeks ago, we took corrective action, as Phil pointed out in his prepared remarks, in terms of instituting a 10% tariff surcharge that will be applied at the beginning of the third quarter. We don't expect that to have an appreciable negative impact on demand for our products. But when it comes to reciprocal tariffs, as Phil pointed out, in China, we do expect with some of the programs to see an impact in a quantity that as Phil pointed out, is not as of now assessed to be significant in terms of moving the needle or altering our revenue.

Okay, great. And then my second question, just has there been any change to the time line for ramping your second-generation VPD products to lead customer? Do you still expect that to be happening at the end of this year or maybe early next year?

So based on the testing that's been done to-date on recently received ASIC, which is instrumental to the point-of-load car multiplier, we feel very good with respect to being able to bring the development to fruition.

As mentioned in the press release and in Phil's remarks, we remain totally focused on our lead customer, very important to raise the bar on current capability, delivering the goods for that next-generation application first. And we'll follow that up with demo systems for the potential customer base at large as soon as we completed the effort for the lead customer.

And the next question will come from the line of [ John Dillon of DNB Capital ].

Patrizio, I have a follow-up to Jon's question. That's in regard to what you're shipping to your lead customer. Are those alpha or beta units? And can you kind of give us a timeframe or schedule what it's going to take to actually productize the Gen 5 point of load that you're given to that customer.

So it's available -- generally available and you can manufacture that in quantities?

So to be clear, we are on a ramp with respect to a lead customer on an older generation platform as I mentioned this, I think, in the most recently quarterly call. And we are closing in on being able to ship units that meet the expectations as they have evolved in terms of current capability and current density. But we're not quite there yet.

We expect to be there soon, and we are targeting power production in the second half of this year for the [Technical Difficulty] solution.

Okay. And that would be productized and would that be completely productized? I mean what I mean by that is, typically, when I've been in the industry, when we ship the initial product to a customer, they evaluate and they find some bugs and then they feed it back to Vicor and then Vicor makes the corrections and then they give it back to them. Do you expect a lot of that to go on or are you very confident that you can make the second half of the year to ship to them production quality units?

Well, obviously, in order to be very confident, we need to complete the development effort. But as you can imagine, based on your experience, this has not been a case where it all awaits the availability of fully functional units. We've been able to make incremental steps happen even before the arrival of the ASIC, which we recently received. And we now expect this next major step to begin to deliver current multipliers using that ASIC in a matter of several weeks. And we expect with that step to be able to achieve base level performance originally being targeted by our customer.

I guess I understand that. But then after that, you still got to get to a product that you can manufacture in quantities and sell to the customer, correct or am I missing something?

No, you're not missing anything. And to your point, the challenge is a complex challenge, right, that involves electrical, mechanical, thermal as well as, to your point, process capability, equipment capacity and all that is involved in being able to ramp the chipset for this application.

So this is not -- it's a multifaceted challenge. But again, with respect to each of the elements of challenge, we have been making good progress, in particular, when it comes to the processes and the capacity, we've been able to make steps in the right direction. And I expect that all of it will come together as it has in prior initiatives of a similar kind as we progress through the summer months.

And the next question is coming from the line of Richard Shannon of Craig-Hallum.

I guess I want to follow-up on the comment in the press release, I think Quinn asked on as well here, which is the hyperscaler or some customer transitioning to an unlicensed product. Is this also an infringing product? And if so, are there some actions being contemplated here to alter the trajectory of what this customer is doing?

Yes, yes, yes.

Okay. Well, maybe I'll follow up on this topic here on licensing here following on the prior response here on looking at this revenue stream here. But how do we think about this returning to a growth track here? Is this something we expect to start in the second quarter and the second half or -- and what are the dynamics under which that occurs?

Well, I think it's, again, a combination of increased product revenues. And needless to say, the step-up in the bookings and the backlog sets the stage for that as well as increased licensing income. It's as simple as that. Those are the components of the revenue growth that we anticipate happening as the year progresses.

And our next question will come from the line of Alan Hicks of Ainsley Capital Management.

Yeah, I wanted to clarify on the royalties and Advanced Products. It sounded like royalties fell about $5 million or about 1/3, while Advanced Products still grew -- so in-house produced products grew about 16%, and they did in the fourth quarter also.

So I guess my question is did you sign up new licenses in the Q1? And so that will continue to grow in royalties?

We did sign up a licensee in Q1, a new licensee. But you're right to say that the Advanced Products, excluding the decline in royalty, grew. The product revenue in the factory grew on the Advanced Products side.

So that was a positive outcome.

Okay.

So you had a significant customer that transitioned from royalties to accepting in-house produced products.

That wouldn't be the right assumption, yeah.

Okay.

So what's driving the actual in-house produced growth?

An existing customer ramping further on production as well as new opportunities that we.

Yeah. And as mentioned in the press release and as earlier asked we did have an existing licensee transition to a new product platform where this new product is unlicensed.

Okay. Is that a new version of the NBM products?

That's all I can say at this point in time.

I think this question has been answered already to the extent I can.

Okay.

So we can expect continued growth in royalties and continued growth in product sales the rest of the year?

I think we can confidently say that we see growth in product revenues, and we see growth in licensing when it comes to, let's say, the license income, relying on relatively small multiplicity of license fees. And with that, there can be surprises as it happened this quarter. There can be negative surprises, become positive surprises. And once the [indiscernible] of OEMs and hyperscalers that have taken a license increases, then I would expect the licensing business is going to become more predictable in terms of its quarter-to-quarter evolution. And the same can be said of -- on the product revenue side. Obviously, we have invested a great deal in our 5G technology. We believe it's unique without equals, without close competition. Obviously, it's taken longer than expected, but it is a reflection of the magnitude of the challenge [Technical Difficulty]. And I believe it will pay great dividends as we pointed out.

So we have strong revenue growth opportunities in years to come being enabled by that capability.

Okay. And can you give any update on the ITC case? Was the Texas case on damages, I think? Can you say anything about that?

So the ITC case came to an end with the ITC issuing its final determination. It came to a further end once the 60 days presidential review period came to an end.

As you may know, through the presidential review period, respondents, the customers can continue to import infringing product by posting a bond following the end of the presidential review period, there's an exclusion order outstanding and they can no longer import infringing product.

So that's where things stand with respect to the ADC case. There are certain aspects of the final determination that are objectionable and with respect to which Vicor's filed an appeal at the Federal segment.

And so that's the next step on that general front.

Okay. And lastly, BBU products fell about $4 million. Is that going to continue about that level or what do you see in the BBU area?

I would say -- yeah, I mean, I think that we wouldn't expect -- it bounces around a bit.

I think it's fairly stable. I guess, as Phil mentioned, a potential risk element is in the China reciprocal tariffs and the cost of our product being higher in China. But I think we're sorting that out. And as Phil said, so far, at least, there's no appreciable significant impact.

So I would say that steady as she goes with the Brick business over the course of the year.

The next question is going to be a follow-up from Jon Tanwanteng of CJS.

Could you clarify what your pricing is expected to look like after you implement the tariff surcharges. Is that plus 10% on just the Advanced Products that have the Chinese component exposure or is that across Bricks as well? Just which portion of your portfolio has that increase?

Hi Jon, it's Phil.

So it's across the board. It's a 10% tariff surcharge, as Patrizio mentioned, that will go into effect after the beginning of July. It's 10% across the board. We've analyzed, as Patrizio mentioned, the different products, the different variations in it up or down on the tariff impact.

So 10% was a good base number to begin with.

Okay. And does that cover the expected gross profit you were expecting to make before the tariffs and maybe dilute the margins a little bit or is it a different formula than that?

We expect to be able to maintain the margin.

So to be clear, we've analyzed products, including some high-volume products where the impact of the tariff surcharge as of a few weeks ago was as high as 31%, 32%. But then there are other products where the impact is less. And for simplicity, it didn't make sense to have a unique surcharge based on the particular customer application.

So it's an across-the-board average, if you will, which accounts for [ BOM ] costs, other costs and maintenance of margin.

Understood. And then finally, could you talk a little bit more about your expected OpEx kind of heading forward, including R&D and maybe any litigation or legal expense you might have coming up?

Well, I would say, John, we've taken the position that we're not going to guide specifically on any of the P&L elements. What I tried to describe the Q4 to Q1 transition did have some moving parts in there that we felt was worth kind of describing and talking through. But beyond that, I think Vicor is a very stable place relative to spend and headcount, et cetera.

So that's, I think, as much as I would say on it.

One moment. And we have a follow-up coming from the line of Quinn Bolton of Needham & Company.

I wanted to follow up.

I think you said in the prepared script that you've seen a recovery in the NBM business, which I think might be associated with one of your licensees.

Just wondering if you could give us, as you look out through the year, would you expect that MBM business to continue to grow? Would it be stable at Q1 levels? Just any kind of shape to that MBM business on a go-forward basis? And then I've got a follow-up.

So we expect our NBM business to grow. And at the risk of saying the obvious, years ago, we had enjoyed a significant ramp of revenues associated with NBMs until infringes came about and undermined our market opportunity. The win we scored that the ITC and concern on the part of OEMs and hyperscalers with respect to the exclusion order has brought about the revival of demand for our NBM.

And then I just wanted to make sure I sort of understand your comments about licensing or royalty income going forward.

You said that you expect that to grow.

I think some of that is driven by an expectation or the likelihood of additional licensees signing agreements with you. But I guess I just wanted to clarify if you've got a licensee that's currently transitioned to an unlicensed product, I think in response to Richard's comment, it didn't sound like that was something that necessarily changes in a quarter.

And so to the extent licensing or royalty income grows, say, in '25, would you expect that to be mostly generated from new licensees signing new license agreements or would you expect that existing licensee revenue to recover?

There's a lot of moving pieces there.

And so I'm not able to make a specific statement with respect to how each of these components will play out. But it's enough to know that in the aggregate, we have lots of opportunities with both existing licensees whose revenue and licensing income is ramping. Older licensees, there's been a change that could lead to a number of different places. And then there is potential for additional licensees. How each of these components will play out is, frankly, difficult to predict. But there is enough opportunity in the aggregate to be comfortable in forecasting that licensing income is going -- licensing revenue is going to be a growth business for Vicor.

And we do have a follow-up from John Dillon of DNB Capital.

Patrizio, on the last conference call, you had mentioned that you're expecting a record year.

So I'm just wondering are you still expecting a record year?

Yes.

Excellent. And my follow-up is, I was wondering about the new fab. Are all the kinks iron out of the new fab? And in particular, is the plating turnkey? And is it better than what you're getting from your previous outsourced supplier?

Yes.

We are happy with the progress we made.

We have a lot of capacity. We're going to put that capacity to good use, particularly with our 5G product platforms. We made the right decisions. It's a big investment. Needless to say, in terms of margins, we have been paying a price of late with all the equipment that we're depreciating, not being close to being fully utilized. But we think that as we get into later this year and into next year, we're going to see improvements in product margins beyond the contribution from licensing income.

That sounds good. We'll talk next quarter or the annual meeting, I guess.

That's right.

And we have a follow-up coming from the line of Richard Shannon of Craig-Hallum.

I want to ask about product growth for the rest of the year. And I've heard a couple of pieces in other responses here.

I think you're talking about NBMs growing nicely here. It sounds like Brick will be flat. Obviously, it sounds like Advance -- that include NBMs will be up to some degree. Obviously, you're not going to quantify. But also love if maybe you could divine out what this is going to look like between end markets. Obviously, you talked mostly about HPC versus everything else here. How do we see those two end markets relatively speaking, growing the rest of the year?

Hi Richard, it's Phil.

So again, so HPC is a growth business for us, not just NBMs. Patrizio talked about a lead customer that's ramping their high-performance AI system on existing solutions that we're shipping.

So we're excited to see that happen, and we'll follow that on with Gen 5. If I look at the defense and aerospace market, we've been planting a lot of seeds there over the last number of years that are coming to fruition on new sort of defense systems, aerospace applications, sort of warfare equipment. Unfortunately, the state of the world, that's a growth market for us. In the industrial area, lots of, again, seeds planted over the last number of years with channel partners at smaller accounts, but also we've targeted very specific application segments such as the ATE test equipment market and picked up 4 or 5 new entries into that -- entrants into that marketplace, which are now growing for us with Advanced Products.

So it's really sort of across-the-board that we're seeing the lift. And certainly, having consolidated the channel to mainly Avnet and Arrow and Macnica in Asia, we're getting far more focused, far more targeted at customer bases in specific segments that value the density and what we bring.

So that's also giving us a general lift.

So it's occurring right across the four -- well, the three businesses. In automotive, that's still fledgling. We're pulling down NREs for collaborations, but that's not really impacting anything at this point in time. But next year, we'll see production start to ramp with some high-end OEMs there.

So again, that will contribute to our portfolio.

Okay. Maybe a quick question for Jim on gross margins. If I heard the prepared remarks, it sounds like there -- of the gross margin decline, about half of it was from some investments for the SAP system and other things and the rest of it was from royalties here.

So I guess my question is on all other things equal basis here as we go into the second quarter. And obviously, I'm not sure how complicated adding tariffs into this might affect gross margins here. But I'm assuming the gross margins in the second quarter, all things being equal will be kind of roughly half between the fourth quarter and the first. Is that a good starting point to think about?

Sorry, Richard, did you say half of -- I didn't.

Yes, halfway between first quarter and fourth.

Well, I mean, we're going to have to be reluctant about offering guidance of any kind. It's just -- that's the position we've taken. I will say that I described the SAP installation is might have what caused the sequential kind of changes because we required PTO in fourth quarter and drew out the vacation balance and then ramped up vacation accrual again in Q1.

So there were some lumpiness associated with that. That investment is behind us now.

So we are done with the SAP project.

So without giving you a specific on the guidance, I think we feel like we're well-positioned. I mean, I feel very good about the factory. I feel good about the infrastructure in Vicor; it's state-of-the-art.

So everything is set to move the needle on GM going forward once we get more loading and keep building up the licensing revenue.

And on the tariff front, we're building now in the second quarter is out of components that were procured largely before the institution of recent tariffs. And by the time we get into the third quarter, where the [ BOM ] cost is going to start suffering because of tariffs, we'll be compensating for that through price surcharge.

Just a comment on tariffs.

As a matter of interest, it's worth noting that the success over multiple years has been good relative to tariffs and our ability to manage it.

Now the future is changing, but we've gone from $10 million to $8 million to $4 million to less than $1 million a quarter.

So that's a good track record. But that's the rearview mirror and the environment is changing rapidly. But so far, I mean, our track record has been strong.

And the next question is coming from the line of [ James Liberman of American Trust Investment Services ].

I really appreciate the progress you're making and looking forward to the year as it rolls out. Are you able to comment -- maybe you have already given some comment on the Foxconn appeal. What -- in terms of the timeline or process that might take where the International Trade Commission could realize that they're, in fact, defrauding and that the bill, the indications that they have rights to your technology is not correct.

I'm not going to be very specific with respect to the Foxconn license and the appeal to the Federal Circuit that relates to that beyond saying what we said in the past, which is that the ITC process, just as with every formal litigation isn't the perfect process.

You can't expect that judges get it 100% right, particularly when confronted with legal teams that put a lot of dust up in the air and try to confuse the issues. But what I can tell you is that both the administrative law judge at the ITC and the District Court judge in Federal District Court in Boston got it right, which is Foxconn has no license. The commission took a different position, which we believe is contrary to all the evidence, and we feel good about being able to overcome that. And in any case, the license that the commission found to have been acquired by virtue of Foxconn issuing purchase orders with [indiscernible] fine print contradicted by our sales order and other relevant evidence, including the conduct of the parties over many, many years. We think that we're not matter in the long-term for many reasons, again, not least of which there was only one patent that was found licensed. Vicor has a very big patent portfolio. And ultimately, being able to compete in this industry will depend on parties that practice advanced power system technology, having a license to many, many patents, not just one. But even with respect to that one, we expect that the Federal Circuit will come to the right conclusion as both the administrative law judge and the District Court judge in Boston found.

Next question is coming from the line of [ Jeff Cohen of Wall Street Research ].

So just a little color on this customer that is transitioning to a non-licensed product. Wouldn't the ITC injunction make that prohibitive or is this somebody through Foxconn or can you give me a little color on the situation?

I really can't beyond what I said earlier.

So we think that this was a wise decision. And as I mentioned in answer to an earlier question, we believe these unlicensed products [indiscernible] relevant like our IP.

So would we expect legal expense to go up as a result of that or is that already being litigated?

Well, I think you should expect over the foreseeable future, our legal operating expenses to vary from time-to-time because of the need to continue to protect a very valuable intellectual property. Vicor has got a very comprehensive licensable ad portfolio and some OEMs and hyperscalers have done the right thing and taking a license. Others have been taking their chances. We need to make sure that our IP is consistently applied and consistently protected. And from time-to-time, that will require substantial investment. ITC case -- Vicor I think somewhere around $12 million, $15 million in that general ballpark.

I think the return on investment on that is going to be stellar and it warrants additional investments of that kind if infringement in the industry persists.

Okay.

So I'm hearing that the ITC decision in the injunction is not a panacea.

Well, in this kind of a dispute, I don't think one should think in terms of last year. But let's put it this way. We believe we are well within our rights to protect IP asserted as appropriate. And thus far, we've done quite well with that. The return on investment is quite good, and we expect it to continue to be that way. And going back to your core question, that does imply that the operating expense line item when it comes to legal expenses may from time to time, take significant steps, and that's part of our business model going forward.

And the next question will come from the line of John Dillon of DNB Capital.

I had another one pop up. Phil, you mentioned new opportunities in the data center with 800 volts to 48 volts. I'm just wondering how much customer interest are you getting in this? And what's the timeframe for orders? And will it move the needle on revenues at all?

So it's interesting. I would say that 6 months ago, we started to hear from engineers, power system engineers at different customers that they were looking at 40 -- 400-volt system. And then within the last few months, we've seen because of the AI power growth and the rack power growth that jumped to 800-volt systems. And we're hearing it now from pretty much all of the big hyperscalers and any of the companies -- chip companies that have transitioned to providing rack-based systems, looking at that type of technology. And I mean that is right in our wheelhouse. We've been supplying 800-volt to 48-volt products to automotive OEMs and Tier 1s for the last 3, 4 years building out that business.

And so the technology comes from a number of years ago, we're sitting really, really well with great products and technologies that we can do derivatives off of for higher powers and really engage with these customers now in the coming months, which is what our plan is. Patrizio and I are making a trip to the valley, and we're having conversations with a couple of big hyperscalers about those systems in the next few weeks.

So it's an exciting time. I'm really excited by that opportunity, John.

So it sounds like this is significant and it could move the needle some on revenues, let's say, in 6 months to a year is what I think I'm hearing.

I think you're looking at probably early 400-volt systems coming to market early '27 and then I think 800-volt later in '27. That's what we're hearing.

Got you.

This is very synergistic with what is going on in the automotive.

We have design-ins for active suspensions involving 800-volt to 48-volt high-density, lightweight bus converters that, once again, getting to the IP side of things fall within many claims of several enabling Vicor patterns with respect to these kinds of high-voltage bus converters, ranging from the control system, some of the [Technical Difficulty] components, packaging technology. There are many aspects to the IP portfolio that is relevant on this kind of high voltage, high input voltage bus components.

Yeah. It's actually really exciting. It looks like you have a very long runway of products and opportunities coming out the next several years.

So I'm looking forward to this. Thank you.

And this does conclude today's conference call. Thank you so much for participating.

You may all disconnect.

Thank you.

Thank you.