Q1 2024 Vicor Corp Earnings Call

Participants

Jim Schmidt; Corporate Vice President, Chief Financial Officer, Treasurer, Corporate Secretary; Vicor Corp

Phil Davies; Corporate Vice President, Global Sales and Marketing; Vicor Corp

Patrizio Vinciarelli; Chairman of the Board, President, Chief Executive Officer; Vicor Corp

Quinn Bolton; Analyst; Needham & Company Inc.

Richard Shannon; Analyst; Craig Hallum

Jon Tanwanteng; Analyst; CJS Securities

Don McKenna; Analyst; D B McKenna & Co., Inc.

Alan Hicks; Analyst; Ainsley Capital

John Dillon; Analyst; DMB Capital

Presentation

Operator

Good day, everyone, and thank you for standing by. Welcome to the Q1 2024 Vicor earnings conference call. (Operator Instructions)
Please be advised that today's conference is being recorded. I would now like to hand the conference to Jim Schmidt, Chief Financial Officer. Please go ahead.

Jim Schmidt

Thank you. Good afternoon, and welcome to Vicor Corporation's earnings call for the first quarter ended March 31, 2024. I'm Jim Schmidt, Chief Financial Officer. And I am in Andover with Phil Davies, Vice President, Global Sales and Marketing. Patrizio Vinciarelli, Chief Executive Officer, is joining the call from Washington DC, ahead of the upcoming Patent Infringement trial before the International Trade Commission.
After the market's closed today, we issued a press release summarizing our financial results for the three months ending 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 risk and uncertainty uncertainties we face are discussed in Item 1A of our 2023 Form 10-K, which we filed with the SEC on February 28, 2024. 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 23, 2024. Vicor undertake 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 change for P&L and balance sheet items as well as year-over-year changes and refer you to our press release for our upcoming Form 10-Q for additional information.
As stated in today's press release, Vicor recorded total revenue for the first quarter of $83.9 million, down 9.5% from the fourth quarter total of $92.7 million and down 14.3% from the first-quarter 2023 total of $97.8 million. Brick products revenue declined 11.7% sequentially, while advanced products revenue declined 7.3% from the fourth quarter. Shipments to stocking distributors increased 21.8%, sequentially.
Exports for the first quarter decreased sequentially as a percentage of total revenue to approximately 42.6% from the prior quarter's 56.5%. For Q1, advanced products share of total revenue increased to 51.6% compared to 50.4% for the fourth quarter, with brick products share correspondingly decreasing to 48.4% of total revenue.
Turning to Q1 gross margin, we recorded a consolidated gross profit margin of 53.8%, increasing approximately 2.7% from the prior quarter. A number of factors contributed to this sequential increase in gross margin percentage, including increased royalty income, improved sales mix, reductions in tariff spending and lower freight costs.
I'll now turn to Q1 operating expenses. Total operating expenses increased 10.1% from the fourth quarter, or $4 million, with the increase being primarily due to legal expenses incurred ahead of trial in our patent infringement case before the ITC. The amount of total equity-based compensation expense for Q1 (technical difficulty) SG&A and R&D was $754,000, $1,919,000, and $1,107,000, respectively, totaling approximately $3.8 million. For Q1, we recorded operating income of $1.1 million, representing an operating margin of 1.3%.
Turning to income taxes, we recorded a tax provision for Q1 of approximately $1.2 million, representing an effective tax rate for the quarter of 31.3%. Net income for Q1 totaled $2.6 million. GAAP diluted earnings per share was $0.06 based on a fully diluted share count of 45,031,000 shares.
Turning to our cash flow and balance sheet, cash and cash equivalents totaled $239.2 million at Q1. Accounts receivable net of reserves totaled $57.6 million at quarter end, with DSOs for trade receivables at 47 days. Inventories net of reserves increased 5.4% sequentially to $112.3 million. Annualized inventory turns decreased sequentially to 1.71. Operating cash flow totaled approximately $2.7 million for the quarter.
Capital expenditures for Q1 totaled $7.4 million. We ended the quarter with a construction and progress balance primarily for manufacturing equipment of approximately $13.6 million, with approximately $17.8 million remaining to be spent.
I'll now address bookings and backlog. Q1 book-to-bill came in below 1 and with one-year backlog decreasing 6.5% from the prior quarter, closing at $150.3 million. As stated in our earnings call in February, 2024 is a year of uncertainty and opportunity.
As of today, the quarterly and annual outcome in terms of top line and bottom line remain subject to a 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 yourself to one question and a related follow-up so that we can respond to as many of you as we can in the limited time available. If you have more than one topic to address, please get back in the queue. Phil?

Phil Davies

Thank you, Jim. My remarks this quarter will build on Patrizio's comments in the press release that we issued earlier today. As a reminder, Patrizio commented, as we confront challenges and pursue opportunities, 2024 will be seen as the year in which our product strategy, selective licensing of intellectual property, and clarity of purpose secured Vicor's future growth and profitability.
So let's look at this from the point of view of our four business units and the growth opportunities each of them has with our top 100 customers. The current base of our business lies with the industrial business unit and the aerospace and defense business unit.
This year, we will release to production over 20 new high-power density products that leverage our new chip fab capabilities. These products utilize advances in our topologies, control systems, components and packaging to raise the bar on power density and performance, from high-power regulated and fixed ratio, DC-DC converters to new AC-to-DC products aimed at the aerospace industry to a new family of radiation tolerant factorized power products for both LEO and MEO satellite constellation deployments.
Customers from our top 100 are now designing advanced power systems for exciting new product launches that leverage electrification and autonomy in their systems.
As part of our industrial and aerospace and defense strategies, we have also consolidated our distribution channel partners to large global distributors who have the customer base we reach and the market status needed to achieve our broad market growth goals. Our global channel partners Arrow and Avnet are now placing a higher focus on power conversion and power management as a strategic business and a major growth driver due to the electrification trends in broad industrial and transportation markets. They clearly recognize the advantages and differentiation that our high-density power modules bring to their customer base.
This quarter, we concluded a series of meetings with both channel partners jointly laying out clear strategies and targets for growth by focusing on specific vertical markets with a clear set of identified target customers globally that map to the numerous new products that we will launch in 2024.
Technology licensing will become an expanding segment of our business portfolio and an important parallel path to our product revenues across our four business units. Licensing will enable more rapid scaling of our automotive market opportunity as we expand our relationships with OEMs and automotive Tier 1 suppliers. The automotive market in particular is aggressively looking for new technologies for both 48-volt zonal architectures, onboard charging, and 800- to 48-volt powertrain conversion systems, which deliver high power density and low weight for electric vehicles.
OEM technology licensing partnerships are a way to monetize and rapidly scale this business. Our HPC customer engagements continue to expand with a set of customers, with target production dates now for new innovative and higher-performance AI processes that will take full advantage of our Generation 5 vertical power delivery chipset.
VPD is very strategic in achieving the power delivery, low power losses, and performance required. Electrical and thermal models representing the Gen 5 chips have now been delivered to leading customers, enabling their system simulations at processor currents up to 2,000 amps. We are on track to deliver evaluation systems and power module samples in Q2 and Q3, respectively.
Q2 will be very busy for our automotive business unit as we host that the current count six customers at our new facility in Andover, Massachusetts. New collaborations and design-ins continue with significant new engagements with OEMs and Tier 1s in the Asia Pacific region, where investments in electric vehicles and 48-volt zonal architectures are leading the rest of the world.
The team had a very successful WCX in Detroit once again this year, with four technology papers that showcased our power module-based power system value propositions for 800-volt and 48-volt powertrains. The new 48-volt zonal architecture will provide both product and OEM licensing revenue opportunities.
Thank you. And with that, we will now take your questions.

Question and Answer Session

Operator

(Operator Instructions) Quinn Bolton, Needham & Company.

Quinn Bolton

Hey, guys. Was wondering if you could start with, I think, the ITC case is going to be heard next week, but was hoping you could give us just sort of an update on the ITC schedule, what you expect to happen next week, and then your what would you expect to sort of follow over the summer until the expected decision date, which I believe is in early October? But anything you could provide us on what the next key milestones in the ITC case are would be helpful.

Jim Schmidt

So to your point, the proceedings remain on schedule. There's going to be a trial next week and a decision by the administrative law judge in September with the deadline of October. We look forward to an outcome that we expect to be favorable to Vicor. We are on the right side of the issues, and our opponents are on the wrong side of the issues. And that's clear -- or should be clear to everybody, but again, we're going to trial prepared, confident of a positive outcome.

Quinn Bolton

Great. And you had mentioned both in the press release and the prepared script that royalty revenue has continued to increase in the March quarter. Just wondering if you might be able to quantify that, how much of an uptick did you see in March? And then would you expect that royalty line to continue to grow through the remaining quarters of 2024?

Jim Schmidt

So generally, we've factored that all the contribution to our revenues and bottom line to continue to expand as far as we can see and maybe a step-up event that occur at certain points in time. But typically, we're taking a very long-term view with respect to the opportunity and approaching it with the right balance in terms of legacy issues as well Vicor's interest as well as the interest of OEMs that I like to take a license as opposed to potentially be confronted with lying down situations following exclusion out.

Quinn Bolton

I'll go back in the queue. Thank you.

Jim Schmidt

Thank you.

Operator

Richard Shannon, Craig Hallum.

Richard Shannon

Hi, guys. Thanks for taking my questions. I guess I've got a couple of interlocking questions on your 5G, second-gen PPD product here. I guess I wanted to get a sense of the milestones that we should expect to see over the next coming quarters for getting bookings and eventual revenues here.
I think in the past, you've talked about the models and tool delivery, which I think I heard some detail, but I missed some of that. I think last quarter you talked about some -- maybe some more equipment need to be delivered to support that. And then anything about manufacturing experience required for -- especially the larger customers to have confidence in the ramp here. If you can kind of detail that, what we should be looking for this year, that'd be great. Thanks.

Jim Schmidt

Sure. So let's start with some the revenue opportunity. I think as we made clear in prior calls, our 5G is not a 2024 revenue opportunity. It's revenue opportunity to start in 2025. It is a year of delivery of solutions to initial key customers. And we're far along particularly with one before too long with more. So I would look again at 2024 as bringing these development efforts to fruition, setting the stage with some leading customers before we get into production volumes next year.

Richard Shannon

Okay. Let me follow up and kind of looking at this 5G opportunity a different way and certainly understanding that, as you said last quarter, that this is not the year for 5G revenues at all here. But I guess, do you expect to be able to intersect with the first generation of 3-nanometer accelerators, GPUs, CPUs, whatever is out there to be ready by then? Or is that something you might be lagging the leading edge there?

Jim Schmidt

I would say that we have highest protections, both premise on our capability, the much higher current density, the other performance attributes of 5G VPD solution, which is what we call a second-generation VPD, distinct from the first-generation lag itself by the year-end balances and which be practiced by competitors with a good deal difficulty from the performance perspective, from the reliability perspective, and last but not least, from the intellectual property perspective.
So we believe that customers with visibility to all the issues and we're engaged with some of them. Understand that to get to reliable, scalable, and not challenged by intellectual property issues, Vicor is the source. And at this point in time, no other source for a VPD system that works well, that is scalable, and that is not devoid of intellectual property challenges.

Richard Shannon

Okay. Fair enough. Thank you.

Operator

Jon Tanwanteng, CJS Securities.

Jon Tanwanteng

Hi, good afternoon and thank you for taking my questions. I was wondering if you could give us an update on the potential for lateral vertical products shipping, if that might contribute to '24, '25 and if there's active programs in the pipeline for that.

Jim Schmidt

I'm sorry, I missed. The potential for which? If you could repeat.

Jon Tanwanteng

Lateral vertical products. So the in-between product.

Jim Schmidt

Yes. So I think as it turns out, the potential is limited. I will let Phil fill in with more color on this with a global view because the asset depends on which particular end market we're looking. Phil?

Phil Davies

Yeah. So we do have -- still have engagement with customers on lateral vertical designs. We've also seen that vertical be used with some reference designs for the network communications market for the you know, the Broadcom, Marvell type of processes from some of the contract manufacturers in Asia. So there could still be some revenues on lateral vertical towards the end of this year, early next year. So that's still a potential for us.

Jon Tanwanteng

Got it. Thank you. And then so you mentioned something about licensing and enabling more rapid scaling in automotive. Are you allowing your partners there to produce your designs? Or is it something more similar to the current status quo where you are allowing people to use your IP from different vendors? It's like it's happening in HPC markets.

Jim Schmidt

So we are open to the opportunity for selective licensing in, among others, the automotive market. And there's been some expression of interest with respect to that. It's predicated on the distinct attributes of our solutions, and I'm referring to solutions involving 400-volt, 200-volt bus conversion, as well as other solutions, including so-called zonal architecture, which is, once against, something that Vicor conceived of 10 years ago. And with respect to which, we have intellectual property.
So we have a number of opportunities in the automotive area in particular. There are some that are now beginning to develop also related to ACVC. I do expect that over time, some of these opportunities may turn into licensing deals.

Jon Tanwanteng

Okay, great. Thank you. And then finally, could you -- Jim, could you break out the legal expense in the quarter and what you expect over the next two or three as the ITC case ramps up?

Jim Schmidt

Like we said on the prepared remarks, legal expense was the primary driver of the $4 million incremental OpEx. I would stop short of trying to predict the future on that, Jon, and I might let Patrizio comment as well, because he's obviously been very close to all of it.

Patrizio Vinciarelli

Yeah. So to Jim's point, last quarter, there was a significant step-up primarily relating to preparations for the upcoming trial next week. We are not in a position to forecast the evolution of legal expenses. Frankly, they could keep stepping up, they could level off, or they come down depending on a variety of scenarios.
So I think, if you wanted to pick one among those three scenarios, keeping it pretty much level would be probably the middle of the road alternative. But it could step up again because of additional actions we might take.

Jon Tanwanteng

Understood. Thank you.

Operator

Don McKenna, D B McKenna and Company.

Don McKenna

Thank you. Patrizio, the comments on future of sales opportunities, again, are pretty positive. And with the exception of last quarter, the outlook has always been quite positive. And if you go back and read the transcripts, it's obvious that the potential markets that you envisioned and the superior products that you're offering just haven't produced the results you would hope for. And I'm wondering what you've learned from that failure to capture the potential and what changes you've made in your approach to improve the sales and profitability?

Patrizio Vinciarelli

So as suggested in my calls, we believe we are executing well with a clear vision of what our challenges and opportunities are. And frankly, I think it is a big part of the answer to your question that has to do with the vagaries of what has been going on with certain leading OEMs, where their priorities have taken them in terms of product development, and to keep it at the very high and general level.
I would say that from our visibility, our unique perspective with respect to the evolution of our system requirements, some of the choices have been made with certain OEMs are going to get those OEMs into a real bind, both in terms of the performance of their platforms, and more importantly, their competitive standing relative to other companies that are fighting to capture market share and they see the opportunity of leveraging this superior power system technology from Vicor.
So I guess I'm not apologetic with respect to how we got to where we are. We don't control our destiny in every respect, obviously. We make clear decisions with respect to strategy and how we're going to make the most of the opportunity both in terms of fab, our 5G technology, and importantly, our intellectual property.
And I would say that I'm quite satisfied with how we got to where we are. And I think we have tremendous opportunity. It takes perseverance, a clarity of vision, persistence. We have all those traits, and we expect to, before too long, capitalize on the opportunity.

Don McKenna

Yeah. And I realize it's very difficult for you to try to make any projections on the short term. Can you give us some kind of a feel for where you would expect revenues as a percentage increase over current, let's say, three years down the road? What would you be satisfied with?

Patrizio Vinciarelli

I don't know that. I can't honestly give you numbers or general expectations without substantial risk in either direction. I think I can say that we do expect to fill our fab. As we know, the fab has got $1 billion worth of capacity and maybe -- or more than that. We're going to be able to fill that fab with opportunities relating to 5G in AI, in the center-type applications, as well as automotive applications, and generally speaking to Phil's earlier point, our top 100 customers in diversified several markets.

Don McKenna

And would you expect to fill that fab in the next three years?

Patrizio Vinciarelli

I do expect that that will happen. I don't know if Phil wants to add some color to this.

Phil Davies

No, I would just say that that's the objective, is to achieve that and to do it with the broad-based market with our distribution channel on the broad-based level, but also the top 100 focus. And we're making great progress across the four BUs with the top 100. And the new products that we're introducing this year, not just the Gen 5, but new high-power front-end products are getting designed into these top 100 customers that we're now focused on. So I'm confident that we'll fill the fab. And I think that some exciting times are ahead of us.

Don McKenna

Right. Great. Thanks, guys.

Patrizio Vinciarelli

Thank you.

Operator

Alan Hicks, Ainsley Capital.

Alan Hicks

Yeah, good afternoon. I think I heard you say 48% on BBU and 50% on advanced products. Was that correct?

Patrizio Vinciarelli

I'm sorry, could you repeat that? It's a little bit handicapped here with my audio today.

Alan Hicks

On the percentage of revenues, advanced products, I think, you're a little over 50% and BBU was a little over 48%. Was that correct?

Jim Schmidt

That's correct. For the first quarter, yeah, the mix between advanced products and brick products change.

Alan Hicks

Okay. So could we assume that royalties were that other 2%?

Patrizio Vinciarelli

I'm sorry, the royalty is what?

Alan Hicks

The differential added up to 98% roughly. So could the differential will be roughly 2%?

Patrizio Vinciarelli

I wouldn't make that assumption? I don't know that I can give you a quantitative measure here. I know as part of our reporting, and maybe Jim can comment on that, he can point to you where you can find additional information.

Jim Schmidt

Yes. Alan, the better way to think about it is we said 51.6% advanced, 48.4% brick, which is 100%. And the (technical difficulty) income is associated with advanced products.

Alan Hicks

Okay. So last quarter, it was $7 million, I believe. Did it grow significantly from last quarter?

Patrizio Vinciarelli

It grew.

Jim Schmidt

It did grow. It stepped up substantially from last quarter.

Alan Hicks

Okay. And is the factory -- are the gross margins also improving on the factory?

Jim Schmidt

Sorry, go ahead, Patrizio.

Patrizio Vinciarelli

Okay. Well, we use to say capacity utilization in the factory was an issue as the last quarter, still going to be an issue this quarter. And the fact that the revenues, particularly trial revenues, took a step down last quarter, that didn't help with respect to margins. But all the factors that Jim pointed to in his preparing remarks, including beyond licensing income, reduction in tariffs, changing mix, federal mix, these contributed to a significant improvement in total gross margins.
And that's the trend line that we are satisfied with. I think we have said it in the past that we have a goal to achieve substantially higher margins. And that goal is supported by the strategies that we're implementing and executing with the mix of further advances, with respect to our product capabilities, as well as the complementary element of, in effect, monetizing some of the value or IP through selective licensing.

Alan Hicks

So I think those gross margins were easily the best you've ever had. I think it was 53.6%.

Patrizio Vinciarelli

I think gross margins for the quarter -- Jim, are correct me if I'm wrong, but 53%, unchanged, right?

Jim Schmidt

Yeah, so I can comment on that, Alan, actually. So 53.8% was the result last quarter, and that was the highest for sure since I've been at Vicor.

Alan Hicks

I've got going back over 20 years, so that's the highest I've ever seen. Do you expect that to continue to grow the rest of the year based on royalty increases?

Patrizio Vinciarelli

Again, we're not going to be making the third-quarterly prediction in a year in which so much could happen. So I think we're just going to have to the ones upon us that I invested in Vicor for the long term are going to look at this. I think one of the analysts asked a question in the last call about 2024 being, quote-unquote, the transition year. I think at the time, I didn't embrace that characterization. I think in hindsight, it's probably the better way of looking at it. This is a year transition in which, in effect, a lot of things are going to change that we'll expect for the better.

Alan Hicks

Okay. I was at the Nvidia Conference, I think it was February or last month. And I stopped by the Delta booths and they should have asked about the NBM product. And they showed it to me and said, we're not infringing because we have a different process. I don't know. That's all they said and they kind of shut up. But can you comment on that?

Patrizio Vinciarelli

Yeah, the letter B and S come to mind. The fact is that their copycat product infringes three of our patents. And thus far, the proceedings corroborated that expectation. So let's wait and see what happens with what I expect to be an exclusion order against it.

Alan Hicks

Okay. And just a quick question on that, there was a product, I think, that was showed at the WCX that had DC-DC converter, 150,000 watts, I think. Is that for charging stations?

Patrizio Vinciarelli

Phil, could you answer that?

Phil Davies

Yeah, that was the PSU, Patrizio, the demo, the five paralleled MBMs in the PSU, the 150-kilowatt onboard 800- to 400-volt charger. That was on demo. Well, we added in the case, not covered up, at WCX.

Alan Hicks

Great. Is there application for charging stations?

Phil Davies

No, that's an on --

Patrizio Vinciarelli

That's an application for fast charging. And it's an application where we have a major weight advantage as well as a major efficiency advantage. So that system comprising, at the moment, five of our modules, and in fact, we'll be able to get to the 150-kilowatt capability with a reduced number of four, that system starts peak efficiency of over 99%. And it has a thermic of power density, meaning its volume measured in liters, and weight measuring kilograms is a small fraction of any competitive unit.

Alan Hicks

So that would go both in the car and the charging station?

Patrizio Vinciarelli

No, this is a device that certain automakers are going to incorporate within the vehicle to facilitate flexible charging.

Alan Hicks

Okay. How far away are you from design wins there?

Patrizio Vinciarelli

We have design wins with two smaller automakers.

Alan Hicks

Okay. And one last question. You say you're going to fill the factory to $1 billion in three years or whatever. So that's in addition to whatever OEMs are also manufacturing or licensing your products?

Patrizio Vinciarelli

Phil, I'm having a hard time here with my audio. Could you respond to that?

Phil Davies

Yeah, sure. Yes. So our goal is product revenues out of the factory. As Patrizio said, just over $1 billion dollars out of that new fab and OEM licensing activities adding to that, yes.

Alan Hicks

Okay. Thank you very much.

Patrizio Vinciarelli

Thank you.

Operator

[John Dillon, DMB Capital].

John Dillon

Hi, guys. Thanks a lot for taking my questions. I appreciate it.
Phil, now that your factory is finished and we're seeing processors at 1,000 watts and higher coming to the market, and also in your prepared remarks, I think I heard you say target production dates for HPC, when will we start seeing evidence of GPUs from major manufacturing factor using the Vicor POL solutions?

Phil Davies

So I think Patrizio talked about that, John. I think that as I mentioned in the prepared remarks, we're delivering electrical, mechanical, thermal models to leading customers right now. Then we'll follow that up at the end of Q2 with a demo system that they'll be able to check out hardware and test the models against the demo system.
And then we'll be sampling towards the end of Q3, and we expect production probably towards the second half of 2025. That's when we'll have vertical power delivery in production.

John Dillon

Is that what you were referring to when you're talking about --?

Jim Schmidt

(multiple speakers) there's one notable customer build that may well be in production come the very beginning of next year. And for that customer, the hardware is due to be delivered in the summer months.

John Dillon

Excellent. And Phil, is that the target production dates that you were talking about or is that something different?

Phil Davies

No, that's the target production dates, yeah.

John Dillon

Got you. And are there current Gen 4 designs in production or about to go in production that will act as a bridge for the Gen 5?

Phil Davies

Yeah, we have some Gen 4 design wins, but again, as Patrizio pointed out, there've been some market shifts with people changing strategies with supply chain considerations ahead of performance and technology. But vertical power delivery comes along. We have with the Gen 5 technology an incredible solution with the current density that we can get to 3x over what the competition will be have.
So I think there will be some really hard reassessments being made as we move forward here with the number of accounts, but we'll see that see that happen. But we have some very good interest from the accounts that are building really big investments into AI and developing their own processor chips. And they are the people that you would expect. And we have great engagements with them right now.
So I'm confident Gen 5 is going to be all that it can be, and we're going to be having a very exciting 2025.

John Dillon

And you're pretty confident then that the productization schedule will stay on schedule.

Phil Davies

I am personally confident. Patrizio, you want to comment on that? But I certainly am.

Patrizio Vinciarelli

I'm also confident. I think we're leveraging, for the most part, processes and equipment that we have installed and have fully vetted. There are a few process steps that are going to be used in order to scale up capacity, not to deliver initial units that are still under some level of refinement. But generally speaking, the capability is in place. And we have a fab with the capacity to build very, very large quantities of panels and system solutions for customers.

John Dillon

So you guys have working alpha or beta on product right now?

Patrizio Vinciarelli

So we have a lead customer that we're going to be delivering functional systems. We started some initial partial delivery, but we're going to be delivering complete systems in late June, July timeframe. So the lead application to be followed by others as we get into the other parts of the year.

John Dillon

Excellent. I'll get back in the queue. Thank you very much.

Patrizio Vinciarelli

Thank you.

Operator

Quinn Bolton, Needham & Company.

Quinn Bolton

Hey, Jim, just a question on the royalty, how it works. The royalty revenue you recognized in the first quarter, is that for shipments of your licensee that took place a quarter in a rear so effectively shipments in the fourth calendar quarter of last year, or is it for shipments that took place in 1Q of '24?

Jim Schmidt

It's real time. It's based on shipments that basically they take receipt of. But it's not in arrears, it's in the quarter.

Quinn Bolton

Okay, perfect. And then just sort of following up on John's question around the Gen 5 deliveries, the lead customer for Gen 5, I assume that that's a data center or sort of AI or HPC application, but just wondering if you could give us in broad strokes what sort of the application is for that first Gen 5 customer.

Jim Schmidt

It's within the confines you just defined. But at this point in time, we really don't want to be specific. We want to give this customer the full advantage of being first and having an elemental surprise, but it's within the general field that you identified.

Quinn Bolton

Got it, got it. Okay. Thank you.

Operator

Richard Shannon, Craig Hallum.

Richard Shannon

Hi, guys. Thanks for taking my follow-on question here. I guess, Phil, following on your prepared remarks here, which probably has as much focus outside of HPC as we've heard in some time here, and you kind of alluded to this at your shareholders meeting last year as well, but in that context, give us some sort of understanding of the split of your advanced product revenues between HPC and other applications. And then also, if you might just give us a flavor of how much of that advanced product segment is also point of load versus bridging and other kinds of functionality.

Patrizio Vinciarelli

Phil?

Phil Davies

So today -- so can you hear me?

Patrizio Vinciarelli

Yeah.

Phil Davies

Yeah. So today, the advanced product revenue last quarter was 51.6%, some 52% of the total company. And the bulk of that was (technical difficulty) and a number of it was into HPC. There's quite a bit of it now going into the industrial space. And I think that in the early days in automotive, everyone knows (technical difficulty)
The aerospace and defense, that's growing quite (technical difficulty) new electronic (technical difficulty) in defense and aerospace applications, like the space satellite station that we've been talking about, we're getting more design wins there. So it's really spread amongst those three business units, excluding automotive, Richard.

Richard Shannon

Okay. Yeah, that's helpful.

Patrizio Vinciarelli

I would add to that the strategy that Phil outlined with better diversification among different end markets with different traits and different sets of opportunities, that's fully supported by a product strategy that leverages commonality of power conversion engines, the control systems, packaging technology. So we are able to, in effect, address market needs in end markets that may appear to be somewhat distant, like test equipment on the one hand, and high-cuts point-of-load, the VPD car applications.
With modules, in particular 5G-type modules, they're essentially the same. And that sets us apart in other way relative to the competition so to speak.

Richard Shannon

Okay. Thanks for all that detail. And quick follow-on question for Patrizio. You talked about consistently from the time that we've covered you and frankly a lot longer about having a distinct advantage in terms of power delivery at very high currents. You talked about delivering samples or whatever to customers up to 2,000 amps.
What if you characterize the competitive dynamics here in the future with 5G in the terms of -- above what -- do you think you're going to be the only credible solution out there? Is that at 1,000 amps or below that or above that? Just any characterization so we can think about this as we se the next generation of accelerators come to market.

Patrizio Vinciarelli

So we've enabled systems that are already up to a few tens of thousands of amperes on a wafer. I would say that's the most advanced solution in terms of power system capability and from what I can tell, compute capability in the market. So that's obviously cutting edge and far above the more common denominator-type applications, which as Phil suggested earlier, are trending up at 2,000-amp level. So we're involved in one important development with a major OEM at the 2,000-amp level.
At that level, fundamentally, you need VPD. And you need an Adept form of VPD, such as what we call second-gen VPD. Yes, you could try to do it with the third-gen VPD that has been copied to a high degree by competitors. But what you'd be stuck with is a system, a power system, that involves modules that are very heavy, very thick, thermally inept, difficult to cool, with very poor yields in assembly and reliability issues, not to mention the IP issues that I alluded to earlier.
So we see the market, in AI in particular, quickly getting past the 1,000-amp level and fundamentally left with VPD only solutions. Lateral is out, even lateral vertical, while achieving significant benefits relative to lateral, not as good as vertical. And fundamentally, what's going to be needed is a more advanced version of VPD that doesn't bring about the stacking challenges that characterize first-generation VPD as Vicor pioneer than parentage.

Richard Shannon

Okay, great. Thank you, guys.

Operator

Jon Tanwanteng, CJS Securities.

Jon Tanwanteng

Hi, thanks for taking one more from me. I was wondering if you could update us just on the uptake of automotive and when you expect to start shipping in volume those products. I think you've said for a number of years now that you expected '25 to be the year that automotive really starts shipping and making a difference. I'm wondering if that remains on track and if that's going to be a good source of growth even before your VPD products start shipping in the second half of '25.

Phil Davies

Hi, Jon, this is Phil. So now, the timing for automotive is really '26, '27 from reasonable revenue ramps beginning. There may be opportunities in Asia Pacific, conversations that we've had in the last six months that could pull that in, but those are yet to develop. So it's too early to talk about those yet, but this is really a '26, '27 story for automotive.
Although we will begin, as I mentioned, I think last quarter, or even in my remarks, the quarter before, early production at the end of this year for high performance applications. So I think that that's sort of the timeframe that we're on with automotive.

Jon Tanwanteng

Okay, got it. If you were to characterize, what could be a bridge market between then and now? Which one would be the most likely to drive some sort of upside with the HPC or automotive or some of these other applications you're talking about?

Phil Davies

Yeah, HPC is definitely number one. And I think that we are, again, as I mentioned, seeing very good design-ins and wins in industrial, defense and aerospace. So there's going to be some really good growth at good margins coming from those markets, but HPC and Gen 5 could just completely dominate that.

Jon Tanwanteng

Got it. Thank you, guys.

Operator

Thank you. I'm not showing any further questions in the queue.

Patrizio Vinciarelli

Thank you.

Jim Schmidt

Okay. Thank you, operator, and thank you, everyone, for joining.

Operator

And with that, everybody, we appreciate your participation, and you may now disconnect.

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