VICOR CORPORATION
Managements Discussion and Analysis of
Financial Condition and Results of Operation
March 31, 2019
Based on design, performance, and form factor considerations, as well as the range of
evolving applications for which our products are appropriate, we categorize our product portfolios as either Advanced Products or Brick Products. The Advanced Products category consists of our more recently introduced
products, which are largely used to implement our proprietary Factorized Power Architecture
TM
(FPA), an innovative power distribution architecture enabling flexible, rapid power system
design using individual components optimized to perform a specific conversion stage (i.e., function). The Brick Products category largely consists of our broad and well-established families of integrated power converters, incorporating multiple
conversion stages, used in conventional distributed power systems architectures.
Given the growth profiles of the markets we serve with
Advanced Products and Brick Products, our strategy involves a transition in organizational focus, emphasizing investment in Advanced Products, targeting high growth market segments with a
low-mix,
high-volume
operational model, while maintaining a profitable business in mature market segments we serve with Brick Products with a
high-mix,
low-volume
operational model.
For financial reporting purposes, we organize and report our operating segments according to our key product lines. Although our Picor
Corporation subsidiary was merged with and into the Company in 2018, we continue to report our operating segments as the Brick Business Unit (BBU) operating segment, the VI Chip operating segment, and the Picor operating segment,
reflecting our historical organizational segmentation and managements operational oversight.
The BBU segment designs, develops,
manufactures, and markets our Brick Product lines of
DC-DC
converters and configurable products, as well as complementary components providing AC line rectification, input filtering, power factor correction,
and transient protection. The BBU segment, as reported, also includes third-party and intra-segment activities of our Vicor Custom Power and Vicor Japan Company, Ltd. (VJCL) subsidiaries. The VI Chip segment consists of our subsidiary,
VI Chip Corporation, which designs, develops, manufactures, and markets a range of innovative products incorporating our latest advances in switching topologies, materials, and packaging, largely used to implement power system designs. The VI Chip
segment, as reported, also includes third-party and intra-segment activities, including those of VJCL. The Picor segment consists of the operations of our former subsidiary, Picor Corporation, which was legally merged with and into the Company in
May 2018. While Picor Corporations subsidiary status and corporate form ceased to exist upon the closing of the merger, Picor operations remain categorized as an operating segment for financial reporting purposes. The Picor segment designs,
develops, and markets integrated circuits for use in a variety of power management and power system applications. The Picor segment is a fabless manufacturer, as its products are manufactured, assembled, packaged, and tested by third
parties in Asia and the United States. The Picor segment develops integrated circuits for use in products across the Company, to be sold as complements to those products, or for sale to third parties for separate (i.e., stand-alone) applications,
and are often integrated with VI Chip segment products to enable FPA implementation, particularly in the datacenter and supercomputer segments of the computing market. As such, the Picor segment, as reported, includes inter-segment activities.
Revenue from the sale of Advanced Products represents the sum of third-party sales of our Picor and VI Chip operating segments. Revenue from
the sale of Brick Products represents the sum of third-party revenue of the Brick Business Unit operating segment, inclusive of such sales of our Vicor Custom Power and VJCL subsidiaries. When reporting such revenue on a consolidated basis,
intra-segment and inter-segment revenues are eliminated.
The applications in which our Advanced Products and Brick Products are used are
typically in the higher-performance, higher-power segments of the market segments we serve. With our Advanced Product lines, we generally serve large Original Equipment Manufacturers (OEMs), Original Design Manufacturers
(ODMs), and their contract manufacturers, with sales currently concentrated within the server, server rack, and datacenter infrastructure segments of the computing market, although we also target customers and applications in aerospace
and aviation, defense electronics, industrial automation, instrumentation, test equipment, solid state lighting, telecommunications and networking infrastructure, and vehicles (notably in the autonomous driving applications, electric vehicles, and
hybrid electric vehicle niches of the vehicle segment). With our Brick Product lines, we generally serve a fragmented base of large and small customers, concentrated in aerospace and defense electronics, industrial automation, industrial equipment,
instrumentation and test equipment, and transportation. With our strategic emphasis on larger, high-volume customers, we expect to experience over time a greater concentration of sales among relatively fewer customers.
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