Saturday, April 27, 2019

A Current AIM Small Cap Equity Holding: Vicor Corporation (VICR, $31.08): “Data Center Disruption” By: Sean Halverson, AIM Student at Marquette University


 Vicor Corporation (VICR, $31.08): “Data Center Disruption”
By: Sean Halverson, AIM Student at Marquette University



Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.

 Summary

Vicor Corporaton. (NYSE:VICR) is a designer of components and power systems that are built to convert, regulate, and control electric currents.  

• The company has developed a 12V to 48V converter that is being used in data centers and supercomputers to enhance their operational capabilities.

• Struggles with the impact of tariffs on imports by China created headwind for the company on the backend of 2018.

• The company experienced weaker demand because of the “softening” in data center spending in China.

Key points:

Even with the unexpected issues at the end of 2018, Vicor’s backlog grew by 41% and management believes that bookings are going to increase in Q2 and Q3 of 2019. They are strong believers that their converters and Power-on-Package solutions are going to bring the company a lot of success in creating a faster, more efficient data center. 

As discussed within the Q4 earnings call, the company has enabled their 48V technology to save 60 to 70 watts of power per processor. This is an extreme amount of savings in power and is bringing an increase in the speed within the data center. The CEO, Patricio Vinciarelli, commented that the automotive market is demanding the change to 48V. This can create a battery within vehicles that will increase fuel efficiency by 10% or more.

VICR is moving quickly towards what they are calling, “4G control”. In 2019, the company is going to have a more developed point-of-load solution that is incorporating an RFM front-end. This essentially means that this newer 4G model will become more cost effective with higher performance attributes. With these advancements, the company recognizes the potential of reaching an additional $10 million in revenue over the course of the next year.

Vicor’s management is still very firm in their belief that they are holding a technology that nobody can compete with. Their ability to convert from 12V to 48V will eliminate the need for excess wiring and space within the data center. Currently, NVIDIA is utilizing Vicor’s technology in their newest supercomputer, the DGX-2. There is strong evidence of the company becoming a serious disruptor in the computing environment. 

What has the stock done lately?

After the Q4 release in February of 2019, the stock had dropped 10.8% due to the headwinds with China. However, a majority of the issues was within the rescheduling of orders. These are expected to be fulfilled in 2019 and should hopefully reassure shareholders of a more positive outlook. 

Past Year Performance:

At January 5th of 2018, the stock was at a share price of $19.90. The price at the end of the year was at $37.52, an 88.5% increase. Total revenue was up 25.4% on a year over year basis and their “Advanced Product” revenue was up 36.8% between 2017 and 2018. 




Source: FactSet

My Takeaway:

There is no question that Vicor has been developing an innovative technology that will be extremely hard to compete with. They currently recognize that they have no competition when it comes to their 12V to 48V converters. Additionally, with a rapidly growing backlog and a 50% increase in capacity to their largest facility, Vicor is going to be positioned to be very successful in the coming years. It will take a good portion of Q1 and Q2 of 2019 to smooth out the issues with China, but this obstacle will be obsolete once the company is at its strongest. VICR is the true definition of a disruptor and it will be interesting to see the results of the first quarter in 2019.



Source: FactSet