Vicor (VICR) has had a wild quarter, with two different guidance increases since last quarter as they sign new licensing deals and continue to grow production…
And the upshot is that although the royalty revenue skyrocketed in the quarter, hitting $66 million because of the latest new licensing deal, we also have a new “baseline” guidance number: They expect, without any new deals being signed, that their royalty revenue will be at least $43 million/quarter going forward. They have law firm partners who collect a chunk of that, so it effectively comes in at an 80% profit margin, which means they should have a “run rate” of at least $150 million/yr in pure royalty profit if they don’t sign more licensing deals — and they very much expect many more licensing deals to come, though they also caution that those future deals will also be “lumpy” and not predictable quarter to quarter.
So if it were just a royalty business, that’s net income of about $150 million, which means that the company is valued at about 60X their royalty net profit run rate (pretax). And they describe it as a business that is partially non-recurring, since some of the royalty deals are for a one-time payment covering a set time period (one of their deals covered the next two years, for example), but they are starting to think of the royalty business as a whole as being largely “recurring” now, even if every deal isn’t itself long-term or recurring.
And that’s still a relatively small part of their business, as they run their fab at near capacity and plan to expand — with the expanded capacity now getting much more “real” as they closed on their two real estate acquisitions. They are planning to have “Fab 2” in some early stage of operation within the first quarter or so of next year.
An investment in Vicor here is really a speculation on a wave of IP legal success continuing. But the potential is strong enough, and the pretty consistent legal victories over the past couple years clear enough, to give us some confidence in the rising nature of the royalty business, which is the part of this that really inspires some interest. Capacity will take a few years to really ramp up dramatically, since they have to essentially build new fabs, but royalty license revenue, coming in at an 80% gross margin (with the other 20% going to the law firms), can ramp up dramatically, without any need for capital or construction or manufacturing efficiencies.
The semiconductor companies and tech leaders are not the comfortable stocks to buy after days like last week, when they all got clobbered and the market was being led by defensive stocks, but they are still, in many cases, likely to be enduring high-growth companies… assuming, of course, that there’s enough financing for this ongoing rollout of AI infrastructure.
I entered Vicor recently and taken a small position…
