UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

For the fiscal year ended December 31, 20162018

For the transition period from                 to             

Commission file number0-18277

VICOR CORPORATION

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code:

(978) 470-2900

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ☐    No  ☑

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ☐    No  ☑

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☑    No  ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of RegulationS-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ☑    No  ☐

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 ofRegulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of thisForm 10-K or any amendment to thisForm 10-K.  ☑

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”filer,” “smaller reporting company,” and “smaller reporting“emerging growth company” inRule 12b-2 of the Exchange Act. (Check one):

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant is a shell company (as defined inRule 12b-2 of the Exchange Act).    Yes  ☐    No  ☑

The aggregate market value of the voting andnon-voting common equity of the registrant held bynon-affiliates (for this purpose, persons and entities other than executive officers and directors) of the registrant, as of the registrant’s most recently completed second fiscal quarter (June 30, 2016)2018) was approximately $163,529,000.$750,683,000.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Company’s definitive proxy statement (the “Definitive Proxy Statement”) to be filed with the Securities and Exchange Commission pursuant to Regulation 14A and relating to the Company’s 20172019 annual meeting of stockholders are incorporated by reference into Part III.

PART I

In this Annual Report onForm 10-K, unless the context indicates otherwise, references to “Vicor^®,” “the Company,” “our company,” “we,” “us,” “our,” and similar references, refer to Vicor Corporation and subsidiaries.its subsidiaries, unless otherwise specified.

ThisThe Company’s consolidated operating results are affected by a wide variety of factors that could materially and adversely affect revenues and profitability, including the risk factors described in Item 1A of this Annual Report on FormForm 10-K10-K. containsAs a result of these and other factors, the Company may experience material fluctuations in future operating results on a quarterly or annual basis, which could materially and adversely affect its business, consolidated financial condition, operating results, and the share price of its listed common stock. This document and other documents filed by the Company with the Securities and Exchange Commission (“SEC”) include forward-looking statements withinregarding future events and the meaningCompany’s future results that are subject to the safe harbor afforded under the Private Securities Litigation Reform Act of Section 27A of1995 and other safe harbors afforded under the Securities Act of 1933 as amended, and Section 21E of the Securities Exchange Act of 1934,1934. All statements other than statements of historical fact are statements that could be deemed forward-looking statements. Forward-looking statements are based on our current beliefs, expectations, estimates, forecasts, and projections for the future performance of the Company. Forward-looking statements are identified by the use of the words denoting uncertain, future events, such as amended (the “Exchange Act”). The words “believes,“anticipate,” “expects,“assume,” “anticipates,“believe,” “continue,” “could,” “estimate,” “expect,” “future,” “if,” “intend,” “estimate,“may,” “plans,“plan,” “assumes,“potential,” “may,“project,” “prospective,” “seek,” “should,” “target,” “will,” or “would,” “should,” “continue,” “prospective,” “project,”as well as similar words and phrases, including the negatives of these terms, or other similar expressions identify forward-looking statements.variations thereof. Forward-looking statements also include statements regarding: our ongoing development of power conversion architectures, switching topologies, materials, packaging, and products; the ongoing transition of our business strategically, organizationally, and organizationallyoperationally from serving a large number of relatively low volume customers across diversified markets and geographies to serving a small number of relatively large volume customers, typically concentrated in computing and communications;customers; our intent to enter new market segments; the levellevels of customer orders overall and, in particular, from large customers and the delivery lead times associated therewith; the financial and operational impact of customer changes to shipping schedules; the derivation of a portion of our sales in each quarter from orders booked in the same quarter; our ongoing developmentintent to expand the percentage of power conversion architectures, switching topologies, packaging technologies, and products;revenue associated with licensing our intellectual property to third parties; our plans to invest in expanded manufacturing capacity and the timing, location, and locationfunding thereof; our continued success depending in part on our ability to attract and retain qualified personnel; our belief cash generated from operations and the total of our cash and cash equivalents will be sufficient to fund operations for the foreseeable future; our belief that we have limited exposure to currency risks; our intentions regarding the declaration and payment of cash dividends; our intentions regarding protecting our rights under our patents; and our expectation that no current litigation or claims will have a material adverse impact on our financial position or results of operations. These forward-looking statements are based upon our current expectations and estimates as to theassociated with prospective events and circumstances that may or may not be within our control and as to which there can be no assurance. Actual results could differ materially from those implied by forward-looking statements as a result of various factors, including our ability to: develop and market new products and technologies cost effectively and on a timely basis; leverage our new technologies in standard products to promote market acceptance of our approach to power system architecture; leverage design wins into increased product sales; continue to meet requirements of key customers and prospects; enter into licensing agreements increasing our market opportunity and accelerating market penetration; realize significant royalties under such licensing agreements; achieve sustainable bookings rates for our products across served markets and geographies; improve manufacturing and operating efficiencies; successfully enforce our intellectual property rights; successfully defend outstanding litigation; hire and retain key personnel; and maintain an effective system of internal controls over financial reporting. These and other factors that may influence actual results are described in this Annual Report onForm 10-K, including but not limited to those described under Part I, Item I1 — “Business,” under Part I, Item 1A — “Risk Factors,” under Part I, Item 3 — “Legal Proceedings,” and under Part II, Item 7 — “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.Operations.” The discussion of our business contained herein, including the identification and assessment of factors that may influence actual results, may not be exhaustive. Therefore, the information presented should be read together with other documents we file with the U.S. Securities and Exchange Commission (“SEC”)SEC from time to time, including our Quarterly Reports onFormsForm 10-Q and our Current Reports on Form8-K, which may supplement, modify, supersede, or update the factors discussed in this Annual Report on Form10-K. We do not undertake any obligation to update any forward-looking statements as a result of future events or developments, except as required by law.

Overview

Vicor Corporation designs, develops, manufactures, and markets modular power components and power systems for converting regulating,electrical power (expressed as “watts,” and controlling electric current. We consider power components analogous to building blocks, and our strategy is based largely on products, performing distinct functions, that can be flexibly combined to enable a complete power system. We serve customers with applications for which the high

conversion efficiency (i.e., the ratio of output power in watts to the power consumedrepresented by the device)symbol “W”). In

electrically-powered devices utilizing alternating current (“AC”) voltage from a primary AC source (for example, a wall outlet), a power system converts AC voltage into the stable direct current (“DC”) voltage necessary to power subsystems and/or individual applications and high power density (i.e., the amount of power in watts divideddevices (known as “loads”). In many electronic devices, this DC voltage may be further converted to one or more voltages (expressed as “volts,” and represented by the volume ofsymbol “V”) and currents (expressed as “amperes,” and represented by the device) of our products are well suited. We also offersymbol “I”) required by a range of higher value-added standard products (our “Configurable” product line)loads. In equipment utilizing DC voltage from a primary DC source (for example, a battery) or a secondary source (such as anAC-DC converter), the initial DC voltage similarly may require further conversion. Because numerous applications requiring different DC voltages, currents, and customvaried power ratings may exist within an electronically-powered device, and system design and manufacturing capabilities. Both our Configurablepower architectures themselves vary, we offer an extensive range of products and custom systems leverageaccessories in numerous application-specific configurations. We believe our product offering is among the superior performance of our modular power components.

Inmost comprehensive in the market segments we serve, we position the Company as a vendor of power components that can be utilized individually, given their market-leading performance, or combined, given their level of integration, to create highly-differentiated power management solutions. We articulate this positioning through our “Power Component Design Methodology”, which is our approach to providing our customers the modular products, design tools, and support to enable the rapid design of comprehensive power conversion and management systems.serve.

Our website, www.vicorpower.com, sets forth detailed information describing our Power Component Design Methodology, all of our products, the applications for which they may be used, and our suite of design tools. The information contained on our website is not a part of, nor incorporated by reference into, this Annual Report onForm 10-K and shall not be deemed “filed” under the Exchange Act.

We are headquartered in Andover, Massachusetts, where our manufacturing facility is located. We conduct business primarily through the activities of our Brick Business Unit (“BBU”), established in 2005, and our two operatingOur subsidiaries, Picor Corporation, established in 2001, and VI Chip Corporation, established in 2007. PicorVICR Securities Corporation, relocated its headquarters from North Smithfield, Rhode Island, to Lincoln, Rhode Island in January 2017. Picor Corporationand VLT, Inc., also has personnel basedare located in Andover, Massachusetts. VI Chip Corporation is headquarteredOur domestic offices are located in Andover, Massachusetts, where its manufacturing facilities areco-located with those of the BBU.

Santa Clara, California, Lombard, Illinois, and Lincoln, Rhode Island. Our two Vicor Custom Power^TM™locationssubsidiaries, Freedom Power Systems, Inc. and Northwest Power, Inc., are geographically distributed acrosslocated in Cedar Park, Texas, and Milwaukie, Oregon, respectively.

We have established individual subsidiaries or branch offices outside of the United States, and all are incorporated in Delaware. In March 2016, we acquired 100% ownership of certain operating assets and cash of our consolidated subsidiary, Converpower Corporation, in which we held a 49% ownership interest. In December 2015, we completedcall Technical Support Centers (“TSCs”), to conduct preparatory and auxiliary services in support of the statutory merger of one Vicor Custom Power subsidiary, Mission Power Solutions, Inc., with and into another subsidiary, Northwest Power, Inc., after which we closed the Mission Power Solutions location. Also in December 2015, we sold our 49% ownership interest in Aegis Power Systems, Inc. to Aegis Power Systems, thereby ending our formal relationship with the subsidiary. The consolidated financial statements presented herein reflect these transactions.

Internationally, we conduct business through subsidiaries incorporated in or branch offices established in individual countries.Company. Vicor Japan Company, Ltd. (“VJCL”), our majority-owned92.5%-owned Japanese subsidiary, which is engaged in sales and customer support activities exclusively for the sale of certain products customized by VJCL for the Japanese market, is headquartered in Tokyo, Japan. Vicor B.V., a wholly-owned subsidiary incorporated in the Netherlands, serves asprovides logistical and administrative support for a limited volume of orders placed directly with the Company by customers in the European Union.

In 2018, our European distribution center.subsidiary, Picor Corporation, was merged with and into the Company, and its operations and personnel were reassigned. We have established individual subsidiaries or branch officescontinue to conductoccupy the activities of Technical Support Centers (“TSCs”)former subsidiary’s facility in Lincoln, Rhode Island. Also in 2018, we closed Granite Power Technologies, Inc., a Vicor Custom Power subsidiary located outside of the United States.

VLT, Inc., incorporated in California, is our wholly-owned licensing subsidiary. VICR Securities Corporation, incorporated in Massachusetts, is a subsidiary established to holdManchester, New Hampshire, transferring its operations and reassigning certain investment securities.personnel.

Our subsidiaries and their legal domicile are set forth in Exhibit 21.1 to this Annual Report on Form10-K. The activities of all of the above named entities are consolidated in the financial statements presented herein.

We wereAlthough Picor Corporation has been merged with and into the Company, we continue to report our operating segments as the Brick Business Unit, VI Chip, and Picor, reflecting our historical organizational segmentation and management’s operational oversight. See Note 17— Segment Information to the Consolidated Financial Statements presented herein for certain financial information associated with the operations and manufacturing activities of our reported operating segments.

The Company was incorporated in Delaware in 1981. Shares of our Common Stock were listed on the NASDAQ National Market System in April 1990 under the ticker symbol VICR, and we completed an initial public offering of our shares in May 1991.

Market Background and Our Strategy

In electrically-powered devices utilizing alternating current (“AC”) voltage from a primary AC source (for example, a wall outlet), a power system converts AC voltage into the stable direct current (“DC”) voltage necessary to power subsystems and/or individual applications and devices (known as “loads”). In many electronic devices, this DC voltage may be further converted to one or more higher or lower voltages required by a range of loads. In equipment utilizing DC voltage from a primary DC source (for example, a battery), the initial DC voltage similarly may require further conversion to one or more voltages. Because numerous applications requiring different DC voltages and varied power ratings may exist within an electronic device, and system power architectures themselves vary, we offer an extensive range of products and accessories in numerous application-specific configurations. We believe our product offering is among the most comprehensive in the market segments we serve.

Since the Company was founded, our product strategycompetitive position has been drivenmaintained by innovations in product design and achievements in product performance, largely enabled by our focus on the research and development

of differentiatedadvanced technologies and processes, often implemented in proprietary semiconductor circuitry.circuitry, materials, and packaging. Many of our products incorporate patented or proprietary implementations of high-frequency switching topologies, which enable the design of converter modulespower system solutions more efficient and much smaller and more efficient than conventional alternatives. EmphasizingOur strategy emphasizes demonstrable product differentiation and a value proposition based on competitively superior solution performance, advantageous design flexibility, and a compelling total cost of ownership (“TCO”).

Power system performance is primarily based on conversion efficiency (i.e., the ratio of output power (i.e., watts) to input power) and power density (i.e., the amount of output power divided by the volume of the power system). Higher efficiency and density contribute to superior thermal performance, as theby-product of power conversion and distribution is heat, which must be dissipated in order to assure the performance of the power system solution itself and the overall system to which it is delivering power. Power system performance also is based on the electrical characteristics of the power system (and their effect on and compatibility with the customer’s application). Important electrical characteristics include transient responsiveness (i.e., the behavior of a power system to a voltage change) and noise profile (i.e., the level of electromagnetic interference created by power conversion). We believe the superior performance of our power density andsystems is the most important element of our differentiation strategy.

Our strategy complements performance advantagessuperiority with design flexibility (i.e., ease of this technology,use), as our primary product strategy since our founding has beenproducts can be utilized individually or combined, given their level of integration, to offer a comprehensive range of component-level building blocks to configure acreate power system solutions specific to a customer’s precise needs. We articulate this positioning through our “Power Component Design Methodology,” an element of our differentiation strategy, which is our approach to providing our customers the modular products, design tools, and engineering support to enable the rapid design of advanced power system solutions and, thereby, accelerate their own product development cycles. Our value proposition is supported by a compelling TCO, representing the cost of acquiring and operating a power system over its useful life, driven by competitive product pricing and more efficient use of power.

Our earliest market focus was on telecommunications infrastructure, which uses a standard DC distribution voltage of 48V, the highest nominal distribution voltage that meets SafetyExtra-Low Voltage (“SELV”) standard requirements while leaving sufficient margin for over-voltage protection circuits. While we offer products addressing other voltage standards (e.g., 28V for military applications) and a broad range of customer voltage requirements, we consider our core competencies to be associated with 48V distribution, which offers numerous inherent cost and performance advantages over lower distribution voltages.

Our strategy, competitive positioning, and product offerings, all based on highly differentiated product performance, have anticipated the evolution of system power architectures. As system designs advanced alongarchitectures and customer performance requirements. Reflecting this, we categorize our products as either “Advanced” or “Brick” (referred to in prior reports we filed with the demandsSEC as “Legacy”), generally based on design, performance, and form factor considerations, as well as the range of evolving applications for which the loads powered, the inherent limitations of historically accepted system power architectures have caused designers to seek out improved solutions.

In 1984, we introduced a significant enhancement of the standardizedDC-DC converter: the fully-encapsulated “brick” module. Our innovative, patented technology utilized our implementation of zero current soft switching topology to deliver unprecedentedly high switching frequencies and, in turn, unprecedented power density. Superior conversion efficiency, overall performance improvements, and full encapsulation (which provided shielding from environmental influences) contributed to significant enhancement of thermal performance characteristics, an important competitive advantage. Such thermal performance enhancement has been critical to the differentiationproducts are appropriate. The Advanced Products category consists of our power converters, as theby-product of voltage conversion is heat,more recently introduced products, which must be dissipated in orderare used to assure the performance of the converter itself and the overall system to which it is delivering power.

The brick module integrated transformation, regulation, isolation, filtering, and/or input protection into a single device, thereby driving the adoption of the Distributed Power Architecture (“DPA”). The dominant system power architecture up until that time, the Centralized Power Architecture (“CPA”), generates all system voltages centrally and distributes these voltages to loads using individual distribution buses (i.e., a conductive circuit, generally made of copper). CPA became expensive and impractical for electronic systems increasingly characterized by widely distributed loads requiring lower voltages, higher currents, and higher speeds. DPA, enabled by the brick concept, allows the distribution of one DC voltage system-wide and downstream conversion of that voltage, with a brick, at a specific load. This approach allows electricity to be distributed through a complex system in the most efficient manner, at a uniform higher voltage (typically 48 volts), thereby dramatically reducing distribution and conversion losses, lowering copper consumption, and significantly increasing design flexibility. With patented advances in switching topology and converter design, Vicor became a leading vendor of brickDC-DC converters in the 1980s and 1990s, particularly within the telecommunications infrastructure segment of the market.

With the advent of enterprise computing in the 1990s, the limitations of DPA became apparent, as the number of different loads on a system board increased beyond the level for which DPA and bricks were well-suited. The Intermediate Bus Architecture (“IBA”), a multi-stage extension of DPA, addressed the space

constraints, performance requirements, and cost challenges of highly complex system boards by further separating the functions of DC conversion carried out by the brick, which in IBA is replaced by an isolated bus converter delivering a stepped-down (i.e., reduced), unregulated voltage to anon-isolatedpoint-of-load regulator. For computing and, later, networking applications, IBA was more scalable and cost-efficient, as numerous brickDC-DC converters on a system board were replaced by one brickDC-DC converter, providing one system-wide distributed voltage, accompanied by numerous, lower-cost bus converters providing an intermediate bus voltage, typically from 5 to 14 volts, topoint-of-load regulators.

Two significant industry changes coincided with the broad adoption of IBA in the late 1990s and the early 2000s. The first change was the significant decline of the telecommunications infrastructure segment that representedimplement our primary focus, while the second change was a pronounced shift toward product commoditization, primarily driven by globalization. These two changes had an interrelated impact on our strategy, as the primary driver of IBA adoption was initial cost reduction, not system conversion efficiency. As such, IBA was broadly implemented using 12 volt distribution, not the more efficient 48 volt distribution, our core competency.

Unwilling to pursue rapidly commoditized market opportunities, notably in IBA, and unwilling to relocate our manufacturing to lower-cost countries, we shifted our strategy and operations in the 2000s to emphasize “mass customization”, using highly automated, efficient, domestic manufacturing to serve customers with product design and performance requirements, across a wide range of worldwide market segments, that could not be met by high-volume oriented competitors. We focused on applications, largely implementations of DPA, for which our brickDC-DC converters were well-suited, in market segments such as aerospace and defense electronics, industrial automation and equipment, instrumentation and test equipment, and transportation (e.g., rail). This strategy has been the basis upon which the BBU has competed since this strategic and operational shift. The customers served range from independent manufacturers of highly specialized electronic devices to larger original equipment manufacturers (“OEMs”) and their contract manufacturers.

During the 2000s, we embarked on a long-term strategy based on our belief that our competitors’ products and existing system power architectures, notably IBA, would not meet evolving market requirements, notably system conversion efficiency. Over the last decade, we have invested significantly in the development of new power component technologies and product concepts addressing two meaningful market trends, the first toward higher required conversion efficiencies, and the second toward higher currents, more and diverseon-board voltages, and the higher performance demands of numerous complex loads. Reflecting the versatile, building block approach of our Power Component Design Methodology, in 2003 we introduced ourproprietary Factorized Power Architecture^TM (“FPA”), an innovative component-based approach topower distribution architecture enabling flexible, rapid power system design based on separateusing individual components optimized to perform a specific function. We continue to believe FPA represents a compelling architectural alternative to other architectural implementations, as it offers superior conversion efficiency, higherstage (i.e., function). The Brick Products category largely consists of integrated power density, improved system responsiveness, and an attractive total cost of ownership, while offering design flexibility. FPA increases total system conversion efficiency by separating powersystems (i.e., “bricks”), incorporating multiple conversion stages, reducingused in conventional distributed power systems architectures (e.g., Centralized Power Architecture (“CPA”), Distributed Power Architecture (“DPA”), and Intermediate Bus Architecture (“IBA”)).

Given the number of stages required (i.e., duplicated functions requiring separate components), reducing system distribution losses,growth profiles and reducing power dissipation at thepoint-of-load.

To support implementation of FPA, we introduced our initial range of VI Chip modules exploiting our proprietary expertise in soft switching topologies and control, power semiconductors, materials, and packaging: the PRM^®(Pre-Regulator Module), anon-isolated buck-boost regulator; the BCM^® (Bus Converter Module), an isolated, fixed ratio intermediate bus voltage converter; and the VTM^® (Voltage Transformation Module), an isolated current multiplier (i.e., voltage converter). The VTM and BCM utilize on our Sine Amplitude Converter^TMswitching topology, a patented fixed-frequency implementation of zero current / zero voltage soft switching, while the PRM is based on our proprietary implementation of zero voltage soft switching (“ZVS”), which is optimized for buck-boost voltage regulation. All three products incorporate technologies for which we have been issued patents or have patent applications pending.

Beginning in 2011, we began to shift our strategic focus toward higher-volume opportunities with global OEMs and their contract manufacturers, as FPA and VI Chip modules offered superior power density, conversion

efficiency, and thermal management characteristics for board-based, rack-mountedpoint-of-load applications, notably for microprocessors requiring tightly regulated high currents. FPA and our first-generation VI Chip modules were adopted by customers for use in demanding applications, most notably supercomputing, sophisticated test instrumentation, and defense electronics. However, broader adoption was inhibited by cost considerations and, to a lesser extent, a narrow product range.

In response, we undertook development of a substantially improved product platform, which we introduced in 2013. Our “ChiP” platform (ChiP is an acronym for “Converter housed in Package^TM”) specifically was designed to be a scalable, leveragable module format with lower manufacturing costs. ChiPs are offered in the same functional families as the earlier VI Chip modules, using the same advanced switching topologies, but, becauseperformance requirements of the format’smarket segments served with Advanced Products and Brick Products, our strategy involves a transition in organizational focus, emphasizing investment in Advanced Products design flexibility and improved manufacturability, we are able to offer much broader ranges of performance specifications within existing and new functional families. Because ChiPs were designed to be manufacturedmanufacturing, targeting high growth market segments with lower costs, we are able to profitably sell ChiPs and ChiP-based solutions at competitive prices, on acents-per-wattlow-mix, basis, comparable to prices of alternative commodity products. While our first-generation VI Chip modules were designed to facilitate FPA implementations, ChiP modules support all known power distribution architectures, including FPA, thereby expanding our addressable market opportunity (i.e., the range of customer applications across which our products can be used).

At the same time, our Picor subsidiary undertook development of a high-performance family ofpoint-of-load regulators, in “SiP” (System in Package LGA package) format, to be integrated into our expanded product portfolio, truly enabling comprehensive power management solutions topoint(s)-of-load. These Cool-Power^®point-of-load regulators have been designed to meet the requirements of high-volume OEMs for cost-effectiveness, design flexibility, and high performance.

In 2014, we introduced the “VIA” packaging concept (VIA is an acronym for “Vicor Integrated Adaptor^TM”), a rugged, double-sided package for ChiP modules integrating complementary components, circuitry, and superior thermal management. In 2016, we completed the installation of our first dedicated manufacturing line exclusively for the VIA packaging concept. The VIA package provides customers an advanced,turn-key solution for their demanding power needs, cost-effectively accelerating design cycles andtime-to-market,operational model, while providing superior power density. The VIA package is particularly differentiated by the flexibility it provides designers, as it offers substantial thermal advantages, and its form factor allows a broad range of installation options. We consider the VIA package to be strategically important, as it has been designed to be used in the widest range of power system architectures and applications, as well as serving as the packaging platform for our line of ChiP-basedAC-DC front end converters, a critical element of our comprehensive product portfolio enabling highly-differentiated power management solutions from the AC or DC source to thepoint(s)-of-load. The VIA package enables us to target applications ranging from those addressed by our legacy brick products to the most challenging emerging applications.

With the introduction of innovative new products, we began executing a transitionalgo-to-market strategy based on our Power Component Design Methodology, exploiting our historical strengths, while addressing both the realities of today’s power conversion marketplace and our vision of its long-term direction. This strategy involves maintaining a profitable legacy business in bricks and brick-based system solutions, while investing in and transitioning to a new, advanced product portfolio based largely on the ChiP platform, targeting high growth opportunities.

Today, we target well-defined applications for which the high conversion efficiency and high power density of our products are well suited within the following industrial and military market segments: aerospace and aviation; defense electronics; enterprise and high performance computing (including large scale datacenters and supercomputers); industrial automation, instrumentation, and test equipment; medical diagnostics; telecommunications and network equipment and infrastructure; and vehicles and transportation infrastructure. With our new, advanced products, we also are pursuing opportunities in emerging market segments, including: autonomous vehicles; hybrid and electric vehicles; commercial solid state lighting; and 380 voltDC-based facility infrastructure (also referred to as “HVDC” (for high voltage DC distribution) or “micro-grids”).

Our competitive positioning has been, and will continue to be, supported by our long-standing commitment to research and development of power conversion technologies, advanced packaging and manufacturing, and innovative approaches to solving customer problems. We incurred approximately $41,848,000, $41,472,000, and $41,479,000 in research and development expenses in 2016, 2015, and 2014, respectively, representing approximately 20.9%, 18.8%, and 18.4% of revenues in 2016, 2015, and 2014, respectively.

As stated, our strategy involves maintaining high levels of customer engagement and support, which has resulted in significant expansion of our sales and application engineering infrastructure over historical levels, notably in high growth regions of the world such as China, Korea, and India. We incurred approximately $37,967,000, $37,336,000, and $38,056,000 in marketing and sales expenses in 2016, 2015, and 2014, respectively, representing approximately 19.0%, 17.0%, and 16.9% of revenues in 2016, 2015, and 2014, respectively.

We intend to maintain spending in support of research and development and marketing and sales at levels, on an absolute basis, consistent with prior periods. If we successfully execute our strategy, we believe our revenue should increase and, if so, the percentages of revenue represented by spending on research and development and marketing and sales should decline.

Competition

Despite significant consolidation of our competitors, the growth of large-scale,low-cost competitors, and increased application overlap with vendors of solutions based on semiconductors and discrete components, the global merchant market forAC-DC andDC-DC power conversion solutions remains fragmented, with over 1,000 merchant vendors. The market is made up of many large, diversified manufacturers, as well as many smaller manufacturers focused on specialized products or narrowly defined market segments or geographies. The overall market, including those segments in which we compete, is characterized by rapid commoditization and intense price competition.

Although numerous third party industry studies estimate the total global merchant market forAC-DC andDC-DC switching power supplies to exceed $20 billion of annual revenue, representing approximatelytwo-thirds of the total annual consumption of switching power supplies (i.e., the sum of merchant and captive volumes consumed), the Company competes in smaller, well-defined industrial and military market segments. We believeAC-DC power supplies represent more than 85% of the total merchant market, reflecting a wide range of battery charging applications, primarily in the consumer, mobile device, and office computing segments (commodity segments in which we do not compete, together representing more than 50% of the total merchant market). Based on our own assessment of the segments in which we do compete, we estimate our aggregate addressable market opportunity within theAC-DC portion of the merchant market approaches $1 billion annually, while we estimate our aggregate addressable market opportunity within theDC-DC portion of the merchant market exceeds $3 billion annually.

Despite our relative position in the overall merchant market, our small historical presence in theAC-DC portion of the merchant market, and the competitive presence of numerous, far larger vendors in the market segments we serve, we believe we are consistently among the largest volume vendors of solutions for the conversion, regulation, and control ofDC-DC current, particularly in the market segments we serve. However, numerous competitors in these market segments have significantly greater financial and marketing resources and longer operating histories than we do.

The competitive characteristics ofmature market segments we serve with our transitionalBrick Products with ago-to-markethigh-mix,low-volume strategy may vary. Generally, competition is based on product price, product performance, design flexibility (i.e., ease of use), and product availability. We seek to position ourselves with customers across all market segments served in a manner that reduces our vulnerability to commoditization. As we shift our strategy to focus more on higher volume OEM opportunities, we are emphasizing what we believe are our sustainable competitive advantages: the differentiation of our products’ superior performance and power densities; a compelling value proposition basedoperational model.

Our Products

Reflecting our Power Component Design Methodology, we offer a comprehensive range of individual, highly integratedmodular building blocks enabling design of a power system specific to a customer’s precise needs. Since introducing and popularizing the encapsulated brick package format during the 1980s, our product focus has been on high performanceDC-DC switching converters providing the transformation, regulation, isolation, filtering, and/or input protection necessary to power and protect sophisticated electronic loads. With the development of FPA, VI Chip modules, Picorpoint-of-load regulators, and, most recently, ChiP modules and the VIA packaging platform, we believe we offer the most advanced range of high-performance power components in the industry. A secondary and highly complementary product strategy has been to vertically integrate our component-level building blocks into complete power systems representing turnkeyAC-DC andDC-DC solutions for our customers’ power needs.

Reflecting our history and direction, we broadly categorize our products as either “legacy” or “advanced”, generally basedBased on design, performance, and form factor considerations, as well as the range of evolving applications for which the products are appropriate.

Legacyappropriate, we categorize our product portfolios as either Advanced Products

The following product groups include those that historically generated the majority of our revenue. Some of our brick product lines have been in production for over a decade, reflecting the long-established relationships we have with many customers and the long-standing suitability of our products to their demanding applications. Their generally long lifecycles and well-established share of targeted market segments provide the competitive foundation and organizational resources for our transitionalgo-to-market strategy.

We offer brick modules asDC-DC converters, as well as complementary components providing AC line rectification, input filtering, power factor correction, and transient protection. All of our brick modules are encapsulated with a dielectric, thermally-conductive material, thereby providing electrical insulation, thermal conductivity, and environmental protection of the electronic circuitry. These products are well-established as important, reliable elements of conventional power systems architectures.

The BBU currently offers seven families of high power density,component-level DC-DC converters, representing what we believe to be the broadest selection ofDC-DC converter modules in the industry: theVI-200^TM,VI-J00^TM,MI-200^TM,MI-J00^TM, and the FasTrak^TM module line, our highest volume products, made up of the Maxi, Mini, and Micro product families. All of ourDC-DC converters are based on our proprietary approach to resonant soft switching, enabling high efficiencies and power

densities. Wide ranges of input voltage (from nine to 425 volts), output voltages (from two to 54 volts), and output power (up to 600 watts) are offered, allowing end users to select components appropriate to their individual applications. The products differ in temperature grades, maximum power ratings, performance characteristics, pin configuration, and, in certain cases, characteristics specific to the targeted market. or BrickDC-DC converters are offered in sizes, depending on family, ranging from 116.9 x 61.0 x 12.7 mm (full brick), to 57.9 x 61.0 x 12.7 mm (half brick), to 57.9 x 36.8 x 12.7 mm (quarter brick).

Products from our broad line of complementary components are used to condition and/or filter the input and output voltages of the brickDC-DC converter. Generally, these components address customer requirements at the AC current source, upstream from ourDC-DC converters, providing rectification of the AC current, input filtering, inrush limiting, and transient protection. An example of such a complementary product is our HAM^TM (Harmonic Attenuator Module), a front end providing power factor correction. The HAM utilizes a proprietary zero current switching boost converter, allowing it to provide output power of up to 675 watts and DC output voltage of 365 volts.

Products. We also offer numerous accessories (for example, base plates and heat sinks) to meet customer requirements.

These products are generally targeted at applications requiring high performance and reliability in the following market segments: aerospace and aviation; defense electronics; industrial automation, instrumentation, and test equipment; medical diagnostics; telecommunications infrastructure; and vehicles and transportation infrastructure.

We offer an extensive line of open-frame (i.e., not encapsulated) intermediate bus converters (“IBCs”) for implementation of multi-stage power conversion. These devices utilize the same Sine Amplitude Converter switching topology utilized in our VTM and BCM modules in the VI Chip and ChiP formats. These low profile, isolated, fixed-ratio IBCs conform to industry standard quarter-brick and eighth-brick sizes, but offer increased capabilities and exceptional performance.

These devices typically are used in telecommunications and networking equipment applications. Because our IBCs represent pin compatible upgrades for existing designs, a customer, for example, can replace a competitor’s quarter-brick unit with our eighth-brick converter, using half the available space, while meaningfully improving system performance.

We offer a family of isolatedDC-DC converters delivering up to 60 watts in a very small (22 x 16.5 x 6.7 mm) surface-mount package. Because these small devices are packaged in the VI Chip over-molded package, they are able to withstand harsh environments in applications for which space is limited and light weight is advantageous (e.g., aerospace, aviation, and defense electronics). These high density converter modules are offered in three input voltages: 48 volt nominal for communication applications; 28 volt nominal for rugged high temperature or military applications; and 24 volt nominal for industrial applications.

Cool-Power converters utilize our proprietary zero voltage soft switching topology (“ZVS”) to achieve high-switching frequencies enablingbest-in-class power density, while reducing input and output filtering requirements.

Utilizing our modular brick components to drive system function, we offer numerous higher valued-added standard products we configure to a customer’s specific needs, often with multiple voltage outputs. These near-custom products exploit the benefits and flexibility of our modular approach to offer higher performance, higher power densities, lower costs, and faster delivery than many competitive offerings. TheseAC-DC andDC-DC configurable products are designed, developed, and manufactured by the BBU.

Our highest volume configurable product, the FlatPAC^TM, is representative of our approach to integrating our power components to create high-performance solutions. FlatPACs, available in thousands of configurations in three package variants based on the number of DC output voltages, are complete, conductively-cooledAC-DC conversion solutions comprised of ourVI-200DC-DC converter modules and our complementary components, described above, providing rectification and filtering of the AC input voltage.

Our configurable products typically are used insell a range of CPAelectrical and distributed power architecture implementations in defense electronics, industrial and transportation applications, as well as medical instrumentation.

Certain customers rely on us to design, develop, and manufacture custom power systems to meet performance and/or form factor requirements that cannot be metmechanical accessories for use withoff-the-shelf system solutions. Theselow-volume, highvalue-add products frequently are designed to function reliably in the harsh environments associated with aerospace, aviation, and defense applications, but also are used in applications ranging from industrial equipment to medical instrumentation. By utilizing our modular components to drive system function, we have been able to meet such customers’ needs with reliable, high power density, turnkey solutions.products.

Advanced Products

The followingWe continue to invest in the research and development of power system technologies and product groups includeconcepts addressing two accelerating trends, the first toward higher required conversion efficiencies, and the second toward more and diverseon-board voltages, higher performance demands of complex loads, and, in particular, higher current requirements of those that reflectloads. These trends are most visible in the microprocessor-based applications we target with Advanced Products, for which energy consumption, energy efficiency, processor performance, and computing density are critical priorities. Recognizing the performance and scale limitations of conventional power distribution architectures and products, we introduced FPA and a range of enabling products incorporating our visionlatest advances in switching topologies, materials, and packaging.

FPA, which is focused on, but not limited to, 48V distribution solutions, increases power system conversion efficiency, density, and power delivery performance by “factorizing” (i.e., separating) the power conversion process into individual components, free of the direction of the market segments we servedesign limitations and performance and scaling trade-offs associated with our Power Component Design Methodology. Many of these products are targeted towardconventional power distribution architectures requiring additional conversion stages and higher component count. FPA implementations, but our more recently introduced products are suitableimplementation allows for other distributed architectures.

In 2013, our VI Chip Corporation subsidiary introduced the ChiP platform, designeda factorized bus voltage to be a scalable, leveragable module format withdistributed efficiently to thepoint-of-load, at which the voltage is converted to the required lower manufacturing costs. We believevoltage and higher current. In contrast to the ChiP platform establishesbest-in-class standards12V IBA distribution commonly used in computing, for a new generationthe same power requirements, factorized 48V distribution reduces the number of scalableconversion stages required, thereby reducing component count and conserving space, reduces system distribution losses, and delivers improved thermal performance, thereby reducing system cooling challenges. Such direct conversion also improves system responsiveness. As power modules, while expandingrequirements increase, the differentiated advantages of FPA increase, as our capability range and, in turn, our addressable market opportunity. Combining advanced proprietary magnetic structures, power semiconductors, and microcontrollers in a high density interconnect substrate, the ChiP delivers superior thermal management characteristics, allowing customers to achieve low costfactorized power system solutions deliver unmatched system conversion efficiencies, power densities, thermal profiles, and application performance.

Our FPA implementations with previously unattainable system efficiency, size,supercomputer and weight. ChiP modules also have lower manufacturing costs thanhyperscale datacenter customers involve our original VI Chips, thereby allowing usPRM^®(Pre-Regulator Module), to offer highly differentiated products, not only with superior total cost of ownership over time, butcreate anon-isolated, factorized 48V bus voltage at attractive initial price points. Our goal is to offer ChiP modulesrelatively low current, and solutions onour VTM^® (Voltage Transformation Module), a cents per watt basis near or equivalentcurrent multiplier delivering the required high current to the pricescentral processing unit (“CPU”). A typical 48V server motherboard implementation of FPA, utilizing aPRM-VTM configuration to power a CPU requiring less than 200W, would typically deliver 1.8V and 95A average current, with far fewer components and far less required motherboard space than competitive, product offerings, thereby presenting customersmulti-stage solutions with a compelling value proposition.lower system conversion efficiency.

ChiPsIn 2017, we introduced our next generation of power system solution,“Power-on-Package,” which was specifically developed to meet the computational performance requirements of artificial intelligence (“AI”). The microprocessors typically used in AI, particularly in more computationally demanding “machine learning” applications, are producedgraphics processing units (“GPUs”) and custom application-specific integrated circuits (“ASICs”). Both GPUs and ASICs, in the same functional families as our earlier VI Chip FPA modules (i.e., PRM, BCM,contrast to CPUs, are designed for parallel processing throughput, not execution of complex instruction sets. As such, higher levels of average and VTM), but today we offer five package sizes ranging from 6 by 23 mmpeak current are required to 61 by 23 mm. We currently offer over 100 specific ChiP module variants, reflecting the multiple configurations, based on dimensions, lead formats, and performance specifications, enabled by the flexible module format. During 2016, we continued to introduce ChiP modules, adding 32 new products and 128 additional variants within the product families. Based on our current design and development activities, we anticipate, in 2017, further expansionachieve this throughput. OurPower-on-Package solution, are-integration of the functions of ourPRM-VTM configuration, consists of one Modular Current Driver^© (“MCD”), providing high-bandwidth,low-noise regulation, and two Modular Current Multipliers^© (“MCMs”), providing high performance current multiplication.Power-on-Package delivers unprecedented current levels to GPUs and ASICs, in part due to the placement of the MCMs directly on the substrate onto which the processor is mounted, thereby minimizing distribution losses associated with such high current. A typicalPower-on-Package configuration powering a GPU requiring 350W

would deliver 0.7V and 500A average current and up to 1,000A peak current, with unmatched power density, which is a critical requirement for small, area-constrained AI accelerator boards. We are unaware of any competitive solution offering such power system performance, as competitive solutions achieve increased power through additional, multi-phase conversion stages, which do not meet the space and thermal limitations of AI accelerators.

Our patented and proprietary technologies also enable a range of package sizes, board or chassis mounting alternatives, lead formats, and performance characteristics of our ChiP product offerings. We planAdvanced Products applicable to target a number of these new product families and variants atother market segments and applications that, if successfully penetrated, should expand the size of our addressable markets.

ChiP modules are targeted at sophisticated applications, regardless of the power distribution architecture, for which their high level of performancearchitectures other than FPA. Within computing, these market segments include voltage distribution in server racks and form factor differentiation is appropriate. Across distributedacross datacenter infrastructure. We also offer Advanced Product power system architectures, ChiPs are targeted at:solutions for aerospace and aviation (e.g., for

use in satellites and unmanned aerial vehicles, due to their conversion efficiency, reliability, small form factor, and light weight); computing (e.g., for source topoint-of-load solutions in servers deployed in datacenters, due to their conversion efficiency and flexibility of use, which contribute to lower total cost of ownership)vehicles); defense electronics (e.g., for use in airborne, seaborne, or field radar, due to their high power capabilities, conversion efficiency, ruggedness, and reliability)radar); industrial automation, instrumentation, and test equipment (e.g., for use in robotics and semiconductor testing, due to their power density and tight current regulation)testing); solid state lighting (e.g., for use large scale signage); telecommunications and networking infrastructure (e.g., for use in pole-mounted small-cell base stations in urban environments, due to their form factor, reliability, and cost/performance profile)stations); and vehicles (e.g., in autonomous driving applications, electric vehicles, and hybrid electric vehicles, duevehicles).

Advanced Products are offered in various package formats across functional families.

Annual revenue associated with the sale of Advanced Products, representing the sum of third-party revenue of our VI Chip and Picor operating segments, was approximately 35.9%, 33.4%, and 24.4% of the Company’s consolidated revenue for the years ended December 31, 2018, 2017, and 2016, respectively. We anticipate the percentage of periodic revenue associated with the sale of Advanced Products will continue to increase, given our strategic and organizational focus and the relatively higher expected growth of the market segments we serve.

Brick Products

Brick-format converters provide the integrated transformation, regulation, isolation, filtering, and/or input protection necessary to power and protect loads, across a range of conventional power distribution architectures. We offer a wide range of brick-formatDC-DC converters, as well as complementary components providing AC line rectification, input filtering, power factor correction, and transient protection. Wide ranges of input voltages, output voltages, and output power are offered, allowing end users to select components appropriate to their form factor, light weight, differentiatedindividual applications. The products differ in dimensions, temperature grades, maximum power ratings, performance characteristics, pin configuration, and, cost/in certain cases, characteristics specific to the targeted market.

We also integrate these converters and components into complete power systems representing standard or customAC-DC andDC-DC solutions for our customers’ power needs. We refer to such standard products as our “Configurable” product line, while our two Vicor Custom Power subsidiaries design, sell, and service custom power system solutions.

We market our standard Brick Products emphasizing “mass customization,” using highly automated, efficient, domestic manufacturing to serve customers with product design and performance profile)requirements, across a wide range of worldwide market segments, which could not be met by high-volume oriented competitors. We focus on distributed power implementations, for which our brick-format products are well-suited, in market segments such as aerospace and defense electronics, industrial automation, industrial equipment, instrumentation and test equipment, and transportation (e.g., rail). As stated, we also are pursuing applications with OEMsOur customers range from independent manufacturers of highly specialized electronic devices to larger original equipment manufacturers (“OEMs”) and their contract manufacturers in market segments for which the advantages of ChiPs are most compelling.

The VIA platform is a rugged, double-sided, copper-alloy package for ChiP modules, integrating complementary components, circuitry, and superior thermal management through conductive cooling. In 2016, we completed installationmanufacturers. Some of our first dedicated manufacturing line exclusivelyBrick Product lines have been in production for over three decades, reflecting the long-established relationships we have with many customers and the long-standing suitability of our products to demanding applications.

Annual revenue associated with the sale of Brick Products, representing 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, was approximately 64.1%, 66.6%, and 75.6% of the Company’s consolidated revenue for the VIA packaging concept.years ended December 31, 2018, 2017, and 2016, respectively.

Competition

We considerbelieve our sustainable competitive advantages are: the VIA platform to be important todifferentiation of our transitionalgo-to-market strategy, as it has been designed to enable the use of ChiP modules across the widest range of power system architectures, power levels, and applications. It is aneasy-to-use power management solution, providing customers an advanced,turn-key solution for their demanding power needs, cost-effectively accelerating design cycles andtime-to-market, while providingAdvanced Products’ superior power density. The VIA platform is particularly differentiated by the flexibility it provides designers, as it offers substantial thermal advantages and its form factor allows a broad range of installation options. In numerous applications, the package simplifies thermal design considerations and, in some instances, eliminates the need for a fan for convection cooling, improving overall system reliability and further minimizing the power system footprint. Offered in board and chassis mount configurations, all VIA packages have a vertical dimension of 9.3 mm and a width of 35.5 mm, and, depending on the packaged ChiP module and its functionality, range in length from 72.0 to 141.4 mm.

The VIA platform facilitates our latest ACfront-end solution, based on the ChiP PFM^® (Power Factor Module). The VIA PFM represents a significant improvement over our legacyfront-end solutions, thereby enhancing our positioning as a supplier of highly-differentiated power management solutions from the AC source to the point(s) of load. The VIA PFM achieves a market-leading power density of 127 W/in³, supplying an isolated DC output of either 24 or 48 volts, at up to 400 watts, from a universal AC input. It operates with active power factor correction at 93% peak conversion efficiency, which is an unprecedented level for anAC-DC converter of this sizeperformance and power density. Combiningdensities, enabled by our patented and proprietary technologies; the VIA PFM with our small AIM^TM (“AC Input Module”), which provides AC rectification, filtering, transient protection, and inrush limiting capabilities, creates a high-performanceAC-DCfront-end solution with an unmatched size profile. This solution is especially well-suited for emerging applications with size constraints, including small-cell base stations and commercial LED lighting.

The VIA platform also facilitates the VIA DCM, which is an important product for executing our strategic transition. We currently offer seven variants of the VIA DCM. The product family integrates filtering, output voltage regulation, circuitry protection, and a control interface, giving the VIA DCM the function of a conventional brickDC-DC converter, while offering higher conversion efficiency, superior power density, and theadvantageous design flexibility described above. As such, we are positioning the VIA DCM as a successor to our legacy brickDC-DC converters, notably in advanced, challenging applications. However, the VIA DCM also is positioned as an innovative, high-performance element ofenabled by our Power Component Design Methodology, as it has been designedMethodology; and a compelling TCO. We seek to be integratedposition ourselves with customers across all market segments served in a manner that reduces our vulnerability to commoditization. However, the competitive characteristics of market segments we serve with our other products to facilitate design of comprehensive power system solutions.

•

Cool-Power®ZVS Modules(System-in-PackagePoint-of-Load Regulators)

Our Cool-Power brand ofnon-isolated,point-of-load regulators currently consists of an expanding portfolio of buck (i.e., the device steps down voltage) and buck-boost (i.e., the device lowers or increases voltage) regulators.

We believe Cool-Power buck regulators provide best in class conversion efficiency (up to 98%), allowing customers to deploy more efficient designs, regardless of power system architecture,transitional strategy may vary. Across all market segments we serve, competition generally is based on the compatibilityproduct performance, design flexibility (i.e., ease of thesepoint-of-load regulators with higher, more efficient input voltages. Operating from nominal input voltages of 12, 24, or 48 volts, these regulators are optimized for applications requiring high conversion efficiencyuse), product price, and power density, such as computer and graphic processors.product availability.

The high conversion efficiencyDespite significant consolidation of our Cool-Power regulators is enabled bycompetitors in the markets we serve with Brick Products, the growth of large-scale,low-cost foreign competitors in the commoditized segments of those markets, and increased application overlap with vendors of solutions based on semiconductors and discrete components in the markets we serve with Advanced Products, the total global merchant (i.e.,non-captive) market forAC-DC andDC-DC power conversion solutions remains fragmented. The markets we serve, among which some overlap exists for our proprietary ZVS topology, which minimizes switching losses, while maximizing dynamic response to lineAdvanced Product and load transients. AlongBrick Product categories, are made up of many large, diversified manufacturers, as well as many smaller manufacturers focused on specialized products or narrowly defined market segments or geographies. The markets we serve with ZVS control circuitry, the advanced design of Cool-Power regulators incorporates proprietary power semiconductors, all withinAdvanced Products, typically on a high-density, surface-mount package.

Cool-Power regulatorsdirect basis, are competitively well-positioned to address market trends toward higher required conversion efficiencies and higher currents at thepoint-of-load. The addition of buck-boost variants expands our capabilities to include loads powered by batteries, which are subject to varying voltage delivery over their discharge cycle. We believe these products will be an important contributor to our long-term success, as they represent a meaningful element of our Power Component Design Methodology, enabling comprehensive, highly integrated solutions for FPA and other distributed architectural implementations, fulfilling our strategic commitment to offering integrated solutions all the way from the source to thepoint-of-load. Our success to date with these products has frequently been when they have been part of an integrated FPA solution, delivering a tightly regulated voltage to a downstream VTM serving as a current multiplier, which in turn delivers low voltage, high amperage, regulated current to thepoint-of-load, typically a microprocessor. Our 48 volt topoint-of-load solutions for datacenter servers is representative of such an integrated FPA solution.

Our Picor subsidiary offers a limited range of specialized components for circuit protection, all of which aregenerally characterized by small size,ease-of-use,relatively extended and differentiated performance. The highest volume products are QuietPower^® filters for input filtering of electro-magnetic interference and output noise (i.e., ripple attenuation).

We consider these products to be a valuable complement to our Power Component Design Methodology, despite their relatively small sales volumes, as they enable customers, assisted by our application engineers, to source from Vicor their complete solution to power conversion and management.

We continue to offer the first generation of VI Chip PRM, BCM, and VTM modules, in full (32.5 by 22.0 by 6.73 mm) and half (22.0 by 16.5 by 6.73 mm) sizes, targeting FPA implementations. These products remain compelling solutions for certain applications, notably in defense electronics, medical instrumentation, and test and measurement applications.

With the expansion of ChiPhighly competitive design cycles, product families, we anticipate our sales of the first generation of VI Chips will be limited to shipments to existing customers during the life cycles of the applications into which these products have been designed. We expect thegenerally less than three years, and many competitors that are far larger vendors of integrated circuits and discrete components, often using price concessions to offset performance limitations. The market segments we serve with Brick Products, typically through sales representatives and distribution partners, are generally characterized by relatively short design cycles, relatively long (i.e., greater than three years) product life cycles, and, given the maturity of many markets and applications, degrees of commoditization and price competition.

Although numerous third party industry studies estimate the total global merchant market forAC-DC andDC-DC switching power supplies to exceed $20 billion of annual revenue, representing approximatelytwo-thirds of the total annual consumption of switching power supplies (i.e., the sum of merchant and captive volumes consumed), the Company competes in smaller, well-defined commercial and military market segments and niches within those segments. We believe, based on these third party estimates,AC-DC power supplies represent more than 85% of the total merchant market, reflecting a wide range of battery charging applications, may continue for severalprimarily in the consumer, mobile device, and office computing segments (commodity segments in which we currently do not compete, together representing more than 50% of the total merchant market). These third party industry studies set forth estimates of varying levels of annual, dollar-based, nominal revenue growth across the merchant market segments in which we compete. These studies indicate most of the market segments we serve with Advanced Products have experienced high single-digit and low double-digit growth over the past three years. These studies also indicate most of the market segments we serve with Brick Products have experienced low to middle single-digit growth over the past three years.

PatentsBased on our own assessment of the market segments in which we do compete, we estimate the Company’s total addressable market opportunity within theAC-DC portion of the merchant market may be approximately $1 billion annually. However, because this market is particularly commoditized and Intellectual Property

An important elementcustomer applications generally do not require the superior performance of our strategy issolutions, we pursue narrowly defined niches for which our highly differentiatedfront-end products, notably the PFM^© and RFM^©, are well-suited and competitively superior, thereby reducing our served addressable market opportunity. Should we successfully penetrate these potentially high growth niches, we believe that our served addressable market opportunity inAC-DC should expand. We estimate our total addressable market opportunity within theDC-DC portion of the merchant market may exceed $3 billion annually. We estimate our served addressable market to protectexceed $1 billion annually, with a relatively high dollar and unit volume growth forecast for the market segments and niches we are pursuing with Advanced Products.

Despite our minor share in the overall merchant market and the competitive leadershippresence of numerous, far larger vendors in the market segments and niches we serve with domesticboth Advanced Products and foreign patentsBrick Products, we believe we maintain an advantageous competitive position in those market segments and patent applications that cover our productsniches. Notably, we believe we have the largest share of 48V distribution opportunities within the segments of the computing market we serve. However, numerous competitors across these market segments and much of their enabling technologies. We believe our

competitive leadership is further protected by proprietary trade secrets associated with our use of certain componentsniches have significantly greater engineering, financial, manufacturing, and materials of our own design,marketing and sales resources, as well as our significant experience with manufacturing, packaging,longer operating histories and testing these complex devices.

We believe our patents afford advantages by building fundamental and multilayered barriers to competitive encroachment upon key features and performance benefits of our principal product families. Our patents cover the fundamental switching topologies used to achieve the performance attributes of our converter product lines; converter array architectures; product packaging design; product construction; high frequency magnetic structures; as well as automated equipment and methods for circuit and product assembly.

In the United States, as of December 31, 2016,longer customer relationships than we have been issued 102 total patents, which expire between 2017 and 2035. We also have a number of patent applications pending in the United States and certain countries of Europe and Asia. We have vigorously protected our rights under these patents and will continue to do so. Although we believe patents are an effective way of protecting our technology, there can be no assurances our patents will prove to be enforceable in any given jurisdiction.do.

In addition to generating revenue from product sales, we seek to license our intellectual property. In granting licenses, we generally retain the right to use our patented technologies and manufacture and sell our products in all licensed geographic areas and fields of use. Licenses are granted and administered through our wholly-owned subsidiary, VLT, Inc., which is the assignee for our patents that may be subject to licensing. Revenues from licensing arrangements have not exceeded 10% of our consolidated revenues in any of the last three fiscal years.

Customers and Backlog

The applications in which our productsAdvanced Products and Brick Products are used are typically in the higher-performance, higher-power segments of the market segments we serve. The BBU hasWith our Advanced Product lines, we serve customers concentrated in aerospacevoltage distribution in server racks and aviation, defense electronics, industrial automation and equipment, medical diagnostics, rail transportation, and test and measurement instrumentation. VI Chip and Picor have customers concentrated in theacross datacenter and supercomputer segmentsinfrastructure of the computing market, although theywe also target applications in aerospace and aviation, defense electronics, networkingindustrial automation, instrumentation, test equipment, solid state lighting, testtelecommunications and measurementnetworking infrastructure, and vehicles (notably in the autonomous driving, electric vehicle, and hybrid vehicle niches of the vehicle segment). With our Brick Product lines, we serve customers concentrated in aerospace and defense electronics, industrial automation, industrial equipment, instrumentation and test equipment, and transportation (electric and hybrid vehicles and autonomous vehicles)(e.g., rail). With our strategic emphasis on larger, high-volume customers, we expect to experience a greater concentration of sales among relatively fewer customers.

For the year ended December 31, 2016, one customer, NuPower Electronic, Ltd., accounted for approximately 16.4.% of net revenues, and our five largest customers represented approximately 26.5% of net revenues. For the year ended December 31, 2015, one customer, NuPower Electronic, Ltd., accounted for approximately 16.2% of net revenues, and our five largest customers represented approximately 33.4% of net revenues. For the year ended December 31, 2014, one customer (NuPower Electronic, Ltd.) accounted for approximately 14.7% of net revenues, and our five largest customers represented approximately 32.6% of net revenues.

International revenues, as a percentage of total revenues, were approximately 59.4%, 59.6%, and 60.5% in 2016, 2015, and 2014, respectively. Net revenues from customers in China, our largest international market, accounted for approximately 32.1% of total net revenues in 2016, approximately 34.2% in 2015, and approximately 32.3% in 2014, respectively. International sales have increased from historical levels primarily due to higher volumes of shipments to foreign contract manufacturers, many of which are located in China, utilized by domestic and international OEMs. As we have substantially expanded our sales and customer support activities and resources internationally, particularly in Asia, we expect international sales to continue to increase as a percentage of total revenue.

As of December 31, 2016, we had a2018, the Company’s order backlog ofwas approximately $48,371,000,$102,963,000, compared to $39,073,000$73,054,000 as of December 31, 2015.2017. Backlog, as presented here, consists of orders for products for which shipment is scheduled

within the following 12 months, subject to normal customerour scheduling and cancellation policies.

The lead times between receipt and acceptance of an order and our shipment of the product remained historically long through 2018, although overall conditions across the global electronics supply chain stabilized, allowing the Company to shorten production lead times for certain products in the second half of 2018. As of December 31, 2018, we were quoting to customers average lead times of 14 weeks, consistent with the lead times quoted as of December 31, 2017, although during 2018 we quoted lead times as high as 20 weeks for certain products. We expect supply availability for certain materials and components to remain uncertain for the foreseeable future, and we may further increase inventory levels for these components and raw materials, as necessary. Accordingly, we may not be able to reduce delivery lead times across all product lines for the foreseeable future.

A portion of our revenue in any quarter is, and will continue to be, derived from orders booked and shipped in the same quarter. Overquarter, referred to as “turns” volume. However, over the past two years, the portionquarterly turns volume has steadily declined, reflecting lengthening lead times due to industry-wide supply chain uncertainties and a corresponding lengthening of sales booked and shipped in the same quartercustomers’ planning horizons. An additional influence on turns volume has represented less thantwo-fifthsbeen our transition to larger OEM customers, which typically schedule large volumes for delivery over up to three coming quarters. While turns volume averaged approximately 41% of our quarterly revenue as we typically only build products to customer specifications upon receipt of a purchase order (i.e., we typically do not maintain significant inventories of finished goods for the BBU and VI Chip). Products sold by the BBU may have a lead time (i.e., the period between receipt of an order and shipment of the product) of up to six weeks, although the average lead time for 2016, was less than four weeks. Products sold by VI Chip typically have a lead time in excess of eight weeks. Lead timesthis quarterly average fell to 36% for the BBU2017 and VI Chip may shorten (and have shortened) during periods of sustained volume. Picor, given its fabless model, builds inventories based on expected customer demandto 20% for 2018.

Marketing and orders from stocking distribution partners. As such, the portion of sales booked and shipped in the same quarter can vary considerably depending on the relative volumes of BBU, VI Chip, and Picor products booked within the quarter.

Sales and Marketing

We reach and serve customers through several channels: a direct sales force; a network of independent sales representative organizations in North America and South America; independent, authorizednon-stocking distributors in Europe and Asia; and three authorized stocking distributors world-wide,Digi-Key Corporation, Future Electronics Incorporated, and Mouser Electronics, Inc. These channels are supported by regional TSCs, each offering application engineering and sales support for customers and our channel partners. Domestic TSCs are located in: Andover, Massachusetts; Lombard, Illinois; and Santa Clara, California. International TSCs are located in: Beijing, China; Hong Kong, China; Shanghai, China; Shenzhen, China; Munich, Germany; Bangalore, India;

Milan, Italy; Tokyo, Japan; Seoul, South Korea; Taipei, Taiwan (Republic of China); Seoul, South Korea; and Camberley, United Kingdom. Customers do not place purchase orders with TSCs, but eitherdo so directly with the Company or with our distributors. In Japan, customers place purchase orders with VJCLauthorized distributors or, authorized distributors.for certain products, VJCL.

We generally sell our products on the basis of our standard terms and conditions, and we most commonly warrant our products for a period of two years. Effective January 1, 2017, we extended the warranty period to three years for a range of H Grade, M Grade, and MI FamilyDC-DC products sold after that date. In a limited number of circumstances, we have entered into supply contracts with certain high-volume customers calling for extended warranty terms. With our distribution partners, we also enter into contracts providing for our product warranties to transfer to the end customer upon final sale of our product(s) by the distributor.

Because of the technically complex nature of our products and the applications they address, we maintain an extensive staff of Field Applications Engineers to support our own sales and customer support activities, as well as those of our channel partners. Field Application Engineers, based in our TSCs, provide direct technical support worldwide by reviewing new applications and technical matters with our channel partners in support of existing and potential customers, as well as our channel partners.customers. Product Line Engineers, located in our Andover headquarters, support Field Application Engineers assigned to all of our TSCs.

VicorOur direct sales force focuses on higher-volume opportunities involving Advanced Products with global OEMs (and the Original Design Manufacturers (“ODMs”) and contract manufacturers serving these OEMs). Because of the high level of product differentiation and the increasing complexity and challenges of customer requirements, we have experienced, and may continue to experience, extended design cycles before production orders are received.

We also reachesreach customers through the recently-expanded electronic commerce capabilities of our website, www.vicorpower.com. Registered, qualified customers in the United States, Canada, and certain European countries are able to purchase prototype quantities of selected products online. We intend to expandexpanded these capabilities during 2018 to allow for higher-volume purchases.purchases, and we intend in 2019 to expand the geographic regions reached via our website.

Ourweb-based resources are an important element of our efforts to interact with and support customers. Within our website,PowerBench^TM is a workspace of tools and references allowing engineers to select, architect, and implement power systems using Vicor’sour products. During 2016,2018, we continued to enhance our highly differentiatedWhiteboard^TM tool, which allows users to configure and analyze their own power system designs or those from an extensive library of designs addressing a wide range of applications. Users can modify the operating condition for each component of their design to match the intended application and perform efficiency and loss analysis of individual components and the full power system. We are aggressively expandingcontinue to enhance and expand the range and capabilities of engineering tools we make available online to customers and prospective customers.

In 2016, we reorganizedAs stated, our approach to how we address new, low volume customers not already served by our regional distributorsstrategy involves maintaining high levels of customer engagement and support for design and engineering, which has resulted in European Union member countries. We discontinued our distributor support initiative, which had been an effort to address the needs of small-volume customers targeted for transition to distributors as their purchase volumes increased. Previously, such customers had placed orders via telephone or email, denominated in Euros or Pounds Sterling, with Vicor B.V., which served as importer of record for shipments by Vicor from Andover, Massachusetts. European TSCs participating in the initiative did not record

any revenue associated with shipments from Vicor to Vicor B.V. for subsequent delivery to customers. The early-stage, low volume customers previously served by this initiative now are referred by us to either our website or a distributor for order placement.

We generally sell our products on the basissignificant expansion of our standard termssales and conditions,application engineering infrastructure over historical levels, notably across Asia. We incurred approximately $42,533,000, $40,438,000, and we most commonly warrant our products for a period$37,967,000 in marketing and sales expenses in 2018, 2017, and 2016, respectively, representing approximately 14.6%, 17.7%, and 19.0% of two years. Effective January 1,revenues in 2018, 2017, we extended the warranty period to three years for a range of H Grade, M Grade and MI FamilyDC-DC converters, input filters, output filters, and front ends sold after that date. In a limited number of circumstances, we have entered into supply contracts with certain high-volume customers calling for extended warranty terms. With our distribution partners, we also enter into contracts providing for our product warranties to transfer to the end customer upon final sale of our product(s) by the stocking distributor.2016, respectively.

Manufacturing, Quality Assurance, and Supply Chain Management

Our BBU and VI Chip230,000 sq. ft. manufacturing facilities areco-locatedfacility is located in Andover, Massachusetts, where we are headquartered. In this facility, we manufacture Brick Products, with the exception of custom products produced by our Vicor Custom Power and VJCL subsidiaries, and Advanced Products, with the exception of products designed and sourced by our Picor operating segment, which, given its fabless model, outsources manufacturing,are manufactured, packaged, and tested by third party wafer foundries and packaging and testing of its products under contract to partnerscontractors in the United States and Asia.

Our primary manufacturing processes consist of assembly of electronic components onto printed circuit boards; automatic testing of components; wave, reflow and infrared soldering of assembled components; encapsulation or over-molding of converter subassemblies and assemblies; final environmental stress screening of certain products; and product inspection and testing using automated equipment. These processes are largely automated, but their labor components require relatively high levels of skill and training.

We pursuecontinue to make investments in automated manufacturing equipment, particularly for expansion of production capacity for Advanced Products. Beginning in the fourth quarter of 2018, we began the installation of equipment that, when fully qualified and operational, currently anticipated in the first quarter of 2019, is expected to increase our Advanced Products capacity by approximately 35%. Also in the fourth quarter of 2018, we began detailed development of plans to expand our existing manufacturing floor space by approximately 85,000 usable square feet. We plan to break ground on this addition to our existing plant in 2019 and take occupancy in 2020. The planned addition of multiple manufacturing lines in this additional space, across 2020 and 2021, is expected to increase our Advanced Products capacity by an additional 100%.

Our plans for the additional capacity do not include certain processes necessary for the manufacture of ourSM-ChiP^© line of surface-mounted converters. As previously disclosed, in December 2017 we began collaborating with a manufacturing strategy based uponhighly sophisticated contractor capable of meeting our near-term volume expectations with acceptable quality and cost. Through 2018 we expanded our relationship with this contractor, refining process steps and investing in specialized equipment for use by the contractor. As such, we have revised our schedule for taking such processesin-house, and expect to meet our forecast needs forSM-ChiP production flexibility andwith this contractor for the continuous improvement of product quality, volume throughput, and reduced manufacturing costs. foreseeable future.

Product quality and reliability are critical to our success and, as such, we emphasize quality and reliability in our design and manufacturing activities. We follow industry best practices in manufacturing and are compliant with ISO 9001 certification standards (as set forth by the International Organization for Standardization). Our quality assurance practices include rigorous testing and, as necessary,burn-in and temperature cycling (i.e., extended operation of a product to confirm performance) of our products using automated equipment.

We continue to make investments in automated manufacturing equipment, particularly for our ChiP modules and VIA packaging platforms. Based on current estimates of ChiP and VIA manufacturing volumes and our capacity requirements, we do not expect to incur capital expenditures during 2017 significantly higher than we incurred during recent years.

Components and materials used in our products are purchased from a variety of domestic and international vendors. Most of the components are available from multiple sources, whether directly from suppliers or indirectly through distributors. In instances of single source items, we maintain levels of inventories we consider to be appropriate to enable meeting the delivery requirements of customers. Incoming components, assemblies, and other parts are subjected to several levels of inspection procedures, and we maintain robust data on our raw material inventories in order to support our quality assurance procedures.

Components and materials used in our products are purchased from a variety of domestic and international vendors. The global electronics supply chain stabilized in 2018, but lead times for delivery of certain raw materials required for the manufacturing of our products remain extended. Most of these raw materials are available from multiple sources, whether directly from suppliers or indirectly through distributors, and during 2018 we continued to opportunistically expand certain raw material inventories to offset the uncertainties associated with availability and lead times.

Our Picor operating segment, given its fabless model, relies on a limited number of wafer foundries and providers of packaging and test services. Our proprietary switching controllers were designed by and are sourced through Picor, which relies on these wafer foundries and service providers for supply continuity and sufficiency of these critical semiconductor devices. Similarly, many of the proprietary semiconductors we use, for which we have either a manufacturing license or ownership of the designs, are sourced from third parties through Picor.

See Note 17 —Segment InformationTo date, we have not experienced delays or reduced raw material availability as a result of trade disputes between the United States and China, including the imposition earlier this year of import tariffs under the provisions of Section 301 of the Trade Act of 1974 (19 U.S.C. § 2411) (“Section 301 Tariffs”) on certain Chinese goods imported into the United States. We have not incurred a material amount of tariff charges, either directly or indirectly, on our purchases of raw materials.

Intellectual Property

Our competitive positioning has been, and will continue to the Consolidated Financial Statements for certain financial informationbe, supported by our long-standing commitment to research and development of power conversion technologies, advanced packaging and manufacturing, and

innovative approaches to solving customer problems. Our research and development activities have resulted in important domestic and foreign patents protecting our products and enabling technologies, as well as proprietary trade secrets associated with the operationsour use of certain components and manufacturing activitiesmaterials of our business segments.own design and proprietary manufacturing, packaging, and testing processes. We incurred approximately $44,286,000, $44,924,000, and $41,848,000 in research and development expenses in 2018, 2017, and 2016, respectively, representing approximately 15.2%, 19.7%, and 20.9% of revenues in 2018, 2017, and 2016, respectively.

We believe our intellectual property affords advantages by building fundamental and multilayered barriers to competitive encroachment upon key features and performance benefits of our principal product families. Our patents cover the fundamental switching topologies used to achieve the performance attributes of our converter product lines; converter array architectures; product packaging design; product construction; high frequency magnetic structures; and automated equipment and methods for circuit and product assembly.

As of December 31, 2018, in the United States, we have been issued 106 total patents. These patents have expirations scheduled between 2019 and 2037. We also have a number of patent applications pending in the United States and certain countries of Europe and Asia, including applications that would extend the life of current patents. We have vigorously protected our rights under these patents and will continue to do so. Although we believe patents are an effective way of protecting our technology, there can be no assurances our patents will prove to be enforceable in any given jurisdiction.

In addition to generating revenue from product sales, we seek to license our intellectual property. In granting licenses, we generally retain the right to use our patented technologies and manufacture and sell our products in all licensed geographic areas and fields of use. Licenses are granted and administered through our wholly-owned subsidiary, VLT, Inc., which is the assignee for our patents that may be subject to licensing. Revenues from licensing arrangements have not exceeded 10% of our consolidated revenues in any of the last three fiscal years.

Employees

As of December 31, 2016,2018, we had 959976 full time employees and 1231 part time employees. The number of part time employees varies throughout any year, largely based on the number of production shifts we may require at a particular time, as well as the number of college and graduate students participating in short termco-op programs. None of our employees are subject to a collective bargaining agreement. We believe our continued success depends, in part,

on our ability to attract and retain qualified personnel. Although there is strong demand for qualified personnel, we have not to date experienced meaningful difficulty in attracting and retaining sufficient engineering and technical personnel to meet our needs (see Part I, Item 1A — “Risk Factors”).

Available Information

We maintain a website with the address www.vicorpower.com and make available free of charge through this website our Annual Reports onForm 10-K, Quarterly Reports onForm 10-Q, Current Reports onForm 8-K, and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as reasonably practicable after we electronically file such material with, or furnish such material to, the SEC. We also make available on our website our Code of Business Conduct, as well as the charters for the Audit and Compensation Committees of our Board of Directors.

While our website sets forth extensive information, including information regarding our products and the applications in which they may be used, such information is not a part of, nor incorporated by reference into, this Annual Report onForm 10-K and shall not be deemed “filed” under the Exchange Act.

This Annual Report onForm 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act. Actual results could differ materially from those projected in the forward-looking statements as a result of, among other factors, the risk factors set forth below.

Our future operating results are difficult to predict and are subject to fluctuations.

Our operating results, including revenues, gross margins, operating expenses, and net income (loss), have fluctuated on a quarterly and annual basis. Our focus on higher volume opportunities with OEMs, ODMs, and their contract manufacturers has caused the impact of a relative few such customers to disproportionately influence our operating results. Unanticipated delays in purchase orders from and shipments to these customers have resulted in lower revenue, contributing tothan expected revenue. Despite our recent operating losses. Weprofitability during 2018, we cannot predict when, or if we will return tomaintain sustained profitability. Our future operating results may be materially affectedinfluenced by a number of factors, many of which are beyond our control, including:

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the effects of events outside of our control, including natural disasters, public health emergencies, terrorist activities, political risks, international conflicts, information security breaches, communication interruptions, and otherforce majeure.

As a result of these and other factors, we cannot assure you we will not experience significant fluctuations in future operating results on a quarterly or annual basis. In addition, if our operating results do not meet the expectations of investors, the market price of our Common Stock may decline.

Our stock price has been volatile and may fluctuate in the future.

Because of the factors set forth below, among others, the trading price of our Common Stock has fluctuated and may continue to fluctuate significantly:

We do not actively communicate with investment analysts and, as a consequence, we are not aware of earnings estimates or supporting investment research coverage of Vicor and our Common Stock. While we seek to be transparent in our financial reporting, public statements, and related disclosures, the absence of research coverage may limit investor interest in our Common Stock.Stock, as our communications with investors is generally limited to our quarterly earnings announcements and accompanying investor conference calls. Because our operating results have fluctuated on a quarterly and annual basis, investors may have difficulty in assessing our current and future performance.performance, particularly in light of our strategic transition, as discussed above.

In the past, we have declared and paid cash dividends on our Common Stock. The payment of dividends is based on the periodic determination by our Board of Directors that we have adequate capital to fund anticipated operating requirements and that excess cash is available for distribution to stockholders via a dividend. We have no formal policy regarding dividends and, as such, investors cannot make assumptions regarding the possibility of future dividend payments nor the amounts and timing thereof. As of December 31, 2018, we have no plans to declare or pay a cash dividend.

The ownership of our Common Stock is concentrated between Dr. Vinciarelli and a limited number of institutional investors. As of December 31, 2016,2018, Dr. Vinciarelli owned 9,828,2729,861,605 shares of our Common Stock, as well as 11,023,648 shares of our unregistered Class B Common Stock (convertible(which may only be sold or transferred after required conversion, on aone-for-one basis, into registered shares of Common Stock), together representing 54.5%52.9% of our total issued and outstanding shares. Accordingly, the market float for our Common Stock and average daily trading volumes are relatively small, which canmay negatively impact investors’ ability to buy or sell shares of our Common Stock in a timely manner.

Dr. Vinciarelli owns 93.8% of ourthe issued and outstanding shares of our Class B shares,Common Stock, which possess 10 votes per share. Dr. Estia J. Eichten, a member of our Board of Directors, owns the majority of the balance of the Class B shares

Common Stock issued and outstanding. As such, Dr. Vinciarelli, controlling in aggregate 82.7%81.9% of our outstanding voting securities, has effective control of our governance.

Dr. Vinciarelli also holds 5,500,000non-qualified options for the purchase of the common stock of our subsidiary, VI Chip Corporation. We anticipate merging VI Chip with and into the Company during 2019, in the same manner as our Picor Corporation subsidiary was merged with and into the Company, effective May 30, 2018. Assuming the same merger structure (i.e., astock-for-stock exchange, compliant with the “spread and ratio” tests and other requirements of Section 424 of the Internal Revenue Code, as amended, by which both the option plan and outstanding options are assumed by the surviving entity (in this case, the Company)), the merger of VI Chip with and into the Company likely would not result in a meaningful change to the percentage held by Dr. Vinciarelli of our total issued and outstanding shares on a fully diluted basis (i.e., the sum of total shares outstanding and exercisable stock options). As of December 31, 2018, we cannot estimate the share values of either VI Chip or the Company at the time of the anticipated merger.

Global economic uncertainty could materially and adversely affect our business and consolidated operating results.

Global economic conditions during the first half of 2018 reflected confidence and expectations of further expansion. However, with the imposition of the Section 301 Tariffs on certain Chinese goods imported into the United States and the corresponding imposition by China of tariffs on certain U.S. goods imported into China, customer confidence began to be replaced by uncertainty. During the second half of 2018, the Chinese economy slowed markedly, contributing to the cyclical decline of certain markets and geographies around the world. Our new orders and shipments surged into the first half of 2018, but the second half reflected heightened customer uncertainty, and we performed below our expectations. Disruption and further deterioration of global economic conditions, including extended trade disputes, the relative strength of the U.S. Dollar, and rising interest rates, may reduce customerend-demand for our customers’ products and, in turn, their purchases of our products, thereby reducing our revenues and earnings. In addition, such adverse conditions may, among other things, result in increased price competition for our products, notably in Brick Product categories, increased risk of excess and obsolete inventories, increased risk in the collectability of our accounts receivable from our customers, increased risk in potential reserves for doubtful accounts and write-offs of accounts receivable, and higher operating costs as a percentage of revenues.

We compete with many companies possessing far greater resources.

Some of our competitors have far greater financial, manufacturing, technical, and sales and marketing resources than we have. Wepossess or have access to. Our Brick Products compete with those products offered by domestic and foreign manufacturers of integrated power suppliessystems and power conversion components. With the growth of our VI Chip and Picor productAdvanced Product lines, we increasingly are competing with global manufacturers of power management products with far larger organizations and broader semiconductor-based product lines. Competition is generally based on design and quality of products, product performance, features and functionality,design flexibility (i.e., ease of use), product price, and product pricing, availability, and capacity, withbut the relative importance of these factors varying among products, markets, and customers. Existing or new competitors may develop products or technologies that more effectively address the demands of

our customers and markets with enhanced performance, features and functionality, or lower cost. Larger competitors frequently seek to maintain market share and protect customer relationships through heavily-discounted pricing, which we may not be able to match. If we fail to develop and commercialize leading-edge technologies and products that are cost effective and maintain high standards of quality, and introduce them to the market on a timely basis, our competitive position and results of operations could be materially adversely affected.

Our future success depends upon our ability to develop and market differentiated, leading-edge power conversion products for larger customers, potentially contributing to lengthy product development and sales cycles that may result in significant expenditures before revenues are generated. Our future operating results are dependent on the growth in such customers’ businesses and on our ability to profitably develop and deliver products meeting customer requirements.

The power system industry and the industries in which many of our customers operate are characterized by intense competition, rapid technological change, quickened product obsolescence, and price erosion for mature products, each of which could have an adverse effect on our results of operations. We are following a strategy based on the development of differentiated productsAdvanced Products addressing what we believe to be the long-term limitations of traditional power architectures, while at the same time sustaining the performancesales and profitability of the BBU, which manufactures and markets our lines of legacy brick products.well-established Brick Products. The development of new, innovative products is often a complex, time-consuming, and costly process involving significant investment in research and development, with no assurance of return on investment. Although we have introduced many productsAdvanced Products over the past three years, there can be no assurance we will be able to continue to develop and introduce new and improved products and power system concepts in a timely or efficient manner. Similarly, there can be no assurance recently introduced or to be developed products will achieve customer acceptance.

Our future success depends substantially upon customer acceptance of our innovative products.Advanced Products, notably ourPower-on-Package concept in AI and other high-performance applications. As we have been in the early stages of market penetration for these products,and other Advanced Products, we have experienced lengthy periods during which we have focused our product development efforts on the specific requirements of a limited number of large customers, followed by further periods of delay before meaningful purchase orders are received. These lengthy development and sales cycle times increase the possibility a customer may decide to cancel or change product plans, which could reduce or eliminate our sales to that customer. As a result, we may incur significant

product development expenses, as well as significant sales and marketing expenses, before we generate the related revenues for these products. Furthermore, we may never generate the anticipated revenues from a product after incurring such expenses if our customer cancels or changes its product plans.

We are shiftingcontinue to shift ourgo-to-market strategy to focus on larger opportunities with global OEMs, ODMs, and their contract manufacturers. Our growth is therefore dependent on: the pace at which these OEMs and ODMs develop their own new products,products; the acceptance of our productsAdvanced Products by these OEMs and ODMs; and the success of the OEMcustomers’ products incorporating our new products.Advanced Products. If we fail to anticipate changes in our customers’ businesses and their changing product needs or do not successfully identify and enter new markets, our results of operations and financial position could be negatively impacted.

In 2018, we established a dedicated sales effort to penetrate the automotive market with our Advanced Products, notably in rapidly expanding 48V “mild hybrid” segment. The automotive market is dominated by relatively few global OEMs and “tiers” of well-established suppliers. Penetrating this market will be challenging and we may not be successful in doing so. Additionally, our early success with vendors of AI computing solutions may not translate into long-term success with customers participating in the long-term development of autonomous driving solutions.

We cannot assure youoffer any assurance the markets we currently serve will grow in the future, our existing and new productsAdvanced Products or Brick Products will meet therespective market requirements, of these markets, or we can maintain adequate gross margins or operating profits in these markets.

Our operating results recently have been influenced by a limited number of customers, and our future results may be similarly influenced.

Since it was established in 2007,the introduction of our VI Chip subsidiaryAdvanced Products, the Company has derived a substantial portion of its revenue from Advanced Products in any given year from either one customer or a limited number of customers, whether through sales directly to the customercustomer(s) or indirectly to the customer’scustomers’ contract manufacturers. Similarly, our Picor subsidiary has derived a substantial portion of its third-party revenue from a limited number of customers, including those customers served by VI Chip. This concentration of revenue is a reflection of the relatively early stage of adoption of the Advanced Products and the associated technologies and power system architectures, and products offered by these subsidiaries, and theirour targeting of market leading innovators as initial customers. Our current sales and marketing efforts in part, are focused primarily on accelerating the adoption of VI Chip and Picor productsAdvanced Products by a diversified customer base, across a number of identified market segments. However, we cannot assure you our new strategy will be successful and such diversification of customers will be achieved.

Further stagnation of spending by the U.S. Department of Defense or a pronounced shift in the nature of such spending may negatively influence our operating results.

Customers in the defense electronics segment historically have contributed a meaningful portion of our revenue, primarily in the BBU, which sells military-grade brick modules and, through our Vicor Custom Power businesses, customer-specific systems incorporating our brick modules, primarily for C4I (Command,Control,Communications,Computing, and Intelligence) applications. However, shifts in Department of Defense spending priorities and ongoing budget constraints have contributed to a decline in such revenue as a percentage of our consolidated revenue. Additional risks to our defense electronics volume has been associated with the organizational structure, capacity, and ownership of our Vicor Custom Power businesses. In March 2016, we acquired 100% ownership of certain operating assets and cash of our consolidated subsidiary, Converpower Corporation, in which we held a 49% ownership interest, transferring operations to Granite Power Technologies, Inc., a wholly-owned subsidiary we established to assume the operations of a previously unincorporated Vicor Custom Power location (i.e., a division). Converpower ceased operations in December 2015. In December 2015, we completed the statutory merger of one Vicor Custom Power subsidiary, Mission Power Solutions, Inc. with and into another subsidiary, Northwest Power, Inc., after which we closed the Mission Power Solutions location. Also in December 2015, we sold our 49% ownership interest in Aegis Power Systems, Inc. to Aegis Power Systems, thereby ending our formal relationship with the subsidiary. We undertook these transactions in order to consolidate our custom organization, reduce manufacturing capacity, and reduce our cost structure. If the performance of the remaining three Vicor Custom Power subsidiaries does not improve as expected, we may choose to further consolidate our locations or otherwise rationalize our associated cost structure, which may impact our ability to compete cost effectively in this market segment.

We may not be able to procure necessary key components for our products,or raw materials, or we may purchase excess raw material inventory or unusable inventory, possibly impactingwhich increases the risk of reserve charges to reduce the value of any inventory deemed excess or obsolete, thereby reducing our operating results.profitability.

The power systems industry, and the electronics industry as a whole, can be subject to pronounced, lengthy business cycles and otherwise subject to sudden and sharp changes in demand. Our success, in part, is dependent on our

ability to forecast and procure inventories of rawcomponents and materials and components to match production schedules and customer delivery requirements. Many of our products require raw materials supplied by a limited number of vendors and, in some instances, a single vendor. During certain periods, key components or materials required to build our products may become unavailable in the timeframe required for us to meet our customers’ needs. Our inability to secure sufficient raw materials and components to buildmanufacture products for our customers has reduced, in the past, negatively impacted our salesrevenue and operating resultsprofitability and could do so again. We may choose, and have chosen, to mitigate this risk by increasing the levels of inventory for certain materialscomponents and components.materials. Such increased inventory levels may increase the potential risk for excess or obsolete inventories, should our forecasts fail to materialize or if there are negative factors impacting our customers’ end markets, leading to order cancellation. If we identify excess inventory or determine certain inventory is obsolete (i.e., unusable), we maylikely will record additional inventory reserves (i.e., expenses representing thewrite-off of the excess or obsolete inventory), which could have an adverse effect on our gross margins and on our operating results.

We rely on third-party vendors and subcontractors for supply of components, assemblies, and services and, therefore, cannot control the availability or quality of such components, assemblies, and services.

We depend on third-party vendors and subcontractors to supply components, assemblies, and services used in our products, some of which are supplied by a single vendor, and have experienced shortages of certain semiconductor components, incurred additional and unexpected costs to address the shortages, and experienced delays in production and shipping. If suppliers or subcontractors cannot provide their products or services on time or to our specifications, we may not be able to meet the demand for our products and our delivery times may be negatively affected. In addition, we cannot directly control the quality of the products and services provided by third parties. In order to growexpand revenue, we likely will need to identify and qualify new suppliers and subcontractors to supplant or replace existing suppliers and subcontractors, which ismay be a time-consuming and expensive process. In addition, any qualification of new suppliers may require customers of our products utilizing products and services from new suppliers and service providers to undergo are-qualification process. Such circumstances likely would lead to disruptions in our production, increased productionmanufacturing costs, delays in shipping to our customers, and/or increases in prices paid to third parties for products and services.

We are exposed to foreign economic, political, and other external risks.

For the years ended December 31, 2016, 2015,2018, 2017, and 2014, our2016, revenues from sales outside the United States were 59.4%62.0%, 59.6%63.2%, and 60.5%59.8%, respectively, of the Company’sour total revenues. Net revenues from customers in China, our largest international market, accounted for approximately 32.1%37.4% of total net revenues in 2016,2018, approximately 34.2%35.8% in 2015,

2017, and approximately 32.3%32.1% in 2014,2016, respectively. We expect international sales will continue to be a significant component of total sales, since many of the global manufacturersOEMs and ODMs we target as customers are domiciled offshore, and such customers increasingly utilize offshore contract manufacturers, and rely upon those contract manufacturers to place orders directly with us. We also expect international revenue from our distributors to increase.

While our currency risks are limited, as our sales are denominated in U.S. Dollars worldwide, with the exception of sales by VJCL and(and a residual volume of sales of Vicor B.V.), our international activities expose us to special risks including, but not limited to, regulatory requirements, economic and political instability, transportation delays, foreign currency controls, and market fluctuations, trade barriersrestrictions and tariffs, and unfavorable shifts in foreign exchange rates. In addition, our international customers’ business may be negatively affected imposition of tariffs, as was the case in 2018 with the imposition of Section 301 Tariffs on certain Chinese goods imported into the United States and the corresponding imposition of import tariffs by China on certain U.S. goods imported into China, and by economic sanctions, as were imposed in 2014 by the U.S. Department of the Treasury against certain Russian entities to which we had sold products in the past. Sudden or unexpected changes in the foregoing could have a material adverse effect on our operating results.

We may be unable to adequately protect our proprietary rights, which may limit our ability to compete effectively.

We operate in an industry in which the ability to compete depends on the development or acquisition of proprietary technologies that must be protected to preserve the exclusive use of such technologies. We devote

substantial resources to establish and protect our patents and proprietary rights, and we rely on patent and intellectual property law to protect such rights. This protection, however, may not prevent competitors from independently developing products similar or superior to our products. We may be unable to protect or enforce current patents, may rely on unpatented technology that competitors could restrict or replicate, or may be unable to acquire patents in the future, all of which may have a material adverse effect on our competitive position. In addition, the intellectual property laws of foreign countries may not protect our rights to the same extent as those of the United States. We have been and may need to continue to defend or challenge patents. We have incurred and expect to incur significant financial costs in the defense of our patented technologies and have devoted and expect to devote significant resources to these efforts which, if unsuccessful, may have a material adverse effect on our operating results and financial position.

We face intellectual property infringement claims that could be disruptive to operations and costly to resolve and may encounter similar infringement claims in the future.

The power supply industry is characterized by vigorous protection and pursuit of intellectual property rights. We have in the past and may in the future receive communications from third parties asserting that our products or manufacturing processes infringe on a third party’s patent or other intellectual property rights. Such assertions, if publicly disclosed, have in the past and may in the future inhibit the willingness of potential customers to purchase certain of our products. In the event a third party makes a valid intellectual property claim against us and a license is not available to us on commercially reasonable terms, or at all, we could be forced to either redesign or stop production of products incorporating that technology, and our operating results could be materially and adversely affected. In addition, litigation may be necessary to defend us against claims of infringement, and this litigation could be costly, extend over a lengthy period of time, and divert the attention of key personnel. An adverse outcome in these types of matters could have a material adverse impact on our operating results and financial condition.

Please see Part I, Item 3 — “Legal Proceedings” for information regarding current litigation related to our intellectual property.

Any expenses or liability resulting from the outcome of litigation could adversely affectinfluence our operating results and financial condition.

From time to time, we may be subject to claims or litigation, including intellectual property litigation as described elsewhere in this Annual Report on Form10-K. Any such claims or litigation may be time-consuming and costly, divert management resources, require us to change our products, or have other adverse effects on our business. Any of the foregoing could have a material adverse effect on our operating results and could require us to pay significant monetary damages.

The outcomes of legal proceedings and claims brought against us are subject to significant uncertainty. An estimated loss from a loss contingency such as a legal proceeding or claim is accrued by a charge to income if it is considered probable an asset has been impaired or a liability has been incurred and the amount of the loss can be reasonably estimated. Disclosure of a contingency is required if there is at least a reasonable possibility that a loss has been incurred. In determining whether a loss should be accrued, we evaluate, among other factors, the degree of probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of loss. Changes in these factors could materially impact our financial statements. As of December 31, 2016,2018, our evaluation led us to conclude no accrual of a loss contingency was warranted.

We may face legal claims and litigation from product warranty or other claims that could be costly to resolve.

We have in the past and may in the future encounter legal action from customers, vendors, or others concerning product warranty or other claims. We generally offer atwo-year warranty from the date title passes

from us for all of our standard products. Effective January 1, 2017, we extended the warranty period to three years for a range of H Grade, M Grade and MI FamilyDC-DC converters, input filters, output filters, and front endslegacy products sold after that date. In a limited number of circumstances, we have entered into supply contracts with certain high-volume customers calling for extended warranty terms. With our distribution partners, we also enter into contracts providing for our product warranties to transfer to the end customer upon final sale of our product(s) by the stocking distributor.

We invest significant resources in the testing of our products; however, if any of our products contain defects, we may be required to incur additional development and remediation costs, pursuant to our warranty policies. These issues may divert our technical and other resources from other product development efforts and could result in claims against us by our customers or others, including liability for costs associated with product returns, which may adversely impactinfluence our operating results. If any of our products contain defects, or have reliability, quality, or compatibility problems, ourthe Company’s reputation may be damaged, which could make it more difficult for us to sell our products to existing and prospective customers and could adversely affect our operating results. We are currently party to a limited number of supply agreements with certain customers contractually committing us to warranty and indemnification requirements exceeding those to which we have been exposed in the past. While we maintain insurance coverage for such exposure, we could incur significant financial cost beyond the limits of such coverage, as well as operational disruption and damage to our competitive position and image if faced with a significant product warranty or other claim.

Our ability to successfully implement our business strategy may be limited if we do not retain our key personnel and attract and retain skilled and experienced personnel.

Our success depends on our ability to retain the services of our executive officers. The loss of one or more members of senior management could materially adversely affect our business and financial results. In particular, we are dependent on the services of Dr. Vinciarelli, our founder, Chairman of the Board, Chief Executive Officer, and President. The loss of the services of Dr. Vinciarelli could have a material adverse effect on our development of new products and on our results of operations. In addition, we depend on highly skilled engineers and other personnel with technical skills that are in high demand and are difficult to replace. Our continued operations and growth depend on our ability to attract and retain skilled and experienced personnel in a very competitive employment market. If we are unable to attract and retain these employees, our ability to successfully implement our business strategy may be harmed.

Extended interruption of production at our manufacturing facility in Andover, Massachusetts, could materially reduce our revenue and increase costs.

All modular power components and power systems, whether for direct sale to customers or for sale to our subsidiaries for incorporation into their respective products, as well as all configurable products, are manufactured at our Andover, Massachusetts, production facility. Substantial damage to this facility due to fire, natural disaster, power loss, or other events, including events associated with our planned expansion of the facility in 2019, could interrupt manufacturing. While we have never experienced any meaningful interruption of manufacturing in our history, any prolonged inability to utilize all or a significant portion of our Andover facility could have a material adverse effect on our results of operations.

Disruption of our information technology infrastructure could adversely affect our business.

We depend heavily on our computing and communications infrastructure to achieve our business objectives, particularly for email communications, financial and operational record keeping, and our computer-integrated manufacturing processes that controlcontrolling all aspects of our operations in our manufacturing facility in Andover, Massachusetts. If a problem occurs impairing this infrastructure, the resulting disruption could impede our ability to record or process orders, manufacture and ship in a timely manner, or otherwise carry on business in the normal course. Since 2012, we have experienced no interruption of our computing and communications capabilities. While we carry business interruption insurance, that would mitigateto offset financial losses from such an

interruption, and cyber-risk insurance to an extent,address potential liabilities from such disruption, such insurance may be insufficient to compensate us for the potentially significant amountscosts or liabilities incurred. Any such events, if prolonged, could have a material and adverse effect on our operating results and financial condition.

Our systems are designed to protect us from network security breaches and associated disruptions. However, we remain vulnerable to computer viruses and related software-based challenges to the integrity of our systems, unauthorized or illegalbreak-ins or malicious network hacking, equipment or software sabotage, acts of vandalism to our systems by third parties, and, in the extreme, forms of cyber-terrorism.cyberterrorism. Our security measures or those of our third-party service providers may not detect or prevent such network security breaches or associated disruptions.

Also, we provide confidential information to third-party business partners and/or receive confidential information from third-party business partners in certain circumstances when doing so is necessary to conduct business. As of December 31, 2018, we were compliant with the comprehensive requirements for the protection of controlled unclassified information (“CUI”) as set forth in Special Publication800-171 of the National Institute of Standards and Technology. While we employ confidentiality agreements to protect suchother sensitive information (i.e., information not considered CUI), our own security measures or those of our third-party service providers may not be sufficient to protect such information in the event the computing infrastructure of these third-party business partners is compromised. Security breaches of our computing and communications infrastructure or that of a third-party business partner could result in the misappropriation or unauthorized release of confidential information belonging to us or to our employees, partners, customers or suppliers, which could result in an interruption to our operations, result in a violation of privacy or other laws, expose us to a risk of litigation, or damage our reputation, any of which could have a material and adverse effect on our operating results and financial condition.

If we fail to maintain an effective system of internal controls over financial reporting or discover material weaknesses in our internal controls over financial reporting, we may not be able to report our financial results accurately or timely or detect fraud, which could have a material adverse effect on our business.

An effective internal control environment is necessary for us to produce reliable financial reports and is an important part of our effort to prevent financial fraud. Section 404 of the Sarbanes-Oxley Act of 2002 (“SOX”) requires our management to report on, and our independent registered public accounting firm to attest to, the effectiveness of our internal control over financial reporting.

We have an ongoing program to perform the system and process evaluation and testing necessary to comply with the requirements of the Sarbanes-Oxley ActSOX and to continuously improve and, when necessary, remediate internal controls over financial reporting.

While management evaluates the effectiveness of our internal controls on a regular basis, these controls may not always be effective. There are inherent limitations on the effectiveness of internal controls, including collusion, management override, and failure in human judgment. In addition, control procedures are designed to reduce rather than eliminate business risks. In the event our Chief Executive Officer or Chief Financial Officer, our certifying officers under SOX, or our independent registered public accounting firm determines our internal

controls over financial reporting are not effective as defined under Section 404, we may be unable to produce reliable financial reports or prevent fraud, which could materially adversely affectharm our business. In addition, we may be subject to sanctions or investigation by government authorities or self-regulatory organizations, such as the SEC, the Financial Industry Regulatory Authority, or The NASDAQ Stock Market LLC. Any such actions could affect investor perceptions of the Company and result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of our financial statements, which could cause the market price of our Common Stock to decline or limit our access to capital.

New regulationsRegulations related to conflict minerals could adversely impact our business.

The Dodd-Frank Wall Street Reform and Consumer Protection Act contains provisions to improve transparency and accountability concerning the supply of certain minerals, known as conflict minerals (including gold, tantalum, tin, and tungsten, and their related ores), originating from the Democratic Republic of Congo (“DRC”) and adjoining countries. As a result, in August 2012 the SEC released final rules for annual disclosure and reporting for those companies who use conflict minerals mined from the DRC and adjoining countries in

their products. We began to implement processes within our supply chain to comply with these rules beginning in 2012 and filed our initial Form SD in May 2014. There have been and will continue to be costs associated with complying with these disclosure requirements, including due diligence to determine the sources of conflict minerals used in our products and other potential changes to products, processes, or sources of supply as a consequence of such verification activities. The implementation of these rules could adversely affect the sourcing, supply, and pricing of materials used in our products. As there may be only a limited number of suppliers offering “conflict free” conflict minerals, we cannot be sure thatcertain we will be able to obtain necessary conflict minerals from such suppliers in sufficient quantities or at competitive prices. Also, we may face reputational challenges if we determine that certain of our products contain minerals not determined to be conflict free or if we are unable to sufficiently verify the origins for all conflict minerals used in our products through the procedures we may implement.

Our ability to successfully implement our business strategy may be limited if we do not retain our key personnel and attract and retain skilled and experienced personnel.

Our success depends on our ability to retain the services of our executive officers. The loss of one or more members of senior management could materially adversely influence our business and financial results. In particular, we are dependent on the services of Dr. Vinciarelli, our founder, Chairman of the Board, Chief Executive Officer, and President. The loss of the services of Dr. Vinciarelli could have a material adverse effect on our development of new products and on our results of operations. In addition, our research and development and marketing and sales activities depend on highly skilled engineers and other personnel with technical skills, who are in high demand and are difficult to replace. Our continued operations and growth depend on our ability to attract and retain skilled and experienced personnel in a very competitive employment market. If we are unable to attract and retain such employees, our ability to successfully implement our business strategy may be harmed.

None.

Our corporate headquarters building in Andover, Massachusetts, which we own, provides approximately 90,000 square feet of office space for our sales, marketing, engineering, and administrative personnel and is used by and supports all business segments. We also own a building of approximately 230,000 square feet in Andover, Massachusetts, which houses all Massachusetts manufacturing activities.

Current capital investments are focused in the consolidationexpansion of manufacturing Westcor’s products, fromcapacity for the production of Advanced Products at our Andover, Massachusetts facility. Based on our long-term forecast of production levels, we anticipate substantial additional capacity will be required to meet requirements beyond 2019. We believe the most appropriate manner of meeting our long-term capacity requirements will be to initially expand the production area of our Andover, Massachusetts facility by approximately 85,000 square feet, through the addition of a two story wing housing ChiP manufacturing equipment. We have entered the design and permitting phase for this project and plan to break ground on this addition to our existing plant in 2019 and take occupancy in 2020. We also are proceeding with the evaluation of alternative projects for the addition of another, larger manufacturing facility, should we anticipate the need based on our forecasts for capacity beyond 2021.

We own and lease a single-story industrial building of approximately 31,000 square feet in Sunnyvale, California, to our manufacturing facility in Andover, Massachusetts. The Sunnyvale building was purchased in 1994 and is carried on our consolidated balance sheet at a net book value, as of December 31, 2016, of approximately $631,000. In February 2016, we executed a long-term lease with a corporate tenant, who occupied the building beginning in June 2016.

All other domestic and foreign facilities are leased from third-party lessors on arms’ length terms. We believe our owned and leased facilities are adequate for our present needs and expect them to remain adequate for the foreseeable future.

OnWe are the defendant in a patent infringement lawsuit originally filed on January 28, 2011 by SynQor, Inc. (“SynQor”) filed a complaint for patent infringement against Ericsson, Inc. (“Ericsson”), Cisco Systems, Inc. (“Cisco”) and Vicor in the U.S. District Court for the Eastern District of Texas (the “Texas Action”). Ericsson and Cisco subsequently settled with SynQor and are no longer parties to the Texas Action. With respect to Vicor, SynQor’sThe complaint, as amended in the Texas Action allegedSeptember 2011, alleges that our products, including but not limited to, unregulated bus converters used in intermediate bus architecture power supply systems, infringe SynQor’s U.S. patent numbers 7,072,190, 7,272,021, 7,564,702, and 7,564,7028,023,290 (“the ‘190 patent”, “the ‘021 patent”, “the ‘702 patent”, and “the ‘702‘290 patent”, respectively). SynQor’s complaint sought an injunction against further infringement and an award of unspecified compensatory and enhanced damages, interest, costs and attorney fees. On September 20, 2011, SynQor filed an amended complaint in the Texas ActionWe have denied that further alleged that our products, including, but not limited to, unregulated bus converters used in intermediate bus architecture power supply systems, infringe SynQor’s U.S. patent number 8,023,290 (“the ‘290 patent”). We responded to SynQor’s amended complaint in the Texas Action by denying our products infringe any of the SynQor patents, and assertingasserted that the SynQor patents are invalid. We further allegedinvalid, and asserted that the SynQor ‘290 patent is unenforceable due to inequitable conduct by SynQor or its agents during the examination of the ‘290 patent at the United States Patent and Trademark Office (“USPTO”). We have also asserted counterclaims seeking damages against SynQor for deceptive trade practices and tortious interference with prospective economic advantage arising from SynQor’s attempted enforcement of its patents against us.

We haveIn 2011, in response to the filing of the Texas Action, we initiated administrative reviewinter partes reexamination proceedings at the USPTO challenging the validity of certain claims of the SynQor patents asserted in the Texas Action, including all claims that were asserted against us by SynQor. The current status of these proceedings is as follows. Regarding the ‘190 patent, the United States Court of Appeals for the Federal Circuit (the “Federal Circuit”) issued a decision on March 13, 2015, determining that certain claims were invalid, remanding the matter to the Patent Trial and Appeal Board (“PTAB”) of the USPTO issued a decision upholding the validity of the ‘190 patent claims. That decision was appealed by us to the United States Court of Appeals for the Federal Circuit (“the Federal Circuit”), which issued a decision on March 13, 2015 reversing the PTAB, determining that certain claims were invalid, and remanding the matter to the PTAB for further proceedings. On May 2, 2016, the PTAB issued a decision determining thataffirming the examiner’s original rejection of all but one of the remaining claims of the ‘190 patent, were invalid and remandingidentifying a new basis for rejecting the remaining claim to a patent examiner for(“claim 34”), which had been added by SynQor during the reexamination. SynQor then requested further examination whereof claim 34 by the examiner, pursuant to 37 C.F.R. § 41.77(b)(1). On June 22, 2017, the examiner issued a determination under 37 C.F.R. § 41.77(d), finding claim 34 was unpatentable. That decision is expected to be further reviewed by the PTAB pursuant to 37 C.F.R. § 41.77(f). After the PTAB reviews the examiner’s decision with respect to claim 34, it remains under review. In addition, onis expected that date,the PTAB’s decisions with respect to all of the challenged and still pending claims of the

‘190 patent will be subject to further review by the Federal Circuit. On May 2, 2016, the PTAB also issued decisions finding all challenged claims of SynQor’s ‘021 patent invalid and upholding the validity of all challenged claims of SynQor’s ‘702 and ‘290 patents. We have filed an appeal withOn August 30, 2017, the Federal Circuit fromissued rulings with regard to those decisions. With respect to the ‘021 patent, the Federal Circuit affirmed the PTAB’s decision upholdingdetermination that all of the validitychallenged claims of the ‘021 patent were invalid. The Federal Circuit remanded the case to the PTAB for further consideration of the patentability of certain claims that had been added by amendment during the reexamination. With respect to the ‘702 patent, the Federal Circuit affirmed the PTAB’s determination that all of the challenged claims of the ‘702 andpatent were patentable. With respect to the ‘290 patents. SynQor has filed an appeal withpatent, the Federal Circuit fromvacated the PTAB’s decision upholding the patentability of the ‘290 patent claims, and remanded the case to the PTAB for further consideration. The PTAB has not issued any rulings with respect to the ‘290 patent after remand.

On October 31, 2017, we filed a request with the USPTO forex parte reexamination of the asserted claims of the ‘702 patent, based on different prior art references than had been at issue in the previousinter partes reexamination of the ‘702 patent. On December 6, 2017, the USPTO issued a decision initiatingex parte reexamination of the ‘702 patent after finding that our request had raised a substantial new question of patentability of the challenged claims. On March 21, 2018, the examiner issued anon-final office action finding all of the challenged claims of the ‘021‘702 patent are invalid. Decisions in these appeals are expected later in 2017.to be unpatentable. On May 23, 2016,14, 2018, SynQor filed a petition requesting the Texas CourtUSPTO to vacate its prior decision granting our request forex parte reexamination. No action has been taken on the petition to date. On September 12, 2018, the examiner issued an order staying the Texas Action until the completion ofa final office action finding all of the administrative review proceedings concerningchallenged claims of the ‘702 patent to be unpatentable. On October 26, 2018, SynQor filed a notice of appeal appealing the examiner’s final rejection to the PTAB. On December 3, 2018, the USPTO denied SynQor’s petition to vacate the decision initiating theex parte reexamination. We continue to monitor the progress of this proceeding.

On August 6, 2018, we filed a request with the USPTO forex parte reexamination of the asserted claims of the ‘190 patent, based on different prior art references than had been at issue in the previousinter partes reexamination of the ‘190 patent. On September 11, 2018, SynQor filed a petition asking the USPTO to reject our request on the ground that it presented substantially the same prior art or arguments presented to the USPTO in the priorinter partes reexamination of the ‘190 patent. On December 3, 2018, the USPTO denied SynQor’s petition to reject ourex parte reexamination request. On December 4, 2018, the USPTO institutedex parte reexamination of the ‘190 patent after finding that our request had raised a substantial new question affecting the patentability of the challenged claims.

On January 23, 2018, the20-year terms of the ‘190 patent, the ‘021 patent and the ‘702 patent expired. The20-year term of the ‘290 patent expired on July 16, 2018. As a consequence of these expirations, we cannot be liable under any of the SynQor patents including any appeals from such proceedings tofor allegedly infringing activities occurring after the Federal Circuit.patents’ respective expiration dates.

We continue to believe none of our products, including our unregulated bus converters, infringe any valid claim of the asserted SynQor patents, either alone or when used in an intermediate bus architecture implementation, including such use by Cisco.implementation. We believe SynQor’s claims lack merit and, therefore, we continue to vigorously defend ourselvesourself against SynQor’s patent infringement allegations. We do not believe a loss is probable for this matter. If a loss were to be incurred, however, we cannot estimate the amount of possible loss or range of possible loss at this time.

In addition to the SynQor matter, we are involved in certain other litigation and claims incidental to the conduct of our business. While the outcome of lawsuits and claims against us cannot be predicted with certainty, we domanagement does not expect any current litigation or claims will have a material adverse impact on our financial position or results of operations.

Not Applicable.

PART II

Our Common Stock is listed on The NASDAQ Stock Market LLC, under the trading symbol “VICR.” Shares of our Class B Common Stock are not registered with the Securities and Exchange Commission, are not listed on any exchange nor traded on any market, and are subject to transfer restrictions under our Restated Certificate of Incorporation, as amended.

The following table sets forth the quarterly high and low sales prices for the Common Stock as reported by The NASDAQ Stock Market for the periods indicated:

As of February 28, 2017,21, 2019, there were 153134 holders of record of our Common Stock and 13 holders of record of our Class B Common Stock. These numbers do not reflect persons or entities that hold their shares in nominee or “street name” through various brokerage firms.

Dividend Policy

We do not have a policy mandating the declaration of cash dividends at any particular time or on a regular basis. We did not pay cash dividends on our Common Stock for the years ended December 31, 2016 or 2015.

Dividends are declared periodically, only at the discretion of our Board of Directors, and any such declaration depends on actual cash from operations, our financial condition and capital requirements, the recommendation of our management, and any other factors the Board of Directors may consider relevant at the time.

From time to time, excess cash held at the subsidiary level is transferred to the Company via cash dividends declared by the subsidiary. Because we have owned less than 100% of the common stock of certain subsidiaries, such subsidiary dividends can result in payments to outside shareholders of those subsidiaries. During the years ended December 31, 2016 and 2015, one of our subsidiaries paid a total of $750,000 and $250,000 in cash dividends, respectively, all of which was paid to us. Dividends paid to outside shareholders of our subsidiaries are accounted for as a reduction in noncontrolling interest.

Issuer Purchases of Equity Securities

In November 2000, our Board of Directors authorized the repurchase of up to $30,000,000 of our Common Stock (the “November 2000 Plan”). The November 2000 Plan authorizes us to make such repurchases from time to time in the open market or through privately negotiated transactions. The timing and amounts of Common Stock repurchases are at the discretion of management based on its view of economic and financial market conditions.

Stockholder Return Performance Graph

The graph set forth below presents the cumulative, five-year stockholder return for each of the Company’s Common Stock, the Standard & Poor’s 500 Index (“S&P 500 Index”), a value-weighted index made up of 500 of the largest, by market capitalization, listed companies, and the Standard & Poor’s SmallCap 600 Index (“S&P SmallCap 600 Index”), a value-weighted index of 600 listed companies with market capitalizations between $200,000,000 and $1,000,000,000.

The graph assumes an investment of $100 on December 31, 2011,2013, in each of our Common Stock, the S&P 500 Index, and the S&P SmallCap 600 Index, and assumes reinvestment of all dividends. The historical information set forth below is not necessarily indicative of future performance.

Comparison of Five Year Cumulative Return

Among Vicor Corporation, S&P 500 Index

and S&P SmallCap 600 Index

Our equity plan information required by this item is incorporated by reference to the information in Part III, Item 12 of this Annual Report on Form10-K.

The following selected consolidated financial data with respect to our statements of operations for the years ended December 31, 2016, 2015,2018, 2017, and 2014,2016, and with respect to our balance sheet as of December 31, 20162018 and 2015,2017, are derived from our audited Consolidated Financial Statements, which appear elsewhere in this Annual Report on Form10-K. The following selected consolidated financial data with respect to our statements of operations for the years ended December 31, 20132015 and 2012,2014, and with respect to our balance sheets as of December 31, 2014, 2013,2016, 2015, and 2012,2014, are derived from our Consolidated Financial Statements, which are not included herein. The data should be read in conjunction with the Consolidated Financial Statements, related notes and other financial information included herein.

Overview

We design, develop, manufacture, and market modular power components and power systems for converting regulating, and controlling electric current.electrical power. We also license certain rights to our technology in return for recurring royalties. The principal customers for our power converters and systems are large original equipment manufacturers (“OEMs”) and their contract manufacturers, and smaller, lower volume users. We serve a broad range of market segments and geographies worldwide.

We have organizedorganize and report our businessoperating segments according to our key product lines. ReflectingAlthough our historyPicor Corporation subsidiary was merged with and direction,into the Company in 2018, we broadly categorizecontinue to report our products as either “legacy” or “advanced”, generally based on design, performance, and form factor considerations, as welloperating segments as the rangeBrick Business Unit (“BBU”) operating segment, the VI Chip operating segment, and the Picor operating segment, reflecting our historical organizational segmentation and management’s operational oversight. (See Note 16— Picor Merger and Note 17— Segment Information to the Consolidated Financial Statements presented herein for certain financial information associated with the merger of applications for whichPicor with and into the products are appropriate.Company.)

The BBU segment designs, develops, manufactures, and markets our legacyBrick Product lines ofDC-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 the BBU business conducted through VJCL

third-party and our Vicor Custom Power subsidiaries. The BBU has customers concentrated in aerospace and aviation, defense electronics, industrial automation and equipment, medical diagnostics, rail transportation, and test and measurement instrumentation.

As previously disclosed, on March 30, 2016, we acquired 100% ownership of certain operating assets and cash of Converpower Corporation (“Converpower”). We also entered into a license with Converpower allowing us to continue manufacturing certain products and supporting existing customers. With the closing of the Converpower transaction, we completed the consolidationintra-segment activities of our Vicor Custom Power operations into three wholly-ownedand VJCL subsidiaries.

The VI Chip segment consists of our subsidiary, VI Chip Corporation, which designs, develops, manufactures, and markets manya range of advanced power converters and power systems, emphasizing implementations of our advancedproprietary Factorized Power Architecture^TM (“FPA”), an innovative power component products.distribution architecture enabling flexible, rapid power system design using individual components optimized to perform a specific conversion stage (i.e., function). 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 Corporation’s 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 business conducted in Japan through VJCL. VI Chip generally targets large, high-volume customers concentratedsegment 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.

We categorize our products as either “Advanced Products” or “Brick Products” (referred to in prior reports we filed with the SEC as “Legacy”), generally based on design, performance, and form factor considerations, as well as the range of evolving applications for which the products are appropriate. 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, intra-segment and inter-segment revenues are eliminated.

The Advanced Products category consists of our more recently introduced Picor and VI Chip products, which are used to implement FPA designs. The Brick Products category largely consists of the BBU’s integrated power converters and power systems, incorporating multiple conversion stages, used in conventional distributed power systems architectures (e.g., Centralized Power Architecture (“CPA”), Distributed Power Architecture (“DPA”), and Intermediate Bus Architecture (“IBA”)). Given the growth profiles of the market segments served 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 alow-mix, high-volume operational model, while maintaining a profitable business in mature market segments we serve with Brick Products with ahigh-mix,low-volume operational model.

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 concentrated in voltage distribution in server racks and across datacenter infrastructure of the computing market, although we also target 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 vehicles,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 networking equipment.transportation (e.g., rail). With our strategic emphasis on larger, high-volume customers, we expect to experience a greater concentration of sales among relatively fewer customers.

2018 Results

Our improved operating results for 2018 were driven by an increase in net revenues due to preceding increases in bookings and order backlog, as well as improved gross margins resulting from higher production

volumes, favorable product mix, and improved pricing. The Picor segment consists28% increase in revenue for 2018 compared to 2017 was primarily a result of double-digit percentage increases in the dollar value of shipments of certain product families across both Advanced Product and Brick Product categories, as well as the start of production shipments in the second half of the year of our subsidiary, Picor Corporation, which designs, develops, and markets integrated circuits and related solid-state products for use in a variety of power management and power system applications. Picor is a “fabless manufacturer,” as its products are manufactured, assembled, packaged, and tested by third parties. Picor develops products for use in our BBU and VI Chip modules, to be sold as complements to our BBU and VI Chip products, or for sale to third parties for separate (i.e., stand-alone) applications, often integrated with VI Chip products to represent a customer“Power-on-Package” solution, particularlyincluded in the datacenter and supercomputer segments of the computing market.Advanced Products category.

Our consolidated results for 2016, particularly our decreased revenue and profitability, continue to be impacted by the general weakness of demand for our legacy products due to global macroeconomic uncertainty. Customer2018 order bookings increased 27% over 2017 bookings, reflecting customer interest in our expanding portfolio of advanced products continues highly-differentiated Advanced Products. Bookings for our factorized 48Vto increase,point-of-load solutions for supercomputing and hyperscale datacenter applications accelerated during the first half of the year, stabilized through the third quarter, but declined for the fourth quarter, largely reflecting the timing of certain customer programs. Bookings for ourPower-on-Package solutions were robust for the second and third quarters, but declined sharply for the fourth quarter, reflecting a sudden decline in our customers’ own outlooks for 2019, notably associated with poor visibility for forecasting supercomputing and high performance computing spending, particularly in China. Total bookings for 2018 for Brick Products improved year over year, reflecting the continued recovery of economic conditions during the first half of the year in the geographies and markets we are encountering longer sales cycles than originally anticipated, attributable,serve, notably in part, todefense electronics and high-value capital goods. However, Brick Product bookings from distributors declined through the same macroeconomicsecond half of the year. Notably, uncertainties regarding the Chinese economy and its influence on other industrial economies and the potential impact of the United Kingdom’s pending departure from the European Union were negative influences on fourth quarter order activity.

Revenue associated with product shipments in 2018 reflected the booking trends and industry-specific conditions influencing bookings and salesdiscussed above, improving year over year. Revenue for the first half of our legacy2018 reflected backlog expansion that began in 2017, with broad improvement across most product lines. In addition,The PRMs and VTMs making up our factorized 48Vto point-of-load solutions were the highest selling products for the latter halfyear. We also recorded improved revenue across both Advanced Product and Brick Product categories into the third quarter of 2015the year. However, fourth quarter revenue fell short of expectations, primarily because of a single customer’s rescheduling of significant deliveries planned for that quarter.

Gross margins, both in absolute dollars and throughout 2016, demandas a percentage of revenue, increased year over year, reflecting the increase in net revenues and improved mix of products shipped, as well as improved pricing, particularly in Brick Product lines, and higher overhead absorption due to higher unit production volumes. Consolidated gross margin as a percentage of revenue improved to 47.7% for our 48 volt2018, from 44.6% for 2017. Meaningful improvements of gross margins were realized across Advanced Product lines, as higher volumes led topoint-of-load solutions for datacenter servers was influenced by customer supply chain matters, notably scheduling delays lower material costs and improved yields, in addition to higher overhead absorption.

Total operating expenses, largely associated with the release of next generation computer processors. However, since the first quarter of 2016, these solutions received significant, high profile recognitioncompensation and related personnel costs, grew 3.8% from customers, user groups,2017 to 2018. Marketing and trade publications, leadingSales expenses and Administrative expenses both rose consistent with salary and benefit cost increases, although Administrative expenses rose disproportionately due to increased design activitiesaudit, financial reporting fees, and design wins with an expanded range of customers. We believe this heightened visibility, along with the implied endorsements of our solutions, has contributedlegal fees. Research and Development expenses declined year to shortened sales cycles for our advanced products.year, as higher compensation costs were offset by lower prototyping and related engineering material costs.

We believe the following factors influenced our results for the year ended December 31, 2016, andconsiderations may continue to influence our results for the foreseeable future:financial performance in 2019:

Operational Considerations

Market and Macroeconomic Considerations

Financial Highlights:Highlights

The following table sets forth certain items of selected consolidated financial information as a percentage of net revenues for the years shown, ended December 31. This table and the subsequent discussion should be read in conjunction with the selected financial data and the Consolidated Financial Statements and related footnotes contained elsewhere in this report.

Critical Accounting Policies and Estimates

Management’s Discussion and Analysis of Financial Condition and Results of Operations is based upon our Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States.States (“U.S. GAAP”). The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, and related disclosures of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates and assumptions, and our associated judgments, including those related to inventories, income taxes, contingencies, and litigation.

We base our estimates, assumptions, and judgments on historical experience, knowledge of current conditions, and on various other factors we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We also have other policies we consider key accounting policies, such as our policy for revenue recognition, includingwhich was updated in 2018 to reflect the deferraladoption of revenue on sales to distributors until the products are soldnew accounting guidance (See Note 2 to the end user.Consolidated Financial Statements— Significant Accounting Policies — Recently Adopted Accounting Standards — Revenue Recognition). However, the application of these other policies does not require us to make significant estimates and assumptions difficult to support quantitatively.

Inventories

We employ a variety of methodologies to estimate allowances for our inventory for estimated obsolescence or unmarketable inventory, based upon our existing backlog, historical consumption, and assumptions about future demand and market conditions. For BBU products produced at our Andover facility, our principal manufacturing location, the methodology used compareson-hand quantities to projected demand and historical consumption, such that amounts of inventory on hand in excess of a three-year projected consumption or three-year historical consumption, whichever is higher, are fully reserved. VI Chip and Picor usetwo-year projected and historical consumption assumptions. While we have used our best efforts and believe we have used the best available information to estimate future demand, due to uncertainty in the economy and our business and the inherent difficulty in predicting future demand, it is possible actual demand for our products will differ from our estimates. If actual future demand or market conditions are less favorable than those projected by management, additional inventory reserves for existing inventories may need to be recorded in future periods.

Income Taxes

We make certain estimates, assumptions, and judgments in determining income tax expense for financial statement reporting purposes. These estimates, assumptions, and judgments occur in the calculation of tax credits, benefits, and deductions, and in the calculation of certain assets and liabilities that arise from differences in the timing and of the recognition of revenue and expense for tax and financial statement purposes, as well as the interest and penalties relating to uncertain tax positions. Significant changes to these estimates, assumptions, and judgments may result in an increase or decrease to our tax provision in a subsequent period.

Significant management judgment also is required in determining whether deferred tax assets will be realized in full or in part. We assess the need for a valuation allowance on a quarterly basis. We record a valuation allowance to reduce our deferred tax assets to the amount we believe is more likely than not to be realized. In assessing the need for a valuation allowance, we consider all positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies, and past financial performance. Currently,While recent positive operating results caused us to be in a cumulative income position as of December 31, 2018, we maintainhave been in such a position for only a limited number of quarters. In addition, some uncertainty in economic conditions, as discussed above under the heading2018 Results, above, that could potentially impact us has led management to conclude a full valuation allowance against all domestic net deferred tax assets and the majorityis still warranted as of foreign net deferred tax assets.December 31, 2018. The valuation allowances against these deferred tax assets may require adjustment in the future based on changes in the mix of temporary differences, changes in tax laws, and operating performance. If the positive quarterly earnings continue, we may release all or a portion of the valuation in the near-term. If and when we determine the valuation allowance should be released (i.e., reduced), the adjustment would result in a tax benefit reported in that period’s Consolidated Statements of Operations, the effect of which would be an increase in reported net income. A portion of such an adjustment may be accounted for through an increase to “Additionalpaid-in capital”, a component of Stockholders’ Equity. The amount of any such tax benefit associated with release of our valuation allowance in a particular quarter may be material.

We follow atwo-step process to determine the amount of tax benefit to recognize in our financial statements for tax positions taken on tax returns. The first step is to evaluate the tax position to determine the likelihood it would be sustained upon examination by a tax authority. If the tax position is deemed“more-likely-than-not” to be sustained, the second step is to assess the tax position to determine the amount of tax benefit to recognize in the financial statements. The amount of the benefit that may be recognized is the largest amount that has a greater

than 50 percent likelihood of being realized upon ultimate settlement. If the tax position does not meet the“more-likely-than-not” threshold then it is not recognized in the financial statements. We accrue interest and penalties, if any, related to unrecognized tax benefits as a component of income tax expense. If the estimates, assumptions, and judgments made by us change, the unrecognized tax benefits may have to be adjusted, and such adjustments may be material.

ContingenciesOn December 22, 2017, the U.S. government enacted comprehensive tax legislation, referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act makes broad and complex changes to the U.S. tax code,

including, but not limited to: (1) reducing the U.S. federal corporate tax rate from 35% to time, we receive notices of product failure claims, notices of infringement of patent or other intellectual property rights of others, or notices associated with other claims. In January 2011, we were named in a lawsuit for patent infringement (See Part I, Item 3 — “Legal Proceedings”) that is ongoing. We assess each notice and associated matter to determine if a contingent liability should be recorded. In making this assessment, we may consult, depending on the nature21%; (2) elimination of the matter, with external legal counselcorporate alternative minimum tax (“AMT”) and technical experts. Based on the information we obtain, combined with our judgment regarding all the facts and circumstances of each matter, we determine whether it is probable a contingent loss may be incurred and whether the amount of such losschanging how existing AMT credits can be reasonably estimated. Shouldrealized; (3) changing rules related to the usage and limitation of net operating loss carryforwards created in tax years beginning after December 31, 2017; and (4) implementing a loss be probableterritorial tax system, which generally eliminates the U.S. federal income tax on dividends from foreign subsidiaries, and reasonably estimable, we record suchimposes a loss (i.e., we establish a loss contingency). In determining the amountone-time transition tax on certain earnings of the loss to be recorded, we consider advice received from expertsforeign subsidiaries previously untaxed in the specific matter, current statusUnited States. We recognized the provisional tax impacts related to deemed repatriated earnings and the revaluation of legal proceedings (if any), prior case history, comparable precedent litigation,deferred tax assets and other factors. Shouldliabilities and included these amounts in its consolidated financial statements for the estimates, assumptions, and judgments made by us change, we may needyear ended December 31, 2017. We did not record any adjustments in the year ended December 31, 2018 to record additional losses (i.e., addthese provisional amounts that were material to our loss contingency) that may be material.financial statements. As of December 31, 2018, our accounting treatment with regards to the Tax Act is complete. Effective for our 2018 tax year, the Tax Act implements certain additional provisions including the Global IntangibleLow-Taxes Income (“GILTI”) inclusion and the Foreign Derived Intangible Income (“FDII”) deduction. We are electing to account for the GILTI inclusion as a period cost.

New Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) that we adopt as of the specified effective date. Unless otherwise discussed, we believe the impact of recently issued accounting standards will not have a material impact on our future financial condition and results of operations. See Note 2 — Impact of recently issued accounting standards, to the Consolidated Financial Statements for a description of recently issued and adopted accounting pronouncements, including the dates of adoption and expected impact on our financial position and results of operations.

Revenue RecognitionLease Accounting

In May 2014,February 2016, the FASBFinancial Accounting Standards Board (“FASB”) issued new guidance for revenue recognition,lease accounting, which will require an entitylessees to recognize leases on the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers.balance sheet and disclose key information about leasing arrangements. The new guidance which includes several amendments,establishes aright-of-use model (“ROU”) that will replace most existing revenue recognition guidance in U.S. Generally Accepted Accounting Principles when it becomes effective whichrequire a lessee to recognize a ROU asset and a lease liability on the balance sheet for all leases with a term longer than twelve months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement. For lessors, the guidance modifies the classification criteria and accounting for us, on January 1, 2018. sales-type and direct financing leases. The majority of our leases are for certain of its office and manufacturing space, along with several automobiles. We are a party to one arrangement as the lessor, for our former Westcor facility located in Sunnyvale, California.

The new standard permits the use of either the retrospective or cumulative effect transition method. As described in Note 2 — Significant Accounting Policies,Revenue Recognition, of the Notes to the Consolidated Financial Statements, we defer revenue and the related cost of sales on shipments to stocking distributors until the distributors resell the products to their customers. Upon adoption of the new guidance, we will no longer be permitted to defer revenue until sale by the stocking distributor to the end customer, but rather, will be required to estimate the effects of returns and allowances provided to stocking distributors and record revenue at the time of sale to the stocking distributor. We currently plan to utilize the cumulative effect transition methodis effective for adoption of the standard. Upon adoption, we will recognize the cumulative effect of adopting this guidance as an adjustment to the balance of retained earningsus as of January 1, 2018.2019, with early adoption permitted. We are continuingplan to evaluate the future impact and method of adoptionadopt the new guidance will have on our consolidatedits effective date. The new standard must be adopted using a modified retrospective transition approach, applying the guidance to all leases existing at the date of initial application. An entity may choose to use either (1) its effective date or (2) the beginning of the earliest comparative period presented in the financial statements as its date of application. We plan to adopt the new standard on January 1, 2019 and related disclosures.use the effective date as our date of initial application. As a result, financial information will not be updated and the disclosures required under the new standard will not be provided for dates and periods before January 1, 2019.

The new standard provides a number of optional practical expedients. We expect to elect the ‘package of practical expedients’, which permits companies to not reassess under the new standard lease identification, lease classification and initial direct costs. We do not plan to elect theuse-of-hindsight or the practical expedient pertaining to land easements, the latter not being applicable.

We estimate the adoption of the standard will result in recognition of ROU assets and lease liabilities of approximately $4,500,000, as of January 1, 2019. The implementation team’s remaining tasks are to complete documentation for the systems and controls to support the lease recognition and disclosure requirements under the new standard, and to complete the required disclosures in preparation for filing our Form10-Q for the quarter ending March 31, 2019.

Year ended December 31, 20162018 compared to Year ended December 31, 20152017

NetConsolidated net revenues for 20162018 were $200,280,000, a decrease$291,220,000, an increase of $19,914,000$63,390,000, or 9.0%27.8%, as compared to $220,194,000$227,830,000 for 2015.

The components of revenueNet revenues, by segment, for the years ended December 31 were as follows (dollars in thousands):

The overall year to year decreaseincrease in consolidated net revenues was primarily due to an 8.7% decreaseoverall 26.9% increase in overall BBU bookings for 2016the year ended December 31, 2018, compared to 2015. Whilethe year ended December 31, 2017, with significant increases across all operating segments. BBU, VI Chip, and Picor bookings increased year over year, a large portionby 26.1%, 29.8% and 22.2%, respectively. In fact, total bookings have increased sequentially each quarter since the first quarter of their respective bookings in2016, with the third andexception of the fourth quarter of 20162018. The increase in BBU segment revenues was scheduled for shipmentprimarily attributable to an increase in 2017, mitigating the impactBBU module and configurable product revenues of the increased bookings on 2016 revenue. Customer bookings patterns continue to be unpredictable, particularly withapproximately $32,377,000, VJCL revenues of approximately $1,606,000 and Vicor Custom Power revenues of $1,449,000. Increases in revenues recorded by the VI Chip and Picor segments. operating segments for the year ended December 31, 2018 were associated largely with fulfillment of increased orders for our 48V topoint-of-load solutions.

Gross margin for 2018 increased $37,315,000, or 36.7%, to $138,971,000 from $101,656,000 in 2017. Gross margin as a percentage of net revenues increased to 47.7% in 2018 from 44.6% in 2017. Both increases were primarily due to the increase in net revenues, driving higher overhead absorption, broadly improved average selling prices, and an improved mix of products shipped.

Income (loss) from operations by reported operating segments and our Corporate segment for the years ended December 31 were as follows (dollars in thousands):

The increase in BBU operating income in 2018 compared to 2017 was due to an increase in revenues and a related increase in gross margin, partially offset by increases in operating expenses. The primary increases in operating expenses were compensation expenses, audit, tax, and accounting fees, and legal fees. The improvement in VI Chip operating results in 2018 compared to 2017 was due to the increase in revenues and the related increase in gross margin, and decreases in operating expenses. The primary decreases in operating expenses were associated with lower consumption of project andpre-production materials. The increase in Picor operating income in 2018 compared to 2017 was due to the increase in revenues and the related increase in gross margin. The cash needs for each operating segment are primarily for working capital and capital expenditures. Positive cash flow from the BBU operating segment historically has funded, and is expected to continue to fund, operations of the VI Chip and Picor operating segments, as well as the capital expenditures for all operating segments for the foreseeable future.

Selling, general, and administrative expenses were $62,224,000 for 2018, an increase of $4,132,000, or 7.1%, as compared to $58,092,000 for 2017. As a percentage of net revenues, selling, general, and administrative expenses decreased to 21.4% in 2018 from 25.5% in 2017, primarily due to the increase in net revenues.

The components of the $4,132,000 increase in selling, general, and administrative expenses were as follows (dollars in thousands):

Research and development expenses decreased $638,000, or 1.4%, to $44,286,000 in 2018 from $44,924,000 in 2017. As a percentage of net revenues, research and development decreased to 15.2% in 2018 from 19.7% in 2017, primarily due to the increase in net revenues.

The components of the $638,000 decrease in research and development expenses were as follows (in thousands):

In May 2018, the Company’s management authorized the closure of GPT by the end of 2018. GPT is one of three Vicor Custom Power (“VCP”) entities, located in Manchester, N.H. Certain of GPT’s products will continue to be manufactured and sold by the two remaining VCP entities. As a result, we recordedpre-tax charges of $402,000 in 2018, for the cost of severance and other employee-related costs involving cash payments based on each employee’s respective length of service, and for rent and freight costs.

The significant changes in the components of “Other income (expense), net” for the years ended December 31 were as follows (in thousands):

Our exposure to market risk fluctuations in foreign currency exchange rates relates to the operations of VJCL, for which the functional currency is the Japanese Yen, and all other subsidiaries in Europe and Asia, for which the functional currency is the U.S. Dollar. These other subsidiaries in Europe and Asia experienced unfavorable foreign currency exchange rate fluctuations in 2018 compared to 2017. Interest income increased due to an increase in interest rates.

Income (loss) before income taxes was $32,933,000 in 2018, as compared to $(98,000) in 2017.

The provision (benefit) for income taxes and the effective income tax rate for the years ended December 31 were as follows (dollars in thousands):

The 2018 income tax provision includes estimated state and foreign taxes on the Company’spre-tax income. Federal tax expense was offset by net operating loss carryforwards.

In 2017, the benefit for income taxes was primarily due to our AMT credit carryforwards of approximately $736,000 becoming fully refundable in future years, due to the repeal of the corporate AMT under the recently enacted Tax Act, discussed below. The 2017 income tax provision included estimated foreign income taxes and estimated state taxes in jurisdictions in which we do not have net operating loss carryforwards. No tax benefit could be recognized for the majority of our losses during the periods as we maintained a full valuation allowance against all net domestic deferred tax assets due to our inability to project sustained net future taxable income.

See Note 14 to the Consolidated Financial Statements for disclosure regarding our current assessment of the full valuation allowance against all domestic net deferred tax assets, and the possible release (i.e., reduction) of the allowance in the future.

On December 22, 2017, the U.S. government enacted comprehensive tax legislation, referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act makes broad and complex changes to the U.S. tax code, including, but not limited to: (1) reducing the U.S. federal corporate tax rate from 35% to 21%; (2) elimination of the corporate AMT and changing how existing AMT credits can be realized; (3) changing rules related to the usage and limitation of net operating loss carryforwards created in tax years beginning after December 31, 2017; and (4) implementing a territorial tax system, which generally eliminates the U.S. federal income tax on dividends from foreign subsidiaries, and imposes aone-time transition tax on certain earnings of foreign subsidiaries previously untaxed in the United States. Effective for our 2018 tax year, the Tax Act implements certain additional provisions including the Global IntangibleLow-Taxes Income (“GILTI”) inclusion and the Foreign Derived Intangible Income (“FDII”) deduction. We are electing to account for the GILTI inclusion as a period cost.

Net income per diluted share attributable to Vicor Corporation was $0.78 for the year ended December 31, 2018, compared to net income per diluted share of $0.00 for the year ended December 31, 2017.

Year ended December 31, 2017 compared to Year ended December 31, 2016

Consolidated net revenues for 2017 were $227,830,000, an increase of $27,550,000, or 13.8%, as compared to $200,280,000 for 2016.

Net revenues, by segment, for the years ended December 31 were as follows (dollars in thousands):

The overall increase in consolidated net revenues was primarily due to an overall 20.2% increase in bookings for the year ended December 31, 2017, compared to the year ended December 31, 2016. BBU, VI Chip, and Picor bookings increased by 6.9%, 54.5% and 57.0%, respectively. The increase in BBU revenues was primarily attributable to an increase in Vicor Custom Power revenues of $3,803,000, partially offset by a decrease in BBU module and configurable product revenues of approximately $18,225,000$3,455,000. Increases in revenues recorded by VI Chip and a decrease in Vicor Custom Power revenuesPicor for the year ended December 31, 2017 were associated largely with fulfillment of $5,440,000, dueincreased orders for our 48 volt to the consolidation of operations noted above.point-of-load solutions.

Gross margin for 2016 decreased $8,309,000,2017 increased $10,447,000, or 8.3%11.5%, to $101,656,000 from $91,209,000 from $99,518,000 in 2015. Gross 2016. Despite the increase in net revenues, gross,margin as a percentage of net revenues increaseddecreased to 44.6% in 2017 from 45.5% in 2016, from 45.2% in 2015. The lower gross margin dollars is primarily due to the lower net revenues, while the higher gross margin percentage was primarily due to a moreless favorable product mix, andmost notably the result of a higher proportion of lower charges for warranty reserves in 2016 compared to 2015.margin VI Chip revenues.

Income (loss) from operations by segment for the years ended December 31 were as follows (dollars in thousands):

The decrease in BBU operating profit in 20162017 compared to 20152016 was primarily due to a decrease in gross margin, despite the increase in revenues, and related decrease in gross margin, partially offset by decreasesan increase in operating expenses. The primary decreasesincreases in operating expenses were compensation expenses commissions expense, and legal fees. Compensation and other operatingroyalty expenses have decreased in part due to the Westcor consolidation and the consolidationassociated with a reassessment of our contingent consideration obligations tied to our acquisitions, in late 2015 and early 2016, of the equity of two Vicor Custom Power operations discussed above. The decrease in commissions expense is primarily attributable to the decrease in net revenues subject to commissions. Legal fees, which are charged to the BBU segment, are associated with the ongoing patent infringement litigation.subsidiaries that we did not already own. The decrease in VI Chip operating loss in 20162017 compared to 20152016 was due to the increase in revenues and the related increase in gross margin, along with the reversal of approximately $768,000 of stock-basedpartially offset by increases in operating expenses. The primary increases in operating expenses were compensation expense related to certain VI Chip performance-based stock options in the third quarter of 2016.expenses and project andpre-production materials expenses. The VI Chip segment continuescontinued to incur significant operating losses as revenue volume and related gross margins are not sufficient to cover fixed manufacturing costs and operating expenses, particularly research and development expenses. The cash needs for each segment are primarily for working capitalimprovement in Picor operating results in 2017 compared to 2016 was due to the increase in revenues and capital expenditures. Positive cash flow from BBU historically has funded, and is expected to continue to fund, VI Chip and Picor operations, as well as the capital expenditures for all segments for the foreseeable future.related increase in gross margin.

Selling, general, and administrative expenses were $55,675,000$58,092,000 for 2016, a decrease2017, an increase of $2,638,000,$2,417,000, or 4.5%4.3%, as compared to $58,313,000$55,675,000 for 2015.2016. As a percentage of net revenues, selling, general, and administrative expenses increaseddecreased to 25.5% in 2017 from 27.8% in 2016, from 26.5% in 2015, primarily due to the decreaseincrease in net revenues.

The components of the $2,638,000 decrease$2,417,000 increase in selling, general, and administrative expenses were as follows (dollars in thousands):

Research and development expenses increased $3,076,000, or 7.4%, to $44,924,000 in 2017 from $41,848,000 in 2016. As a percentage of net revenues, research and development decreased to 19.7% in 2017 from 20.9% in 2016, primarily due to the increase in net revenues.

The components of the $3,076,000 increase in research and development expenses were as follows (dollars in thousands):

Research and development expenses increased $376,000, or 0.9%, to $41,848,000 in 2016 from $41,472,000 in 2015. As a percentage of net revenues, research and development increased to 20.9% in 2016 from 18.8% in 2015, primarily due to the decrease in net revenues.

The components of the $376,000 increase in research and development expenses were as follows (in thousands):

The significant changes in the components of “Other income, (expense), net” for the years ended December 31 were as follows (in thousands):

During the second quarter of 2016, we began recognizing rental income under a new leasing agreement with a third party for the former Westcor facility. Our exposure to market risk for fluctuations in foreign currency exchange rates relates primarily to the operations of VJCL, for which the functional currency is the Japanese Yen. The functional currency of the subsidiaries in Europe and other subsidiaries in Asia is the U.S. Dollar. While our Vicor B.V. operation also potentially exposes us to exchange rate risk, as that subsidiary’s sales are denominated in Euros and Pounds Sterling, any periodic gains or losses associated with exchange rate fluctuations are small, given the small U.S. Dollar value of shipments we make to Vicor B.V.

Loss before income taxes was $(6,030,000) in 2016, as compared to $(242,000) in 2015.

The provision (benefit) for income taxes and the effective income tax rate for the years ended December 31 were as follows (dollars in thousands):

For the years ended December 31, 2016 and 2015, no tax benefit could be recognized for the majority of our losses due to a full valuation allowance against all domestic deferred tax assets. The tax provision for both years includes estimated federal, state and foreign income taxes and, in 2015, estimated federal and state income taxes for one noncontrolling interest subsidiary. In 2016, in connection with the acquisition of 100% ownership of certain operating assets and cash of Converpower Corporation, the related deferred tax liability for unremitted earnings of $55,000 was reversed and recorded as a discrete benefit in the first quarter of 2016 (see Note 9 to the Consolidated Financial Statements). In 2015, we recognized a tax benefit of approximately $555,000 as a discrete item in the fourth quarter of 2015 for the release of certain tax reserves, due to entering into voluntary disclosure agreements with several states. In addition, in connection with the sale of our 49% interest in a noncontrolling interest subsidiary, Aegis Power Systems, Inc., the related deferred tax liability for unremitted earnings of $274,000 was reversed and recorded as a deferred tax benefit in the fourth quarter of 2015 (see Note 9 to the Consolidated Financial Statements). We continue to maintain a full valuation allowance against all

domestic net deferred tax assets and the majority of foreign net deferred tax assets. The effective tax rate was lower in 2016 than 2015 as the loss before income taxes and before the gain from sale of equity method investments was significantly higher in 2016 than in 2015.

In September 2015, Intersil acquired GWS. At that time, our gross investment innon-voting convertible preferred stock of GWS totaled $4,999,719, giving us an approximately 27% ownership interest in GWS. We received cash consideration of $4,999,719 for our investment from Intersil, representing full preference value of our shares ofnon-voting convertible preferred stock of GWS. Since the investment in GWS had previously been written down to zero, the full amount of the consideration was recorded as a gain from sale of equity method investment in the third quarter of 2015. (See Note 8 to the Consolidated Financial Statements for additional information.)

Net loss per share attributable to Vicor Corporation was $(0.16) for the year ended December 31, 2016, compared to net income per diluted share of $0.13 for the year ended December 31, 2015.

Year ended December 31, 2015 compared to Year ended December 31, 2014

Net revenues for 2015 were $220,194,000, a decrease of $5,537,000 or 2.5%, as compared to $225,731,000 for 2014.

The components of revenue for the years ended December 31 were as follows (dollars in thousands):

The overall year to year decrease in BBU net revenues was primarily due to a 8.2% decrease in bookings in 2015 compared to 2014. The decrease in BBU revenues was primarily attributable to decreases in BBU revenues of approximately $4,481,000, Vicor Custom Power revenues of approximately $3,507,000, and VJCL revenues of approximately $3,100,000. While bookings declined across all three segments on a year over year basis, VI Chip and Picor revenues increased due to strong bookings in the latter half of 2014, particularly from the two segments’ major datacenter customer.

Gross margin for 2015 increased $2,398,000, or 2.5%, to $99,518,000 from $97,120,000 in 2014. Gross margin as a percentage of net revenues increased to 45.2% in 2015 from 43.0% in 2014. The increases in gross margin and gross margin percentage were primarily due to the increase in VI Chip and Picor net revenues, particularly due to a larger proportion of higher margin Picor products. In addition, the gross margin for BBU products remained relatively flat, despite their decrease in net revenues, due to average selling price improvements across several BBU programs, along with realizing the full benefit of the Westcor consolidation into Andover manufacturing.

Income (loss) from operations by segment for the years ended December 31 were as follows (dollars in thousands):

The increase in BBU operating profit in 2015 compared to 2014 was due to decreases in operating expenses, partially offset by decreases in revenues and the related gross margin. The primary decreases in operating expenses were legal fees and compensation expenses. Legal fees, which are charged to the BBU segment, are associated with the ongoing patent infringement litigation. The decrease in legal fees continued the trend begun in the fourth quarter of 2014 associated with continued delays in the expected trial date related to the SynQor litigation. Compensation and other operating expenses have decreased in part due to the Westcor consolidation discussed above.

Selling, general, and administrative expenses were $58,313,000 for 2015, a decrease of $9,884,000, or (14.5)%, as compared to $68,197,000 for 2014. As a percentage of net revenues, selling, general, and administrative expenses decreased to 26.5% in 2015 from 30.2% in 2014.

The components of the $9,884,000 decrease in selling, general, and administrative expenses were as follows (dollars in thousands):

Research and development expenses decreased $7,000, or 0.0%, to $41,472,000 in 2015 from $41,479,000 in 2014. As a percentage of net revenues, research and development increased to 18.8% in 2015 from 18.4% in 2014, primarily due to the decrease in net revenues.

The significant changes in the components of “Other income, net” for the years ended December 31 were as follows (in thousands):