Management's Discussion and Analysis of Financial Condition and Results of Operation March 31, 2009
(unaudited)
Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations
Except for historical information contained herein, some matters discussed in this report constitute forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The words "believes," "expects," "anticipates," "intend," "estimate," "plans," "assumes," "may," "will," "would," "should," "continue," "prospective," "project," and other similar expressions identify forward-looking statements. Forward-looking statements also include statements regarding the derivation of a portion of the Company's sales in each quarter from orders booked in the same quarter, the Company's plans to invest in research and development and manufacturing equipment, the Company's belief regarding market risk being mitigated because of limited foreign exchange fluctuation exposure, the Company's continued success depending in part on its ability to attract and retain qualified personnel, the Company's belief that cash generated from operations and the total of its cash and cash equivalents and short-term investments will be sufficient for the foreseeable future, the Company's intention regarding protecting its rights under its patents and the Company's expectation that no current litigation or claims will have a material adverse impact on its financial position or results of operations. These statements are based upon the Company's current expectations and estimates as to the prospective events and circumstances which may or may not be within the Company's control and as to which there can be no assurance. Actual results could differ materially from those projected in the forward-looking statements as a result of various factors, including our ability to develop and market new products and technologies cost effectively, to leverage design wins into increased product sales, to continue to make progress with key customers and prospects, to decrease manufacturing costs, to enter into licensing agreements that amplify the market opportunity and accelerate market penetration, to realize significant royalties under license agreements, to achieve a sustainable increased bookings rate over a longer period, to hire key personnel and to continue to build our three business units, to successfully enforce our intellectual property rights, to successfully defend outstanding litigation, to successfully leverage the V*I Chips in standard products to promote market acceptance of Factorized Power Architecture, to develop or maintain an effective system of internal controls, to obtain required financial information for certain investments on a timely basis, and factors impacting the Company's various end markets, the impact of write-downs in the value of assets, the effects of equity accounting with respect to certain affiliates, the failure of auction rate securities to sell at their reset dates as well as those factors described in the risk factors set forth in the Company's Annual Report on Form 10-K for the year ended December 31, 2008, under Part I, Item I - "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." The risk factors contained in this report may not be exhaustive. Therefore, the information contained in this report should be read together with other reports and documents that the Company files with the Securities and Exchange Commission from time to time, including Forms 10-Q, 8-K and 10-K, which may supplement, modify, supersede or update those risk factors. The Company does not undertake any obligation to update any forward-looking statements as a result of future events or developments. Overview
Vicor Corporation designs, develops, manufactures and markets modular power components and complete power systems based upon a portfolio of patented technologies. The Company sells its products primarily to customers in the higher-performance, higher-power segments of the power systems market, including telecommunications and networking infrastructure, enterprise and high performance computing, industrial automation, vehicles and transportation, and defense electronics, through a network of independent sales representative organizations in North and South America and, internationally, through independent distributors. Export sales as a percentage of total revenues for the three months ended March 31, were approximately 35% in 2009 and 43% in 2008, respectively.
The Company has organized its business segments according to its key product lines. The Brick Business Unit segment ("BBU" ) designs, develops, manufactures and markets the Company's modular power converters and configurable products, and includes the operations of the Company's Westcor division, Vicor Customer Power and Vicor Japan Company, Ltd. ("VJCL"). The V*I Chip segment consists of V*I Chip Corporation, a wholly owned subsidiary which designs, develops, manufactures and markets the Company's Factorized Power Architecture ("FPA") products. The Picor segment consists of Picor Corporation, a majority-owned subsidiary of Vicor, which designs, develops, manufactures and markets Power Management Integrated Circuits and related products

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VICOR CORPORATION Management's Discussion and Analysis of Financial Condition and Results of Operation March 31, 2009
(unaudited)
for use in a variety of power system applications. Picor develops these products to be sold as part of Vicor's products or to third parties for separate applications.
Revenues for the first quarter decreased by 5.7% to $50,448,000, compared to $53,469,000 for the corresponding period a year ago, and decreased 1.7% on a sequential basis from $51,324,000 for the fourth quarter of 2008. Gross margin decreased to $21,831,000 for the first quarter of 2009, compared to $22,460,000 for the corresponding period a year ago, and increased on a sequential basis from $20,809,000 for the fourth quarter of 2008. Gross margin, as a percentage of revenue, increased to 43.3% for the first quarter of 2009 compared to 42.0% for the first quarter of 2008, and increased on a sequential basis from 40.5% for the fourth quarter of 2008. Net income (loss) attributable to Vicor Corporation for the first quarter was $(2,543,000), or $(0.06) per diluted share, compared to net income (loss) attributable to Vicor Corporation of $620,000, or $0.01 per diluted share, for the corresponding period a year ago and net loss attributable to Vicor Corporation of $(3,501,000), or $(0.08) per diluted share, for the fourth quarter of 2008.
The book-to-bill ratio, calculated by the dollar amount of orders placed with scheduled delivery dates within one year divided by the net revenues in the respective period, was 0.99:1 for the first quarter of 2009, compared to 0.93:1 for the fourth quarter of 2008. Backlog, representing the total of purchase orders received for which product has not yet been shipped, was $52,068,000 at the end of the first quarter of 2009, as compared to $52,724,000 at the end of the fourth quarter of 2008.
Operating expenses for the three months ended March 31, 2009 increased $2,109,000, or 9.8%, from $21,563,000 in 2008 to $23,672,000, principally due to a pre-tax severance charge of $3,098,000 in connection with a workforce reduction completed in the first quarter of 2009. This was partially offset by a decrease in selling, general and administrative expenses of $1,229,000. The key decreases in selling, general and administrative expenses were legal fees of $647,000 and audit and tax fees of $452,000.
Other income (expense), net for the three months ended March 31, 2009 decreased $1,082,000 from $1,200,000 in 2008 to $118,000. The primary reasons for the decrease were a decrease in interest income of $673,000 and an increase in foreign currency losses of $326,000.
For the three months ended March 31, 2009, depreciation and amortization was $2,625,000, an increase of approximately $39,000 for the corresponding period a year ago, and capital additions decreased by $1,296,000 to $1,029,000 compared to the corresponding period a year ago.
Inventories decreased by approximately $1,050,000 or 3.9% to $25,631,000 as compared with $26,681,000 at December 31, 2008. The decrease was primarily attributed to a decrease in BBU inventories of approximately $1,028,000 and a decrease in V*I Chip inventories of $372,000, offset by an increase in Picor's inventories of $350,000.
Critical Accounting Policies and Estimates Please refer to the Company's Annual Report on Form 10-K for the year ended December 31, 2008, for a complete summary of the critical accounting policies and estimates.
Results of Operations
Three months ended March 31, 2009, compared to three months ended March 31, 2008 Net revenues for the first quarter of 2009 were $50,448,000, a decrease of $3,021,000 or 5.7%, as compared to $53,469,000 for the same period a year ago, and a decrease of 1.7% on a sequential basis from the fourth quarter of 2008.

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VICOR CORPORATION Management's Discussion and Analysis of Financial Condition and Results of Operation March 31, 2009 (unaudited) The components of revenue were as follows (dollars in thousands): Three Months Ended March 31, Increase (decrease) 2009 2008 $ % BBU $ 48,760 $ 49,010 $ (250 ) (0.5 )% V*I Chip 1,276 4,279 (3,003 ) (70.2 )% Picor 412 180 232 123.9 % Total $ 50,448 $ 53,469 $ (3,021 ) (5.7 )% Book-to-Bill Ratio 0.99:1 0.99:1

Orders during the quarter increased by 5.2% compared with the fourth quarter of 2008. This increase was caused by an increase in V*I Chip orders during the period of 161.6%, and an increase in BBU orders of 1.4%.
Gross margin for the first quarter of 2009 decreased $629,000, or 2.8%, to $21,831,000 from $22,460,000 in the first quarter of 2008, but increased from 42.0% to 43.3% as a percentage of net revenues. The primary component of the decrease in gross margin dollars was the decrease in net revenues. The primary component of the increase in gross margin percentage was due to a more favorable product mix, principally due to increased shipments of higher gross margin products from the Vicor Custom Power subsidiaries and a decrease in shipments of lower gross margin V*I Chip products.

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VICOR CORPORATION Management's Discussion and Analysis of Financial Condition and Results of Operation March 31, 2009 (unaudited) Selling, general and administrative expenses were $12,823,000 for the period, a decrease of $1,229,000, or 8.8%, as compared to $14,052,000 for the same period in 2008. As a percentage of net revenues, selling, general and administrative expenses decreased from 26.3% to 25.4%. The components of the $1,229,000 decrease were as follows (in thousands): Increase (decrease) Vicor Custom Power related expenses $ 434 41.2% (1) Vicor Japan expenses 108 12.4% (2) Legal fees (647) (67.1)% (3) Audit and tax fees (452) (55.1)% (4) Compensation (182) ( 3.1)% (5) Travel expenses (177) (35.3)% Advertising expenses (134) (20.6)% Other, net (179) ( 5.5)% $ (1,229) ( 8.8)%

(1) Increase primarily attributed to $468,000 in increased commissions expense due to increased revenues at Vicor Custom Power subsidiaries.

(2) Increase primarily attributed to increases in headcount.

(3) Decrease primarily attributed to a decrease in activity associated with the Company's lawsuit brought against certain of its insurance carriers with respect to the Ericsson, Inc. settlement of product liability litigation in the first quarter of 2009 compared to the first quarter of 2008.

(4) Decrease primarily attributed to the late filings of our 2007 Forms 10-Q and additional work related to accounting for our investment in GWS in the first quarter of 2008.

(5) The decrease in compensation expense was due to compensation-related accruals of $320,000 for certain of our international subsidiaries and additional stock compensation expense of $90,000 identified and recorded in the first quarter of 2008.

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VICOR CORPORATION Management's Discussion and Analysis of Financial Condition and Results of Operation March 31, 2009 (unaudited) Research and development expenses were $7,751,000 for the period, an increase of $240,000, or 3.2%, as compared to $7,511,000 for the same period in 2008. As a percentage of net revenues, research and development increased to 15.4% from 14.0% primarily due to the decrease in net revenues. The components of the $240,000 increase were as follows (in thousands): Increase (decrease) Compensation $ 228 4.5% (1) Picor non-recurring engineering charges 207 90.7% (2) Vicor Custom Power related expenses 204 38.2% (3) Deferred costs (238 ) 100% (4) Project materials (77 ) (10.0)% Other, net (84 ) ( 6.2)% $ 240 3.2%

(1) Increase primarily attributed to annual compensation adjustments in May 2008 and increases in V*I Chip headcount.

(2) The Picor business unit provides engineering services to BBU and V*I Chip to support certain manufacturing processes and research and development activities. A decline in services related to manufacturing processes resulted in an increase in the amount of charges allocated to research and development expense.

(3) Increase primarily attributed to increased compensation expenses of $68,000 and engineering supplies and services of of $128,000.

(4) Increase primarily attributed to an increase in deferred costs associated with certain non-recurring engineering projects for which the related revenues have been deferred.

On January 14, 2009, senior management authorized and the Company announced a plan to reduce its workforce by approximately eight percent by the end of January 2009. The Company completed the workforce reduction and recorded a pre-tax charge for severance and other employee-related costs of $3,098,000 in the first quarter of 2009.
The major changes in the components of the other income (expense), net were as follows (in thousands):

Increase 2009 2008 (decrease) Interest income $ 230 $ 903 $ (673 ) Foreign currency (losses) gains (64 ) 262 (326 ) Unrealized loss on auction rate securities rights (96 ) - (96 ) Unrealized gain on trading securities 27 - 27 Other 21 35 (14 ) $ 118 $ 1,200 $ (1,082 )

The decrease in interest income is due to lower average balances on the Company's cash equivalents and short and long-term investments as well as a decrease in interest rates. The increase in foreign currency losses is due to unfavorable exchange rates in the first quarter of 2009 as compared to 2008. The Company's exposure to market risk for fluctuations in foreign currency exchange rates

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VICOR CORPORATION Management's Discussion and Analysis of Financial Condition and Results of Operation March 31, 2009
(unaudited)
relates primarily to the operations of VJCL. The functional currency of the Company's subsidiaries in Europe and Hong Kong is the U.S. dollar.
Income (loss) before income taxes was $(1,723,000) for the first quarter of 2009 compared to $2,097,000 for the same period in 2008.
The provision for income taxes and the effective income tax rate for the three months ended March 31, 2009 and 2008 were as follows (dollars in thousands):

Three Months Ended March 31, 2009 2008 Provision for income taxes $ 428 $ 242 Effective income tax rate (25.7 %) 11.5 %

The higher effective income tax rate for the three months ended March 31, 2009 compared to the same period in 2008 is principally due to higher estimated federal and state income taxes for one of the minority owned subsidiaries that is not part of the Company's consolidated income tax return in 2009 and lower consolidated income (loss) before income taxes than in 2008.
Loss from equity method investment (net of tax) decreased from $790,000 in the first quarter of 2008 to $0 in 2009. This was principally due to the equity method investment in GWS being adjusted for a decline in value judged to be other than temporary of $706,000 in the first quarter of 2008 and due to bringing the investment balance in GWS to zero as of December 31, 2008.
Net income of noncontrolling interest decreased $53,000 to $392,000 in the first quarter of 2009 from $445,000 for the same period in 2008. This was due to lower net income at certain entities in which the Company holds a noncontrolling interest.
Basic and diluted income (loss) per share attributable to Vicor Corporation was $(0.06) for the first quarter of 2009 compared to $0.01 for the first quarter of 2008.
Liquidity and Capital Resources
Due to the current economic environment, the Company has assessed its overall liquidity position and has taken substantive steps to preserve cash and reduce expenses. In the first quarter of 2009, the Company announced an indefinite suspension of its dividend and reduced its workforce by approximately 8%. In addition, if appropriate, the Company may reduce capital expenditures.
At March 31, 2009, the Company had $25,136,000 in unrestricted cash and cash equivalents. The ratio of current assets to current liabilities was 4.3:1 at March 31, 2009 compared to 4.7:1 at December 31, 2008. Working capital decreased $762,000 from $65,297,000 at December 31, 2008, to $64,535,000 at March 31, 2009. The primary factors affecting the working capital decrease was an increase in accrued severance charge of $1,990,000, decreases in inventories of $1,050,000 and short term investments of $612,000, offset by increases in cash and cash equivalents of $2,497,000 and other current assets of $538,000. The primary source of cash for the three months ended March 31, 2009, was $3,421,000 from operating activities. The primary use of cash for the three months ended March 31, 2009 was $1,029,000 for the purchase of equipment.
As of March 31, 2009, the Company held $38,300,000 of auction rate securities classified as long-term investments. Please see Note 2. to the Company's Condensed Consolidated Financial Statements for a discussion of the securities and the Company's accounting treatment thereof.

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VICOR CORPORATION Management's Discussion and Analysis of Financial Condition and Results of Operation March 31, 2009
(unaudited)
In November 2000, the Board of Directors of the Company authorized the repurchase of up to $30,000,000 of the Company's Common Stock (the "November 2000 Plan"). The November 2000 Plan authorizes the Company to make such repurchases from time to time in the open market or through privately negotiated transactions. The timing and amounts of stock repurchases are at the discretion of management based on its view of economic and financial market conditions. The Company did not repurchase shares of Common Stock during the three months ended March 31, 2009. As of March 31, 2009, the Company had approximately $8,541,000 remaining under the November 2000 Plan.
The Company's primary liquidity needs are for making continuing investments in manufacturing equipment, particularly equipment to increase capacity for our FPA products. The Company believes cash generated from operations and the total of its cash and cash equivalents and short-term investments will be sufficient to fund planned operations and capital equipment purchases for the foreseeable future. The Company had approximately $951,000 of capital expenditure commitments, principally for manufacturing equipment, as of March 31, 2009.
Based on the Company's ability to access cash and other short-term investments and its expected operating cash flows, management does not anticipate the current lack of liquidity of the Company's ARS will affect the Company's ability to execute its current operating plan.
The Company does not consider the impact of inflation and changing prices on its business activities or fluctuations in the exchange rates for foreign currency transactions to have been significant during the last three fiscal years.

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VICOR CORPORATION March 31, 2009