Q1 2021 Super Micro Computer Inc Earnings Call
A press release issued earlier today is available on Super Micro's website at Www Dot Super Micro Dot com.
During the presentation, all participants will be in a listen only mode. After.
Afterwards securities analysts will be invited to participate in a question answer session.
The entire call is open to all participants on a listen only basis.
As a reminder, this call is being recorded Tuesday November 2020, a replay of the call will be accessible via webcast at IR Dot Super micro Dot com.
A replay of the webcast will be available online for 12 months following the call and.
An investor presentation, and a transcript of management commentary related to Q4 results will also be posted at <unk> or that's super micro Dot com.
With us today are Charles Wang Chairman, and Chief Executive Officer, Kevin Bauer, Senior Vice President and Chief Financial Officer, and James Kisner, Vice President of Investor Relations.
I would now like to turn the conference over to Mr. King Mr. Gill Sir. Please go ahead Sir.
Thank you.
Good afternoon, and thank you for attending Super Micro's call because discuss financial results for the first quarter of fiscal 2021, which ended September Thirtyth 2020.
By now you should have received the copy of the news release from the company that was distributed at the close of regular trading and is available on the company's website.
As a reminder.
During today's call the company will refer to a presentation that is available to participants in the Investor Relations section of the company's website under the events and presentations tab yeah.
<unk> also publish management scripted commentary on our website.
Please note that some of the information you'll hear during our discussion today.
Consist of forward looking statements, including without limitation regarding revenue gross margin.
Operating expenses are.
Other income and expenses.
Taxes cap.
Capital allocation and future business outlook, including the potential impact of COVID-19, when the company's business and results of operations.
There are a number of risk factors that could cause super micro's future results to differ materially from our expectations.
You can learn more about these risks in the press release, we issued earlier this afternoon and most recent 10-K filing for 2020 and there are other SEC filings.
All of these documents are available on the Investor Relations page of Super Micro's website.
We assume no obligation to update any forward looking statements.
Most of today's presentation, we'll refer to non-GAAP financial results and business outlook.
An explanation of our non-GAAP financial measures.
First the accompanying presentation or to our press release published earlier today.
In addition, a reconciliation of GAAP to non-GAAP results is contained in today's press release and the supplemental information attached to today's presentation.
At the end of todays prepared remarks, we will have acuity session for sell side analysts to ask questions.
I'll now turn the call over to Charles being Chairman and Chief Executive Officer Charles.
Thank you Jamie and good afternoon, everyone. Today, we had very nice our fiscal 2021, what's the quarterly financial results.
No not pick a dual.
Some highlights from the quarter.
Our fiscal fourth quarter net sales totaled.
I went on basic economy.
Hi, this thing year over year and it seemed to say in the Green Jody.
Our fiscal Q1 non-GAAP earnings per share was 55 said I'm Heather who took the is then in boast about some quarter over last year and in speech coach U haul Oh 2010.
So we expect he expect healthy Q1 had been our reasoning seasoning no quota I'll Touch addition on a strong quarter in June.
Yeah. Despite that continue all the challenges on Cobi than 19, we will need to deliver revenue and earnings above or to meet the potency of our guidance range.
We have been increasing that he just into the new normal I'd say opinions theme you since youre right I see okay, and plenty Oh, yes, the on lots of area can be and where before they go regarding COVID-19 impact.
At the same time, we have been aggressively growing our operations.
In the <unk> and sales functions.
Hi, one.
Well the coffee Nitin impact is much less.
Embedded in our U.S. and email it causes.
During the last September quarter, we continue that who live our couldn't into customers, while enhancing our Taiwan at Cortez.
I see and then have a PDP in production operation and.
So all in.
In order to support our global gross shrinkage.
To sum up we now have a much bigger and no acos campus in Taiwan, we.
Maybe to put that PBT for revenue and profitability growth.
This is just the beginning of Alt a noble April.
I'll cover recent challenges.
Let these cuts there I believe.
Hello, Hi, one campus.
Pos to reach higher economic Oh scale combined with our cost of energy Tosh in April.
Revenue and probably the pretty girls wed be getting much stronger in the coming quotas and yes.
I have confidence.
He capitalization on many new Maki the opportunities.
You know I'll pokes mentality, when Andy Beaden Hey.
Especially in Asia Pac email.
And the U.S. East coast.
We have been pretty successful at achieving a greater market share in the U.S. West coast.
And we aim to duplicate this phase in other geography heavy toadies.
Let me spend a minute.
Who will review our traditional PC industry, new girls drivers that I see it.
In the past the two quota and Cummins coasts.
<unk>, Oh getting kind of enterprise.
And channels regions.
Okay.
Oh, one new one notch eros into poverty, Macau, and Oh, Yeah MPG.
Our new five G H and telco, peaking.
And for our software and global appeal coping.
Sorry, I was sort of way out and grow it was maybe speeding.
We have made good progress in each Oh doubtful gross driver as well.
We had.
More new enterprise customer <unk> kind of.
And again, a couple of tough scale cloud company.
We also have won a couple of top telco popping up in each or dot email Asia and USAID heavy toadies.
Moreover, we see our software and service business continues to gain more adoption what away, we see that business on vision, we have viewed and that cost them all hyper nice we yeah neutral.
Pinedale.
<unk> expenses in it you owe these girls area going forward.
Especially in the new notch cow, and Oh, yeah, and Fiveg and telco Mckee.
I believe that girls wherever you have big X hot revenue to us.
Before moving on to technology and Botox.
I want to take a moment to be cool and share that coast overall opinion is slow down and disruption over the past three years.
Well I would think it the day in June 2017, followed by what the DC wasn't a significant distraction to management and employees.
For almost 30 years.
Oh, no Oh, what a concern and issue Wall Street Journal.
A few months ago. This these robinson, hey, lasting effect on our feelings and imprimatur off however.
However, we have the comedy quickly now.
Unfortunately, yes obsolete emerging form all stock D C and.
Did you rosy in December 2019, coffee 1910, who you are.
And how.
Has slowed down and the price and channel and the bad Daddys and that was our traditional focus.
Our sales operations and a passion performance have been impact.
Since the end of this much.
You got that you Gotta. These over these challenge and disruption I want to share with you that's super Michael It is still very strong.
Now lets jump on dish and allow us to find ways to overcome these challenges.
We spend I know I said, the only U.S. so how the way our solution company. We started on the survey cool Oh Foster and until dropped a gross since inception.
In that 10 years between our IPO heading into 2007 and 2017, we grew at 20% compound annual growth rate.
How about that over the internet at.
At about 30% compound annual gross is way over that same time period.
Our investors to keep these factors in mind.
We went through that we are able to be created the same gross trajectory.
Even better medicine.
Moving onto technology in potash.
Hi, what unique opinion bulk solution on the organization.
Is strong and my at World Police Pen Dowell.
Oh taconite we.
Expenses gross in how you read the a and B and NPL portfolios.
Oh, well with these leading E I pretty and forms and the Communists then.
Yeah, I think it pulled out a nice way.
The approval that she will Michael again, we're happy that tool hadaway industry leader.
Some technology highlights in the quarter.
In crude now filings.
Plus we introduce into N.P.G.H. in four phase.
When you who you and for you yeah.
She said that the Diva chicken eggs, yeah training and say when eggs.
Financing performance improvement overall, when ABS denomination.
Yes, Jason I Bendable, we either are they P.M.D.J.P. wholesale or the upcoming Intel I sneak a process.
Okay.
Most importantly, we believe our upcoming ICSC well I think it pulled out a nice is absolutely going to be the strongest appalled at night in our history.
Yeah wed be ready to ship and so not impair the news GPU is available.
True to our application optimization pulled that straightens. Our example down nine whereby the exactly the pace how do we outperform as well fight gene, Yeah, and telco as a way of us may not be it up into application.
Good.
We will also allow for us to Maki, we when you mix there was three certified.
We do have we went into a GPU accelerated so.
A key enabler for Dutch incision to Fiveg.
And we also believe that what does most of the green if he since you will come to that.
Recently by cooperating we said putting forth networks.
Oh CCM achieved number one in Abilene plant.
We set a record breaking 21.11 Z golf what oak.
Yes.
Which is a 15% higher than the previous worldwide vehicle.
Even though he does cheaply ingredient I see this is a new factory.
Oh yeah.
Deeper mission of our company to have a pretty good I will only put in that way.
What you charge in a racing.
We hope that that will compete and energy efficiency.
Other than the pool business gross swidler our.
Our peak production and operation capacity program in type one.
Our new strong <unk> pipeline.
Pipeline and I when you put out.
So my pulled up have a nice.
The company is also investing in business the automation branch.
Which is all b to B and B to C O nine business transaction system.
We stopped designing this season.
Yes I go.
And had recent that he put the X.Y. airports to finish it off waste one milestone.
No we are able to have our sales and all customer to EGD, so that cause I pulled back commutations.
And older quickly all night.
These phase one we'd be open to our sales isn't a member of the day, we aim to open it up to some of our customers in a few weeks.
Well, we continue to fine tune. Please one features and come to provision optimization.
Well, it's cool.
Yeah.
Already been kick off we see that come in the interface structural components be up and optimize our sales performance and customer satisfaction.
<unk> innovative sales and that's all the way up over well dramatically improve our president he cvcs scale and quality.
In summary, we are back.
And we will be certain much stronger than ever before we do that the big challenges.
In the past this really yes that entity hurts you pull Michael Oh, it's already behind Us now.
That's a we continue not to build a much stronger foundation globally.
Including the much larger new campus in Taiwan.
We weren't devotee. These images today to efficiently accelerate all speaking is the girls and probably the BT in the coming quarters and yes.
I appreciate it I patients that invesco and I wasn't really has shown how our company during that time.
And we aim to do you will you I suppose we saw all fossil girls in the near future and don't come something and.
And I believe that.
We would be calm wonder what the top I teach English who'll provide that he said.
And that coming.
And I've come in he missed how you name and and then the state we will share more details about scale scope and.
Schedule.
What a new Super Michael Pope ways.
That we have been developing to grow into a top player.
The key topic is wearing cool.
Okay.
Oh, well for picking these drivers.
Oh, it unique economics, and new post Doc nice for AI by GE Telco and Dodge cow.
And I will again it could be.
C.
Oh, a new campus in Taiwan, who go off between East Coast.
Steve I.
Our software and they'd be species state huh.
And eat our b to B and B to C.
Season is the automation.
Brett.
Welcome to join us at that time.
I will now pass the call to Kevin Powell, our Chief Financial Officer to provide additional details on the quarter.
Yes.
Thank you Charles.
Our fiscal first quarter revenue totaled 762 million.
This reflects a 5% year on year decrease from the same quarter of last year, and a 15% decline from the fourth quarter fiscal year 2020.
Systems comprised 81% of total revenue.
Volumes of systems, and nodes shipped were down sequentially and year over year.
System, if peace increased quarter on quarter and year over year.
Turning to geographic performance on a year over year basis, the U.S. increased 6%.
He may have declined 12%.
And Asia declined 22%.
On a sequential basis U.S. sales declined 8% quarter on quarter, EMEA declined, 32% and Asia declined 22% sequentially.
From a customer point of view, we saw a pause is oh yeah.
Service provider and Internet commerce customers following strong demand in the June quarter.
So what's the normal down cycle of demand from large enterprise customers.
This was offset by first time business at the new high profile customers that Charles referred to earlier.
From this point forward unless otherwise noted I will be discussing financial metrics on a non-GAAP basis.
Working down the piano Q1 gross margin was 17.1%.
70 basis points year on year, and 310 basis points quarter on quarter.
Recall on our August earnings call. We stated that we expected gross margin to improve by 75 to 125 basis points on a sequential basis chiefly due to a reduction in what were highly elevated commodity and freight costs.
As anticipated we did see improvement from these factors, but also we accrued for a recovery of costs paid in prior periods that benefited this quarter by roughly 130 basis points.
Turning to operating expenses.
Q1, opex on a GAAP basis decreased 13% quarter on quarter to 99 million.
Recall last quarter's GAAP operating expenses included 16.2 million in one time incentive awards to our employees.
On a non-GAAP basis operating expenses increased 4% quarter on quarter, and 10% year on year to $95 million. This.
The sequential increase in non-GAAP Opex was primarily due to the fact that Q4 operating expenses benefited from a bad debt recovery of $4.8 million.
Other income and expenses, including interest expense was a 1.5 million losses compared to a 1.3 million losses last quarter.
This quarter, our tax expense was 3.7 million on a GAAP basis and $4.8 million on a non-GAAP basis in both cases this quarter benefited from larger tax deductions related to stock based compensation.
Our non-GAAP tax rate was 14.1% for the quarter.
[laughter].
We expect our tax rate to approximate 16% slightly below our prior expectation of an 18% rate.
Lastly, our joint venture contributed income of 1.3 million. This comp this quarter as compared to income of $3.5 million last quarter and income of 1 million in the same quarter a year ago.
Q1, non-GAAP diluted earnings per share totaled 55 cents as compared to 68 cents in both the same quarter last year.
And in the fourth quarter of fiscal 2020.
Cash flow from operations totaled $120 million driven from an improvement from cash flow from operations of negative 96 million in the June quarter.
Evan largely by changes in working capital.
Capex totaled 12 million, resulting in free cash flow of 109 million.
My closing balance sheet cash position, which excludes restricted cash was $300 million.
Well bank debt was $36 million, resulting in a net cash balance of $264 million.
And I remind everyone that a we completed our previously announced $30 million share repurchase program for the quarter and when we purchased 1.14 million shares at a weighted average price of $26.24.
In our earnings release today, we concurrently announced that our board of directors had authorized the company to repurchase up to another $50 million of its common stock in a new share repurchase program.
The program is effective until October 31st 2021 or until the authorized funds are exhausted under a tenbfive one plan, which ever occurs first.
We're currently taking a tactical and opted opportunistic approach share repurchase as we fine tune our longer term capital allocation strategy.
Turning to working capital metrics like.
Our Q1 cash conversion cycle was 170 days.
From 87 days last quarter and outside of our target range of 85 to 90 days.
Well the absolute level of our inventory decline days of inventory at 118 days remain elevated relative to history, given the lower sales level quarter on quarter and their sales outstanding was 44 days, while days payable outstanding totaled 55 days.
Now turning to the outlook for our business.
The company expects net sales for the quarter ended December 31st 2020 in the range of $780 million to $880 million.
We expect gross margins to decline approximately 160 to 200 basis points, the winch sequentially due to the cost recovery discrete event mentioned earlier.
And higher overhead costs, driven by an expected increase in freight.
We expect non-GAAP operating expense level to be flattish quarter on quarter.
Well, we're selectively investing in R&D. This was offset by lower audit costs and actions. We took very late in the quarter to selectively reduced headcount.
We anticipate the GAAP and non-GAAP tax rate to be 16% going forward we.
We fully expect.
Yeah diluted GAAP EPS to be in the range of 25 cents to 47 cents to fully diluted non-GAAP EPS to be in the range of 35 cents to 58 cents.
We now expect our Capex for fiscal 21 to be in the range of $55 million to $60 million inclusive of the acceleration of the Taiwan building project mentioned earlier by Charles.
In the meantime, we remain focused on getting the company through the volatility presented by this resurgence in cold at 19, and ardently rebuild our business momentum as described by Charles.
With that I'll turn the call back to James for Q1 EPS.
Thank you Kevin operator, we are ready to take questions.
Certainly.
To ask a question you will need to press star one on your telephone to withdraw your question press the pound or hash key please stand by while we compile the Q and a roster.
Your first question comes from the line of Jon Tanwanteng with CJS Securities. Your line is open.
Hi, good afternoon, everybody and thank you for taking my question.
My first one is.
I think you guys mention internet and cloud as a source of strength in your Q1 results can you talk a little bit more about that that end market.
And profile and the revenue impact of these customers and how they factor into your guidance for next quarter.
We are having trouble hearing the question I don't know if it's whose line. It is we can barely hear Ah John region could you speak up a little bit please repeat the question.
Yeah, it's just better.
Yes, much better we go.
Okay, Great I was saying you you mentioned cloud and Internet as a source of strength.
In the quarter I was just wondering if you could talk about the margin profile of customers and how does that change your guidance going forward.
Sure. So this was a you know kind of our first taste of some of these customers I would say that Fortunately as opposed to what some might think our margin profile was not appreciably different from the margin profile of our other customers. So.
We we expect and hope that that will hold true on a go forward basis as well.
Got it. Thank you and then can you talk about maybe the how do you see market demand developing over the next two quarters, you know with the relative puts and takes whether it be covert hi election concerns and new form launches a new product launches.
But that you're doing internally.
Yeah, it to have a pretty big but the odds that you made known I enterprise intend not being met continues to become a high its entirety and at the same time, that's how a social networking communication, we do a steaming demand.
Steve I'll keep it strong and that's why we have created some good cosmo in a nod to call and we do at the mean heavy duty. So we started getting some demand from that territory and that's why our penetration manufacturer in Taiwan, especially you know acos where.
[laughter] I set up.
Great I think that's a good lead off into my next question I was going to ask about the talent acceleration and how it better positions you both strategically and and maybe if you go into it how much.
Can you quantify the expected benefit from moving there over.
Maybe the near term.
Yeah, let me start and Teva MEMP Aldo.
So I mean, it's a investment full I would ever say so can we come in downtown So no. This year. These I in Taiwan close they tend not to go up any knowledge USA operation basically to about a 35% to people saying.
So a full mature.
They didn't pay Teddy we see ways pretty devotee g. the puts BDC that capacity in Taiwan, and we called me the 19 U.S.A. much.
Well, it's Dan Hi, one in Taiwan and be the almost no impact and that's why we are quickly devotees yallop, how crazy an advantage and ideally that would be a good follow Shelton and wait Jody not at the many of you have become a much Korea and much more seeking liquidity and meet at the moment.
Uh huh.
Your next question comes from the line of me hold Chokshi with Northland Capital markets. Your line is open.
Oh, yeah, thanks, and congratulations on great results, all around a especially a strong free cash flow and executing on the share buyback.
You guys mentioned that you notice it carries a recent improvement that gives you confidence that a year over year growth is bottoming here can you.
Discuss exactly which areas are you seeing that recent improvement in and from what point in time are you referencing as well where that demand profile has improved.
So I think you know we just navigated a period that was a you know challenging.
Kind of gave some guidance in terms of how we think that it is generally going to improve in the December quarter. Here are based upon visibility you know that we have I think also you know when we talked about some of those new customers are some of the lead times for their materials are longer in length, so such that we.
You get a little bit better visibility as to their plans for the March quarter.
So therefore I think at some of those those feeds of information that make us.
Believe that as we continue to accelerate quarter by quarter that there is some tangible evidence of of People's plans not perfect visibility, but there's there's some that's out there to be able to latch onto.
I don't know if you have anything else. In addition to that Charles Yeah. They go why doesn't mention I I mean, I am not core to I mean, it's basically I'll teradata.
Uh huh and the impact of our could mean that we stop who are focused on I'm not yet huh taipopai hybrid Emma can pull a nod to Carl and I stayed up into and a video steaming in a cut them hopefully dental fiveg telco and we thought again I'm a very good enough.
Not as cheap and we started to see the time and however, the high vote and it does take some time to them Hot so that came to say I mean that December quarter, we might see some help much quota and net yes, you quota at the D., we always see a much bigger Uh huh.
Yeah, I thought of one thing that could help the investment community understand that a little bit better is that some of these new customers are actually already ordering rack scale products from us that without longer lead time give us some visibility.
I see okay.
And a second question I have is that a nice slide here on your key vertical markets and growth drivers.
I think this is a bit of an evolution of the Super Micro Threed Io vision that you guys had previously talked about.
And what did not Super micro Credo vision implied in that was a potential for margin expansion.
And this new way of presenting it or does that opportunity still present itself and can you talk a little bit about how that might actually look in terms of our long term margin profile.
Yeah mitigate pricing I mean that we mentioned about Super Micro's pretty thoughtful about three years ago I'm pleased showing a 10-K today 90 days also a pause it now you need to now its over night. So we start to Sq that was Q1 like let's say he thought when now just don't they fully dimple no fiveg.
He h. entail Colby Denise.
So the way and global studies.
So that has been a hedge in our business and we have become a much signaling for 10 have put out a quota of two.
Who are not stay at us into and Crown.
Or even a private cloud or regions that have been growing and we will continue to invest in that area. So it should be a very oh I see going on within a clean driver policy in so can become and even sometimes especially at one time I would ever say.
Your next question comes from the line of Aaron Rakers with Wells Fargo. Your line is open.
Aaron Rakers with Wells Fargo. Your line is open up sorry, James I was on mute I just wanted to ask a question about server cycle. You you referenced in your prepared remarks, you know Intel's ice Lake you also have a.
M.D.S Milan processors, you know it.
Sounds like you guys continue to see overall ASP increases in your in your system.
Some sales.
How are you thinking about like Intel with with eight channels of memory from six you know how do you think about the E. S. P trend relative to unit growth as you think about you know the set up into calendar 21.
Hi, good morning.
More and more customers are now really appreciate it I'll, let Paul Ddos solution not just.
They help owned by the CP Amendment Hot July and are not put on television, including management thought away a including some even applications earlier. So I include in that space a memory right. That's the way you measure it in a.
Kinda as they see and we and he and Oh, we should have been Oh don't come go and complete the right solution.
And medicine, we why she always you even more about our privee Carl photos of lesion, but it's that it'd be too early to say too much but yet we have moved me for what what put those yet.
Okay, and then maybe sticking on a similar topic gross margin was very strong this quarter.
Quite a bit on a sequential basis I'm just curious if what you're seeing on the component pricing environment. What do you. What are you embedding in your current quarter expectations as far as DRAM and NAND flash pricing trends and any thoughts on how that sets up into next year. Thank you.
Yeah, I mean, non economical scale way ahead of us. So we are growing our global now and we need to be in the drive now or we are going to allow revenue our economies of scale and that well have how gross margin and then am I do wish you all.
Hi.
Thirtyth beaten the Sotawall, yeah bad debt in this have powerful CLO healthy heslip.
Your next question comes from the line of Nik Heisler with ESI Gene. Your line is open.
Thank you, it's actually Mehdi Hosseini I haven't.
I have a couple of follow ups, Kevin can you help us understand how opex is going to play out for the rest of the fiscal year 21.
There are many so I think you know we said that we took some actions in this quarter, we trimmed some head count.
We actually did a similar kind of trim at the end of September that kinda bore fruit here in the December quarter, I think as we look forward in terms of the pace of our hiring as Charles has mentioned earlier, if if if we're gonna appreciably higher in one it's going to be you know Taiwan based you know over the course of time.
I think you know our views of of Opex now on a non-GAAP basis was that you know the <unk> I think we said quarter on quarter somewhat flat may drift, a little bit in that the March or June quarter, if cobot lifts and we feel that it's appropriate to give merit.
It increases.
But I think we're trying to hover in the in the mid Ninetys for a period of time here.
And I think that's what you were you were looking for yes got it and then.
Okay, two more questions.
One for Charles given your extension in Taiwan, then how capex.
Activity increased by two to three times over a two year period.
In the meantime, you have been able to diversify and target a wider range of end market.
How should we think for envision opportunities independence, you used to give us a 3 billion revenue target you or to be there I'm not asking you if you're going to double your revenue given to an increase in capacity but.
And then longer term it seems to me that you can hit.
Revenue K guard that could be more of a double digit growth given the two to three times increase in capex within mix over the last two years is that the right way to think about opportunities in the next one or two years.
Yeah, I mean, a very good question I mean, Oh see you man known right I mean, our DNA I mean, I think 2000, yeah cool stuff into 2017 pretty much.
<unk> compound growth had been about 10 people say, yes, right. So I don't believe we won't because that grows really lumpy, but we think it today.
Behind us.
And although koby Nike is a challenging us, but no we enable Taiwan outpatient opportunity in Taiwan, We know well close we saw almost no koby 19 impact I feel very confident we will get back to a cool seats told boroughs.
Yeah very soon hopefully.
Not yet to D.. So hopefully we can have a.
No no no reason, we cannot get back to more than 10 deep within those 30% girls.
So I have a big wouldn't be in the mid.
Many exciting who Ah Ah.
In the next few years entity.
Okay, and hopefully to be with a higher margin business any debt context, Kevin how should I think about either absolute utilization rate for U.S., San Jose versus Taiwan, or or if you don't want to disclose specific utilization rate, which region is higher.
Comparing the U.S. San Jose to Taiwan.
Well right now the U.S. utilization is higher I think you heard in my prepared remarks that at the current time, Europe and Asia are suffering a little bit more than the U.S. A you know because the U.S. was the location, where we got these new marquee customers, but Oh I think you know.
On a go forward basis, you know that capacity utilization needs to obviously increase and we'll get some leverage off of that I think it's also fair to say that with the you know the the U.S. building is not under active construction at the moment, it's we're taking a little bit of a pause with it where we're moving forward with the Taiwan building.
Oh, I think what though once those both get built out you know we have capacity to on a full tilt basis almost get to like 6 billion. So we would be you know building that over the course of time as necessary I'm just talking about the show in its capabilities.
But that's the kind of profiles I think that we're looking at.
To answer your question, yes, indeed, it will reach six feet and Dallas Oh, Okay. Embeds names, one increased too much yeah.
Facility capacity.
Or you might think they'd be here.
Yeah. So that kinda describes Aaron you know where in previous calls I talked about how after we get these buildings you know done than our Capex is going to go back to the modest maintenance.
And now you have an understanding of where that's going to be.
Your next question comes from the line of an Anda Birla with Lu Your line is open.
Hi, Good afternoon, guys. Thanks for taking the question.
Thank you for me if I could.
Yes, sorry.
How should we think about the.
The drivers in the December quarter could you just tell us what you think the biggest aspects of your business side that will influence the the incremental sequential revenue in the December quarter.
Oh, we koby 19 switching to us.
We try to be conservative. So today, we give a range is that 180 to 80 I hopefully, it's a conservative number and again that's why we just mentioned we had been Dean had calls I touched them all in a large crowd fiveg pepco and ER, we DST mean, okay.
I know previously so.
I believe next few quota shipyard, so a good quarter to grow.
Yeah, I think it might also we're going to we're going to see some return of the customers that took a pause in September.
Got it some of the more classic on premise I'm from such it sounds like that like Kevin. Thank you.
I appreciate the comment about what.
I I gave I gave a long list of types of customer, including Oems and such so Oh, it's broad.
Got it.
And just with regard to isolate and I don't want to make.
One of the things together, then that our intent leases together, but in the prepared remarks.
Yeah, I think it was Charles you made mention a slight improvement in December.
And it sounded like you know kind of in the first half of next year calendar or maybe a tab encourage that.
You know a stair step stair step kind of.
Kind of take out that those are my words, but that sounds like the scared of it I guess the question is is to what degree does the availability of ice like clay in that relative to just demand do you think can get better you know, we got one spikes like Islay cannot.
Yeah, the uman known by India, I Snake now can be available very soon and are they you know early next year and we have a.
Strong they pulled out nine Ava Oh, I better we'll know what the NDRC view I put that Jane Lebkowski the sheep.
And Oh flat to even put that night, so we already.
And it sounds like you think that'll have a pretty significant impact like availability occurs.
Yeah, we are waiting for the new CP will be available.
Okay, great and that just the linearity question, how did you guys experience yet this quarter.
What do you seeing in ER.
This month to start to start December quarter as you experience in the in the September quarter, and higher and how does that how do you feel about sort of.
No I'm, sorry, Tobey so far in the context of your.
Lenny Eric.
Oh, you mean I see Oh.
Overall overall thanks.
Oh, I believe fraud up you didn't want to get even stronger getting paid off was for couple of reasons number one we get created some pretty high profile testimony in last few months and those ramp hobbies are pretty pretty sticky.
Let's take time these I look I want to appreciate it.
Is it getting not ready and we doesn't gorilla some a strong team in Taiwan those came about ready to go so well we have a bigger feeding in the near future, especially next cutting the shipping so many of us.
Again, if he would like to ask a question press star one on your telephone.
Your next question comes from the line of John Lopez with vertical group. Your line is open.
Hi, Thanks, so much can you guys hear me okay.
Yeah.
All right great.
Uh huh.
Just one clarification, Kevin if I could which is deferred the last couple of years. It trended up pretty nicely, it's kind of flattened out over the last couple of quarters. I'm wondering is that does that just because unit volumes have dropped off and is it just a function of attach or is there something else influencing that line item.
[noise] well there is some attached but it's also true that contracts that we entered into in 2018 drew.
Early part of 2019, if you recall had very elevated commodity costs and the car for the services as a percentage of revenue. So we had you know some more expensive contracts you know historically I think you know we do.
Want to continue working on our attach rate, we do better in some regions and the other and we need to we need to work on.
Some offshore attach rates to be to be Frank.
Got you, Okay, that's really helpful.
Secondly, I'm wondering if you could just rewind a little bit my recollection. How did you guys exited the prior quarter like calendar Q2 was that a the bookings activity had slowed pretty sharply can you just walk us from there to here was there a pretty appreciable increase in bookings activity to that.
A pretty linearly how does that look exiting calendar Q3 versus say exiting calendar Q2.
Hi, it's gotten healthier I mean has the guidance.
[laughter] Fairpoint.
Okay, two more quick ones if I could.
My recollection is cloud if we look back a couple of years I can't remember what you guys called it back then maybe Internet data center, but.
It was around 20% of the business or oscillating around that level.
Can you guys give us just a rough sense for where that sits now.
Yeah.
We still are not [laughter] splitting out our revenue segments right now, but I will tell you that the topography of it is quite different now and that is is that back in the days that you're referring to it was a pretty large greater than 10% customer aware with greater diversified in that segment right now.
Gotcha, and just on that point Kevin.
Is the right way to think about this that you guys are I mean for lack of a better term kind of re entering that vertical it maybe just talk a little bit about what you guys are perhaps doing differently. Now are you. It sounds like perhaps diversifying the customer base is one thing are you guys pursuing different use cases is there maybe a bit more geographic spread here, maybe just talk for a second about how are you.
You think about that vertical now versus perhaps how you did say two three years ago.
Maybe I can ship I mean, a place we saw what see in Taiwan, and getting bigger and of course, they use that much.
No War, then Oh operation USA, which youre. So we see that the vintage now we were thoughtful apology there might be a much more aggressively than the last few years.
So indeed, Indiana, what we like to focus on that heavies I've already said.
Your next question comes from the line of Jon Tanwanteng with CJS Securities. Your line is open.
Hi, just a quick follow on to that question is it fair to say that it's the cost advantage of moving to Taiwan, that's enabling you to win those customers at this point for US is you know whatever else you maybe bring to the table.
Yeah, because those a lot of the house into you know, thereby I know, but the one hour Mark racing price. So we thought well Taiwan operation now yeah as much as 82 studies coming back to that.
There are no further questions at this time I will turn the call back over to Charles Liang.
Hi, Thanks for joining us today and looking forward to seeing you in close and hope they said and what did they thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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