Q2 2021 Super Micro Computer Inc Earnings Call
Yeah.
[music].
Good day, ladies and gentlemen, and welcome to the Super Micro second quarter fiscal 2021 financial results Conference call.
At this time, all participants are in listen only mode.
Later, we will conduct a question and answer session and instructions will follow at that time.
And once you decor assistance during the conference. Please press Star then zero on your touched on telephone.
I would not like to turn the conference over to your host Mr. James Kisner, Vice President of Investor Relations. Please go ahead Sir.
Good afternoon, and thank you for attending Super Micro's call to discuss financial results for the second quarter of fiscal 'twenty, One which ended December 31 2020.
By now you Should've received a copy of the news release from the company that was distributed at the close of regular trading.
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.
Please note that some on the information you'll hear during our discussion today will consist of forward looking statements, including without limitation those regarding revenue gross margin operating expenses.
Other income and expenses taxes capital allocation and future business outlook, including the potential impact of COVID-19 on 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.
Our most recent 10-K filing for fiscal year 2020, and our other SEC filings.
All of these documents are available on the Investor Relations page of Super Micros website.
We assume no obligation to update any forward looking statements.
Most of today's presentation will refer to non-GAAP financial results and business outlook.
For an explanation of our non-GAAP financial measures. Please refer to the accompanying presentation or to our press release published literature day.
In addition, a reconciliation of GAAP to non-GAAP results is contained in today's press release and in the supplemental information attached to today's presentation.
At the end of the day prepared prepared remarks, we will have a Q&A session for sell side analysts to ask questions.
I'll now turn the call over to Charles Liang, Chairman and Chief Executive Officer Charles.
Thank you Tien and get out the known everyone per day.
We have raised.
We have <unk> of fiscal 2021 second quarter.
Financial results now lets take a look at.
Some highlights from the quarter.
<unk> second quarter net sales total A&P southern Union on 5% year over year and up 9% sequentially.
<unk> at the midpoint of our guidance range.
Our fiscal Q2 non-GAAP earnings per share was <unk> 10, compared to 55 thin.
On page Cold Q1 of 2021 and.
<unk> 57 in the same quarter of last year.
So we expect it to improve.
Seasonally weak Q1, we are proud to bed. We achieve these results. These PAE the very challenging environment. After the impact of COVID-19 was significant any worse since early momentum, which impact our operations, especially in USA, Inc.
Water.
Overall <unk>. However, we had to get any we can international growth to offset that weakness in the United States.
Quarterly sales in many Asian, and European countries were up tablet PC and.
In some case.
Very high double digits, which payments now strength and the improvement of our global sales organization and channel partners around the world.
These strong international per unit growth to continue in March quarter and that future.
On a public on of our aggressive growth strategy.
Our new high profile customers mentioned on our last earnings call.
They are based on type push outs in Q2, and we remain excited about adrienne sheet, but which of these customers. Additionally, our sales teams are continuing their april to expand and Nacho new opportunity in these accounts for the next few quarter and Es.
Why are these efforts have been on track with our.
Internal goal we had this entity.
Our April to win new accounts interest in seven months, we plan to Florida extra day that it needs to growth leasing new incentive programs and is that too extreme.
Purpose on all of these actions other than Super charge. Our sales force is to restore our original women College Hill, we have set aggressive goals for our sales and.
On my team is deeply committed to seaborne microbes future with more and more patient.
To support these international.
And our global growth strategies, we have aggressively expanded our Taiwan campus capacity and capability and pedestrian operation engineering and sales on a new building 60 tool at our Taiwan Science and Technology Park with the online early on.
On the.
Which will add another 1 million square feet of manufacturing and office space.
<unk> fab loading per thousand capacity within the next six to eight months.
And that certain this April.
Sunbelt This peak propulsion engineer on impact.
Most by COVID-19.
On the long term I believe a day.
Our Taiwan campus, so far to reach higher economical scale revenue.
Probably the PDP goes we have become much stronger in the coming quarters and years.
To complement our April in Taiwan, our feed into industry income, let's say is on schedule to come online in the next quarter.
Which will further boost our strong American manufacturing credentials.
Can we think these actions will help us capitalize on many new key market opportunity in our approximately 110.
Let's move on to our technology and pulp assets.
<unk> unique opinion progress solution for that approach on.
Organizations are hard at work to expand our optimized entail A&P and Nvidia portfolios. In addition, we head tableau, our software and service <unk> and resource cobalt a pass through to EPS.
These investments are making a great impact on improving customer experience in both submission quality and security.
At least to the upcoming new entail iceberg a pulse laser.
Again, putting the tanker market advantage high product quality and application optimized solutions to our customers.
We are pleased to see.
Strong trend income of Cosmos, <unk> and early <unk>.
And we have stopped some of our operating departments.
Through our key customer recently.
True to our application optimized product strategy.
We believe our ice Vega product line will provide precisely faith hardware platforms to telco.
Jim.
And AI as a way of data center applications.
Such.
You have to prepare for our iceberg apart on line to become a key growth drive in the coming quarters.
Although COVID-19 continues to drop.
Good day.
Our strong foundation has favorably support our company MPV.
I had mentioned we had taken.
Decisive action.
Expand our operations engineering and sales teams.
Our sales team in Taiwan to Florida, Gpus that COVID-19 impact.
These efforts together with our application optimize with moving folks solution had results in great progress with our focused business vertical.
First our organic opinions than more than 10% new mango customer.
Several accounts in the last few quarters.
Depending on <unk> from our strong product line and expanding Taiwan operations.
Our P to P automation.
So can you relay to us as well as a sort of layer in certain enhancements will continue on these.
Growth momentum.
We started with <unk> focus on our non.
<unk> data center and OEM.
Since about three months ago.
Right. After our 10-K was filed.
Who high profile customer.
To shoot in some onboarding on recently and where the impact.
To a larger scale data these calendar year <unk>.
Put it in to add one or two more nasty nasty us into our OEM customer in this category before the end of this calendar year.
Third on <unk> and Iot.
On a handful of new telco customer.
They are currently starting to ship from our volume with upside.
And we ex Peg high volume shipments to this customer with Todd later, this calendar year as well.
And number four.
Our PT Fi and Pwc automation with total cash related here.
Had been greatly improve.
In the past three quarters, which is even more critical as COVID-19 force.
The monitor working environment for lots of customer and our own employees.
<unk> been developing this powerful positive for the past five years.
And if it will be ready to go live by this quarter end.
These will make it.
Much easier to share communication and product concentration among our sales engineering and our customers.
As discussed in our last earnings call.
Believe that Q1 fiscal 2021 will prove to be a near term bulk on in our per unit.
And our Q2 dissolve the flow.
First approved polling that Super micro is in theater back on.
<unk> check.
I'm excited that our within their booking activity along with our new business initiative.
So the confidence to provide the Q3 guidance.
Net people achieve.
<unk> please.
<unk> or <unk>.
Growth on a year on pace.
Put them all.
We are pleased to announce a newly approved.
$200 million.
Share repurchase program.
<unk>.
Investors, who view as line of our commitment to enhance.
Stockholder value and our concrete Inc.
And our long term business update.
I will share more detail about our strong growth planned in scale, our unique on momentum and when and how we're <unk> $10 billion revenue in the coming soon investor event.
As the only phosphate growing server solution hardware design and manufacturer company in the U S.
In last 27 years.
Super Micro's III tableau is nearly 100% ready.
Let me we are ready to go quickly.
Before a peso I'd like to take these chains, who Atlanta that.
Appointment of baby wagon.
Our senior Vice President and Chief Financial Officer.
David joined our company in May 2018, as senior Vice President and Chief compliance officer at Tpa, and net income or silicon value.
David Kantor Supermicro from HP enterprise.
We are here.
How it works as a vice president.
He was previously the key.
All of the line electronics on Medical Inc.
David succeeds the Cayman Powell.
Who is our current receivable and is leaving the company to pursue his passion.
Non for profit organization.
And over these months.
It had been a per the village working with Kevin and I appreciate the greater the dealership.
We're working in.
<unk>.
Dedication for Super micro over the past four years, Kevin is created for improvement over our financial system and mainly system automation.
I wish him our greatest success in eastern New Mexico.
We'll now pass on our total came in one.
One last time to provide additional detail on our quarter and our outlook.
Please.
Thank you Charles.
Like to say, a few words to our employees and investors.
I have enjoyed working with Charles on the very dedicated supermicro team and helping the company through challenging times over the last four years.
I am most proud of the work enhancing our company's financial function, providing a stronger foundation for the company to continue to growth as well as our focus on improving operations to generate cash which enables a return of capital to shareholders too.
So all of the Supermicro team, we have accomplished so much together, yes, there is unfinished work.
Carry on.
On a personal note my new role will be in an area, where I have strong passion for and also serves a community that I have a long association with.
I am excited to joined as the Chief Financial Officer, and key business executive to help this organization to reach its objective of delivering increasing value.
When announced.
This new rule will make sense to you all.
Before jumping into the results from the quarter I'd like to briefly touch on several accomplishments. We made this quarter on the environmental social and governance or ESG front.
Which we recognize is becoming increasingly important to investors a few of our recent accomplishments include one driven by our efforts to comply with social environmental concerns Supermicro received a near perfect audit score from the responsible business Alliance at our Taiwan manufacturing site in November two.
2019, with a score of 196 four out of 200 points.
In December 2020, we sent a commitment letter to the science based targets initiative, and we mean business coalition.
Indicating we will join other companies and striving to keep global warming to one five degree goal and create company targets.
We also joined other leading companies in the Green grid, where we believe our expertise in hardware design and energy efficient computing can help drive forward for the industry.
In January of 'twenty, one supermicro transitioned at San Jose grid energy sourcing to wind our Acs <unk>.
Signifying that in conjunction with our Bloom energy fuel cells, all our use of energy at our new and old San Jose campuses will not result in the burning of fossil fuels.
We believe these recent accomplishments and milestones continue our long history of our commitment to green computing sustainability, and generally making the world a better place for future generations.
Now turning back to <unk> results.
Our fiscal second quarter revenue totaled $830 million. This reflects a 5% year on year decrease from the same quarter of last year and a 9% increase from the first quarter of fiscal year 2021.
Systems comprised 70%, 77% of total revenue and volumes of systems and nodes shipped were up sequentially, but down year over year.
System Asps increased year over year, but were down modestly quarter on quarter.
Turning to geographic performance, our international sales strengthened from two quarters of softness on a year over year basis. The U S decreased 12%.
Europe increased 5% Asia declined 3% and the rest of the world increased 68%.
On a sequential basis U S sales declined 7% quarter on quarter, Europe increased 38% Asia increased 27% and the rest of the world increased 86%.
From a customer point of view, we saw pickup in sales to OEM customers, but this was offset by the expected digestion. After a strong Q1 contribution by new hope high profile customers that we mentioned last call.
From this point forward unless otherwise noted I will be discussing financial metrics on a non-GAAP basis.
Working down the P&L Q.
Q2, gross margin was 16, 4% up 50 basis points year on year, and down 70 basis points quarter on quarter recall recall on our November earnings call. We stated that we expected gross margin to decline 160 to 200 basis points on a sequential basis chiefly due to the absence.
On a cost recovery benefit as well as elevated freight costs.
While we did see elevated freight costs. We did however benefit from additional cost recovery similar items additional cost recovery similar in magnitude to the benefit we experienced in fiscal Q1 or about 130 basis points, we do not anticipate a similar benefit going forward.
Turning to operating expenses <unk> opex on a GAAP basis decreased 1% quarter on quarter, and 11% year on year to $99 million.
Q1, GAAP operating expense benefited from a credit of $2 1 million for an executive FCC settlement.
Q2, GAAP operating expenses contained $2 5 million in special performance bonuses.
Without these factors Q2, GAAP operating expenses would have been down more significantly quarter on quarter on.
On a non-GAAP basis, operating expenses decreased 5% quarter on quarter, and 12% year on year to $90 million.
The sequential decrease in non-GAAP Opex was primarily due to lower audit fees lower R&D expense due to higher than normal NRI for credit sorry credits for NR rework performed and overall expense discipline.
Other income and expense.
Was $13 $1 million loss as compared to a $1 $5 million loss last quarter. The increase loss was chiefly driven by the remeasurement of our Taiwan, Taiwan dollar loans to a weaker dollar.
This quarter, our tax expense was $5 $1 million on a GAAP basis from $7 $1 million on a non-GAAP basis.
Our non-GAAP tax rate was 16, 4% for the quarter going forward, we continue to expect our tax rate to be approximately 16%.
Lastly, our joint venture contributed a loss of $1 million this quarter related to an air pocket in revenue.
As compared to income of $1 3 million last quarter, and a loss of $1 million the same quarter a year ago.
Q2, non-GAAP diluted EPS totaled <unk> 63.
As compared to 55 in Q1 of fiscal 'twenty, one and 57 in the same quarter of last year.
Cash flow from operations totaled $63 million compared to cash flow of operations of $121 million in Q1.
Capex totaled $14 million, resulting in free cash flow of $49 million.
Our closing balance sheet position.
For cash was $315 million, while bank debt was $45 million.
Resulting in a net cash balance of $270 million.
Please also note that we completed our previously announced $50 million share repurchase program on January 6th wherein we purchased we repurchased one six.
8 million shares.
A weighted average price of $29 ADT.
As Charles mentioned in our earnings release today, we concurrently announced that we have board level authorization for the company to repurchase up to another $200 million of our common stock and a new share repurchase program the.
The program is effective until July 31, 2022.
As Charles mentioned, we believe this action reflects our commitment to enhancing stockholder value and our positive long term view of our business opportunity and cash generation prospects.
We expect to execute the program in coordination with our cyclical working capital needs and growth.
Turning to working capital metrics, our Q2 cash conversion cycle was 92 days.
Down from 107 days last quarter, but still outside our target of 85 to 90 days.
While the absolute level of our inventory declined days of inventory at 105 days remains elevated relative to our historical levels as we prepared towards the impact of the lunar new year logistics challenges and some tightening of components day.
Sales outstanding was 36 days, while days payable outstanding totaled 49 days.
Now turning to the outlook for our business.
We expect new sales net sales for the quarter ending March 31, 2021, and the range of $790 million.
Two $870 million we.
<unk> gross margins to decline approximately 120 to 160 basis points sequentially due to the lack of cost recovery discrete event that we explained earlier over the last two quarters and also the product mix that we expect to ship in the quarter.
We expect our non-GAAP operating expense level to increase quarter on quarter to the mid nineties drill.
Driven by payroll taxes in the new year and selective investing in R&D.
We continue to anticipate our GAAP and non-GAAP tax rate to be approximately 16% going forward and we expect other income and expense, including interest expense to total roughly $1 million and expect the contribution from our JV of roughly $5 million.
We fully expect fully diluted GAAP.
I'm, sorry, we expect fully diluted GAAP earnings per share to be in the range of 22 to <unk> 42.
And fully diluted non-GAAP EPS to be in the range of 37 to <unk> 57.
And we continue to expect our Capex for fiscal 2021 to be in the range of $55 million to $60 million inclusive of our ongoing Taiwan building project mentioned earlier by Charles James We're now ready for Q&A.
Thank you Kevin.
One quick announcement before entering the Q&A, we will be attending.
Goldman Technology Internet Conference on February 11.
And conducting one on one meetings with investors.
We are now ready to take questions.
Thank you.
This time I would like to inform everyone in order to ask a question. Please press Star then the number one on your telephone keypad again that is star one to ask a question.
We have your first question from Ananda Baruah from loop capital. Your line is open.
Hey, Good afternoon, guys. Appreciate you taking the question congrats on solid results on that Kevin Congrats.
When you think of working with Ebola deadlocked on that we'll miss working with you.
Just a couple a couple if I could I guess the first one is just broadly speaking.
How should we how would you like us to think about the various catalysts as we move through the year on the things that we share that keep an eye out for and what you're expecting.
To impact the business, we spoke to a number of them on Andrew.
<unk> largely with loved.
Total.
Get some more context on how we should think about them lowering warm day.
I have a follow up thanks.
Yes, I believe our per unit.
Been a very solid and now except on a COVID-19, <unk> in USA, Inc.
So we are very carefully taken care of day lay out kind of a great movie.
Grow our operation in pieces in Taiwan, So called visa is getting data at <unk>.
We expect all of the unions Super again.
Much of the most much strong growth.
TVN.
So we have a good feeling about now coming on.
Quarter on Es.
And Charles when you think about it.
So some of the newer aspects to your business.
You mentioned isolate as well in coming quarters Hyperscale isolate.
You mentioned <unk>.
Yes. It is a five day systems guidance Palca's.
Which of those could you sort of rank for us.
Even if anecdotal.
Which ones of those do you think would be the most impactful when you look back on 2020 line Hyperscale Hyperscale isolate Inc.
The cloud <unk> telco business.
Yes, yes sure everyone. We thought on fulfill on large data center and OEM things have obviously on months ago, and we already achieved.
Couple of them and non this type of move and we believe that volume we have empower medicine.
In this year and next day yet.
As the <unk> again, we already engaged.
Handle for.
Cotton on condo they are world.
<unk> cost per.
Co company. So it had been the create the very solid EBIT and the thought of more sand per mobile OEM and we also expect some high volume <unk> medicine.
And in the web you don't have patent on the sheet. So overall, we are very optimistic for our income growth.
Okay, great I'm going to sneak one one last one in here.
Charles I believe it was you in the prepared remarks, you mentioned the.
On the analyst day that you have.
Have a give a timeframe youre thinking about for that.
Yes.
EBITDA in net.
<unk>.
Investor event, yes, yes, I hopefully within next few weeks per se.
Rich you have a day held last quarter, but because of COVID-19.
Duty coming very bad so we kind of pick up.
Within the non dilutive financing getting under control. So I hope in next few weeks.
The peak.
Peak.
So to share.
Company plan that future a momentum we saw on data.
Oh excellent. So yes, so just so im just to clarify from net shop.
And the next few weeks do you think you'll be announcing the day of the event or do you think you may actually be having it in the next in the next few weeks or so.
I guess we were.
Lastly in next two weeks for example, and hopefully have a day event in Sweden.
All week.
Thank you ex.
So on thanks a lot.
Thank you.
We have your next question from Jon <unk> from CJS Securities. Your line is open.
Hi, guys. Thank you for taking my questions on that.
Very nice quarter and Kevin Congratulations on moving on to the next day.
Okay.
My first question is on just.
Hearing.
When they spoke about the quarter that they were seeing another quarter or two of digestion in the cloud and data center space. It seems like Youre not seeing that I was wondering what kind of customer are you seeing strength from that maybe running counter to what they're saying is it maybe just from AMD or is it another.
End market, just give me a sense of why you're.
Your strength is running opposite.
What they're seeing.
Yes, as you know we.
Have a very strong in pay up on that line at the same time, we also have a pretty big and depot that night. So once that amount do you have a demand.
<unk> growth and even if on market keep on <unk> because of our outstanding apart on our.
All kinds of data.
Our solution overall, so we believe went to the market is not true.
Not too bad we will have a chance to go.
So mostly.
Kind of an EBITDA margin is growing I guess, our growth with a very significant and as you know since the company was 119 93.
2017, our growth had been always much faster than the industry average and have been we are getting back from that position medicine.
Okay. Thank you Charles and then.
Just on the impact that Covid has had on on the business can you call out just the impact on either the margin or the revenue that you had in December and into January So far you mentioned higher freight expenses.
The lockdown, probably had an impact as well I don't know, what youre, saying anything else such as employee absenteeism, but if you could kind of quantify or give some color on the impact of depend on so far that would be helpful. Thank you.
Yeah, you can kind of net impact is a very bad in mid April Unfortunately, and that's more than nine months now so our logistics for example.
Become ready.
Harper to AR.
To seek a pullback from Asia USA receiver shipments per day and are close to the inquiry.
Or even more so that logistic.
Time to market at the day and the logistic postpaid increase and then lots of customer or come home and some of our employee or home home. So all of those create that I think the cookie business as basically for application optimized solution and a good thing.
Our total come in relative.
That program to have a sales have our engineers have our customer to work together to.
Meg the based on.
Optimizing solution for them that Paul is it getting ready at <unk> by end of this quarter most of our sales engineering and customer will be able to use those pool. So many exciting for that two or three available in this quarter.
Okay great.
Hello.
Yes, John This is Kevin I would just echo what Charles has said is that when you have worked from home it definitely reduces the coordination of the organization.
<unk> so.
We have to push harder in that arena and then some other examples like just having the.
To confirm that.
There is someone else on the other side to receive the shipment not.
Not all companies are open every day. So there is definitely a lot of little different things like that.
Conducting business more difficult Lake Charles.
Understood and if I may ask.
Looking beyond the pandemic and Charles I know Youre.
Facility is opening up in the second half of this year earlier this summer where can margins look like on a normalized basis.
All of these headwinds.
When you have new facilities and when you have the more more volume on the customer's shipping.
Maybe share some of the plans you hadn't but where margins could go.
Yes.
We have a true kind of cutting on is the high end enterprise, who like all favorable about day, they're performing beta service.
And then we also have another customer who by high volume and they're wonderful cost per piece.
Most of our operation that tie in USA and now with COVID-19 that impact.
But now we have a pilot operation deteriorating as basically by early summer, we will have a much bigger capacity. So we can start from service to those customers, who buy high volume and cost per sensitive. So we are very excited when you start to 90 day with those customer seems to about.
12 months ago now we are on some customer the agency for our day to day activities.
And we are using public then we have great interest I'll put it in so.
In terms of on how much impact.
I can say.
Maybe 2% or added at the modern day and 2% for enterprise tons of ethanol that for high volume customer net 2% of our Super thin and fee day.
Thanks, Bill for them. So we are very happy we have the dose the opportunity now ready from Taiwan.
Great. Thank you very much.
Thanks.
We have your next question from me how choppy from Northland Securities. Your line is open.
Thank you.
Congratulations on the strong gross margin and very strong revenue guidance, that's really nice outlook there.
<unk>.
On the net income.
The midpoint of the net income that implies about 9 million Covid declined.
How should we parse that between gross margin opex from the March quarter.
Well I think we share that we thought that the gross margin would be declining quarter over quarter because of some cost increases as well on the specific mix of products that we're going to ship. So.
I would say that you would wait till probably towards what the expectations are for gross margin in the immediate quarter going forward that would be the heavier weight will put it that way.
That's very helpful. Thank you.
Then Charles could you clarify what you mean by large OEM opportunity.
Okay on midnight, you know, especially of the <unk> tagging.
COVID-19 program happen, the Ora, Inc may or a social networking company, who have a strong demand and those are high volume customer and EBIT, then moving in high volume, but the day.
There was no price right. So people, we kind of day.
That really focused on growth segment of customer by that because our Taiwan operation for <unk> getting ready so we start with <unk>.
We work with those customers engage with them and we got on some very good feedback. So we are engaged with some overhead.
Megawatt designation this we super small volume now and the hybrid EMS from final data from the CEO.
Okay just to be clear.
Is there a partnership with these with.
With the HP, Inc. Dell to get to the social networks or are you just referring to these larger properties as the Oems.
On a good team in Super Micro in last 27 years, we already have as you're operating in and our credit facility for commodity facilities and now, especially on our medical Minnesota weigh on our services Global line has been well recognized by our.
Yeah.
Enterprise accounts. So we are ready to work with any kind of on customer direct hitting you with any customer or goes through some OEM. So we opened up opportunities.
Okay. Thank you.
Coming back to Kevin So over the past few quarters, you guys have returned 50% of free cash flow to shareholders by share repurchases, which is very good.
I know you guys said that the.
And wanted to buy fishing vessels that youre evolving our capital allocation policy.
But is that 50% right at least a good way to think about.
How is that you guys are thinking going forward and then what about the remaining 50%.
Does that basically near to fuel future growth.
Yes, so I think what I tried to share was that in the mid $200 million program, it's roughly an 18 months or so duration given the date that it's.
Valid through I think.
Investors that I've worked with no that we've taken incremental approach and we took the first two.
Two steps in stock buyback.
We got feedback that if we feel confident we should.
Back that up by maybe a more longer term program and that is exactly what we have done.
So therefore, it's a step by step process I think the competing forces for the capital allocation is going to be.
The rate of our growth that's the key thing.
We hope to be able to continue to.
To grow strongly and have the adequate cash flow to consume or to fully execute that $200 million program over to.
The 18 month timeframe. So it is definitely there as well as.
Excellent.
The investments we need to continue to make in R&D for continued product development.
Given that.
As it relates to Taiwan, we're kind of in the late mid innings on the investment there.
Certainly the building is close to being completed there I think it is going to be June or something like that Charles yes.
And so therefore.
That's a consumption of cash will abate for a while because our maintenance capital is like $5 million to $7 million a quarter and so that will that will help free up some cash in the second half of calendar 2021, and that's kind of the moving pieces that we're thinking about it.
With the continued cash generation of the company, we felt confident to get to.
<unk> $200 million program.
Okay Fantastic and then my final question before I get back into queue.
You mentioned that <unk> worked with part of that R&D true to decline.
What's the decision for one Super micro accept this type of work.
Can you talk about that.
Yes so.
We worked very closely with our some of our chief component suppliers to work on platforms that we work with.
They are key components and so we really look to.
Work with those key vendors to enable platforms that we believe are ones that are going to get traction in the marketplace. So we look at what's the popularity of likely popularity of those platforms and then.
Enter into those arrangements they tend to be rather short term in nature. So I want to share with you that it's not like a multiyear development, but rather.
<unk>.
Maybe half year development, so, it's a little bit easier to make those commitments because not only they are not so large but also.
The prospects for the product are pretty pretty close in the future.
Some top line.
Uh huh.
Both of the phase basically we have.
Some value occur.
<unk> patented day.
Maybe one of the design something unique something on outperformance for the market.
And also some customer on day, one on <unk>.
Our spending Inc.
Based on contracts. So we work on we've both been zone and our customers' overdose stage at the event and usually they are paid.
Yeah.
What's the type of return on terms of reservoir gross profit dollars.
Typically see when you pick this type of product.
Expect to become a platform.
Charles Fuchs yourselves.
Our goal is novel and now he thought on that.
Really going to put a pause on issue when.
When you work with them.
On the <unk>.
Media Optimizer solution, then we pack add on.
On the market sensitive from a customer some customer.
They are special application or data center.
Cleveland <unk>.
Happening design stunting injected and optimized for the environment and because of feed and bulk solution non nature next year Michael on much.
And maximizing sales per design dose.
<unk>.
So every single day.
Okay, great. Thank you very much.
Yes.
Yes.
Again, if you would like to ask a question. Please press star one on your telephone keypad again that it is par one to ask question.
We have your next question from Adrian Rakers from Wells Fargo. Your line is open.
Yes, thanks for taking the question and congrats on their thoughts and Kevin also great working with you.
On the past.
I wanted to ask a question about kind of where we stand on the server cycle and any impact that we can think about this having for super micro so.
You talked a little bit about isolate you've got AMD Milan.
How do you guys see the.
Demand profile for these next generation server CPU is materializing and would you expect to see an ASP uplift.
Benefit Super micro.
As these next Gen <unk> has come into the into the model.
Yes, ICU non on.
New generation process that oil per day from all ex outperformed our previous incineration.
Within price <unk>, they are kind of.
Uh huh.
10%.
Up to 40% plus of the performance on that so for US you have lots of a large customer.
Customer day, one on new generation products and Super micro to give for that kind of resolved and cloud solution.
Tradition on and we always means that these unit economics to market.
A few months or few quarters earlier than others. So this time, we have <unk> Inc.
Other than on the market growth and see that because we are paid on a solution our status savings.
Liquidity so in theater, we again I'm not sure on.
Others as well.
Okay, and I guess.
I guess, maybe dovetailing off some of the earlier questions around.
Industry kind of supply chain alignment juggling.
Traveling through kind of the Covid challenges that you've had how would you characterize the component supply chain or component availability that you stay on the market today, there's been some indications that certain areas have been tied or even constrained.
What's your current outlook have you seen any constraints and what are you what are you expecting.
Youre willing to look out over the next couple of quarters.
Yes, we saw a lot of constrained our growth hormone.
Almost all day, even kind of components. So we had been on Medicare for him engaging with a partner and have.
Our forecast have kind of.
Contract so.
Does this figure close to also increase the day time also increased but with our contract and related issue.
At the moment I feel.
Those are challenges that reach of these states.
Full hour similar to growth.
Yes, yes.
Final question on just wanted to ask was that I know a couple of years ago, you did have a customer that.
Had accounted for 10% of revenue.
Do you think that with these new larger data center win opportunities. It sounds like they are going to ramp over the next couple of quarters.
Do you think you'll have a situation, where you have a 10% customer in the future or not.
Hard to say, how the thing that we tried to have a minimal customer because our customer base. It was still small compared with our long term goal. So we now are much bigger capacity.
So we are able to engage with a man and more pop on though.
I believe that question, yes or no.
Hudson is happy to have it will not happen is also happy to be a multi growth so I am sorry.
Neutral as a feel for that and look I think things will add on.
On the managed.
Okay. Thank you guys.
Thank you.
We have your next question from Nicole Chalky from Northland Securities. Your line is open.
Yes. Thank you.
So I am not true, particularly impressed with the guidance.
Given that.
At the September quarter call you guys had indicated an expectation that I think ice lake will become generally available for server OEM launch by early 2021 that hasnt happened, yet and it looks like it's going to be more of a Q2 'twenty one type of event now at this point in time, so given that context does that mean that.
The rest of your business has significantly strengthened relative to what you thought would be the case back at the <unk> 'twenty call.
Yes.
Yes, sure Michael will have a much more diversified pop out on that now.
Our customer base.
From a vertical in terms of.
Minimal customer. So we are much more diversified customer diversified company now and with the intention to Taiwan and also on our capacity growth in the USA, we are going to need to see a much bigger sized company.
Yes.
Great.
Speaking to that much greater diversity of exposures can you give us a sense as to what is your exposure to some of these faster growing parts of this.
Market that youre addressing.
For example, <unk>, we can now focus on that market before may think about three years ago, we thought who.
Folks on the commodity and we already engaged in leading us on.
Very good.
Partner globally and for example, a large data center and OEM with the non <unk> folks on that second line and not Henry.
About 12 months ago, 18 months ago with total engagement.
And we have a good achievement.
Also for Iot, we continue on to extend our Iot product line.
Super micro and be the latter.
Much more diversified much here.
Third as a customer for a one stop shopping company compatible.
So would it be fair to say that these three areas that you just highlighted represents maybe 30% of revenue now.
With that said thats been communicated that.
Bank of Hawaii designation Super Micro has a great day to grow company into <unk> and how does if anything our company in the EMEA region from.
And in our investment in <unk>.
Then we will share market have all day.
Okay, great. Thank you.
Thank you.
Yes.
I am showing no further questions at this time I would now like to turn the conference back to Mr. Charles Liang, Chairman and Chief Executive Officer, Sir Please continue.
Yes. Thank you everyone for joining us per day and looking forward to meet you next quarter have a nice day. Thank you.
Sure.
Yes.
Ladies and gentlemen, todays conference.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
Thank you.
Okay.
Okay.
Okay.
Good day.
Yes.
Okay.
Okay.
Good day.
Net.
Okay.
Yes.