Q4 2022 Super Micro Computer Inc Earnings Call
Please wait the conference will begin shortly.
[music].
Ladies and gentlemen, thank you for standing by.
And welcome to the Supermicro Computer Inc. Fiscal fourth quarter of 2022 results conference call.
All lines have been placed on mute to prevent any background noise.
After the Speakers' remarks, there will be a question and answer session.
I would like to ask a question. During this time. Please press star followed by the number one on your telephone keypad.
If you would like to withdraw your question again press Star one thank you.
Nicole <unk> Investor Relations you May begin your conference.
Good afternoon, and thank you for attending Supermicro call to discuss button shell results for the fourth quarter, which ended June 32022.
We today are Charles Liang, founder, Chairman, and Chief Executive Officer, and David <unk>, Chief Financial Officer.
By now you should have received a 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 refer to a presentation. That's available to participants in the Investor Relations section of the company's website under events and presentations tab.
Also published management's scripted commentary on our website.
Please note that some of information you 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 guidance for the first quarter of fiscal 2023, and the full year of 2023.
The potential impact of COVID-19 on the company's business and results of operation.
There are a number of risk factors that can cause supermicro future results to differ materially from our expectation to learn more about these risks in the press release issued earlier. This afternoon. Our most recent 10-K filing for fiscal 2021, and our other SEC filings.
All of these documents are available on the IR page of Super Micros website, we assume no obligation to update any forward looking statements.
Most of today's presentation refer to the 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 today. In addition, a reconciliation of GAAP to non-GAAP results is contained in today's press release and the supplemental information attached in today's presentation.
At the end of today's prepared remarks, we'll have a Q&A session for sell side analysts to ask questions.
I'll now turn the call over to Charles.
Thank you Nicole and good afternoon, everyone I'm pleased to add <unk> with annual revenue hygiene.
Hi Chi.
<unk> five point to BD and growing quickly.
<unk> percent year over year, we ended up.
Yes.
Another great quarter.
Fiscal Q4, 2000 into 2022 <unk> of one point.
Six 4 billion growing 53% year over year, and 21% quarter on quarter, surpassing both top and bottom line.
Estimate.
Our quarterly and year end results.
Bob our guidance given three months ago.
Steve our rates seem pretty upbeat grinch, given David recycle.
Our strong growth is.
Fueled by our recent there Greg in design wins based on our best scale until the IV solutions, especially on GPU solution.
Pretty pumps.
I believe our solutions will continue to drive plenty of new design wins and further accelerate our strong growth in the coming quarters and years.
<unk>.
More customers are also.
<unk> and adopting the value of our green computing solutions due to that revised environment.
Our challenge and energy coast.
Total solutions J P H and Green computing solution value at resulted in yellow.
For consecutive quarters of growth at a minimum should lead times.
And again competitors at goldstrike.
No.
And look some over the key highlights from the El Cortes.
Our quarter.
2022, net revenue totaled $5 two BD.
46%.
Above our guidance range of <unk>.
BD.
Our critical.
non-GAAP earnings per share of <unk> $65.
128% year over year compared to $2 $48 billion a year ago.
It exceeded the higher end of our guidance range.
Cove point.
Hi, Charlie.
Two.
Propane sales and $1.
Hello fiscal fourth quarter net revenue totaled 164 billion up 53% year on year, and up 10, 7% quarter on quarter above our guidance range of 1% will be Andrew one thing for API.
Our fiscal fourth quarter non-GAAP earnings per share.
People year over year and what.
2.2 dollars 16 Crusade compared to 81, seven at year ago and was above the.
High end of our guidance range.
$1 <unk> to $1 69.
And pretty much trade strong operating leverage.
Customer preference to wallow rack scale.
These solutions.
We saw our total IP solutions.
We experienced robust growth in USA this year.
We'll continue to again.
Even greater so it may take a tax change going forward.
We are also explained our total IP solution to both Europe and Asia market.
In the coming quarters and years.
Excited to announce.
<unk> opportunity to become the global leader.
Ultra lacks scale plug and play solutions.
Our robust feature results reinforce our confidence in achieving the $10 billion in annual revenue target much the London.
We guide last year, and we are now preparing for our T&D BD in Midtown.
Yes.
We disclosed last quarter.
Based on our current the surprise and capacity.
And at least.
The midpoint of our guidance range, we are forecasting.
157 billion in revenue for the upcoming September quarter.
I'm also confident that our crew.
Throughout fiscal 2000, <unk> revenue will be above the prior guidance range of <unk>.
<unk> 7 billion, we now expect revenue to be in the range of <unk> to BD and <unk> BBA.
EPS at ALLETE.
At $7 56.
Nope.
Michael.
Economic condition and certainly we are optimistic that some of our supply chain and logistics issue.
I'll begin to subsidize.
From a market perspective, we continue to see.
Increasing demand for accelerating compute and AI platforms.
We are meeting this demand at both <unk> and <unk> scale, they will restart.
Our total IP solution.
Richie are supported by a little over <unk> <unk>.
Some BD bulk developments.
Leave BD and Bronx allow us to create highly optimized scale rather than pay interest in the solutions for our customers.
He will try to post an increase in <unk> savings.
Our total IP solution.
Approach stream.
A streamlined design base station Soc integration, resulting in a much shorter lead times for our customers.
Optimize.
Quality and performance.
Over our total IP solution.
We can.
Our total IP solution simplify that.
<unk> of <unk>.
<unk> and <unk>.
We can control.
In addition, our super kind of compulsive ought to.
Great.
And the other social have put us.
Optimally manage compute exploration Saudis and network <unk> cloud.
However, including rich analytics.
Data center, operator can easily Devry GB use that information to <unk>.
Improve worker level efficiency.
So we are expanding our.
Sure.
Investments in Peru update us and there are many domain soto aspect that will enable.
<unk> infrastructure.
Revenues.
Secure monitoring as a service functionality.
Enhancing our total IP solution capability and value.
This lifestyle shell approach.
We are in line with the.
Emerging growth market across AI machine learning.
We have defined storage networking poverty.
Hopefully, an kao and <unk> Iot and telco.
We've previously shared that we with the <unk>.
E.
I understand the base in <unk>.
<unk> automation.
This new peak B B to C automation platform.
Being used and the validated by more and more of our customer as we speak.
Its inhabitants OTO calculator, where the average <unk> for all commenced with outage.
Fair enough.
Application optimized solutions.
Much broader customer base.
We expect that this tool without tremendous 30 grew our go to market initiatives.
Product design operations and.
Service.
Effectively.
Most importantly.
The automation processes will considerably.
Our customer base and improve customer satisfaction, starting from a pretty much in this fiscal year.
Our current manufacturing scale and capacity and the ability to support a between <unk> and two <unk> in annual revenue.
We continue to ramp up that scale.
Capabilities in our global facilities.
During the June quarter.
<unk> thousand positive right.
Okay.
In the September quarter, we had double our rack scale capacity.
Enhanced features.
Our new building previously.
However at scale.
Capacity can be up to 6000 right.
Got it now.
Our product development activities continued to grow strongly.
Close partnership.
<unk> explained in our CPUC, some product lines, including the <unk>.
<unk> hundred.
Really strong mix.
Grace Hopper product in mind.
Our early deployment <unk> leased for the upcoming entail Sapphire Rapids A&P.
A&P to know our pulp atomized on boats credit ratings that are waiting for the new <unk>.
A&P pulsator could be available.
Okay.
Switching gear, we stay committed to be that are market.
Putting competing solutions with our resource saving design.
Could reduce environmental impact and the coast of Cosmos operation.
We are proud of our green computing solutions.
<unk>, we can put in even better quality.
Time to market.
Value to our customers.
Energy cost.
Limitation on <unk> usage will continue to strength of many companies in the near future.
This dynamic and challenging to replicate that though and we have been.
So for one week.
Technology and solution.
Customer woeful higher temperature.
Operation data center.
<unk> already recruiting.
Many of our customer achieve significant PTO and CBOE.
The tax gain.
I've been at <unk> com.
<unk> achieved evidence of one five separate <unk>.
Hi.
By our calculations.
Or the wide adoption of our Green computing solutions.
All other suppliers solution.
Stimulus MLG vintage.
Potentially safe industry.
And achieved more than $10 billion.
GTT coast.
Or eliminating the equivalent of more than 30 fossil fuel power plants.
Right.
Equal to a saving APM treats allow printed.
Pushing on and very great to see increased demand.
MLP increasing solutions for cost savings.
But more importantly, we must do demos.
For our own modules.
In closing we are focused on building and be very much more greener.
Scale total IV solutions.
Women in the cheap perspective isn't that great piece, the opportunity supermicro is able to achieve since our founding 39 years ago.
Year over year top and bottom line performance.
Today, our total IV solution strategy.
Accelerating.
I see our room to grow it a police another full.
In the coming years.
Player, we believe that our team will continue to expand.
We will continue to address this technology intersection by enhancing our total IV solutions.
Capability and capacity.
We can all sort of layout.
We will continue to gain market share.
Extended to.
Two new verticals, which increases our business scale.
Operating.
My team and I will continue to execute our growth strategy.
And accelerating that timeline to our $10 billion revenue target in the short term.
<unk> revenue.
Sure.
I will now pass the call at two <unk>, our Chief financial officer to provide additional details on the quarter.
Thank you Charles.
Pleased to report fiscal fourth quarter revenues of $1 64 billion up 53% year on year, and 21% quarter on quarter increase.
Our revenue has exceeded our initial guidance range of one four to $1 48 billion and our recently updated range of $1 Friday.
163 billion.
For fiscal year 'twenty, two we reported revenues of $5 2 billion, representing 46% growth over fiscal year 'twenty, one revenues of $3 $5 6 billion or.
Our growth initiatives are gaining momentum with our total AG solutions targeting fast growing markets and customers with accelerated GPU and AI workloads software defined storage and networking public and hybrid cloud and <unk> edge Iot platform.
These new growth drivers complement our traditional strength with enterprise channel and OEM customers, leading to accelerated revenue growth expanding margins and operating leverage.
In the fourth fiscal quarter Supermicro recorded balanced revenues across all three of our market verticals, demonstrating the resilient nature of our diversified end markets.
We achieved $835 million in organic enterprise and channel and AI ml revenues, representing 51% of Q4 revenues.
62% last quarter.
Up 24% year over year and flat quarter over quarter.
The year over year growth in this segment was driven by our growing list of large enterprise customers and new product offerings.
Our OEM clients and large data center segment achieved $717 million in revenues, representing 44% of Q4 revenues versus 32% last year.
95% year over year, and up 67% quarter over quarter with strong growth driven by large new and existing data center customers and OEM appliance customers.
Our five key telco edge Iot segment achieved $83 million in revenues, representing 5% of Q4 revenues versus.
Versus 6% last quarter, and was up 172% year over year and down slightly by 4% quarter over quarter.
For the full fiscal year 2022 are organic.
Enterprise and channel in AI ml revenues grew 40% to represent 61%.
Full year 'twenty revenues, our OEM appliance and large data center segment grew 44% and represented 32% of revenues.
Our emerging <unk> telco edge and Iot segment grew 163% and represented 7% toll brothers.
Our mix of complete systems and rack scale totaled it solutions has been increasing steadily.
Systems comprised 91% of total revenue and sub system.
<unk> represented 9% Q4 revenue.
On a year over year basis, and also on a quarter over quarter basis, the volume of systems and nodes shipped as well as system node ASP.
Increased due to product and customer mix.
We had a balanced distribution of Q4 revenues across geographies with the U S representing 66% of revenues Asia, 17%, Europe , 14% and rest of the world.
On a year on year basis U S revenues increased 65%.
We gained market share with our advanced rack scale total Iot solutions for it.
Emerging high growth server workloads.
Asia increased 38% Europe increased 21% and the rest of the world increased.
On a quarter over quarter basis U S revenues increased 41% Asia decreased 9% Europe increased 9% from the rest of the world.
Very well.
The Q4 non-GAAP gross margin was 17, 6% up 200 basis points quarter over quarter from Q3, and up 390 basis points year on year due to price discipline lower freight costs.
Leverage from higher factory utilization operating efficiencies and a continually improving product customer mix.
While the supply chain disruptions continue we achieved some success in controlling credit and other logistics costs.
Through disciplined execution.
Our Q4 gross margin was above the high end of our long term target model range.
14% to 17% and demonstrates the success of our new high value solutions.
Solutions.
Turning to operating expenses.
Q4, Opex on a Q on a GAAP basis increased slightly by 1% quarter on quarter, and 15% year on year to $122 million.
On a non-GAAP basis operating expenses increased 4% quarter on quarter.
<unk>, 15% year on year to $113 5 million.
Our non-GAAP operating margin increased significantly to 7% for the quarter versus seven 5% last quarter and four.
Four 4% a year ago, demonstrating both improvements in gross margin driven by the new product and customer mix and operating leverage driven by higher revenues along with disciplined expense control.
Our non-GAAP operating margin of 10, 7% for Q4.
Also above our target model range of products.
Other income and expense was approximately $1 million in income consisting of $4 million.
James gain offset by interest expense of $2 9 million as compared to $4 7 million in FX gain and $1 5 million and interest expense last quarter.
Interest expense increased sequentially as we utilize our short term credit lines before financing inventory and accounts receivables.
We also experienced higher short term interest rates on borrowings.
Given by recent fed actions.
This quarter the tax provision was $25 8 million on a GAAP basis, and $29 9 million on a non-GAAP basis.
Our GAAP tax rate for Q4 was 55% and our non-GAAP tax rate was 17, 1%.
Our GAAP and non-GAAP tax expenses increased.
Higher levels of pre tax profits.
But the rates were lower sequentially.
Lastly, our share of income from our JV was $3 million this quarter compared to last.
Last quarter.
We delivered strong Q4, non-GAAP diluted EPS of $2 62, which exceeds.
Exceeded the high end of the original guidance range of $1 51 to 169, and our recently updated range of.
230 to $2 40.
The increase is to EPS were due to a combination of higher revenues higher gross margins from texturing efficiency price discipline.
Product and customer mix and operating leverage.
For the full for the full fiscal year 2022, we reported non-GAAP diluted EPS of $5, 6%.
Which was up 128% year over year versus fiscal 2021, non-GAAP diluted EPS of <unk> 48 on higher than our initial guidance.
<unk> was <unk> 71.
Cash flow used in operations for Q4 was $25 million compared to cash flow used in operations of 228 million for Q3 due to our improved profitability, along with better management of our inventory and working capital.
Despite the 21% quarter over quarter increase in revenues.
<unk>, our inventory by 3% quarter over quarter.
Accounts receivable increased sequentially due to higher revenues, while accounts payable decreased sequentially.
Sequentially due to the timing of payments to our vendors.
Our capex was $11 million for Q4.
And negative free cash flow of $36 million versus negative free cash flow of 200 or $239 million last quarter.
Our closing balance sheet cash position was $267 million, both bank debt was $597 million.
Utilize our bank lines of credit.
Port goes higher.
And accounts receivable.
As we ramped production of new design wins globally.
As we look ahead to fiscal 2023, we expect that our continued growth in revenue and profitability together with improved working capital management lead to better operating and free cash flow.
We're optimistic that some of the supply chain and logistic costs.
The stabilized we remain confident.
Confidence in our long term outlook for robust revenue growth.
Stability driven by our leading edge.
New new platforms design wins market share gains and engagement with significant new global customers.
We are announcing are also shipping $200 million stock buyback buyback program today.
It will be in effect through January 31 'twenty.
Fourth.
Turning to the balance sheet and working capital metrics compared to last quarter.
Q4 cash conversion cycle was 100 days.
98 days in Q3 and above our target range of 85 to 90 days.
Days of inventory was 106, representing a decrease of 11 days.
Prior quarter of 117.
Managed our inventory more efficiently.
Hello.
Days sales outstanding was up by three days quarter on quarter to 42 days, while days payable outstanding came down significantly by 10 days to 48 days.
Now turning to the outlook for our business, we remain enthusiastic about design wins and plug and play rack scale total IC solutions ramping in multiple end markets, we're carefully watching the global macroeconomic situation.
<unk> supply chain disruptions.
For the first fiscal quarter.
First quarter of fiscal 2023 ended September 30.
Two we expect net sales in the range of 152 billion to $1 62 billion.
GAAP diluted net income per share of $2 and $2 <unk>.
The $2 27.
And non-GAAP diluted net income per share of <unk>.
<unk> seven to $2 32.
We expect gross margins to be similar to Q4 levels.
GAAP operating expenses are expected to be approximately $126 million.
And they include $8 6 million in stock based compensation.
$5 million and other expenses that are not included in non-GAAP operating expenses.
GAAP and non-GAAP operating expenses are expected to increase due to continued investment in R&D.
Higher personnel costs.
We expect other income and expense, including interest expense to be a net expense.
Proximately $3 6 million.
And expect a nominal contribution from our joint ventures.
The companys projections for GAAP and non-GAAP diluted net income per share assume a GAAP tax rate of 19, 4%.
non-GAAP tax rate of 23%.
Our fully diluted share count of $54 8 million for GAAP and $56 2 million shares for non-GAAP .
We expect Capex for the fiscal first quarter of 2023 be in the range of six 8 billion.
For the fiscal year 2023.
In June 32003.
Three we're giving guidance for revenues in the range of $6 2 billion to $7 billion.
GAAP diluted net income per share of <unk>.
$7 27.
And non-GAAP diluted net income per share of $7 50.
The companys projections for GAAP annual net income.
The tax rate of 23.
And a rate of $21 one point for non for non-GAAP net income.
For fiscal year 'twenty, three we are assuming a fully diluted share count of $55 6 million shares for GAAP and 57 million shares for non-GAAP .
The outlook for fiscal 2023 fully diluted GAAP earnings per share include approximately $35 4 million expected stock based compensation and other expenses.
Net of tax effects that are excluded from non-GAAP net income per share per share.
Nicole we'll turn it back to you.
Operator, you can open the lineup for questions.
At this time I would like to remind everyone. If you would like to ask a question. Please press star followed by the number one on your telephone keypad.
Your first question comes from Newhall, Chuck sheet with Northland Capital markets. Your line is open.
Congratulations on an amazing results amazing guidance clearly showing sustainable.
Sustainable share gain story here.
Well I'll talk about the gross margin I think it's the first time I've heard supermicro talk about better price discipline as a driver of gross margin expansion, which is great. But can you delve into why do you believe you're exiting price discipline now.
In the past.
Okay. So I missed just a little bit of what you said you said.
What was the question.
Well I believe.
Yes, I believe just the first time I've heard you guys talk about price discipline being a driver of gross margin expansion.
And so I'd like to understand why is that happening now.
Okay got you. So we have it took us some time to adjust to the.
Rising.
Freight costs and another component costs.
We managed to adjust those properly and.
We also got some tailwind from finally from freight cost coming down 20% in Q4. So those two things combined allowed us to have a higher gross margin.
Thanks, Joe.
Our scale, our BD mid scale continue to grow.
Timna variety of Greek pulled out nine.
<unk>.
Well still win.
We can scale grow we will have a higher gross margin in Atlanta magic.
Got it great and then can you give a little more detail on the driver of the strength in the quarter, which was leading edge vertical solutions and OEM clients and large data center segments.
Yes, Jason.
We have.
<unk>.
And therefore.
Really a good product.
Including.
Most of the ultra Denmark and beat the high end <unk> product.
I pray problem <unk> shell, especially.
Rack scale patent right.
A complete though Greg.
So with customer so.
It's a mega customers job are much easier in.
In light of the ADC with a lag.
Having two cable power cable.
Dana.
Cable and net ready to rock so that duty.
<unk>.
Some customer.
What about within the Oems side, what was the driver there on the OEM side.
Good.
Indeed, it's pleasing my Dallas standup pulled back our spend up or that nine years customer we want them.
The top 10.
Our highest value company around the world.
Okay, Great and then finally, what are your expectations for cash conversion cycle.
Cycle appears to entering a down cycle now.
While we expect our cash conversion cycle to come down and therefore for a couple of reasons number one our profitability has been increasing and and secondly, we've been able to manage our inventories better.
So the reason the reason for that is in Q3. We were we were building inventory as we were getting ready to start the launch of some design wins and those design wins.
Really really got traction and that allowed us to kind of even out or our inventory. So we expect our cash flows and cash conversion cycle to improve.
Great Congratulations.
Thank you.
Your next question comes from the line of Amanda Baruah with loop capital. Your line is open.
Hey, good afternoon, guys. Thanks for taking the question and congrats on a strong.
Strong results in very solid execution.
Congrats on that.
I guess, a few if I could.
Kind of piggybacking off an ehealth question.
Like in a bigger picture context.
Are there any other kind of key aspects of what you guys seeing going on thats, leading to the ongoing acceleration and revenue.
Generation.
And I guess I guess Charles is it is it all share gain.
Are there other things that you guys are seeing that that's been losing the last couple of quarters.
You said that the accelerated revenue generation website.
Got it thank you.
We stopped to our folks.
<unk>.
Rack scale.
Does that reshaped landscape hasn't changed that luxury years ago related to require <unk> to method of English tried shell a mega OTA, how do we have <unk> <unk>.
Yeah people, where chain. So now we start to again try to win more and more tier at the patient.
10 of our top therapy.
Hi, the bedding company around the world, So we feel very comfortable and beyond again.
To win more.
In.
AI high end grateful and total solution, including salary each including <unk>.
It's a kind of complete the call Paul.
I can say.
Rock scale patent place solution.
Got it got it so it sounds like it sounds like a big component in a share gain.
Continuing to resonate in the marketplace.
Listen that's all solutions into what Youre able to actually provide the customer with that total solution. So it sounds like it's just so it's easier to use.
The products basically thanks Goodbye.
Hey, guys.
Sorry, Paul.
Paul.
And then go ahead go ahead Ananda yes.
Yes, I would just say are you.
Are you seeing parts of the Mark key aspects of your end markets actually accelerate well I guess I'd love to know like what's your opinion on.
Kind of the tenor of demand in your key areas.
Yes kind of.
The last 90 days versus the prior 90 days it.
It seems like you've actually seen some acceleration.
As distinct from just share gains.
But how would you guys characterize that.
Particularly on the macro backdrop.
Yes, absolutely.
Right I mean that AI is different lending.
Speaking of the <unk> to grow.
Including our Mega metabolism.
Lots of color.
Cut from another company <unk>.
We continue to invest heavily in those area and it's now we have.
I would ever say indefinitely phase III <unk> from around the world doesn't matter really high NOL or kind of.
High volume.
Political neighbor next scale at April validated so.
Our investment in <unk> <unk>.
Again customers.
Attention.
We thank you for the.
Hi, Deane.
Meantime, especially most of the time.
In the industry people take them, maybe two months to three months to premium <unk> Iraq scale.
Costco and is taken as much shorter because we.
Optimize inventory and total solution and.
Sure, it's a customer with a much shorter lead times and customers really appreciate it.
No.
So although we have.
So.
That's all right I don't want to cut you off.
That's great context, I'll cede the floor for now thanks.
Thank you.
Your next question comes from Jon <unk> with CJS Securities. Your line is open.
Hi, guys. Thanks for taking my questions can you hear me.
Yes, yes, John .
Okay great.
The gross margins above 17% the high end of your range is that sustainable.
Over this year and do you think that you should be changing your long term target range of it.
The answer is yes, it is sustainable and we will be reviewing our.
New target levels, but.
<unk>.
It's really as Charles mentioned, we've had a lot of customers come to us and we've device designed very special solutions for them and these solutions have have value.
And they are.
High value too.
The industry entered into our customers and so we.
We are.
I would say price discipline.
We've realized.
Higher value for some of our solutions and we had the good word.
Had the good fortune of being able to.
Secure enough supply.
To start to ramp up of those two of those solutions.
That's great News and then do you see any indications of your customers being impacted by recessionary pressure at all.
Maybe to go along with that what assumptions if any are in your guidance regarding.
Regarding macroeconomic or geopolitical risk.
It depends to some customers.
<unk> slowdown it'd either be but lots of other customer indeed.
<unk> continued to increase their demand.
Especially for us.
Hi, Praful.
Those future pull that in.
By the way I mean that there are a lot of new technology come youre seeing quarter after quarter for most out of their minds at ease.
This movement, we believe around macro economy slowdown at either fees, but ill, let demand should continue.
<unk>.
Okay great.
The guidance that you gave for the next quarter that sequential decline at the midpoint.
Is that more indication of just seasonality of supply or is it.
Maybe more of this macro slowdown that maybe some of your customers are seeing.
To read it or I need a supply chain, we still facing some supply chain constraints.
Some parts has been more a bit about it before let's deal local steel in shortage otherwise soon take unchanged.
In our September quarter used to be our slowest.
Flow has even though most of the region.
That's why we tried to be more contributive.
Okay understood and last one if I may just when do you need to think about investing in new capacity. I know you guys have up to $10 billion to $12 billion in your current facilities, but at your current growth rate that you would probably have to start thinking about a pretty soon so I was just wondering what your plans are.
If you get there.
And where you might start investing if you need to do so.
In addition to that because we can now focus on diabetes global market. Yet we are very strong in some countries some territory, but in other countries, we have steel <unk> knee. So.
Our solution not able to grow with a much higher scale.
You need more.
More production Mickey Paolo and then we cannot achieve a multi cloud customer.
How do we sort of laid out for you.
<unk> have been delayed.
We have hazard replicated.
Market to more countries.
And we are already a premium for that.
Okay, great. Thanks, guys and again, congrats on a fantastic quarter.
Thank you thanks.
As a reminder, if you'd like to ask a question. Please press star followed by the number one on your telephone keypad.
Your next question comes from Ananda Baruah with loop capital Your line is open.
Got it thanks, guys I appreciate it.
Yes, I guess I'd love to get a little more context on that.
On the mix dynamic.
Charles you guys that you talked about in the prepared remarks.
Sounds like.
A meaningful aspects of the mix as a total solution.
Are there any other components of mix that we should be aware of that is contributing to that dynamic or is it primarily the total solution rather than increasing it.
Medical pricing in theater that Hawaii shell.
We started pretty payout that scale pattern play about three years ago. So it took us acquire a lot of our April to train our people with Mega OTA <unk> component integrated, especially.
Ashish.
Communication networking device.
And finally <unk>.
Now we start to gain more customers gain more design wins and SPD for dose be bandwidth welcome female.
At that this woman.
<unk> plus will continue to.
The growth in those areas.
That's really awesome.
And.
Are there any particular verticals that those racks scales.
Tend to go into.
To add more or this will resonate with more or is this sort of across all your verticals you think.
The rack scale agile workplace.
But then Mig.
May a tablet.
<unk>.
And again, how you think they need.
Sure.
Those automation.
Scientific application so.
There are lots of area even.
Kind of.
Lack of Podcasting company also having some strong demand.
That's super helpful context with Ali.
Just I guess, just let me ask two last quick ones here.
Okay.
It sounds like the backlog probably grew again over the last 90 days, giving.
Given your comment around around constraints.
Is that last year is that accurate.
Yes, it would because.
They are mostly short video and that's why we keep in our.
Inventory so that we can.
Quota <unk> demand.
Basically our payout.
Yes.
We have some hybrid inventory, but they are on the storm demand.
At this moment I don't worry about it.
Inventory David.
Great and then last one from me guys is Charles just an update on.
Taiwan, how would you characterize the utilization level there now.
Hey, Ken Hey, Gorilla faster.
No all of the software in the supply chain Shelties in about nine months already nine months <unk> already so.
I hope so.
Supply chain, we all continue to getting beta.
In light of that pain.
How are you hitting Taiwan can be a much improved and at this moment IPD evaluation rate in Taiwan only about.
45% or so so they are in other words Tonight.
Last one and then.
And so Dave.
Hi, Dave.
<unk>, let's say, 40%, 40% 45%.
Utilization does that mean, when you guys get to.
Sort of normalized utilization, we should still expect Dave what was it like 150 to 70 basis points of gross margin contribution.
Top of where you guys are right now.
From from their shipments.
Right.
Yes, we said what we said we said 100 to 200 from from from Trump Taiwan.
So 100 to 200.
From Taiwan, not that 100 to 200.
So it did not.
Not one hundreds of feeling good for the overall P&L, it's 100 to 200.
That's correct that's correct, we said that yes.
Got it guys that Taiwan is going to be it's going to be approaching half year volume at some point would that.
So it would be long term.
50 to 100 basis points of the overall P&L.
Yes, that's a fair way of looking at it.
Okay Awesome. Thank you guys appreciate it.
Yes.
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