Q4 2024 Super Micro Computer Inc Earnings Call
Unknown Executive: With us today are Charles Liang, Founder, President, and Chief Executive Officer; David Weigand, CFO; and Michael Staiger, Vice President of Corporate Development.
Charles Liang: For fiscal 2024, we achieved $14.94 billion in revenue, an 110% year-over-year growth rate. We have been scaling quickly to secure a large share of AI ASP opportunities, helping our customers achieve the best TTD. First, Supermicro is pleased to be included in the NASDAQ 193 index last quarter, today about the AMD Minion of Revenue. G-PIN to July, which lowers our EPS for June and will be recognized in our September quarter.
Charles Liang: We have proved that DLC solutions also offer higher performance and better uptime with advantages to support upcoming new AI chips at Acamutex Taipei and share that Boolean computing can be free with a big bonus. Our goal is to quickly make DLC liquid cooling a mainstream solution for most data centers and AI factories that focus on increasing efficiency and performance while reducing OPEC. We are targeting 25% to 30% of the new global data center deployments to use DLLC solutions in the next 12 months, with most of the payments coming from Supermicro, we believe. We are happy to have NF customers transforming and adopting their existing air-cooled data center to DLC deep cooling in the coming years for four major reasons. First, it helps customers save energy costs up to 40%.
Charles Liang: Second, it boosts data center computing performance, and so it's a half. Hului and Cosmos Data Center D-TIME, or to be more precise, reduce their time to be online because of less electrical power required, and four is a reduced carbon footprint for our one and only mother earth, as an end-to-end ITU Structural Solution Company. Hello, customer experience is our number one priority; by leveraging our system building block and drug scale product and play solution.
Charles Liang: We help our customers achieve the best time-to-market advantage with new and performance-optimized technology. Now we are further expanding this solution to the entire data center, with rapid deployment of large-scale AI infrastructure. Data Centers worldwide are facing power shortages and cooling inefficiency challenges.
Charles Liang: Building this new AI-ready data center traditionally takes a long time, averaging three years, for example. Our upcoming Supermicro 4.0, ECBPS data center building block solution, will reduce customers' new data center build time from about three years to two years, for Smarter for CDP, for all the data center transformation, and Optimize. Close.
Charles Liang: Effective Data Center in less than one year or even in just six months. This new offering will significantly improve data centers' TTO (Time to online), and Coase, with full integration of AI compute, server, storage, networking, right. Hey everyone.
Charles Liang: DLC liquid cooling for CDT water tower, end-to-end management software, on-site deployment service, and maintenance. We were far from offering it.
Charles Liang: Date of this calendar year, are playing a significant role in re-achieving our data center building block solution and providing additional economics of scale. Our new Malaysian campus will start, Production is no member with its geographic advantage. We expect it to quickly ramp up, Supermarine, and improve our coastal strategy.
Charles Liang: In the U.S., we are adding new buildings and production POC provisioning capacity, nearing our Silicon Valley headquarters as well, which will further boost our monthly PLLC DIP Coding Direct Capacity and Value this fiscal year. Moreover, we are on track to expand to a few other global manufacturing locations, leveraging our strengths in product design, build quality, supply chain, and deployment. Positioning Supermicro as one of the largest IT Infrastructure Companies. In summary, we are entering fiscal 2025 with record high back orders. Winnie Hodak
Charles Liang: Najiboriyan, CLC, Duke Cooling Capacity, Data Center Building Block Solution, and more new customers. Why Our Long-Term Investment Impacts Short-Term Profitability, their position as well for future success by providing a sustainable competitive advantage and necessary economics of scale. This has given me confidence to forecast the September quarter revenue between $6 billion to $7 billion and fiscal 2025 revenue between $26 billion to $30 billion. Again, we anticipate that the short-term margin pressure will ease and return to the normal range before the end of fiscal year 2025, especially when our DLLC, Duke-Kuhning, and Data Center filling block solutions start to ship in high volume later this year.
Charles Liang: Lastly, I would like to announce a 10-for-1 for all stocks to bring Supermicro the common stock over to make ownership of Supermicro stock more accessible. We are targeting trading on a split-adjusted basis. Convention at Market opened on October 1st, 2024. Before passing the call to David Weigand, our CFO, I want to say thank you to our partners, customers, Supermicro employees for an incredible year where we were able to bring AI at scale to the world and to our shareholders for your continued support. Thank you.
David Weigand: We had robust growth in the fiscal year, and I'm pleased with the progress we made on our strategic initiatives. For fiscal year 24, we reported revenues of $14.9 billion, representing 110% growth over fiscal year 23 revenues of $7.1 billion. Fiscal Year 24 non-GAAP diluted EPS of $22.09 grew 87% over fiscal year 23 non-GAAP diluted EPS of $11.81. Between fiscal year 21 and fiscal year 24, we achieved significant operating leverage with revenues growing at a compound annual growth rate of 61% per year, while non-GAAP operating expenses only grew at 19% per year. Between fiscal years 21 and fiscal year 24, gross margins met or exceeded the target range of 14 to 17%.
David Weigand: Non-GAAP operating margins were above the target range of 5 to 8 percent between fiscal years 21 and fiscal year 24 and more than doubled from 4.4 percent in fiscal year 21 to 10 percent in fiscal year 24 due to strong revenue growth and operating leverage. Q4 revenues were $5.31 billion, up 143% year-over-year and up 38% quarter-over-quarter, and above the midpoint of guidance of $5.1 to $5.5 billion. Growth was driven by strong demand for next generation air cooled and direct liquid cooled rack scale AI GPU platforms, representing over 70% of revenues across enterprise and cloud service provider markets, where demand remains strong.
David Weigand: We exited the year with an acceleration in innovative DLC products, a large design windpipe, and a strong backlog, positioning us for continued growth in fiscal year 2025. We expect growth and operating margins to gradually increase in the year, driven by product and customer manufacturing efficiencies for new DLC AI GPU clusters and new platform introductions. As Charles discussed, shipments may continue to be constrained in the short term by supply chain bottlenecks for key new components for our dance platform.
David Weigand: Long-term gross margins will benefit from lower manufacturing costs as we scale up production in Malaysia and Taiwan, in addition to expansion in the Americas and Europe. During Q4, we recorded $1.83 billion in the enterprise channel vertical, representing 34% of revenues versus 49% in the last quarter, up 87% year-over-year and down 3% quarter-over-quarter. The OEM Appliance and Large Data Center segment revenues were $3.41 billion, representing 64% of Q4 revenues versus 50% in the last quarter, up 192% year-over-year and 76% quarter-over-quarter.
David Weigand: Emerging 5G telco edge IoT revenues were $75 million, or 2% of Q4 revenue. For fiscal year 24, enterprise channel revenues grew 79% to represent 41% of total revenue. The OEM appliance and large data center segment grew 149% and represented 58% of total revenue. The emerging 5G telco edge IoT segment represented 1% of total revenue.
David Weigand: One CSP large data center customer represented approximately 20% of revenues for fiscal year 24. Server and storage systems comprised 95% of Q4 revenue, and subsystems and accessories represented 5%. ASPs increased on a year-over-year and quarter-over-quarter basis, driven by the value and complexity of our rack-scale total IT solution. By geography, the US represented 61% of Q4 revenues; Asia 24%, Europe 10%, and the rest of the
David Weigand: On a year-over-year basis, U.S. revenues increased 94 percent. Asia increased 437%. Europe increased 128%, and the rest of the world increased 386%.
David Weigand: On a quarter-over-quarter basis, U.S. revenues increased 20%, Asia increased 66%, Europe increased 74%, and the rest of the world increased 187%. The Q4 non-GAAP gross margin was 11.3% versus 15.6% in Q3 due to product and customer mix, focus on winning strategic new designs with competitive pricing, and higher initial costs in ramping production of new DLC AI GPU clusters. For fiscal year 24, the non-GAAP gross margin was 14.2% versus 18.1% for fiscal year 23.
David Weigand: We have a path to improve gross margins to the target range of 14 to 17% as we introduce innovative platforms based on multiple new technologies from our strategic partners and improve manufacturing efficiencies on our DLC solution. Q4 operating expenses on a gap basis increased by 15% quarter over quarter and 75% year over year to $253 million, driven by higher compensation expenses and headcount. On a non-gap basis, operating expenses increased 11% quarter over quarter and 39% year over year to $185 million.
David Weigand: Q4's non-gap operating margin was 7.1%, versus 11.3% in Q3 due to the lower gross margin. Other income and expense for Q4 was $11 million, consisting of $3 million in interest expense and $14 million from interest income on higher cash balances, offset by a loss from foreign exchange and other investments. Interest expenses decreased sequentially as we paid down short-term bank credit facilities.
David Weigand: The tax provision for Q4 was $1 million on a gap basis and $21 million on a non-gap basis. The gap tax rate for Q4 was 0.3%, and the non-gap tax rate was 5%. The gap tax rate was 4.9% for fiscal year 24 versus 14.7% in fiscal year 23. And the non-gap tax rate was 10.4% for fiscal year 24 versus 15.9% in fiscal year 23.
David Weigand: Q4 GAAP diluted earnings per share of $5.51 was below the guidance of $7.20 to $8.05, and non-GAAP diluted EPS of $6.25 was below the guidance of $7.62 to $8.42 due to lower gross margins and higher operating expenses in the quarter. The GAAP fully diluted share count increased quarter over quarter from $61.4 million to $64.2 million. And the non-GAAP share count increased sequentially from 62 million to 64.8 million shares, reflecting the effects of two recent stock offerings and the convertible bond offering.
David Weigand: Q4 cash flow used in operation was $635 million compared to $1.52 billion in the previous quarter as inventory and accounts receivable grew due to higher levels of business and the timing of shipment. For fiscal year 24, cash used in operations was $2.5 billion due to strong revenue growth of 110% and Working Capital Needs to support large customer design. Q4 closing inventory was $4.4 billion in anticipation of future growth. CapEx for Q4 was $27 million, resulting in a negative free cash flow of $662 million for the quarter.
David Weigand: CapEx for fiscal year 24 was $137 million, up $37 million in fiscal year 23, as we invested in new property, plant, and equipment globally, including our Greenfield Malaysia plant. The Q4 closing balance sheet position was $1.7 billion, while bank and convertible note debt was $2.2 billion, resulting in a net cash position of negative $504 million versus a net cash position of $252 million last quarter. Turning to the balance sheet and working capital metrics compared to last quarter, the Q4 cash conversion cycle was 94 days versus 96 days in Q3. Days of inventory decreased by 10 days to 82 days compared to the prior quarter of 92 days. Day sales outstanding was unchanged at 37 days, while days payables outstanding decreased by 8 days to 25 days.
David Weigand: Now turning to the outlook for Q1 fiscal year 25. We expect strong growth as we ramp up new air-cooled and DLC AI GPU design wins with new and existing customers. For the first quarter of fiscal 2025, we expect net sales in the range of $6 billion to $7 billion, and Gap Diluted Net Income Per Share of $5.97. $7.66, and Nongap diluted net income per share of $6.69 to $8.27. We expect gross margins to improve sequentially due to product and customer mix and improving manufacturing efficiency.
David Weigand: Gap operating expenses are expected to be approximately $282 million and include $84 million in stock-based compensation expenses that are not included in non-gap operating expenses. The outlook for Q1 of fiscal year 2025. Fully Diluted GAP EPS.
David Weigand: Includes approximately 48 million and expected stock-based compensation expenses, net of tax effects of $35 million, which are excluded from non-GAAP Diluted Net Income Per Crown Share. We expect other income and expenses, including interest expense, to be a net expense of approximately $20 million. The company's projections for Q1 fiscal year 25 gap and non-gap diluted net income per common share. Assume a GAAP tax rate of 9.9% and a non-GAAP tax rate of 14.6% and a fully diluted share count of $65 million for GAAP and $66 million shares for non-GAAP.
David Weigand: We expect CapEx for Q1 to be in the range of $45 million to $55 million. For fiscal year 2025, we are introducing guidance for revenues of $26 billion to $30 billion. Michael, we're now ready for Q&A.
Michael Staiger: Thank you. If you would like to ask a question, please dial star followed by one on your telephone keypad. Now, if you change your mind, please dial star followed by two to exit the queue. And finally, when preparing to ask your question, please ensure that your phone is unmuted. Our first question today is from the line of Michael Ng of Goldman Sachs. Please go ahead. Your line is now open.
Michael Ng: Hey, good afternoon. Thank you very much for the question. I guess I have two.
Charles Liang: I'm encouraged to see the revenue guidance of $26 to $30 billion for fiscal 25. I was wondering if you could just provide a little bit of color around the assumptions underpinning that revenue guidance and any visibility that you have in terms of backlog and some of the contingencies you might be assuming in terms of supply availability. And then secondly, I was just wondering if you could provide a little bit more color around the gross and operating margin improvement throughout the year. Should we think about the long-term gross margin targets as applicable for the full year as well or only for the last quarter of the year? Thank you. Okay, thank you.
Charles Liang: Okay, thank you. As to what we share, I mean, we continue to gain design wins, and with lots of new products available, including DLC liquid cooling and data center building block solutions, we see a lot of customer engagement, and also more new customers like to engage with us. So with our capacity continuing to grow, so $26 to $30 billion, that's our target for the next 12 months. And as to growth margin, as we just mentioned, our DLC, Duke Coding Now, has been very mature.
Charles Liang: So we are able to take advantage of that. And also, our data center building block solution that provides much better value, improves customers' data center time to online, and also makes customers' job easier to build their data center. So all of those will increase our profitability gradually.
Samik Chatterjee: Our next question today is from the line of Samik Chatterjee of J.P. Morgan. Please go ahead. Your line is now open.
Samik Chatterjee: Hi, thanks for taking my questions. I have a couple as well.
Charles Liang: For the, maybe I can start with the gross margin performance in the quarter. I know you mentioned you had a hyperscale customer, which impacted product customer mix and margin impact there. How should we think about sustainability or sort of repeat orders from that customer? It sounds like you're saying that's part of the improvement, and you probably don't see as much repeat business, but just wanted to confirm if that's how we should be thinking about the hyperscale customer you had, which is that it doesn't really repeat through fiscal 25 and have a follow-up.
Charles Liang: Yeah, we have been very consistent. I mean, before, we are Silicon Valley based and operate mostly in Silicon Valley. So we focus on enterprise, high quality, high performance customers only. That's before.
Charles Liang: But when we start to take production operation advantages from Taiwan, we start to grow a large-scale data center customer. And now, we have a huge capacity in Malaysia. We'll be ready by the end of this year.
Charles Liang: So with the economic large scale advantage, we are ready for large customers. So we will continue to grow with large customers. At the same time, we also continue to enhance our enterprise customer base. So recently, we also saw growth and strong demand from our enterprises for our software total solution, I mean, data center building block solution. We start to gain more attraction for the data center, I mean, enterprise customers as well. So we believe long-term, the economic scale, the enterprise customer base, and overall, Taiwan and Malaysia cost advantages now we have a way to grow gross margin and net profit.
Charles Liang: And for my follow-up, Charles, there have been reports more recently about the delay of the GB200 from NVIDIA. Just wondering if you can share your thoughts on how that would impact the conversion of the robust backlog or pipeline that you're looking at into revenue through the year, and is that accounted for when you talk about liquid cooling now being a materially higher portion than what you talked about at Computex? Are you taking some of those delays Thank you.
Charles Liang: Oh, yes. I mean, yes, we heard that NVIDIA may have some delay, right? And we treat that as a normal possibility. When a vendor introduces new technology, or a new product, they always have a chance to improve it a little bit. In this case, push out a little bit. But to us, I believe we are no problem to provide the customer with a new solution like H220 cooling. We have a lot of customers like that. So, although we hope Vendor Pro is in the schedule, that's good for a technology company, but this pushes out the overall impact to us, it should not be too much.
Unknown Attendee: Thank you. Thanks for taking my question.
Ruplu Bhattacharya: Our next question today is from the line of Ruplu Bhattacharya of Bank of America Merrill Lynch. Please go ahead; your line is open.
Ruplu Bhattacharya: Hi, thanks for taking my questions. I have two of them.
Ruplu Bhattacharya: The first one relates to the gross margin performance in the quarter. David, can you specify how much of the 430 bibs sequential decline was the result of the customer mix, which is the higher hyperscale customer mix versus the impact of ramping liquid cooling solutions? And how much was that impact on gross margins? And in terms of I think, Charles, you said that you lost about 800 million dollars in revenue in the quarter because of the non availability of components. Is that all liquid cooling related? Or was that, you know, related to other things like GPUs as well? Thank you.
Charles Liang: Pretty much deep cooling key components are related, but now it's much ready now. I mean, when we move to July and August, we have many deep cooling key components available now.
Charles Liang: It wasn't a loss; it was pushed out.
David Weigand: Yeah, and there was... Okay, thanks for listening. This is David Ruplu.
David Weigand: Yeah, so we were really surprised by the amount of demand that we had in this market. And so our manufacturing efficiency has been improving every day. And so we expect that to continue. And that's going to help our gross margins, you know, going forward, as we deploy liquid-cooled racks at scale.
David Weigand: And is that deployment expected to be linear for these liquid cool racks throughout the year, or is it more back-end loaded? Thanks. Thanks for taking my questions.
Charles Liang: Basically, we support ten to four customers for liquid cooling, and most of them, once they try our liquid cooling, they will continue to deploy higher percentage with liquid cooling because the cost, the hardware acquisition cost is about the same, but they will save lots of energy costs. So I believe these girls will be consistently growing.
Ananda Baruah: Our next question today is from the line of Ananda Baruah of Loop Capital. Please go ahead. Your line is open.
Ananda Baruah: Yeah, good afternoon, guys. Thanks for taking the question. Charles, you said a lot of good stuff on this call.
Charles Liang: So I'll try to just ask about one or two things here. I guess to start... Could you frame for us how the company is thinking about its liquid cooling capability relative to others who are providing liquid cooling services as well? That's been a big topic of conversation. Sounds like you guys are really high on your capability, and it seems to be showing up, at least in the guidance. But I think additional context around how you guys are competitively positioned and maybe some of the technical reasons why would be super useful for folks.
Charles Liang: Yeah, thank you. I mean, as you know, liquid cooling has been in the market for 30 years, and market share compared with overall data center size is always small, less than 1% or close to 1%, I would have to say. But just June and July, two months alone, we shipped more than 1,000 racks to the market. And if you calculate 1,000 ROAC, AI ROAC, it's about more than 15% for a new global data center deployment. So we are very happy.
Charles Liang: We help the industry push from air coolers to liquid coolers and help customers save energy costs and reduce carbon footprints. At the same time, because of liquid cooling, the ROAC liquid cooling data centers require 30% to 40% less power. That's why it makes customers' data center availability quicker because customers don't have to wait for a higher power budget from a power company. So hopefully, we will see more and more customers like our big cooling solution.
Ananda Baruah: And Charles, did I hear you accurately that you guys think you did a 50% liquid cooling share in the June quarter?
Charles Liang: I believe for June and July, in those two months, we may ship at least 70% to 80% of liquid cooling compared with all liquid cooling in the world. So for Dick Cooney, we have at least a 70% to 80% match.
Ananda Baruah: That's that's a useful that's useful. Thank you. And then just real quick, my follow-up question is, you've made remarks earlier this year and in the recent past about how you anticipate expanding your RAC capacity, you know, sort of into the future. I was just wondering if you could give us an update on how you think about how you're thinking about rack capacity expansion for both liquid cooled and air cooled. And that's it for me. Thank you.
Charles Liang: It's a very good question. I mean, last month, we had about 1,000 racks of liquid cooling capacity per month. And today, we have already grown another 50%. So now we have 1,500 racks per month capacity. By this year end, we will grow that to 3,000 racks per month, and that's for liquid cooling alone. So we really believe liquid cooling is a much better choice for our market, and we provide a kind of consultation to customers.
Charles Liang: And most of the customers, when they discuss their needs with our engineering team, they love liquid cooling. And again, we are growing a customer base for liquid cooling very strongly. And we're really happy for that, because minimized power consumption has been a common value to the world, and especially safe operation costs.
Unknown Attendee: And that's the fiscal year. Fiscal year, when you say end of year, end of fiscal year, for the next
Charles Liang: For the next 12 months, I believe deep cooling will be a big portion of our vision.
Aaron C Rakers: Our next question today is from the line of Aaron C. Rakers of Wells Fargo. Please go ahead. Your line is open.
Aaron C Rakers: Yeah, thanks for taking the question. I've got two as well.
Aaron C Rakers: I guess I want to go back to the earlier question on Blackwell, just because I think it's going to be a key focal point for a lot of investors here, especially as we kind of shape the full year guidance. So Charles, I want to be clear. Has your guidance contemplated, as we think about the December quarter, do you believe that you'll be shipping the Blackwell platform solutions for revenue in the December quarter?
Aaron C Rakers: Or should we think about the full-year guide as a bit more weighted to the back half of the fiscal year, given some of these concerns around the timing of Blackwell availability and, you know, NBL 36 and 72 platforms, etc.? I'm just curious how you want us to think, or the street, to think about the cadence of that full-year guidance, you know, shaping up on a quarterly basis, appreciating you're not going to give quarter-by-quarter guidance, so.
Charles Liang: Yeah, thank you. I mean, indeed, we are relatively very conservative.
Charles Liang: I understand the black whale may postpone. How much we don't exactly know, because new technology can always be pushed out, right? So for Q3, for sure, we do not expect any black whale volume. For Q4, I mean, the December quarter, I guess, will be very small. Engineering sample, small volume, so that really volume, I believe, had to be the March quarter next, and that's why we owe only $26 to
Aaron C Rakers: Yeah, that's very helpful. And then, as a quick follow-up, I want to go back to the gross margin discussion, too. We talked about the impact of direct, you know, the DLC platforms. You talked about product mix. One of the other comments, David, you made was that, you know, winning strategic new customers was a factor in that 430 basis point gross margin degradation. Can you help us appreciate what exactly the impact of that has been, how that might have changed this last quarter? And then I'll flip my final final one in. Any disclosure on purchase obligations coming out of this last quarter? Thank you.
David Weigand: Yeah, thanks. I'll answer those in reverse order.
David Weigand: Yeah, we don't we don't have any announcements in terms of purchase obligations. And so we'll point you to the, you know, the 10k for that. But with respect to your first question, I would say we prepared the market for a downturn in margins or a softening of margins in our guidance last quarter. But we were even surprised by the acceleration that we saw in the liquid-cooled rack market.
David Weigand: And so we had to ramp up our supply chain; we paid a lot of expedite costs, and higher chart higher, higher supply chain costs. So I think as the supply chain improves, we expect those efficiencies to now come back out. But that impacted us more than we had expected.
David Weigand: Yeah, for the majority of the 130. Was that the majority? Well, no, I think... 430 basis points? No. So that.
David Weigand: So half of it was targeting specific accounts, like we announced last quarter, and the other half was really the higher supply costs that we encountered.
Aaron C Rakers: Yep, very helpful. Thank you guys.
George Wang: Our next question today is from the line of George Wang of Barclays. Please go ahead. Your line is now open.
George Wang: Oh, hey guys, thanks for taking my question. I have two parts.
Charles Liang: Firstly, can you gain more color just in terms of share gains, especially within the hyperscale arena? You know, traditionally, Supermicro has been more tier two, tier three NFI, and you guys talked about higher mix on hyperscale. Just curious, does that mean you guys are winning new penetration into hyperscale?
Charles Liang: Yeah, again, like what I just mentioned, with our Taiwan capacity getting bigger, and Malaysian capacity will be ready. So we are fully ready for large-scale data center customers, but we will be selective.
George Wang: So that's why we foresee only $26 billion to $30 billion. If we try to be more aggressive on a large scale, our growth can be even faster than that. But we try to grow in both ways, enterprise and large-scale data center. We kind of try to balance to maintain our healthy profitability.
George Wang: Okay, great. Just a second question, if I can squeeze in just just, you know, as we enter the Blackwell era, you know, with liquid cooling, kind of a larger deployment, higher ASP, but also come with some potential working capital need, just in terms of the capital rate, you know, is that fair to say you guys are sufficient, or there could be some potential to come to the market, just maybe you can talk about, you know, the percentage for the next 12 months.
Charles Liang: Liquid cooling, I mean, for sure, is necessary and is very helpful for the black whale solution. Although Blackwell pushes out a little bit, but indeed, we enable liquid cooling for H100 and H200 as well. And lots of customers are interested in our H100 and H200 liquid cooling now. So in our position, we'd like to support the whole data center, not just Blackwell.
George Wang: Okay, can you address the working capital? If you can give any comment on that?
David Weigand: Yes, so we announced a $500 million credit line with a group led by the Bank of America. And so we expect we are really, you know, working on our on our balance sheet and leveraging our balance sheet. And we expect some announcements to be coming in terms of, you know, additional loan possibilities in the future.
George Wang: Okay, great. I'll go back to the queue. Thank you.
Jonathan Tanwanteng: Our next question today is from the line of Jon Tanwanteng of CJS Securities. Please go ahead. Your line is open.
Jonathan Tanwanteng: Hey, good afternoon. Thank you for taking my question. I was wondering if you could just talk, you know, given your time to market and volume capabilities and liquid cooling, the energy and compute advantages, can you walk through what your pricing strategy is? And why not pass those costs on, especially relative to the value that you're providing? Is there, you know, a stronger competitive environment close behind you? Or are you effectively trying to get ahead of them and get that share first?
Charles Liang: Indeed, liquid cooling, from our point of view, is really good value for the whole market and our whole planet because that's energy consumption. So we enable liquid cooling primarily for black whales, because black whales are higher power, that's for sure. Lots of cases need liquid cooling, but we enable that for H1N3, H2N3, and regular CPUs as well. Because overall, liquid cooling, once mature, once the economical scale is good enough, it's good for all different kinds of computing. And that's exactly what we are improving, and we are promoting. Lots of our customers continue to be interested in our liquid cooling, even now for the black whale.
Jonathan Tanwanteng: Got it. Thank you.
Jonathan Tanwanteng: And then you mentioned getting back to the gross margin target range by the fiscal year end. Can you help us narrow down a little bit more where in that target range you expect to be? Is it the low end? Is it more towards the middle? Kind of help us understand how you're getting there. Okay, for Tune, it's...
Charles Liang: Okay, for June, it's really a unique quarter because we brought in lots of deep cooling, and we paid lots of exploration costs for our costs. So that made our June gross margin much worse.
Charles Liang: But now, indeed, our deep cooling technology has been getting very mature, and we have a high volume now, so that lowers our deep cooling cost now. And, however, we try to promote deep cooling as a mainstream product solution, so we try not to add value too much to customers, but instead, we try to gain market share and make deep cooling everywhere.
Jonathan Tanwanteng: Okay, thank you. And any color just on where in the margin range do you expect to end up?
David Weigand: Well, so we, we, I think if you look at the guidance that we gave for Q1, we expect to be above 12 in the first quarter. And we're doing, you know, we'll be working very hard to move back into the range as we mentioned, you know, as soon as, as quickly as we can. Especially with our commission data center bidding block solution.
Charles Liang: Especially with our commission data center building block solution with more software, on-site deployment, maintenance, and kind of end-to-end management service. So I will Public Margin should grow from a building block solution for data centers very soon.
Mehdi Hosseini: Our next question is from the line of Mehdi Hosseini of SIG. Please go ahead; your line is open.
Mehdi Hosseini: Yes, thanks for taking my question. I just have two housekeeping items. David. What kind of other income did you have in this? Day.
David Weigand: That was a net figure, Mehdi, so we actually had $20 million of interest income, but that was offset by some adjustments to, some investment adjustments. Unknown Speaker, Interesting. So the 20 million is the interest? 20, 20, 20 million was interest income. Yeah. From a higher cash balance. That was offset by some investors.
Mehdi Hosseini: All right. Okay.
Mehdi Hosseini: And then a question I have for Charles, obviously, you did a good job of doubling revenue in fiscal year 24, but you also had a negative free cash flow of 2.6. And if I were to look at the high end of your revenue guide for fiscal year 25, you're on track to double revenues again. Does that mean that you're going to need to burn another 2.5 to 2.6 billion of free cash flow to hit those revenue targets?
Charles Liang: are not necessary. I mean, if we try to be very aggressively growing, max share, maybe, for example, we focus on 30 billion dollars, right? So in that case, we may need more. But if we try to focus on below 30, then it is not necessary.
David Weigand: And Mehdi, one thing I would add to that is, you know, we believe that we have an IG profile. And as such, like I mentioned earlier, we're, we're starting to leverage our balance sheet more with, targeting toward unsecured debt. And so that will, that will help us, you know, on an inter-quarter basis.
Mehdi Hosseini: Gotcha. Thank you.
Mehdi Hosseini: What should I assume for fiscal year 25 CAPEX?
David Weigand: We don't have a guide. We're not giving a guide at this time.
David Weigand: But would it be down on a year over year basis since most of the expansion in Malaysia and the US is behind us? Well, we have other projects.
David Weigand: Well, we have other projects going on, you know, expansion here in the U.S., but I don't have anything to announce today.
Nehal Chokshi: Our next question today is from the line of Nehal Chokshi of Northern Capital Markets. Please go ahead. Your line is now open.
Nehal Chokshi: Yeah, thank you. I want to talk about DLC and some of the chatter that's been out there from some competitors in that it sounds like failure rates for DLC, broadly speaking, not necessarily for Supermicro, are high relative to air cooled. Can you comment on Supermicro's DLC failure rates relative to air cooled and then also relative to other DLCs? And I guess maybe we can do it on a per node basis, annualized failure rates, or whatever basis you want to utilize.
Charles Liang: Yeah, we spent a lot of effort in the last, I would like to say, two years to prepare our optimized DLC solution, including lots of new design, redesign, and refining the components of the system. So finally, I mean, about May this year, right, we have our DLC solution fully ready. And we have more than a handful of high-profile customers who really like our DLC solution. That's why we put in the solution to
Charles Liang: And that's why we paid a lot of exploration charges, right. But now, the good thing is our whole DLC solution has been made mature and ready for really high-volume production. So now, for any customer who wants DLC, we are able to support them quickly and at a much more reasonable cost now. So looking forward, DLC, I believe, will be a really popular solution for the world because it's more efficient, especially energy saving
Charles Liang: So we are very happy that we established the DLC solution much ahead of anyone else. Again, like June and July, I believe we have at least 70% or 80%, maybe even higher, market share in the world for DLC. And air-cooled, again, we have a very optimized air-cooled solution. So we continue to promote air-cooled solutions for sure.
Nehal Chokshi: Do you have any thoughts on the actual like failure rates relative to Airfold and then relative to other suppliers' TLC solutions?
Charles Liang: Yeah, liquid cooling, as you know, because they are very efficient at cooling, right? So they allow CPU, GPU, all the components to run at a lower temperature, and in lots of cases, they are actually able to optimize customer data center performance by percentage, right, a couple of percentage to even a high single digital percentage. So a lot of customers really like DLCs.
Charles Liang: I see. So are you saying that you can actually achieve lower failure rates with DLC because you can run the GPUs at lower temperatures?
Charles Liang: CPU, TPU, and other components at a low temperature, that's what you have, kind of the whole data center quality, uptime, and availability time.
Nehal Chokshi: Okay, and then my follow-up question is that, I think, June 21, he did an 8k after market close, leasing significant data center space from prime Data Center and then releasing it back to Lambda Labs. It seems like a rather odd arrangement. Can you guys talk about the purpose of doing this?
David Weigand: So, we consider ourselves experts in data center solutions, and so this is really just one more facet of being a total provider.
Unknown Attendee: Thank you. And our next question is from the line of Thomas Blakey of Key Corp. Please go ahead. Your line is open.
Thomas Blakey: Hi guys, thanks for taking my questions. We have a few here.
David Weigand: David, can you comment on the mixed gift and the mixed rather of AI Rack scale revenue here in a quarter? Did it increase quarter on quarter in the June quarter?
Thomas Blakey: Absolutely. I mean, you know, our revenues went up by one and a half, over one and a half billion, and that was primarily driven by liquid-cooled racks.
Charles Liang: Excellent. And an update, maybe on capacity utilization; does that increase as well or decrease? And related to that, you commented last quarter that there would be a number, I think it was about 1000 racks per month going out in a 64 GPU configuration. Could you give an update in terms of did you ship those to the three customers, one was new, in the June quarter? And again, an update on capacity utilization related to that question.
Thomas Blakey: Yeah, customers like our high-density computing solution, especially the product that way you say 64 GPUs or more GPUs. So we are very efficiently providing a customer for whatever configuration they like, and very soon, we will announce something even better for sure.
Charles Liang: So to be clear, is that a yes that you shipped 3,000 racks during the quarter in that configuration to those three customers?
Charles Liang: We are building the capacity for that because how many customers will move to DLC, especially when black whale is ready. So we are very optimistic about that, especially after black whale in high volume production. And we have many black whale fully optimized systems and large-scale designs. Yeah, but Thomas, the 1000 per
Thomas Blakey: Thank you. And we have run out of time for any further questions. So this will conclude the Supermicro Computer Incorporated Q4 2024 earnings.
We make are based on facts and assumptions as of today and we undertake no obligation to update them. Our actual results may differ materially from the results forecasted and reported results should not be considered as an indication of future performance and discussion of some of the risks and uncertainties related to our business is contained in our filings with the SEC. When you refer you to these to those public filings.
<unk> our most recent annual report on Form 10-K during this call all financial metrics and associated growth rates or our non-GAAP measures other than revenue and cash and investments reconciliations to the most directly comparable GAAP measures are provided in our earnings press release and slides.
Call is being broadcast live on the Supermicro investors Investor Relations website and is being recorded for playback purposes, an archive of the web cast will be available on the IR web site and is the property of Supermicro. Our first quarter 2025 quiet period begins at the close of business Friday September 13th 2024, and with that I will turn it over to Charles.
Charles: Thank you Michael I'm pleased to announce another record liquidity reached out of.
Charles: <unk> three 1 billion.
Speaker Change: 143% year over year growth.
Speaker Change: For fiscal 2024, we have achieved 14 94 billion in revenue.
Speaker Change: 110% year over year growth rate.
Speaker Change: That's an end-to-end ITU Structural Solutions Company.
Speaker Change: The tax provision for Q4 was $1 million on a GAAP basis and $21 million on a non-GAAP basis.
Speaker Change: The GAAP tax rate for Q4 was <unk>, 3% and the non-GAAP tax rate was 5%.
Speaker Change: The GAAP tax rate was four 9% for fiscal year 'twenty four versus 14, 7% in fiscal year 'twenty three and the non-GAAP tax rate was 10, 4% for fiscal year 'twenty four versus 15, 9% in fiscal year 'twenty three.
Speaker Change: Q4, GAAP diluted earnings per share of $5 51.
Speaker Change: Was below the guidance of $7 20.
Speaker Change: To $8 five $8 <unk> and.
Speaker Change: And non-GAAP diluted EPS of $6, 25% was below the guidance of $7 62 to $8 42.
Speaker Change: Due to lower gross margins and higher operating expenses in the quarter.
Speaker Change: The GAAP fully diluted share count increased quarter over quarter from $61 4 million to $64 2 million.
Speaker Change: And the non-GAAP share count increased sequentially from 62 million to $64 8 million shares reflected reflecting the effects of two recent stock offerings.
Speaker Change: The convertible bond offering.
Speaker Change: Q4 cash flow used in operations was $635 million compared to $1 five 2 billion in the previous quarter as inventory and accounts receivable grew due to higher levels of business and the timing of shipments.
Speaker Change: For fiscal year 'twenty for cash used in operations was $2 five.
Speaker Change: Billion due to strong revenue growth of 110% and working capital needs to support large customer design wins.
Speaker Change: Q4 closing inventory was $4 4 billion in anticipation of future growth.
Speaker Change: Capex for Q4 was $27 million, resulting in negative free cash flow of $662 million for the quarter.
Speaker Change: Capex for fiscal year, 'twenty, four was $137 million up $37 million from.
Speaker Change: In fiscal year 'twenty, three as we invested in new property.
Speaker Change: <unk> and equipment globally, including our Greenfield Malaysia plant.
Speaker Change: The Q4 closing balance sheet position was $1 7 billion bank and convertible note that was $2 2 billion, resulting in a net cash position of negative $504 million versus a net cash position of $252 million last quarter.
Speaker Change: Turning to the balance sheet and working capital metrics compared to last quarter. The Q4 cash conversion cycle was 94 days versus 96 days in Q3.
Speaker Change: Days of inventory decreased by 10 days to 82 days compared to the prior quarter of 92 days.
Speaker Change: Days sales outstanding was unchanged at 37 days, while days payables outstanding decreased by eight days to 25 days.
Speaker Change: Now turning to the outlook for Q1 fiscal year 'twenty five.
Speaker Change: We expect strong growth as we ramp new air cooled and DLC, AI, GPU design wins with new and existing customers.
Speaker Change: For the first quarter of fiscal 2025, we expect net sales in the range of 6 billion to $7 billion.
Speaker Change: GAAP diluted net income per share per share of $5 97.
Speaker Change: The $7 66.
Speaker Change: And non-GAAP diluted net income per share of $6 69.
Speaker Change: The $8 27.
Speaker Change: We expect gross margins to improve sequentially due to product and customer mix and improving manufacturing efficiency.
Speaker Change: GAAP operating expenses are expected to be approximately $282 million and include $84 million in stock based compensation expenses that are not included in non-GAAP operating expenses.
Speaker Change: The outlook for Q1 of fiscal year 2025 fully.
Speaker Change: Fully diluted GAAP EPS.
Speaker Change: <unk> includes approximately $48 million.
Speaker Change: And expected stock based compensation expenses net of tax effects of $30 $35 million, which are excluded from non-GAAP.
Speaker Change: Diluted net income per common share.
Speaker Change: We expect other income and expenses, including interest expense to be a net expense of approximately $20 million.
Speaker Change: The companys projections for Q1 fiscal year, 'twenty, five GAAP and non-GAAP diluted net income per common share.
Speaker Change: Assume a GAAP tax rate of nine 9% and a non-GAAP tax rate of 14, 6%.
Speaker Change: And our fully diluted share count of $65 million for GAAP and 66 million shares our non-GAAP.
Speaker Change: We expect Capex for Q1 to be in the range of 45 million to $55 million.
Speaker Change: For fiscal year 2025.
Speaker Change: We are introducing guidance for revenues from $26 billion to $30 billion.
Speaker Change: Michael we're now ready for Q&A.
Speaker Change: Gary.
Gary: Thank you if you would like to ask a question. Please dial star followed by one on your telephone keypad now.
Speaker Change: If you change your mind. Please I will start followed by two to exit the Q and a.
Speaker Change: Finally, when preparing to ask a question. Please ensure that youll phone is on mute locally.
Speaker Change: Our first question today is from the line of Michael <unk> of Goldman Sachs. Please go ahead. Your line is now open.
Michael <unk>: Hey, good afternoon. Thank you very much for the question I guess I have two.
Speaker Change: <unk> to see the revenue guidance for $2006 to $30 billion for fiscal 'twenty five.
Speaker Change: Was wondering if you could just provide a little bit of color around the assumptions underpinning that revenue guidance and any visibility that you have in terms of.
Speaker Change: Backlog.
Speaker Change: And some of the contingencies you might be assuming in terms of supply availability and then secondly, I was just wondering if you could provide a little bit more color around the.
Speaker Change: Gross and operating margin.
Speaker Change: Improvement throughout the year.
Speaker Change: Should we think about the long term gross margin targets as applicable for the full year as well or exiting the year. Thank you.
Speaker Change: Okay. Thank you.
Speaker Change: While we share I mean, we can be and again design win and now we should also new pulled out available, including the POC to recruiting and data center building bulk solution, we see a lot of.
Speaker Change: Customer engagement and also more new customer allowed to engage with us. So we silo capacity continues to grow so <unk> $30 billion target with <unk>.
Speaker Change: To a minus.
Speaker Change: And as to gross margin as well, we just mentioned.
Speaker Change: Boc, concluding now have been very mature. So we are able to take advantage of floating debt and also data center building bulk solution that provides a much better value.
Speaker Change: Improved customer.
Speaker Change: Data center tend to online and also our customers.
Speaker Change: That jumped to build odell.
Speaker Change: So all of those aware inquiries that will probably the PDT gradually.
Charles: Thank you Charles.
Charles: Thank you.
Samik Chatterjee: Our next question today is from the line of stomach strategy of J P. Morgan. Please go ahead. Your line is the only thing.
Speaker Change: Hi, Thanks for taking my questions a couple as well.
Speaker Change: Maybe if I can start with the gross margin performance in the quarter. I know you mentioned, you hired a hyperscale customer, which impacted product customer mix and margin impact there.
Speaker Change: How should we think about sustainability or sort of repeat orders from that customer or it sounds like youre, saying, that's part of the improvement in April but you don't see as much repeat but just wanted to confirm if that's how we should be thinking about.
Speaker Change: Hyperscale customer you had which is that it doesn't really repeat through fiscal 'twenty five and I have a follow up.
Speaker Change: Yes, we have been pretty consistent.
Speaker Change: We are silicon Valley based operation most of the Silicon Valley.
Speaker Change: So we focus on enterprise high quality high <unk> customer only people, but when we start to pick up.
Speaker Change: Apache and operation advantages from Taiwan.
Speaker Change: To grow our largest scale data center customer and now we have a huge capacity man ICF will be ready by data. This year. So we see economics.
Speaker Change: Largest scale advantage we have.
Speaker Change: The 84 large customer.
Charles: So we will continue to grow with a large customer at the same time, we also.
Charles: Continue to enhance our enterprise customer base so.
Charles: Recently.
Speaker Change: We also.
Speaker Change: Gross now storm demand former enterprise.
Speaker Change: We sell soda Leah.
Speaker Change: Total solution I mean, Dennis.
Speaker Change: <unk> been in bulk solution.
Speaker Change: We start to gain more.
Speaker Change: Attraction former Florida.
Speaker Change: I mean, the enterprise customer as well so we believe a.
Speaker Change: Long term economic of scale.
Speaker Change: The customer base and overall.
Speaker Change: Taiwan, and Malaysia advantages closer to an advantage now I happen.
Speaker Change: Two to.
Speaker Change: Hello.
Charles: Gross margin in medical.
Speaker Change: Got it got it and for my follow up Charles They've been reports recently about the delay of the GBP 200 from Nvidia just wondering if you can share your thoughts of how that could impact the conversion of the robust backlog or pipeline that youre looking at to revenue will be yield.
Speaker Change: And is that accounted for when you talk about liquid cooling now being a materially higher portion then what are you talking about at Computex or you have taken some of those dealers into account. Thank you.
Speaker Change: Oh, yes, I mean that yes, if we heard it.
Speaker Change: Media may have been some debate.
Speaker Change: And we treat the day as normal.
Speaker Change: Plus PDP.
Speaker Change: <unk> introduced a new technology, new product they are always have a chance to.
Speaker Change: It would be appreciated of beach and these cases push out at the beach, but to US I believe we are.
Speaker Change: No program to provide a customer with a new solution.
Speaker Change: <unk> hundred 80 recruiting we have lots of kazmunaigaz of that so.
Speaker Change: We hope.
Speaker Change: Pulling that schedule that goodwill.
Speaker Change: <unk> company, but.
Speaker Change: This push out.
Speaker Change: <unk> impact to us is <unk> not too much.
Speaker Change: Okay. Thank you thanks for taking my question.
Speaker Change: Yes.
Speaker Change: Our next question today is from the line of <unk> Shire of Bank of America Merrill Lynch. Please go ahead. Your line is open.
Speaker Change: Hi, Thanks for taking my questions.
Speaker Change: I have two of them. The first one relates to the gross margin performance in the quarter. David can you specify of the 430 bps sequential decline how much was the result of the customer mix, which is the higher hyperscale customer mix versus the impact of ramping liquid cooling solutions and.
Speaker Change: How much was that.
Charles: Impact to gross margins and in terms of I think Charles you said that you'd lost about $800 million of revenue in the quarter because of non availability of components is that all liquid cooling related or was that.
Speaker Change: Related to other things like Gpus as well thank you.
Speaker Change: Pretty much the excluding key components and related but now it's much ready now.
Speaker Change: When we moved to July August.
Speaker Change: We have a much.
Speaker Change: Recruiting key components available now.
Speaker Change: It wasn't a loss it was pushed out into the next quarter.
Speaker Change: Yes, there was.
Speaker Change: The group is.
Speaker Change: Okay.
Speaker Change: Yes. So there was we really were we were surprised by the <unk>.
Speaker Change: The amount of demand that we had in this in this market and so we are manufacturing efficiency improves has been improving every day and so we expect that to continue and that's going to help our gross margins going forward as we deploy liquid cooled racks at scale.
Speaker Change: Sure.
Speaker Change: And as that deployment expected to be linear for these liquid cooled racks throughout the year or is it more backend loaded. Thanks, thanks for taking my questions.
Speaker Change: Basically we support.
Speaker Change: And the full customer recruiting and most of it in.
Speaker Change: Wednesday, Triality recruiting new will continue to deploy.
Speaker Change: Higher percentage.
Speaker Change: Because the coast now hardware cohesion closely is about the same but the OSA notes of energy cost.
Speaker Change: I believe these girls will be.
Speaker Change: Consistently growing.
Speaker Change: Yeah.
Speaker Change: Thank you.
Speaker Change: Our next question today is from the line of Ananda Baruah of loop capital. Please go ahead. Your line is open.
Ananda Baruah: Yeah. Good afternoon, guys. Thanks for taking the question.
Speaker Change: Charles You said a lot of good stuff on this call.
Ananda Baruah: I'll try to just ask about one or two things here.
Speaker Change: I guess to start.
Speaker Change: So you could you frame for us how.
Speaker Change: Al.
Speaker Change: How the company is thinking about its liquid cooling capability relative to <unk>.
Speaker Change: Others, who are providing wisdom cooling surveys as well that's been a big topic of conversation it sounds like it.
Speaker Change: Sounds like you guys are really high on your capability and it seems to be scaling up.
Speaker Change: At least in the guidance, but I think additional context around.
Speaker Change: How you guys are competitively positioned and maybe some of the technical reasons why would be would be super useful.
Speaker Change: And then I just have a quick follow up.
Speaker Change: Yes. Thank you.
Speaker Change: Recruiting has been in the market for 30 years and much sure and we saw overall would be announcing the size always small less than 1% or close to 1%.
Speaker Change: But yes Q.
Speaker Change: In July two months alone we ship them one at 1000 rack to the market and we will calculate 1000 Bragg.
Greg: AI, Greg it's about.
Speaker Change: More than 15% on a global data center new deployment.
Greg: <unk>.
Speaker Change: We have been happy.
Speaker Change: But the industry push.
Speaker Change: Oh cool to Nucor and to help a customer.
Speaker Change: Energy cost and reduced couple will be added.
Speaker Change: At the same time because of our deep recruiting.
Paolo: Recruiting data standards require 30% to 40% that's Paolo that's why it's met customer data into a better BT quicker because of the customer they will have to wait for high yield.
Speaker Change: Power <unk> and former <unk> company.
Cherilyn: So overall, we see yes, cherilyn won't cut Tomorrow night.
Speaker Change: We're pleased that we get.
Speaker Change: And Charles It did I hear you accurately.
Charles: I think you did 50%.
Speaker Change: Calling chair.
Speaker Change: In the June quarter.
Speaker Change: I believe in June and July in two months, we managed ship.
Speaker Change: This is the 70% to 80% Duke recruiting.
Speaker Change: Compared with the old I think liquidity.
Speaker Change: So for deep cleaning, we have added nearly 80% next year.
Speaker Change: That's that's a useful that's useful thank you and then just real quick my follow up is you've made you've.
Speaker Change: You've made remarks.
Speaker Change: Earlier this year than in the recent past about how you envision expanding your Iraq capacity.
Speaker Change: Yes sort of.
Speaker Change: Over there.
Speaker Change: Into the future I was just wondering if you could give us an update on how that.
Speaker Change: Think about how youre thinking about we're at capacity expansion for both liquid cooled in their court.
Speaker Change: That's it for me.
Speaker Change: He is a very good question I mean, the last months.
Speaker Change: We have about 1000 per month, the recruiting capacity and today, we already grow another 50%. So now we have a 1500 right per month capacity by this and we will go to network 3000 per month.
Speaker Change: Putting that all so we really believe the recruiting is a much better choice for the market and we provide the.
Speaker Change: Kind of consultation to customer and most of the customer win this because with our engineering teams the last Duke coding and again, we are growing.
Speaker Change: From a base for recruiting very strongly and we are really happy for that because.
Speaker Change: Minimizing power consumption have been come on value to that will and especially state.
Speaker Change: Operation cost.
Speaker Change: And that fiscal year.
Speaker Change: Fiscal year, when you say end of the year end this fiscal year.
Speaker Change: For the next 12 months I believe.
Speaker Change: <unk> will be a big portion of our business.
Speaker Change: Thank you.
Speaker Change: Yeah.
Speaker Change: Thank you.
Speaker Change: Our next question today is from the line of <unk> of Wells Fargo. Please go ahead. Your line is open.
Speaker Change: Yes, thanks for taking the question I've got two as well.
Speaker Change: I guess I want to go back to the earlier question on Blackwell, just because I think it's gonna be a key focal point for a lot of investors here, especially as we kind of shape of the full year guidance.
Speaker Change: So.
Speaker Change: Charles I want to be clear so.
Speaker Change: Has your guidance contemplated as we think about the December quarter.
Speaker Change: Do you believe that youll be shipping the Blackwell platform solutions for revenue in the December quarter or should we think about the full year guide is a bit more weighted to the back half of the fiscal year given some of these concerns around the timing of Blackwell availability in.
Speaker Change: NGL $36 72 platforms et cetera, I'm, just curious of how you want us to pay for the street to think about the cadence of that full year guidance shaping up on a quarterly basis I appreciate youre not going to give quarter by quarter guidance, though.
Speaker Change: Yes. Thank you I mean that indeed, we are.
Speaker Change: Tivoli very conservative analyst day in.
Speaker Change: Well may postpone how.
Speaker Change: How much do we don't exactly know because the new technology always to what can be pushed out right. So.
Speaker Change: For Q3, but we do not expect <unk> Branco, well volume for Q4, I mean December quarter, I guess would be very small.
Speaker Change: Engineering is simple small volume so not really volume at Btu had to be a march quarter next year.
Speaker Change: And and that's why we only have one.
Speaker Change: The <unk> six to <unk> $30 billion.
Speaker Change: Yes, that's very helpful and then.
Speaker Change: A quick follow up I want to go back to kind of the gross margin discussion too we talked about the impact of direct.
Speaker Change: Plc platforms.
Speaker Change: You talked about product mix one of the other comments David you had made was that winning strategic new customers. What was a factor in that 430 basis point gross margin degradation can you help us appreciate what exactly the impact of that has been how that might have changed since last quarter and then I'll flip My final final one in.
Speaker Change: Disclosure on purchase obligations coming out of this last quarter. Thank you.
Speaker Change: Yeah. Thanks, So I'll answer those in reverse order, yes, we don't we don't have any any announcements in terms of purchase obligations and so we will point you to the 10-K for that but.
Speaker Change: With respect to your first question.
Speaker Change: I would say, we prepared the market for a down to a downturn in margins or a softening of margins.
Speaker Change: Guidance last quarter, but we even we were surprised by the acceleration that we.
Speaker Change: We saw in the liquid.
Speaker Change: Cool rack market and so we had to ramp up our supply chain, we've paid a lot of expedite costs and higher higher higher.
Speaker Change: Supply chain costs, So I think as the supply chain improves we expect those efficiencies to now come back out but that that impacted us.
Speaker Change: More than we had expected.
Speaker Change: Especially with the June quarter.
Speaker Change: Yes.
Speaker Change: Is that the majority of that already.
Speaker Change: What was that the majority of well no I think 130 basis point decline.
Speaker Change: So half half was was targeting specific accounts like we announced last quarter and the other half was really the higher higher supply costs that we encountered.
Speaker Change: Yes very helpful. Thank you guys.
Speaker Change: Our next question today is from the line of George Wang of Barclays. Please go ahead. Your line is now open.
George Wang: Oh, Hey, guys. Thanks for taking my question I have two parts. Firstly can you give more color just in terms of also share gains, especially within the Hyperscale arena traditionally.
Speaker Change: As being more tier two tier three enterprise and you guys puffball higher mix on Hyperscale. Just curious does that mean, you guys are winning new penetration to the hyperscale.
Speaker Change: Yes, again <unk> just mentioned, we saw a Taiwan capacity getting bigger managed capacity won't be ready. So we were already doing for large scale data center customer, but we won't be selective. So that's why we see only a $10 6 billion.
Speaker Change: And a $30 billion, even when we try to be more aggressive in our largest scale our growth can be even faster than that but we try to outgrow in most ways enterprise and the largest scale data center.
Speaker Change: So two to maintain our.
Speaker Change: Probably the BD.
Speaker Change: Okay great.
Speaker Change: If I can squeeze in just.
Speaker Change: As we enter the plateau era.
Speaker Change: It was a nickel quoting chemical.
Speaker Change: <unk> deployment.
Speaker Change: But also come with.
Speaker Change: Some potential working capital need just in terms of the pepper right.
Speaker Change: Is that fair to say you got sufficient of that there could be some.
Speaker Change: Potential to come to the market just maybe you can pump ball.
Speaker Change: The puts and takes for the next 12 months.
Speaker Change: Yes, the recruiting I mean that is a necessary and it's been a heck of a hopeful but like well solution.
Speaker Change: <unk> Branco way, our solution pushed out either beach, but indeed, we enabled recruiting for <unk> and <unk> as well and also customer interest in our <unk>, one under an edge to enter into recruiting now indeed.
Speaker Change: So decoding tools.
Speaker Change: Jim.
Speaker Change: The whole data center, not yes, Michael Weil.
Speaker Change: Okay.
Speaker Change: Just on the working capital.
Speaker Change: If you can give any color on that.
Speaker Change: Yes, so we announced a $500 million.
Speaker Change: Credit line with a group led by the Bank of America, and so we expect we are really.
Speaker Change: Working on our on our on our balance sheet and leveraging our balance sheet.
Speaker Change:
Speaker Change: And we expect to.
Speaker Change: Some announcements to be coming in in terms of.
Speaker Change: Additional loan possibilities in the future.
Speaker Change: Okay, Great I'll go back to the queue. Thank you.
Speaker Change: Our next question today is from the line of John 10 months hang of CJS Securities. Please go ahead. Your line is open.
Speaker Change: Hey, good afternoon. Thank you for taking my question.
Speaker Change: I was wondering if you could just talk.
Speaker Change: Given your time to market and volume capabilities in liquid cooling.
Speaker Change: Energy and computer advantages can you walk through what's your pricing strategy is and why not pass those costs on especially relative to the value that you're providing is it.
Speaker Change: Longer competitive cluster behind you or are you effectively trying to get ahead of them and get that share first.
Speaker Change: I mean.
Speaker Change: Indeed, I think recruiting.
Speaker Change: From our point of view is the duty.
Speaker Change: Good value to the whole market and our opening because the best energy consumption. So we enabled recruiting.
Speaker Change: <unk> four.
Speaker Change: <unk> right, because it back away or a higher power levels.
nida: Case Nida.
nida: Recruiting, but we enabled AD for <unk> and regular CPU as well as the overall NIM, including ones mature once the economical scale is doing enough is it Google or even kind of of computing and that's in definitely now yeah.
Speaker Change: We are promoting a lot of our customer.
nida: <unk> interest.
nida: Interesting nowadays, including even novel.
Baca: Baca will frankly.
Speaker Change: Yeah.
Speaker Change: Got it. Thank you and then you mentioned getting back to the gross margin target range by by the fiscal year end.
Speaker Change: Can you help us narrow down a little bit more were in their target range do you expect to be at the low end is it more towards the middle.
Speaker Change: Kind of help us understand how you're getting there.
Speaker Change: Okay June it's really a unique quarter, because we pull in those how far do recruiting and we paid out all exploration, we're close to that.
Meg: Meg June.
Speaker Change: Our gross margin much worse, but now.
Speaker Change: <unk> decoding technologies have been getting very mature and we have a high volume now so with that though I'll do putting close them and however, we tried to pull Monday precluding us mainstream product solution. So we try not to add.
Speaker Change: <unk> too much to customer, but you stated we try to gain market share and I think we couldn't everywhere.
Speaker Change: Okay. Thank you and any any color just on where in the margin range do you expect to end up.
Speaker Change: Well so.
Speaker Change: I think if you look at the guidance that we gave for Q1, we expect to be above 12.
Speaker Change: In the first quarter and we are doing.
Speaker Change: We will be working very hard to move back into back into the range as we mentioned.
Speaker Change: As soon as quickly as we can as.
Speaker Change: Basically we saw coming soon thereafter, endoperidium broke solution with a more subtle way.
Speaker Change: Onsite agreement maintenance.
Speaker Change: And kind of end to end.
Speaker Change: Managing service, so I won't.
Speaker Change: Probably the margin should grow former.
Speaker Change: Bidding bulk solution for data Center medicine.
Speaker Change: Great. Thank you guys.
Speaker Change: Our next question is from the line of Mehdi Hosseini of S. Please.
Speaker Change: Please go ahead your line is open.
Mehdi Hosseini: Yes, thanks for taking my question.
Speaker Change: Two.
Speaker Change: A housekeeping item.
Speaker Change: David.
David: What kind of other income did you have in the.
Speaker Change: June quarter you.
Speaker Change: You did say that you have and interest income of $12 million that you realized in the June quarter.
Speaker Change: That was a net figure.
Speaker Change: So we actually had $20 million of interest income, but that was offset by some adjustments to some investment adjustments.
Speaker Change: Which are which.
Speaker Change: Lower interest income.
Speaker Change: 'twenty into 'twenty 2000, 20 million was interest income from higher cash balances.
Speaker Change: That was offset by some one quarter from investment.
Speaker Change: Correct Okay.
Speaker Change: Okay Alright.
Charles: Okay, and then a question for Charles.
Charles: Obviously, you have done it.
Charles: Good job of doubling revenue in fiscal year 'twenty four but you also have.
Speaker Change: Negative free cash flow of $2 six I mean, if I were to look at the high end of your revenue guide for fiscal year 'twenty five youre on track to double revenues again does that mean that youre going to need to burn.
Speaker Change: Two five to $2 6 billion of free cash flow to hit those revenue targets.
Speaker Change: Not necessarily I mean.
Charles: We tried to be very aggressively growing the market.
Speaker Change: <unk> sure.
Speaker Change: For example, we forecast, though so the $17 billion right. So in that case, we were mainly in the mall, but.
Speaker Change: We try to focus on.
Speaker Change: It also then not necessity.
Speaker Change: And maybe one thing I would add to that is we believe that we have.
Speaker Change: <unk> profile and as such like I mentioned earlier, we're starting to leverage our balance sheet more with with Targa.
Speaker Change: Targeting toward unsecured debt.
Speaker Change: And so that will that will help us.
Speaker Change: On an intra quarter basis.
Speaker Change: Gotcha. Thank you.
Speaker Change: I assume for fiscal year 'twenty Capex.
Speaker Change: We don't have we're not giving a guidance at this time.
Speaker Change: Okay, but would it be down on a year over year basis since most of the expansion in Malaysia, and the U S are behind us.
Speaker Change: Well, we have we have other projects going on.
Speaker Change: Expansion here in the U S, but we will well.
Speaker Change: Nothing to.
Speaker Change: <unk> announced today.
Speaker Change: Okay.
Speaker Change: Alright, Thank you guys.
Speaker Change: Our next question today is from the line of Chuck sheet of Northland Capital markets. Please go ahead. Your line is now.
Chuck sheet: Yeah. Thank you.
Chuck sheet: I want to talk about steel C and some of the chatter that's been out there from some competitors in that.
Chuck sheet: It sounds like failure rates for DLC broadly speaking not necessarily for supermicro is high relative to air cooled.
Speaker Change: Can you comment on what is Super Micro's DLC failure rates relative to air cooled and then also relative to other TLC solution and I guess, maybe we can do it on a per node basis annualized failure rates or whatever basis, you want to utilize.
Speaker Change: Yes, we spend a lot of April in last I would say two years to prepare our optima DLC solution, including the outs of new design redesign you're finding.
Speaker Change: Put into the system. So finally, I mean about who may this year right. We have our <unk> solution for <unk> and we have more than a handful.
Speaker Change: Hi, <unk>.
Speaker Change: Customer, who really like our <unk>.
Speaker Change: This solution and that's why when you pool in solution to them and that's why we pay the hardcore exploration charged right, but now that this year.
Speaker Change: <unk> is a recent IP, maybe mature and ready for really high volume pedestrian so novel and a customer when we are able to support them.
Speaker Change: Quickly and with a much reasonable closer to now.
Speaker Change: So looking below <unk> I believe we are really.
Speaker Change: Really popular solution because.
Speaker Change: Because the more efficient, especially energy savings. So we are really happy that we establish.
Speaker Change: Solution much ahead of anyone else again June and July I believe we have at least 70%, 80%, maybe even higher market share in <unk>.
Speaker Change: But the ERC.
Speaker Change: <unk> again, we have been having a very optimal core solution. So we continue to promote <unk> solutions for sure.
Speaker Change: Do you have any thoughts on the actual like.
Speaker Change: Failure rates.
Speaker Change: Relative to air cooled and then relative to other supplier.
Speaker Change: Suppliers TLC solution.
Speaker Change: Yes, the recruiting as you know because the very high free standing cooling so allow CPU GPU or a components wrong at a lower temperature and then also case, indeed able to optimize customer data center performance by.
Speaker Change: Percentage right couple percentage to even high single digital presented so another customer and really like the plc or that discipline.
Speaker Change: So are you, saying that you actually can achieve lower failure rates with DLC because you can run.
Speaker Change: <unk> Gpus at lower temperatures.
Speaker Change: CPU GPU and other components at low temperatures that once you have.
Speaker Change: The kind of the whole data center according to our plan.
Speaker Change: A bit of a PDP.
Speaker Change: Sure.
Speaker Change: Okay and then my follow up question is that.
Speaker Change: June 21st you did an 8-K after market close leasing significant data center space from Prime data Center, and then you're leasing it back to Randall labs.
Speaker Change: It seems like a rather odd arrangement can.
Speaker Change: Can you guys talk about the purpose of doing this.
Speaker Change: So we consider ourselves experts in data center.
Speaker Change: Data Center solutions and so this is really just one more facet of.
Speaker Change: Being a being a total provider.
Speaker Change: Okay. Thank you.
Speaker Change: Yeah.
Speaker Change: Thank you and our next question is from the line of Thomas <unk> of <unk>. Please go ahead. Your line is open.
Speaker Change: Hi, guys. Thanks for taking my question.
Speaker Change: New here.
Speaker Change: David could you comment on the mix.
David: Rather of AI rack scale revenue here in the quarter, there was an increase quarter on quarter in the June quarter.
David: Oh, absolutely I mean, our revenues went up one and a half over half one 5 billion and that was primarily driven by liquid cooled racks.
Speaker Change: Okay excellent.
Speaker Change: An update maybe on the capacity utilization with that does that increase as well our decrease in related lead to that you commented last quarter that there will be a number I think of about a thousand.
Speaker Change: Per month going out and I think before you configuration.
Speaker Change: Could you give an update.
Speaker Change: In terms of.
Speaker Change: The three customers one was new.
Speaker Change: <unk> quarter, and again, an update on the capacity utilization related to that question.
Speaker Change: Yes customer dialogue.
Speaker Change: Is the competing solution, especially per rack and that's why you say strictly with GPU or more GPU.
Speaker Change: So we are very.
Speaker Change: Efficient that a provider customer for why it will come to fruition the bag.
Speaker Change: And very soon we will add on.
Speaker Change: Even basis for sure.
Speaker Change: Yes.
Speaker Change: So is that the declared that yet.
Speaker Change: 3000 rack during the quarter at that configuration to military customers.
Speaker Change: We are building the capacity for that because.
Speaker Change: How many customers will move to DLC, especially win back away already so we are pretty optimistic for that.
Speaker Change: Especially off the back of whale in Highwood, <unk>, and we have many practical way off roadie optimize.
Speaker Change: System and drive scale design.
Speaker Change: Yeah, Thomas the 1000 per month as was the capacity, we're not we're not saying that we shipped 1000 per month.
Speaker Change: But one thing I can tell you that.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: Thank you and we have run out of time for any further questions. So this will conclude the Super micro computer incorporated Q4 2024 earnings call.
Speaker Change: Thank you everyone who's able to join US today, you may now disconnect your lines.