Q2 2025 Super Micro Computer Inc Earnings Call
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Speaker Change: Thank you for standing by. Liang, Founder, President, and Chief Executive Officer, David Weigand, CFO, and Michael Staiger, Senior Vice President of Corporate Development. All lines have been placed on a mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question, it is star followed by 1 on your telephone keypad. If for any reason you would like to remove that question, it is star followed by 2. Again, to ask a question, it is star 1. Thank you.
Speaker Change: Good afternoon. Thank you for attending Supermicro's second quarter fiscal 2025 business update conference call for the second quarter, which ended December 31st, 2024. With me today are Charles Liang, Founder, Chairman, and Chief Executive Officer, and David Weigand, Chief Financial Officer. At the end of today's prepared remarks, we will have a Q&A session for sell-side analysts.
Speaker Change: Additionally, the company will not address any questions regarding the delay in the filing of the company's fiscal year 2024 10-K and 10-Q due thereafter.
Speaker Change: During today's conference call, Supermicro will address business and market trends from the second quarter of Fiscal 25, including our financial outlook and operations, our strategy, technology, and disadvantages, our current and new product offerings, and competitive industry and economic trends.
Speaker Change: We will discuss estimated financial results, but references to any financial results are preliminary and subject to change based on finalized results contained in future filings with the SEC. By now you should have received a copy of today's news release that was issued after the close of market and is posted on our website where this call is being simultaneously webcast.
Speaker Change: Any forward-looking statements that 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.
Speaker Change: as a discussion of some of the risks and uncertainties relating to our businesses contained in our filings at the SEC and we refer you to those public filings including our most recent annual report on Form 10-K.
Speaker Change: During this call, all financial metrics associated and growth rates are non-GAAP measures other than revenue and cash.
Michael?
Speaker Change: Our third quarter fiscal 2025 quiet period begins to close the business Friday, March 14th, 2020. Progress, technology, innovation, and business opportunities as we approach the midpoint of fiscal 2025. I will begin by reviewing some key financial highlights from the December quarter.
Speaker Change: Our preliminary physical Q2 nanoreminal is projected to range between 5.6 and 5.7 billion.
making a 54% year-on-year increase at a midpoint.
despite some negative impacts on cash flow and market.
Speaker Change: misperception due to the 10K delay. We achieved a fairly good quarter.
Speaker Change: driven by sustained AI demand from both existing and new customers. Our growth trajectory for Physical E-Identify remains promising.
Speaker Change: Highlighted by the beginning of our transition from Apple to BlackWare GPU, we expect the growth in new generation platform to accelerate as supply ramp this quarter and beyond.
Speaker Change: We have confidence that our Canada Year 25 growth could be a repeat of Canada Year 23, if not better. Assuming the supply chain can keep pace with demand.
Speaker Change: Our preliminary physical Q2 lung gap earnings was in the range of $0.58 to $0.60 per share, worth $0.56 last year.
representing approximately 5% year-on-year growth.
Speaker Change: Lung Gap growth margin was approximately 11.9% and Lung Gap operating margin was approximately 7.9%. Margin was temporarily under pressure due to the 10K delay disruption.
The new product R&D investment and customer and product mix
and a separate
Speaker Change: $700 million in new 2.25% convertible senior notes due in 2028 to support our rapid business growth immediately.
Speaker Change: We have also privately amended a portion of our existing convertible notes.
Speaker Change: deal in 2029, with almost all investors participating in the amended notes. This will support our growth, including Supermicro 4.0 initiatives.
Speaker Change: Data Center Building Block Solution, DCPBS, and some brand new GPU platform architectural design.
Speaker Change: Before diving into the details of our operation progress, let me begin by sharing an update regarding our financial findings.
Speaker Change: Our financial team and our new auditor, BDO, have been fully engaged in completing the audit process. Based on our progress to date,
Speaker Change: We are confident that our fiscal year 24 Form 10-K and the first two quarters of fiscal year 25 Form 10-Q will be filed by February 25th this year.
Speaker Change: As previously stated, the special committee found no evidence to support the formal auditor's reasons for resignation.
Speaker Change: However, over the past two quarters, we have had senior leaders in corporate communication, operations, finance, legal, and compliance departments.
Speaker Change: We will continue to add more tough, experienced leaders to build a stronger corporate foundation for our rapid growth and expanding economy.
Speaker Change: global business, including the CFO, CCO, and other positions. As you know, we have grown strongly.
Speaker Change: Moving on to our technology progress, we are excited to announce that our NVIDIA Blackwell products are shipping now. We have begun volume shipping of both L-Core 10U and D-Core 4U NVIDIA B200 HGX systems.
Speaker Change: Meanwhile, our NVIDIA GB200MVLR72 racks are fully ready for production as well.
Speaker Change: Utilizing our system building blocks, we are going to soon offer more brand-new platforms for customers seeking further optimized, higher-density, and even greener AI solutions.
Speaker Change: While most of the key components are ramping at a full speed, it will take some time to fulfill our current AI solution backlog.
Speaker Change: Some customers also need more time to finish their DLC data center fill-out.
Speaker Change: At the same time, we see strong new demands are keeping coming from enterprise CSPs.
a Slovene entity, and AgroScale.
Speaker Change: We are expanding and enhancing our total liquid-cooled data center infrastructural solution featuring the latest TLC technology.
Speaker Change: exemplified by the XAI process, the world's largest deep-core AI supercomputer.
Speaker Change: Shifu Michael is the disruptive leader in driving industry-wide adoption of DLRC technology.
which they do reduce customer's OPEX and achieve green computing.
Speaker Change: We expect more than 30% of new data centers worldwide to adopt liquid cooling infrastructures within the next 12 months.
driven by the rapid and continual growth of AI.
Winning competing deserves to be everywhere in the world.
Speaker Change: Our DLC long-term investment and leadership provide a sustainable competitive edge and economics of scale, far ahead of competition.
Speaker Change: Supermicro's data center building block solution consolidated server racks, networks, storage, water tower, software management, on-site deployment, cabling, and service for an end-to-end solution.
Speaker Change: The true value of data center building block solution is to save power, reduce space, and decrease water consumption, resulting in up to 40% lower TCO for our customers, according to our detailed calculation.
Speaker Change: It accelerates new data center deployments and helps modernize existing infrastructures in weeks or months rather than quarters and years.
Speaker Change: significantly improved data center TTD and TTO, time to delivery and time to online.
Speaker Change: We are expanding our data center business solution to include more and more subsystems, quarter after quarter. And we have become a true one-stop shop, a data center partner to the whole industry.
Speaker Change: On the production from our new Malaysia campus, we will soon ship the product to our regional partners.
Our Taiwan and European production capacity is also growing significantly.
Speaker Change: In Silicon Valley, we are rapidly expanding our manufacturing site to increase our DLLC nuclear-scale production capacity.
Speaker Change: The U.S. campus boasts an impressive 20 megawatts of power, enabling us to produce over 1,500 DLC GPU racks per month in the U.S.
Speaker Change: to better support our key partners and align with current government initiatives.
Speaker Change: need. We are also ready for other domestic manufacturing expansion in various regions approached by the U.S.
Speaker Change: This strategic expansion will ensure we meet the increasing demand for our product and service.
Speaker Change: while maintaining our commitment to our chief partner for quality, security, TCO, total cost of ownership, TPD, again, time to delivery, and TTO, time to online.
Speaker Change: To summarize, we have been a product and technology leader in the IT industry for over three decades.
Speaker Change: As we continue to strengthen our internal operations and expand our U.S. and global manufacturing footprint, we aim to turn this
progresses into value for shareholders, customers, and partners.
Speaker Change: Our first to market advantage of delivering the most innovative AI infrastructural technology with Blackwell.
coupled with
Speaker Change: exceptional product, quality, service, software, networking, and security with data center building block solution. We will continue to reinforce our partnership as the premier U.S.-based data center infrastructure solution provider.
with our expanding technology dealership.
Speaker Change: and today's AI trend, we believe it will result in a similar growth trend for us like 2023.
Speaker Change: With that, I am confident we will finish this fiscal year strongly with revenue in the range of $23.5 billion to $25 billion.
Speaker Change: and I believe we have potential to reach $40 billion for fiscal year 2026.
Before passing the call to David for a financial overview.
David Weigand: I want to thank all of our partners, customers, investors, and Shibumaga team members and express my deep appreciation for their continuous support. With that, I will now turn the call to David.
Thank you, Charles.
Speaker Change: Please note these numbers are preliminary and unaudited, subject to change upon completion of review by management or audit committee. Additionally, our independent audit firm has not completed its review procedures with respect to this preliminary financial information.
Speaker Change: So to start, again we expect Q2 fiscal year 25 revenues in the range of $5.6 to $5.7 billion, up 54% year-over-year.
Speaker Change: Again, growth was driven by demand for air-cooled and DLC rack-scale AI GPU platforms. AI-related platforms, again, contributed over 70% of revenue for Q2 across enterprise and cloud service provider markets.
Speaker Change: The Q2 non-GAAP gross margin is approximately 11.9% versus 13.1% last quarter due to lower margins from product and customer mix.
Speaker Change: and you'll recall that on the Q1 earnings business update call we guided down 100 basis points for this quarter. The non-GAAP operating margin is approximately 7.9 percent.
Speaker Change: which excludes $82 million in stock-based compensation expenses versus 9.7% in Q1 due to those lower gross margins.
Speaker Change: Other income and expense is approximately $8 million, consisting of $15 million in interest and other income offset by $7 million in interest expense.
Speaker Change: The tax rate is approximately 15% for GAAP and 17% for non-GAAP.
Speaker Change: Gap net income will range from $315 to $325 million and non-gap net income $375 to $392 million.
Speaker Change: Non-GAAP net income excludes $63 million in stock-based compensation expenses net of the related tax effects of $19 million.
Speaker Change: GAP diluted EPS is approximately $0.50 to $0.52 versus prior guidance of $0.48 to $0.58.
Speaker Change: non-GAAP diluted EPS is approximately 58 cents to 60 cents versus guidance of 56 cents to 65 cents.
Speaker Change: We expect a gap diluted share count of approximately $636 million and a non-gap diluted share count of $647 million.
Speaker Change: The closing inventory was approximately $3.6 billion versus $4.9 billion last quarter. CapEx was $28 million.
Speaker Change: Cash used in operations was approximately $240 million versus cash generated from operations of approximately $409 million in Q1.
Speaker Change: Supermicro began the second quarter with approximately $2.1 billion in cash and recorded approximately $320 million in gap net income for the second quarter.
Speaker Change: Cash was provided from Lower Inventory and other sources totaling $1.5 billion.
Speaker Change: and then the company used cash to pay down accounts payable by $1.2 billion.
Speaker Change: We realized higher other receivables from purchase rebates and prepaid inventory of $484 million.
Speaker Change: We had increased accounts receivable of $335 million. We also reduced our bank loans by $346 million net.
of $660 million, thereby ending the company's second-quarter fiscal year,
quarter with $1.4 billion in cash.
Speaker Change: at the end of December. Now, I want to point out we've continued to prudently manage our working capital and for the month ended January 31st, 2025, we ended with approximately $2 billion in cash.
Thank you.
Speaker Change: Turning to the balance sheet and working capital metrics compared to last quarter, the Q2 cash conversion cycle was up to 104 days versus 97 days in Q1.
Speaker Change: Days of Inventory was 78 days compared to the prior quarter of 83 days. Days Sales Outstanding for Q2 was 47 days versus 42 days last quarter, while Days Payables Outstanding was 21 days compared to 28 days last quarter.
Speaker Change: In a separate press release issued today, we announced a private placement of 700 million of new 2.25% convertible senior notes.
Speaker Change: due 2028, and we privately amended our existing 1.7 billion convertible senior notes due 2029.
The company is reconfirming that no previously issued financial statements
require a restatement.
Speaker Change: The company, however, made certain adjustments to the preliminary unaudited results for the fourth quarter of fiscal 2024 that it had announced on August 6, 2024. The adjustments recorded
Speaker Change: and the results for the fourth quarter of fiscal year 2024 include an increase in net sales of approximately 46 million
Speaker Change: and an increase in the cost of sales of approximately $96 million, which included a charge due to an increase in inventory reserves of approximately $45 million.
Speaker Change: There was also an increase in operating expenses of approximately $5 million.
Speaker Change: Until the company's fiscal year 2024 financial statements are filed, the company is required to reassess its accounting estimates for financial reporting.
Speaker Change: The charge for inventory reserves results from an unanticipated decline in the market value of certain components that were held in the company's inventory or on non-cancellable purchase orders at the end of fiscal year 2024.
Speaker Change: Collectively, these changes resulted in a downward adjustment to the previously announced preliminary unaudited fiscal year 2024 and fourth quarter of fiscal year 2024 gap and non-gap diluted net income per common share.
of approximately $0.09.
That's based on a post-split diluted shares outstanding basis.
Speaker Change: The foregoing adjustments are to previously announced preliminary unaudited financial results, and as such, they do not constitute a restatement.
for the third quarter of 2020.
Speaker Change: Our fiscal 2025, we are expecting net sales in the range of $5 billion to $6 billion.
Speaker Change: We expect the gap and non-gap gross margin to be approximately 12%.
Speaker Change: We expect GAAP and non-GAAP operating expenses to be up approximately $17 million sequentially, and GAAP and non-GAAP other income and expenses to be a net expense of approximately $12 million.
Speaker Change: The company's projections for GAAP and non-GAAP net income per diluted share assume a tax rate of approximately $10.7 billion.
Speaker Change: and 12.7 respectively, a diluted share count of approximately 642 million shares for GAAP and a diluted share count of approximately 653 million shares for non-GAAP.
Speaker Change: Stock-based compensation expense and other expenses net of related tax effects of approximately 17 million
which are excluded from non-GAAP net income per diluted share.
Speaker Change: So, again, I want to point out, revenues for the trailing four quarters are
between 20 and 21 billion dollars.
Speaker Change: And for the fiscal year 2025, we are updating our revenue guidance from a range of $26 billion to $30 billion to a new range of $23.5 billion to $25 billion.
Speaker Change: So, we're very happy to announce that the company has raised money through the issuance of a new bond, and we will continue to improve our liquidity as our growth requires it.
Speaker Change: I want to end by saying that the final financial results reported for this period may differ from the results reported here based on the review by BDO, our new independent registered public accounting firm.
Speaker Change: But we expect to complete our fiscal year 2024 audit by the February 25th filing extension date that we have been granted by NASDAQ.
Speaker Change: So, Michael, I'll turn it back to you. Michael Staiger We'll now take questions.
Michael Staiger: Again, if you would like to ask a question, it is star followed by 1.
Michael Staiger: Our first question comes from Michael NG with the company Goldman Sachs. Michael, your line is now open.
Michael Ng: Hi, good afternoon. Two questions for me, if I could. First, I was wondering if you could talk a little bit about the $40 billion fiscal 2026 revenue outlook. What informs your confidence there? If you could shed any light on backlog or pipeline or product roadmap that is informing the outlook, that would be great. Thank you.
Speaker Change: Yeah, I mean our product line continues to grow. We have industry standard product line plus lots of supersets, including some confidential products under development. And we have a customer-engaged research for those projects.
Speaker Change: This year, even 10K today, we grew about 60%. Last year, we grew 110%. So the coming year,
Speaker Change: At this moment, we believe at least we will grow 65% at least. So that's, I believe, a very conservative estimation.
Speaker Change: And the past in production capacity, I mean USA now, our utilization rate is only about 55%, Taiwan utilization rate is only about 50%.
Speaker Change: 60%. Malaysia's utilization rate is still about 1% only. So there are lots of room to grow for us.
Speaker Change: Great. Thank you, Charles. And just as my second question, I was wondering if you could talk about the mix of Blackwell and Hopper servers in the quarter, not looking for anything specific, but was it different than what you may have expected? Was Hopper stronger? Was Blackwell affected by any supply chain constraints? Thank you.
Speaker Change: We have both already, right? Harpo for sure has been a very mature product, H200 for example. And then Blackwell, we have a GB200 fully ready in production. And then for B200-HGX, we have a 10U air cooler fully ready for production. And then 4U liquid cooler fully ready for production.
Okay. Thank you very much.
B200 and GB200, but we have all of them ready.
Thank you for the thoughts, Charles. Appreciate it.
Thank you.
Speaker Change: Our next question comes from Ananda Burrell with the company Loop Capital. Ananda, your line is now open.
Speaker Change: Dave, what's a good way to think about GQ gross margins?
in the context of your guide, and then...
Speaker Change: Just sort of the second one there. This is the second part of my first question. I have a follow-up question as well
Speaker Change: What's a good way to think about gross margins through the Blackwell cycle? This is obviously a key question for people.
Speaker Change: and they want to remove the concern off the table that there could be...
Speaker Change: material margin pressure through the Blackwell cycle. So those two, and then I have a follow-up. Thanks.
Speaker Change: Thank you for your question. For sure, when products become mature, like H100, H200, then we have to face price competition strongly.
Speaker Change: But for black whale, it doesn't matter if it's GB200 or B200.
Speaker Change: For sure, whenever there are new products, our margin will become much better, and especially talking about the cooling.
Speaker Change: We believe DLC, or overall deep cooling, max share, will grow all the way to 30% or even more in next year.
12 months.
Speaker Change: And in terms of deep cooling, in the last 12 months, I believe we have offered a majority.
Speaker Change: of Global Liquid Cooling. So when faced with a black whale opportunity, most of the customers, when they do go for liquid cooling, I believe we have a much better position.
Speaker Change: Can I just throw a point on there? Hey, look, let me just add that while many are focused, most of us are focused on the gross margins, rightfully so, but don't miss the critical point that we're driving operating margins above our targets, that translates into shareholder value.
Speaker Change: So Ananda, this is David. One thing I would add is if you look back...
If you look back...
to what happened with with H100 as Charles mentioned.
Supermicro was the company that had a stable platform.
and which became a market leader.
Speaker Change: and so that helped our margins as they crept up to, you know, 18.8. Now, of course, you know, we're targeting, we said we target 14 to 17, but, you know, the question is, you know, with, you know, to your point on Blackwell, you know, what will be, what will the competition be able to deliver?
Speaker Change: And I think that's going to be a big indicator of margins.
www.able.co.nz Copyright Able 2019
Speaker Change: We feel like we're in pretty good position because we've already been, yeah.
Speaker Change: Yeah, I appreciate that. I appreciate that, guys. And then the follow-up is just on the Rev Guide.
Charles, the $40 billion, so a couple things.
Speaker Change: You mentioned calendar year 25 could be similar to calendar year 24, which is about 40% growth.
Speaker Change: That would suggest maybe $8 billion on average in the September-December quarter of revenue. And then the $40 billion, the at least $40 billion for Fiscal 26.
Speaker Change: I guess. What's the thought process underpinning that $40 billion and those kind of rev quarters? And is it GPUs as well as custom ASICs as the TAM opens up? So just kind of a customer question there as well. Thanks. That's it for me.
Yeah.
Speaker Change: Yeah, thank you. Again, whenever there are new technologies, we have a good chance to grow, right? Kind of like this time, black whale, right? And kind of DLCC cooling. And again, we have much...
Speaker Change: 110% and this year basically we will grow about 60 something percent right so next year fiscal year 26 I believe 65% is a very conservative estimation
Speaker Change: Personally, I hope we can grow more than that, but we have to be conservative.
Thank you. Thanks, guys. Really appreciate it.
Thank you.
Speaker Change: Our next question comes from Sameek Chatterjee with the company J.P. Morgan. Sameek, your line is now open.
Sameek Chatterjee: Thanks for taking my question, and I have a couple of questions as well. Maybe just to start off, Charles, I think the last time you mentioned, which was in 2024, that we could expect sequential revenue increases.
Sameek Chatterjee: When I look back at it in hindsight, it looks like what derailed that sequential growth
To some extent was the product transition from NVIDIA.
Sameek Chatterjee: in going from one product generation to another, which also drove some change in customer behavior.
Sameek Chatterjee: As you're thinking about the revenue target here for $40 billion for fiscal 26, I mean, is there an underlying assumption that you won't see a similar customer behavior change towards the next generation product?
Sameek Chatterjee: As NVIDIA goes through a transition again in that time frame or is there something that I'm missing in that sort of overall product transition that we should expect from your GPU supplier and then a quick follow-up
Sameek Chatterjee: Yeah, I mean, for calendar 25, for example, I believe we should be pretty able to repeat 2023 history.
Thank you. Welcome. Welcome.
Sameek Chatterjee: H1N3 launch, and we are ahead of competition. So we grew very well. In 2025, we are facing the same opportunity now.
except...
Sameek Chatterjee: before our old air cooler, and now it's a dupli-cooler. And in terms of dupli-cooling, especially TLC, we have a major market share.
and we have a huge capacity.
Sameek Chatterjee: getting ready to deploy in high volume. So once black whale in volume production, I believe we will have a strong growth.
Sameek Chatterjee: And now we are just preparing, diligently preparing all our logistics.
Sameek Chatterjee: including the system enclosure, thermal solution for sure, GPU supply from our vendor NVIDIA. So we are well prepared and once logistic ready we are ready to
and Bram Popper Alkoruz.
Okay, maybe Charles will follow up on that.
Sameek Chatterjee: Plus, I mean, we are spending more effort in Asia and Europe now. In 2023-24, most of our markets are in the USA, but now our team in Asia and Europe are becoming much ready, much stronger to grow market share in Europe and Asia as well.
Speaker Change: When we look at that sort of 40 billion revenue target, how confident are you about achieving that revenue target with the current customer engagements that you have?
Speaker Change: relative to what you need in terms of additional customers or new customer engagements to get to that revenue that you're targeting. If you can share your thoughts on that, please. Thank you.
Speaker Change: In the last few years, our growth has been very strong, except for the 10K interrupt.
Michael Staiger, Charles Liang
and Cashflow won't be a problem anymore.
Speaker Change: So, product is strong, capacity here, customer is ready. So I believe $40 billion forecast is a relatively conservative estimation.
Thank you. Thanks for taking the questions.
Thank you for your question.
Speaker Change: Our next question comes from Rup Lu Bhattacharya with the company Bank of America. Rup Lu, your line is now open.
Speaker Change: Thanks for taking my questions. I have two. The first one is on gross margin.
Speaker Change: Overall, do you think industry margins are now under secular pressure, given more competition from other AI server manufacturers? And is liquid cooling really a competitive advantage which you can charge more for, or is that also becoming commoditized, since it looks like everyone seems to be offering their version of liquid cooling? So, David, how are you thinking about the long-term gross margin range for your business? And I have a follow-up on revenues.
Certainly. So what I would say about gross margins...
Speaker Change: are that, number one, what we count on, RuPlu, is being the first to market with the very best solutions.
Speaker Change: And so, you know, right now we have we have a shift.
Speaker Change: GV200, for instance, and we're very confident in its quality as a product, and that's really what helps to drive good margins.
Speaker Change: So it's not just liquid cooling, it's really stable systems that have high quality, high reliability and also really the best performance.
So I think that
Speaker Change: Our abilities in liquid cooling were already demonstrated in the prior quarters, and it's really our data center billing block solutions which give us...
I have a plan for the future.
Speaker Change: are one of those, where we offer a lot more solutions.
for the complete data center at all levels.
I think that's our moat, that's our advantage.
Speaker Change: Yeah, let me add a little bit. Okay, thank you. I'm going to... D-L-O-C, yes. Go ahead.
I hope we can do... Yeah.
Speaker Change: DLC, everyone talking about the DLC solution. But how many competitors really have a DLC people even in high volume? I guess it's very minimal. Last year, I believe we shipped at least 60% worldwide DLC solution. So that means those are competitors indeed. They are ready, but.
Speaker Change: They did not have experience yet. And talking about data center billing block solution, not many providers are able to provide on-site deployment.
and on-site cabling, on-site servicing.
Speaker Change: And now with DLC, with 150kW per rack, or even more power per rack, I believe the on-site equipment, cabling, service become a very important value to customers. And we as a company have exactly all our experience, all our successful stories.
Thank you for taking my questions.
Speaker Change: Okay, so for deep-seeking, I mean, for sure, the solar air can always be more efficient quarter out of quarter. So we know that. But industry's expense pretty depends on financial plan. So I believe the market size won't shrink because of deep-seeking.
Speaker Change: In terms of enterprise, we have been in the enterprise market for more than 10 years.
Speaker Change: and our team in enterprise has been much stronger than before ever, especially with our service team, management software, and end-to-end.
Speaker Change: Data Center Solution, I believe it's the right time for us to grow quickly in the enterprise segment.
Okay, thanks for all the details. Appreciate it.
Speaker Change: Thank you. Our next question comes from Nihal Chokshi with the company Northwind Capital Markets. Nihal, your line is now open.
All right, thank you.
Speaker Change: backlog tends to follow the, you know, the chip cycle. And so, you know, when you have, when you have new chip solutions coming out, you'll see, you'll see backlog start to build.
as solutions become dependable and reliable.
Speaker Change: and then they'll tail off, you know, as the products mature.
Speaker Change: And so with the expectation of some of the new chips coming out, we believe that you'll see growing backlog industry-wide.
Speaker Change: Thank you. And then I apologize in advance, this question is going to sound a bit Turkish, but you know, Charles, you characterize a 40 billion dollar target at 60% year-over-year growth, and given that fiscal year 25 is going to be around 60% year-over-year growth, and
You know
Thank you.
Speaker Change: likely impacted by the $10K delay. Therefore, 60% year-over-year growth for fiscal year 2025 is potentially conservative. But, I mean, is historical year-over-year growth really a good indicator of future demand?
Speaker Change: have you looked at the actual like pipeline of demand and said yep we believe that this is the how big is the pipeline and this is a reasonable conversion rate and therefore 40 billion is indeed very reasonable?
Speaker Change: Yeah, very good question. From both, I mean, we vetted the business and from all different dimensions, right? I mean, from our historical growth.
Speaker Change: Last few years, we have been growing more than 60% year-over-year, basically. Except this year, right, according to the year, because of the 10Ks today, and we have some cash flow constraint. So we grew, we may grow only about 60%.
Speaker Change: But other than that, I believe looking forward next few years, our growth every year should be more than 60%.
Speaker Change: And second, from a customer demand, from a customer backlog, from a customer commitment, sales commitment, it looks like $40 billion is relatively a very conservative target.
Speaker Change: Great, thank you. And if I might squeeze one more in. I'm sorry, but I'm not quite getting what you mean by data-centered building block architecture. Can you give me a concrete example as far as what does that mean? Is it like basically the Kowloon Tower design or something else? Can you put a little more concreteness behind that?
Speaker Change: Okay, still a little bit confidential. But I'm happy to share. I mean, it's like I was...
Speaker Change: Rackscale Building Block Solution. Customers want to build in their racks, we have everything for them.
Speaker Change: Sam Hsing, a customer who wants to build their data center, we will have everything for them. And today, we offer more and more key components, for example, liquid cooling, de-oxidation,
Speaker Change: a kind of deep cooling pump, right? And water towel, right? Dry towel, water towel. And then...
Speaker Change: All are kind of... I may be too new to share. I mean, anyway, all our people build a data center, need those key components. We try to provide all of them.
Speaker Change: including software, including management tools and experience. So, I hope customers can one-stop-shop with Supermicro to build their data center, make their data center time-to-market much quicker, and also cheaper, and lower cost, right, and quicker to build their data center.
And that's our consumption.
Thank you. Better quality.
Thank you.
Speaker Change: Our next question comes from John Taewonjin with the company CGS Securities Inc. John, your line is now open.
Hi. Thank you for taking my question.
Speaker Change: Charles, I was wondering if you could break down the factors, or maybe David, you know, driving the reduction in the 25 revenue guidance. How much is maybe pricing related? How much do you think is related to, you know, delays or availability of Blackwell?
Speaker Change: Yeah, I would say, John, that probably the biggest factor was just the delay in new technology because we were, when you think about it, we were all set to go. We were all set to ship, you know, with liquid cooling. We were ready.
Speaker Change: and, you know, but the problem was is that the, you know, not everything else was. So, that was certainly a huge impact. I think, you know, obviously 10K delay was a distraction.
But it's more about...
technology for us because
We count on being early to market.
Speaker Change: And so, you know, that's what creates the big chumps that we have.
Speaker Change: you know, the kind that took place last year from Q3 to Q4 when we went up 1.5 billion in one quarter. But, you know, remember, we finished, we finished
The Four Quarters
that ended June 30th at $15 billion.
Speaker Change: And now here we are, two quarters later, and now we're at a trailing four quarters of over $20 billion.
Speaker Change: So, you know, we have the dynamic to accelerate really well when the technology is there that customers want.
Speaker Change: And I think if you look at all of the spending predictions and intentions that are out there, you can see the money being put in place.
Speaker Change: To spend money on data centers and on data center solutions, and that's why that's why we're here
Speaker Change: Got it, thank you. And then can you talk about your capital needs and cash flow expectations going forward as you, you know, start getting into quarters, maybe generating 8 billion in revenue, 12 billion in revenue, you know, as implied by that 40 billion target?
Yes, so we're working on a number of different fronts.
Speaker Change: to raise additional capital, which we just did with some of the investors that put money into us previously with our bonds. So they came back.
Speaker Change: to generate additional funding for our growth. But, you know, we'll, just like we're preparing on the engineering side,
will also prepare on the capital side.
The loan should be available very soon for us.
Speaker Change: Yeah, we have we have a very unlevered balance sheet, you know, as you know right now, because we we paid down, we paid down a lot, you know, some of the bank debt. And so we we've paid down a lot of accounts payable. And so we're we have a very, very healthy balance sheet.
https://www.youtube.com.au
Got it. Thank you.
Moderator: Our next question comes from Aaron C. Rikers with the company Wells Fargo. Aaron, your line is now open.
Moderator: Yeah, thanks guys for taking the questions. Most of them have been answered or asked and answered, but I've got a couple here real quick.
Moderator: First of all, Charles, I just want to make sure I'm clear, you know, Blackwell and the product cycle. Are you shipping the GD200, the NVL-72 today?
Moderator: and or if not, you know, is that is that a significant factor?
Moderator: as far as volume shipments in your current quarter guide, and I've got a few others.
You know, GB...
Moderator: In R72, our position is similar to other competitors, right? So we have a solution for it already. Now, once we have support from NVIDIA, we can ship.
Other than that, our B213, indeed, I believe,
Moderator: is some of our advantage because we have all different kind of optimized platform, especially for 4U DLC. We have lots of demand there and we are ready to ship in volume about now.
Speaker Change: And D, you know, C, I, D, you know. That's perfect.
Yeah.
Sorry, go ahead.
Speaker Change: Yeah, I said DLC, as you know, last year, Chiffon Macaron, we shipped more than 3,000 racks to the market.
Speaker Change: I believe that's about 70% of the whole market, whole DLC market last year. So we have a much better experience, much better solution. So when customers are looking for GP213, for B213 duplicating, I believe we are in a much better position than the industry's average, for sure.
Speaker Change: How much of an impact would utilization rates have on risk margin? How do we isolate that impact?
Speaker Change: We did not provide that, but basically, for sure, the impact may be 20, 30 points.
Speaker Change: In the past, we've said if we can manufacture in Asia, we predicted that we would be able to save one to two points on the margin, Aaron.
Speaker Change: We, you know, back to, let's see, and then you had another question on gross margins to walk you from Q, Q, back through Q2, and because, again, we forecast back in November that we would be down 100.
Speaker Change: basis points. And that was because of the, you know, the customer mix and products that we saw shipping out. Remember, we're working on, you know, we're working on more end of life
you know.
products
Speaker Change: which have become more competitive as customers are waiting for the new platforms by all the different technology companies to come out.
Speaker Change: from Intel, AMD, and NVIDIA. So there is, of course, more people that are offering solutions.
Speaker Change: But as Charles mentioned, if you, you know, going into the B200s and the GB series,
Speaker Change: You know, this is going to be perhaps a different game.
Speaker Change: And so that's my commentary on how we got to the change in margin. And we had some extra expenses as well because we're spending more on R&D right now.
Speaker Change: and specifically in buying, you know, some of the, you know, the advanced, you know, chips as we refine our engineering and production.
Speaker Change: to get ready for what we consider will be very large shipments coming up.
Speaker Change: Thank you, guys. Yeah, on-site deployment, cabling, and service. That would be another differentiation with other competitors.
Speaker Change: Our next question comes from Quinn Bolton with the company Needham and Company. Quinn, your line is now open.
Quinn Bolton: Sounds like you guys are ready to go, but the biggest gating factor is just support from NVIDIA. Do you guys have a forecast from NVIDIA, you know, when you think you're going to start to see, you know, supply of the GPUs so that you can ship the NVL72 or is visibility still pretty low on availability of the GPUs?
Quinn Bolton: We already proved pretty much everything and now just waiting for and we are in some allocation some volume but the volume demand is way much bigger so we are waiting for more allocation so that hopefully very soon we can ship in a much higher volume
Speaker Change: Yeah, so it's just waiting for the allocation sounds like is the gain factor got it Thanks, and then maybe just a follow-up longer-term question Charles
Speaker Change: On this deep-seek, you know, impact on the industry certainly sounds like we'll get more deployment of AI models, which probably says we get more inferencing. To the extent that you see more inferencing infrastructure put in place, it's probably more fragmented.
I assume that that's good for Supermicro because it's...
Speaker Change: less concentrated, probably more variability of systems. But can you spend a second on whether you think a shift towards inferencing is a positive for the business? Is it neutral? Is it negative? Thanks.
Speaker Change: Yeah, it's very positive. When invention becomes more popular, it becomes...
Speaker Change: All the Y trend, right? I mean, before, I mean, they may have 300 buyers.
Speaker Change: basically, but with invention getting popular, AI getting popular, I believe very soon there will be thousands of companies that need to buy AI equipment.
our subbies.
Speaker Change: So we are very happy to see the market size is growing and many more customers are asking for a product, asking for a total solution.
and with our application Optimize.
Speaker Change: We are able to service a variety of customers in different verticals. So that's another advantage we will have.
Thank you, Charles.
Thank you.
Speaker Change: Our next question comes from George Wayne with the company Barclays. George, your line is now open.
George Wayne: Hey guys, thanks for taking my question. Hey Charles, can you talk about your current pipeline in terms of the mix of sovereign AI? Especially versus three months ago, can you talk about whether you are seeing an incremental kind of pipeline build from the sovereign AI of the world?
George Wayne: Yes, it's also increasing. I mean, before, most of the demand are USA and some other large country only. But now, yes, we see many more countries going to build their own AI infrastructure.
especially for solving AI and invention as well.
George Wayne: So the demand is kind of worldwide now, and it's a very exciting moment to see the AI boom continue to be popular worldwide.
Speaker Change: Just a quick follow-up, if I can. As we, you know, potentially heading to the GV300 era later this year, or 2026,
you know, the supply chain chatter also.
Speaker Change: most of the open standards as NVIDIA kind of will potentially unbundle the supply chain. So that could potentially add more customization. So maybe directionally, can you talk about the implication to Supermicro, especially for the margin? Do you think that you can add a bit more customization, hence more margin, as we're heading to GB300 or it's non-material?
Speaker Change: Yeah, technology is always unlimited. People always come up with some idea and some ideas.
Speaker Change: demand for T1 vertical for T1 application. So we never feel our engineers have nothing to do.
Speaker Change: So always do not have enough engineering manpower. So even today, we still continue higher engineering very aggressively worldwide. So there are lots of room to optimize for different customers.
Speaker Change: and especially for invention right so I still lots of room to differentiate
Speaker Change: and especially when we get into what they're asking in the opinion poll solution.
Speaker Change: Now we are growing our Mark 10 data center infrastructure to provide a home solution for people who need to build a data center. So I see our Mark 10 also faster growing.
Thank you.
Speaker Change: Thank you. Ajay, we're out of time. Thank you for attending the Supermicro conference call and we'll catch up with you soon.
Thank you.