Q1 2026 Super Micro Computer Inc Earnings Call
Speaker #1: Thank you for standing by . My name is Matt and I'll be your conference operator today . At this time , I would like to welcome everyone to the Super Micro Computer, Inc. Business Update call with us today are Charles Liang founder , President , and Chief Executive Officer David Wiegand , CFO , and Michael Senior vice president of corporate Development .
Speaker #1: All lines have been placed on mute to prevent any background noise . After the speakers remarks , there will be a question and answer session .
Speaker #1: If you would like to ask a question , please press star one on your telephone keypad . Thank you .
Speaker #2: Thank you . Matt . Good afternoon and thank you for attending . Call to discuss the results for the first quarter and full fiscal year 2026 , which ended September 30th , 2025 .
Speaker #2: With me today are Charles Liang founder , chairman , Chief Executive Officer and David Wiegand , Chief Financial Officer . By now , you should have received a copy of the press release from the company that was distributed at the close of regular trading .
Speaker #2: Is available on the company's website . As a reminder , during today's call , the company will refer to a presentation that is available to participants in the Investor Relations section of the company's website under the events and Presentations tab .
Speaker #2: We've also published management commentary on our website . Please note that some of the information you'll hear during our discussion today will consist of forward looking statements , including , without limitation , those regarding revenue , gross margin , operating expenses , other income and expenses , taxes , capital allocation , and future business outlook , including guidance for the second quarter of fiscal 2026 and the full fiscal year 2026 .
Speaker #2: These statements and other comments are based on management's current expectations and assumptions , and involve risks and uncertainties that could cause actual results or events to material , materially differ from those anticipated , and you should not place undue reliance on forward looking statements .
Speaker #2: You All of these documents are available on the Investor Relations page of our website . We assume no obligation to update any forward looking statements .
Speaker #2: can learn more about these risks and uncertainties in the press release we issued earlier this afternoon . Our most recent 10-K filing for fiscal 2025 and other SEC filings .
Speaker #2: Most of today's presentation will refer to non-GAAP results and business outlook. For an explanation of our non-GAAP financial measures, please refer to the company's accompanying presentation or to our press release published earlier today.
Speaker #2: The non-GAAP measures are presented as we believe that they provide investors with a means of evaluating and understanding how the company's management evaluates the company's operating performance .
Speaker #2: These non-GAAP measures should not be considered in isolation from as substitutes for or superior to financial measures prepared accordance with US GAAP . In addition , a reconciliation of non-GAAP to most directly comparable GAAP results is contained contained in today's press release and supplemental information attached to today's presentation .
Speaker #2: At the end of today's prepared remarks , we'll have a Q&A session for sell side analysts . Our second quarter fiscal 2026 quiet period begins at the close of business Friday , December 12th , 2025 .
Speaker #2: And with that , I will now turn the call over to Charles . Thank you . Michael , and thank you all for joining .
Speaker #3: Today's call . Fiscal 2026 is off to a strong start as we continue our early phases of the dynamic growth trend . Demand for advanced AI compute and infrastructure solutions is evolving rapidly and Supermicro is uniquely positioned to lead with innovative , high quality and value driven solutions , including our data center , building solution .
Speaker #3: The major highlights this quarter continued to be our industry leading AI portfolio . Our Invidia product require hardware based Gb3 product line . Now have more than $13 billion in back orders , including the largest deal in our 32 year history , reflecting the tremendous growth potential in hyperscale and enterprise deployments .
Speaker #3: P300 platforms are also gaining strong traction following the success of our P-200 products . As we continue to serve as the leading supplier , as noted in our Pre-announcement , approximately 1.5 billion in revenue shift from the September quarter to December quarter due to last minute calculation upgrade from our customers with expanded volume .
Speaker #3: shift were largely caused by the complexity of these new GPU rides , which requires an intricate integration , testing and validation , making them more time , more time consuming to source and build with production now quickly ramp The This up this adjustments are eventually strengthened .
Speaker #3: Our growth trajectory and support an even higher full year outlook . Our product portfolio continues to lead the industry . In addition to Nvidia , Gp300 and B330 , we are shipping RTX Pro AMD Mi3 5355 x platforms in volume to power generative AI , large language models , inference and HPC workloads .
Speaker #3: To continue technology leadership in AI platforms , we are preparing for Nvidia , Ruby and AMD Helios launches in calendar 2026 . AI solutions are also gaining more traction for real time processing in manufacturing , telecom , retail and autonomous environments .
Speaker #3: While deeply focused on training and generative AI , we also see rapid growth in industry specific model 6204 and . Authentic AI borrowed inference and AI at the edge , which that we are seeing accelerating demand across cloud , enterprise and solving as the upgrade and expand the data centers for AI , our DC helps customers accelerate and optimize customers transformation .
Speaker #3: DC is critical to our future success in rapid planning , design , and deploying deployment of AI ready data centers and AI factory .
Speaker #3: While optimizing performance and minimizing power consumption through our advanced DLC and DLC to technologies and high vision subsystem . Super Micro Computer, Inc. block approach .
Speaker #3: Now go beyond service and rack configuration . It's optimizing the entire data center for customer with product life cycle completion from 18 to 24 months to as short as 12 months , customers need rapid innovation , deployment and time to online TCP delivers rack scale , plug and play servers , storages , DLC systems and to a heat exchangers filter , power shelf , battery backup , water towers , dry towers , network and cabling management software and services .
Speaker #3: We have begun shipping DHCP orders to some key customers and expect many more data centers to follow suit. This solution is becoming a critical part of our business strategy, driving future growth and profitability.
Speaker #3: We are investing now and over the next few quarters we will share more detail on our expending DC portfolio and upcoming release . To meet this unprecedented demand , Supermicro is executing and aggressive global expansion .
Speaker #3: Our Silicon Valley for CDP remains the foundation of US operations , delivering time to market quality and security for customers . We have quickly expanded our footprint in San Jose recently , and our soon adding New North America sites to support the growing requirement for major CSP and .
Speaker #3: This investment underscores our commitment to America innovation . Job creation and supply chain designs internationally , new production facility in Taiwan . The Netherlands , Malaysia and soon the Middle East are coming online to enlarge our production capacity , enhancing cost competitiveness and meet regional solving .
Speaker #3: AI requirements . With 52MW of power capacity in place , we are on track to scale production to 6000 racks per month , including 3000 DLC racks within this fiscal year .
Speaker #3: While these expansion requires upfront investment , there are critical to sustain long term growth and deliver performance , Tito . Time to online and cost efficiency at a scale .
Speaker #3: In summary , Supermicro is evolving into a leading AI platform and data center infrastructure . Total solution company . Why we continue to grow our server storage rack and IoT systems .
Speaker #3: Our Dcbs delivers unique advantages . That set up , set us apart are designed to reduce customer deployment complexity , accelerate time to market , time to online and lower total cost of ownership .
Speaker #3: Combined with our broad supply chain , deep customer relationship and expanding partner ecosystem , this capability positions us to become the leading data center infrastructure company , reaching the largest scale .
Speaker #3: Orders and continuous investment in customers that people and processes put us from the on ahead . Well , competition remains intense . We are focused on capturing the tremendous AI infrastructure market share , some large scale views have pressure margin in apart in the near term , but our scale innovation and differentiation .
Speaker #3: Differentiates DCB offerings , strengthens our market leadership and position us to deliver long term profitability and shareholder value . Looking ahead , we expect to ship at least 10.5 billion in the December quarter , depending on the supply and production capability , readiness .
Speaker #3: We anticipate a sequential growth through fiscal 2026 , giving us confidence in achieving at least 36 billion in revenue for the year . This is a truly unique time for Michael , and I am super excited about the opportunity ahead .
Speaker #3: I look forward to sharing our progress with you next quarter . Thank you . Now I will turn it over to David .
Speaker #4: Thank you Charles . Q1 Fiscal Year 26 revenue was $5 billion , down 15% year over year and down 13% quarter over quarter compared to our guidance of 6 billion to 7 billion .
Speaker #4: We had a record level of new orders exceeding 13 billion , but a customers custom rack platform upgrade for recent large design win and customer logistics factors delayed some shipments to Q2 .
Speaker #4: We expect customer demand to remain robust for the remainder of fiscal year 2026 . AI , GPU , GPU platforms , which represented over 75% of Q1 revenues , continue to be the key growth driver during Q1 .
Speaker #4: The enterprise channel revenues totaled 1.5 billion , representing 31% of revenues versus 36% in the prior quarter . This was down 51% year over year and down 25% quarter over quarter .
Speaker #4: The OEM appliance and large data center segment revenues were 3.4 billion , representing 68% of Q1 revenues versus 63% in the last quarter , up 25% year over year and down 6% quarter over quarter .
Speaker #4: The emerging 5G telco edge IoT segment contributed the remaining 1% of Q1 revenues for Q1 fiscal year 26 , we had 210% plus customers by geography , the US represented 37% of Q1 revenues , Asia 46% , Europe 14% , and the rest of the world 3% .
Speaker #4: On a year over year basis , US revenues decreased 57% , while Asia grew 143% . Europe increased 11% , and the rest of the world increased 56% .
Speaker #4: On a quarter over quarter basis , US revenues declined 16% . Asia decreased 4% , Europe decreased 16% , and the rest of the world declined 48% .
Speaker #4: Asia grew significantly on a year over year basis as an existing US based customer opened a large data center in Asia . Q1 non-GAAP gross margin was 9.5% versus 9.6% in Q4 Q1 .
Speaker #4: GAAP operating expenses were 285 million , down 10% quarter over quarter and up 7% year over year . On a non-GAAP basis , operating expenses were 203 million , which was down 15% quarter over quarter and down 2% year over year .
Speaker #4: Operating expenses were down quarter over quarter due to high marketing expense reimbursements and lower discrete R&D expenses . non-GAAP operating margin for Q1 was 5.4% , compared to 5.3% in Q4 .
Speaker #4: Other income and expense in Q1 totaled a net income of 26.3 million , reflecting 51.2 million in interest income on higher cash balances and FX related gains partially offset by 24.9 million in interest expense primarily related to convertible notes .
Speaker #4: The tax provisions for Q1 was 40 million on a GAAP basis , and 59 million on a non-GAAP basis , resulting in a GAAP tax rate of 19.3% and non-GAAP tax rate of 20% .
Speaker #4: Q1 GAAP diluted EPs was $0.26 compared to guidance of $0.30 to 42% , $0.42 , and non-GAAP diluted EPs was 35% , versus guidance of $0.40 to $0.52 .
Speaker #4: The GAAP fully diluted share count increased sequentially from 625 million in Q4 to 663 million in Q1 , and non-GAAP share count increased from 638 million to 677 million over the same period .
Speaker #4: Cash flow used in operations for Q1 was $918 million, compared to cash flow generated from operations of $864 million in the prior quarter, Q1.
Speaker #4: Operating cash flow was impacted by lower net income and higher accounts receivable and higher inventory levels . As we prepared for a strong Q2 with higher working capital needs .
Speaker #4: Q1 closing inventory was 5.7 billion , which was up from 4.7 billion in Q4 . CapEx for Q1 totaled 32 million , resulting in negative free cash flow of 950 million for the quarter .
Speaker #4: During the quarter , we executed a $1.8 billion AR facility that enables the non-recourse sale of certain qualified accounts receivable , providing flexibility to strengthen our working capital on a discretionary basis at quarter end , our cash position totaled 4.2 billion , while Bank and convertible note debt was 4.8 billion , resulting in a net cash and a net debt position of 575 million , compared to a net cash position of 412 million in the prior quarter .
Speaker #4: Turning to the balance sheet and working capital metrics , the Q1 cash conversion cycle was 123 days , compared to 96 days in Q4 .
Speaker #4: Days of inventory increased by 30 days to 105 days , versus 75 days in the prior quarter days . Sales outstanding increased by five days to 43 days , versus 38 days in Q4 , while days payables outstanding increased by nine days to 26 days versus 17 in Q4 .
Speaker #4: Now , turning to the outlook for Q2 fiscal year , fiscal year 26 . We expect net sales in the range of 10 billion to 11 billion .
Speaker #4: GAAP diluted net income per share of $0.37 to $0.45 . And non-GAAP diluted net income per share of $0.46 to $0.54 . We expect gross margins to be down 300 basis points relative to Q1 fiscal year , 26 levels .
Speaker #4: Given the fast moving dynamics in the end markets , we wanted to provide the framework of the factors impacting our gross margins . First , customer and product mix , including a strategic Q1 large design win , which includes higher costs and a lower margin as we ramp a new Mega-scale GB 300 optimized rack platform .
Speaker #4: And second , we are making greater investments customers to ensure their success with additional AI engineering support and services to drive future growth .
Speaker #4: We believe that our investment in supporting these customers is leading to other large global design wins our long term goal is to expand revenues in higher margin segments such as data center , building block solutions , emerging global CSPs , sovereign megaprojects , Enterprise data with new , IoT and telco Solutions , and software service offerings .
Speaker #4: We do expect to benefit from some economies of scale driven by higher revenue levels , a cost effective global manufacturing footprint , including our Our Malaysia facility , and continued customer diversification as we complete this mega cluster , we expect to leverage these investments and are establishing the most advanced AI service capabilities in the market .
Speaker #4: As we go through this transition . This transition , we expect our gross margins to improve GAAP operating expenses are expected to be around 326 million in Q2 , which includes approximately 76 million in stock based compensation expenses that are excluded from non-GAAP operating expenses .
Speaker #4: The outlook for for Q2 of fiscal year 2026 fully diluted GAAP EPs includes approximately 64 million in expected stock based compensation expenses , net of tax effects of 18 million , which are excluded from non-GAAP diluted net income per common share .
Speaker #4: We expect other income and expenses , including interest expense , to result in a net expense of approximately 27 million . The company's projections for Q2 fiscal year 26 , GAAP and non-GAAP diluted net income per common share assume a GAAP tax rate of 15.6% , a non-GAAP tax rate of 16.8% , and a fully diluted share count of 666 million for GAAP and 680 million shares for non-GAAP capital expenditures for Q2 , is expected to be in the range of 60 to 80 million for the full fiscal year 2026 .
Speaker #4: We are raising our outlook to a net sales of at least 36 billion versus prior guidance of at least 33 billion . Michael , we're now ready for Q and A .
Speaker #4: .
Speaker #2: Great . Matt , take some questions . .
Speaker #1: If you'd like to ask a question , please press star followed by one on your telephone keypad . If for any reason you would like to remove that question , please press star followed by two again to ask a question .
Speaker #1: Press star one . As a reminder , if you're using a speakerphone , please remember to pick up your handset before asking your question .
Speaker #1: We will pause here briefly as questions registered . First question is from the line of Sam Chatterjee with JP Morgan . Your line is now open .
Speaker #5: Hi , this is MP Chatterjee . I just wanted to ask my first question on the the revised guidance between like availability of chipsets as and market or market share expansion .
Speaker #5: What do you think is the the more of a driver for increased revenue guidance ?
Speaker #3: Yeah . Invidia back . We are ultra is getting available so we are receiving more and more allocation from them . And preparing for a huge volume to ramp up staff from this quarter .
Speaker #3: That's why this quarter we estimate at least $10.5 billion . And looking forward , I mean , with our DC , we will focus on both .
Speaker #3: One is continuum move from higher revenue . The other direction is more value to the market , including data center total solution . With our DC .
Speaker #5: Thank you . As a follow up , I just wanted to ask on DC like I think you already started shipping those solutions and like when do you think the DC , DCB will become material enough to actually impact the gross margins ?
Speaker #5: And then my other question is like , are you any thoughts on initial feedback from customers ? And then also any any thoughts on the competition which you are seeing relative to DC ?
Speaker #3: Yeah . Thank you for the question . Yes , DC has been a very welcome . We have a some current large account already .
Speaker #3: Order some of the key DC components and we expect more and more customers will commit to our DC . The ideal like what we share is to speed up customer to deeply build a data center , save their time to time to online .
Speaker #3: Also make power more efficient , save money overall , build a more solid data center and the profit margins are much higher in the industry .
Speaker #3: For data center infrastructure . Basically , the business is more than 20% of margin and we are very excited for that product line to be getting available .
Speaker #3: And I believe it will very soon .
Speaker #5: Thank you . Thank you .
Speaker #3: Thank you .
Speaker #1: Thank you for your question . Next question is from the line of Assia Merchant with Citigroup . Now open .
Speaker #6: Great . Thank you for taking my question here . This is a order of pipeline that you guys talked about . This pretty strong .
Speaker #6: And so if you could help us understand , you know , what's what's the components that are contributing to such a strong order outlook that you have embedded into your guidance ?
Speaker #6: And if I may , you know , you guys talked a little bit about or about this revenue guide that you guys are exceeding sequential growth expected post fiscal to Q if you can just also help us understand how we should think about gross margins as we proceed through the year and the OpEx to support such a strong revenue outlook .
Speaker #6: Thank you .
Speaker #3: Yeah , I mean , GPU for sure contributed most revenue , kind of like Black Whale , Altra and kind of like a AMD Mi3 5355 and product .
Speaker #3: We are be 300 . And RTX right . So indeed a lot of strong product line driving our revenue and at the same time , again for the best interest to our customer , we try to provide a data center end to end solution , including DHCP , including management software , on site deployment and service .
Speaker #3: So to put in a one stop shopping for customers , advantage and also grow our profit margin . And David assumption for long term .
Speaker #4: Sure . Okay . Yeah . So on the gross margin question , we we are we're going into a quarter where we are ramping one of the largest clusters in the world .
Speaker #4: We we're ramping a new a new product line at , at mega scale . And so therefore we we're being a little conservative on the margin because we will have a higher costs as we as we , we ramp up production and shipment .
Speaker #4: So we we're just giving guidance for one quarter out . But we did mention that , you know , as we as we go on throughout a future quarters , we're expecting to improve for the reasons that we we laid out on the opex side .
Speaker #4: You can tell from looking at our historically , we are , you know , that's sub 5% opex and we expect that to continue .
Speaker #4: But we we will we will continue to increase our opex in order to strengthen our infrastructure .
Speaker #3: Yeah . I'd like to add two more area . What ? Yeah , one area is traditionally our revenue was about 5 to $6 billion quarterly .
Speaker #3: And now we are growing to $10 billion quarterly . So that for sure increase short term challenge . And that's why we have to leverage USA , Taiwan , Malaysia facility and that kind of involve hiring lots of new people , train , train our people .
Speaker #3: And add facility. But once this much higher capacity facility is already in this quarter, December quarter, we will be able to service large customers in the USA, Asia, and Europe. We are truly a global major supplier.
Speaker #3: And by that time for sure , our resource leverage will become much more efficient . And second is our DCP is getting mature and getting ready to service more customer to bring more value to customer .
Speaker #3: And that, I believe, will grow our profitability.
Speaker #6: That's great . If I could just on the orders that you talked about 13 billion . I know you provided it as a chipset level .
Speaker #6: I think I was looking for just customers that are constituting that 13 billion . If you can just share some insights into , you know , how percentage of customers that are in their that contributed to such a strong order book for 13 billion .
Speaker #6: Thank you .
Speaker #4: So they constitute some of the best customers in the world . I'll say that we had we had 210% customers this year . We ended last year with 410% customers .
Speaker #4: We always welcome new large customers and but we don't we don't have any . We usually don't talk specifically about individual customers .
Speaker #3: Yeah , but they are really a high profile , high value partner for long term . That's why we do such a big effort to greatly increase our capacity to support them .
Speaker #3: There are some of them . So we are very happy to enhance the support to those high value partner .
Speaker #6: Great . Thank you .
Speaker #1: Thank you for your question. The next question is from the line of Ananda Baruah with Loup Capital Open.
Speaker #7: Yeah . Good afternoon guys . Thanks for thanks for taking the question . A couple , if I could . Charles , the midpoint of the guide for December is 10.5 billion .
Speaker #7: And the guide for the updated guide for the fiscal year is at least 36 billion . And so if I model out 10.5 billion for each March in June , I get the sort of just over 36 billion .
Speaker #7: And you're talking about a lot of new 13 billion in GB , 300 product wins , a lot of good activity going forward .
Speaker #7: So I guess the question , my question , Charles , is first one is are you being conservative ? Is there conservatism baked in to the implied march in June quarters , or should we expect some flattening out of revenue in the coming quarters ?
Speaker #7: And then I have a follow up . Thanks .
Speaker #3: Yeah . Thank you for the question . Yeah . This is the first time we grow our revenue to above more than 10 billion a quarter .
Speaker #3: So we are very excited about it . So now we are extend the expand our capacity global and train our people and have a lot of ready .
Speaker #3: So from now on we are ready to be a really a big supplier around the world . And we well , getting mature and era quality , everything is promising at this moment and so we feel very excited to to have at least 20 , $36 billion .
Speaker #3: And hopefully it's a very conservative number . And at the same time , we are doing our to grow our dkb's total solution , because that's the unique data center infrastructure tool to help customer build a data center quicker , better , safer energy and save money .
Speaker #3: So overall , I believe we are BCB become a more mature . Our profitability will improve .
Speaker #7: And Charles , do you I know we're talking fiscal year
Speaker #7: . We're you know we're best talking fiscal year expectations . But do you do you anticipate the strength to continue through the calendar year ?
Speaker #7: There's been a lot of large , large deals with NIO clouds announced lately with large AI labs and hyperscalers . And that's your sweet spot customer base than NIO cloud .
Speaker #7: So should we anticipate this kind of strength without giving you a guide ? But good to strength continue through the balance of the fiscal calendar year .
Speaker #3: Yeah . Indeed . Our capacity is in different scale now , as you know . Right . So 36 billion is a very conservative number .
Speaker #3: So we believe we will continue to grow quickly , continue to lead the market . We should not just technology but also the market share .
Speaker #7: I appreciate that , Mike . Just one quick clarification with with with David here . David . Just see your prior comments about about gross margin improvement through the year .
Speaker #7: Is that to say that December quarter is the low watermark gross margin quarter for the fiscal year ? Thanks . Thanks . That's it .
Speaker #4: Yeah , that's a fair . We're we are , as I mentioned , you know , this is a a quarter of first impression for us on standing up .
Speaker #4: You know doubling our revenues in one quarter . And so we're we're doing everything we can to improve our margin . But we're not making forecasts out beyond December quarter .
Speaker #7: Appreciate it . Thanks a lot . Thanks , guys .
Speaker #1: Thank you for your question . Next question is from the line of Ruplu Bhattacharya with Bank of America . Your is now open .
Speaker #8: Hi. Thanks for taking my questions. David, can you remind us how much total revenue your manufacturing footprint can support today?
Speaker #8: And when it's fully utilized, what would that number be, and at what point do you decide to add more capacity, such as adding a new plant?
Speaker #8: And if you can weave in any update to the Malaysia plant , is that now building racks and what's the status of that plant .
Speaker #8: And I have a follow up .
Speaker #4: Okay . So maybe I'll let Charles talk about capacity . But we've we've mentioned that we have a rack of 6000 racks per month worldwide .
Speaker #4: And so I don't think that we have spoken as to what that value is , but I can say that Malaysia , we are we are starting to stand up more in terms of their their production .
Speaker #4: And we expect it to to contribute greatly . Going forward . Let me see . Did I answer what other questions did I miss there ?
Speaker #4: Yeah .
Speaker #8: I again , just go ahead .
Speaker #3: Yeah I guess we tried to be a very , very conservative because we are back . Ultra is still brand new right . So we had to make sure we ship exactly the best quality , the most reliable system to customer .
Speaker #3: And that's why we spend a lot of time to burn in our solution. And that's why we build up such a huge capacity.
Speaker #3: It will time 3000 liquid cooling tower per month and in time 12 months a year and each rack , for example , $3 million .
Speaker #3: So the number is more than $100 billion , though . So yes , if everything smooths our capacity is like $100 billion range now .
Speaker #3: But you know , we try to be conservative and try to design carefully , burning carefully . Make sure all the product we deliver to the market exactly the best in the market .
Speaker #8: Right . Thank you for the details . There , kind of as a follow up , David , can I ask you have this large project ramping over the next several quarters ?
Speaker #8: How should we think about working capital and cash conversion cycle and free cash flow ? And at what point would you need to tap the markets to raise more capital ?
Speaker #8: Thank you .
Speaker #4: Yes . So we we have we've maintained about $5 billion on average . And obviously when you double your revenues , that's not going to be enough working capital .
Speaker #4: So as as we announced we did put an accounts receivable sale program in place , which allows us to factor our receivables up to $1.8 billion .
Speaker #4: And we're also we also have other other programs that are being put into place to , to meet our needs over the upcoming quarters .
Speaker #4: So we have no doubts about our ability to execute on those programs.
Speaker #3: Yeah . To . thank you very . We have a capability to service more customers with a much higher volume . But we will control the revenue based on our cash flow .
Speaker #8: Okay. Thank you for the details.
Speaker #1: Thank you . Thank you for your question . Next question is from the line of Neil Chokshi with Northland . Your line is now open .
Speaker #9: Yes . Thank you . Great demand . There . And understandable that wrapping up a new customer on the B300 . But I guess I think it was maybe a year ago , year and a half ago , that it became apparent that you guys were helping .
Speaker #9: XII Colossus , a colossal class one ramp up and that that was diluted to margins at that point in time . The rationale was to get this lighthouse customer and demonstrate the Supermicro engineering capabilities .
Speaker #9: Why is it necessary to basically do a rinse and repeat of this proof of supermicro engineering prowess ?
Speaker #3: You know, XII for sure. A very good partner, and whenever we have a chance, we try to work with them to learn something from them and to offer our best service.
Speaker #3: So yes , I will continue to be our important partner for long term and again , our capacity is huge and capability much bigger now .
Speaker #3: But we will be selective in growing our revenue based on our cash flow.
Speaker #4: And
Speaker #4: solutions and and AI data centers . So we we . Gladly stepped , you know , step into that role and we continue to get additional business .
Speaker #4: You know you know each quarter as a result of these these successful installations .
Speaker #9: Thank you very much .
Speaker #1: Thank you for your question . Next question is from the line of Quinn Bolton with Needham and Company . Your line is now open .
Speaker #7: Hey , guys . Hey guys . This is Matt Whalley on for Quinn . Thanks for letting me ask a question here . My first question is on on gross margins .
Speaker #7: I know you guys mentioned new facilities coming online and that possibly being a tailwind for gross margin over time . So we're just wondering if we can get some more color here on the timing and maybe just the overall impact of these , these new facilities would have .
Speaker #3: Yeah . As you know , the we need to invest in Malaysia and Taiwan in USA is , all location . So make sure we have a enough capacity to bring the best quality product , most optimal to the market .
Speaker #3: So in December quarter we spent a lot of our money to establish the foundation and going forward , now we have a those capacity and capability to grow much larger scale business .
Speaker #7: Great . Thank you . And then my follow up is on the super Micro federal program . You guys announced intra quarter . I was just curious if we can get some more color on this program .
Speaker #7: And maybe what led to the creation of it and how this initiative could position super micro for government contracts going forward . Thanks .
Speaker #3: Yeah , we at USA company and have a design manufacture service from Silicon Valley . So business should be a sweet spot for us .
Speaker #3: And now we have a more talent in service in the customer relationship in kind of support . So that's why we officially initiated a federal program .
Speaker #7: Thank you .
Speaker #1: Thank you for your question. The next question is from the line of John Tang with KGI Securities. Your line is now open.
Speaker #10: Hi . Good afternoon . Thank you for taking my questions . I wanted to expand on the prior question on just the case study with Colossus last year , and how you , you know , took the margin hit to land that customer and validate new technologies .
Speaker #10: Apparently you're doing it in this time with a bigger customer and at a lower margin . So I guess the question is philosophically and not asking for margin guidance , but how do you expect to grow the margin going forward from here ?
Speaker #10: And like how do you prevent that that from happening again ? Have you seen that stronger margin from follow on orders from the customers that you have validated your technologies to , or is that still something that that is on the come or hasn't been possible in this environment for whatever reason ?
Speaker #4: So there are several different initiatives . One , John , as you know , we get we get leverage off of the additional business that we have .
Speaker #4: We also , as as we've mentioned , are pursuing manufacturing in other geographies in order to serve local customers , which we believe will also lower costs .
Speaker #4: We also have added on data center building blocks , solutions , strategies , which we try to outline on every call the expansion of business .
Speaker #4: But it's really , as I mentioned earlier , it's the success and the market share that we're taking that are . sovereigns , but also new and emerging , you know , CSPs and neo clouds and And , and other other companies , enterprises coming to us because they recognize the super name .
Speaker #4: So we , we expect that that will overall raise our margin profile . And so we , you know , we we were doing everything we can to , to raise our margins .
Speaker #4: But yet we still want to be the premier provider of , of dcbs solutions . And so we we think that we have a good strategy in that regard .
Speaker #10: Okay . And just to clarify , have you seen the higher margins from customers where you , you know , maybe gave them better pricing or put you on investment into the initial orders as you get follow on orders and repeat business from them .
Speaker #4: Yeah . So every , you know , different customers have different margin profiles based on the amount of design that the Supermicro does for their solution , as well as the size of the order that they're placing .
Speaker #4: So as in any business , customer ordering $1 billion of product is is different from a customer ordering $10 billion of product . In in terms of of , you know , pricing strategy .
Speaker #4: So therefore , you know , we're very happy that the that the customers that we have brought into the supermicro portfolio of customers is really adding a lot of a lot of name value to our brand .
Speaker #4: And so that's what we're very pleased about . We're gaining market share and there's no question about that .
Speaker #10: Got it . If I could sneak in one more . Just how are you accounting for the risk of further push ups in the in the revenue outlook for the year just given you've had a couple of high profile ones already .
Speaker #4: Yeah . So , you know , the timing of you know , it's whenever you're dealing with very large projects , it's it's it's not always easy to to fit deliveries into , you know , into one three month time frame and there there are all sorts of , I mean , if you take a look at the thousands of , of and thousands of parts that we have to bring together to build our solutions and also on the customer side , the things that they're having to do to get their data centers ready .
Speaker #4: There's a lot of logistics that have to take place . It doesn't always line up perfectly with our quarter ends . So , you know , we've said as we continue to take large customers , it's going to be there's going to be things beyond our control .
Speaker #4: Which include customer readiness , which includes supply chain issues and etc. that will that may impact quarter to quarter results . But if you look at last quarter or if you look at the last two years , we went from from 7.5 billion to 15 billion to 22 billion .
Speaker #4: Okay . So that trend did not stop . We were adding $7 billion , you know , for the last two years , each year .
Speaker #4: Now , did those quarters all line up perfectly according to our plan , our annual plan , not always , but the trend is still there .
Speaker #4: And and we've increased our , our our revenues as well as our profits . And that's what we intend to continue to do .
Speaker #10: Got it . Very helpful . Thank you .
Speaker #1: Thank you for your question . Next question is from the line of Mark Newman with Bernstein . Your line is now open .
Speaker #9: Hi . Yeah .
Speaker #11: Thanks so much for taking the question . So they encouraging to hear about the large orders , $13 billion of orders . You mentioned .
Speaker #11: Just curious though , there's not a lot of historical data on orders or backlog and any color you can give on the size of the backlog of orders or how $13 billion compares to previous quarters .
Speaker #11: Just trying to understand that. What's the size of the WEV which we've got guidance on from some of your competitors in the past?
Speaker #11: And another follow-up question on gross margins as well.
Speaker #4: Okay . So first I'll answer that . Your first question on on historical data , we've it's been our practice not to talk about backlog .
Speaker #4: Well , we couldn't help but talk about the orders that we received . The new orders that we received , the new design wins because they did have some impacts in both the current quarter , as well as the December quarter .
Speaker #4: And so we we're speaking to those . But we're not we don't talk generic generally about backlog . So I'll take your second question on gross margin .
Speaker #11: So gross margins I mean , I know you've tried to stay away from long term guide , but previously I believe you've talked about this 15 to 16% long term target for gross margins .
Speaker #11: Is that still intact ? But pushed out , or is that now not up for grabs ? Just curious , what's the thinking on that ?
Speaker #4: Yeah . Back in 2000 , I think in 2021 , we came out with a 14 to 17% gross margin guide . That's probably what you're referring to as a as a long term target .
Speaker #4: You know , the the market has has changed . And so we we're in fact , we're right in the middle of a change right now as we as we move on to some new , very new dynamic platforms .
Speaker #4: And so we will give margin margin guidance , as we can see . We can see it clearly . You know , we we we we we're doing our best to raise margins in a very competitive landscape .
Speaker #4: You know . Yes , we would love to be back in in double digits , but we'll give we'll give guidance when we we can see it clearly .
Speaker #3: And hopefully is not too far away . Indeed , if we focus more on DC and enterprise accounts than double digit is easy for us .
Speaker #3: But at the same time we are very interested to support large , large scale CSP as well . And so far look like it's a great chance for us to service more large CSP customers as well .
Speaker #3: With large CSP customer and and the price target for our revenue will continue to grow very fast and double digit gross margin still in our plan is just take a little bit longer .
Speaker #11: Thank you very much . Appreciate it .
Speaker #1: Thank you for your question. The final question is from the line of Brandon Knispel with KeyBanc.
Speaker #12: Hi , guys . Thanks for squeezing me in and taking the question . You know , I think echoing the same comments around around gross margins , that's looking at the guidance .
Speaker #12: It really implies 0% contribution margin . And so , you know , I think revenue growth is great , but it's hoping you could really help us understand , you know , what's on the other side of this .
Speaker #12: Right . In terms of , you know , help us understand what this business looks like from like a free cash flow contribution standpoint .
Speaker #12: As you guys scale it because you can't just keep going down the path of , you know , lower and lower gross margins , especially when the the revenue coming in is at a 0% contribution margin , again , based on the midpoint of your guys's guidance .
Speaker #12: Thank you .
Speaker #4: So again , we we believe that we can't name all of our customers . But I can tell you that we are we are bringing in , you know , some of the some of the best companies in the world .
Speaker #4: And we we believe that our , our first to market practice of being able to bring , you know , reliable and optimized solutions quickly to market will will reward us well .
Speaker #4: And this has been our practice over the last 32 years . And so we we have we've we've consistently been first to market .
Speaker #4: We have we have shown that we can we can grow quicker than the market at large . And we've also shown that we can bring customized solutions which bring very good margins and very good , you know , returns to to the bottom line .
Speaker #4: So we we're staying with our game plan . You know , right now , you know , the market is is going through some new cycles with new , you know kind of exciting new platforms coming out .
Speaker #4: We believe that this will will pay off . So we're staying the course . and .
Speaker #12: Just .
Speaker #3: A bottom line . But we'll keep our bottom line . Make sure we continue to make a more total profit every quarter . Every year .
Speaker #3: With that , as the base for sure , when we have a chance to grow more market share , we try to grow more market share as well .
Speaker #3: But the bottom line is, make sure that every quarter, every year, we make more total profit.
Speaker #12: Got it . Thank you Charles and David , are there any like one time costs with the design wins and the upgrade push outs that that fell into this quarter in terms of like one time costs that you're absorbing in this quarter's gross margin guidance .
Speaker #4: So yeah , in terms of the the December quarter , yes , there are there's a lot of additional engineering costs . And and expedite costs and over costs that result from delivering , you know , kind of what would be twice our normal revenue run rate .
Speaker #4: And , and scaling a new technology at what we believe would be one of the largest clusters , you know , in the world .
Speaker #4: So , yes , there are a lot of extra costs that go into that and that we don't that we we believe will actually prepare us for the for the upcoming quarters .
Speaker #3: It's basically our first Jigawa project . And hopefully we can make it . Perfectly complete .
Speaker #12: Understood . Thank you very much .
Speaker #1: Thank you for your question . There are no additional questions waiting at this time , so I'll pass the conference back to the management team for any closing remarks .
Speaker #3: Thank you. Thank you, everyone.