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spk03: Ladies and gentlemen, thank you for standing by. And welcome to Supermicrocomputer Inc.' 's fiscal fourth quarter 2022 results conference call. All lines have been placed on 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 during this time, please press star, followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press star one. Thank you. Nicole Nupsios. Investor Relations, you may begin your conference.
spk01: Good afternoon, and thank you for attending Supermicro's call to discuss financial results for the fourth quarter, which ended June 30, 2022. With me today are Charles Liang, Founder, Chairman and Chief Executive Officer, and David Regan, Chief Financial Officer. By now, you should have received a copy of the news release from the company that was distributed at the close of regular trading and is available on the company's website. As a reminder, during today's call, the company referred to a presentation that's available to participants in the Best Relations section of the company's website under Events and Presentations tab. We've also published management scripted commentary on our website. Please note that some of the information you hear during our discussion today consists of four looking statements, including, without limitation, those regarding revenue, gross margin, operating expenses, other income and expenses, taxes, capital allocation, and future business outlook, including guidance for the first quarter of fiscal 2023 and the full year of 2023 and the potential impact of COVID-19 on the company's business and results of operations. There are a number of risk factors that can cause Supermicro's future results to differ materially from our expectations. You can learn more about these risks in the press release we issued earlier this afternoon, our most recent 10-K filing for fiscal 2021, and our other SEC filings. All of these documents are available on the IR page at Supermicro's website. We assume no obligation to update any forward-looking statements. Most of today's presentation refer to the non-GAAP financial results and business outlook. For an explanation of our non-GAAP financial measures, please refer to the accompanying presentation which our press release published today. In addition, a reconciliation of GAAP to non-GAAP results is contained in today's press release and the supplemental information attached in today's presentation. At the end of today's prepared remarks, we'll have a Q&A session for our self-taught analysts to ask questions. And I'll turn the call over to Charles.
spk09: Thank you, Nicole, and good afternoon, everyone. Today, I'm pleased to announce record year-end results with annual revenue surpassing a milestone of $5.2 billion, growing 46% year-over-year. We ended the year with another great quarter with fiscal Q4 2022, revenues of $1.64 billion, growing 53% year-over-year. and 21% quarter-on-quarter, surpassing both top and bottom nine estimates. Our quarterly and year-end results were above our guidance given three months ago and exceed our recently updated range given several weeks ago. Our strong growth is assured by a recent trend in design based on our large-scale total IT solutions, especially on GPU solutions and AI platforms. And I believe our solutions will continue to drive plenty of new design ways and further accelerate our strong growth in the coming quarters and years. More customers are also recognizing and adopting the value of our green computing solutions rising environmental challenges and energy costs. The total solution strategy and green computing solution values have resulted in our four consecutive quarters of growth at a minimum three times faster than competitors' growth rate. Now, let's look at some of the key highlights from that year and quarter. First, our quarter 2022 net revenue total 5.2 billion, up 46% year-on-year, above our guidance range of 5 billion. Our fiscal year non-GAAP earnings per share of $5.65 grew 128% year-over-year, compared to $2.48 a year ago. This exceeds the higher end of our guidance range of $4.53 to $4.71. Our fiscal fourth quarter net revenue totals $1.64 billion, up 53% year-on-year, and up 21% quarter-on-quarter, above our guidance range of $1.4 billion to $1.48 billion. Our fiscal fourth quarter non-GAAP earnings per share triple year-over-year and was $2.62 compared to $0.81 a year ago and was way above the high end of our guidance range of $1.51 to $1.69 and demonstrated a strong operating leverage and customer preference toward our large-scale total IT solution. With our total IT solutions, business has experienced robust growth in USA this year. We will continue to gain even greater domestic attraction going forward. We will also expand our total IT solution to both Europe and Asia market. in the coming quarters and years. We are excited at this generational opportunity to become the global leader of large-scale product and play IT solutions. Our robust fiscal year results reinforce our confidence in achieving the $10 billion in annual revenue target, much stronger than we got last year. And we are now preparing for our $20 billion midterm mission that we discussed last quarter. Based on our current supply and capacity, at the midpoint of our guidance range, we are forecasting $1.57 billion in revenue for the upcoming September quarter. I'm also confident that Our full fiscal 2023 revenue will be above the prior guidance range of $6 billion to $7 billion. We now expect revenue to be in the range of $6.2 billion to $7 billion with EPS at least at $7.50. Although the macroeconomic conditions are uncertain. We are optimistic that some of the supply chain and logistics issues will begin to subside. From a market perspective, we continue to see increasing demand for accelerating compute and AI platforms. We are meeting this demand at both system and web scale level with our total IT solution. which are supported by our over 20 years of system building block developments. These building blocks allow us to create highly optimized, large-scale, product-in-place data center solutions for our customers with lower infrastructure costs and increase in significant TCO savings. Our Total IT solution approach streamline design, validation, sourcing, and integration, resulting in much shorter lead times for our customers. We optimize quality and performance. Moreover, our total IT solution simplifies each case of firmware, management software, division control. In addition, our super cloud composer, arbitrator, security, and other software products can optimally manage, compute, acceleration, storage, and network building blocks at a cloud level, including rich analytics. Data center operator can easily leverage this information to make critical decisions that improve workload efficiency. Soon, we are expanding our investment in full data center management software space. That will enable future infrastructure as a service and secure monitoring as a service functionality, further enhancing our total IT solution capability and value. This one-stop-shop approach We are aligned with the emerging growth market across AI, machine learning, software-defined storage, networking, public and hybrid cloud, and 5G, IoT, and telco. We previously shared that we will send people in our commuter-based intelligent business automation. This new B2B, B2C automation platform is being used and validated by more and more of our customers as we speak. This intelligent auto calculator will leverage our system building block methodology, scaling our application optimized solutions to a much broader customer base. We expect this tool will dramatically improve our go-to-market initiatives, product design, operations, and service effectiveness. Most importantly, the automation process will considerably grow our customer base and improve customer satisfaction starting from pretty much this fiscal year. Our current manufacturing scale and capacity is built to support between 10 billion to 12 billion in annual revenue as we continue to ramp up our rack scale capabilities in our global facilities. During the June quarter, we shipped over 1,000 plaza and freight racks. Today, in the September quarter, we have doubled our rack scale capacity with enhanced features at our new building. Our rack scale capacity can be up to 6,000 racks per quarter now. Our product development activities continue to grow strongly with close partnerships like NVIDIA, expanding our GPU system product lines, including the new DeltaMax H100, Raystone Max, and Grace Harper product lines. Our early deployment programs with the upcoming Intel, Sapphire Rabbit, and AMD Genoa product lines are mostly ready, just are waiting for the new Intel and AMD processors to be available. We stay committed to lead the market in green computing solutions with our resource-saving designs, both to reduce environmental impact and the cost of customers' operations. As we apply our green computing solutions at a large scale level, we can bring even better quality and time to market value to our customers. Higher energy costs and limitation on electricity usage will continue to strain on many companies in the near future. And so this dynamic and challenge seems like decades ago. And we have been at a forefront with technology and solutions that help customers go for higher temperature operation data center. free air cooling, or liquid cooling. Many of our customers have achieved significant TCO and COE reduction in their data centers, down to 1.05 from industry's average of 1.57 or even higher. By our calculations, worldwide adoption of our green computing solutions or other suppliers' solutions with similar energy efficiency, who potentially save the IT industry more than $10 billion in electricity costs per year, or eliminating the equivalent of more than 30 fossil fuel power plants. That is equal to saving 8 billion trees on our planet. I'm very glad to see increased demand for energy-efficient solutions, for cost-saving, but more importantly, we must do this for our Mother Earth. In corrosion, we are focused on building and delivering much more greener, red-scale total energy solutions. From an industry perspective, This is the greatest opportunity Supermicro has ever seen since our founding 29 years ago. Our year-over-year top and bottom nine performance is evidence that our total IT solution strategy is accelerating. I see our room to grow is at least another 4x in the coming years, where we believe that our plan will continue to expand with new applications. We will continue to address this technology intersection by enhancing our total ID solutions capability and capacity with more software and services. We will continue to gain mass share and extend it to new verticals, which increase our business scale and operating My team and I will continue to execute our growth strategies and are accelerating the timeline to our $10 billion revenue target in short term and $20 billion revenue in term issue. I will now pass the call to David Reagan, our Chief Financial Officer, to provide additional details on the project.
spk02: Thank you, Charles. I'm pleased to report fiscal fourth quarter revenues of 1.64 billion, a 53% year-on-year and 21% quarter-on-quarter increase. Our revenues exceeded our initial guidance range of 1.4 to 1.48 billion and our recently updated range of 1.58 to 1.63 billion. For fiscal year 22, we reported revenues of 5.2 billion, representing 46% growth over fiscal year 21 revenues of $3.56 billion. Our growth initiatives are gaining momentum with our total IT solutions targeting fast-growing markets and customers with accelerated GPU and AI workloads, software-defined storage and networking, public and hybrid cloud, and 5G Edge IoT platform. These new growth drivers complement our traditional strengths with enterprise, channel, and OEM customers, leading to accelerated revenue growth, expanding margins, and operating leverage. In the fourth fiscal quarter, Supermicro recorded balanced revenues across all three of our market verticals, demonstrating the resilient nature of our diversified end markets. We achieved $835 million in organic enterprise and channel and AIML revenues, representing 51% of Q4 revenues, listed 62% last quarter, up 24% year-over-year and flat quarter-over-quarter. The year-over-year growth in this segment was driven by our growing list of large enterprise customers and new product offerings. Our OEM appliance and large data center segment achieved $717 million in revenues, representing 44% of Q4 revenues, versus 32% last year, up 95% year-over-year, and up 67% quarter-over-quarter, with strong growth driven by large new and existing data center customers and OEM appliance customers. Our 5G Telco Edge IoT segment achieved 83 million in revenues, representing 5% of Q4 revenues versus 6% last quarter, and was up 172% year-over-year, and down slightly by 4% quarter over quarter. For the full fiscal year 2022, our organic enterprise and channel and AIML revenues grew 40% to represent 61% of fiscal year 22 revenues. Our OEM appliance and large data center segment grew 44% and represent 32% of revenues. Our emerging 5G, telco edge, and IoT segment grew 163% and represented 7% total revenue. Our mix of complete systems and rack scale total IT solutions has been increasing steadily. Systems comprised 91% of total revenue and subsystem accessories represented 9% G4 revenue. On a year-over-year basis and also on a quarter-over-quarter basis, the volume of systems and nodes shipped as well as system node ASPs increased due to product and customer mix. We had a balanced distribution of Q4 revenues across geographies, with the U.S. representing 66% of revenues, Asia 17%, Europe 14%, and the rest of the world. On a year-on-year basis, U.S. revenues increased 65% as we gained market share with our advanced RAC-scale total IT solutions. for emerging high-growth server workloads. Asia increased 38%, Europe increased 21%, and the rest of the world increased 8%. On a quarter-over-quarter basis, U.S. revenues increased 41%, Asia decreased 9%, Europe increased 9%, and the rest of the world decreased 30%. The Q4 non-GAAP gross margin was 17.6%. up 200 basis points quarter over quarter from Q3, and up 390 basis points year on year due to price discipline, lower freight costs, leverage from higher factory utilization, operating efficiencies, and a continually improving product-customer mix. While the supply chain disruptions continue to achieve some success in controlling freight and other logistics costs, through disciplined execution. Our Q4 gross margin was above the high end of our long-term target model range of 14% to 17% and demonstrates the success of our new high-value total IT solution. Turning to operating expenses, Q4 optics on a gap basis increased slightly by 1% quarter-on-quarter and 15% year-on-year to $122 million. On a non-GAAP-based basis, operating expenses increased 4% quarter-on-quarter and increased 15% year-on-year to $113.5 million. Our non-GAAP operating margin increased significantly to 10.7% for the quarter versus 7.5% last quarter and 4.4% a year ago, demonstrating both improvements in gross margin driven by the new product and customer mix. and operating leverage driven by higher revenues along with disciplined expense control. Our non-GAAP operating margin of 10.7% for Q4 was also above our target model range of 5% to 8%. Other income and expense was approximately $1 million in income consisting of $4 million in foreign exchange gains offset by interest expense of $2.9 million. as compared to $4.7 million in FX gains and $1.5 million in interest expense last quarter. Our interest expense increased sequentially as we utilized our short-term credit line for financing inventory and accounts receivables. We also experienced higher short-term interest rates on borrowings driven by recent Fed actions. This quarter, the tax provision was $25.8 million on a GAAP basis, and $29.9 million on a non-GAAP basis. Our GAAP tax rate for Q4 was 15.5%, and our non-GAAP tax rate was 17.1%. Our GAAP and non-GAAP tax expenses increased higher levels of pre-tax profits, but the rates were lower sequentially. Lastly, our share of income from our JV was $0.3 million this quarter as compared to $0.2 million last quarter. We delivered strong or non-gap diluted EPS of 262, which exceeded the high end of the original guidance range of 151 to 169, and a recently updated range of 230 to 240. The increases to EPS were due to a combination of higher revenues, higher gross margins from manufacturing efficiency, price discipline, product and customer mix, and operating leverage. For the full fiscal year 2022, we reported non-GAAP diluted EPS of $5.65, which was up 128% year-over-year versus fiscal 2021 non-GAAP diluted EPS of $2.48 and higher than our initial guidance of $4.71. Cash flow used in operations for almost $25 million compared to cash flow used in operations of $228 million for Q3 due to our improved profitability along with better management of our inventory and working capital. Despite the 21% quarter-over-quarter increase in revenues, trimmed our inventory by 3% quarter-over-quarter. Accounts receivable increased sequentially due to higher revenues, while accounts payable decreased sequentially due to the timing of payments to our vendors. Our CapEx was $11 million for Q4, built in negative free cash flow of $36 million versus negative free cash flow of $239 million last quarter. Our closing balance sheet cash position was $267 million, while bank debt was $597 million, as we utilized our bank lines of credit to support those higher revenues and accounts receivable as we ramped production of new design wins globally. As we look ahead to fiscal 2023, we expect that our continued growth in revenue and profitability, together with improved working capital management, lead to better operating and free cash flow. We're optimistic that some of the supply chain and logistic costs will begin to stabilize. We remain confident in our long-term outlook for robust revenue growth and profitability, driven by our leading edge new platforms, design wins, market share gains, and engagement with significant new global customers. We are announcing also a new $200 million stock buyback program today that will be in effect through January 31, 2021. Turning to the balance sheet and working capital metrics compared to last quarter, our Q4 cash conversion cycle was 100 days versus 98 days in Q3, and above our target range of 85 to 90 days. Days of inventory was 106, representing a decrease of 11 days versus the prior quarter of 117. That's managed our inventory more efficiently. Day sales outstanding was up by three days quarter on quarter to 42 days, while days payable outstanding came down significantly by 10 days to 48 days. Now turning to the outlook for our business, We remain enthusiastic about design wins in plug-and-play, rack scale, total IT solutions, ramping, and multiple end markets. We're carefully watching the global macroeconomic situation and continuing supply chain disruptions. For the first quarter of fiscal 2023, ending September 30, 2022, we expect net sales in the range of $1.52 billion to $1.62 billion. GAAP diluted net income per share of $2.01 to $2.27, and non-GAAP diluted net income per share of $2.07 to $2.32. We expect gross margins to be similar to Q4 levels. GAAP operating expenses are expected to be approximately $126 million, and they include $8.6 million in stock-based compensation $0.5 million in other expenses that are not included in non-GAAP operating expenses. GAAP and non-GAAP operating expenses are expected to increase due to continued investment in R&D and higher personnel costs. We expect other income and expense, including interest expense, to be a net expense of approximately $3.6 million and expect a nominal contribution from our joint venture. The company's projections for GAAP and non-GAAP diluted net income per share assume a GAAP tax rate of 19.4%, a non-GAAP tax rate of 20.3%, and a fully diluted share count of 54.8 million for GAAP and 56.2 million shares for non-GAAP. We expect CapEx for the fiscal first quarter of 2023 to be in the range of $6 to $8 million. For the fiscal year 2023, ending June 30th, 2023, they are giving guidance for revenues in the range of $6.2 billion to $7 billion. GAAP diluted net income per share of at least $7.27 and non-GAAP diluted net income per share of at least $7.50. The company's projections for GAAP annual net income assume a tax rate of $20.3 and a rate of 21.1 for non-GAAP net income. For fiscal year 2023, we are assuming a fully alluded share count of 55.6 million shares for GAAP and 57 million shares for non-GAAP. The outlook for fiscal 2023 fully alluded GAAP earnings per share includes approximately 35.4 million expected stock-based compensation and other expenses, net of tax effects that are excluded of non-GAAP net income per share. Nicole, we'll turn it back to you.
spk01: Harper, you can open the line up for questions.
spk03: At this time, I would like to remind everyone, if you would like to ask a question, please press star followed by the number one on your telephone keypad. Your first question comes from Nihal Chokshi with Northland Capital Markets. Your line is open.
spk06: Congratulations on amazing results, amazing guidance, clearly showing sustainable share gain story here. I want to talk about the gross margin. I think this is the first time I've heard Supermicro talk about better price discipline as a driver of gross margin expansion, which is great, but can you delve into why do you believe you're exhibiting price discipline now versus in the past?
spk02: Okay, so I missed just a little bit of what you said, Nehal. You said, what was the question? Well, I believe it was the first one.
spk06: Yeah, I believe this is the first time I've heard you guys talk about price discipline being a driver of reverse margin expansion. And so I'd like to understand why is that happening now?
spk02: Okay, gotcha. So we have, it took us some time to adjust to the rising freight costs and other component costs. And so we managed to adjust those properly. And then we also got some tailwind from finally from freight costs coming down 20% in Q4. So those two things combined allowed us to have a higher gross margin.
spk09: It's essentially our scale, our business scale continue to grow. You know, we maintain a very good product line. And also when business scale grow, yes, we will have a higher gross margin and net margin.
spk06: Got it. Great. And then, can you give a little bit more detail on the driver of the Sprank Center quarter, which was leading-edge vertical solutions and OEM appliance in large data center segments?
spk09: Yeah. Recently, we have indeed a handful of really good product wins, including Most of them are indeed high-end AI platform. So our AI platform continues to get much share, and especially rack scale, plug and play. We have a complete rack installed with Cosmo. So it makes Cosmo's job much easier. And once they receive the rack, just plug in two cables, power cable, then they have data cable, and then ready to run. So that really attracts some customers.
spk06: What about within the OEM side? What was the driver there on the OEM side?
spk09: This thing is, indeed, it's pretty much our standard product. Our standard product, yes, customer, we want some really top 10 highest value company around the world.
spk06: Okay, great. And then finally, what are your expectations for cash conversion cycle as the semi-cycle appears to be entering a down cycle now?
spk02: Well, we expect our cash conversion cycle to come down, Nehal, for a couple of reasons. Number one, our profitability has been increasing. And secondly, we've been able to manage our inventories better. So And the reason for that is in Q3, we were building inventory as we were getting ready to start the launch of some design wins. And those design wins really got traction, and it allowed us to kind of even out our inventory. So we expect our cash flows and cash conversion cycle to improve.
spk07: Great. Congratulations. Thank you.
spk03: Your next question comes from the line of Ananda Barua with Loop Capital. Your line is open.
spk08: Hey, good afternoon, guys. Yeah, thanks for taking the question, and congrats on strong results and very solid execution. Thanks. Congrats on that. So I guess a few, if I could, kind of piggybacking off of Nihal's question, like in a bigger picture context, Are there any other kind of key aspects of what you guys are seeing going on that's leading to the ongoing acceleration in revenue generation? And I guess, Charles, is it all share gain? You know, are there other things that you guys are seeing that's been leading the last couple quarters to the accelerated revenue generation run rate?
spk09: Yeah, thank you. We start to focus on a large scale total solution, large scale project in place since about three years ago. So it took quite a while to make an infrastructure and make all the hardware, software, firmware, people well trained. So now we start to gain, start to win more and more deals, especially the top 10 or top highest value company around the world. So if we are very comfortable, we will continue to win more in AI high-end platform and total solution, including storage, including switch. You know, it's kind of like a complete cloud, or you can say a large-scale plug-and-play solution.
spk08: I got it. I got it. So it sounds like a big component is share games, and it's really continuing to resonate in the marketplace. Both of the total solutions and then what you're able to actually provide to the customer with that total solution. It sounds like it's just easier to use and it's a stronger product, those two things combined.
spk07: Sorry, John. Go ahead. Thanks. Go ahead, Ananda.
spk08: Yeah, I was going to say, are you seeing parts of the marquee aspects of your end markets actually accelerate? Well, I guess I'd love to know, like, what's your opinion on, you know, kind of the tenor of demand in your key areas, you know, kind of the last 90 days versus the prior 90 days? You know, it seems like you've actually seen some acceleration as distinct from just share gains. But how would you guys characterize that? Particularly given the macro backdrop.
spk09: Yeah, as you may know, right, I mean, the AI deep learning business continues to grow, including like Metaverse. Lots of customers, lots of companies continue to invest heavily in those areas. And it turns out we have... I would have to say exactly the same for AI platform around the world. Doesn't matter really high-end or kind of high-volume platform labor or large-scale labor or cloud labor. So our investment in the last three years started to gain customers' attention. And we save their time, big time, especially. Most of the time, in the industry, people take maybe two miles to three miles to finish shipping a large-scale cluster. And it takes us much shorter because we optimize the inventory and total solution and ship to customer with a much shorter time. And customer really appreciated that as well.
spk07: That's a lot of content. I'm sorry, no, I don't want to cut you off. That's great context, Sean. I'll see you before for now. Thanks. Appreciate it. Thank you.
spk03: Your next question comes from John Tanwantang with CJS Securities. Your line is open.
spk04: Hi, guys. Thanks for taking my questions. Can you hear me?
spk02: Yes. Yes, John.
spk04: Okay, great. The gross margin is above 17%, the high end of your range. Is that sustainable over this year, and do you think that you should be changing your long-term target range if it is?
spk02: The answer is yes, it is sustainable, and we will be reviewing our new target levels. But it's really, as Charles mentioned, we've had a lot of customers come to us, and we've designed very special solutions for them. And these solutions have value, and they have high value to the industry and to our customers. And so we are, you know, when I say price discipline, we've realized, you know, higher value for some of our solutions. And we've had the good fortune of being able to secure enough supply to start the ramp up of those solutions.
spk04: That's great news. Thanks. And then do you see any indications of your customers being impacted by recessionary pressure at all? And maybe to go along with that, what assumptions, if any, are in your guidance regarding macroeconomic or geopolitical risk?
spk09: It depends. Some customers, yes, we saw them slow down a little bit. But lots of other customers, indeed, continue to increase their demand, especially for high-end AI platforms. those future products. And by the way, I mean, there are lots of new technology coming soon, quarter after quarter or month after month. So at this moment, we believe that medical economy may slow down a little bit, but our demand should be continuing growing.
spk04: Okay, great. And is the guidance that you gave for the next quarter, that sequential decline at the midpoint, Is that more indication of just seasonality or supply, or is it maybe more of this macro slowdown that maybe some of your customers are seeing?
spk09: Two reasons. One is supply chain. We're still facing some supply chain constraints. Some parts have been more available than before, but still, a lot of parts still in shortage. That's one thing. you know, September quarter used to be our slowest season. So both reasons. And that's why we try to be more conservative.
spk04: Okay, understood. And last one, if I may, just when do you need to think about investing in new capacity? I know you guys have up to $10 to $12 billion in your current facilities, but at your current growth rate, you probably have to start thinking about it pretty soon. So I was just wondering what your plans are if you need to get there and where you might start investing if you need to do so.
spk09: You know, the good thing is that because we did not focus on a really global market yet, we are very strong in some countries, some territories. But in other countries, we are still pretty new. So our solutions are able to grow with much higher scale. We just need more warehouse, more production, better power, and then we can achieve a more productive customer. as does hardware, software, firmware, total solutions have been ready. We just have to replicate that same market to more countries. And we are already planning for that.
spk05: Okay, great. Thanks, guys. And again, congrats on a fantastic quarter.
spk04: Thank you.
spk03: Thanks. As a reminder, if you would like to ask a question, please press star followed by the number one on your telephone keypad. And your next question comes from Ananda Barua with Loop Capital. Your line is open.
spk08: Thanks, guys. I appreciate it. Yeah, I'd just love to get a little more context on the mix dynamic, Charles, that you talked about in the prepared remarks. It sounds like a meaningful aspect of the mix is the total solution. Are there any other components of mix that we should be aware of that are contributing to to that dynamic, or is it primarily the total solutions that are resonating increasingly?
spk09: Very good question. We started to prepare a large-scale project about three years ago, so it took us quite a lot of effort to train our people to make all the components ready, especially a switch the communication, the networking device. And finally, everything ready. And we start to get more customers, get more design wins. And I believe those design wins will continue. So as a business woman, I feel pretty positive. We will continue to grow in those areas.
spk08: That's really awesome. And are there any particular verticals that those rack scales tend to go into, or targeted at more, or that they'll resonate with more, or is this sort of across all your verticals? Do you think the rack scale has a real place?
spk09: No, it's still AI, people learning, metaverse, omniverse, and gaming, high-end gaming, you know, those automation, scientific application. So, indeed, a lot of area, even kind of like a forecasting company also having some strong demand, right?
spk08: That's super helpful context, as always. Just, I guess, let me ask two last quick ones here. Sounds like the backlog probably grew again over the last 90 days, given your comment around constraints. Is that accurate? Is that accurate?
spk09: Yes, because, you know, still there are lots of shortages. That's why we don't keep enough inventory so that we can support a continuous growth demand. Basically, our inventory is pretty healthy. We have some high-volume inventory, but they are under strong demand. So at this moment, I don't worry about inventory levels.
spk08: Great. And then last one for me, guys, is Charles, just an update on Taiwan. How would you characterize the utilization level there now?
spk09: It can grow faster, but you know, we're always suffering a supply chain shortage in the last nine months already. Nine months or 12 months already. So I hope the supply chain will continue to getting better. And once that happens, our utilization in Taiwan can be much improved. And at this moment, I believe our utilization rate in Taiwan is only about 45% or so. So there are lots of room to grow. A lot of room to grow.
spk08: Yeah, and so Dave, Dave, sort of 40, let's say 40, 40, 45% utilization, does that mean when you guys get to you know, sort of normalized utilization, we should still expect, Dave, what was it, like 150 to 200 basic points of gross margin contribution on top of where you guys are right now?
spk02: From their shipments. Yeah, that's right. We said 100 to 200 from Taiwan. So 100 to 200 from Taiwan, not 100 to 200
spk08: Is it not – so it's not 100 to 200 to the overall P&L. It's 100 to 200 from Taiwan. That's correct.
spk02: That's correct. We said that – yeah.
spk08: Got it, got it. Now, Taiwan is going to be – it's going to be approaching half your volume at some point. So would that sort of be long-term, you know, 50 to 100 basis points to the overall P&L?
spk07: That's a fair way of looking at it.
spk08: Okay. Awesome. Thank you, guys. Appreciate it.
spk03: There are no further questions at this time. This does conclude today's conference call. Thank you for joining. You may now disconnect.
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