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spk05: Ladies and gentlemen, thank you for standing by. My name is Brent and I will be your conference operator today. At this time, I would like to welcome everyone to the Supermicro second quarter 2022 earnings 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, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press star 1. Thank you. It's now my pleasure to turn the call over to Nicole Noutius, Investor Relations. Please go ahead.
spk00: Good afternoon, and thank you for attending Supermicro's call to discuss financial results for the second quarter, which ended December 31st. With me today are Charles Liang, Founder, Chairman, and Chief Executive Officer, Patrick Wang, President, East Coast and SDP Strategy and Corporate Development, and David Wenglen, Chief Finance Officer. By now, you should receive a copy of the news release from the company that is 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 on the IR section of the company's website under Events and Presentations tab. We have also published management scripted commentary on our website. Please note that some of the information you'll hear during Our discussion today will consist of four looking statements, including without limitation those regarding revenues, gross margin, operating expenses, other income and expenses, taxes, capital allocation, and future business outlook, including guidance for the third quarter of fiscal year 2022 and the full year 2022, 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 of Supermicro's website. We assume no obligation to update any forward-looking statements. Most of today's presentation referred to non-GAAP financial results and business outlook. For an explanation of our non-GAAP financial measures, please refer to the accompanying presentation to our press release published earlier today. In addition, a reconciliation of GAAP to non-GAAP results is contained in today's press release and the supplemental information attached to today's presentation. At the end of today's prepared remarks, we'll have a Q&A session for self-advocates to ask questions. I'll now call over to Charles.
spk03: Thank you, Nicole, and good afternoon, everyone. Today, I'm pleased to announce our quarterly revenue of $1.17 billion for fiscal Q2 2022, which was 41% year-over-year growth, and our screenshot growth was 14%. We have seen a strong growth in all our key verticals and geographically despite the challenge of global components shortage and COVID impact. More importantly, our total IT solution strategy has been empowering us to continuously gain market share. All thanks to our dedicated employees, powerful server building block solutions, and finally, our faster-growing solar products. With the bigger temp and potential from total IT solutions, I believe our growth trend will continue for many years to come and getting stronger quarter after quarter. Now, let's look at some key highlights from the quarter. First, again, our fiscal second quarter Net revenue total $1.17 billion, up 41% year-on-year and up 40% quarter-on-quarter. At a higher end of our guidance range of $1.1 to $1.2 billion. It's superman called the first consecutive quarter of faster revenue progression as we continue our growth trajectory at multiple times the industry's growth rate. Our physical second quarter non-GAAP earnings per share was $0.88 compared to $0.63 in the same quarter last year, which was 40% growth and at a higher end of our guidance range of $0.70 to $0.90. Major geography contribute significantly to our year-over-year growth, especially in the APAC region, which grew 76% year-over-year. The Taiwan expansion boosts our APAC and email growth momentum by providing additional capacity and lowering operational costs. We continue to expand our B2B auto-congregator program to service significantly more customers during the quarter. Our innovation command center based on online business system have been improving our sales, FAE, PM, PM efficiency, as well as our key customer satisfaction. Recent market conditions present us with a better opportunity to accelerate our business transition from a hardware company to a total IT solution company. The transition enables Supermicro to offer customers higher value and product availability with optimal hardware, software, service, switches, and more. Our results has shown that we have outperformed our previous $10 billion annual revenue target timeline we shared a few quarters ago. More encouragingly, we are observing diversified growth across our target verticals, which are large enterprise, AI, machine learning, cloud, 5G telco, and IoT. Our design win and engagement with Fortune List customers continue to grow quickly with our total IT solutions. Our push for world total IT solutions is benefiting Supermicro and our customers in multiple ways. Most notably, our customers will receive higher quality plug-and-play radio products. They are fully optimized, integrated, and validated in-house. This effort is also helping Supermicro and our customers mitigate the impact of global supply chain disruptions by accurately forecasting building inventory in scale and prioritizing with our strategic partner. As a result, our total IT solution dramatically improves our customers' time-to-market and increases Supermicro's value. Our total IT solutions are built upon a robust knowledge of system architecture and building blocks that can be optimized for most market protocols. With the advice of Omniverse and Metaverse, We have recently introduced several new architectures to enhance our GPU product offerings. Our new universal GPU architecture allows customers to choose the best CPU, GPU switches, and the IO configuration to fully optimize their applications and workloads. Leveraging either Intel Xeon scaler process or AMD processor. The universal GPU system enables customers to stabilize configuration in their clusters for the desired workload on a single platform. This unique versatile system supports various GPUs, including the NVIDIA A100 GPUs, the newly announced AMD MI200CUS, accelerator, many other LPGA products from different companies and other GPs from other companies. I'm glad to announce that we already have many major customers and industry leaders committing to this new platform. And the only major limitation is the supply chain challenge. Partnering closely with the leading technology provider in the emerging Metaverse and Omniverse ecosystem. Supermicro had double our GPU product line to supply this 3D and immersive workload. Our 2U 2.0 GPU system provided an optimal mix of CPU to GPU ratio with resource saving features. Our high-performance and highly configurable Hyper and Hyper-E servers support multiple GPUs in a single system. And our idea for use cases such as distributed AI influencing application, content delivery, Telco, Macro data center, 5G core, and many other mission-critical enterprise workloads. Along with our NVIDIA 800 Delta and Redstone platforms, Supermicro's comprehensive AI system building blocks support everything from inferencing to a high-performance computing data center for the metaverse or omniverse kind of application and everything in between. Last quarter, we had redefined our growth drivers. to speed up our growth strategy, which includes subsystems and components, computer systems, total IT solutions, and 5S. Our billion block and computer system businesses have been steadily growing over the decades with the help of our partners. And this still serves the backbone of our revenue growth. with other large enterprise customers, top technology leading partners, and appliance customers' engagement. I would like to emphasize again that total IT solution business is our new major growth driver now. Going forward, our investment in software products, service, and networking will be the key to improve our margin and profitability in the coming quarters and years. In summary, Supermicro is rapidly growing and transforming into a total IT solution company from a server hardware company. We are accelerating our design wins and market share again at a key large global cosmos, including enterprise, AI, machine learning, 5G telco, Edge, and IoT. And we are improving our portability and duplicating our market share success in the U.S. to APAC and email with the completion of our APAC expansion and rapid production ramp in Taiwan. Our new command center base auto calculator, and B2B automation platform are improving our operation efficiency and customer satisfaction while accelerating our market share again. In closing, our 41% year-over-year revenue growth is a solid proof that Supermicro's business is taking off quickly now. I am confident that our market presence, time, and profitability will continue to increase strongly. And we invest more, as we invest more resources in SolarWare as a total IT solution company. My team and I have been diligently executing our growth strategy and accelerating the timeline to pull in our $10 billion revenue goal. I will now pass the call to David Wagon, our chief financial officer, to provide additional detail on the quarter. Thank you.
spk01: Thank you, Charles. I'm pleased to report our third consecutive quarter of revenues exceeding $1 billion. we are seeing continued strength across all geographies and strong demand for our products and services, resulting in fiscal second quarter revenue of $1.17 billion, a 41% year-on-year increase and up 14% quarter-on-quarter. Our Q2 revenues were at the higher end of our guidance range of $1.1 to $1.2 billion. Revenues for the trailing four quarters being Q3 of fiscal year 21 through Q2 of fiscal year 22, totaled $4.17 billion. Supermicro's Q2 fiscal year 22 recorded revenue growth was across all three of our market verticals, achieving $756 million in the organic enterprise and channel and AML vertical, $274 million in the OEM appliance and large data center vertical, and $142 million in the 5G, telco, and edge IoT vertical. The 5G, telco, and edge IoT vertical more than doubled sequentially as new designs went into production. Systems comprised 84% of total revenue, and subsystems and accessories represented 16% of Q2 revenues. The volume of systems and nodes shipped, as well as the system node ASPs, increased both year-over-year and quarter-on-quarter. On a year-on-year basis, Asia, including Japan, increased 76% as we saw continued growth with both new and existing customers. Europe increased 39%. The U.S. increased 38%. And the rest of the world decreased 32%. On a sequential basis, Asia, including Japan, increased 8%. The U.S. increased 14%. Europe increased 20%. And the rest of the world increased 19%. The Q2 margin was 14%, which was up 60 basis points quarter over quarter from Q1 due to price discipline and a better product-customer mix. This increase was achieved in spite of our increased use of air freight and higher supply chain costs. On a year-over-year basis, gross margins were down 240 points due to a discrete cost recovery event in Q2 of last year and higher freight and supply chain costs in the current year. Turning to operating expenses, Q2 OpEx on a GAAP basis increased 3% quarter-on-quarter and 14% year-on-year to $113 million. On a non-GAAP basis, operating expenses increased 2% quarter-on-quarter and increased 15% year-on-year to $103 million. The year-on-year and quarter-on-quarter increases on a GAAP basis were driven by higher personnel costs and increased ed count, higher stock compensation expense, and lower research and development NRE credits. The year-on-year and quarter-on-quarter increases on a non-GAAP basis were driven primarily by higher personnel costs and the increased headcount and lower research and development NRE credits. Other income and expenses including an interest expense was a $1.8 million expense as compared to a $0.8 million expense last quarter. The sequential change is mostly related to a loss from remeasurement of our Taiwan dollar loans to a weaker U.S. dollar, so FX. This quarter the tax provision was $7.6 million on a GAAP basis and $10.9 million on a non-GAAP basis. Our non-GAAP tax rate was 18.5% for the quarter. Our tax rate for GAAP and non-GAAP purposes increased this quarter primarily due to a change in U.S. tax regulations. Lastly, our share of income from our JV was 0.2 million this quarter as compared to 0.4 million last quarter. Q1 non-GAAP diluted earnings per share totaled 88 cents, which was near the high end of the guidance range due to higher revenues and gross margins partially offset by higher operating expenses. Cash flow used in operations was $53 million compared to cash flow used in operations of $135 million in Q1 as we continue to build inventory to be in a position to meet the increasing levels of large orders from our customers and to mitigate the impact of supply chain disruptions. CapEx totaled $12 million for Q2, resulting in a negative free cash flow of $65 million. Key uses of cash during the quarter included increases in inventory and accounts receivable, offset by cash provided from increased accounts payable, customer prepayments, and deferred revenue. We did not repurchase any shares in the quarter. Our closing balance sheet cash position was $247 million, while bank debt was $316 million as we drew down on our bank lines of credit to increase inventory levels as we ramped production of new platforms globally. Turning to the balance sheet and working capital metrics compared to last quarter, our Q2 cash conversion cycle was 98 days up from 94 days in Q1, which is above our target range of 85 to 90 days due to the higher inventory levels. Days of inventory was 118, representing an increase of four days versus the prior quarter. Days sales outstanding was down by four to 37 days, while days payable outstanding was down by four to 57 days. Now, turning to the outlook for our business. We note that our Q3 March quarter typically has some seasonal impact from the Lunar New Year holiday, and we are also carefully watching impacts to our supply chain from COVID-related disruptions. We expect net sales in the range of $1.1 to $1.2 billion, gap diluted net income per share of $0.58 to $0.81, and non-GAAP diluted net income per share of 70 cents to 90 cents for the third quarter of fiscal year 22 ending March 31, 2022. We expect gross margins to be up slightly from Q2 levels, GAAP operating expenses are expected to be approximately $118 million and include $8.5 million in stock-based compensation and $1.7 million in other expenses not included in non-GAAP operating expenses. We expect other income and expense, including interest expense, to be a net expense of roughly $2 million and expect a nominal contribution from our joint venture. Non-GAAP operating expenses are forecasted to be up quarter on quarter from continued investment in R&D and higher personnel costs. The company's projections for GAAP and non-GAAP diluted net income per common share assume a GAAP tax rate of 15%, a non-GAAP tax rate of 16.5%, and a fully diluted share count of 54.5 million for GAAP and 56 million shares for non-GAAP. The outlook for Q3 of fiscal year 2022 GAAP diluted net income per common share includes approximately $8.5 million in expected stock-based compensation and $1.7 million in other expenses, net of tax effects that are excluded from our non-GAAP diluted net income per common share. We are maintaining our revenue guidance range of $4.2 billion to $4.6 billion for the fiscal year 2022 ending June 30, 2022, and our GAAP diluted net income per share outlook of at least $2.77 and non-GAAP diluted net income per share of at least $3.20. The company's projections for GAAP net income assumes a tax rate of 15% and a tax rate of 17% for non-GAAP net income. For fiscal year 22, we are assuming a fully diluted share count of 54.1 million shares per GAAP and 55.6 million shares for non-GAAP. The outlook for fiscal year 22 fully diluted GAAP earnings per share includes approximately $37 million in expected stock-based compensation and other expenses net of tax effects that are excluded from non-GAAP diluted net income per common share. We expect CapEx for the fiscal third quarter of 2022 to be in the range of $5 to $8 million. Nicole, I'll turn it back to you.
spk00: Operator, we can now open the line up for questions.
spk05: At this time, I would like to remind everyone, in order to ask a question, press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press star one. Your first question comes from the line of Ananda Baru with Loop Capital. Your line is open.
spk04: Yeah. Hey, guys. Good afternoon. Thanks for taking the question. And congrats on the ongoing momentum and the nice results. Congratulations on the good reputation. A couple, if I could. So... how is linearity through the quarter, revenue linearity, and, you know, any context around, you know, new kinds of, like, new customer, like, customer expansion, you know, workload expansion, things of that nature would be really helpful. And then I have a quick follow-up. Thanks.
spk03: Yeah, thank you for the questions. As you know, we just migrated from a hardware solution company to a total IT solution company. So lots of customers like our complete solution for their total IT need. So we continue to gain some really large customers and some really technology leaders. So we are very happy, very excited to service more partners in the industry.
spk04: That's really helpful. Yeah, go for it.
spk01: Okay. I was just going to add that, you know, customer-wise, we had really good growth in the telco and the 5G telco vertical.
spk03: Especially like Omniverse and Metaverse, you know, lots of very exciting opportunity there.
spk04: Charles, do you think, so it sounds like, and correct me if this is not an accurate interpretation, but is that to say that Telco picked up incrementally in the December quarter and, you know, that new energy you think is going to continue at least, you know, kind of March quarter, first half of the calendar year here?
spk03: You know, I mean, March quarter traditionally is our kind of soft season. But this year is different because we have very strong demand, especially, like I say, GPU, Metaverse, Omniverse, lots of opportunity there. And we already have some large engagement. Just try to fulfill it.
spk04: Okay, great. That's helpful. Quick follow-up, Charles. Any comments on... on demand after the June quarter? I just ask that since we're coming up on it. Second half of the year, any context you can provide. Second half of the calendar year on your thoughts on demand. Thanks.
spk03: Yeah, at this moment, it looks pretty commissible because of our strong product and total IT solution. Lots of customers now have a big pack order with us. So we are increasing our pack order kind of in a very convinced way.
spk04: Excellent. Okay, thanks a lot. I'll get back in the queue.
spk05: Your next question comes from the line of Mehdi Hosini with SIG. Your line is open.
spk06: Yes, thanks for taking my question. Just want to get a bit of understanding how you're managing the inflationary trend in component prices. Your inventory has gone up for two consecutive years and by about $350 million over the past six months. But when I look at your revenue guide, for March and implied guide for June, taking the midpoint of the fiscal year guide. It does suggest a sequential decline. Is that because you're not able to pass on extra costs, or you're just being conservative despite the fact that you have built inventory, or is there something else that I'm missing here? And I have a follow-up.
spk03: Yeah, indeed, I'm very happy we have big inventory now. With global supply chain difficulty, we build inventory based on our back order. And at this moment, indeed, our back order has been very strong. And the reason why we did not update the whole year revenue and earning, that's because there's still certain uncertainty. There's still some uncertainty in terms of supply chain. Other than that, we feel very optimistic. Our inventory indeed has been built in a very healthy, very conservative way.
spk01: Yeah, and Mehdi, this is David. Just to answer your question, another question that you had, our ability to pass on costs is really reflected in our increased gross margin. So those increased component costs are being passed on. Got it. Okay.
spk06: And then, excuse me, if I were to go back to the The three buckets that you highlighted, organic OEM and 5G telco, thanks for providing the dollar revenue contribution. Can you also give us sequential and year-over-year changes for each bucket?
spk01: So, Manny, we didn't go back to the Q2 of last year, I don't believe. Although we have guidance in the slides that we have by quarter. Yeah, that's available on our website.
spk06: Okay. You can provide some qualitative comment as to which buffer was the strongest.
spk01: Absolutely. So our organic enterprise and channel at AIML constitutes approximately 65% of our revenues. The OEM appliance bucket comprises about 25%, and then the 5G telco on edge is about 10%. And that's up. That's up from 5% in the prior quarters, the 5G telco and edge bucket. So that's the way – that's kind of been the trend, you know, over the past quarters. So the 5G – The big change was in 5G – yeah, it was from really – from big growth and traction with telco customers. Okay. Thank you.
spk02: Hey, Matty, this is Patrick. I want to just come back to one thing that you mentioned earlier in your question, which is the implied guide for June. I wouldn't read what we've done here as implied guidance for June. What we said was, you know, we've given guidance for what we expect in March. Just given our situation today, we're actually just maintaining the full year guidance there. We feel very comfortable with it, of course. Right? But we're not actually guiding another quarter out, which is why we just, we kept it where it was.
spk01: Yeah, I'm sorry, this is David. So I'll add to that that we have, you know, we have a range, we put out a range of 4.2 to 4.6. So we're very comfortable there.
spk06: Sure. If I may just quickly, there's also continued mismatch For components, supply and demand, there's still some mismatches. So would it be fair to say that you're also conservative given the mismatches of availability of components?
spk03: You can say that. The fact order is stronger, but we try to be, you know, promise conservative in case. Got it. Thank you.
spk05: Your next question comes from the line of Nihal Chokshi with Northland Capital Markets. Your line is open. Nihal Chokshi with Northland Capital Markets. Your line is open. Nihal Chokshi with Northland Capital Markets. Your line is open. Nihal Chokshi with Northland Capital Markets. Your line is open. Nihal Chokshi with Northland Capital Markets. Your line is open. Nihal Chokshi with Northland Capital Markets. Your line is open. Nihal Chokshi with Northland Capital Markets. Your line is open. Nihal Chokshi with Northland Capital Markets. Your line is open. Nihal Chokshi with Northland Capital Markets. Your line is open. Nihal Chokshi with Northland Capital Markets. Your line is open. Nihal Chokshi with Northland Capital Markets. Your line is open. Nihal Chokshi with Northland Capital Markets. Your line is open. um this question has already been partially answered by patrick but um let me put a little bit finer point on this here uh why not at least narrow the fiscal year 22 revenue guidance range given uh that the unchanged midpoint guidance does apply effectively about a flat year for the june quarter so our um now our demand has never been stronger
spk01: And so we have obtained some new logos, new customers, which have designed in our products. And so we feel very strong about our back order and our demand. But this is a market where supply also dictates your forecasts. And so we have to be careful about forecasting two quarters out. on supply. So that's really the reason for our range.
spk05: Understood. Okay. Yeah, slide nine is great. I love the fact that we're getting five-quarter back visibility into these three vertical markets. And it certainly does imply that 5G, telco, and edge have a very significant year-over-year growth. Charles, you mentioned that part of this demand is metaverse, omniverse. I'm not too sure what omniverse means, but I do know what metaverse means. Again, I was under the impression that metaverse at least would go under the red category, i.e. large data center, not 5G teleco. Can you just give me a little bit more understanding as to why metaverse is potentially falling into telecom here?
spk03: You know, Today, there are some really all-class companies, big companies coming to Omniverse or Metaverse, right? So we have a very strong engagement with some of them. So in terms of AI, GPU, Metaverse, we have a very strong back order now indeed. And let's try to... work out components to fulfill all of the demand. As to 5G telco, you know, it's relatively a new territory for us. We started 5G telco about three years ago, and now we have many big engagements. So we are very excited for 5G telco growth as well.
spk05: Okay, so to be clear, then the commentary about the strong demand for metaverse is not related to 5G telco, correct?
spk03: Not necessarily. It's kind of not much related.
spk05: Okay, got it. So at the investor day about a year ago, you talked about the 5G telco opportunity. There's long design cycles, long qualification cycles. and it does look like this quarter the dam broke, basically. What percent of your telecom customers that you're engaged with went from, you know, qualifying to production shipments?
spk03: Big portion. Indeed, as I just mentioned, we started 5G telecom about three years ago, and then we have a very strong engagement so far, and some of them start to move certain volume. Some of them will move good volume data. So it's a new territory, but we overall are very satisfied with the big engagement from those partners.
spk05: Okay, great. And then my last question is that also on this vertical market, it does imply that the OEM appliance and large data center was up only 10% year-over-year. Why is that?
spk03: Indeed, we have some large engagement, and they are kind of high-value product. As we mentioned, for really kind of meta-scale data center, we are selective. But when those demand high-end, kind of high-value product, so we are indeed very excited. We start to gain some of those opportunities. Okay. Thank you.
spk01: Yeah, I'll add that, you know, the large data center vertical I think is going to vary a little bit by digestion too because we have some regular customers that are purchasing, you know, they'll purchase for two or three quarters and then they'll take a pause. But, you know, the good thing about our business is that it's grown to the point where we have enough momentum in all areas that, you know, that one vertical can offset the other. Great.
spk04: Thank you.
spk05: Your next question comes from the line of John Tanwen Tang with CJS. Your line is open. Thank you. Good quarter, guys, and on the outlook, too. I'm very impressed. My question is, are inflation and supply chain headwinds still accelerating in Q3 for you, and that's maybe matched by your pricing? Or is it roughly the same as Q2? And maybe as a subset of that, could you tell us where the friction is this quarter, if it's any different? and if you've seen easing or thinking tougher.
spk03: The good thing is that most of our customers already get used to kind of take the responsibility for the extra cost. So that's why our gross margin or net margin, we are basically getting a stable rate, including a higher transportation charge, Basically, customer already accepted it.
spk05: Okay, great. Any commentary on where the friction is in components and shipping?
spk03: Overall, the supply chain situation has been, I would have to say, gradually improving. Not much improving, but gradually improving. So we're getting fuel more comfortable than last quarter or before.
spk05: Okay.
spk03: Although it's still a big concern, yeah.
spk05: Got it. Charles, you spent a little time earlier in the call talking about the total IT solutions, you know, transition. Could you just tell us what the margin is like in a typical total IT solution sale versus, you know, a historically pure hardware sale?
spk03: Okay. I mean, total hardware, you know, and that's the model we have. As you know, we had to compete with lots of companies. uh competition a lot of competitors but total i.t solution you know customers need a lot of software uh lots of security feature and uh kind of uh kind of like a cloud program play a cloud composite driver software and utility like that so we invest a lot in this territory in last three years and now we start to harvest uh the result and we continue we will continue to invest more in software So our kind of software value, total IT solution value will continue to grow. I would like to say gradually we may be able to add 1%, 2%, or even 3% extra profit, net profit to our revenue in next few quarter or few years.
spk05: Okay, great. And that was part of your investor day target and it was in the target model, correct? Yes. Okay. Understood. Thank you. Thank you. Your next question comes from the line of Ananda Barwa with Loop Capital. Your line is open.
spk04: Hey, guys. Thanks for the follow-up. I have a couple if I could. Charles, just going back to your comments just a moment ago about component constraints. I hear you're actually, as you said, they're actually becoming less constrained right now, so just a clarification.
spk03: A little bit data under control, but still some concern. Especially, you know, for a complete IP solution, right, even sometimes you just have one component in shortage and you cannot ship the whole product line, the whole solution. So that's why it's improving, but still lots of concern.
spk04: Understood. Understood. Helpful. And then on the gross margin, you guys have talked about reaching 14% in June. So it sounds like you're tracking ahead of that. And then you've guided sort of up sequentially. How should we think about gross margin, you know, kind of going forward and post the March quarter, I guess trajectory-wise, and what does the person say? Because I think you guys have talked about sequential up December, sequential up March, and sequential in June to get to 14%. And so now that you're already there, can you give us some sense of what the personality of those margins should look like in the coming quarters? Appreciate it.
spk03: Yeah, basically, when our total IV solution becomes more mature, gross margin and net margin were consistently growing. That's a benefit in a very solid direction. But in some time, and I hope it happens, sometime when we engage with a large-scale CSP or OEM in really high revenue deal, that may impact our growth margin and net margin. Although it's lower overall margin, but when it's positive to company overall future, we will still selectively take some beer out of there.
spk04: Okay, great.
spk03: Thanks.
spk04: Thanks, Ken. I appreciate it.
spk05: Thank you. Your final question? With SIG, your line is open.
spk06: Yes, thanks for the follow-up. Just a modeling follow-up. If I take a 320, a minimum of 320 EPS price for FY22 and assume 80 cents for March, then my June EPS would be up over 90 cents. So you are... expecting margin expansion from March to June. Is that the right way of thinking about to get to the 320 minimum EPS for FY22?
spk03: Go ahead. Yeah, basically, June always our kind of a hot season, right? So this year, I believe same opportunity. June will be very strong quarter, I believe. And so as to gross margin, maybe a little bit lower, but if that happens, the net profit should be more than $90, maybe more than $1. David, you may add some comment there.
spk01: Yeah, I'm ready. So we're very comfortable being inside 14% to 17%. That's our target. We've guided up for Q3. We said it should be up slightly in Q3. And, you know, for Q4, you know, we're not giving updates on Q4. But, you know, for the full year, as we've said before, very comfortable with, you know, the guidance that's out there because it has a low range and a high range.
spk06: Got it. Thank you.
spk05: There are no further questions at this time. Ladies and gentlemen, thank you for your participation. This concludes today's conference call. You may now disconnect.
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