Super Micro Computer, Inc.

Thank you for standing by. Founder, President, and Chief Executive Officer David Wiegand, CFO, and Michael Steger, Senior Vice President of Corporate Development. All lines have been placed on a mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question, it is star followed by one on your telephone keypad. If for any reason you would like to remove that question, it is star followed by two. Again, to ask a question, it is star one. Thank you.

Good afternoon. Thank you for attending Supermicro's second quarter fiscal 2025 business update conference call for the second quarter, which ended December 31st, 2024. With me today are Charles Liang, founder, chairman, and chief executive officer, and David Wiegand, chief financial officer. At the end of today's prepared remarks, we will have a Q&A session for sell-side analysts. Additionally, the company will not address any questions regarding the delay in the filing of the company's fiscal year 2024 10-K and 10-Qs due thereafter. During today's conference call, Supermicro will address business and market trends from the second quarter of fiscal 25, including our financial outlook and operations, our strategy, technology, and disadvantages, our current and new product offerings, and competitive industry and economic trends. We will discuss estimated financial results by reference to any financial results or preliminary and subject to change based on finalized results contained in future filings with the SEC. By now, you should have received a copy of today's news release that was issued after the close of market and is posted on our website where this call is being simultaneously webcast. Any forward-looking statements that we make are based on facts and assumptions as of today, and we undertake no obligation to update them. Our actual results may differ materially from the results forecasted, and reported results should not be considered as an indication of future performance. has a discussion of some of the risks and uncertainties relating to our businesses contained in our filings of the SEC, and we refer you to those public filings, including our most recent annual report on Form 10-K. During this call, all financial metrics associated and growth rates are non-GAAP measures other than revenue and cash and investments. This call is being broadcast on the Supermicroinvestor Relations website and is being recorded for playback purposes. An archive of the webcast will be available on the IR website as the property is super

micro our third quarter fiscal 2025 quiet period begins to close the business friday march 14 2020 progress technology innovation and business opportunities as we approach the midpoint order fiscal 2025 i will begin by reviewing some key financial highlights from that december quarter our preliminary physical q2 net revenue is projected to range between 5.6 and 5.7 billion making a 54% year-on-year increase at the midpoint. Despite some negative impacts on cash flow and market misperception due to the 10K delay, we achieved a fairly good quarter, driven by sustained AI demand from both existing and new customers. Our growth trajectory for physical E-Authentify remains promising. Highlights by the beginning of our transition from Apple to BlackWare GPU. We expect the growth in new generation platform to accelerate as supply ramp this quarter and beyond. We have confidence that our calendar year 2025 growth could be a repeat of calendar year 2023, if not better. Assuming the supply chain can keep pace with demand. Our preliminary physical Q2 long gap earnings was in the range of $0.58 to $0.60 per share, worth $0.56 last year, representing approximately a 5% year-on-year growth. Long gap growth margin was approximately 11.9%, and long gap operating margin was approximately 7.9%. Temporarily under pressure due to the 10K delay disruption. The new product R&D investment and customer and product mix. In a separate place release issue today, we announced a private placement of 700 million in new 2.25% convertible senior nodes. due in 2028 to support our rapid business growth immediately. We have also privately amended a portion of our existing convertible nodes due in 2029, with almost all investors participating in the amended nodes. This will support our growth, including Supermicro 4.0 initiatives, data center building block solution, uh dc bbs and some brand new gpu platform architectural design before diving into the details of our operation progress let me begin by sharing an update regarding our financial violence our financial team and our new auditor bdo have been fully engaged in completing the auditor process Based on our progress to date, we are confident that our fiscal year 24, Form 10-K, and the first two quarters of fiscal year 25, Form 10-Q, will be filed by February 25th this year. As previously stated, the special committee found no evidence to support our formal auditor's reasons for resignation. However, over the past two quarters, we have added senior leaders in corporate communication, operations, finance, legal, and compliance departments. We will continue to add more top experienced leaders to build a stronger corporate foundation for our rapid growth and expanding a global business, including the CFO, CCO, and other position. As you know, we have grown strongly. Moving on to our technology progress, we are excited to announce that our NVIDIA Blackwell products are shipping now. We have begun volume shipping of both L-Core 10U and D-Core 4U NVIDIA B200 HGX system. Meanwhile, our NVIDIA GB200 MVL72 racks are fully ready for production as well. Utilizing our system building blocks, we are going to soon offer more brand new platforms for customers seeking further optimized, higher density, and even greener AI solutions. While most of the key components are ramping at a full speed, it will take some time to fulfill our current AI solution backlog. Some customers also need more time to finish their DLC data center view out. At the same time, we see strong new demands are keeping coming from enterprise CSPs, serving entity and hyperscale. We are expanding and enhancing our total liquid core data center infrastructure solution, featuring the latest DRC technology exemplified by the XAI process, the world's largest deep core AI supercomputer. Supermicro is the disruptive leader in driving industry-wide adoption of DRC technology, which reduce customers' OPEX and achieve green computing. We expect more than 30 percent of new data centers worldwide to adopt liquid cooling infrastructure within the next 12 months driven by the rapid and continual growth of ai winning computing deserves to be everywhere in the world our dlc long-term investment and leadership provide a sustainable competitive edge and economics of scale far ahead of competition super michael's data center building block solution consolidated server racks networks storage water tower software management on-site deployment cabling and service for an end-to-end solution The true value of data center building block solution is to save power, reduce space, and decrease water consumption, resulting in up to 40% lower TCO for our customers according to our detailed calculation. It accelerates new data center deployments and helps modernize existing infrastructure in weeks or months rather than quarters. and EOS. Significantly improve data center TTD and TTO, time to delivery and time to online. We are expanding our data center to include more and more systems quarter after quarter. And we have become a true one-stop shop, a data center partner to the whole industry. On the product front, Our new Malaysia campus, sorry, own the production from our new Malaysia campus. We also ship the product to our regional partners. Our Taiwan and European production capacity are also growing significantly. In Silicon Valley, we are rapidly expanding our manufacturing site to increase our DLSE direct scale production capacity. The U.S. campus boasts an impressive 20 megawatt of power, enabling us to produce over 1,500 DLC GPU racks per month in the U.S. To better support our key partners and align with current government initiatives, When needed, we are also ready for other domestic manufacturing expansion in various regions across the U.S. This strategic expansion will ensure we meet the increasing demand for our product and service while maintaining our commitment to keep partner for quality, security, TCO, total cost of ownership, TTD, again, time to delivery, and TTO, time to online. To summarize, we have been a product and technology leader in the IT industry for over three decades. As we continue to strengthen our internal operation and expand our U.S. and global manufacturing footprint, we aim to turn this progresses into value for shareholders, customers, and partners. Our first true market advantage of delivering the most innovative AI infrastructure technology with BlackWare coupled with exceptional product quality service software, networking, and security. with data center building block solution. We'll continue to reinforce our partnership as the premier US-based data center infrastructure solution provider. With our expanding technology leadership and today's AI trend, we believe it will result in a similar growth trend for us like 2023. With that, I'm confident we will finish this fiscal year strongly with revenue in the range of $23.5 billion to $25 billion. And I believe we have potential to reach $40 billion for fiscal year 26. Before passing the call to David for a financial overview, I want to thank all of our partners customer investor and she will make a team members and express my deep appreciation for their continuous support, which is that I will now turn the call to David.

Thank you, Charles. Please note these numbers are preliminary and unaudited subject to change upon completion of review by management or audit committee. Additionally, our independent audit firm has not completed its review procedures with respect to this preliminary financial information. So to start, again, we expect Q2 fiscal year 25 revenues in the range of $5.6 to $5.7 billion, up 54% year over year. Again, growth was driven by demand for air-cooled and DLC rack-scale AI GPU platforms. AI-related platforms again contributed over 70% of revenue for Q2 across enterprise and cloud service provider markets. The Q2 non-GAAP gross margin is approximately 11.9% versus 13.1% last quarter due to lower margins from product and customer mix. And you'll recall that on the Q1 earnings Bill Benos, Business Update call we guided down 100 basis points for this quarter, the non gap operating margin is approximately 7.9%. Bill Benos, which excludes 82 million in stock based compensation expenses versus 9.7% in Q1 due to those lower gross margins other income and expenses approximately $8 million consisting of $15 million in interest. and other income offset by $7 million in interest expense. The tax rate is approximately 15% for GAAP and 17% for non-GAAP. GAAP net income will range from 315 to 325 million and non-GAAP net income 375 to 392 million. Non-GAAP net income excludes 63 million in stock-based compensation expenses net of the related tax effects of 19 million gap diluted eps is approximately 50 cents to 52 cents versus prior guidance of 48 cents to 58 cents non-gap diluted eps is approximately 58 cents to 60 cents versus guidance of 56 cents to 65 cents we expect a gap diluted share count of approximately $636 million and a non-GAAP diluted share count of $647 million. The closing inventory was approximately $3.6 billion versus $4.9 billion last quarter. CapEx was $28 million. Cash used in operations was approximately $240 million versus cash generated from operations of approximately 409 million in Q1. Supermicro began the second quarter with approximately 2.1 billion in cash and recorded approximately 320 million in gap net income for the second quarter. Cash was provided from lower inventory and other sources, totaling 1.5 billion. And then the company used cash to pay down accounts payable by 1.2 billion. We realized higher other receivables from purchase rebates and prepaid inventory of 484 million. We had increased accounts receivable of 335 million. We also reduced our bank loans by 346 million net, and we incurred capital expenditures of $28 million and had other uses of cash totaling $87 million. This resulted in a reduction in cash during the quarter of $660 million, thereby ending the company's second quarter fiscal year 25 quarter with $1.4 billion in cash at the end of December. Now, I want to point out we've continued to prudently manage our working capital and for the month ended january 31st 2025 we ended with approximately 2 billion dollars in cash turning to the balance sheet and working capital metrics compared to last quarter the q2 cash conversion cycle was up to 100 to 104 days versus 97 days in q1 days of inventory was 78 days compared to the prior quarter of 83 days. Days sales outstanding for Q2 was 47 days versus 42 days last quarter, while days payables outstanding was 21 days compared to 28 days last quarter. In a separate press release issued today, we announced a private placement of 700 million of new 2.25% convertible senior notes due 2028. and we privately amended our existing 1.7 billion convertible senior notes due 2029. The company is reconfirming that no previously issued financial statements require a restatement. The company, however, made certain adjustments to the preliminary unaudited results for the fourth quarter of fiscal 2024 that it had announced on August 6, 2024. The adjustments recorded in the results for the fourth quarter of fiscal year 2024 include an increase in net sales of approximately 46 million and an increase in the cost of sales of approximately 96 million, which included a charge due to an increase in inventory reserves of approximately 45 million. There was also an increase in operating expenses of approximately $5 million. Until the company's fiscal year 2024 financial statements are filed, the company is required to reassess its accounting estimates for financial reporting. The charge for inventory reserves results from an unanticipated decline in the market value of certain components that were held in the company's inventory or on noncancelable purchase orders at the end of fiscal year 2024. Collectively, these changes resulted in a downward adjustment to the previously announced preliminary unaudited fiscal year 2024 and fourth quarter of fiscal year 2024 gap and non-gap diluted net income per common share of approximately $0.09. That's based on a post-split diluted shares outstanding basis. The foregoing adjustments are to previously announced preliminary unaudited financial results and as such they do not constitute a restatement for the third quarter of our fiscal 2025 we are expecting net sales in the range of 5 billion to 6 billion we expect the gap in non-gap gross margin to be approximately 12 percent We expect gap and non gap operating expenses to be up approximately 17 million sequentially and gap and non gap other income and expenses to be a net expense of approximately 12 million. We expect gap net income per diluted share of 36 cents to 53 cents and non gap net income per diluted share of 46 cents to 62 cents. The company's projections for GAAP and non-GAAP net income per diluted share assume a tax rate of approximately 10.7 and 12.7 respectively, a diluted share count of approximately 642 million shares for GAAP, and a diluted share count of approximately 653 million shares for non-GAAP. The outlook for Q3 of fiscal year 2025 GAAP net income per diluted share includes approximately 65 million in expected stock-based compensation expense and other expenses, net of related tax effects of approximately 17 million, which are excluded from non-GAAP net income per diluted share. So again, I want to point out revenues for the trailing four quarters are between 20 and $21 billion. And for the fiscal year 2025, we are updating our revenue guidance from a range of $26 billion to $30 billion to a new range of $23.5 billion to $25 billion. So we're very happy to announce that the company has raised money through the issuance of new bonds, and we will continue to improve our liquidity as our growth requires it. The final, I want to end by saying that the final financial results reported for this period may differ from the results reported here based on the review by BDO, our new independent registered public accounting firm. But we expect to complete our fiscal year 2024 audit by the February 25th filing extension date that we have been granted by NASDAQ. So Michael, turn it back to you.

Layla, we'll now take questions.

Again, if you would like to ask a question, it is star followed by one. Our first question comes from Michael NG with the company Goldman Sachs. Michael, your line is now open.

Hi, good afternoon. Two questions for me, if I could. First, I was wondering if you could talk a little bit about the $40 billion fiscal 2026 revenue outlook. What informs your confidence there? If you could shed any light on backlog or pipeline or product roadmap that is informing that, that would be great. Thank you.

Yeah, I mean, our product line continues to grow. We have... uh industry standard product line plus lots of superset including some confidential product under development and we have a customer engaged with us for those projects so uh this year even today we grew about 60 percent last year we grew 110 percent so the coming year uh physical 26. At the moment we believe at least we will grow 65% at least. So that's, I believe, a very conservative estimation. and the parts in production capacity. I mean, USA now, our utilization rate only about 55%. Taiwan utilization rate only about 60%. Malaysia utilization rate still about 1% only. So there are lots of room to grow for us.

Great. Thank you, Charles. And just as my second question, I was wondering if you could talk about the mix of Blackwell and Hopper servers in the quarter. Not looking for anything specific, but was it different than what you may have expected? Was Hopper stronger? Was Blackwell affected by any supply chain constraints? Thank you.

Yeah, we have both already, right? Harper, for sure, has been a very mature product, H200, for example. And then Blackwell, we have a GB200 fully ready in production. And then for B200 HGX, we have a 10U air cooler, fully ready for production. And then 4U liquid cooler, fully ready for production. And we already accumulated some production good volume backlog back order and continue to see lots of new order coming. So I believe we do not share the detail about a percentage, but basically for sure more and more customers like to have a B200 and GB200, but we have all of them ready.

Thank you for the thoughts, Charles. Appreciate it.

Thank you.

Our next question comes from Ananda Barra with the company Loop Capital. Ananda, your line is now open.

Hey, good afternoon, you guys. Thanks for taking the questions. And congrats on, you know, on what's a pretty solid print and deliverance of news here. I could chew if I could. The first is just on gross margins. You know, Dave, what's a good way to think about June Q gross margins in the context of your guide. And then just sort of the second one there, this is the second part of my first question. I have a follow-up question as well. What's a good way to think about gross margins through the Blackwell cycle? This is obviously a key question for people and they want to remove the concern off the table that there could be, you know, material margin pressure through the Blackwell cycle. So those two, and then I have a follow-up. Thanks.

Yeah, thank you for your question. For sure, when product becomes mature like H100, H200, then we have to face to price competition strongly. But for black whale, doesn't matter GB200 or B200. For sure, whenever there are new product, our margin will become much better. And especially talking about the cooling. We believe DLSE or overall liquid cooling market share will grow all the way to 30% or even more in the next 12 months. And in terms of liquid cooling, in the last 12 months, I believe we offered a majority. of global liquid cooling. So when faced to a black-way opportunity, most of the customers when they do go for liquid cooling, I believe we have a much better position. Can I just throw a point on there?

Hey, look, let me just add that while many are focused, hang on a second, most of us are focused on the gross margins, rightfully so, but don't miss the critical point that we're driving operating margins above our targets. That translates into shareholder value.

So, Ananda, this is David. One thing I would add is if you look back to what happened with H100, as Charles mentioned, Supermicro was the company that had a stable platform, which became a market leader. and uh and so that helped our margins as they crept up to you know 18.8 now of course you know we're targeting we said we target 14 to 17 but you know the question is uh you know with you know to your point on blackwell um you know what will be uh what will the competition be able to deliver and i think that's going to be a big indicator of uh of margins we feel like we're in pretty good position because we've already been yeah

Yeah, I appreciate that. Appreciate that, guys. And then the follow-up is on the RevGuide. Charles, the $40 billion, so a couple things. You mentioned calendar year 25 could be similar to calendar year 24, which is about 40% growth. So that would suggest maybe $8 billion on average in the September-December quarter of revenue. And then the $40 billion, the at least $40 billion for fiscal 26 would tend to suggest maybe at least $12 billion on average to March and June quarters of 26th fiscal year. So is that sort of what you're talking about? And then what gives the confidence, I guess, what's the thought process underpinning that $40 billion and those kinds of rev quarters? And is it GPUs as well as custom ASICs as the TAM opens up? So just kind of a customer question there as well. Thanks. That's it for me.

Yeah, yeah, thank you again. Whenever they are new technology. We have a good chance to grow right? Kind of like this time black whale right? And kind of a DRC liquid cooling and again we have a much. Higher capacity ready for liquid cooling compared with the market and last year we grew. hundred and ten percent and this year basically grew we will grow about 60 something percent right so next year uh fiscal year 26 i believe 65 is a very conservative uh estimation and uh personally i hope we can grow more than that but that's to be conservative thank you thanks guys really appreciate it thank you

Our next question comes from Sameek Chatterjee with the company JP Morgan. Sameek, your line is now open.

Yep. Thanks for taking my question and I have a couple of questions as well. Maybe just to start off, Charles, I think the last time you mentioned, which was in 2024, that we could expect sequential revenue increases in the medium term on a quarterly basis. When I sort of look back at it in hindsight, it looks like what derailed that sequential growth to some extent was the product transition from NVIDIA in going from one product generation to another, which also drove some change in customer behavior. As you're thinking about the revenue target here for $40 billion for fiscal 26, I mean, is there an underlying assumption that you won't see a similar customer behavior change towards the next generation products? as NVIDIA goes through a transition again in that time frame? Or is there something that I'm missing in that sort of overall product transition that we should expect from your GPU supplier? And then a quick follow up.

Yeah, I mean, for calendar 25, for example, I believe we should be pretty able to repeat 2023 history. In 2023, the h-193 launch and we are ahead of competition so we grew very well in 25 uh calendar year 25 we are facing to same opportunity now uh except uh before our old air core and now is duke core and in terms of liquid cooling especially dlc we have a major market share and we have a huge capacity uh 15 uh country black per month capacity ready and we already have a many customer already approved uh and they are liquid cooling data center and getting ready to deploy in high volume so once uh black whale in volume production i believe we will have a strong growth And now we are just diligently preparing all the logistics, including the system enclosure, the thermal solution, for sure, the GPU supplied from our vendor, NVIDIA. So we are well prepared. And once the logistics are ready, we are ready to ramp up our growth.

Okay.

Maybe Charles will follow up on that. Go ahead, sir. Plus, I mean, we are spending more effort in Asia and Europe now. In 2023-24, most of our market is in the USA. But now our team in Asia and Europe is becoming much ready, much stronger to grow market share in Europe and Asia as well.

Correct. And Charles, I'll just follow up with a question that I'm getting from investors today after the print, which is when we look at that sort of 40 billion revenue target, how confident are you about achieving that revenue target with the current customer engagements that you have relative to what you need in terms of additional customers or new customer engagements to get to that revenue that you're targeting? If you can share your thoughts on that, please. Thank you.

Yeah, in the last few years our growth has been very strong, except for the 10K interrupt. So in that four months, five months, we suffered a 10K impact, so our growth has been slowed down. But we will fix 10K firing very soon, and cash flow won't be a problem anymore. So product is strong, capacity here, customer is ready, So I believe $40 billion forecast is a relatively conservative estimation.

Thank you. Thanks for taking the questions. Thank you for your question.

Our next question comes from Rupaloo Badacharo with the company Bank of America. Rupaloo, your line is now open.

Thanks for taking my questions. The first one is on gross margin. Overall, do you think industry margins are now under secular pressure given more competition from other AI server manufacturers? And is liquid cooling really a competitive advantage which you can charge more for? Or is that also becoming commoditized since it looks like everyone seems to be offering their version of liquid cooling? So David, how are you thinking about the long-term gross margin range for your business? And I have a follow up on revenues.

Certainly. So what I would say about gross margins are that number one, what we count on Ruplu is being the first to market with the very best solutions. And so right now we have a shipped uh, you know, GB 200, for instance. And, uh, and we, we're, we're very confident in, in its quality as a product. And that's, that's really what helps to, to drive, um, you know, uh, good margins. So it's not just liquid cooling. It's really, it's stable systems that have high quality, high reliability, and, uh, and, and also really the best performance. So I think that, uh, Our abilities in liquid cooling were already demonstrated in the prior quarters, and it's really our data center building block solutions, which give us a plan for the future. And so we have a lot of things planned for the future, but data center building block solutions are one of those where we offer a lot more solutions for the complete data center. At all at all levels. So again, we haven't changed our target margin. And yes, there there is competition. There's always going to be competition. But I think that if you look at how we've performed historically and our ability to engineer in, you know, in all the latest technologies, I think that's our that's our moat. That's our advantage.

Yeah, let me add a little bit. OK, thank you. Yes, go ahead. Yeah. DLOC, everyone talking about they have a DLOC solution, but how many competitors really have a DLOC deployment in high volume? I guess it's very minimal. Last year, I believe we shipped at least 60% worldwide DLOC solution. So that means those competitors, indeed, they are ready, but they do not have experience yet. And talking about data center bidding block solution, not many providers are able to provide on-site deployment and on-site cabling, on-site servicing. And now with DRC, with 150 kW per rack, or even more power per rack, I believe the on-site deployment cabling service becomes a very important value to customers. And we as a company have exactly all our experience, all our successful stories.

Okay. For my follow-up, if I can ask, as new efficient AI models like DeepSea come about, how are you thinking about the impact on your business? And as you move from training to inference, what is Supermicro doing to further penetrate the enterprise vertical? I know you have enterprise customers, but for those enterprise customers who don't have a large engineering presence, What is your strategy for attacking that customer base as well as for sovereign customers? Thank you for taking my questions.

Okay, so for deep-seeking, I mean, for sure, solar can always be more efficient quarter out of quarter. So we know that. But the industry's expense pretty depends on financial plan. So I believe the market size won't shrink because of deep-seeking. And in terms of enterprise, we have been in the enterprise market for more than 10 years. And our team in enterprise has been much stronger than before ever, especially with our service team, management software, and end-to-end data center solution. I believe it's the right time for us to grow quickly in the enterprise segment.

Okay. Thanks for all the details. Appreciate it.

Thank you.

Our next question comes from Nihal Chokshi with the company Northwind Capital Markets. Nihal, your line is now open.

All right. Thank you. Quick question here. Can you tell us whether or not backlog is up for the December quarter?

So we don't generally give out backlog figures, Nehal. But what we can say, though, is that backlog tends to follow the chip cycle. And so when you have new chip solutions coming out, you'll see backlog start to build as solutions become dependable and reliable. And then they'll tail off as the products mature. And so, you know, with the expectation of some of the new chips coming out, you know, we believe that you'll see, you know, growing backlog industry-wide. Thank you.

And then I apologize in advance. This question is going to sound a bit Turkish, but, you know, Charles, you characterized a $40 billion target at 60% year-over-year growth, and given that, fiscal year 25 is going to be around 60% year-over-year growth and, you know, likely impacted by the 10K delay. Therefore, 60% year-over-year growth for fiscal year 25 is potentially conservative. But, I mean, is historical year-over-year growth really a good indicator or future demand? Have you looked at the actual, like, pipeline of demand and said, yep, we believe that This is the, how big is the pipeline and this is a reasonable conversion rate. And therefore 40 billion is indeed very reasonable.

Yeah, very good question. From both, I mean, we validate the business and from all different dimensions, right? I mean, from our historical growth, last few years, we have been growth more than 60% year over year, basically. Except this year, right? According to year, because of 10K today, and we have some cash flow constraint. So we grew, we may grow only about 60% percent of citizenship. But other than that, I believe looking forward next few years, our growth should be every year should be more than 60%. And second, from a customer demand, from a customer backlog, from a customer commitment, sales commitment, look like 40 billion is a relatively very conservative target.

Great, thank you. And if I might squeeze one more in, I'm sorry, but I'm not quite getting what you mean by data-centered building block architecture. Can you give me a concrete example as far as what does that mean? Is it like basically the cooling tower design or something else? Can you put a little more concreteness behind that?

Okay, it's a bit confidential, but I'm happy to share. I mean, it's like I was uh rack scale building block solution customer want to build in their rock we have everything for them same thing customer want to build their data center we will have everything for them and today we offer more and more key components for example uh liquid cooling uh the uh uh aura kind of uh liquid cooling uh pump right uh and uh water tower right uh dry tower uh water tower and then uh uh kind of uh i mean anyway all the people build a data center uh need uh those key components we try to provide all of them including software including uh management uh tool and experience So I hope customers can one-stop shop with Supermicro to build their data center. Make their data center time to market much quicker and also cheaper, lower cost, right, and quicker to build their data center. And that's power consumption. Thank you. Better quality. Thank you.

Our next question comes from John with the company CGS Securities, Inc. John, your line is now open.

Hi. Thank you for taking my question. Charles, I was wondering if you could break down the factors or maybe David, you know, driving the reduction in the 25 revenue guidance. How much is maybe pricing related? How much do you think is related to, you know, delays or availability of Blackwell? and the impact on hopper demand, and then maybe how much was related to your 10K, and maybe customers not feeling so great about doing business with you until that's filed.

Yeah, I would say, John, that probably the biggest factor was just the delay in new technology because we were, when you think about it, we were all set to go. We were all set to ship, you know, with liquid cooling. We were ready. And, you know, but the problem was is that the, you know, not everything else was. So that was certainly a huge impact. I think, you know, obviously 10K delay was a distraction. But it's more about technology for us because we count on being early to market. And so, you know, that's what creates the big jumps that we have, you know, the kind that took place last year from Q3 to Q4 when we went up $1.5 billion in one quarter. But, you know, remember, we finished the four quarters that ended June 30th at $15 billion. And now here we are two quarters later, and now we're at a trailing four quarters of over 20 billion. So we have the dynamic to accelerate really well when the technology is there that customers want. And I think if you look at all of the spending predictions and intentions that are out there, You can see the money being put in place to spend money on data centers and on data center solutions. And that's why we're here.

Got it. Thank you. And then can you talk about your capital needs and cash flow expectations going forward as you, you know, start getting into court or you're maybe generating $8 billion in revenue, $12 billion in revenue, you know, as implied by that $40 billion target?

Yeah, so we're working on a number of different fronts. to uh you know to raise additional capital uh you know um which we just did with uh you know some of our our uh actually the investors that put money into us previously uh with our bonds so they came back and and provided additional capital for us so uh we will uh we've always said we want to uh use our balance sheet uh as we can uh to uh to generate additional uh additional funding for our growth but uh you know we'll just like we're we're preparing on the engineering side we'll also prepare on the capital side yeah in terms of leverage our inventory and ar i guess the um the long should be available very soon first Yeah, we have a very unlevered balance sheet, you know, as you know right now, because we paid down a lot, you know, some of the bank debt. And so we've paid down a lot of accounts payable. And so we have a very healthy balance sheet.

Got it. Thank you.

next question comes from aaron c rikers with the company wells fargo aaron your line is now open yeah thanks guys for taking the questions uh most of them have been answered or asked and answered but i've got a couple here real quick so first of all charles i just want to make sure i'm clear you know blackwell in the product cycle are you shipping the gd200 the nvl 72 today and or if not, you know, is that a significant factor as far as volume shipments in your current quarter guide? And I've got a few others.

You know, GB and our 72 our position is similar to other competitor right so we have a solution for you really now once we have a support from uh Nvidia and we can ship and the time right and other than that our b213 indeed I believe is uh some of our advantage because we have all different kind of uh optimize the platform especially for for you dlc we have lots of demand there and we are ready to ship in volume about now and you know yes that's perfect yeah sorry go ahead Yeah, I said DRC, as you know, last year, Supermarket alone, we shipped more than 3,000 racks to the market. I believe that's about 70% of the whole market, whole DRC market last year. So we have a much better experience, much better solution. So when customers are looking for GB213, for B213 liquid cooling, I believe we are in a much better position than that industry is averaging for sure.

That's perfect. And then my second question is really on gross margin. I apologize to ask again on this topic, but can you walk us through the variables that drove the sequential change in gross margin this last quarter? And I guess the other thing is that, Charles, you mentioned some of the utilization rates in US and Taiwan. You know, hypothetically, let's say that you're at, I don't know, pick a number, 70% or 75% utilization rate. How much of an impact would utilization rates have on growth margin? How do we isolate that impact?

We did not provide that, but basically, for sure, the impact may be 20, 30 points.

Yeah, we in the past, we've said if we can manufacture in Asia, we predicted that we would be able to save one to two points, you know, on the margin, Aaron. But we, you know, back to, let's see. And then you had another question on gross margins to walk you from Q, back through Q2. And because, again, we forecast back in November that we would be down 100. you know, basis points. And that was because of the, you know, the customer mix and products that we saw shipping out. Remember, we're working on, you know, we're working on more end-of-life, you know, products, which have become more competitive as customers are waiting for the new platforms by all the different technology companies to come out. you know, from Intel, AMD, and NVIDIA. So there is, of course, more people that have, you know, that are offering solutions. But as Charles mentioned, if you, you know, going into the B200s and the GB series, you know, this is going to be perhaps a different game. And so that's my commentary on, you know, how we got to, um the change in margin and we had a little we had some extra uh expenses as well because we're spending more on r d right now uh and specifically in in buying you know some of the you know the advanced uh you know chips as we uh refine our our engineering and production uh to get ready for uh you know what we can what we consider will be no very large uh you know shipments coming up

Thank you, guys. Yeah, on-site debridement, on-site debridement, cavering, and service. That would be another differentiation with other competitor.

Our next question comes from Quinn Bolton with the company Needham and Company. Quinn, your line is now open.

Hi. Thanks for taking my question. Just wanted to follow up on the GB200, NVL72 question. Just sounds like you guys are ready to go, but the biggest gating factor is just support from NVIDIA. Do you guys have a forecast from NVIDIA, you know, when you think you're going to start to see, you know, supply of the GPUs so that you can ship the NVL72, or is visibility still pretty low on availability of the GPUs?

We already prove pretty much everything and now just waiting for, and we are in some allocation, some volume, but the volume demand is way much bigger. So we are waiting for more allocation. So hopefully very soon we can ship in a much higher volume.

Got it. So it's just waiting for the allocation sounds like is the getting factor. Got it. Thanks. And then maybe just to follow up longer term question, Charles, On this deep seek, you know, impact on the industry certainly sounds like we'll get more deployment of AI models, which probably says we get more inferencing. To the extent that you see more inferencing infrastructure put in place, it's probably more fragmented. I assume that that's good for super micro because it's, you know, less concentrated, probably more variability of systems. But can you spend a second on whether you think, you know, a shift towards inferencing is positive for the business? Is it neutral? Is it negative? Thanks.

Yeah, it's very positive when invention become more popular, become a worldwide trend, right? I mean that before I mean they may have a 300 buyer. Basically, but with invention getting popular, AI getting popular, I believe very soon there will be thousands of companies need to buy AI equipment or service. So we are very happy to see the market size is growing and many more customers are asking for a product, asking for total solution. So and with our application optimized nature building block solution, we are able to service variety of customers in different verticals. So that's another advantage we will have. Thank you, Charles.

Thank you.

Our next question comes from George Wang with the company Barclays. George, your line is now open.

hey guys and thanks for taking my question hey charles uh can you talk about kind of um your current pipeline just in terms of the mix of sovereign ai just just especially versus three months ago can you kind of talk about whether you're seeing a incremental kind of you know a pipeline build from the sovereign ai of the world uh yes it's also increasing i mean before most of the demand like usa

and some other large country only. But now, yes, we see many more countries going to build their own AI infrastructure, especially for solving AI and imaging as well. So the demand is kind of worldwide now, and it's a very exciting moment to see the AI boom continue to be popular worldwide.

Just a quick follow-up, if I can. As we potentially head into the GV300 era, later this year, or 2026, the supply chain chatter of most of the open standards as NVIDIA kind of potentially unbundle the supply chain. So that could potentially add more customization. So maybe directionally, can you talk about the implication to Supermicro especially for the margin uh do you think that you can add a bit more customization hence more margin as we head into gb 300 or it's non-material yeah technology always unlimited people always come out some idea and some

demand for doing vertical for given application. So we never feel our engineer had nothing to do. So always do not have enough engineering manpower. So even today we still continue higher engineering very aggressively worldwide. So there are lots of room to optimize for different customers, different product lines, different verticals. And especially for invention, right? So I still lots of room to differentiate. And especially when we get into a data center building solution. Now we are going our mark 10 to data center infrastructure. So to provide the whole solution for people who need to build a data center. So I see our mark 10. also foster the growing.

Thank you. Jayla, we're out of time. Thank you for attending the Supermicro conference call and we'll catch up with you soon. Thank you.

That will conclude today's conference call. Thank you for your participation and enjoy the rest of your day.