Super Micro Computer, Inc.

At this time, I would like to welcome everyone to the Supermicrocomputer Inc. SMCI U.S. Third Quarter Full Year 2025 Earnings Call. With us today are Charles Wei Yang, Founder, President, and Chief Executive Officer, David Wiegand, CFO, and Michael Sager, Senior Vice President of Corporate Development. 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'd like to ask a question, please press star followed by one on your telephone keypad. I would now like to pass the conference over to Michael Seeger.

Uh, Victoria, thank you. Good afternoon and thank you for attending Supermicro's call to discuss financial results for the third quarter, which ended March 31st, 2025. With me today are Charles Liang, founder, chairman and chief executive officer, and David Wiegand, 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. is available on the company's website. As a reminder, during today's call, the company will refer to a presentation that is available to participants in the investor relations section of the company's website under the events and presentations tab. We've 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 forward looking statements, including without limitation those regarding revenue, gross margin, operating expenses, other income and expenses, taxes, capital allocation, and future business outlook, including guidance for the fourth quarter and full fiscal year 2025. There are a number of risk factors that can cause Supermicro's 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 year 2024, and our other SEC filings. All these documents are available on the investor relations page of Supermicro's website. We assume no obligation to update any forward-looking statements Most of today's presentation will refer to non-GAAP financial results and business outlook. For an explanation of our non-GAAP financial measures, please refer to the company presentation or to our press release published earlier today. In addition, the reconciliation of GAAP and non-GAAP results is contained in today's press release and in the supplemental information attached to today's presentation. At the end of today's prepared march, we'll have a Q&A session for SELFA analysts. I will now turn the call over to Charles.

Thank you Michael and thank you everyone for joining us. As previously announced. Our physical Q3 net revenue total 4.6 billion coming in lower than our original forecast. This decline was primarily due to our customer waiting and evaluating AI platforms between the current hopper and the coming and upcoming of Blackwell GPUs leading to a delay commitment. We expect many of these engagements to materialize in the June and September quarters, strengthening our confidence in meeting our long-term growth target as we close out this eventful fiscal year. Despite macroeconomic conditions, and tariff impact, our ability to expand the market share in IT and AI remains strong. On the earning form, our physical Q3 non-GAAP EPS stood at $0.31 per share compared to $0.66 last year. This decline was largely driven by an inventory breakdown of old generation GPU and related components, while the new platforms are finally ramping quickly about now. Although our quarterly performance did not align exactly with our expectation, we successfully fulfilled our commitment to regain financial regulatory compliance. At the same time, we continue to enhance technical innovation and development, which results in successful high volume delivery of our new generation AI platforms at the end of March. Looking ahead, some major background new innovation are set to service the market in this quarter and the new fiscal year, especially our coming soon DCDBST. With a clear time-to-market advantage, Supermicro once again leads the AI infrastructure technology and DRC solutions. This strong position enables us to explore new opportunities and expand the market share. During the quarter, we achieved volume shipment of air-cooled, 10U, and liquid-cooled 4U NVIDIA B200 HGX systems. both are exactly the first to the market again as well as gp 200 mvl 72 racks additionally we start to offer amd mi325x solutions to further broaden our ai portfolio leveraging our system building blocks We will again over time to market on the upcoming new platform such as Nvidia B300, GB300, and AMD MI350 platforms this summer for customers seeking leading technology, more optimized, higher density, and greener AI solutions. Building our strong foundation of technology leadership building block solution and building computing DNA. We have been deeply focused on developing the industry's first end-to-end AI IT data center total solution. We are now about fully ready to share this exciting news with the market in the coming days. by launching our brand new data center building block solution. We call it DCBBS, featuring our second generation system, liquid cooling technology. We call it DLC2. With DCBBS, we are able to dramatically shorten customers' efforts to build a data center, reduce their cost, and most importantly, make their data center better quality and performance, greener and with higher availability. DCPBS consolidates critical components, including AI service systems, storage, rack, power and play, all different kinds of switches, DLC systems, water tower or dry tower, chill door, power shelf, battery backup unit, typical BBU, on-site deployment, networking design, cabling, and data center end-to-end management software, and all different scopes of services into a streamlined process. The true value of DCPBS lies in its ability to reduce power consumption optimize space and decrease water usage delivering up to 30 percent lower tco more importantly it accelerate new data center deployments and upgrade existing data center in a matter of months or even weeks rather than many quarters or years Driven significant improvement in data center time to deployment. We call TTD and time to online. TTO. One or a key components of DC PBS is our industry leading DLC solutions. She will Michael remains at a full form of driven industry adoption of DLC technology. Directly cooling technology. setting new standards for performance efficiency and sustainability. Last year, we shipped 4,100 ky AI racks equipment with DLLC, helping our customers reduce energy costs by up to 25 or even 30%. We are committed to double this volume in the coming year, further amplifying the impact of green computing. With the upcoming DLLC2 technology, Supermicro will be able to deliver even greater savings and benefits to our customers. For example, it will save power and water up to 40% and reduce data center noise level down to about 50 dB. That is almost as quiet as a library. We are going to announce the detail In the coming days. Winning computing can be everywhere and without DRC2 solutions, we are making that vision a beautiful reality. Our long term investment and leadership in DRC has solidified a sustainable competitive edge. Providing economics of scale and keeping us far ahead of the competition. Our global operation continue to expand with our new Malaysia campus, begin shipping product to partners. Meanwhile, our facility in Taiwan and Europe are scaling up their capacity and capability, providing customer with flexible options for their logistic choice and minimize their cost during the market and tariff uncertainties. To further strengthen support for key partners and align with government initiatives, we continue to expand our U.S. domestic manufacturing capacity, including new facilities in the Midwest and other locations. This strategic expansion will allow us to meet rising demand while continuing to enhance our commitment in quality, security, and TCO, TTD, and TTO. In summary, Physical Q3 was dynamic and productive. We successfully navigated financial challenges while continuing to strengthen our leadership in product and technology innovation. Our first to market advantage in AI infrastructure along with the expanded reach of DCPBS data center building block solution and. And the advancement in the DLC technology. Order so solidify our industry position. I remain highly confident and optimistic about our long term strong growth and much share again. However, near-term macroeconomic and market uncertainty make it difficult to precisely forecast the pace in the technology adoption. Despite this, I'm confident that we will close the fiscal year on a strong note. Given the current condition, we anticipate a Q4 revenue of at least $6 billion. and will resume providing a broader forecast range once we have better visibility. Before passing the call to David for a financial overview, I want to thank you all for our partners, customers, investors, and Supermega team members, and express my deep appreciation for their continuous support. With that, I will now turn the call over to David.

Thank you, Charles. Fiscal Q3 2025 revenues were $4.6 billion. This was up 19% year over year and down 19% quarter over quarter. Q3 revenues were down quarter over quarter as certain new platform decisions by customers moved some sales into Q4 and later. AI GPU platforms again represented more than 70% of revenues with AI GPU customers in both the enterprise and cloud service provider markets. Our design wind pipeline remains robust, and we expect continued growth in Q4 as we ramp up production of our data center building block solutions, DCBBS, based on new GPU platforms. As a leading U.S. technology company, We focus on extensive rack scale and DCBBS technology and capacity investments in the U.S., which is complemented by our investments in Taiwan, the Netherlands, and Malaysia. As Charles indicated, we have a flexible global manufacturing footprint to meet our customers' needs, and we continue to closely monitor the rapidly involving macro and tariff environment. During Q3, we recorded 1.9 billion in the enterprise channel vertical, representing 42% of revenues versus 25% last quarter. This was up 3% year over year and up 38% quarter over quarter as we saw strengthened enterprise adoption of new AI and CPU platforms. The OEM appliance and large data center vertical revenues were 2.6 billion, which represented 57% of Q3 revenues versus 75% in the last quarter. This was up 35% year-over-year and down 38% quarter-over-quarter. Two existing CSP slash large data center customers represented 22% and 14% of Q3 revenues. Emerging 5G telco edge IoT revenues were $48 million, or 1% of Q3 revenues. Server and storage systems comprise 97% of Q3 revenue, and subsystems and accessories, the remaining 3%. By geography, the U.S. represented 60% of Q3 revenues, Asia 30%, Europe 6%, and the rest of the world 4%. On a year-over-year basis, U.S. revenues increased 3%, Asia increased 77%, Europe decreased 3%, and the rest of the world increased 83%. On a quarter-over-quarter basis, US revenues decreased 28%, Asia increased 76%, Europe decreased 69%, and the rest of the world increased 45%. China continued to represent less than 1% of sales in Q3. The Q3 non-GAAP gross margin was 9.7%, which was down 220 basis points quarter over quarter from 11.9% in Q2, primarily due to higher inventory reserves for older generation products, lower volume and accelerated costs to enable time to market for new products. Q3 operating expenses on a gap basis decreased 3% quarter over quarter and increased 34% year over year to 293 million. On a non-GAAP basis, operating expenses decreased 5% quarter over quarter and increased 30% year over year to $216 million. Q3 non-GAAP operating margin was 5% compared to 7.9% in Q2 due to lower revenues and gross margins. Other income and expense for Q3 was a net expense of $31.7 million, consisting of $13.4 million in interest expense principally from convertible bonds and other losses of 18.3 million, principally from a non-cash $30.3 million loss on the amendment of the 2029 convertible bond and adverse foreign exchange impact and other miscellaneous expenses offset by higher interest income. The GAAP effective tax rate was 5.1%, resulting in a GAAP tax expense of $6 million for Q3. The non-GAAP effective tax rate for Q3 was 15.5%, resulting in Q3 non-GAAP tax expense of $36 million. Q3 GAAP diluted EPS of 17 cents and Q3 non-GAAP diluted EPS of 31 cents was lower than our guidance due to lower revenues and gross margins. The GAAP fully diluted share count for Q3 was $622 million, and the non-GAAP fully diluted share count was $636 million. Cash flow generated from operations for Q3 was $627 million compared to cash flow usage of $240 million during the previous quarter. The Q3 closing inventory was $3.9 billion, which increased by 7.6 quarter over quarter from $3.6 billion in Q2 as we prepare for higher shipments in Q4. CapEx was $33 million for Q3, resulting in free cash flow of $594 million during the quarter. During the quarter, we amended the terms of our existing 2029 convertible notes and raised $700 million in gross proceeds in a new 2028 convertible note from the existing convertible investor group. The proceeds from the new convertible note offering will be used to strengthen our working capital, enable continued investments in R&D, and expand global capacity as needed. The closing Q3 balance sheet cash position was $2.54 billion, while bank and convertible note debt was $2.49 million, resulting in a net cash position of $44 million versus a negative net cash position of $479 million last quarter. Turning to the balance sheet and working capital metrics compared to last quarter, the Q3 cash conversion cycle was 124 days versus 104 days in Q2. Days of inventory increased by three days to 81 days compared to the prior quarter of 78 days due to key component purchases for higher expected Q4 shipments. Days sales outstanding increased by nine days, quarter over quarter, to 56 days, while days payable outstanding decreased by eight days to 13 days. We are closely monitoring the macro environment, tariffs, and the technology transition to new platforms. The outlook for the fourth quarter of fiscal 2025 into June 30, 2025. We expect net sales in the range of 5.6 to 6.4 billion, GAAP diluted net income per share of 30 cents to 40 cents, and non-GAAP diluted net income per share of 40 cents to 50 cents. Given this dynamic environment, we are being prudent and expect gross margins to be approximately 10%. GAAP operating expenses are expected to be approximately 319 million and include 74 million in stock-based compensation expenses that are not included in non-GAAP operating expenses. The outlook for Q4 of fiscal year 2025 fully diluted GAAP EPS includes approximately 63 million in expected stock-based compensation expenses, net of tax effects of 18 million, which are excluded from non-GAAP diluted net income per common share. We expect other income and expenses, including interest expense, to be a net expense of approximately $16 million. The company's projections for Q4 GAAP and non-GAAP diluted net income per common share assume a GAAP tax rate of 14.9%, a non-GAAP tax rate of 16.5%, and a diluted share count of a fully diluted share count of $628 million for GAAP and 642 million shares for non-GAAP. We expect CapEx for Q4 to be in the range of $45 million to $55 million. For the fiscal year 2025 ending June 30, 2025, based on the Q4 guidance above, we are expecting revenues of $21.8 to $22.6 billion. Michael, we're now ready for Q&A.

Great. Victoria, let's go to Q&A.

Of course. We will now begin the question and answer session. We ask that participants only ask one question and one follow-up. If you would like to ask a question, please press star followed by one on your telephone keypad. If for any reason you would like to remove that question, please press star followed by two. Again, to ask a question, press star one. As a reminder, if you are using a speaker phone, please remember to pick up your handset before asking a question. Our first question comes from the line of Summit Charity with J.D. Morgan. Your line is now open.

Hi. Thanks for taking my question. Maybe for the first one, I know in your prepared remarks you mentioned that the macro is making forecasting a bit tougher and you're talking about prudence in your guidance itself, but maybe you can sort of share what you're hearing from your customers. Are customers already talking about pulling back some orders or is there any change in customer order trends that you're seeing because of the macro? And given just where we stand relative to the June quarter, already we are a month in, I would assume you would have more sort of visibility into the June quarter rather than having to put sort of some level of consumerism in. So have you seen a lot more volatility in terms of customer orders recently to drive that prudence in terms of the revenue outlook for June? And have a follow-up, please. Thank you.

Yeah, I mean, very good question. Basically, June will be our traditional strong quarter and for sure, the tariff and macro economy uncertainty that concerns some customers. But at this moment we see a strong order. So I believe we will have a strong, strong quarter for June and September, next fiscal year will be even stronger because our new product, especially black whale, is fully in volume production now. So we gain more and more order for black whale and expect strong growth start from now.

Okay, got it. And maybe for my follow-up, on the gross margin side, previously you had talked about margins improving as you start ramping new products. whereas the guidance itself implies a bit more cautiousness on that front. Has there been a change in the pricing landscape for the new products that you're seeing in the market, or is this more about the tougher pricing environment for hopper-based products? Thank you.

I think it's a combination of concern about tariffs, and so conservatism there, and also With some, obviously also some impact from the changeover in technology platforms.

Sorry, just to clarify. So in terms of the changeover that is driving some headwinds to the gross margin, the changeover itself from Hopper to Blackwell?

That's correct. So as you come off of some of the older platforms, you have, you know, you have more price competition. And as we said, we had some delayed decisions because of these technology platform changes. And so that's really impacting that along with tariff uncertainty drives a little bit more prudence in setting margin expectations.

Got it. Thank you. Thanks for taking my questions.

Thank you for your question. Our next question comes from the line of Michael Ming with Goldman Sachs. Your line is now open.

Hi, good afternoon. Thank you very much for the question. I was just wondering if you could talk a little bit more midterm about your demand outlook. Are you, and apologies if I missed it, but are you reiterating the $40 billion revenue target for fiscal 26 and Perhaps you can talk a little bit about, you know, any changes that you might be seeing from a demand perspective aside from the, you know, timing of the technology platform transition and the background uncertainty. Thank you.

Yeah, we remain very confident with our mid-term and long-term growth. So, especially Blackwell product line, we have a very strong demand And also our, uh, coming soon, uh, DCPBS data center building blocks, uh, total solution. Uh, we see a lot of customer, uh, really interested in our, uh, data center total solution. So, uh, demand that grows will keep strong and yes, that tariff. and some macroeconomic uncertainty. We at this moment do not provide the guidance for fiscal year 26, but when it's basically become more clear, we will share at that time.

Great. Thanks, Charles. That's very helpful. And just as a follow-up, can you talk about whether or not you're seeing differences in demand between HGX versus MBL 72 racks. Any differences there, either in customer demand or, you know, your ability to fulfill demand on either product? Thank you.

Yeah, we see a strong demand for HGX. kind of GP 200, MVL 72, and P200 liquid cooling. But the customer liquid cooling data center basically a little bit dead. So that's why they are waiting there, waiting that it be more than what we expect. However, the solution, their data center will be ready very soon. And we do see our schedule is getting much more exciting now.

Thank you for your question, Michael. Our next question comes from the line of George Wang with Barclays. Your line is now open.

Oh, hey guys, thanks for taking my question. Hey Charles, just a kind of question on the GB300. Any differences in terms of value add from Supermicro just in terms of customization and potentially more services attached? Presumed as NVIDIA potentially open up

uh the components kind of for more open standards for the gb300 that could lead to a better margins uh for super micro i mean do you agree just any kind of presentation there yeah i i guess uh whenever the new technology uh it always put in a more chance to super micro as you know uh our uh b200 hgx system for example we are forced to have a product available and demand is strong so b300 and gp300 for sure we expect a very strong demand and with our very mature liquid cooling uh solution you know we have a dlc solution uh start to ship last year four thousand rack and this year with our dlc tool the dlc revision tool uh it over even better power saving water saving and also uh much better uh in terms of noise level right so we believe uh gp 300 b3 entry our technology advantage will be even more clear And we are exciting to see B300, GB300 coming very soon in the summer, the coming summer.

Okay, just quickly, if I can squeeze in, maybe for David and also for Charles, just in terms of top two customers, this quarter combined the percentage was a bit lower versus last quarter. So is this because of quarter-to-quarter kind of lumpiness, you know, volatility, or is there anything else? kind of who you ought to call in terms of who is up to customer contribution a bit lower?

Yeah, I don't think there's any trend, George. It's just the timing of shipments. But we don't we don't have any concern about that. Yeah.

Yeah, yeah. Just kind of follow up any outlook for the for the top two customers kind of in that Next few quarters, any high level thoughts and any other kind of full customer set you guys are expanding to kind of you can talk about.

Yeah, we believe our business will continue to grow much faster in the coming quarters. I hate to mention, but still, I mean, in December quarter last year and March quarter, we got some impact from the cash flow from the 10K delay impact, but that's already behind us. So now we have a much better cash flow and we are ready to grow much quicker now, especially with new technology.

Thank you for your question, George. Our next question has a line of ACI Mergent with Citigroup.

Your line is now open. Great. Thank you for taking my question. So I know there is a lot of uncertainty with tariffs, et cetera. But is there something that you can talk to us or kind of see how investors, AI diffusion rules, there's a lot of investor angst around that. How are you guys thinking about you know, your visibility and how the order should flow through given AI diffusion could impact or possibly could impact your revenues. And then I have a follow-up. Thank you.

Yeah, at this moment we see our demand continue to grow and that's why we continue to expand our facility in USA and Taiwan in Malaysia. So overall our technology didn't age especially. I mean that we did. We do continue to see that demand will continue to grow stronger. And OK, great. I mean, I mean, it may impact the demand a little bit, but overall, we will continue to get max share.

Okay. And then, if I may, on gross margins again, can you just help us understand, like, how you're thinking about, you know, the margins, especially as you expand on your DLC version 2, just how we should think about gross margins in 2020? You know, calendar 20 fiscal 26. Sorry.

Yeah, so we're not, we're not going to give forecasts for for next year at at this meeting. But what I can tell you is, is that we have, you know, we, we have published before what our, our target margins are. So, right now, we've got some, the headwinds of, of, like, you mentioned that the diffusion rules coming up in mid May. We have tariffs that we have to get, you know, find our way through. And so, you know, those things are, you know, are certainly headwinds. But on the other hand, you know, we still have the majority of our business from U.S. customers. And so, you know, we're a U.S.-based manufacturer. And so we think that we're well positioned in the marketplace on all of those fronts. But we don't, we also, being a first to market provider of the latest solutions, we also think we have an edge there. So we think that we're as best positioned as someone in the marketplace can be.

Thank you for your question. Our next question comes from the line of Amanda Barra with Loop Capital. Your line is now open.

hey hey guys yeah thanks for taking the questions really appreciate it uh i guess yeah two if i could i guess um you know this would be for charles and and for dave you guys made mention of ongoing ramp uh as blackwell supply comes on and so should we assume that that means september quarter looks up sequentially from the june quarter and Just along with that, this is not my follow-up, but just, like, along with that, like, during Hopper Ramp, you had, like, you know, you had multiple quarters. That's not accurate. You had two quarters of 70% sequential growth. You had a 40% sequential growth quarter, you know, during the Hopper Ramp. So not like a forecast, but are those, you have 30% up here in June off of the soft march. So I guess the question is, is, Order of magnitude, you know, can you be up, are you saying you'll be up September quarter again as Blackwell ramps? And like those sort of upper order of magnitude sequential increases, Charles, sort of through cycle, is that the type of thing that you sound so excited when you talk excitedly about the Blackwell potential? Is it that kind of order of magnitude that you think is possible to get back to at some point as you go through Blackwell cycle? But then I have a quick follow up as well. Thanks.

Yeah, thank you for your question. Yes, you are right. I believe much quarter we were solved the major reason because technology transition not just people waiting for a black whale solution, but also we have a lot of write down for the upper. So looking forward, I hope we can repeat the Harper history, kind of start to grow from June and September and December quarter. I believe so. I hope so.

OK, that's great. And my follow up is actually more of a technical question. So you mentioned in your prepared remarks, Charles, liquid cooling, the HGX B200s. And the question is, how many HGXs B200? And then I guess if you want to give an early comment about the B200. How many HGXs are you actually seeing you can stack and liquid cool? And I guess I'm wondering, how many GPUs are folks able to stack and liquid cool with HGX? I'm interested in seeing how close you can get folks are getting that to the to the MDL 72. Thanks. That's it for me. Thanks.

Yeah. Yeah. For for Harper, as you know, air cooler work fine but we like to prove we want to establish the deep cooling technology so we try to promote abrasive deep cooling for hopper and we successfully ship about 4 000 rack drc to the market and so far the 4 000 rack run very reliable custom adopt our drc solution uh a lot so we get lots of experience And now our DRC solution is much mature than last year. And that's why we further prepare to promote DRC2. Our DRC2, second generation DRC, will outperform the first generation. And we will have a big promotion in next few days or next few weeks. So with Blackwell, our DRC solution is fully ready. And we will provide a basic DRC solution to the world to help the customer save power, save water, save money, and also improve data center performance. So we have a very strong confidence for liquid cooling, especially for black oil and future product.

Thank you for your question. Our next question comes from the line of Michal Czachowski with Northland. Your line is now open.

Thank you. I just want to make sure I understand the inventory reserve that occurred in the March quarter. And then is there any expectation that there will be inventory reserve in the June quarter and is that part of the 10% gross margin guidance?

Yeah, so the, as mentioned in our pre-release and also in this release, the inventory reserve, you know, reduced our margin by about 220 basis points. Most of that was caused by taking a reserve for some of the older inventory products. And so the, certainly we're watching very closely, you know, our inventory products, however, As mentioned, the main-the substantial reason for the-for the expected reduction in margin is really caution or prudence regarding tariffs. I want to point out that, by the way, that we've-through three quarters, we have-we have $16.2 billion in revenues. And that was-that was versus, you know, last year's four quarters of $15 billion. We know we're very, we're very happy with where we are and the performance cycle. And even though we expect even better.

Yeah, to simplify, I would like to share. I mean, for March quarter, we have a 200 point impact from the reserve, right? But June quarter, maybe I hope only 100 point or less. And September quarter, I hope close to zero.

Okay, it's just this inventory reserve that you're taking as a charge. That basically means, I mean, you look at the impact of 200 basis points for a March quarter, that basically equates to $100 million. And then you had a billion dollar shortfall on revenue. And so does that basically mean that, you know, Justin Fields, Some percent of that shortfall system isn't finding a new home or does that mean that. Justin Fields, That shortfall is being resold into June and September quarter at a lower price.

Yeah, so I mentioned that some of the revenues that we expected in Q3 were platform decision based. So that means actually that people are moving to the newer platforms in the upcoming quarters. And so what that means is that in cases where people change their minds on platforms, we have to write the expected Realizable value of those, take a reserve for those, and do our best to sell them at more competitive prices.

Thank you for your questions. Our next question comes from the line of John Tanwanting with CJS Security. Your line is now open.

Great. Thank you for taking my questions. I was wondering if you could expand on that platform decision a little bit more. Is it customers declined to take Hopper and decided to move to Blackwell? Was it something else? Is that what I'm hearing? And was it due to, you know, design or demand or performance considerations? Or was there something else going on with maybe like data center constraints or something like that?

Yeah, you know, our customer base is a little bit different from the other competitors, right? Most of our customers are kind of technology-leading companies. So that's why new products are very sensitive to them. And this thing is now a Blackwell solution. It's already ready. So we are excited to ramp it up, start from now.

Okay, great. Charles, I also wanted to touch on something you mentioned before, just with, you know, one of the biggest, you know, U.S. server manufacturing operations. Can you just talk about your relative strength there in positioning in U.S. domestic manufacturing versus your competitive set? And how much of an advantage is that, you know, when you are seeing tariffs going up across, you know, multiple industries? And is that providing you any more additional demand, or is that too hard to see right now?

Yeah, I mean, as a USA company, we are able to especially manufacture in Silicon Valley. We are able to respond to new technology much quicker and efficient than others, especially with a better performance, a better solution like a DRC tool, right? And as to the tariff impact, because the tariff program is not quite settled down yet so we are watching carefully and try to adjust our logistics our operation as efficient as possible this thing is we have a huge operation in usa and in taiwan and in malaysia now as well So, when program settle down, we should be able to quickly respond to optimize the based solution for customer.

Thank you for your question. Our next question comes to the line of Nicholas Doyle with Needham and Company. Your line is now open.

Hey, guys. On for Quinn Vaughn. Thanks for taking my question. Can you just talk about your supplier allocations? Are you seeing the same GPU allocations for Blackwell as you have for Hopper? How is your supply change as more competitors enter the market? Thank you.

Yeah, still some allocation matter, right? Kind of some customer one a breakaway or right away and we had to wait for our location. So that situation is a little bit better than a half an hour time frame, but still some constraint there.

Thank you.

Thank you for your question. Our last question comes from the line of Mehdi Hassini with SIG. Your line is now open.

Yes, thanks for taking my question. I'm a little bit confused with capacity. I see in this slide that capacity has remained around 5,000 racks per month, but your CapEx has been pretty aggressive. Can you help me reconcile the CapEx and existing capacity? And I have a follow-up question.

Yeah, our capacity remains very huge. 5,000 racks per month, and then 2,000 racks can be GB 200, MVL 72 kind of type performance racks. And so we are very fully ready for when that demand ramp up. And that's why when blackware become more mature, much better ERA. And we are fully ready for that, especially for our DRC2, much better deep cooling solution.

But Charles, how does that 5,000 drag per month today compared to like six months ago?

Indeed, for USA, we have 5,000 rags per month since six months ago. But now we are growing in Taiwan and Malaysia, Netherlands as well.

Okay. Thank you for communicating. Sorry, go ahead.

Go ahead.

Here we go.

Oh, I was just going to say, we haven't fully enabled Malaysia as of yet, which, you know, we will be, by the end of this year, they will be fully enabled for racket, larger scale racket production. Yes. I think that's what you were driving toward. You have the facility.

Now is about to, right? To that way, we're very ready, yeah.

Okay. Thank you. Where are we with the CFO search?

When companies continue to grow, for sure, we need more manpower. So we continue aggressively looking for more talent, including CFO positions.