Super Micro Computer, Inc.

Thank you for standing by. My name is Matt, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Supermicro Computer Inc. Business Update Call. With us today are Charles Liang, Founder, President, and Chief Executive Officer, David Wiegand, CFO, and Michael Stager, 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 1 on your telephone keypad. Thank you.

Thank you, Matt. Good afternoon, and thank you for attending Supermicro's call to discuss financial results for the first quarter and full fiscal year 2026, which ended September 30th, 2025. With me today are Charles Liang, Founder Chairman, Chief Executive Officer, and David Wiegand, Chief Financial Officer. By now, you should have received a copy of the press release from the company that was distributed at the close of regular trading. 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 scripting commentary on our website. Please note that some of the information you will hear during our discussion today will consist of forward-looking statements, including without limitation those regarding revenue, gross margin, operating expenses, other income and expenses, taxes, capital allocation, and future business outlook, including guidance for the second quarter fiscal 2026 and the full fiscal year 2026. These statements and other comments are based on management's current expectations and assumptions and involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated, and you should not place undue reliance on forward-looking statements. You can learn more about these risks uncertainties in the press release we issued earlier this afternoon our most recent 10k filing from fiscal 2025 and other sec filings all these documents are available on the investor relations page of our website we assume no obligation to update any forward-looking statements most of today's presentation will refer to non-gap financial results and business outlook for explanation of our non-gap financial measures please refer to the company accompanying presentation or to our press release published earlier today. The non-GAAP measures are presented as we believe that they provide investors the means of evaluating and understanding how the company's management evaluates the company's operating performance. These non-GAAP measures should not be considered in isolation from, as substitutes for, or superior to financial measures in paired accordance with U.S. GAAP. In addition, a reconciliation of non-GAAP to most directly comparable GAAP results is contained containing today's press release and supplemental information attached to today's presentation. At the end of today's prepared remarks, we'll have a Q&A session for sell-side analysts. Our second quarter fiscal 2026 quiet period begins at the close of business Friday, December 12, 2025. And with that, I will now turn the call over to Charles.

Thank you, Michael, and thank you all for joining today's call. Fiscal 2026 is off to a strong start as we continue the early phases of the dynamic AI growth trend. Demand for advanced AI compute and infrastructural solutions is evolving rapidly, and Supermicro is uniquely positioned to lead with innovative, high-quality, and value-driven solutions, including our Data Center Building Block Solution, DCBPS. The major highlight this quarter continue to be our industry-leading AI portfolio. Our NVIDIA BlackWare Hotspot-based GB300 product line now at more than $13 billion in back orders, including the largest deal in our 32-year history. reflecting the tremendous growth potential in hyperscale and enterprise deployments. The B300 platforms are also gaining strong traction following the success of our B200 products as we continue to serve as the leading supplier. As noted in our pre-announcement, approximately 1.5 billion in revenue shift from the September quarter to December quarter due to last-minute calculation upgrade from our customers with expanded volume. These shifts were largely caused by the complexity of these new GPU rights, which requires intricate integration, testing, validation, making them more time consuming to source and field. With production now quickly ramp up, these adjustments eventually strengthen our growth trajectory and support an even higher full-year outlook. Our product portfolio continues to lead the industry. In addition to NVIDIA, GB300, and B300. We are shipping RTX Pro 6000, B200, MVL4, and AMD MI350, 355X platforms in volume to power generative AI, large language model, inference, and HPC workloads. To continue technology leadership in AI platforms, We are preparing for the NVIDIA VOROA Nubit and AMD Helios launches in calendar 2026. Edge AI solutions are also gaining more traction for real-time processing in manufacturing, telecom, retail, and autonomous environments. While deeply focused on training LLLM and generative AI, We also see rapid growth in industry-specific model, agentic AI, border inferencing, and AI at the edge. With that, we are seeing accelerating demand across cloud, enterprise, and , as they upgrade and expand the data centers for AI. helps customers accelerate and optimize customers' transformation. DCPBS is critical to our future success, enabling rapid planning, design, and deployment of AI-ready data center and AI factory while optimizing performance and minimize power consumption through our advanced DLLC and DLLC2 technologies, and high-efficient subsystems. Shifu Michael's billion block approach now go beyond server system and rack configuration. It's optimizing the entire data center for customers. With product lifecycle compression from 18 to 24 months to as short as 12 months, customers need rapid innovation, deployment, and time tool online. DCPBS delivers large-scale plug-and-play servers, storage, BLC systems, L2A heat exchangers, shield door, power shelf, battery backup for water towers, dry towers, network and cabling, management software and services. We have begun shipping DCPBS orders to some key customers and expect many more data centers to follow suit. This solution is becoming a critical part of our business strategy, driving future growth and profitability. We are investing now, and over the next few quarters, we will share more detail on our expanding DECBBS portfolio and upcoming release. To meet this unprecedented demand, Supermicro is executing an aggressive global expansion. Our Silicon Valley facility remains the foundation of U.S. operations, delivering time-to-market quality and security for customers. We have quickly expanded our footprint in San Jose recently, and are soon adding new North America sites to support a growing requirement for major CSP and NCPs. This investment underscores our commitment to America innovation, job creation, and supply chain resilience. New production facilities in Taiwan, the Netherlands, Malaysia, and soon the Middle East are coming online to enlarge our production capacity, enhancing cost competitiveness, and meet regional sovereign AI requirements. With 52 megawatt of power capacity in place, we are on track to scale production 6,000 racks per month, including 3,000 DLC racks within this fiscal year. While these expansion require upfront investment, they are critical to sustain long-term growth and deliver performance TPO time to online and cost efficiency at a scale. In summary, Supermicro is evolving into a leading AI platform and data center infrastructure total solution company. While we continue to grow our server storage rack and IoT systems, our DCPBS delivers unique advantages that set us apart, are designed to reduce customer deployment complexity, accelerate time to market, time to online, and lower total cost of ownership. Combined with our broad supply chain, deep customer relationship, and expanding partner ecosystem, this capability positions us to become the leading data center infrastructure company. Raising the large-scale orders and continuing investment in customers, products, people, and the processes put us firmly on the side. While competition remains intense, we are focused on capturing the tremendous AI infrastructure market share. Some large-scale views have a pressure margin in the near term, but our scale innovation and differentiation to initiate DCBBS offerings strength our market leadership and position us to deliver long-term profitability and shareholder value. Looking ahead, we expect to ship at least 10.5 billion in the December quarter, depending on the supply and production capability readiness. We anticipate a screenshot growth through fiscal 2026, giving us confidence in achieving at least $36 billion in revenue for the year. This is a truly unique time for Supermicro, and I am super excited about the opportunity I have. I look forward to sharing our progress with you next quarter. Thank you. Now, I will turn it over to David.

Thank you, Charles. Q1 fiscal year 26 revenue was $5 billion, down 15% year over year and down 13% quarter over quarter, compared to our guidance of 6 billion to 7 billion. We had a record level of new orders exceeding 13 billion, but a customer's custom rack platform upgrade for a recent large design win and customer logistics factors delayed some shipments to Q2. We expect customer demand to remain robust for the remainder of fiscal year 2026. AI GPU platforms, which represented over 75% of Q1 revenues, continue to be the key growth driver. During Q1, the enterprise channel revenues totaled 1.5 billion, representing 31% of revenues versus 36% in the prior quarter. This was down 51% year-over-year and down 25% quarter-over-quarter. The OEM appliance and large data center segment revenues were 3.4 billion, representing 68% of Q1 revenues versus 63% in the last quarter, up 25% year-over-year and down 6% quarter-over-quarter. The emerging 5G telco edge IoT segment contributed the remaining 1% of Q1 revenues. For Q1 fiscal year 26, we had two 10% plus customers. By geography, the U.S. represented 37% of Q1 revenues. Asia, 46%, Europe, 14%, and the rest of the world, 3%. On a year-over-year basis, U.S. revenues decreased 57%, while Asia grew 143%. Europe increased 11%, and the rest of the world increased 56%. On a quarter-over-quarter basis, U.S. revenues declined 16%, Asia decreased 4%, Europe decreased 16%, and the rest of the world declined 48%. Asia grew significantly on a year-over-year basis as an existing U.S.-based customer opened a large data center in Asia. Q1 non-GAAP gross margin was 9.5% versus 9.6% in Q4. Q1 GAAP operating expenses were $285 million, down 10% quarter over quarter and up 7% year over year. On a non-GAAP basis, operating expenses were $203 million, which was down 15% quarter over quarter and down 2% year over year. Operating expenses were down quarter over quarter due to high marketing expense reimbursements and lower discrete R&D expenses. Non-GAAP operating margin for Q1 was 5.4% compared to 5.3% in Q4. Other income and expense in Q1 totaled a net income of 26.3 million, reflecting 51.2 million in interest income on higher cash balances and FX-related gains, partially offset by 24.9 million in interest expense, primarily related to convertible notes. The tax provision for Q1 was 40 million on a GAAP basis and 59 million on a non-GAAP basis, resulting in a GAAP tax rate of 19.3% and a non-GAAP tax rate of 20%. Q1 GAAP diluted EPS was 26 cents compared to guidance of 30 cents to 42 cents. And non-GAAP diluted EPS was 35% versus guidance of 40 cents to 52 cents. The GAAP fully diluted share count increased sequentially from 625 million in Q4 to 663 million in Q1. And the non-GAAP share count increased from 638 million to 677 million over the same period. Cash flow used in operations for Q1 was 918 million compared to cash flow generated from operations of 864 million in the prior quarter. Q1 operating cash flow was impacted by lower net income and higher accounts receivable and higher inventory levels as we prepared for a strong Q2 with higher working capital needs. Q1 closing inventory was 5.7 billion which was up from 4.7 billion in Q4. CapEx for Q1 totaled 32 million, resulting in negative free cash flow of 950 million for the quarter. During the quarter, we executed a $1.8 billion AR facility that enables the non-recourse sale of certain qualified accounts receivable, providing flexibility to strengthen our working capital on a discretionary basis. At quarter end, our cash position totaled $4.2 billion, while bank and convertible note debt was $4.8 billion, resulting in a net debt position of $575 million compared to a net cash position of $412 million in the prior quarter. Turning to the balance sheet and working capital metrics, the Q1 cash conversion cycle was 123 days compared to 96 days in Q4. Days of inventory increased by 30 days to 105 days versus 75 days in the prior quarter. Day sales outstanding increased by five days to 43 days versus 38 days in Q4, while days payables outstanding increased by nine days to 26 days versus 17 in Q4. Now, turning to the outlook for Q2 fiscal year 26. We expect net sales in the range of 10 billion to 11 billion, GAAP diluted net income per share of 37 cents to 45 cents, and non-GAAP diluted net income per share of 46 cents to 54 cents. We expect gross margins to be down 300 basis points relative to Q1 fiscal year 26 levels. Given the fast-moving dynamics in the end markets, we wanted to provide the framework of the factors impacting our gross margins. First, customer and product mix, including a strategic Q1 large design win, which includes higher costs and a lower margin as we ramp a new mega-scale GB300 optimized rack platform. And second, we are making greater investments with new customers to ensure their success with additional AI engineering support and services. To drive future growth, we believe that our investment in supporting these customers is leading to other large global design wins. Our long-term goal is to expand revenues in higher margin segments, such as data center building block solutions, emerging global CSPs, sovereign megaprojects, enterprise data centers, IoT and telco solutions, and software service offerings. We do expect to benefit from some economies of scale driven by higher revenue levels, a cost-effective global manufacturing footprint, including our Malaysia facility and continued customer diversification. As we complete this mega cluster, we expect to leverage these investments and are establishing the most advanced AI service capabilities in the market. As we go through this transition, We expect our gross margins to improve. GAAP operating expenses are expected to be around 326 million in Q2, which includes approximately 76 million in stock-based compensation expenses that are excluded from non-GAAP operating expenses. The outlook for Q2 of fiscal year 2026, fully diluted GAAP EPS includes approximately 64 million and 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 expenses, including interest expense, to result in a net expense of approximately 27 million. The company's projections for Q2 fiscal year 26 GAAP and non-GAAP diluted net income per common share assume a GAAP tax rate of 15.6%, a non-GAAP tax rate of 16.8%, and a fully diluted share count of $666 million for GAAP and $680 million shares for non-GAAP. Capital expenditures for Q2 is expected to be in the range of $60 to $80 million. For the full fiscal year 2026, we are raising our outlook to a net sales of at least $36 billion versus prior guidance of at least $33 billion. Michael, we're now ready for Q&A.

Great. Matt, take some questions.

If you'd like to ask a question, please press star followed by 1 on your telephone keypad. If for any reason you'd like to remove that question, please press star followed by 2. Again, to ask a question, press star 1. As a reminder, if you're using a speakerphone, please remember to pick up your handset before asking your question. We will pause here briefly as questions are registered. First question is from the line of Sonic Chatterjee with JP Morgan. Your line is now open.

Hi, this is MP . I just wanted to ask my first question on the revised guidance between availability of chipsets and market expansion. What do you think is the more of a driver for increased revenue ?

Yeah, NVIDIA is getting available. we are receiving more and more allocation from them and preparing for a huge volume to ramp up, start from this quarter. That's why this quarter we estimate at least $10.5 billion. And looking forward, I mean, with our DCPBS, we will focus on both. One is a continual move volume, higher revenue, The other direction is move more value to the market, including data center photo solution with our PCPPS.

Thank you. As a follow-up, I just wanted to ask on DCBBS. I think you already started shipping those solutions. When do you think the DCBBS will become material enough to actually impact the gross margins? And then my other question is, are you – any thoughts on initial feedback from customers? And then also, any thoughts on the competition which you are seeing relative to DCBBS?

Thank you for the question. Yes, DCBBS has been very welcome. We have some current large accounts already ordered some of the key DCBBS components, and we expect more and more customers will come in to our DCBBS. The idea, like what we share, is speed up customer to deeply build a data center, save their time to come to online, and also make power more efficient, save money overall, build more storage data center. And the profit margin will show much higher. In the industry for data center infrastructure, basically the business is more than 20% of the margin. And we are very excited for that product line to be getting available. And I believe it will . Thank you, Sheldon.

Thank you.

Thank you. Thank you for your question. Next question is from the line of Asiya Merchant with Citigroup. Your line is now open.

Great. Thank you for taking my question here. The order pipeline that you guys talked about is pretty strong. And so if you can help us understand, you know, what's the components that are contributing to such a strong order outlook that you have embedded into your guidance? And if I may, you know, you guys talked a little bit about this revenue guide that you guys are exceeding sequential growth expected post fiscal 2Q. So you can just also help us understand how we should think about gross margins as we proceed through the year and the effects to support such a strong revenue outlook. Thank you.

Yeah, I mean, TPU for sure contributed most revenue. Kind of like a and kind of like a AMD, MI350, 355. Blackwell, B300, and the RTX, right? So, indeed, there's lots of strong product line driving our revenue. And at the same time, again, for the best interest to our customer, we try to provide data center end-to-end solution, including DCPBS, including management software, on-site deployment and service. bring one-stop shopping for customers' advantage and also grow our coffee margin. And, David, you may add something for long-term.

Sure. Okay, yeah, so on the gross margin question, we are going into a quarter where we are ramping one of the largest clusters in the world. We're ramping a new product line at mega scale, and so, therefore, We're being a little conservative on the margin because we will have higher costs as we ramp production and shipment. So we're just giving guidance for one quarter out. But we did mention that, you know, as we go on throughout future quarters, we're expecting to improve for the reasons that we laid out. On the OpEx side, you can tell from looking at our historically, we are, you know, that sub-5% OpEx, and we expect that to continue. But we will continue to increase our OpEx in order to strengthen our infrastructure.

Yeah, I'd like to add one area. Traditionally, our revenue was about $5 to $6 billion quarterly, and now we are growing to $10 billion quarterly. So that, for sure, increase short-term challenge, and that's why we have to leverage the USA, Taiwan, Malaysia facility, and that kind of involve hiring lots of new people, 10-hour people, and other facility. this much higher capacity facility already in this quarter, December quarter. We will be able to service large customer in USA and Asia and Europe, truly global major supplier. And by that time, for sure, our resource beverage will become much more efficient. And second is our DCPBS is getting mature. and getting ready to service more customers, to bring more value to customers. And that, I believe, will grow our profitability.

That's great. If I can just, on the orders that you talked about, $13 billion, I know you provided it at a chipset level. I think I was looking for just customers that are constituting that $13 billion, if you can just share some insights into, you know, percentage of customers that are in there that contributed to such a strong order book for 13 billion. Thank you.

So, they constitute some of the best customers in the world. I'll say that. We had two 10% customers this year. We ended last year with four 10% customers. We always welcome new large customers. We don't have any, we usually don't talk specifically about individual customers.

Yeah, but they are really a high-profile, high-value partner for long-term. That's why we do such a big effort to greatly increase our capacity to support them. They are some of them, so we are very happy to enhance the support to those high-value partners.

Great. Thank you.

Thank you for your question. Next question is from the line of Ananda Barua with Loop Capital. If you'd like to open.

Yeah. Good afternoon, guys. Thanks for taking the question. A couple if I could. Charles, the midpoint of the guide for December is $10.5 billion. And the updated guide for the fiscal year is at least $36 billion. And so if I model out $10.5 billion for each March and June, I get sort of just over $36 billion. And you're talking about a lot of $13 billion in GB300 product wins, a lot of good activity going forward. So I guess my question, Charles, is – first one is – Are you being conservative? Is there conservatism baked in to the implied March and June quarters? Or should we expect some flattening out of revenue in the coming quarters? And I have a follow-up. Thanks.

Yeah, thank you for the question. Yeah, this is the first time we grow our revenue to about more than 10 billion a quarter. So we are very excited about it. So now we already extend our capacity global and train our people and have all our facilities ready. So from now on, we are ready to be a really big supplier around the world. And with Blackwell getting mature and ERA, quality everything is promising at this moment. And so we feel very excited to have at least $36 billion, and hopefully it's a very conservative number. And at the same time, we are doing our best to grow our DCPBS total solution, because that's the unique data center infrastructure a tool to help customers build a data center quicker, better, save energy and save money. So overall, I believe with DCPBS become more mature, our profitability will improve.

Charles, I know we're talking fiscal year, we're talking fiscal year expectations, but Do you anticipate the strength to continue through the calendar year? There's been a lot of large deals with NeoCloud announced lately with large AI labs and hyperscalers, and that's your sweet spot customer base, the NeoCloud. So should we anticipate this kind of strength without giving a guide, but could this strength continue through the balance of this calendar year?

Yeah, indeed. Our capacity is – in different scale now, as you know, right? So, 36 billion is a very conservative number. So, we believe we will continue to grow quickly, continue to lead the market. We use not just technology, but also the market share.

I appreciate that. Mike, just one quick clarification with David here. Just to your prior comments about gross margin improvement through the year, is that to say that December quarter is the low watermark gross margin quarter for the fiscal year? Thanks. Thanks. That's it.

Yeah, that's fair. We are, as I mentioned, you know, this is a quarter of first impression for us on standing up, you know, on doubling our revenues in one quarter. And so, we're doing everything we can. to improve our margin, but we're not making forecasts out beyond December quarter.

Appreciate it. Thanks a lot. Thanks, guys.

Thank you for your question. Next question is from the line of Rupalu Bhattacharyya with Bank of America. Your line is now open.

Hi. Thanks for taking my questions. David, can you remind us how much total revenue can your manufacturing footprint support today? And when it's fully utilized, what would that number be? And at what point do you decide to add more capacity, such as adding a new plant? And if you can weave in any update to the Malaysia plant, is that now building racks? And what's the status of that plant? And I have a follow-up.

Okay. So, maybe I'll let Charles talk about capacity. But we've mentioned that we have a rack capacity of 6,000 racks per month worldwide. And so, I don't think that we have spoken as to what that value is. But I can say that, you know, Malaysia, we are starting to stand up more in terms of their production, and we expect it to contribute greatly going forward. Let me see. Did I answer? What other questions did I miss there?

Yeah, I guess.

Go ahead.

Yeah, I guess we tried to be very, very conservative because with Blackwell, Altra is still brand new, right? So, we had to make sure we ship exactly the best quality, the most reliable system to Cosmo, and that's why we spend a lot of time to bring in our solution. and that's why we built up such a huge capacity. If you time 3,000 liquid cooling tower per month, and you time 12 months a year, and each rack, for example, $3 million, so the number is more than $100 billion. So, yes, if everything's smooth, in that $100 billion range now. But, you know, we try to be conservative and try to design carefully, burning carefully, make sure all the product we deliver to the market is exactly the face in the market.

All right. Thank you for the details there. As a follow-up, David, can I ask, you have this large project ramping over the next several quarters. How should we think about working capital and cash conversion cycle and free cash flow? And at what point would you need to tap the markets to raise more capital? Thank you.

Yes. So, we have maintained about $5 billion on average. And obviously, when you double your revenues, that's not going to be enough working capital. So, as we announced, we did put an accounts receivable sale program in place, which allows us to factor our receivables up to $1.8 billion. And we also have other programs that are being put into place to meet our needs over the upcoming quarters. So we have no doubts about our ability to execute on those programs.

Thank you for having me. We definitely have a capability to service more customer with much higher volume, but we will control our revenue based on our cash flow.

Okay. Thank you for the details.

Thank you.

Thank you for your question. Next question is from the line of Nehal Chokshi with Northland. Your line is now open.

Yes. Thank you. Great demand there and understandable that wrapping up a new customer on the V300s. But I guess I think it was maybe a year ago, year and a half ago, that it became apparent that you guys were helping XAI, Colossus 8, and that was diluted to margins at that point in time. The rationale was to get this lighthouse customer and demonstrate the Supermicro's engineering capabilities. Why is it necessary to basically do a rinse and repeat of this proof of Supermicro's engineering prowess?

You know, XAI, for sure, are very good partners. And whenever we have a chance, we try to work with them to learn something from them and to offer our best service. So, yes, XAI will continue to be our important partner for long term. And, again, our capacity is huge, and capability is much bigger now, but we will be selective. to grow our revenue based on our cash flow.

And, Nehal, what I would add is that what we are doing is that we are validating each time, as we did a year and a half ago and now, that we're the premier provider of advanced DC DBS solutions and AI data centers. So, we gladly step, you know, step into that role, and we continue to get additional business, you know, each quarter as a result of these successful installations.

Thank you very much.

Thank you for your question. Next question is from the line of Quinn Bolton with Needham & Company .

Hey, guys. Hey, guys. This is on for Quinn. Thanks for letting me ask a question here. My first question is on gross margin. I know you guys mentioned new facilities coming online and that possibly being a tailwind for gross margin over time. So, we're just wondering if we can get some more color here on the timing and maybe just the overall impact of these new facilities would have.

Yeah. As you know, We need to invest in Malaysia, in Taiwan, in USA, all our location. So make sure we have enough capacity to bring the best quality product, most optimal to the market. So in December quarter, we spend lots of money to establish the foundation. And going forward, now we have those capacity and capability to grow a much larger scale business.

Great. Thank you. And then my follow-up is on the Supermicro federal program you guys announced inter-quarter. We're just curious if we can get some more color on this program and maybe what led to the creation of it and how this initiative could position Supermicro for government contracts going forward. Thanks.

Yeah, we are USA company and have a design manufacturer service from Silicon Valley. So federal business should be a sweet spot for us. And now we have more talent in service, in customer relationship, in all the kind of support. So that's why we officially initiated a federal program.

Thank you.

Thank you for your question. The next question is from the line of John with CGS Securities.

Hi, good afternoon. Thank you for taking my question. I wanted to expand on the prior question on just the case study with, you know, last year and how you, you know, took the margin hit to lend that customer and validate new technologies. Apparently, you're doing it in this time with a bigger customer. and at a lower margin. So I guess the question is, philosophically, I'm not asking for margin guidance, but how do you expect to grow the margin going forward from here? And, like, how do you prevent that from happening again? Have you seen that stronger margin from follow-on orders from the customers that you have validated your technologies to, or is that still something that is on the come or hasn't been possible in this environment for whatever reason?

So there are several different initiatives. One, John, as you know, we get leverage off of the additional business that we have. We also, as we've mentioned, are pursuing manufacturing in other geographies in order to serve local customers, which we believe will also lower costs. We also have added on data center building blocks, solutions, strategies, which we try to outline on every call. and the expansion of business. But it's really, as I mentioned earlier, it's the success and market share that we're taking that are bringing a lot of emerging, not only existing companies from around the world, but also, you know, and sovereigns, but also new and emerging, you know, CSPs and neoclouds and other companies. enterprises coming to us because they recognize the super micro name so we uh we expect that uh that will overall um raise our margin profile and so we uh you know we we're doing everything we can to to raise our margins but yet we still uh want to be the premier provider of dcbbs solutions and so we uh We think that we have a good strategy in that regard.

Okay. And just to clarify, have you seen the higher margins from customers where you, you know, maybe gave them better pricing or put your own investment into the initial orders as you get follow-on orders and then repeat business from them?

Yeah. So every, you know, different customers have different margin profiles based on, the amount of design that the Supermicro does for their solution, as well as the size of the order that they're placing. So, as in any business, a customer ordering $1 billion of product is different from a customer ordering $10 billion of product in terms of, you know, pricing strategy. So, therefore, you know, we're very happy that the customers that we have brought into the Supermicro portfolio of customers is really adding a lot of name value to our brand. And so that's what we're very pleased about. We're gaining market share, and there's no question about that.

Got it. If I could sneak in one more, just how are you accounting for the risk of further pushouts in the revenue outlook for the year, just given you've had a couple of high-profile ones already?

Yeah, so, you know, the timing of, you know, whenever you're dealing with very large projects, it's not always easy to fit deliveries into, you know, into one three-month time frame. And there are all sorts of I mean, if you take a look at the thousands and thousands of parts that we have to bring together to build our solutions, and also on the customer side, the things that they're having to do to get their data centers ready, there's a lot of logistics that have to take place. It doesn't always line up perfectly with our quarter ends. So, you know, we've said, as we continue to take large customers, It's going to be, there's going to be things beyond our control, which include customer readiness, which include supply chain issues, and et cetera, that may impact quarter-to-quarter results. But if you look at last quarter, or if you look at the last two years, we went from $7.5 billion to $15 billion to $22 billion. Okay, so that trend did not stop. We were adding $7 billion in. you know, for the last two years each year. Now, did those quarters all line up perfectly according to our plan, our annual plan? Not always. But the trend is still there. And we've increased our revenues as well as our profits. And that's what we intend to continue to do.

Got it. Very helpful. Thank you.

Thank you for your question. Next question is from the line of Mark Newman with Bernstein. Your line is now open.

Hi. Yeah, thanks very much for taking the question. So very encouraging to hear about the large orders, $13 billion orders you mentioned. Just curious, though, there's not a lot of historical data on orders or backlog, and any color you can give on, the size of the backlog of orders or how $13 billion compares to previous quarters. Just trying to understand what's the size of the – which we've got guidance on from some of your competitors in the past. And another follow-up question on gross margins as well.

Okay. So, first, I'll answer that, your first question on historical data. We've, it's been our practice not to talk about backlog. Well, we couldn't help but talk about the orders that we received, the new orders that we received, the new design wins, because they did have some impacts in both the current quarter as well as the December quarter. And so, we were speaking to those. But we're not, we don't talk generally about backlog. So I'll take your second question on gross margin.

So gross margins, I mean, I know you're trying to stay away from long-term guide, but previously I believe you've talked about this 15 to 16% long-term target for gross margins. Is that still intact but pushed out, or is that now, not up for grabs. Just curious, what's the thinking on that?

Yeah, back in 2000, I think in 2021, we came out with a 14% to 17% gross margin guide. That's probably what you're referring to as a long-term target. You know, the market has changed, and so we, in fact, we're right in the middle of a change right now as we move on to some very new dynamic platforms. And so we will give margin guidance as we can see it clearly. You know, we're doing our best to raise margins in a very competitive landscape. You know, yes, we would love to be back in double digits, but we'll give guidance when we can see it clearly.

And hopefully it's not too far away. Indeed, if we focus more on DCPBS and enterprise account, then double-digital is easy for us. But at the same time, we are very interested to support a large-scale CSP as well. And so far, it looks like it's a great chance for us to service more large CSP customers as well. With large CSP customers and DCPBS enterprise together, our revenue will continue to grow very fast. and in our brain is just .

Thank you very much. Appreciate it.

Thank you for your question. Final question is from the line of Brandon Nispel with KeyBank. The line is now open.

Hey, guys. Thanks for squeezing me in and taking the question. You know, I think echoing the same comments around gross margins that looking at the guidance, it really implies 0% contribution margin. And so, you know, I think revenue growth is great. But I was hoping you could really help us understand, you know, what's on the other side of this, right, in terms of, you know, help us understand what this business looks like from like a free cash flow contribution standpoint as you guys scale it. because you can't just keep going down the path of, you know, lower and lower gross margins, especially when the revenue coming in is at a 0% contribution margin, again, based on the midpoint of your guys' guidance. Thank you.

So, again, we believe that we can't name all of our customers, but I can tell you that we are bringing in you know, some of the best companies in the world. And we believe that our first to market practice of being able to bring, you know, reliable and optimized solutions quickly to market will reward us well. And this has been our practice over the last 32 years. And so we've consistently been first to market. We have shown that we can grow quicker than the market at large. And we've also shown that we can bring customized solutions, which bring very good margins and very good returns to the bottom line. So we're staying with our game plan. You know, right now, you know, the market is going through some new cycles with new, you know, kind of exciting new platforms coming out. We believe that this will pay off. So we're staying, of course.

But sure, we will keep our bottom line. But sure, we will keep our bottom line, make sure we continue to make more total profit every quarter, every year. We see that as the face for sure when we have a chance to grow more market share. We try to grow more market share as well. My bottom line is make sure every quarter, every year, we make more total profit.

Got it. Thank you, Charles. And, David, are there any, like, one-time costs with the design wins and the upgrade push-ups that fell into this quarter? in terms of, like, one-pack costs that you're absorbing in this quarter's gross margin guidance?

So, yeah, in terms of the December quarter, yes, there's a lot of additional engineering costs and expedite costs and overtime costs that result from delivering costs you know, kind of what would be twice our normal revenue run rate and scaling a new technology at what we believe would be one of the largest clusters, you know, in the world. So, yes, there are a lot of extra costs that go into that that we believe will actually prepare us for the upcoming quarters.

It's basically our first gigawatt project, and hopefully we can make it perfectly complete.

Understood. Thank you very much.

Thank you for your question. There are no additional questions waiting at this time, so I'll pass the conference back to the management team for any closing remarks.

Thank you. Thank you, everyone.

That concludes the conference call. Thank you for your participation. You may now disconnect your lines.