Super Micro Computer (SMCI) 2 May 232023 Q3 Earnings call transcript

Ladies and gentlemen, good afternoon. My name is Abby, and I will be your conference operator today. At this time, I would like to welcome everyone to the Super Micro Computer Incorporated Fiscal Third Quarter 2023 Results Conference Call. Today’s conference is being recorded and all lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. Instructions] [Operator

I President the of And Michael over now Vice Staiger, Corporate will you. conference turn to Thank Development.

You may begin.

Good Supermicro’s Officer. call Executive Officer; the you Charles Liang, for financial today David and With thank ended for Chief Chairman XXXX. which third afternoon. results quarter, Weigand, are XX, me and Founder, to And discuss March attending Chief Financial

trading the the received you copy of regular from should close release at distributed have a is the company now, on was By news that available company’s and of the website.

a the the As in available that during the the today’s a Presentations participants website company’s reminder, company call, will to & of refer to Events presentation Investor under section Relations tab. is

We management’s have our also published scripted commentary website. on

information forward-looking the guidance consist you’ll capital expenses, margin, XXXX and today will allocation, including the statements, the operating and future our regarding including of of discussion expenses, business during some fiscal for revenue, XXXX. of hear year taxes, fourth full year and limitation quarter that without those fiscal gross income note other Please outlook,

of factors a number future from our risk differ are that expectations. Supermicro’s could results There to cause materially

press learn XXXX SEC our these about can in we for risks afternoon, filings. You earlier issued and this most the filing more XX-K other recent release fiscal our

obligation documents update any on of of the no available We are assume to All Supermicro’s forward-looking these Investor Relations website. page statements.

financial outlook. results today’s business non-GAAP of refer and to Most presentation will

For measures, today. release published earlier accompanying an refer press explanation our our to presentation of non-GAAP financial or the please to

press for to release have remarks, information of the GAAP a to At today’s will non-GAAP prepared In ask is attached Q&A the addition, in presentation. supplemental results of in analysts session a today’s end contained questions. sell-side and we to today’s reconciliation

I’ll the Charles. call over now turn to

everyone. afternoon, and Thank you, good Michael,

grew third non-GAAP and we over X% of share guidance fiscal but earnings Our previously announced, our billion, our a the revenue below to year $X.XX, to XXXX as totaled compared year-on-year $X.XX per for $X.XX year X% initial year-on-year quarter down range ago.

we as with I from as by new companies These we in terms current While especially our the market leading-edge of uncertainties demands generation business have XXX, strongly availability. AI led HXXX encouraged new expected, artificial intelligence. am product our in unfold top-tier us to did quarter momentum HXX and key products, not new navigate components challenges

we started much-improved with the yet past these reflective shortage opportune the were situation is our a The these over and component news headwind, results forward. good already in QX difficult going Compounded to economic pressures conditions. are that we of address months few have

ship We to since have and started produce April. some back orders

Here are for quarter. a the few highlights

First, including record winning and of customers. two new wins top order, leading-edge back GPU growing global XX least design at pace

we Fabric manufacturer including from rack solutions scale our Intel, from And transition and refreshed partners expansion hardware based a increased others. third, to and entire Solutions on AMD and key IT Storage PnP Second, and technologies a GPU, new product Total demands CPU, portfolio server/storage customer provider. NVIDIA, of our continued

of or benefited and on world’s momentum large-scale AI heavily grown as With and the applications AI large we many AI, deploying business like state the leading has language GPU has infrastructure that generative models greatly count are This rapidly. clusters. of ChatGPT LLM Supermicro

GPU collaborative In product new optimized most relationship by over Aligning the market. generation the on addition, built partner close and with highly is ecosystems a have and platform co-developing years offering designs we time-to-market and with the the complex. NVIDIA fastest

new and mentioned deliver our ability multiple the the to GPU key quarter. last shortages manufacture As I component system Delta like systems Next delayed earlier,

will significantly. ramp this GPU With the the improving components new availability shipments quarter, system

the Taiwan, our growth so in our years. coming in support a larger campus in revenue up Indeed, Netherland we much Malaysia, U.S., continue scale can and that quarters manufacturing scale and to we

Block new and building Building to always AMD through block in-house workload well our Intel architecture, Sapphire solutions market the the optimized With headwinds. we we By our deliver to releases. and products manufacturing, Genoa like Rapids are current leveraging HXXX, NVIDIA equipped faster economic navigate design competitors, recent with than

dramatically of air/liquid The solution challenges stronger power key XXKW these getting differentiators consumption new and for of thermal has high technologies and or success. have expertise become Having power XXKW and of and our DC hungry popular efficiency computing risen are demands one even rack and industries. thermal

time-to-market new customers much anticipate our design we with and block pedigree ahead. Combined products gain via many new green continue these in with computing our more quarters wins advantage optimization the generation solution TCO proven saves solutions, to that costs, building to

We initiative of we systems can of have level to full constraints, are Solutions rack-scale design, made there supply within our advancing capability. and solid progress a instead months IT validate rack by solutions turn-key weeks no deliver order placing in solutions build, competitors. customers our few an Provided Total from

cabling, power, services. cooling, plus features Supermicro’s strategy and networking, validation storage, one-stop IT servers, shop Total integration, racking, includes Solutions software, management AI,

to on the The customers calendar focus racks their Supermicro leaving end. are cloud month of by per edge. up hardware to new to manufacturing functions, we Currently, track and year X,XXX to idea capacity on software global is applications support from more the let solutions our IT to

rate is the Our multiples growth maintaining business period. same is in the overall growth a worldwide of that rate IT

markets. taking efficiently share are fastest and in new growing We so market doing the by

verticals AI, see Edge are Embedded to we and our Storage, all on-prem XG greatly TAM. Cloud, potential increase

are well automation design optimizing EMEA at and highly markets support Asia to our and by We positioned campuses. business specialized technology, U.S., our these

added rack-scale quicker value solutions business quality. product better The online production bring and customers more and recently will with liquid-cooled auto lines, configurator to automation

are upcoming online our key be some with and partners. Malaysia structure soon We Taiwan scaling of will cost which our by improving campuses, also our

new of deploying PnP. and March results had in quarter our are demand, in customers especially some our rack-scale challenges, high generation our products we While products AI anticipate more for

and delivering billion in to of range billion. keeps We suppliers to of revenues Total the technology products of global continue confident The market one $X.X emerge our of as IT $X.X of share. continue the and to largest Solutions us gain strength QX

conditions expect XXXX to to per billion at words, reach our If despite above growth ahead. expect to year-over-year range, year be supply $XX to-long-term sooner, improve headwinds In we mid- our accelerating to I least of objectives and year. growth we are fiscal economic continue that be some XX% other revenue

Now I David call to the will quarter. pass additional Financial Weigand, Chief you. provide the our on details to Officer, Thank

been range shortages Supermicro’s revenues quarter-over-quarter, new $X.XX billion down Thank initial you, primarily were billion, billion. $X.XX generation below XXXX to component key have and resolved The to-date. platforms server of our due shortfall which QX, for Charles. Fiscal X% down year-over-year XX% guidance new $X.XX was was mostly to which

record generation driving wins along Our with record platforms levels customers of are a top-tier design orders strong AI backlog. from next and

we may positioned We deliveries note that our our due by backlog server chain shipments rank our -- for record -- demand finish ramp year up supply AI XXXX up platforms. fiscal to are our a well as wrap customers. of advanced against new platforms be up a for bottlenecks to We strong high key constrained to

driven existing of represented and results solutions revenues represented rack-scale of were for first by An time. we our Provider more total and Service future growth our AI/GPU growth. customer than revenues significant high Cloud XX% QX which expect the XX% approximately

and datacenter new market new had On our key our basis, CSP reflecting three component basis, datacenter customers. we year-over-year verticals. seasonality a vertical and platform end in momentum quarter-over-quarter OEM a shortages with growth large On and impacted appliance

XX% XX% vertical, and last in We This XX% recorded down platform year-over-year revenues versus $XXX Enterprise million QX shortages. Channel the to due representing was quarter. new XX% down of and quarter-over-quarter component

year-over-year XX% of we component QX as representing momentum platform to XX% and cloud customers down vertical with new $XXX appliance million achieved datacenter, appliance due revenues and up large datacenter last revenues, XX% in OEM existing The -- and was new quarter. CSP, shortages. XX% and This quarter-over-quarter XX% versus OEM gained

in Our X% quarter. represented million segment X% revenues of emerging revenues, QX XG/Telco/Edge/IoT achieved $XX last which versus

down Systems X% and comprised QX quarter-over-quarter. represented and total up down year-over-year of quarter-over-quarter. XX% X% and down and revenue revenues was were Subsystems/accessories XX% XX% of XX% year-over-year

the decreased basis, a to increased. volume and ASPs, system volume basis, shipped ASPs due nodes systems for a System quarter-over-quarter lower decreased systems increased of due offerings. On AI node shipments while product shortages product component higher the node especially shipped to while from On and year-over-year nodes of ASPs

represented of basis, World On XX%. U.S. QX World a XX%. increased On XX%, quarter-over-quarter Europe X%, Europe increased the U.S. decreased XX% market Rest Rest XX%, of decreased of XX% XX%, decreased a revenues, quarter-over-quarter revenues decreased decreased Asia Geographically, X%. XX% revenues decreased Europe XX%, Asia XX% World of Rest and and U.S. basis, during and Asia

XXX of from XXX efficiency points was basis large strategic and The curve margin up in and decline market points one, quarter-over-quarter gross a gain was production lower in aggressive center the market platforms. rapidly growing smaller margin and factory secondly, the targeting QX share year-over-year. to AI basis platform CSP new our in efforts with non-GAAP due The XX.X%, sales the to, non-GAAP server ramp down enterprises, learning customers; data volume gross pricing

The company’s par server last generally margin mainstream were with business profiles quarter. on

with on long-term our share create will As mix growth value we gaining shareholders. focus profit the revenue growth, our and gross new margin we of target AI market optimal to platforms, operating for

X% quarter X.X% higher headcount. quarter operating to $XXX a increased a X.X% $XXX Turning and for increased and year-over-year for quarter-over-quarter launches year lower margin X% due NRE sequentially million. year-over-year lower basis non-GAAP to last operating and marketing to due GAAP operating and On million. QX expenses, to credits lower revenues new XX.X% by increased margins. basis, and OpEx to platform was increased gross OpEx non-GAAP and X% X% expenses quarter-over-quarter the on ago increased a versus The

expense quarter. expense income compared decreased loans consisting million down and of FX in last some -- a Other $X.X million $X.X some as Interest capital FX million and working primarily expense of last of was interest loss, $X.X interest and expense expense quarter. losses to sequentially $X.X approximately as in paid small we million

tax tax The for million on was GAAP non-GAAP XX% was non-GAAP provision The a QX XX%. and basis QX a basis. million GAAP on $XX rate tax was and rate for $XX

tax sequentially QX. benefits Our to lower were in tax discrete higher due realized rates

to joint of $X.X income quarter. as million Lastly, was venture our million last share loss a loss of from $X quarter, this of our compared a

expenses EPS QX quarter-over-quarter down which lower to of higher due $X.XX, revenues, operating up and delivered X% margins non-GAAP quarter-over-quarter. the gross XX% was We diluted and year-over-year lower

QX. which balance Days compared in XXX Turning quarter, metrics XX QX capital working days versus sheet and was last cash cycle conversion was of to was XXX, our up inventory days to to XX days Days to large outstanding payables while by inventory built XX XX new to days nine days. by XX days rose as increased sales quarter-over-quarter orders. customer fulfill days, we the outstanding

the capital inventory were not and metrics platform shortages, lengthened new again fulfill we by cash sales as component conversion the impacted demand. the Working could cycle -- which our by increased all

our decline, cash from operating cash generated million of Despite million from flow of we conversion receivables Q positive quarter-over-quarter QX, QX. operations $XXX $XXX the in and fiscal accounts revenue benefited our profitability flow to In continued -- versus cash.

quarter. in versus CapEx was $XXX QX cash free million. positive $XXX resulting last balance closing $XXX cash for $X sheet of position free million cash million of The was flow positive million flow

Total increased bank by net $XXX while QX debt to quarter, cash the increased during in QX million our increased $XXX we strong flow. million in $XX from million debt operating due as $XXX million to cash to

for During stock $XXX our $XXX repurchased which common goes share repurchase QX we remaining current under million leaving XX, X.XX January million our until XXXX. million $XX of authorization million shares approximately

timing repurchases. Our share amount and future Board determine any the will of

the we new platforms the seasonally a strong to outlook turning Now orders for June backlog business, strong of entering have our quarter. for

fulfill our strategic easing their progress with partners constraints. and diligently working requirements to and supply steady in are customers are key making We

per fourth $X.X fiscal to $X.XX. billion we of share ended $X.XX expect XX, billion, the net GAAP sales of of --ending June to to XXXX $X.XX income income $X.XX of share range XXXX, diluted which quarter and in diluted non-GAAP For net $X.X the net per

with We as customers approximately we new share on to focus gross gaining margins and be platforms. expect strategic market XX% our

improve margins our platforms the we on expect scale customers, efficiencies our our production gain to we improve. As and new gross with

market to However, margins. in gains with the current balance we gross continue will market share AI environment, growth, AI

are compensation and operating to be GAAP $XX common in expenses approximately that expected million excluded income share. which net other per expected from stock-based million, non-GAAP diluted are $XXX includes expenses

GAAP to expected R&D lower NRE costs. and are non-GAAP marketing QX operating to increase credits expenses and in higher due and personnel

expenses, joint from and nominal interest expect to million $X a our net expense income of be other a expect and We expense, venture. loss including approximately

and share shares for common projections non-GAAP tax tax net diluted assume of share GAAP non-GAAP million company’s GAAP XX.X% million The XX of GAAP rate a of for per a for and XX.X%, income non-GAAP. fully diluted and rate a XX count

expenses, million diluted outlook from fiscal The share. and net approximately of for net are stock-based EPS excluded non-GAAP $X other per common includes compensation quarter income XXXX of diluted tax the in that fourth fully expected GAAP effects

$XX fiscal the fourth $XX CapEx range for XXXX in million. to be to expect of quarter of the We million

our -- June For year-over-year $X.X $X.X ending range for to XXXX, to represent the guidance year XX%. range from XX% for fiscal would XXXX tightening of billion a to $X.X revenues billion, $X.X are XX, a of we billion to growth billion a range of which

GAAP $X.XX per $XX to share to of diluted $XX.XX to range of a net share a net non-GAAP $XX.XX per and $XX.XX range from $X to of to $XX. to income range $XX.XX income a of from diluted a range

non-GAAP company’s for assume XX% of a rate income rate net a projections the income. of annual -- XX.X% GAAP GAAP The for tax and net

shares for diluted XX For share count shares a GAAP of million and for fiscal year assuming XX non-GAAP. XXXX, million we fully are

stock-based per share that are approximately diluted common and net expenses, other non-GAAP per excluded income $XX expected net from year for of earnings in outlook includes The XXXX million tax GAAP diluted effects compensation fully share. fiscal

revenue long-term robust year gains. outlook fiscal global on market for by customer and XX% IT are leading-edge and we new platforms, growth design solutions. We demand new best-in-class new revenue significant and our capacity of Total our wins in XXXX our strong continued share based For customers, least driven profitability manufacturing our efficient expecting at platforms AI with confident remain for growth

And Michael, ready we are for Q&A. now

Operator?

Chokshi question [Operator we Instructions] you. Markets. take Thank Northland from And our Capital will first Nehal with

is open. line Your

$XXX buyback Yeah. a Thank quarter impressive Very $XXX the of you. million share. rate to in

nice that see guidance. up XXXX and backed the shares attractive to $X.X year So prices a are $XX that share the with to fiscal statement strong very

being Supermicro with in communicated year guys end years the revenue fiscal operate XX% year-over-year least that gross can on target you high what’s your range? So, XX% to mind, that that at that the XX% two at of of the growth for ago, XXXX, confidence level margin the model

So…

confidence is good. very Indeed Yeah. our

year-over-year the expect But more sure. here. we at again, economic least for So, try growth to we because so hope -- we of that XX% headwinds, conservative more be and than

with about margin? what And respect gross to

Yeah.

Back minimum I margins, gross ago, gross there And Obviously, we with -- the XX% to we market to growth. at -- and share we that wrestle yeah. XX% we’re of Nehal, also two like continue a taking XX%. margins. in So, years for XX% said, gave balancing topline a against to,

quarter as also, to margins. offerings online gross will that with be out new manufacturing improve as this ramp confident our product our will come and facilities we able to we’re But coming our we we able improve And margins be new well. begin we of that we to

guys Great. Okay. preannounced are as weakness CDW the signs any indicated? IT And of general corporate -- you has weakening seeing demand

this we high-end IT of Yeah. high product market we especially little bit, computing, strong have year very down a The slowed that but line a a lot saw has GPU general demand.

growth our overall, strong. So, will be

any as expectations guys have June customers And quarter and the would contribute within Okay. quarter you then do the that, any well? in XX%-plus that

this time customer customer, from will they’re our -- our XX% customer. achieve but see delivery -- They’re And XX% customers from a on new over -- Nehal, new we over have not a the did these depending of wins, of XX% design expect we we quarter. other new of revenue. quarter-to-quarter, So a

that continue will happen. So to

And quarter? new is XX% up will within there customer that a the be June expectation the that pop likely

It’s very possible.

through NIM retail our we also Yeah. our online are and business. through growing channel, time, greatly But operating same at also the through

growth lot accounts and account. to try the large balance So we small between of a the

are… And so we

Great. very you, luck. much. of Thank Thank of Best luck, guys. Best guys. Yeah. you

you. Thank

Mehdi our Hosseini take next SIG. will from with We question

open. Your is line

for pushout June, should a opportunities March that in than earnings we backlog, was it now you the I from revenue of that A the discussed bit better last and into there remember confident and revenue you approach of magnitude as perhaps June of then, for taking little conference to I but the more a was confidence were question. my follow-ups of me. your back September, Thanks very understand. call, Yes. push couple want expected. materialize and

if were components? follow-up. to happened you I key January, in if And confident a procure the you what what prevented with the have So you backlog

dramatic shift -- a was Mehdi. was there toward There AI new Sure. a shift solutions,

and so the constrained anyone larger could it expected do. And we parts shipments the that was so therefore, than of availability amount

Obviously, also mentioned -- because we is customers third hit slower that tapped quarter. seasonally and we you’re anticipated a us quarter, some moved this But slower quarter we component the really correct, brakes and QX. also mentioned to the that it was out shortages the

line right? yes, a some postponed GPU Yeah. product and they at I’m design, solution. have going shipping the time, GPU/CPU we shortage, high-end those And and same thermal customer some key component of want have especially product combination to GP some QX, customers for power and high-end, line. other kind high including But we growing new

and pleased So why we situation to big dramatically That’s a have for improved. effort been quarter. those components did prove in very are now we June

details. items. inventory, the you for non-working quarter, that operation, was caused one cash this Thank was were down capital but March, Okay. there work it decline actually In quarter, item, December from then to David, you able other the And cash the flow one and way. in which

You that you non-working change -- there should how had capital a in in. I is to working there inventory, looking forward? it think positive dynamics about purchase help non us capital going was to these and Can item understand how came but was

Yeah.

will inventory. that’s -- be we wise think, to because going we capital as for go Mehdi, is working because question, me, is a this lot I of we good moving to out, acquiring a going quarter are I -- think, fourth challenging be

And will this during will our flows so challenge quarter. -- cash that it

critical. and of So something timing is that’s -- the inventory shipments

at we parts all ship as that things, didn’t QX, ending time, Charles mentioned, were we or QX the every needed. we this because and into couldn’t the building have -- same going yet as we And inventory,

the at on time inventory we’re that same growing we’re shipping. constrained So

So our bit what is a it down to that working cash our cycle. conversion does and capital that’s metrics caused little in evident go

of in million that generated But that we cash to cash we our say flow. I million that, returned We and flow almost best the spite of would in $XXX some generated $XXX of -- $XXX shareholders.

what I is has ultimately, cash So, flow generates flows. think, is the good it very business very say into would important. that -- we I going QX, But, that, shown yeah, cash

Yeah.

and will but lot say, quarter quarter. a purchase components like because a little bit following would high, have Although, -- super would be said, safe of David cash we very we growing September safe. little be recently pay I for bit flow will to the tight, and a June

I believe strong, June September would we say. and September be especially very quarter will quarter,

So we but flow high, had will and a to that’s cash will safe. bit be prepare be super components little why

you. Thank in Okay. the go I will back queue.

take we Loop question Ananda [Operator next from Instructions] And will Capital. our Baruah with

open. line is Your

I Yeah. had really think, earnings your on appreciate this XX of ago, could. year. the, maybe calendar taking of Thanks Good the question. the afternoon, I it. if that, guys. said days call half expected second guys Charles the had, obvious, in you Two, for risk I At asking you

So days kind Charles, different is, then like of we pull this way the guess you’re describe is appreciate larger the interpreted follow-up. the that? forward year? quarter AI what question anticipating September, to of a that And So making it would happening it. have of that holistically seeing of this XX book I about, seeing business, as in cadre, Thanks. sooner that. projects I And you a quarter is what later something ago -- dynamic of from I is is -- you we’re I be a is a June talking than cloud the this my are or position that the from that in cadre layering December in to start regular your part

quarter, the demand Indeed, June strong, of the question. shortage. component because very good is Very our

we this at to So, be try conservative. moment,

parts That’s stronger we be the billion. So indeed than $X.X share that’s with billion those why will some June based If much you that. on shortage. to quarter can than $X.X find we quicker

-- be to December will I you what likewise as as believe. continue your quarter, strong, September September quarter, well likewise And and question say, quarter, very is we the

shortage. a is problem really that now So

very we to we components are in much be build So billion quite should this same inventory. for other quarter. can number. At we $X.X billion for time, sure, a not how sure had safe But the to grow $X.X

for context. Really appreciate helpful That’s the Dave you. for is follow-up I -- Dave, And that. then guess

layering love I the sort with that Just some continued a context your lower greater if at to larger in the efficiency of manifestation Is some expands mix will the new better end regard just in a expect we over of of But lower margin you this is margin. about larger then business, Any of for margin presence comments. it you the come but business of thinking about of at understanding are which that P&L is guys really gross realize of be this just footprint beginning get over we time? it would the margin here, to share or slightly gross margin margin footprint, may in can sort beginning gross lower time, with think gains a greater how front business. responsible. the that to that’s the I collectively,

Yeah.

at the on here’s -- your we’re -- So it alternative, Ananda, looking and latter and why. in

that right we’ve there’s things So three been facing. now,

our We’re order make air costs having to more in transportation deliveries. face to

other fees. margin. expedite margin. So we’re impacts to pay And having our that That also, impacts our

ran in in than QX a we QX. less factories two, lot Number than we our through did

your spread your efficiency, margin scale. your on impacted fixed a to it’s costs, smaller So tremendously ability

as scale up, we So improve we our margins.

an ramped -- new the efficiency is production new product -- of these on our we Thirdly, the offerings, products. there these on as new

going So these margin. to will products, we efficiency which of are improve improve the the

to And alone improvements. three things speak margin so those

people and -- market. the -- to But and we coming -- those about going we are And so in we products. AI we’re high we’re very have are we us are strategic to have believe again, demand best-of-breed taking

Yeah.

you. Thank Great.

is improved to will higher, Once our higher. be will hopefully color. us. efficiency and as our mean, volume a I becomes building I business costs revenue, capacity we in large mean, very I our I operation billion a a are then be of grow and why midterm important and can $XX shared, customer add some support that’s

we grow doing So better are way great revenue. our to

I mean, number $XX that. after to reach billion, guess, start invest because we And for gross will won’t I billion growth margin our that we start so, to always to grow, big once under $XX

lot. that appreciate guys. context I Thanks a

will from we follow-up And take Hosseini Mehdi questions SIG. with

Your open. line is

follow-ups. say did OpEx June you quarter for be $XXX the David, that of couple the will million? around A Yes.

Let’s gave see. have sounds non-- non-GAAP Mehdi. -- That and about a we -- on GAAP both we guidance,

Okay.

So our...

non-GAAP the million. see, Let’s $XXX was

Yeah.

Let’s see.

Just a second. $XXX GAAP. for Yeah. Yeah. million

you. Thank

Sure.

I’m sorry, GAAP non-GAAP. or

GAAP -- $XXX is was going million. to be It

Yeah.

that And includes $XX million in expected stock-based comp.

-- non-GAAP. So million means that that would $XXX for

Okay. That’s what I was looking for.

And for June quarter? Okay. CapEx the then

said million $XX million. $XX We Yeah. to

$XX million million. to $XX

you. Okay. Thank

this today’s ladies you you may question-and-answer session We and And and now gentlemen, concludes our call. disconnect. participation your and conference for thank