Super Micro Computer Inc (SMCI)

• Strong growth in liquid cooling solutions, with over 2,000 liquid-cooled racks shipped in recent months - . Customer feedback is very positive, with quality and satisfaction even better than traditional solutions - . Supermicro's investment in liquid cooling over the past three years is paying off, providing a major advantage in end-to-end data center solutions - - .
• Robust partnership with NVIDIA, with a relationship spanning multiple decades - . Supermicro expects no negative impacts on supply or allocations from NVIDIA due to auditor issues, and communication remains very positive - . As NVIDIA's new chips become available, Supermicro anticipates a good percentage in their product mix, enhancing growth prospects - .
• Financial strength and access to capital, having raised $4 billion into working capital from two equity raises and one convertible in the last 8-9 months - . Supermicro exited Q4 at a run rate of around $6 billion - . The company continues to make a reasonable good net profit every quarter, leaving them in good shape with no impediments to raising working capital - .

• High Inventory Levels Pose Financial Risk: The company reported holding $5 billion in inventory and expects to maintain this level as it continues to grow - . If demand slows, this high inventory could lead to financial strain due to potential write-downs or cash flow issues.
• Uncertainty from Delayed Auditor Appointment and Lack of Annual Guidance: The company has not provided an update on appointing a new auditor, stating, "we have no update with respect to the time line" - - . Additionally, they are not providing annual guidance for fiscal year 2025, which may create uncertainty about future performance - .
• Corporate Governance Concerns Over Combined CEO and Chairman Roles: Analysts have expressed that separating the CEO and Chairman roles could benefit the company. The CEO acknowledged the consideration but offered "no comment at this moment" on plans to separate the roles, potentially indicating governance risks - .

1. Revenue Guidance & Chip Availability
   Q: When will Blackwell revenue start impacting guidance?
   A: Charles Liang explained revenue was impacted as customers await new chips, particularly NVIDIA's Blackwell. They expect growth once these chips become available, possibly starting in Q1 as volumes improve. However, they are not providing annual guidance currently. - - -

2. Gross Margin Outlook
   Q: Will gross margins improve this fiscal year?
   A: Management is cautiously guiding margins but aims to improve them despite competitive pressures. With new technologies like Blackwell, they are optimistic about growing margins toward their target of 14–17%. - - -

3. Financial Filings & Auditor Status
   Q: What's the status of audited filings and auditor replacement?
   A: The company is diligently working to replace their auditor and will file a plan with NASDAQ for an extension. They have no updates on the timeline but are focused on resolving the issue promptly. - -

4. Inventory Levels & Cash Flow
   Q: How are inventory levels affecting cash flow?
   A: Inventory remains high at $5 billion to support anticipated growth. As growth normalizes, they expect improved cash flow, evidenced by an improved operating cash flow of about $1 billion this quarter, driven by better working capital management. - - -

5. Management Changes
   Q: Any plans for management or operational changes?
   A: Charles Liang stated they continuously add senior management as the company grows rapidly. They are open to changes benefiting shareholders, including possibly separating Chairman and CEO roles in the future. - -

6. Customer Concentration
   Q: Are there significant 10% customer exposures?
   A: The company acknowledged having 10% customers but did not disclose specifics. They are gaining new customers, especially in Europe and Asia, to maintain a healthy customer mix. -

7. Relationship with NVIDIA
   Q: Is NVIDIA supply affected by filing issues?
   A: Charles Liang affirmed their strong, decades-long relationship with NVIDIA, expecting no negative impact on allocations. NVIDIA confirmed no changes, and they continue close collaboration on new technologies. -

8. Capacity Utilization
   Q: How is capacity utilization tracking?
   A: They have expanded capacity in Silicon Valley, Taiwan, and Malaysia to support future growth. Currently, utilization is about 50%, awaiting new chip availability, but they are prepared for increased demand. -

9. Access to Capital
   Q: How should we view your access to capital?
   A: With strong profitability, they raised $4 billion in the past 8–9 months, ensuring good working capital. They foresee no impediments to raising additional capital if needed. - -

10. Liquid Cooling Solutions
    Q: Is there more efficiency in liquid cooling supply chain?
    A: They are ahead in liquid cooling, having shipped over 2,000 racks with positive customer feedback. They expect liquid cooling to continue growing rapidly and remain a major advantage. - -

Quarterly guidance for Q2 2025:

• Net Sales: $5.5B to $6.1B - (lowered from $6B to $7B - - )
• Gross Margin: Decrease by 100 basis points sequentially - (lowered from “expected improvement” - )
• Operating Expenses: Increase by approximately $34M sequentially - (raised from $282M - )
• Other Income and Expense: Net expense of approximately $7M - (lowered from net expense of approximately $20M - )
• GAAP Net Income per Diluted Share: $0.48 to $0.58 - (lowered from $5.97 to $7.66 - )
• Non-GAAP Net Income per Diluted Share: $0.56 to $0.65 - (lowered from $6.69 to $8.27 - )
• Tax Rate: GAAP 14%, Non-GAAP 15% - (raised from GAAP 9.9%, Non-GAAP 14.6% - )
• Diluted Share Count: GAAP 640M, Non-GAAP 648M - (raised from GAAP 65M, Non-GAAP 66M - )
• Stock-Based Compensation Expense: $54M, with $14M excluded from non-GAAP net income per share - (lowered from $84M - )