Super Micro Computer - Q1 2024

Transcript

Operator (participant)

Thank you for standing by. My name is Brianna, and I will be your conference operator today. At this time, I would like to welcome everyone to the Super Micro Computer Fiscal Q1 2024 Results Conference Call. With us today, Charles Liang, Founder, President, and Chief Executive Officer, David Weigand, CFO, and Michael Staiger, 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 would like to ask a question, please press Star followed by the number one on your telephone keypad. Thank you. I will now turn today's call over to Michael Staiger. Please go ahea.

Michael Staiger (VP of Corporate Development)

Good afternoon, and thank you for attending Super Micro's call to discuss financial results for the Q1, which ended September 30, 2023. With me today are Charles Liang, Founder, Chairman, and Chief Executive Officer, and David Weigand, Chief Financial Officer. By now, you should have received a copy of the news release that was distributed at the close of regular trading and 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's script and 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 Q2 of fiscal 2024 and the full fiscal year 2024. There are a number of risk factors that could cause Supermicro's future 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 2023, and our other SEC filings. All these documents are available on the investor relations page, Supermicro's website. We assume no obligation to update any forward-looking statements. Most of today's presentations will refer to non-GAAP financial results and business outlook.

For an explanation of our non-GAAP financial measures, please refer to the accompanying presentation or to our press release published earlier today. In addition, a reconciliation of GAAP to 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 remarks, we'll have a Q&A session for sales and analysts to ask questions. I will now turn the call over to Charles.

Charles Liang (Founder, President and CEO)

Thank you, Michael, and good afternoon, everyone. Today, I'm pleased to announce that we are off to a good start for fiscal 2024 with Q1 revenue of $2.12 billion. We navigate tight AI, GPU, and key components supply conditions to deliver total solution and large compute cluster, especially for generative AI workload, where our back order continue to expand faster than our forecast. During the Q1, demand for our leading AI platform in plug and play rack scale, especially for our LLM optimized NVIDIA HGX H100 solutions, was the primary growth driver. Many customers had start to request direct attach cold plate liquid cooling solution to address the energy cost, power grid constraint, and thermal challenge of this new GPU infrastructure.

In some cases, customers are able to double their data center AI computing capacity using our DLC direct attach liquid cooling solution due to lower system power requirement, lower PUE, and higher computing density per cluster. To meet this strong demand, we have been continuously expanding our fabrication and production facilities. By the coming March quarter, we expect to complete a dedicated capacity for manufacturing 100 kW per rack with liquid cooling capability. That will further expand our total rack production capacity to 5,000 racks per month in full speed mass production. The increased AI business also includes our new inferencing platforms and telco optimized edge products based on NVIDIA L40S, L40, and L4, and for sure, H100 as well, AI product lines.

Furthermore, the upcoming Grace Hopper Superchip-based MGX products for both generative AI and inferencing AI are just ready for volume production. Our broadest AI solution portfolio also include Intel Gaudi 2, PCIe Flex, Ponte Vecchio, codename Ponte Vecchio, as well as AMD MI250 and MI300X and MI300A-based platforms. We fully expect many of these products to gain broad adoption and expand our share in the accelerated computing market. Let's go over some key financial highlights. Fiscal Q1 net revenue total $2.12 billion, up 14% year-over-year and down 3% quarter-over-quarter. Toward the high end of our guidance range of $1.9 billion-$2.2 billion, despite the GPU and key components shortage during our traditional soft September quarter.

Physical Q1 non-GAAP earnings of $3.43 per share were in line with $3.42 a year ago, and towards the high end of our guidance range of $2.75-$3.50, demonstrating continuous strong operating leverage during a traditional soft quarter. We launched and delivering end-to-end liquid-cooled data center solution. We foresee up to 20% of our data center deployments will move to liquid cooling, and for the first time, customer can get a complete rack-scale liquid cooling solution from a single source, with minimum lead time of about two weeks. Supermicro is working hard to fully take the current AI growth opportunity by speeding up the development of more new AI-optimized platform.

Supermicro is utilizing its building block architecture to continue our first-to-market DNA with the launch of NVIDIA CG1, CG2, Grace Hopper Superchip, and NVIDIA Grace CPU Superchip, as we speak. Supermicro's latest MGX system provide a groundbreaking computing density, energy efficiency, and ease of data center deployment and serviceability, ideal for hyperscale and edge data center. I believe this ongoing AI revolution will impact all industry and the world, possibly much more impactful than the industrial revolution over 200 years ago. As most people know, the power consumption and thermal challenge of these new AI technologies are rising dramatically. We are now shipping up to 80 kW per rack solution, with 100 kW per rack just around the corner. For compute-intensive data center, CSP, and other industries, our high power efficient system, free air, and liquid cooling expertise have become one of our key differentiator of success.

I anticipate that up to 20% or more of global data center will transition to liquid cool solution in just a few years. In addition, a combination of increasing computing density, reducing PCO, and liquid cooling reduce the environmental impact of data centers significantly. This is well aligned with Supermicro's green computing mission, as we improve data center performance per watt, per square foot, and per dollars. To better support traditional data center, enterprise, and IoT telco industry, we have begun a seeding and early ship for the upcoming 5th generation Intel Xeon processor, codename Emerald Rapids, and shipping 1st generation AMD EPYC processor, codename Genoa-N, Bergamo, SP5, and SP6. With more computing core, PCIe Gen 5, CXL, and many other workload optimized features.

For customers that want to test these latest systems, we offer our JumpStart program with remote access to our high-end X13, H13, and GPU systems for qualified customers, workload, validation, testing, and benchmarking before volume deployment. As the performance of CPU, GPU, and memory technology increase, enhancing storage performance is also necessary to feed massive data sets to the applications without becoming a bottleneck that slow the entire system or cluster down. Supermicro's new PCIe Gen 5-based E1.S and E3.S petascale all-flash storage server offer industry-leading storage performance and capacity. Together with our U.2 NVMe card loading system and traditional storage platforms, we are fulfilling customers' AI, compute, and storage needs with one-stop total solution shopping experience. Supermicro's total IT solution has been recognized as saving customers from the complications of design, validation, sourcing, integration, and on-site deployment. We are also streamlining their networking, switching-...

firmware and software management challenges, topping it off with our 24/7 global deployment and service teams. Essentially, our customers are now incorporating our capability into their long-term infrastructure plans, entrusting Supermicro to provide them with fully optimized solutions and with scale capacity to fit their long-term needs. Given our current customers' infrastructure demands, we have continued to evaluate our footprint beyond our ongoing expansion in Malaysia. We are adding several new buildings close to our headquarters in Silicon Valley campus, and on track to surpass our current capacity of 4,000 racks per month. Today, with utilization rate at about 60%, our U.S. headquarters and Taiwan facility can easily support at least $18 billion in revenue.

The new Malaysia facility will serve building blocks with high volume scale and improved cost structure, while pushing our total revenue capacity to a much higher scale than $20 billion. We are also continuing to work with some of our key partners and are deep in the planning process of adding a new manufacturing campus in North America, outside of California, for cost down. We had just celebrated our 30th anniversary in September. For the past 30 years, we have been working tirelessly toward gaining industry leadership position with a best-in-class product portfolio, global scale, capability, and capacity, and the best time to market, distinguish ourself from the competition. Our IT industry leadership position will be even stronger in the near future. The pipeline of running product in the coming quarters have never been stronger.

We are gaining much momentum that I expect to build deeper into 2024. Give me confidence that fiscal Q2 revenue will be in the range of $2.7 billion-$2.9 billion. Additionally, we are expecting continued strength for the second half of fiscal year 2024, and now forecast revenue in the range of $10 billion-$11 billion. Our position as the leading supplier of rack scale plug and play total AI and IT solutions has just begun. Our growth will accelerate as we deliver more optimized AI infrastructure to existing and emerging markets, along with our growing software and service value. I also look forward to providing more update on our product line in the coming quarters. They will continue to extend our data center technology leadership for years to come.

With that in mind, I expect our $20 billion annual revenue target to be just a couple of years away. Before passing the call to David Weigand, our CFO, I want to take this chance to thank you to our partner, our customer, our Supermicro employee, and our shareholder for your continued support. Thank you. David?

David Weigand (CFO)

Thank you, Charles. Fiscal Q1 2024 revenues were $2.12 billion, up 14% year-over-year and down 3% quarter-over-quarter. Revenues were towards the end of our guidance range, the upper end of our guidance range of $1.9 billion-$2.2 billion, driven by AI-related platforms despite supply chain challenges and summer seasonality. Next generation AI and CPU platforms continue to drive strong levels of design wins, orders, and backlog. We expect diversified growth in fiscal year 2024, driven by top-tier data centers, emerging CSPs, enterprise investments in new AI CPU servers, and Edge IoT telco markets. We're also enhancing our offerings in storage, switches, software, and services to strengthen our total solutions offerings. During Q1, we recorded $917 million in the enterprise and channel vertical, representing 43% of revenues versus 45% last quarter.

This was up 10% year-over-year and down 6% quarter-over-quarter due to seasonally lower enterprise spending as customers focused on AI investments. The OEM appliance and large data center vertical revenues were $1.17 billion, representing 55% of Q1 revenues versus 53% last quarter. So this was up 26% year-over-year and flat quarter-over-quarter. One existing CSP large data center customer represented 25% of total revenues for Q1. Our emerging 5G telco edge IoT segment revenues were $31 million, which represented 2% of Q1 revenues. AI, GPU, and rack scale solutions again represented over 50% of our total revenues this quarter, with AI GPU revenues in both the enterprise channel and the OEM appliance and large data center verticals.

The mix of complete systems, storage, and rack scale total IT solutions has increased over the last two years. Server and storage systems comprise 93% of Q1 revenue, and subsystems and accessories represent 7%. ASPs increased significantly on a year-over-year basis and decreased slightly quarter over quarter, driven by product and customer mix. By geography, the U.S. represented 76% of Q1 revenues, Asia 11%, Europe 9%, and the rest of the world 4%. On a year-over-year basis, U.S. revenues increased 25%, Asia decreased 17%, Europe decreased 19%, and the rest of the world increased 63%. On a quarter-over-quarter basis, U.S. revenues decreased 3%, Asia decreased 4%, Europe decreased 16%, and the rest of the world increased 38%. The Q1 non-GAAP gross margin was 17%, down slightly quarter over quarter from 17.1.

We continue to focus on winning strategic new designs and gain market share. Turning to operating expenses, Q1 OpEx on a GAAP basis increased by 25% quarter-over-quarter and 42% year-over-year to $181 million, driven by higher stock-based compensation expenses and headcount. On a non-GAAP basis, operating expenses decreased 3% quarter-over-quarter and increased 11% year-over-year to $130 million. Our Q1 non-GAAP operating margin was 10.8% versus 11% last quarter and 12.5% a year ago, due to changes in revenues, gross margins, and operating expenses. Other income and expenses for Q1 was approximately $4.7 million, consisting of $1.9 million in interest expense, offset by a net gain of $6.6 million, principally from foreign exchange.

Our interest expense decreased sequentially as we paid down our debt during the quarter. The income tax provision for Q1 was $20.2 million on a GAAP basis and $36.2 million on a non-GAAP basis. The GAAP tax rate for Q1 was 11.4%, and the non-GAAP tax rate was at 15.5%. We delivered strong Q1 non-GAAP diluted earnings per share of $3.43, which was at the high end of the guidance range of $2.75-$3.50, due to revenues toward the higher end of the guidance, stable gross margins, lower non-GAAP OpEx, and foreign exchange gains.

Cash flow generated from operations for Q1 was $271 million, compared to cash flow used in operations of $9 million during the previous quarter, due to continued strong profitability, which was offset by higher inventory requirements based on our build plans for Q2. CapEx was $3 million for Q1, which resulted in positive free cash flow of $268 million, versus negative free cash flow of $17 million last quarter. We have $50 million remaining under the authorized buyback program, which expires on January 31, 2024. The closing balance sheet cash position was $543 million, while bank debt was $146 million, resulting in a net cash position of $397 million, up from a net cash position of $150 million last quarter.

We generated $271 million in operating cash flow and then paid down debt by $141 million in Q1. Turning to the balance sheet and working capital metrics compared to last quarter, the Q1 cash conversion cycle was 86 days, versus 77 days in Q4. Days of inventory increased by 16 days to 91, versus the prior quarter of 75 days, as we built inventory for a seasonally strong Q2. Days sales outstanding was up by five days quarter-over-quarter to 43 days, while days payable outstanding increased by 12 days to 48 days. Now, turning to the outlook, we remain enthusiastic about our diversified business model, covering a wide range of GPU, AI or core computing, storage, 5G telco edge, and IoT solutions.

We expect a seasonally strong Q2 and are carefully observing the global macroeconomic situation and continuing supply chain constraints, especially for leading AI platforms. For the Q2 of fiscal 2024, ending December 31, 2023, we expect net sales in the range of $2.7 billion-$2.9 billion, GAAP diluted net income per share of $3.75-$4.24, and non-GAAP diluted net income per share of $4.40-$4.88. We expect gross margins to be similar to Q1 levels. GAAP operating expenses are expected to be approximately $191 million, and include $49 million in stock-based compensation expenses that are not included in non-GAAP operating expenses.

The outlook for Q2 of fiscal year 2024 fully diluted GAAP EPS includes approximately $40 million in expected stock-based compensation expenses, net of tax effects of $13 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 $8 million. The company's projections for Q2 GAAP and non-GAAP diluted net income per common share assume a GAAP tax rate of 15.7%, a non-GAAP tax rate of 17.1%, and a fully diluted share count of 57.6 million for GAAP and 58.3 million shares for non-GAAP.

We expect CapEx for the fiscal Q2 of 2024 to be in the range of $21-23 million, and a range of $105-115 million for the fiscal year 2024. For the fiscal year 2024, which ends June 30, 2024, we are raising our guidance for revenues from a range of $9.5-10.5 billion, to a range of $10-11 billion. Michael, we're now ready for Q&A.

Operator (participant)

Thank you. At this time, I'd like to remind everyone, in order to ask a question, please press star one. We kindly ask that you limit yourself to one question and one follow-up. Our first question comes from Ananda Baruah with Loop Capital. Your line is open.

Ananda Baruah (Managing Director and Senior Equity Research Analyst)

Hey, yeah, good afternoon, guys. Thanks for taking the questions and congrats on the strong and ongoing execution. I guess, yeah, just for—so a couple to start. Charles, can you talk about the degree to which you guys either are benefiting or anticipate to benefit from the increased NVIDIA supply that was pointed to China, but now needs to find other places to go? And if you to the degree you think you might benefit, if you could give us some sense of, you know, at what rate that benefit makes its way, you know, out of China and into other countries. And then I have a follow-up. Thanks.

Charles Liang (Founder, President and CEO)

Thank you for the question. Again, it's a complicated situation, but at this moment, we believe December quarter, our supply from NVIDIA will be much better than last quarter. And that's one of the reason why we are able to fulfill more percentage of customer demand. And that's why we say $2.7 billion-$2.9 billion should be our target. So basically, the supply condition are being improving.

Ananda Baruah (Managing Director and Senior Equity Research Analyst)

That's actually really helpful context. I appreciate it. And then I guess, you know, sort of dovetailing from that, Charles, so the midpoint of the implied guide for the fiscal year, the raised guide, $10.5 billion, implies that the March quarter and June quarter would also be about $2.8 billion, which is the midpoint of your December quarter guide. And then you also, though, made mention of growth accelerating. And so, and then, and it seems like supply is getting better. You also have co-op capacity coming on going into the year.

So I guess the question is, is there conservatism built into even the implied fiscal year guide that's been raised, or is there some pull forward in December quarter that you think might be challenging to duplicate in the March and June quarter? It seems like conservatism, but just wanted to check that. Thanks.

Charles Liang (Founder, President and CEO)

Good, thank you. Again, we continue to gain lots of design wins. So our order have been growing faster than what we forecast in reality. So at this moment, $2.7 billion-$2.9 billion for December should be a very conservative number. And for our whole fiscal year, $10 billion-$11 billion, again, should be a conservative number. So I feel very optimistic to continue to grow quickly, and that's why we continue to grow our rack scale, including DLC, rack scale rather than pre-production capacity. Like the wide HGX, before we have 4,000 rack per month capacity, and now pretty much we will grow to a 5,000 rack per month capacity mentioned. So we are very optimistic for the future growth.

Operator (participant)

Our next question comes from George Wang with Barclays. Your line is open.

George Wang (VP and Senior Equity Research Analyst)

Oh, hey, hey, guys. So, hey, Charles. So thanks for taking my question. I just maybe you could give some color in terms of the allocation from other suppliers and partners, you know, kind of maybe in the near term, kind of for the future, like, on the AMD MI300, which is expected to launch in the Q1, 2024, and also, aside from H100 from NVIDIA, any other upside, when the L40S from NVIDIA is ramping? Just curious and also including Gaudi from Intel. Maybe you can give some color on kind of, you know, allocation from kind of additional suppliers.

Charles Liang (Founder, President and CEO)

Yeah, thank you for the question. Yes. I mean, as you know, we have a very strong NVIDIA product line, including L40S, right, and including the CG1, CG2 on the way, and AMD MI300X also are getting ready, and NVIDIA Gaudi 2 is ready to volume production. So overall, we have a very good demand and a very strong supplying capacity. So again, I feel very optimistic for the quicker growth.

George Wang (VP and Senior Equity Research Analyst)

Okay, thanks. I have a quick follow-up, if I can. Just in terms of, you know, the when Malaysia coming out and also in the future, kind of Taiwan facility, any thoughts on the kind of impact to the profit margin and kind of, you know, obviously with the much lower labor cost, you know, can you kind of quantify, maybe give some color just on expected operating margin accretion going forward?

Charles Liang (Founder, President and CEO)

Yes. I mean, as I just share, our utilization rate for U.S. and Taiwan capacity today only about 60%. So when we have a higher utilization rate, our overall cost will be lower, right? So that's why when we grow revenue, our profitability will increase. And Malaysia, as you know, is a lower cost campus. So once we start production in Malaysia, our cost will be better and profit margin for sure will be slightly improved.

Operator (participant)

Our next question comes from Mehdi Hosseini with Susquehanna Financial Group. Your line is open.

Mehdi Hosseini (Senior Equity Research Analyst)

Yes, it's actually Mehdi Hosseini. Thanks for taking my question. David, your in midpoint of the December quarter guide implies 57% year-over-year growth, but operating margin declining by about 100 basis points. I understand utilization rate is in the 60% range, but as you bring the utilization rate, how should I think about the OpEx and the leverage from here on?

David Weigand (CFO)

Yeah. So we expect that we will continue to get operating leverage, Mehdi. We were, I think, a little conservative in our guide for OpEx in Q2. So, and as we were in Q1, and so we came in a little bit lower. We're doing everything we can to do that in Q2 as well. So back to your operating guide question, you know, we came down a little bit on gross margin year-over-year, as you know. But we expect, as Charles mentioned, we expect some gross margin leverage, as well as operating margin leverage, as our operating expenses never increase at the rate that our revenues are.

Mehdi Hosseini (Senior Equity Research Analyst)

Got it. Thank you. And Charles, a big part of your cost is memory and other components, and everything we have heard from memory manufacturers suggests that they're not going to sell at prices that were prevalent just a couple of months ago. So memory prices are going up, and how do you alleviate that inflationary trend to be able to expand margins?

Charles Liang (Founder, President and CEO)

Thank you. I mean, basically, we are able to pass through our cost to customers. So for that portion, basically, we are kind of okay. We won't be impacted by that, and at least it won't be impact too much.

Operator (participant)

Our next question comes from Jonathan Tanwanteng with CJS Securities. Your line is open.

Jonathan Tanwanteng (Managing Director of Research)

Hi, thanks for taking the question, guys, and great quarter and a nice outlook. Just wanted a little more color on the gross margin guidance and outlook. I mean, I assume you're getting better margins on utilization and on your new facilities on the ramp. Are you simply planning to give all that back with the share gain initiatives and the hyperscale mix, or is there some input cost component? And kind of when should we expect the timeframe for gross margin leverage to really become apparent? Is it only with the new facilities, or can that happen a little sooner than that?

David Weigand (CFO)

Well, it's a combination, John, of as we ramp revenues up, we're gonna get, we're gonna get leverage on the gross margin because as Charles mentioned earlier, we're gonna get higher efficiency and on factory throughput, as we, which will lower costs as we put more through the factories. So we'll get some, we'll get some benefit there. We'll also get benefit as we transition more manufacturing over to Taiwan, to Malaysia and Taiwan. And I think that, so that's why right now we are, although, you know, very competitive situation, we're maintaining our margin guidance for Q2.

Charles Liang (Founder, President and CEO)

Yeah, I can add a little bit, some color. I mean, kind of our core way of business is growing together, our services including on-site deployment. And all those will help our gross margin, our value bridge. So at this moment, we should be on the right track, healthy direction.

Jonathan Tanwanteng (Managing Director of Research)

Got it. Okay, and then just a question on the, I think you said you're building seven new buildings here in the U.S. I know you're expanding and looking for places to put facilities in North America. Would those all be margin accretive, or neutral, or negative, just given the higher costs here? How do we think about those facilities and their impact?

Charles Liang (Founder, President and CEO)

Oh, very good question. Indeed, we are adding some more building in Bay Area, and most of those will be rental, rental buildings because our growth is faster than what we can build a building. So it will be a rental facility. And then, I did mention about we are looking for another location, hopefully in a little bit lower cost state in North America. So we are planning for building a new campus. We will decide next few months, I believe. But short term, building in Silicon Valley will be rental property.

Operator (participant)

Our next question comes from Nehal Chokshi, Northland Capital Markets. Your line is open.

Nehal Chokshi (Managing Director and Senior Research Analyst)

Yeah, thank you. You may have already addressed this, but what are your expectations for AI revenue contribution with respect to the midpoint of December quarter guide being up 32% Q over Q?

David Weigand (CFO)

Yeah. So I think we're expecting really the same performance, Nehal. We'll expect it to be in a range over 50, over 50%.

Nehal Chokshi (Managing Director and Senior Research Analyst)

Okay. Can you give me a little bit more precise number as far as what the exposure was in the September quarter, other than greater than 50?

David Weigand (CFO)

That's-- We're giving that approximate figure, and that's our guide.

Charles Liang (Founder, President and CEO)

Yeah. Basically, AI revenue percentage continues to grow, but hopefully in a healthy and consistent way.

Operator (participant)

Our next question comes from Aaron Rakers with Wells Fargo. Your line is open.

Aaron Rakers (Managing Director and Senior Equity Research Analyst)

Yeah. Thanks for taking the question, and also congrats on the quarter. I'm just curious, going back to the supply side of the discussion, you know, how would you, as you're engaging with customers and thinking about their build-out plans, you know, in their data center footprints for AI, how would you characterize the evolution of lead times on these higher-end GPUs? I mean, you know, relative to what it was maybe 90 days ago, how has that evolved, and how are you seeing that evolve into the current quarter?

Charles Liang (Founder, President and CEO)

Yes, it's a complicated job. However, because our Building Block Solution and our global footprint, together, we have a huge scale. We support hundreds of customers, so it's all those factors. Indeed, relatively, we are able to taking care of the allocation, the lead time, the inventory control, product deployment, more efficient than our competitor. And we are continually improving in that area.

Aaron Rakers (Managing Director and Senior Equity Research Analyst)

So, you would say that lead times have improved throughout this course of this last quarter, and you'd expect that... It sounds like to continue to improve in the December quarter. It's kind of a fair characterization?

Charles Liang (Founder, President and CEO)

Yes, and that's why our inventory utilization rate will be improving. So before, I guess we have about 90-day turnaround time.

David Weigand (CFO)

Yes.

Charles Liang (Founder, President and CEO)

I guess that will be improved when the scale continue to grow.

Aaron Rakers (Managing Director and Senior Equity Research Analyst)

Yeah.

Charles Liang (Founder, President and CEO)

When we continue to leverage, better leverage our building block solution, situation will continue to improve.

Aaron Rakers (Managing Director and Senior Equity Research Analyst)

Yep. And then the follow-up question would be, is that, you know, as the market evolves more competitively and you see, I know a prior question on the MI300, you've got the Gaudi silicon. I guess the way I think about it is these customer deployments are, you know, longer cycle. It's not like these decisions are made in a given quarter. So as we look to these products, particularly the MI300X ramping, you know, really starting early part of next year and through the course of next year, are those projects that you're already seeing visibility into and that actually adds another layer of growth to the pipeline?

Are those projects that you've already been designed in and you're just waiting for those products to kind of launch, to really start to see that incremental revenue for those competitive offerings?

Charles Liang (Founder, President and CEO)

Yeah, Aaron, you are right. Because our Building Block Solution, so we are able to design all the and make a new technology available earlier than, uh, the market, basically. So usually we send our solution to customer for evaluation, so our customer can make a decision earlier, and that allows Supermicro a little bit earlier time to prepare the product, prepare the inventory. So it doesn't matter immediate solution, AMD solution, or Intel solution, we provide a simple block solution, and we gain a time-to-market advantage. We provide a customer earlier seeding, earlier systems so that they can benefit in advance.

Operator (participant)

This will conclude our question-and-answer session and our conference call today. Thank you for joining us. You may now disconnect.