Super Micro Computer - Q3 2023

Transcript

Operator (participant)

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, Inc. 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. If you would like to ask a question during that time, simply press the Star key followed by the number one on your telephone keypad. If you would like to withdraw your question, press Star one once again. Thank you. I will now turn the conference over to Michael Staiger, Vice President of Corporate Development. You may begin.

Michael Staiger (VP of Corporate Development)

Good afternoon. Thank you for attending Super Micro's call to discuss financial results for the third quarter, which ended March 31st, 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 from the company 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 scripted commentary on our website.

Please note that some of the information you'll hear during our discussion today will consist of forward-looking statements, including without limitation, those regarding revenue, gross margin, operating expenses, other income and expenses, taxes, capital allocation, and future business outlook, including guidance for the fourth quarter of fiscal year 2023 and the full fiscal year 2023. There are a number of risk factors that could cause Super Micro'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 2022, and our other SEC filings. All these documents are available on the investor relations page of Super Micro's website. We assume no obligation to update any forward-looking statements. Most of today's presentation will refer to non-GAAP financial results and business outlook.

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

Charles Liang (Founder, Chairman, and CEO)

Thank you, Michael. Good afternoon, everyone. Our revenue for the third quarter of fiscal year 2023 totaled $1.28 billion, down 5% year-on-year and below our initial guidance range, as we previously announced. Our non-GAAP earnings per share grew over 5% year-on-year to $1.63 compared to $1.55 a year ago. While the quarter demand on product we expect and strongly encouraged by our current business momentum as we navigate market uncertainty with our new generation X13, H13, and H100 leading-edge product, especially in artificial intelligence. This new AI product demands from top tier companies has led us to challenge in terms of new key components availability. Sometimes with the economic tailwind, our Q3 result was reflective of this difficulty yet opportune condition.

The thing is that we have already start to address this component shortage pressure over the past few months. We are in a much improved situation going forward. We have start to produce and ship some back orders since April. Here are a few highlights for the quarter. First, record pace of GPU leading edge design wins with growing back order, including winning at least four new global top 20 customers. Second, we refresh our entire product portfolio based on new CPU, GPU, storage and fabric technology from key partners including NVIDIA, Intel, AMD, and others. Third, increased customer demand of our large scale Plug and Play solutions and continuous expansion and transition from a server storage hardware manufacturer to a total IT solution provider.

With applications such as ChatGPT that heavily count on large language models, LLM, and generated by AI, the state of AI infrastructure business has grown rapidly. This AI momentum has benefited Super Micro greatly as we are deploying many of the world's leading and large-scale GPU cluster. In addition, we have built a close and collaborative relationship with NVIDIA over the years by co-developing and offering the most optimized and the fastest time to market GPU platform on the market. Aligning new generation product design with partner ecosystem is highly complex. As I mentioned earlier, multiple key component shortage delay our ability to manufacture and deliver the new system, like the Delta Next GPU system last quarter. With the improving components availability this quarter, the new GPU system shipment will ramp up quickly.

Indeed, we continue to scale up our manufacturing campuses in U.S., Taiwan, Netherlands, and Malaysia, so that we can support our revenue growth in a much larger scale in the coming quarters and years. By leveraging our in-house Building Blocks design and manufacturing, we are well-equipped to navigate through the current economic headwind. With our Building Block Solution architecture, we always deliver workload optimized new product to market faster than competitors, like with the recent NVIDIA H100, Intel Server IP, and AMD Genoa release. The power consumption and thermal challenges of these new technologies have risen dramatically, 40 kW or even 6 kW and 80 kW rack solution demand are getting stronger and popular for computing hungry data center and industry. Having high power efficiency and AI liquid thermal expertise have become one of our key differentiator of success.

Combined with our blooming green computing strategy that save customer much TCO saving, our time to market advantage and solution optimization via Building Block solution, we anticipate continue to gain many more new design wins with this new generation product in the quarters ahead. We have made solid progress in our total IT solution initiative by advancing our rack scale solution capability. Provided there are no supply constraints, we can design, build, validate, full system and deliver turnkey rack level solution to customer within a few weeks of placing an order instead of months from competitor. Super Micro's one stop shopping total IT strategy, including AI, server, storage, networking, software, racking, cabling, power, cooling, integration, validation, and management features, plus service. The idea is to let customer focus more on their applications and new software features.

Leave the IT hardware solution to Super Micro from cloud to edge. Currently, we are on track to support up to 4,000 racks per month of global manufacturing capability and capacity by the calendar year-end. Our business is maintaining a growth rate that is multiples of the overall IT industry growth rate in the same period. We are doing so by efficiently taking much share in the new and faster growing market. AI, storage, on-prem cloud, embedded and 5G edge are all verticals we see a potential to greatly increase our trend. We are well-positioned to support these highly specialized market by optimizing our technology, design and business automation at our U.S., Asia and EMEA campuses. The data center and liquid cooling rack scale solution and production lines.

For the product auto configurator and online business automation, we are bringing more value to our customer, quicker with better quality. We are also improving our cost structure by scaling through our Taiwan and upcoming Malaysia campuses, which will be online soon with some of our key partners. While our March quarter results has some challenge, our new generation of products are in high demand, especially for AI, and we anticipate more customers deploying our product in rack scale rather than blade. We continue to be merged as one of the largest global supplier of total IT solution and continue to gain much share. The strength of our products and technology keep us confident of delivering Q4 revenue in the range of $1.7 billion-$1.9 billion.

If supply condition improves enough, we expect to be above the range, given some economical headwind is still ahead. In other words, I continue to expect our fiscal year 2024 revenue to be at least 20% year-over-year growth, and we are accelerating to reach our mid to long term growth objective of, $20 billion per year.Now I will ask David Weigand, our Chief Financial Officer, to provide the additional detail for that quarter. Thank you.

David Weigand (CFO)

Thank you, Charles. Fiscal Q3 2023 revenues were $1.28 billion, down 5% year-over-year and down 29% quarter-over-quarter, which was below our initial guidance range of $1.42 billion-$1.52 billion. The shortfall was primarily due to key new component shortages for Super Micro's new-generation server platforms, which have been mostly resolved to date. Our next-generation AI platforms are driving record levels of design wins, along with strong orders from top-tier customers and a record backlog. We are well positioned for a strong finish to our fiscal year 2023 as we ramp up deliveries of our new platforms to key customers. We know that our shipments against our record backlog may be constrained by supply chain bottlenecks due to high demand for our advanced AI server platforms.

Q3 results were driven by our high growth AI GPU and rack scale solutions, which represented approximately 29% of our total revenues. We expect significant future growth. An existing cloud service provider customer represented more than 10% of revenues for the first time. On a quarter-over-quarter basis, key new platform component shortages and seasonality impacted our three end market verticals. On a year-over-year basis, we had growth in our OEM appliance and large data center vertical, reflecting momentum with new data center and CSP customers. We recorded $646 million in the enterprise and channel vertical, representing 50% of Q3 revenues versus 53% last quarter. This was down 22% year-over-year and down 32% quarter-over-quarter due to new platform component shortages.

The OEM appliance and large data center vertical achieved $601 million in revenues, representing 40% of Q3 revenues versus 42% last quarter. This was up 30%, 37% year-over-year as we gained momentum with existing and new data center, CSP and OEM cloud appliance customers, and down 23% quarter-over-quarter due to new platform component shortages. Our emerging 5G Telco Edge and IoT segment achieved $36 million in revenues, which represented 3% of Q3 revenues versus 4% last quarter. Systems comprised 91% of total revenue and was up 2% year-over-year and down 30% quarter-over-quarter. Subsystems and accessories represented 9% of Q3 revenues and were down 43% year-over-year and down 16% quarter-over-quarter.

On a year-over-year basis, the volume of systems and nodes shipped decreased, while system node ASPs increased due to higher product ASPs, especially for our AI product offerings. On a quarter-over-quarter basis, the volume of systems and nodes shipped decreased due to lower shipments from component shortages, while system node ASPs increased. Geographically, during Q3, the U.S. market represented 61% of revenues. Asia 17%, Europe 18%, and the rest of the world 4%. On a year-over-year basis, U.S. revenues increased 3%, Asia decreased 31%, Europe increased 11%, and the rest of the world decreased 29%. On a quarter-over-quarter basis, U.S. revenues decreased 28%, Asia decreased 35%, Europe decreased 27%, and rest of the world decreased 20%. The Q3 non-GAAP gross margin was 17.7%.

This was down 110 basis points quarter-over-quarter and up 210 basis points year-over-year. The decline in the non-GAAP gross margin was due to, one, our efforts to gain market share in the rapidly growing AI server platform market with aggressive pricing targeting strategic large enterprises, data center and CSP customers. Secondly, lower factory efficiency from smaller sales volume and a learning curve in the production ramp of new platforms. The company's mainstream server business margin profiles were generally on par with last quarter. As we focus on gaining market share with our new AI platforms, we will target the optimal mix of revenue growth margin and operating profit to create long-term value for our shareholders.

Turning to operating expenses, Q3 OpEx on a GAAP basis increased by 4% quarter-over-quarter and increased 5% year-over-year to $127 million. On a non-GAAP basis, operating expenses increased 7% quarter-over-quarter and increased 6% year-over-year to $116 million. OpEx increased sequentially due to lower NRE and marketing credits for new platform launches and higher headcount. The non-GAAP operating margin was 8.7% for the quarter versus 12.8% last quarter and 7.5% a year ago due to lower revenues and lower gross margins.

Other income and expense was approximately $1.4 million in expense, primarily consisting of interest expense of $1.2 million and a small FX loss as compared to $1.8 million in interest expense and a $6.3 million FX loss last quarter. Interest expense decreased sequentially as we paid down some working capital loans last quarter. The tax provision for Q3 was $11 million on a GAAP basis and $15 million on a non-GAAP basis. The GAAP tax rate for Q3 was 11% and non-GAAP tax rate was 14%. Our tax rates were lower sequentially due to higher discrete tax benefits realized in Q3. Lastly, our share of income from our joint venture was a loss of $1 million this quarter as compared to a loss of $1.4 million last quarter.

We delivered Q3 non-GAAP diluted earnings per share of $1.63, which was up 5% year-over-year and down 50% quarter-over-quarter due to the lower revenues, lower gross margins, and higher operating expenses quarter-over-quarter. Turning to the balance sheet and working capital metrics compared to last quarter. Our Q3 cash conversion cycle was 126 days versus 95 days in Q2. Days of inventory was 126, which was up by 27 as we built inventory to fulfill large new customer orders. Days sales outstanding rose 13 days quarter-over-quarter to 51 days, while days payables outstanding increased by 9 days to 51.

Working capital metrics were impacted by the new platform component shortages, which increased inventory and lengthened the cash conversion cycle as we could not fulfill all our sales demand. In fiscal Q3, we generated positive cash flow from operations of $198 million versus $161 million in Q2. Despite our quarter-over-quarter revenue decline, our operating cash flow benefited from continued profitability and the conversion of accounts receivable to cash. CapEx was $8 million for Q3, resulting in positive free cash flow of $190 million versus positive free cash flow of $151 million last quarter. The closing balance sheet cash position was $363 million.

Total bank debt increased to $187 million as we increased our debt by $17 million during the quarter, while net cash increased to $176 million in Q3 from $135 million in Q2 due to strong operating cash flow. During Q3, we repurchased 1.55 million shares of our common stock for approximately $150 million, leaving $50 million remaining under our current $200 million share repurchase authorization, which goes until January 31st, 2024. Our board will determine the timing and amount of any future share repurchases. Turning to the outlook for our business. We have a strong backlog of orders for new platforms entering the seasonally strong June quarter.

We are working diligently with our strategic partners and customers to fulfill their requirements and are making steady progress in easing key supply constraints. For the fourth quarter of Fiscal 2023, which ended on June 30, 2023, we expect to net sales in the range of $1.7 billion-$1.9 billion. GAAP diluted net income per share of $2.13-$2.65, and non-GAAP diluted net income per share of $2.21-$2.71. We expect gross margins to be approximately 17% as we focus on gaining market share with our strategic new customers and platforms. As we improve our production efficiencies on the new platforms and gain scale with our customers, we expect our gross margins to improve.

However, in the current AI growth, AI market environment, we will continue to balance market share gains with gross margins. GAAP operating expenses are expected to be $145 million, which includes approximately $10 million in expected stock-based compensation and other expenses that are excluded from non-GAAP diluted net income per common share. GAAP and non-GAAP operating expenses are expected to increase in Q4 due to lower R&D and NRE credits and higher personnel and marketing costs. We expect other income and expenses, including interest expense, to be a net expense of approximately $4 million and expect a nominal loss from our joint venture.

The company's projections for GAAP and non-GAAP diluted net income per common share assume a GAAP tax rate of 14.7%, a non-GAAP tax rate of 15.7%, and a fully diluted share count of 56 million for GAAP and 57 million shares for non-GAAP. The outlook for the fiscal fourth quarter of 2023 fully diluted GAAP EPS includes approximately $7 million in expected stock-based compensation and other expenses, net of tax effects that are excluded from non-GAAP diluted net income per common share. We expect CapEx for the fiscal fourth quarter of 2023 to be in the range of $11 million-$14 million.

For the fiscal year 2023, ending June 30, 2023, we are tightening our guidance for revenues from a range of $6.5 billion-$7.5 billion to a range of $6.6 billion-$6.8 billion, which would represent year-over-year growth of 27%-31%. GAAP diluted net income per share from a range of $8.50-$11.00 to a range of $10.14-$10.66, and non-GAAP diluted net income per share from a range of $9.00-$11.30 to a range of $10.50-$11.00. The company's projections for GAAP annual net income assume a tax rate of 14.9% and a rate of 16% for non-GAAP net income.

For fiscal year 2023, we are assuming a fully diluted share count of 56 million shares for GAAP and 57 million shares for non-GAAP. The outlook for fiscal year 2023 fully diluted GAAP earnings per share includes approximately $32 million in expected stock-based compensation and other expenses, net of tax effects that are excluded from non-GAAP diluted net income per common share. For fiscal year 2024, we are expecting revenue growth of at least 20% based on strong customer demand for our best-in-class new AI platforms and total IT solutions. We remain confident in our long-term outlook for robust revenue growth and profitability, driven by our leading edge new platforms, design wins and significant new customers, our efficient global manufacturing capacity, and continued market share gains. Michael, now we're ready for Q&A.

Charles Liang (Founder, Chairman, and CEO)

Operator?

Operator (participant)

Thank you. At this time, I would like to remind everyone, in order to ask a question, press Star then one on your telephone keypad. We will pause for just a moment to compile the Q&A roster. We will take our first question from Nehal Chokshi with Northland Capital Markets. Your line is open.

Nehal Chokshi (Managing Director)

Yeah, thank you. Very impressive buyback rate of $150 million in the quarter at $100 a share. It's a very strong statement that the shares are attractive prices, and nice to see that backed up with the $10.50-$11 a share fiscal year 2023 guidance. With that in mind, on the at least 20% year-over-year revenue growth in fiscal year 2024, what's your level of confidence that Super Micro can operate, you know, at the high end of the target model that you guys communicated two years ago, that being the 14%-17% gross margin range?

Charles Liang (Founder, Chairman, and CEO)

Yeah.

David Weigand (CFO)

As you see, the company base is very good. Again, because the economic headwind, so we try to be more conservative here, but at least a 20% year-over-year growth and we expect we hope more than that this year.

Nehal Chokshi (Managing Director)

What about with respect to gross margin?

David Weigand (CFO)

Nehal, we, two years ago, we gave 17%-21%, 22%, you know, top line growth. We're in there at the minimum of 20%. For the gross margins, we continue to, like I said, to wrestle with taking market share and also balancing that as against gross margins. We're confident with our new manufacturing facilities coming online, that we will be able to improve our gross margins. We also, as we come out of this quarter and we begin to ramp our new product offerings, that we will be able to improve margins as well.

Nehal Chokshi (Managing Director)

Okay, great. Are you guys seeing any signs of general corporate IT demand weakness, as the CDW has indicated?

Charles Liang (Founder, Chairman, and CEO)

Yeah, the general IT market has slowed down a little bit, but the big thing is we have a lot of high-end, high computing, especially GPU, product line that we saw a very strong demand. Overall, our growth is very strong.

Nehal Chokshi (Managing Director)

Okay. Did you have any 10+% customers in the quarter and any expectations that would contribute within the June quarter as well?

David Weigand (CFO)

We did have a new 10% customer this quarter. They're not a new customer, but they're a new 10% customer. We expect from time, you know, from quarter-to-quarter, Nehal, depending on the delivery of these, of our design wins, we will see other customers at over, you know, achieve over 10% of our revenue. That will continue to happen.

Nehal Chokshi (Managing Director)

Is that the expectation that there will likely be a new 10% customer pop up within the June quarter?

David Weigand (CFO)

It's very possible.

Charles Liang (Founder, Chairman, and CEO)

Yeah. At the same time we are also aggressively growing our brand name through our channel, through our retail, and also through online business. We try to balance the growth between the large account and lots of small accounts.

David Weigand (CFO)

The

Charles Liang (Founder, Chairman, and CEO)

sure.

Nehal Chokshi (Managing Director)

Yep. Great. Great job, guys. Thank you very much.

Charles Liang (Founder, Chairman, and CEO)

Thank you.

Operator (participant)

We'll take our next question from Mehdi Hosseini with SIG. Your line is open.

Mehdi Hosseini (Senior Equity Research Analyst)

Yes. Thanks for taking my question. A couple of follow-ups for me. I want to better understand. I remember last earnings conference call you discussed your confidence in the backlog. Back then, there was a little bit of a push out of the revenue opportunities from perhaps March into June, but you were very confident that as we approach June and September, it should materialize. Now that the magnitude of that revenue push-up was more than expected. What happened? If you were confident that the backlog in January, what prevented you to procure the key components? I have a follow-up.

David Weigand (CFO)

Sure. There was a shift. There was a dramatic shift toward, you know, new AI solutions, inaudible. Therefore, it was larger than anyone expected. The parts availability, you know, constrained the amount of shipments that we could do. You know, obviously we anticipated a slower quarter, because the third quarter is seasonally slower. We also mentioned, you're correct, we also mentioned some customers that tapped the brakes and moved out to Q2. It was really the component shortages that hit us this quarter.

Charles Liang (Founder, Chairman, and CEO)

Yeah, I'm going to. We have some customer postpone CPU, right? At the same time, some other customer pull in, and they want a high-end, especially CPU for data. For those high-end CPU for data new design, yes, we have some a key component shortage, including a GPU/CPU combination and kind of high power thermal solution. We did a very big effort to pull in those components. Now situation has been dramatically improved. That's why we are pretty good for June quarter.

Mehdi Hosseini (Senior Equity Research Analyst)

Okay. Thank you for details. There is one cash flow item. In the December quarter, you were able to work on inventory, but then there was one non-working capital item, which caused the decline in cash from operations. This quarter, March, it was actually the other way. And you had to purchase inventory, but there was a non, there was a positive non-working capital item that came in. Can you help me understand how I should think about these dynamics in working capital and how is it gonna change looking forward?

David Weigand (CFO)

Yeah, I think, you know, as we go out, I think that's a good question because we will, working capital-wise is this fourth quarter is gonna be challenging for me because we are gonna be, you know, acquiring a lot of inventory. That will challenge our cash flows, you know, during this quarter. You know, that's something the timing of inventory and shipments is critical. You know, as going into this Q4 or ending Q3, we were building inventory. At the same time, as Charles mentioned, we couldn't ship things because we didn't have every, you know, all the parts that we needed. We're growing inventory at the same time that we're constrained on shipping.

What that does is it caused our working capital metrics to go down a little bit, and that's evident in our cash conversion cycle. I would say that, you know, in spite of that, you know, we generated some of our best cash flow. We generated almost $200 million in cash flow, and we returned $150 million of that to the shareholders. What I would say is that, yeah, going into Q4, we think cash flow will, is very important. I think, ultimately the business has shown that it generates very good cash flows.

Charles Liang (Founder, Chairman, and CEO)

Yeah. Although, like the say, recently cash flow a little bit high, but we have to be very safe. I have to say what the safe. A little bit high because we prepare purchase lot of components for growing June quarter and following September quarter. I believe June and September quarter all will be very strong, especially September quarter I will say. We had to prepare components, and that's why cash flow will be a little bit high, but we'll be super safe.

Mehdi Hosseini (Senior Equity Research Analyst)

Okay. Thank you. Other questions for Q?

Operator (participant)

As a reminder, it is Star one if you would like to ask a question. We will take our next question from Ananda Baruah with Loop Capital. Your line is open.

Ananda Baruah (Senior Equity Analyst)

Yeah. Good afternoon, guys. Thanks for taking the question. I really appreciate it. two if I could. At the risk of asking maybe the obvious, I think 90 days ago, you guys had. Charles said on your earnings call that you had expected in the second half of this calendar year, so September, December quarter, to be in a position to start, this is the way that I interpreted it, Charles, making a regular part of your book of business, the layering in of larger projects from the cloud cadre, from the AI cadre, like that. I guess my question is, are you seeing? Is what we're seeing in the June quarter that you're talking about, is that a pull forward of what you 90 days ago were anticipating later this year?

You know, is that dynamic happening sooner, kind of as you would describe it holistically, or is this something different than that? I have a follow-up. Appreciate it. Thanks.

Charles Liang (Founder, Chairman, and CEO)

Very good question. Q4, our demand is very strong, but because of component shortage. At this moment, we have to be conservative. That's why we share issue $1.7 billion-$1.9 billion. That's based on some shortage though. If we can find those parts quicker, indeed the Q4 will be much stronger than that. September quarter, like what you say, was that what your question, is September quarter, we will continue to be very strong as well as December quarter, I believe. Now the big problem is the shortage. We have to build other components for inventory. At the same time, we are not quite sure how much we can grow in this quarter.

For sure, $1.7 billion-$1.9 billion should be a very safe number.

Ananda Baruah (Senior Equity Analyst)

Really appreciate that. That's helpful context. Then, I guess the follow-up Dave, to Dave, for you, just with regard to your gross margin comments, any greater context you can share that's responsible? I realize that this is sort of at the front end of beginning to mix in, you know, some of this larger footprint business. Would love to get a better understanding how you guys are thinking about, you know, sort of the gross margin manifestation if we think about the continued layering in of larger footprint, which may come at a slightly lower margin. Is it really that over time we should expect a greater presence of that lower margin business, with some efficiency gains?

Is it just in the beginning here, the margin will be lower for the new business, but then collectively the PNL gross margin expands over time?

David Weigand (CFO)

Yeah. We're looking at it and, in your latter alternative, Ananda. Here's why. Right now there's three things that we've been facing. You know, we're having to face more air transportation costs in order to make our deliveries. That impacts our margin. Also we're having to pay other expedite fees. That impacts our margin. Number two, we ran a lot less through our factories than, you know, this, in Q3 than we did in Q2. Your margin efficiency, your ability to spread your fixed costs, you know, it's tremendously impacted on a smaller scale. As we scale up, we improve our margins.

Thirdly, the, as we ramp our new product offerings, there is an efficiency on these new on the production of these new products. We are going to improve the efficiency of these products, which will improve the margin. Those three things alone, you know, speak to, you know, speak to margin improvements. Again, we are, we have, we believe we have best-of-breed AI products and those are in high demand and people are coming to us. We, we're gonna, we're very strategic about taking market.

Ananda Baruah (Senior Equity Analyst)

That's helpful.

Charles Liang (Founder, Chairman, and CEO)

Yeah. I can add some color. I mean, as I share, I mean, we are building $20 billion of revenue, hopefully midterm. That's why to grow our capacity and support a large customer is very important to us. Once our volume becomes higher, our costs will be improved, and then business operation efficiency will be higher. We are doing very aggressive way to grow our revenue. I mean, once we start to reach that number under $10 billion-$20 billion, I think our gross margin will start to grow because we won't always invest for bigger growth after that.

Ananda Baruah (Senior Equity Analyst)

I appreciate that context, guys. Thanks a lot.

Operator (participant)

We'll take follow-up questions from Mehdi Hosseini with SIG. Your line is open.

Mehdi Hosseini (Senior Equity Research Analyst)

Yes, sir. A couple of follow-ups. David, did you say that the OpEx for the June quarter will be around $145 million?

David Weigand (CFO)

let's see. That sounds about. We have, we gave both GAAP and non-GAAP guidance, Mehdi. let's see the non-GAAP was $145. Let's double check. $145 for GAAP. Sure.

Mehdi Hosseini (Senior Equity Research Analyst)

I'm sorry, GAAP or non-GAAP?

David Weigand (CFO)

It was GAAP is going to be $145. That includes $10 million in expected stock-based comp. That means $135 for non-GAAP.

Mehdi Hosseini (Senior Equity Research Analyst)

Okay. That's what I was looking for. Okay. Then, CapEx for the June quarter?

David Weigand (CFO)

Yeah, we said $11 million-$14 million.

Mehdi Hosseini (Senior Equity Research Analyst)

11-14. Okay. Thank you.

Operator (participant)

Ladies and gentlemen, this concludes our question-and-answer session and today's conference call. We thank you for your participation.