Super Micro Computer - Earnings Call - Q3 2025

Executive Summary

• Q3 FY25 revenue was $4.60B, down 19% q/q and up 19% y/y, as customers delayed platform decisions during the Hopper-to-Blackwell transition; non-GAAP EPS was $0.31, with gross margin compressing to 9.7% from 11.9% due to inventory reserves and ramp costs.
• Against S&P Global consensus, revenue missed ($4.60B vs $4.73B*) while EPS beat ($0.31 vs $0.30*); EBITDA came in below consensus as margins tightened on legacy inventory clearance and expedite costs. Values retrieved from S&P Global.
• Management lowered FY25 revenue guidance to $21.8–$22.6B (from $23.5–$25.0B), and set Q4 guidance for net sales at $5.6–$6.4B, non-GAAP EPS $0.40–$0.50, and ~10% gross margin, citing tariff prudence and technology transition.
• Near-term catalysts: resolution of platform decisions and Blackwell ramp into June/September, launch of DCBBS and DLC-2, and improved cash flow enabling faster growth; risks include tariff effects, margin pressure during transition, and GPU allocation constraints.

What Went Well and What Went Wrong

What Went Well

• First-to-market delivery on next-gen AI infrastructure: volume shipments of air-cooled 10U and liquid-cooled 4U NVIDIA B200 HGX systems and GB200 NVL72 racks; broadened AI portfolio with AMD MI-325X solutions. “We achieved volume shipment of air-cooled 10U and liquid-cooled 4U NVIDIA B200 HGX systems… as well as GB200 NVL72 racks”.
• Strong enterprise adoption and diversified mix: enterprise/channel revenue rose to $1.9B (42% of Q3 revenue) and Asia region grew 77% y/y, reflecting broader demand beyond large data centers.
• Cash generation and balance sheet: CFO reported $627M operating cash flow and $594M free cash flow, moving to a $44M net cash position; inventory built to support Q4 shipments.

What Went Wrong

• Margin compression and inventory reserves: non-GAAP GM fell 220 bps q/q to 9.7% on reserves for older-generation products and expedite costs; non-GAAP operating margin dropped to 5%.
• Revenue shortfall vs initial Q3 guidance: Q3 net sales updated mid-quarter to $4.5–$4.6B from prior $5.0–$6.0B as platform decisions slipped, driving a miss on top line.
• FY25 guidance cut and tariff caution: FY25 revenue lowered to $21.8–$22.6B (from $23.5–$25.0B) and Q4 GM guided to ~10% amid macro and tariff uncertainty; management refrained from reinstating FY26 targets.

Transcript

Operator (participant)

Thank you for standing by. My name is Victoria, and I will be your conference operator today. At this time, I would like to welcome everyone to the Super Micro Computer, Inc. SMCI DLC-2. Third Quarter Full Year 2025 Earnings Call. With us today are Charles Liang, Founder/President and Chief Executive Officer; David Weigand, CFO; and Michael Staiger, Senior Vice President of Corporate Development. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question, please press star followed by one on your telephone keypad. I would now like to pass the conference over to Michael Staiger.

Michael Staiger (SVP of Corporate Development)

Victoria, thank you. Good afternoon, and thank you for attending Super Micro's call to discuss financial results for the third quarter, which ended March 31st, 2025. 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 have 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 and full fiscal year 2025. There are a number of risk factors that can cause Super Micro's 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 year 2024, 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 the company 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 self-analysts. I will now turn the call over to Charles.

Charles Liang (Founder, President, and CEO)

Thank you, Michael, and thank you everyone for joining us. As previously announced, our fiscal Q3 net revenue totaled $4.6 billion, coming in lower than our original forecast. This decline was primarily due to our customers waiting and evaluating AI platforms between the current Hopper and the upcoming Blackwell GPUs, leading to a delayed commitment.

We expect many of these engagements to materialize in the June and September quarters, strengthening our confidence in meeting our long-term growth target as we close out this eventful fiscal year. Despite macroeconomic conditions and tariff impacts, our ability to expand the market share in IT and AI remains strong. On the earnings front, our fiscal Q3 non-GAAP EPS stood at $0.31 per share, compared to $0.66 last year. This decline was largely driven by an inventory write-down of old-generation GPUs and related components, while the new platforms are finally ramping quickly. Although our quarterly performance did not align exactly with our expectations, we successfully fulfilled our commitment to regain financial regulatory compliance. At the same time, we continue to enhance technical innovation and development, which results in successful high-volume delivery of our new generation AI platforms at the end of March.

Looking ahead, some major breadcrumb new innovations are set to service the market in this quarter and the new fiscal year, especially our coming soon . With a clear time-to-market advantage, Super Micro once again leads the AI infrastructure technology and DLC solutions. This strong position enables us to explore new opportunities and expand the market share. During the quarter, we achieved volume shipment of AIO Core 10U and Liquid Core 4U, NVIDIA B200 HGX systems. Both are exactly the first to the market again, as well as GB200 NVL72 racks. Additionally, we started to offer AMD MI325X solutions to further broaden our AI portfolio. Leveraging our system building blocks, we will again offer time-to-market on the upcoming new platforms, such as NVIDIA B300, GB300, and AMD MI350 platforms this summer for customers seeking leading the technology, more optimized, higher density, and greener AI solutions.

Building on our strong foundation of technology leadership, building block solution, and green computing DNA, we have been deeply focused on developing the industry's first end-to-end AI IT data center total solution. We are now about fully ready to share this exciting news with the market in the coming days by launching our brand new data center building block solution. We call it DCBBS, featuring our 2nd-generation system liquid cooling technology. We call it DLC-2. With DCBBS, we are able to dramatically shorten customers' efforts to build a data center, reduce their cost, and most importantly, make their data center better quality and performance, greener and with higher availability.

DCBBS consolidates critical components, including AI server systems, storage, rack, power and play, all different kinds of switches, DLC systems, water tower or dry tower, chill door, power shelf, battery backup unit, people call BBU, on-site deployment, networking design, cabling, and data center end-to-end management software, and all different scopes of services into a streamlined process. The true value of DCBBS lies in its ability to reduce power consumption, optimize space, and decrease water usage, delivering up to 30% lower TCO. More importantly, it accelerates new data center deployments and upgrades existing data centers in a matter of months or even weeks, rather than many quarters or years, driving significant improvements in data center time-to-deployment, we call TTD, and time-to-online, TTO. One of the key components of DCBBS is our industry-leading DLC solutions.

Super Micro remains at the forefront of driving industry adoption of DLC technology, direct liquid cooling technology, setting new standards for performance, efficiency, and sustainability. Last year, we shipped 4,100 kW AI racks equipment with DLC, helping our customers reduce energy costs by up to 25% or even 30%. We are committed to double this volume in the coming year, further amplifying the impact of green computing. With the upcoming DLC-2 technology, Super Micro will be able to deliver even greater savings and benefits to our customers. For example, it will save power and water up to 40% and reduce data center noise level down to about 50 PB. That is almost as quiet as a library. We are going to announce the details in the coming days. Green computing can be everywhere, and with our DLC-2 solutions, we are making that vision a beautiful reality.

Our long-term investment and leadership in DLC has solidified a sustainable competitive edge, providing economics of scale and keeping us far ahead of the competition. Our global operation continues to expand. With our new Malaysia campus, we begin shipping products to partners. Meanwhile, our facilities in Taiwan and Europe are scaling up their capacity and capability, providing customers with flexible options for their logistical choice and minimizing their costs during the market and tariff uncertainties. To further strengthen support for key partners and align with government initiatives, we continue to expand our U.S. domestic manufacturing capacity, including new facilities in the Midwest and other locations. This strategic expansion will allow us to meet rising demand while continuing to enhance our commitment in quality, security, and TCO, TTD, and TTO. In summary, fiscal Q3 was dynamic and productive.

We successfully navigated financial challenges while continuing to strengthen our leadership in product and technology innovation. Our first-to-market advantage in AI infrastructure, along with the expanded reach of DCBBS data center building block solutions and advancement in the DLC technology, further solidified our industry position. I remain highly confident and optimistic about our long-term strong growth and market share again. However, near-term macroeconomic and market uncertainty make it difficult to precisely forecast the pace and the technology adoption. Despite this, I'm confident that we will close the fiscal year on a strong note. Given the current condition, we anticipate Q4 revenue of at least $6 billion, and we'll resume providing a broader forecast range once we have better visibility.

Before passing the call to David for the financial overview, I want to thank you all for our partners, customers, investors, and Super Micro team members, and express my deep appreciation for their continued support. With that, I will now turn the call over to David.

David Weigand (CFO)

Thank you, Charles. Fiscal Q3 2025 revenues were $4.6 billion. This was up 19% year-over-year and down 19% quarter-over-quarter. Q3 revenues were down quarter-over-quarter as certain new platform decisions by customers moved some sales into Q4 and later. AI GPU platforms again represented more than 70% of revenues, with AI GPU customers in both the enterprise and cloud service provider markets. Our design win pipeline remains robust, and we expect continued growth in Q4 as we ramp up production of our data center building block solutions, DCBBS, based on new GPU platforms. As a leading U.S..

Technology company, we focus on extensive rack scale and DCBBS technology and capacity investments in the U.S., which is complemented by our investments in Taiwan, the Netherlands, and Malaysia. As Charles indicated, we have a flexible global manufacturing footprint to meet our customers' needs, and we continue to closely monitor the rapidly evolving macro and tariff environment. During Q3, we recorded $1.9 billion in the enterprise channel vertical, representing 42% of revenues versus 25% last quarter. This was up 3% year-over-year and up 38% quarter-over-quarter as we saw strengthened enterprise adoption of new AI and CPU platforms. The OEM, appliance, and large data center vertical revenues were $2.6 billion, which represented 57% of Q3 revenues versus 75% in the last quarter. This was up 35% year-over-year and down 38% quarter-over-quarter.

Two existing CSP/large data center customers represented 22% and 14% of Q3 revenues. Emerging 5G telco edge IoT revenues were $48 million, or 1% of Q3 revenues. Server and storage systems comprised 97% of Q3 revenue, and subsystems and accessories the remaining 3%. By geography, the U.S. represented 60% of Q3 revenues, Asia 30%, Europe 6%, and the rest of the world 4%. On a year-over-year basis, U.S. revenues increased 3%, Asia increased 77%, Europe decreased 3%, and the rest of the world increased 83%. On a quarter-over-quarter basis, U.S. revenues decreased 28%, Asia increased 76%, Europe decreased 69%, and the rest of the world increased 45%. China continued to represent less than 1% of sales in Q3.

The Q3 non-GAAP gross margin was 9.7%, which was down 220 basis points quarter-over-quarter from 11.9% in Q2, primarily due to higher inventory reserves for older generation products, lower volume, and accelerated costs to enable time-to-market for new products. Q3 operating expenses on a GAAP basis decreased 3% quarter-over-quarter and increased 34% year-over-year to $293 million. On a non-GAAP basis, operating expenses decreased 5% quarter-over-quarter and increased 30% year-over-year to $216 million. Q3 non-GAAP operating margin was 5% compared to 7.9% in Q2 due to lower revenues and gross margins.

Other income and expense for Q3 was a net expense of $31.7 million, consisting of $13.4 million in interest expense, principally from convertible bonds and other losses of $18.3 million, principally from a non-cash $30.3 million loss on the amendment of the 2029 convertible bond and adverse foreign exchange impact and other miscellaneous expenses offset by higher interest income. The GAAP effective tax rate was 5.1%, resulting in a GAAP tax expense of $6 million for Q3. The non-GAAP effective tax rate for Q3 was 15.5%, resulting in Q3 non-GAAP tax expense of $36 million. Q3 GAAP diluted EPS of $0.17 and Q3 non-GAAP diluted EPS of $0.31 was lower than our guidance due to lower revenues and gross margins. The GAAP fully diluted share count for Q3 was 622 million, and the non-GAAP fully diluted share count was 636 million.

Cash flow generated from operations for Q3 was $627 million, compared to cash flow usage of $240 million during the previous quarter. The Q3 closing inventory was $3.9 billion, which increased by 7.6% quarter-over-quarter from $3.6 billion in Q2 as we prepare for higher shipments in Q4. CapEx was $33 million for Q3, resulting in free cash flow of $594 million during the quarter. During the quarter, we amended the terms of our existing 2029 convertible notes and raised $700 million in gross proceeds in a new 2028 convertible note from the existing convertible investor group. The proceeds from the new convertible note offering will be used to strengthen our working capital, enable continued investments in R&D, and expand global capacity as needed.

The closing Q3 balance sheet cash position was $2.54 billion, while bank and convertible note debt was $2.49 million, resulting in a net cash position of $44 million versus a negative net cash position of $479 million last quarter. Turning to the balance sheet and working capital metrics compared to last quarter, the Q3 cash conversion cycle was 124 days versus 104 days in Q2. Days of inventory increased by 3 days to 81 days compared to the prior quarter of 78 days due to key component purchases for higher expected Q4 shipments. Days sales outstanding increased by 9 days quarter-over-quarter to 56 days, while days payable outstanding decreased by 8 days to 13 days. We are closely monitoring the macro environment, tariffs, and the technology transition to new platforms.

The outlook for the fourth quarter of fiscal 2025 into June 30th, 2025, we expect net sales in the range of $5.6 billion-$6.4 billion, GAAP diluted net income per share of $0.30-$0.40, and non-GAAP diluted net income per share of $0.40-$0.50. Given this dynamic environment, we are being prudent and expect gross margins to be approximately 10%. GAAP operating expenses are expected to be approximately $319 million and include $74 million in stock-based compensation expenses that are not included in non-GAAP operating expenses. The outlook for Q4 of fiscal year 2025 fully diluted GAAP EPS includes approximately $63 million in expected stock-based compensation expenses, net of tax effects of $18 million, which are excluded from non-GAAP diluted net income per common share. We expect other income and expenses, including interest expense, to be a net expense of approximately $16 million.

The company's projections for Q4 GAAP and non-GAAP diluted net income per common share assume a GAAP tax rate of 14.9%, a non-GAAP tax rate of 16.5%, and a fully diluted share count of $628 million for GAAP and $642 million shares for non-GAAP. We expect CapEx for Q4 to be in the range of $45 million-$55 million. For the fiscal year 2025 ending June 30th, 2025, based on the Q4 guidance above, we are expecting revenues of $21.8 billion-$22.6 billion. Michael, we're now ready for Q&A. Great. Victoria, let's go to Q&A.

Operator (participant)

Of course. We will now begin the question and answer session. We ask that participants only ask one question and one follow-up. If you would like to ask a question, please press star followed by 1 on your telephone keypad.

If for any reason you would like to remove that question, please press star followed by 2. Again, to ask a question, press star 1. As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking a question. Our first question comes from the line of Samik Chatterjee with JPMorgan. Your line is now open.

Samik Chatterjee (Managing Director and Equity Research Analyst)

Hi. Hi. Thanks for taking my question. Maybe for the first one, I know in your prepared remarks you mentioned that the macro is making forecasting a bit tougher, and you're talking about prudence in your guidance itself. Maybe you can sort of share what you're hearing from your customers. Are customers already talking about pulling back some orders, or is there any change in customer order trends that you're seeing because of the macro?

Given just where we stand relative to the June quarter, already we are a month in, I would assume you would have more sort of visibility into the June quarter rather than having to put sort of some level of conservatism in. Have you seen a lot more volatility in terms of customer orders recently to drive that prudence in terms of the revenue outlook for June? I have a follow-up, please. Thank you.

Charles Liang (Founder, President, and CEO)

Yeah. I mean, very good question. Basically, June will be our traditional strong quarter. For sure, the tariffs and the macro economy uncertainty, that concerns some customers. At this moment, we see a strong order. I believe we will have a strong quarter for June. September next fiscal year will be even stronger because our new product, especially Blackwell, is fully in volume production now.

We get more and more orders for Blackwell and expect strong growth start from now.

Samik Chatterjee (Managing Director and Equity Research Analyst)

Okay. Got it. Maybe before my follow-up, on the gross margin side, previously you have talked about margins improving as you start ramping new products, whereas the guidance itself implies a bit more cautiousness on that front. Has there been a change in the pricing landscape for the new products that you're seeing in the market, or is this more about the tougher pricing environment for hopper-based products? Thank you.

David Weigand (CFO)

I think it's a combination of concern about tariffs and so conservatism there, and also with some, obviously also some impact from the changeover in technology platforms.

Samik Chatterjee (Managing Director and Equity Research Analyst)

Sorry. Just to clarify, in terms of the changeover that is driving some headwinds to the gross margin, the changeover itself from hopper to Blackwell?

David Weigand (CFO)

That's correct.

As you come off of some of the older platforms, you have more price competition. As we said, we had some delayed decisions because of these technology platform changes. That is really impacting that, along with tariff uncertainty, drives a little bit more prudence in setting margin expectations.

Samik Chatterjee (Managing Director and Equity Research Analyst)

Got it. Got it. Thank you. Thanks for taking my questions.

Operator (participant)

Thank you for your question. Our next question comes from the line of Michael Ng with Goldman Sachs. Your line is now open.

Michael Ng (Managing Director of Global Investment Research)

Hi. Good afternoon. Thank you very much for the question. I was just wondering if you could talk a little bit more midterm about your demand outlook. Apologies if I missed it, but are you reiterating the $40 billion revenue target for fiscal 2026?

Perhaps you can talk a little bit about any changes that you might be seeing from a demand perspective aside from the timing of the technology platform transition and the macro uncertainty. Thank you.

Charles Liang (Founder, President, and CEO)

Yeah. We've been very confident with our midterm and long-term growth. Especially Blackwell product line, we have a very strong demand. Also our commission, DCBBS, Data Center Building Blocks Total Solution, we see lots of customers really interested in our data center total solution. The demand, the growth will keep strong. Yes, the tariff and some macro economy uncertainty, we at this moment do not provide guidance for fiscal year 2026. When the visibility becomes more clear, we will share at that time.

Michael Ng (Managing Director of Global Investment Research)

Great. Thanks, Charles. That's very helpful.

Just as a follow-up, can you talk about whether or not you're seeing differences in demand between HGX versus NVL72 racks? Any differences there, either in customer demand or your ability to fulfill demand on either product? Thank you.

Charles Liang (Founder, President, and CEO)

Yeah. We see strong demand for kind of GB200 NVL72 and B200 liquid cooling. The customer liquid cooling data center basically a little bit dead. That is why they are waiting there a little bit more than what we expect. However, the solution, their data center will be ready very soon. We need to see the schedule is getting much more exciting now.

Operator (participant)

Thank you for your question, Michael. Our next question comes from the line of George Wang with Barclays. Your line is now open.

George Wang (VP and Senior Analyst)

Oh, hey, hey. Hey, guys. Thanks for taking my question. Hey, Charles.

Just a kind of question on the GB300. Any differences in terms of value add from Super Micro just in terms of customization and potentially more services attached? I would presume as NVIDIA potentially open up the components kind of more open standards for the GB300, that could lead to better margins for Super Micro. I mean, do you agree? Just any kind of person takes there.

Charles Liang (Founder, President, and CEO)

Yeah. I guess whenever the new technology, it always brings more chance to Super Micro. As you know, our B200 HGX system, for example, we are the first to have a product available, and the demand is strong. B300 and GB300 for sure, we expect a very strong demand. With our very mature liquid cooling solution, we have DLC solution started ship last year, 4,000 racks.

This year with our DLC-2, DLC division 2, it offers even better power saving, water saving, and also much better in terms of noise level, right? We believe GB300, B300, our technology advantage will be even more clear. We are excited to see the B300, GB300 coming very soon in the summer, right? The coming summer.

George Wang (VP and Senior Analyst)

Okay. Great. Just a quick one, if I can squeeze in, maybe for David and also for Charles. Just in terms of top two customers, this quarter combined percentage was a bit lower versus last quarter. Is this because of quarter-to-quarter kind of lumpiness, volatility, or is there anything else you want to call out in terms of top two customer contribution a bit lower?

David Weigand (CFO)

I don't think there's any trend, George. It's just timing of shipments. We don't have any concern about that. Yeah.

George Wang (VP and Senior Analyst)

Yeah. Yeah. Just a kind of follow-up. Any outlook for the top two customers kind of in the next few quarters? Any high-level thoughts and any other kind of customer set you guys are expanding into kind of you can talk about?

Charles Liang (Founder, President, and CEO)

Yeah. We believe our business will continue to grow much faster in the coming quarters. I hate to mention, but still. I mean, in December quarter last year and March quarter, we got some impact from the cash flow from the 10K delay impact. But that's already behind us. So now we have a much better cash flow, and we are ready to grow much quicker now, especially with new technology.

Operator (participant)

Thank you for your question, George. Our next question comes from the line of ACI Mergent with Citigroup. Your line is now open.

Great. Thank you for taking—okay, great. Thank you for taking my question.

I know there's a lot of uncertainty with tariffs, etc., but is there something that you can talk to us or kind of see how investors—AI diffusion rules, there's a lot of investor angst around that. How are you guys thinking about your visibility and how the order should flow through given AI diffusion could impact or possibly could impact your revenues? I have a follow-up. Thank you.

Charles Liang (Founder, President, and CEO)

Yeah. At this moment, we see our demand continue to grow. That's why we continue to expand our facility in the U.S., Taiwan, and Malaysia. Overall, our technology leading edge, especially, I mean, we do continue to see the demand will continue to grow strongly.

Okay, great. On gross margin

—I mean, technically, for sure, it may create a summer.

I mean, technically, it may impact the demand a little bit, but overall, we will continue to get market share.

Okay. If I may, on gross margins again, can you just help us understand how you're thinking about the margins, especially as you expand on your DLC version 2, just how we should think about gross margins in calendar fiscal 2026, sorry?

David Weigand (CFO)

Yeah. We are not going to give forecasts for next year at this meeting. What I can tell you is that we have published before what our target margins are. Right now, we've got some of the headwinds of, like you mentioned, the diffusion rules coming up in mid-May. We have tariffs that we have to find our way through. Those things are certainly headwinds. On the other hand, we still have the majority of our business from U.S. customers.

We're a U.S.-based manufacturer. We think that we're well-positioned in the marketplace on all of those fronts. We also, being a first-to-market provider of the latest solutions, think we have an edge there. We think that we're as best positioned as someone in the marketplace can be.

Operator (participant)

Thank you for your question. Our next question comes from the line of Ananda Baruah with Loop Capital. Your line is now open.

Ananda Baruah (Analyst)

Hey. Hey, guys. Yeah. Thanks for taking the question. Really appreciate it. I guess, yes, too, if I could, I guess this would be for Charles and for Dave. You guys made mention of ongoing ramp as Blackwell supply comes on. Should we assume that that means September quarter looks up sequentially from the June quarter?

Just along with that, this is not my follow-up, but just along with that, during Hopper ramp, you had multiple quarters. That's not accurate. You had two quarters of 70% sequential growth. You had a 40% sequential growth quarter during the Hopper ramp. Not like a forecast, but you have 30% up here in June off of a soft mark. I guess the question is, order of magnitude, can you be up? Are you saying you'll be up September quarter again as Blackwell ramps? Those sort of Hopper order of magnitude sequential increases, Charles, sort of through cycle, is that the type of thing that you sound so excited when you talk excitedly about the Blackwell potential? Is it that kind of order of magnitude that you think is possible to get back to at some point as you go through Blackwell cycle?

And then I have a quick follow-up as well. Thanks.

Charles Liang (Founder, President, and CEO)

Yeah. Thank you for your question. Yes, you are right. I believe March quarter, we were stopped. The major reason because of technology transition. Not just people waiting for a Blackwell solution, but also we have a lot of write-down for the Hopper product line. Looking forward, I hope we can repeat the Hopper history, kind of start to grow from June and September and December quarter. I believe so. I hope so.

Ananda Baruah (Analyst)

Okay. That's great. My follow-up is actually more of a technical question. You mentioned in your prepared remarks, Charles, about liquid cooling, the HGX B200s. The question is, how many HGX B200? I guess if you want to give an early comment about the B200, how many HGX are you actually seeing you can stack and liquid cool?

I guess I'm wondering, how many GPUs are folks able to stack and liquid cool with HGX? I'm interested in seeing how close you can get folks are getting that to the NVL72. Thanks. That's it for me. Thanks.

Charles Liang (Founder, President, and CEO)

Yeah. Yeah. For Hopper, as you know, air cooler works fine. We like to prove. We want to establish the liquid cooling technology. We try to promote a very serious liquid cooling for Hopper. We successfully ship about 4,000 racks DLC to the market. So far, the 4,000 racks run very reliable. Customers love our DLC solution a lot. We gained lots of experience. Now our DLC solution is much mature than last year. That's why we further prepare to promote DLC-2. Our DLC-2, 2nd generation DLC, will outperform the first generation.

We will have a big promotion in the next few days or next few weeks. With Blackwell, our DLC solution is fully ready. We will provide a basic DLC solution to the world to help customers save power, save water, save money, and also improve our data center performance. We have very strong confidence for the liquid cooling, especially for Blackwell and future products.

Operator (participant)

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

Nehal Chokshi (Senior Research Analyst and Managing Director of Technology)

Hi. Thank you. Just want to make sure I understand the inventory reserve that occurred in the March quarter. Is there any expectation that there will be inventory reserve in the June quarter? Is that part of the 10% gross margin guidance?

David Weigand (CFO)

Yeah.

As mentioned in our pre-release and also in this release, the inventory reserve reduced our margin by about 220 basis points. Most of that was caused by taking a reserve for some of the older inventory products. Certainly, we're watching very closely our inventory products. However, as mentioned, the substantial reason for the expected reduction in margin is really caution or prudence regarding tariffs. I want to point out that, by the way, that through three quarters, we have $16.2 billion in revenues. That was versus last year's four quarters of $15 billion. We're very happy with where we are and the performance cycle. Even though we expect even better.

Charles Liang (Founder, President, and CEO)

Yeah. To simplify, I would like to share. I mean, for March quarter, we have a 200-point impact from the reserve, right?

The June quarter may be, I hope, only 100-point or less. September quarter, I hope, close to zero.

Nehal Chokshi (Senior Research Analyst and Managing Director of Technology)

Okay. Just this inventory reserve that you're taking as a charge, that basically means, I mean, you look at the impact of 200 basis points for a March quarter, that basically equates to $100 million. Then you had a billion-dollar shortfall on revenue. Does that basically mean that some percent of that shortfall just isn't finding a new home? Or does that mean that that shortfall is being resold in the June and September quarter at a lower price?

David Weigand (CFO)

Yeah. I mentioned that some of the revenues that we expected in Q3 were platform decision-based. That means actually that people are moving to the newer platforms in the upcoming quarters, okay?

What that means is that in cases where people change their minds on platforms, we have to write the expected realizable value of those and take a reserve for those and do our best to sell them at more competitive prices.

Operator (participant)

Thank you for your question. Our next question comes from the line of Jon Tanwanteng with CJS Securities. Your line is now open.

Jon Tanwanteng (Managing Director)

Great. Thank you for taking my questions. I was wondering if you could expound on that platform decision a little bit more. Is it customers declined to take Hopper and decided to move to Blackwell? Was it something else? Is that what I'm hearing? And was it due to design or demand or performance considerations? Or was there something else going on with maybe data center constraints or something like that?

Charles Liang (Founder, President, and CEO)

Yeah.

Our customer base is a little bit different from the other competitor, right? Most of our customers are kind of a technology leading company. That is why new product is very sensitive to them. The good thing is now Blackwell solution is fully ready. We are excited to ramp it up start from now.

Jon Tanwanteng (Managing Director)

Okay. Great. Charles, I also wanted to touch on something you mentioned before just with one of the biggest U.S. server manufacturing operations. Can you just talk about your relative strength there in positioning in U.S. domestic manufacturing versus your competitive set? How much of an advantage is that when you are seeing tariffs going up across multiple industries? Is that providing you any more additional demand? Or is that too hard to see right now?

Charles Liang (Founder, President, and CEO)

Yeah.

I mean, as a U.S. company, we are able to, especially manufacturing in Silicon Valley, we are able to respond to new technology much quicker and efficient than others, especially with a better performance, a better solution like a DLC-2, right? As to the tariff impact, because the tariff program is not quite settled down yet. We are watching carefully and try to adjust our logistics, our operation as efficient as possible. The good thing is we have a huge operation in the U.S. and in Taiwan and in Malaysia now as well. When the tariff program settles down, we should be able to quickly respond to optimize the best solution for customers.

Operator (participant)

Thank you for your question. Our next question comes from the line of Nicholas Doyle with Needham & Company. Your line is now open.

Nicholas Doyle (Equity Research Analyst)

Hey, guys. On for Quinn Bolton.

Thanks for taking my question. Can you just talk about your supplier allocations? Are you seeing the same GPU allocations for Blackwell as you have for Hopper? How has your supply changed as more competitors enter the market? Thank you.

Charles Liang (Founder, President, and CEO)

Yeah. Still some allocation matter, right? Kind of some customers want Blackwell right away, and we had to wait for allocation. That situation is a little bit better than a Hopper timeframe, but still some constraint there.

Nicholas Doyle (Equity Research Analyst)

Thank you.

Operator (participant)

Thank you for your question. Our last question comes from the line of Mehdi Hosseini with SIG. Your line is now open.

Mehdi Hosseini (Senior Equity Research Analyst of Technology Hardware)

Yes, thanks. Yes, thanks for taking my question. I'm a little bit confused with capacity. I see in this slide that capacity has remained around 5,000 racks per month, but your CapEx has been pretty aggressive. Can you help me reconcile the CapEx and existing capacity?

I have a follow-up.

Charles Liang (Founder, President, and CEO)

Yeah. Our capacity remains very huge. 5,000 racks per month, and then 2,000 racks can be GB200, NVL72 kind of high-performance rack. We are very fully ready for when the demand ramp up. That is why when Blackwell becomes more mature, much better ERA, and we are fully ready for that, especially for our DLC-2, much better liquid cooling solution.

Mehdi Hosseini (Senior Equity Research Analyst of Technology Hardware)

Charles, how does that 5,000 racks per month today compare to six months ago?

Nicholas Doyle (Equity Research Analyst)

Indeed, for the U.S., we have 5,000 racks per month since six months ago. Now we are growing in Taiwan and Malaysia, Netherlands as well.

Mehdi Hosseini (Senior Equity Research Analyst of Technology Hardware)

Okay. Thank you for clarification.

David Weigand (CFO)

The main update on CFOs.

Mehdi Hosseini (Senior Equity Research Analyst of Technology Hardware)

Sorry, go ahead.

David Weigand (CFO)

Go ahead. There we go.

Oh, I was just going to say we haven't fully enabled Malaysia as of yet, which we will be by the end of this year. They will be fully enabled for larger scale rack production. Yes. I think that's what you were driving toward. You have the facility.

Charles Liang (Founder, President, and CEO)

Now is about July. July will be very ready, yeah.

Mehdi Hosseini (Senior Equity Research Analyst of Technology Hardware)

Okay. And Charles, where are we with the CFO search?

Charles Liang (Founder, President, and CEO)

When companies continue to grow, for sure, we need more manpower. So we continue aggressively looking for more talent, including CFO positions.

Operator (participant)

Thank you for your questions. That concludes today's call. Thank you for your participation and enjoy the rest of your day.