SMCI Q3 2025: margin down 220bps, Blackwell orders set June recovery
- Robust order flow and product ramp: Executives highlighted that June is expected to be a traditional strong quarter with strong customer orders driven by the ramp-up of the new Blackwell product line and associated offerings, suggesting potential sequential revenue recovery similar to previous technology cycles.
- Technological leadership in liquid cooling: The company has demonstrated early success by shipping 4,000 liquid-cooled racks, and is poised to further benefit from its upcoming DLC-2 solution, which promises enhanced energy efficiency and performance—strengthening its competitive edge.
- Diversified global manufacturing footprint: With significant operations in the U.S., Taiwan, and Malaysia (with expansion into the Netherlands), the company is well positioned to mitigate tariff and supply-chain uncertainties while quickly responding to market demand.
- Margin Pressure from Tariffs and Inventory Reserves: Executives highlighted that margins were hit by a 220 basis point decline in Q3 largely due to higher inventory reserves for older products and tariff uncertainties. This indicates ongoing pressure on profitability if similar headwinds persist.
- Delayed Revenue Recognition Due to Platform Transition: Customer orders are reportedly being deferred as they wait for new platforms (e.g., Blackwell), which is causing a short-term gap in revenue. Such transition-related delays could continue to weigh on near-term financial performance.
- Supply Constraints Impacting New Product Allocations: There were mentions of challenges in GPU allocations for the Blackwell platform, suggesting that supply issues may hamper the company’s ability to meet customer demand and capture future revenue growth.
| Metric | YoY Change | Reason |
|---|---|---|
Total Assets | +21% YoY (Current: $10,738,525K) | Robust asset growth is driven by enhanced operational performance, with increases in cash, accounts receivable, and strategic investments that mirror past periods where higher inventories and equity infusions bolstered asset levels. |
Cash and Cash Equivalents | +20% YoY (Current: $2,536,101K vs. $2,115,476K) | Improved liquidity reflects stronger net operating cash flows and effective working capital management—similar to initiatives in previous periods that utilized equity offerings and operational cash flow improvements to strengthen the cash position. |
Total Liabilities | +16% YoY (Current: $4,359,046K) | The increase in liabilities is mainly due to higher short-term obligations such as accounts payable and debt used to finance operational growth, echoing past periods where working capital investments led to increased liabilities, albeit at a lower pace than assets. |
Total Stockholders’ Equity | +25% YoY (Current: $6,379,479K vs. $5,094,156K) | Strong net income performance combined with equity-related transactions (like stock issuances and stock-based compensation) significantly boosted equity, paralleling previous periods where retained earnings and capital inflows drove substantial equity growth. |
Accounts Receivable, Net | +60% YoY (Current: $2,642,556K vs. $1,650,153K) | A substantial growth in receivables indicates aggressive sales expansion and possibly more lenient credit terms, similar to earlier periods that recorded increased accounts receivable due to higher revenue and timing of collections. |
Inventories | -6% YoY (Current: $3,870,243K vs. $4,124,587K) | The modest decrease in inventories suggests improved inventory management—possibly reducing excess or obsolete stock—contrasting with previous periods of aggressive build-ups, and reflecting a strategic adjustment to market demand and supply chain conditions. |
Total Current Liabilities | -17% YoY (Current: $1,428,136K vs. $1,717,695K) | The decline reflects proactive working capital management, with significant reductions in accounts payable and short-term borrowings, a trend consistent with prior quarters where targeted debt repayment and improved vendor payment timing reduced current liabilities. |
Retained Earnings | +50% YoY (Current: $3,439,380K vs. $2,288,436K) | The marked increase in retained earnings is largely attributable to strong profitability, with high net income and minimal dividend distributions, continuing the pattern from earlier periods where earnings were reinvested to fuel growth and strengthen the balance sheet. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Net Sales | Q3 2025 | $5 billion to $6 billion | no current guidance | no current guidance |
Gross Margin | Q3 2025 | 12% | no current guidance | no current guidance |
Operating Expenses | Q3 2025 | Increase by approximately $17 million sequentially | no current guidance | no current guidance |
Other Income and Expenses | Q3 2025 | Net expense of approximately $12 million | no current guidance | no current guidance |
GAAP Net Income per Diluted Share | Q3 2025 | $0.36 to $0.53 | no current guidance | no current guidance |
Non‑GAAP Net Income per Diluted Share | Q3 2025 | $0.46 to $0.62 | no current guidance | no current guidance |
Tax Rate (GAAP) | Q3 2025 | 10.7% | no current guidance | no current guidance |
Tax Rate (Non‑GAAP) | Q3 2025 | 12.7% | no current guidance | no current guidance |
Diluted Share Count (GAAP) | Q3 2025 | Approximately 642 million shares | no current guidance | no current guidance |
Diluted Share Count (Non‑GAAP) | Q3 2025 | Approximately 653 million shares | no current guidance | no current guidance |
Net Sales | Q4 2025 | no prior guidance | $5.6 billion to $6.4 billion | no prior guidance |
GAAP Diluted Net Income per Share | Q4 2025 | no prior guidance | $0.30 to $0.40 | no prior guidance |
Non‑GAAP Diluted Net Income per Share | Q4 2025 | no prior guidance | $0.40 to $0.50 | no prior guidance |
Gross Margin | Q4 2025 | no prior guidance | 10% | no prior guidance |
GAAP Operating Expenses | Q4 2025 | no prior guidance | $319 million (including $74 million in stock‑based comp.) | no prior guidance |
Non‑GAAP Operating Expenses | Q4 2025 | no prior guidance | Excludes $63 million (net of tax effects of $18 million) | no prior guidance |
Other Income and Expenses | Q4 2025 | no prior guidance | Net expense of approximately $16 million | no prior guidance |
Tax Rate (GAAP) | Q4 2025 | no prior guidance | 14.9% | no prior guidance |
Tax Rate (Non‑GAAP) | Q4 2025 | no prior guidance | 16.5% | no prior guidance |
Diluted Share Count (GAAP) | Q4 2025 | no prior guidance | 628 million shares | no prior guidance |
Diluted Share Count (Non‑GAAP) | Q4 2025 | no prior guidance | 642 million shares | no prior guidance |
Capital Expenditures | Q4 2025 | no prior guidance | $45 million to $55 million | no prior guidance |
Revenue ($USD Billions) | FY 2025 | $23.5 billion to $25 billion | $21.8 billion to $22.6 billion | lowered |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Liquid Cooling | Consistently highlighted in Q4 2024 , Q1 2025 , and Q2 2025 as a key leadership area with mature deployments and high customer adoption. | Q3 2025 call emphasizes advanced DLC-2 technology with improved efficiency (up to 40% savings in power/water) and aggressive shipment targets (doubling 100kW AI rack volumes). | Strengthening leadership – The focus has shifted from demonstrating market presence to aggressively advancing technology and efficiency; sentiment remains strongly positive about maintaining leadership through innovation. |
New Product Development | Discussed in Q4 2024 and quarterly in Q1 2025 and Q2 2025 with emphasis on platform transitions (Hopper to Blackwell) and early deployment delays. | Q3 2025 highlights Blackwell launches in volume production, while still acknowledging deployment delays and pricing competition due to platform transitions. | Transition challenges persist – Although delays and hurdles remain, there is cautious optimism that once volume production ramps up, the new product cycle will drive sequential growth. |
Revenue Growth, Order Flow & Backlogs | Across Q4 2024 and Q1–Q2 2025 robust revenue growth driven by AI platforms and high order backlogs amid strong customer demand have been emphasized. | In Q3 2025, revenue was down quarter-over-quarter due to delayed orders from the transition (Hopper to Blackwell), but strong order flow and growing backlogs are noted to set the stage for a catch-up in Q4. | Robust yet transitional – Despite a short-term dip reflecting delayed decisions, the persistent strong order flow and backlog indicate sustained long-term growth. |
Gross Margins & Profitability Pressure | Previously discussed in Q4 2024 and Q1–Q2 2025 with volatility from product mix, ramp-up costs, and higher R&D/expedite costs causing margin pressure. | Q3 2025 shows further margin compression (non-GAAP margin down to 9.7% from 11.9% in Q2) driven by higher inventory reserves and transitional pricing pressures as customers shift to newer platforms. | Margin volatility continues – Ongoing competitive and transitional pressures are impacting margins; however, management signals efforts to lessen these headwinds in upcoming quarters. |
Supply Chain, Manufacturing & Inventory | Q4 2024 and Q1–Q2 2025 discussed supply chain bottlenecks, GPU allocation issues, and inventory management challenges while highlighting efforts on global manufacturing expansion and improved efficiency. | Q3 2025 mentions ongoing GPU allocation constraints, increased inventory reserves (closing inventory up to $3.9B and 81 days on-hand), and steps to reduce reserve impacts in future quarters through global manufacturing flexibility. | Continuous optimization – Persistent supply chain challenges remain, but proactive inventory management and geographic expansion are aimed at mitigating these issues over time. |
Expansion into Data Center & AI Infrastructure | Consistently a focus from Q4 2024 through Q1–Q2 2025 with emphasis on integrated Data Center Building Block Solutions, leveraging liquid cooling and rapid deployment of AI superclusters. | Q3 2025 reaffirms expansion through innovative Data Center Building Block Solutions (DCBBS) and advanced liquid cooling systems, along with further global capacity expansion to support AI infrastructure growth. | Accelerated and integrative – The commitment to a one‐stop infrastructure solution has deepened, with an increasingly strategic focus on integration and rapid deployment, indicating a large impact on future growth. |
Financial Strength, Capital Access & Ops Eff. | Previous quarters (Q4 2024 , Q1–Q2 2025 ) stressed strong cash flow generation, aggressive capital raise through convertible notes, and healthy working capital, balanced against investments for expansion. | In Q3 2025, improved cash flow generation (Q3 operating cash at $627M vs. prior quarter usage) and strategic adjustments in convertible note terms reinforce a solid yet cautious financial profile, underpinned by global capacity investments. | Steadily robust – Despite market and operational challenges, financial strength and efficient capital access remain foundational, enabling strategic investments for continued growth. |
Strategic Partnerships (e.g., NVIDIA) | Consistently referenced from Q4 2024 and throughout Q1–Q2 2025 as a key enabler for product innovation and market credibility, with emphasis on long-term relationships and co-development of advanced systems. | Q3 2025 underlines NVIDIA’s pivotal role in the transition to Blackwell GPUs and notes ongoing GPU allocation challenges, yet reaffirms a strong collaborative history and its importance for future product ramps. | Enduring and critical – The relationship continues to be a strategic cornerstone, despite cyclical allocation issues, underscoring its long-term significance for technological advancements and market positioning. |
Corporate Governance & Regulatory Uncertainty | Addressed noticeably in Q1–Q2 2025 with emphasis on auditor changes, delayed filings, and internal governance enhancements, reflecting external regulatory challenges. | Not mentioned in Q3 2025; Q4 2024 had little to no reference. | Diminished focus – While governance and regulatory uncertainty were prominent concerns in earlier periods, recent calls (notably Q3 2025) have shifted focus toward operational and market dynamics, indicating possible resolution or stabilization of these issues. |
Competitive Market Pressure | Raised in Q4 2024 and in Q1–Q2 2025 in relation to pricing strategies, technology transitions, and margin erosion amid strong market competition. | Q3 2025 details continued competitive pressures linked to transitional challenges (Hopper to Blackwell) and tariff uncertainties, impacting pricing and customer decision timelines. | Consistently significant – Competitive pressure remains a constant challenge, with evolving dynamics due to technology transitions; however, the company appears confident in its differentiation strategies and competitive advantages. |
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Revenue Guidance
Q: Fiscal '26 revenue target reaffirmation?
A: Management remains confident in long‐term growth but is not providing formal guidance for fiscal year '26 at this time. -
Margin Outlook
Q: How are margins evolving amid pricing?
A: They noted margin pressures from tariffs and the shift from older Hopper products to Blackwell platforms, which is keeping expectations cautious. -
Inventory Reserve
Q: What’s the plan on inventory reserves?
A: A 200 basis point impact was recorded last quarter due to older inventory, with expectations to reduce this reserve significantly in June and near elimination by September. -
Customer Order Trends
Q: Are customers delaying orders amid macro uncertainty?
A: Despite tariff concerns, orders remain strong for the upcoming quarter, and customer timing is simply adjusting for the new product launches. -
Technology Transition Impact
Q: Why are customers switching from Hopper?
A: Customers are favoring Blackwell for its improved performance and availability, prompting a write‐down on Hopper inventory as they transition. -
Supply Allocation
Q: How are GPU supply allocations holding up?
A: While some allocation issues still persist compared to the earlier Hopper period, overall supply for Blackwell is steadier though not entirely unconstrained. -
Growth from New Platforms
Q: Can you expect sequential order gains?
A: Management anticipates a recovery in sequential growth, similar to the past Hopper ramp, as Blackwell volumes increase in June, September, and December. -
AI Diffusion Impact
Q: How is AI diffusion affecting order flow?
A: They see strong continued demand, with interest in their comprehensive solutions like DCBBS offsetting potential headwinds from AI diffusion uncertainties. -
Demand Differences by Product
Q: Any demand variance between product lines?
A: There is notably vigorous demand for liquid-cooled systems like GB200 NVL72, even though some delays in data center liquid cooling deployments persist. -
Liquid Cooling Capabilities
Q: How effective is your liquid cooling?
A: The company successfully shipped 4,000 racks with its first-generation liquid cooling and now expects even better performance with DLC-2 technology. -
U.S. Manufacturing Advantage
Q: How does U.S. manufacturing strengthen your position?
A: Their strong U.S. operations provide rapid response to technology shifts and a competitive edge amid tariff challenges. -
Capacity & Investment
Q: How are capacity and CapEx aligning?
A: Current capacity stands at 5,000 racks per month, with ongoing expansions in Taiwan, Malaysia, and the Netherlands to meet increasing demand. -
CFO Search
Q: What is the status on the CFO role?
A: They are actively seeking additional talent, including a new CFO, to support the company’s growth initiatives. -
Customer Concentration
Q: Why did top 2 customer revenue decline?
A: The lower percentage is attributed simply to shipment timing rather than a broad shift in customer concentration. -
Top 2 Customer Outlook
Q: What is the future for top customers?
A: Management expects improved cash flow and stronger business from top customers as new technology ramps up, with no cause for concern over the long term.