Q4 2024 Summary
Published Jan 10, 2025, 5:10 PM UTC- Strong Revenue Growth and Record Backorders: Super Micro Computer (SMCI) forecasts fiscal 2025 revenue between $26 billion to $30 billion, nearly doubling from fiscal 2024 revenue of $14.94 billion, driven by new design wins and increasing customer demand.
- Expansion into High-Growth AI Infrastructure Market with Advanced Solutions: SMCI is launching its Datacenter Building Block Solutions (DCBBS) to reduce data center build time and improve customers' time to online, and is expanding manufacturing capacity with a new Malaysia campus starting production in November. Their expertise in Direct Liquid Cooling (DLC) positions them well in the AI infrastructure market, with customers increasingly adopting their liquid cooling solutions.
- Expected Improvement in Margins and Operational Efficiency: While gross margins faced short-term pressure, SMCI anticipates margins to return to normal range before the end of fiscal year 2025 as DLC solutions mature and manufacturing efficiencies improve. They are leveraging their balance sheet and have secured a $500 million credit line to support growth.
- Gross margins declined by 430 basis points sequentially in Q4, from 15.6% in Q3 to 11.3%, due to customer mix and higher costs associated with ramping liquid cooling solutions; margins are only expected to return to target range by fiscal year-end, indicating ongoing profitability challenges.
- Supply chain bottlenecks and component shortages caused $800 million of revenue to be pushed into the next quarter, highlighting potential risks to revenue growth due to supply constraints.
- The company is aggressively promoting liquid cooling solutions without passing on costs to customers to gain market share, which may lead to continued margin pressure and impact profitability.
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Revenue Guidance and Assumptions
Q: What's driving the $26-30B revenue guidance?
A: The company is seeing continued design wins, especially with new products like DLC liquid cooling and Datacenter Building Block Solutions, leading to increased customer engagement. With growing capacity, they target $26-30 billion in revenue over the next 12 months. They believe these offerings will gradually improve profitability. -
Gross Margin Outlook
Q: How will gross margins improve this year?
A: The gross margin decline in June was unique due to deploying many liquid cooling solutions and paying expedite costs. Now, with mature liquid cooling technology and higher volumes, costs are down. They aim to promote liquid cooling as mainstream without significant price increases, focusing on market share growth. They expect to be above 12% gross margin in Q1 and are working hard to return to their target range quickly. -
Impact of NVIDIA Blackwell Delay
Q: How will NVIDIA's Blackwell delay affect revenue?
A: They've conservatively accounted for potential delays in NVIDIA's Blackwell GPUs. No significant Blackwell volume is expected in Q3, and only small volumes in Q4. Real volume is anticipated in the March quarter next year. This is why they set guidance at $26-30 billion, believing the overall impact will not be significant due to strong demand for their H100 and H200 liquid cooling solutions. -
Liquid Cooling Market Share
Q: What's your liquid cooling competitive position?
A: In June and July, they shipped over 1,000 racks, accounting for more than 15% of global data center deployments. They believe they held at least 70-80% market share in liquid cooling during this period. Their solutions help customers save energy costs and reduce carbon footprint, requiring 30-40% less power and accelerating data center availability. -
Capacity Expansion for Liquid Cooling
Q: How is rack capacity expanding for liquid cooling?
A: Last month, their liquid cooling capacity was about 1,000 racks per month. They've increased it by 50% to 1,500 racks per month today and plan to expand to 3,000 racks per month by year-end. They see strong customer interest and believe liquid cooling is a superior market choice. -
Funding and Working Capital Needs
Q: Will you need additional funding for growth?
A: They've secured a $500 million credit line led by Bank of America and are leveraging their balance sheet. They expect to announce additional loan opportunities in the future to support working capital needs, especially with liquid cooling deployments and preparations for Blackwell. -
Shift to Hyperscale Customers
Q: Are you entering the hyperscale market?
A: Yes, with increased capacity in Taiwan and upcoming capacity in Malaysia, they're ready for large-scale data center customers but will be selective. They aim to grow both enterprise and large-scale segments to maintain healthy profitability, reflected in their $26-30 billion revenue forecast. -
Pricing Strategy for Liquid Cooling
Q: Why not pass liquid cooling costs to customers?
A: They view liquid cooling as delivering significant value through energy savings. While necessary for high-power solutions like Blackwell, they're enabling it for H100, H200, and CPUs. They aim to promote it as mainstream without significant cost increases to customers, focusing on market share growth. -
Cash Flow and Capex
Q: Will you burn more cash to hit targets?
A: Not necessarily. If they aggressively exceed the $26-30 billion guidance, they might need more cash. However, they believe they can focus on growth without burning another $2.5-2.6 billion in free cash flow. They're leveraging their balance sheet more with unsecured debt to assist on an inter-quarter basis. -
DLC Failure Rates vs. Air Cooled
Q: How do DLC failure rates compare to air cooled?
A: They emphasize that their optimized liquid cooling allows components to run at lower temperatures, enhancing data center performance and uptime. While not directly comparing failure rates, they highlight the benefits of lower operating temperatures with DLC.